Lee Iacocca: the most famous CEO of Chrysler

By Jennifer Harrington

The son of
Italian immigrants, Lido (Lee) Anthony Iacocca was born on
October 15, 1924, in Allentown, Pennsylvania.

Growing up, Iacoccas father gave him many words of wisdom,

including always writing down the amounts of loans and never
getting involved in a capital-intensive business. He earned an
industrial engineering degree from Lehigh University in
Bethlehem, Pennsylvania, and a Masters in engineering from
Princeton. In 1946, he began working in the automotive business
at Ford as an engineering trainee and later became Fords
president. He had two daughters with his wife, Mary: Kathryn
and Lia.
Entering Chrysler

After being fired from Ford in 1979, Iacocca received a phone

call from John Riccardo, then-chairman of the board, who said
he and Dick Dilworth wanted to meet with Iacocca to discuss
coming to Chrysler. During the meeting, the three agreed that
Iacocca would join Chrysler as president and move up to CEO
and chairman on New Years Day the next year. However,
Riccardo resigned from his position early, and Iacocca became
the boss in September. He joined Chrysler not knowing much
about the companys origins and history.
Shortly after Iacocca joined the company, Chrysler Corporation
announced its worst deficit in the companys history a $160million loss in the third quarter. Iacocca was about to discover
the deep aspects of Chryslers condition, and within a few

months, the Iranian and energy crises and the biggest recession
in 50 years hit.
He discovered Chrysler had security leaks and bad overall
morale. It lost 7% in owner loyalty in a two-year period; it was
at 36% when Iacocca joined. Other automotive companies were
doing fairly well at the time. Chryslers products were seen as
boring, and there were quality issues terribly harming the
companys reputation, especially with the Volare and Aspen.

During his first week, he started taking

cars out of production. He attended an informal meeting in
which 10,000 cars were taken out; during a formal meeting,
50,000 cars were taken out. There were no dealer orders nor
room in Chryslers inventory, and when inventory was full,
Chrysler held fire sales at the end of each month. These sales
banks gave some dealerships incredible package deals, but made
it impossible for Chrysler to get full price for its cars, many of
which were damaged by the open-air storage.

Iacocca decided that the program needed to be permanently

eliminated so the company could become profitable. He made it
a point that cars would no longer be built without dealer orders,
and that the dealerships not Chrysler would hold inventory.
Meanwhile, Iacocca also learned Chrysler was a huge leasing
company, and that instead of selling cars to rental car
companies, Chrysler was buying them back after six months;
Iacocca wrote off $88 million in used-car losses during his first
year.
Iacocca also replaced people who he thought were clueless
about their jobs, with experienced fast movers. His highest
priority was creating a system of financial controls; he hired
Gerald Greenwald, who looked into Chryslers $350 million in
warranty costs per year. He also hired Hans Matthias out of his
retirement to be a quality control consultant, and, though
Chrysler nominally couldnt afford to do it, they hired 250
quality control personnel at the request of Matthias and George
Butts.
Iacocca also hired a new marketing team, Kenyon & Eckhardt.
One of the first things the firm did was to bring back the ram
logo and the Dodge trucks are ram tough campaign; Dodges
trucks were soon seen in the same light as Chevrolets and
Fords. They also created the money-back guarantee campaign,
in which customers could return a car within 30 days if they
didn't like it, for the full cost minus a $100 depreciation charge;

it included no-cost maintenance for two years and two years of

emergency towing.

Costs had to be cut from somewhere to keep Chrysler alive;

Iacocca closed the trim plant in Lyons, Michigan, and the
ancient Dodge Main (Hamtramck) plant in Detroit. He also
created a just in time inventory system with Chryslers
suppliers so parts would keep coming in, even if the company
couldnt afford them. Delivery of parts and supplies was sped up
by switching from trains to trucks.
To raise capital, the company sold about $90 million worth of
real estate, half of which was bought back later at twice the
price. And even though it had a guaranteed income of $50
million a year, Iacocca sold much of its highly
respected Chrysler Defense division to General Dynamics for
$348 million. Chrysler Marine was also sold in 1980.

There were also mass layoffs: in

Iacoccas first two years, thousands of blue and white-collar
workers were laid off. In April 1980, he saved Chrysler $200
million a year by getting rid of 7,000 white-collar workers. And
a few months later, 8,500 salaried employees were gone.
Through these layoffs, he cut yearly expenses by $500 million.
Finally, he sold Chrysler Europe, bundling together the moneylosing Rootes Group in England with the highly profitable
Simca in France; Peugeot bought both, and then supplied
Chrysler with Chrysler-designed engines for the Omni and
Horizon.
In 1978, Iacocca teamed up with Alejandro de Tomaso, thenCEO of Maserati. Together, Maserati was to contribute its tuning
and design knowledge, and Chrysler was supposed to provide its
sales and engineering skills. Together, the companies created
the Chrysler TC by Maserati, which was supposed to be

introduced two years before it was; it instead was introduced

after the Chrysler LeBaron.
The loan guarantees

Soon, though, Iacocca had

exhausted all of his options and reluctantly decided to ask the
federal government for loan guarantees. After many arguments,
the House voted 271 to 136 to help Chrysler, and the Senate
voted 53 to 44; the bill passed just prior to Christmas. A loan
guarantee board was to provide Chrysler with up to $1.5 billion
in loan guarantees over the next year, and all of Chryslers assets
were held as collateral by the government about $6 billion
worth. The first installment of the loan guarantees was
distributed on June 24, 1980. Iacocca also had to get an
additional $2 billion in unguaranteed loans, and states that had
Chrysler plants provided direct loans to avoid increases in
unemployment. The PSA even lent $100 million to Chrysler.

Iacocca knew he also needed to make a statement with his

employees. He reduced his own salary to $1 a year, calling it
equality of sacrifice. Other executive salaries were cut up to
10%, and lower-level salaries were cut, too, with the exception
of those of secretaries. He eliminated the stock incentive plan,
and closed more plants.
When the loan guarantees were approved in 1979, Chrysler was
in debt to banks to the tune of about $4.75 billion, and the banks
wanted the corporation to declare bankruptcy. Chrysler had
lenders of all types; there were loans to Chrysler, Chrysler
Canada, and Chrysler Financial. There were different interest
rates on loans that were far overdue and on loans that wouldnt
be due until 1995. Steve Miller, who Iacocca hired in 1979,
developed a compromise plan with the banks, which included
$660 million in interest deferrals and reductions, $4 billion in
loans at a 5.5% interest rate, and a four-year extension.
Surprisingly, all the banks accepted the plan.
The K car, and more obstacles
Planning director Burton Bouwkamp wrote: Iacocca was a capable dictator who
provided good direction to his subordinates but was only interested in their opinions
when he asked for them. ... He was a capable automotive executive and a great
leader - but impatient! After he saw the "woody" convertible he wanted it now!. ... Lee
had the instinct to know that it was the right thing to do. Lee is responsible for the first
K car convertible even though his Sales and Product Planning management did not

want it.

Chris Theodore said: ... You know the story about how Iacocca hired Eaton to spite
Lutz. Lutz worked hard to show that the two Bobs were a team, but Eaton was
insecure and ultimately pushed Lutz aside, and made him vice-chairman. Thats
when the wheels first started to come off the wagon at Chrysler...

AMC turned out to be a great culture ... a prototype for platform teams because it
was all about pulling together to survive. ... People had a lot of responsibility and they
had to deliver. Teamwork was imperative. You couldnt be fighting with each other.
Chrysler, when we got the platform teams rolling with everyone working together
under Lutz and Castaing, was like Camelot.

Bill Wetherholt wrote: Lee Iacocca said that the workers have a lot to offer, so you
should listen to the workers. We started forming these group meetings, product
quality meetings, and you would mark down things that would make your job better,
and they came in with ergonomics, and things like that. Iacocca ... wanted to change
the way we operated. It was a smoother operation then.

The K car was already in development when Iacocca became a

part of Chrysler. The fuel-efficient, front-wheel-drive car was
purposely designed to be under 176 inches in length so that
more could fit on rail cars another way to cut costs.
The Reliant and Aries were rated at 25 mpg in the city and 41
mpg on the highway, and were light enough to maintain its
superior fuel economy while carrying a family of six; yet, their

internal dimensions were almost as great as the Volare and

Aspen they replaced. Buyers could easily fit into parking spaces
designed for much longer cars; the length was a mere 179
inches, versus Chryslers prior smallest car at 206 inches.
Despite the high mileage, their light weight resulted in
acceleration similar to the slant six Volare/Aspen, too with 060 times ranging from 10.6 to 14 seconds recorded by enthusiast
magazines (driving automatics), and a lone outlier of 16 seconds
recorded by Consumer Reports. The standard Toyota Corolla, in
contrast, was tested at 14-16 seconds by the enthusiasts, with the
hot SR5 (automatic) at 12 seconds.
(inches; 4-doors)

1972 Valiant

1977 Volare

1986 Reliant

Front shoulder room

55.2

56.3

Rear shoulder room

55.2

56.7

Front Legroom

41.5

42.5

42.2

Rear Legroom

34.7

36.6

35.4

14

16

15

199.6

206

178.6

Trunk (cubic feet)

Length

In 1981, Motor Trend awarded the Aries and the Reliant its Car
of the Year Award; the cars were created expressly for
American conditions, while imports tended to have far less
torque and a less compliant ride, and were considered both
better to drive and more reliable than GMs and Fords
equivalent cars. In 1981, they sold over 300,000 K-cars a

number they kept up through 1988, the year before the K cars
were replaced; had they remained in production, they might well
have remained at that level. Things were starting to look up for
Chrysler.
Chrysler still had to draw another $400 million in loan
guarantees in 1981, and each time Chrysler went back to the
government for help, sales dropped. In desperation, Iacocca
attempted a merger between Chrysler and Ford in 1981. Ford
would have been the surviving company and Chrysler,
Plymouth, and Dodge would have become divisions under Ford.
The top bankers in New York liked the plan, but Ford quickly
declined.
Later in the year, on November 1, Iacocca found that Chrysler
only had $1 million in its bank account. Some suppliers stopped
shipping items, and Iacocca shut down the Jefferson Avenue
plant for a couple days. But payroll was never missed, and
suppliers, although sometimes paid slowly, always saw their
money.
Soon, Iacocca signed print advertisements that Kenyon &
Eckhardt were putting out, and began appearing in television
commercials, including the famed if you find a better car buy
it campaign. The turnaround started to become obvious, and as
the front man, Iacocca was subject to a draft Iacocca for

President campaign, which he put to rest by signing a threeyear contract with Chrysler in 1983.
Lee Iacocca leads Chryslers recovery

The break-even point was reduced from 2.3 million units in

1979, to 1.1 million units in 1982. Chrysler earned the best
profit in its history, $925 million, in 1983. Plants had been
modernized with the latest technology, and employment was
maintained for half a million workers.

Iacocca brought
back the convertible in 1982 with the Chrysler LeBaron. He
skipped market research, and in its first year, 23,000 were sold
much more than the 3,000 Chrysler thought they would sell [full
story], and Chevrolet and Ford trailed with convertibles of their
own. And two years later, the T115 minivan was brought into
the spotlight. Chrysler was leading the crowd.
The minivans design process had started in the early 1970s,
when front-wheel-drive technology was virtually non-existent.
With the arrival of the Horizon from Chrysler Europe, and then

the larger, more suitable K-cars, Chrysler could go to frontwheel drive, dramatically increasing interior space with the
same small outer dimensions. Iacocca was immediately
enthused, and gave the go ahead, even though Chrysler didnt
have the money to produce the new vehicle. The whole project
cost an estimated $700 million, and Iacocca received $500
million to get the project going. The minivan was highly
successful, with 209,895 sold in 1984 not a large number
compared with the K-cars, but they were sold at a higher
margin.
On July 13, 1983, exactly five years after he was fired from
Ford, Iacocca announced the payback of the loans at the
National Press Club. He presented a huge check to bankers in
New York, written for $813,487,500.

Less than four years later, on April 23, 1987, Chrysler

Corporation purchased Nuova Automobili F. Lamborghini for an
estimated $25 million. The idea was to use the exotic-car maker
to add credibility in the sport and luxury end, since Chrysler was
seen as being weak in both. Chrysler was reported to take up
40% of the Italian automakers production, and set up an import
center in Florida to complete the final certification process of
cars going to U.S. buyers. Chryslers lack of expertise with the
cars and Lamborghinis own quality issues (especially with the
1990 launch of the Diablo in 1990) hurt the effort, and in 1994,
Chrysler sold Lamborghini to Indonesian investors; over the
course of seven years, owning Lamborghini was estimated to
have cost Chrysler $60 million.

Linking up with Maserati also failed to provide desired results

having some luxury/sport rub off on Chrysler from
ownership. One more solid plan, launching a hot new sportsluxury car (the Chrysler TC by Maserati) and then adopting its
look for a more mainstream car (Chrysler LeBaron coupe and
convertible), failed when the TC came out late, and seemed to be
aping the look of the LeBaron instead of the other way around.
The company also had a poorly thought out purchase of
Gulfstream (maker of private jets) and a better-fated buyout of
two rental car agencies.

A far better deal was

the linkup with American Motors Corporation, which was then
owned by Renault; in 1987, Chrysler acquired AMC and Jeep.
The AMC cars were quickly shut down, except where contracts
with Renault demanded their continued production; a new Eagle
division was created, handling those cars and Japanese imports;
but Jeep was rationalized, with quality targeted. At least
one AMC veteran claimed that AMC took over Chrysler as
much as Chrysler took over AMC, as the AMC engineering team
was given power at the larger company. AMC had been working
with far fewer resources, and their platform-team approach was
transplanted to Chrysler Corporation, directly resulting in the
hugely successful LH cars, Viper, 1994 Ram series, Neon, and
cloud cars.
Another happy marriage was arranged between Shelby
Automobiles and Chrysler; Lee had worked with Carroll Shelby
while at Ford, and Shelby had his people rework various Dodge
cars and re-issue them as Shelby cars or Shelby editions. While
the changes were nothing that could not have been done within

Highland Park or Auburn Hills, the Shelby name lent an aura

that Chrysler could likely not have achieved on its own and
certainly gained attention from auto writers. The Shelby
editions, particularly the Omni GLHS, gained Chrysler some
street credibility.

Meanwhile, the core K-cars

continued to be refined and reshaped. First they had extendedwheelbase versions; the minivan was based on the same chassis
and architecture, as would be luxury cars, sports cars, family
cars, a whole range of vehicles, stopping just short of trucks and
Jeeps (though the latter was tried and nearly succeeded). This
strategy may have worked, had Chrysler put more time and
money into upgrading its engines and suspensions.

Under Iacocca, Chrysler combined compulsive cost-cutting with

far-sighted investments. The cost savings from using a standard
engine package, without recalibration for particular cars,
resulted in less than optimal results from the 2.2 and 2.5 liter
four-cylinders, but he supported the new, world-class research
and development center, the Chrysler Technical Center, even
when the company dropped into losses in 1991 [inside story].
The company slowly adopted fuel injection, and even more
slowly went to multiple-port injection though other American
automakers were also reluctant to spend money on the pricey
injectors.
Even as the company continued to work on reformulations of its
original Aries and Reliant architecture, without sufficient
investment in refining its suspension and chassis components,
Iacocca allowed the revolutionary LH platform to move
forward. Iacoccas leadership was not without paradoxes, the
leading one being that after rescuing Chrysler, he nearly allowed
it to fall into bankruptcy again. Chryslers stock was trading at
under $4 per share when the New York Times devoted two full
pages to the upcoming LH cars and within a week, it was at
$12. From there until the end of the Chrysler Corporation,
profits and sales soared along with critical acclaim.
Lee Iacocca retired from Chrysler in 1992, at the age of 68, just
before the companys dramatic turnaround.

Post retirement and Daimler-Benz

While most people believed

Robert Lutz was the best CEO candidate, Iacocca
appointed Robert Eaton. After Eaton took over, the top 12
design engineers reportedly quit their jobs in opposition. Eaton
later mandated price cuts, brow-beated suppliers, voided
contracts, and shared confidential information between suppliers
to get better deals. Most damaging, Eaton brought about the
Daimler-Benz takeover in 1998 a $38 billion deal after
Iacocca and a greenmailer tried to retake Chrysler.
Eaton panicked, said Iacocca. We were making $1 billion a
quarter and had $12 billion in cash, and while he said it was a
merger of equals, he sold Chrysler to Daimler-Benz, when we
should have bought them. The merger was disastrous for
Chrysler, resulting in repeated rounds of cost-cutting, large
declines in sales and profitability, sales of the valuable
Huntsville division, and the loss of Beijing Jeep and the Graz
plant; in 2007, after being sold to Cerberus, Chrysler was bailed

out by President George W. Bush before going into bankruptcy

and being rescued by the United States and Canada.
Iacocca was inducted into the Walter P. Chrysler Legacy
Circle in 2010. He also won the American Patriot Award in the
same year. He considers the minivan to be his careers greatest
accomplishment.