After staving off bankruptcy for two years, Lee Iacocca predicts a profit for Chrysler in May
Going down the long lonesome road
Q&A: LEE IACOCCA
After staving off bankruptcy for two years, Lee Iacocca predicts a profit for Chrysler in May
When Lee Iacocca took over the ailing Chrysler Corp. in late 1978 after being fired as president of Ford Motor Co., Wall Street analysts and assembly-line workers agreed that if anybody could save the company, it was the charismatic Iacocca. The Princeton engineering graduate had driven to the top in the successful and innovative Mustang he developed for Ford. But his new job at $1 a year has been the greatest challenge of his career. In the first three months of 1981, Chrysler lost $298 million, but exceeded its targets in sales and market share. Now, in the middle of the crucial second quarter, sales gains must be translated into profits. In his office in Highland Park, Mich., the 56-year-old chairman of Chrysler Corp. spoke to Judy Gerstel.
Maclean’s: You have the reputation of being euphoric in success and a whip-cracking terror when things go awry...
Iacocca: Right now I’m euphoric ...
Maclean’s: Chrysler lost $3 billion in the past 27 months and $298 million already in the first quarter of this year and you're euphoric?
Iacocca: We said the first quarter would be awful. The combination of a cutback schedule in January and the rebates— that’s money right off the top. We’d gone through these two tough years and we knew we’d lose money.
Maclean’s: But you lost $30 million more than you planned during this last quarter. How can you keep losing money like that and stay in business?
Iacocca: If you look at the three months of the first quarter, each month was an improvement over the last. March and April were as close to break-even as we’ve been. And I fully expect to be making money this month. We’re poised really, with costs down, volume up, our K-car taking off, quality better, summer coming, gas prices going up, that makes you euphoric.
_ _ We've never been able to convince the public that we never got a dime out of them '
Maclean’s: Your prices went up too this month. Can you keep your share of the market at the raised prices you need to make a profit?
Iacocca: First of all, we showed in April that we could improve share and (market) penetration without rebates, without buying the sales. Now we’re in a market where everybody else raised prices too, but we still have lower prices than GM or Ford. Obviously we wouldn’t have priced this way if we didn’t think we could continue the momentum. Maclean’s: How much will you be helped by the voluntary import restrictions announced by the Japanese?
Iacocca: Import restraints affect a very small part of the problem. Much more important are a lower prime rate and a better economy. But the restraints have great importance symbolically. Because it shows that the Reagan administration has taken a stand, that Americans aren’t going to be pushed around anymore. As for sales, well, we’re 10 per cent of the market so we’ll pick up about 20,000 units. That’s not going to make us rich. We do that much before breakfast on Sunday.
Maclean’s: But won't fewer Japanese cars for sale contribute to the mystique of Japanese superiority?
Iacocca: Sure. It’s happening already. They’re trying to hype the market by saying, “Get your red-hot perfect little Japanese car right now while you still can.” But a hundred thousand, more or less, Japanese cars is not going to change the market. Nobody’s going to
pay a premium for a Toyota. Maclean’s: Don't you have a Japanese car prominently displayed in one of your K-car plants as an example of what your workers should be striving for?
Iacocca: We always have Mitsubishis over there because that’s who we deal with. But let’s put it this way. Our mechanicals and our electronics are better than the Japanese today, pound for pound, recall for recall. But you keep a Japanese car around to see what real finesse and fit and finish is. We more than anybody—our mechanic or our salesman says, “We’ve got a Mitsubishi Colt next to the Chrysler Omni and the Colt interior looks better.” Well, the test is there every day. We still have a ways to go, but we’re improving, and once we have that we’ve got ’em. We don’t have them in cost but we get back to having Americans and Canadians be-& lieve that North Americans are nots stupid.
Maclean’s: You've just taken the first step toward merger with Mitsubishi, but you've also talked to Peugeot and Volkswagen. Are you still looking for merger with one or both of these companies ? Iacocca: What we’ve negotiated with Mitsubishi is more of a partnership than a classic merger. We’ll still have different managements and you won’t see a sign that says Chrysler-Mitsubishi World Headquarters. But it’s definitely a significant and substantial relationship...
Maclean’s: Are you looking for other “significant and substantial relationships like that one?"
Iacocca: What we’re looking for now are joint ventures. And everybody’s looking for those—GM and Ford, too—to reduce per-unit costs. It’s saying, “Let’s build a plant together to cut the cost of an expensive part.”
Maclean’s: Where do you see Canada fitting into this international scheme? lacocca: I think that someday Canada and the U.S. and Mexico will attempt more of a common alliance, like the European Common Market. We’re partway there with auto pact. We both complain about it, but the alternative would be an inefficient lousy mess. I was in charge of Canada the day auto pact started, and the Oakville plant was a rat’s nest. They built lousy cars and too many of them. So they socked the Canadian customer. The politicians can argue about auto pact but the Canadian consumer benefits by getting closer to a fair break on equal cost and price. Really, the single biggest complaint of the whole auto pact is that suppliers don’t want to build those pieces up there. Well, we can’t go to them and say build in Canada or else. They say they’re going to build where it’s most economic for them to survive and it ain’t Canada at the moment.
Maclean’s: When you were negotiating the loan guarantees with the Canadian government, you told Canadians that you don't guarantee jobs to a,nyone. But isn't that all you have to offer in return for the loan guarantees?
lacocca: I really think we gave Canada a helluva good deal. I understand the Canadian attitude, by the way. They say: “You know, we’re not the hand-me-down kid that after you’re done wearing a suit you hand it down to us. We want a frontwheel-drive car too.” So we gave them that. But we’ve also got this unique vehicle that’s part car, part truck. It’s the vehicle of the future and Canada’s going to get it 100 per cent. So I don’t think we’re giving Canada lousy technology. Maclean’s: You've said that publicity about the government loan guarantees contributed to uncertainty about Chrysler's future and that you’d sell your children before going back for more. How bad was that experience? lacocca: Bad for business. For every $2 we borrow we lose $1 on sales declines and consultants’ and lawyers’ fees. It’s self-defeating. I proved to myself and for the historians that that ain’t no way to behave. There is no system in the U.S. to take care of ailing business or industry short of a world war. I would never go back to government. The sales drops while*we’re on the front page, the misunderstanding, the letters saying why are you taking our money. We’ve never been able to convince the public that we never got a dime out of their pockets. We went and borrowed from widows and orphans, but they had the guarantee of the government or we wouldn’t have borrowed it. They guarantee it and we pay it back. At prime interest plus. All that gets lost in the wash.
Maclean’s: People said you were the only man who could save Chrysler. Did you believe that?
lacocca: I just happened to be “the” man. I wish destiny hadn’t cast me in that lot. I was Johnny-on-the-spot. I was asked when I first came here and things went to hell, “If you had known how bad it was, would you have taken the job?” And I said, “Are you out of your goddam head?” Nobody would do that.
Maclean’s: Wasn’t the challenge part of what kept you going? lacocca: Well I like challenges, but this was a superhuman challenge. I wouldn’t want to keep doing this. If the next two years were going to be like the past two, I’d pack my bags and leave town. Maclean’s: How did you cope with that kind of stress?
lacocca: I’m a little bit of a fatalist, that what is to be is to be. You do your best. I knew the business. I felt if I could get some good people and buy some time, we’d make it. I never had sleepless nights or wringing of hands or cold sweats. All our guys play well under fire. We never blink. We’re getting that calloused. We have gone through meeting payrolls sometimes 24 hours in advance, but you never blink. Every 30 days you’re paying out a billion dollars in cheques and taking in $910 million in revenue. You were a little short. So you’d say, “Don’t pay that bill this afternoon, pay it in the morning.” Maclean’s: What has all this meant to you personally?
lacocca: We didn’t go in trying to become martyrs, but now that we’re in this deep there’s a helluva lesson to be learned, and I think if you take the long view of life, I’d feel proud to be part of that. I really think there’s substance there. A lot of people made sacrifices, much beyond me. Just go talk to your United Automobile Workers local in Windsor about sacrifices. But it was survival time. So little by little, everybody’s saying, well, I guess we better band together and co-operate and act a little more like Japan if you will, and that’s what it’s been about. You see, we really believe that we were the leading edge of everything wrong in the United States. And if they could correct some of the things impacting Chrysler and learn from it, then it was one hell of an investment. Maclean’s: You’re trying to prove not only that Chrysler can sell cars, but that America works?
lacocca: I want to prove that in ;the end pragmatism wins. iWe’re doing something that’s igood enough to have the ideologues go back and say: “My God, we said he was violating free enterprise. He was protecting it.” Maclean’s: Has it all been worth it for the man who put the Mustang on the road?
lacocca: The Mustang was euphoria time too. But it was a different world then. This is a tougher one, but maybe just as satisfying as all that success. They were paying you a million bucks a year then, but they were paying you during this travail a dollar a year, so it can’t be money, can it? It’s gotta be something more than that. To take this company which has a proud heritage— Walter P. Chrysler was one of the great ones—and which, for whatever the reasons and there are many of them, it was just beginning to disintegrate. And before it collapsed, a bunch of people, not just me, came in and said let’s see if we can keep it together. Now, no matter what the details are, that’s satisfaction in my book.
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