Lee Iacocca's Transformation of Chrysler: 1979-1984
This is a transcription of speeches by Chairman Lee Iacocca to Chrysler's top management team from the time he became CEO and Chairman in 1979 until the dramatic transformation was completed in 1984. The previously confidential videotapes were compiled and edited by Professor Kim S. Cameron at the University of Michigan and are used to exemplify the leadership of change. These speeches were intended by Mr. Iacocca only for an internal and confidential audience, not for the press, stockholders, or the general public. Duplication without permission of the University of Michigan Business School is strictly forbidden.
The transcript begins with the new president of Ford, Paul Bergmoser, explaining the state of the company and of the economy in 1979. He then introduced Mr. Iacocca to the top management team for the first time. The entire transcript from that point on is from Mr. Iacocca.
1979
Paul Bergmoser, President:
I don't have to tell you that we are meeting at a very critical time in the Corporation's history. You don't need a recitation of the problems that are facing us. At the same time that the volumes and penetrations are down, we are up against the most costly product program in Chrysler history. There is no margin for error as we plan for next year 1980. Our first slide today gives you a perspective of the current situation. It shows how we are doing thus far in 1979. In our presentation to the government, we predicted we would lose a billion seventy-one million. That is about where we will come out if we move the sales bank, move the imports, get our manufacturing efficiencies, and meet all the commitments between now and December 31. In some areas we are coming in on target, others we are off. For example, our market share was less than we expected largely because the market went haywire. Consumers begin to lose confidence when our problems hit the headlines. We are looking at a sluggish economy, double-digit inflation, high interest rates that put a lot of pressure on both dealers and retail customers. Much has been written and much has been unspoken about the Chrysler crisis and its causes. A considerable amount of the rhetoric has dealt with past management as being one of the primary causes of that situation. Let me tell you how I stand on the matter at the moment.
All of you fellows have survived personnel reductions and corporate reorganizations. You are, in the eyes of the outsider, now the new management. That goes for me, I am new, but every one of you is just as new in terms of the New Chrysler Corporation. We will be judged by what we do in 1980 and '81. We have stated to the government and to the world at large that those will be the years when Chrysler will recover from its current record loss position. We will not live to see 1981 if we don't do the job in 1980. So, in my view, it no longer serves any purpose to look back and reference your problems to the past management. Let Mr. Iacocca and let me handle the past. You will be a success or you will be a failure on the basis of what you do in 1980.
It is going to be a real tough year, a very tough year, perhaps, the toughest in the history of your corporate life! If you don't feel like being on my team in this fight, you had better come and see me very soon now, because I am counting on each and every one of you to do the job better than it has ever been done before. If the objectives are too tough, too hard, and too disciplined, come and see me now, because I need the help of every one of you. I am confident that we can carry it through. Now, fellows, in time, I think people are going to look back on this management team with respect and admiration for the job they have done. This is the New Chrysler Corporation. And I want to introduce the man who is providing the leadership and direction for all of us to carry out our day-to-day tasks, Chairman Lee Iacocca. Lee!
Lee Iacocca, CEO and Chairman:
As I said in my opening statement to Congress, this has not been a vintage year for me, for Chrysler, for the auto industry, or for the whole damn country. And, I guess that some of you must feel the same way. As Paul said, we lost a lot of money. Over a billion dollars is a lot of money. Our market penetration at the moment is down to what you might call deplorable levels. Some of our customers, or maybe I should say, some of our former customers, aren't really that confident that we are going to make it. Still, there are some good things to say about 1979. I believe it has been a year in which we did more than just survive. We reduced our fixed cost. We did proceed to put in place a product plan that will help us return to profitability. We took steps to improve our profit margins. In short, we invested a lot of time and money in our future.
First, I would like to give you an assessment of what is happening with our request for the loan guarantees* in Washington, and then second I want to expand on the concept of the "New Chrysler Corporation" mentioned by Paul in his presentation. There has been a lot of talk about our chances for getting legislation out of the Congress in time to help the Chrysler Corporation. Well, I want to tell you first hand that things, as of this afternoon at least, do look good. The energy picture is muddled and threatening as ever.
I just saw in the paper this afternoon that Saudi Arabia is going to go for six dollars a barrel increase. That means the rest will go for seven or eight, and that's got to be bad news.
The continuing crisis in Iran; production cut backs by other OPEC nations, Libya, Iraq and these way-out guys; and the lack of a sound, reasonable national energy policy right here; all of those put together are really what you would call bad news, not good news. But, what we have to do is survive, and more than survive, become profitable as soon as we can. And as Paul said, it won't be real easy. In fact, the first six months of 1980 will be pure hell, in my opinion, and I might as well tell it to you that way. There will be demanding challenges facing all of you, and me, in the months ahead. So this brings me to my second point today that I want to cover briefly.
When I say there are challenges facing us, I want you to know that the "us" is you and me. And, it is the new Chrysler Corporation. From the day that President Carter signs into law the Chrysler Loan Guarantee Program, a new era begins at Chrysler. And don't make any mistake about it, there will be a great deal to accomplish from that day forward. Much will be asked of you, and much will be expected of you. To begin with, we will have to re-launch Chrysler. We have to rebuild confidence, first amongst ourselves, then the rest of the Chrysler family, and most important with our customers. And this will not be easy. But, the early signals clearly show that it can be done. In spite of a dismal market this year, we have achieved some significant and positive results. We did take a hundred and thirty thousand orders for vehicles in November. We did move twenty thousand out of our sales bank.** And, I have to mention sales bank one more time, because it may be the last time you will hear me say it. That thing is in its death throes. I got to thinking on the way over here that we have to plan to move those last ten thousand at distressed prices, and forget that we ever built them. And, I thought, I want him to keep one. And I want to do what they do when you finally pay off the mortgage, you burn it in the front lawn. I want to burn that last damn one in the front lawn of headquarters, so, the whole world knows it is over!
For the next ninety days each of you in this room has to play salesman. And, to do that, all you have to do is get in one of our cars, and expose it, and demonstrate it to somebody. Those are our four new cars, and that market still is pretty good, even though it is down a little. And, those four cars-if you have driven them lately-are not just commercial, they are fine cars that everybody in this room should be proud of. They are good looking cars. They've got good features, and they don't rattle and leak as much as their predecessors the year before. At the new Chrysler Corporation we will build them better, and we will back them better. If we don't, nothing else is going to matter anyway, and we will have no one to blame but ourselves. What will be required to do these kind of things, to keep them as promises and not let them become just sales gimmicks, is hard work and dedication and, most of all, the realization that the new Chrysler Corporation is a team. A team that openly discusses its problems and freely exchanges ideas on how to improve our efforts and willingly accepts responsibility for performance. What will be required to rebuild confidence in this company is an active participation in its survival effort. Over the next months the new Chrysler Corporation will be engaged in efforts to raise a lot of capital. But, with the products we have, with the improvements we have made, with the plans for the future, being as exciting as I believe they are-that money is going to be available to us. Count on it. In fact, what is happening with this corporation right now is unprecedented in the history of our industry and maybe the whole country.
Just think of it. The UAW is willing now to reopen its contract settlement in order to participate in the effort of the new Chrysler Corporation and to make it profitable. Mayor Coleman Young has indicated that Detroit is willing to offer a hundred and fifty million dollars in Chrysler support. We expect a minimum of three hundred million dollars from Canada. I say three hundred million, but it could be as much as a $1.2 billion for Canadian operations so that we can go first class in a couple of programs we have planned. Other states with Chrysler plants and operations have expressed a willingness to help and their commitment comes up to about a hundred million dollars. We are confident that the Japanese banks will restore our letter of credit agreement under which we can continue to import vehicles from Mitsubishi. We are also offering right now, or will be very shortly I should say, a preferred stock offering to Chrysler suppliers and dealers. If we are as good as we think we are, we will sell four hundred million dollars of equity stock to our family, suppliers and dealers. If we are not good salesman, we sell two hundred. So the number is two hundred to four hundred million dollars. By mid-January we will discuss the role of the suppliers and the dealers in this offer. Our dealers' lobbying efforts in Washington in our behalf were nothing short of sensational, and I think that they will be a big part of turning this Congress around.
Before you go home for the holidays. I would like to ask you to do this. In just a few short minutes, I want you to ask yourselves, honestly, what have you done to help this company, your company, during the last twelve months. Put it down. Don't fight with it. Just put it down. Then throw it away. If you want to read it to your wife or your kids, fine but then throw it away. Then, after you have done that the more important part is get another piece of paper, a clean sheet of paper. Put down the things that you plan to do for your company, and for yourself, in the next twelve months, the year 1980. We will get the vote of confidence we need from the government. That is, I think, assured. It will then be up to all of us in the new Chrysler family to share that confidence, first amongst ourselves right in this room, then to spread it through all the family members, and eventually to the biggest family of them all, our customers out there. What I am saying to you is that we have all of the essentials in place. The basics are here. And more important, we have got the people, the team, to do it.
Let me make it clear that this new Chrysler is not a mixed bag of hangers-on mixed in with a little new talent from some other corporations. It is not that at all. It is a new, unified team that starts a new decade. Remember, on New Year's Eve January 1st, we start a new ten-year look.
One final thought to all of you. Somebody wrote a hit song called, "We Are Family," and Willie Stargell picked it up as a model to inspire his team to win the World Series Championship. Well, the reason that I mentioned it to you is that we, the new Chrysler Corporation, are Family. Else, how is it possible to raise a billion and a half dollars from our own constituents? We do have a lot to do, and it is going to be tough. But because we are family, we can do it. So, that is all we have to say to you today except, have a nice Christmas all of you, and let's start the New Year with a Bang
1980
While the economy was coming down around our ears, we put together a financing package to raise better than two billion dollars in non-guaranteed funds. We put together an operating plan that showed we can continue as a growing concern without any government help after 1983. Secretary Miller and Mr. Volker said, it was by a long shot, the most complicated package in the entire history of American business. It involved the governments of five nations, local governments, more than four hundred lenders, and all the constituents of a very big industrial company: suppliers, dealers, employees, and the shareholders. We put the package together in record time. Within two weeks of the deadline that we set for ourselves, the Treasury Department, the Loan Guarantee Board, and some hardnosed consultants have scrutinized-and believe me they have scrutinized-all of our plans, every aspect of our business. And the hardheads, and the hard noses, came out and said they liked what they saw. No matter what your read in the press, that is what they ended up saying. They said that our operating plan code was realistic and feasible. They said that we demonstrated that we can continue as a growing concern, and that, simply stated, is why they gave us a guarantee. The guarantee gives us a fighting chance we need to complete our rebuilding program. In the meanwhile, we need to keep on doing right all of the other things that are so essential to our future. We talked about what that involved last December here, and would like to take just a minute to look at the report card and see how we faired since we last met as a group. First, we talked about people. That is the strength of any business organization. We have kept almost, not all, but almost all of our top-flight people. We have been able to move some into key spots like Jack Withroe in engineering. We have attracted some very impressive new people at the organization to supplement our present staff. Don Dellerosa came on board as Vice President of Design. I worked with him for a long time. He is the best designer of small cars in the world. Dick Dow came on board as Executive VP of Diversified Operations. Dick has been in charge of production at VW-America, and before that he was at GM, where he was the youngest plant manager in their history. Dave Platt came on as Vice President of Procurement and Supply. He is experienced. He will make sure all of our suppliers meet their quality targets. I could go on and on, but the management, I am trying to say, is strong.
We have the plans and programs to meet our objectives, so I hope that everybody in this room knows and understands them. We have a great management team. I think it's the best in the business. We have the sales program. We are improving quality. Ford and GM will have to catch us from now on. We have the innovations to set us apart from the competition. We have the products that deliver the value that customers want today. So, in spite all of the difficulties created for us, and all the obstacles put in our way, our plans are finally starting to come together. We see some real daylight. The Loan Guarantee Board looked at a lot of factors when they considered our application-cost projections, industry volume, the debt load, the product plans. But when I talked to them privately, the most important consideration of all was whether this Chrysler Team had the guts, and the capacity, and the ability to see this program through to the end and to bring Chrysler back to profitability. The guy who asked me that most is a guy I admire a lot-Paul Volker, of the Federal Reserve. He asked, are you really sure you have got the right people to stick it out? They looked hard at us, at you really. They looked at what you have accomplished so far, and what's left to do. They must have seen winners in some of you because they decided to put the country's money on you. Which is a big gamble. They put a billion and a half on the line.
1982
Good evening. We announced our 1981 results this morning. For the total year we lost four hundred and seventy-six million. That is a little less than the analysts said that we would lose. They said that we would lose, for sure, five hundred million. One year ago-if you just stop to think about what was in the news four months ago-all of the smart money in Wall Street was betting that Volker's scandalous interest rates, the advent of GM's new competition the 'J' car, and the total collapse of the car and truck market would certainly wipe out Chrysler in 1981. This was their year to die. The smart money was wrong again, because we not only survived this worse depression in the history of the automobile industry, but I think that you will agree we have come through as a stronger and more competitive company.
We continued our program to cut costs and become even more productive in the year '81. We performed major surgery to bring our cost under control. We looked at all of our operations, plant-by-plant and job-by-job, and over the last two years we have consolidated these operations. We have now closed a fully twenty plants. We have cut our fixed cost by well over a half billion dollars in the last four months. And we have reduced our salaried employees by half, from about forty thousand to twenty-one thousand. Our break even is now half of what it was two years ago. We twenty thousand are doing the work of those forty thousand, but we are selling more cars and building more cars. What the hell were we doing wrong?
Since the first of this year, we have taken several important actions to build an extra cash cushion to ride out the recession and protect our future programs. Last Friday we reached an agreement to sell Chrysler Defense, that is the tank business, to General Dynamics for three hundred and forty-eight point five million dollars. I have to say to you, gentleman and ladies, that decision was a tough call. Chrysler Defense is a strong subsidiary with some great people, a lot of whom worked for this company for a lot of years. We have forty years of history tied up in the tank business. We were part of the Arsenal of Democracy in World War II. I can tell you, our guys did design and build the best damn battle tank in the entire world. They had some very exciting and profitable new products on the drawing board, and we had some of the best talent in this organization running that place. Nobody wanted to give all of that up. But, in today's economic climate, we had to balance our attachment to that company against the need to build a substantial cash cushion with which to ride out this very serious economic depression that we are in.
Our charter is to concentrate on cars and trucks. That is why we got the Loan Guarantees, and that is why we are here. Our job is to build the best cars and trucks, and take on the Japanese, even if just to be patriotic, but that's our job.
Here is our problem put as simply as I know how to put it. Today, it costs us exactly seventy-nine hundred dollars to build the average Chrysler car, and we sell them on an average for seventy-five hundred. We make our money today on Chrysler Financial, on Mexico, and on parts sales. We had better start to learn how to make money on cars and trucks, because that, again, is our business. We have to live within our budgets in '82, as tight as they are with no cost overruns, and that's nobody!
Now let me end with this note. We have all come through a hellish couple of years. I know we all feel that way, I do. But together, we have established Chrysler as a leader in the rebuilding of the American auto industry, and maybe of the entire American Industry. Together, we have set an example of what determined Americans can accomplish in the face of great adversity. We are on the edge of success. We are not quite there, but we are on the real sharp edge of success. If the management, the union, all of our employees, and the dealers and the suppliers-all continue to work together towards our common goals, we can put the finishing touches on maybe the greatest chapter in the history of American Business.
1983
We really are poised, no matter what the economy throws at us, no matter what the Japanese or Ford or General Motors throw at us, not only to stay in business but to prosper and do very, very, well. I also said to you late in July in a meeting with President Carter, that we now own our company again. I announced that we were paying off the loans, and that means that we are all alone now, and we can make our own decisions and we can make our own mistakes.
We have got to get this quality thing behind us. We have come a long, long, way. Warranty is down thirty eight percent the last couple of years, and our quality is up, but the track is fast, as you know. Ford is doing better on things gone wrong, and GM and we are a little worse than they are and Japan is still out-doing us all. So, we can have five and fifties, and we can have good power trains, and we can have five year warranties, and think about ten year warranties, but we have got to get rid of some of this crap we are doing. We've got some problems, but they are not big problems, I don't think.
I like to think that the officers, the first team, lets call it, the varsity, is good enough that each of us in the top senior management has ten charges out there. I can look around the room, and I feel that ten of you are my protégés. I watch to see what you are doing. I look at your future, and I get to know you well, and I take care of you, because you take care of the company and me. At our level, this level, everybody is on the team.
Everybody has gotten the message. Nobody believes there is an old way of doing it. Well, you have got your work cut out for you, and here is your assignment. It is a very general one, but it is the only thing that will make this company click. Out of the three hundred odd of you in here, each of you must accept as your charges ten subordinates. Ten times three hundred is three thousand, and that's the group we are looking at. The next three thousand has got to get the word. That is the only way we are going to continue to build on the progress that we have made, and we have made some fantastic progress. I hope that you are feeling that you are a big part of it, because you are. Every one of you, look to yourself, and look within yourself. When you manage, a good manager is a multiplier and a motivator. That is all he is. He can multiply himself, everyday, wherever he is. People look up to him, and people work, because they know what their objective is, and they go out and hustle, and they do it because the boss is leading them and motivating them.
Now, if you would just do that, we have got a big year ahead of us. While we are counting the two billion dollars back home, you will be really putting the seed corn in where it counts. Multiply yourselves times ten and nothing will stop us.
When the press asked me, what is the greatest thing you got out of the last five years, I say: "Not a hell of a lot. It got tiring." But I did take one thing. It is the realization that six hundred thousand people, pulled in the same directions. Pulled the oars in the same way. Everybody felt they were getting the fair shake, the old equality of sacrifice. It is amazing how we can move a mountain. So, if you see anybody pulling apart, or they don't want to be on a team, you have got to straighten them out. I will end on this note.
I will assure you that just as we are paying you for having reduced warranty costs, less engineering changes, and better market share, the new barometer will be how you are doing with your little nest of ten people. Some of you, I know, have twenty or thirty, but start with ten. I can settle for that right now if everybody in the room signed up for it.
1984
I would think that in the next five years, we start a new era. We have got to talk innovation in product, and we have got to talk innovation in service, and in manufacturing processes. I think that is going to be key to how well this corporation does. I think that we are on the threshold of doing great things together. I think that any time any company, for whatever the reason, reports the one and a half plus billion dollars in six months, you should all be damned proud. As one of the reporters already said, "that is their peak."
Two analysts followed it up, yesterday, and said "Chrysler will never make over eight hundred million dollars again in a three month period." They make it sound like it was a fluke.
Well, we are going to show them that it is no fluke. True, it has been driven by volume, driven by rich mixes, but it has been driven by productivity improvements, and quality improvements, and having the right products for the market-rich convertibles and T-115s [minivans] that are a smash.
But the two areas that are not market driven but are management driven are the two you are not doing hot on. That is quality and market share. Market share, if you include T-115s, is doing pretty damn well. But we are not going to get to twelve percent. And quality is a disappointment. GM has caught up with us. The Japanese are way beyond us.
And Ford is losing us in their dust right now. I take nothing from you or this managing team, but you have got to look at the whole cart now. Why is it, on the two toughies, competing head to head everyday in the market, even with voluntary restraints on the part of the Japanese, against GM and Ford, we can't seem to meet our quality objectives, and in market share we are flunking out. Now, when I say it that way, we have come a long way from three years ago. Were shipping crap, frankly. And now you can be proud of what you are shipping. I am glad to hear it, I hope we don't do it every day, but I am glad to hear from time to time we shut a line down to get the message across that quality is not only the first priority but it could well be in the next twelve to twenty-four months our only priority.
We are going to have to join up with new technology, and we are going to have to cut out a position for ourselves at Chrysler in electronics, certainly new materials and composites of all kinds. That is on our strategy list. I asked one of our top people why can't I just order on a requisition tomorrow, a sports car, and I would like to do it in twenty-four months. You say I can't do that. I say why? You say, we don't know how. But, what the hell, it is a car, and they're selling like hotcakes. We don't know how? Well, you have got to ask yourself, why not? You can't just claim that it's money. We've got plenty of money if we want to do something like that. While they are all reacting on our T-115, we have got to react back to them in some of these markets. Those aren't little niche markets. That may be the market of the future for young people.
*Chrysler had appealed to the federal government to guarantee its bank loans, because the amount to be borrowed was more than the value of the company at the time.
**The sales bank simply refers to the excess inventory of unsold cars.
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