Iacocca's Tightrope Act

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Detroit, where the man in charge was briefly known as "Ayatullah" lacocca, there are dozens of eerily silent rooms with long rows of empty desks at company headquarters.

The smaller, slimmer Chrysler can make a profit selling only 1 .2 null vehicles instead of the 2.3 million required in 1980, a big advantage in tough economic times. But this transmogrification is not without huge risks. The company can no longer compete across the board with GM and Ford by building car models in every size and price category. It remains burdened by $2 billion in long-term debt. If it should falter ever so slightly, it could again be plunged into a financial abyss. Says GM Chairman Roger Smith: "The jury is still out on Chrysler. It all depends on the product they introduce and whether they can sell it."

Nothing would derail Chrysler's recovery more effectively than a continuation of the disease that has afflicted Detroit for three years: sickly sales. Last year U.S. manufacturers sold only 5.8 million cars, the fewest in 21 years; Chrysler sold 794,000, but its share of the American market inched up, to 10%. So far this year the industry is doing only slightly better. Through February, sales were running at an annual rate of 6 million cars. All of the Big Three are offering customers cut-rate financing of 11.9% in an effort to spur sales. Chrysler's decision last month to cut prices by offering rebates of $300 to $ 1,000 to cash buyers is expected to set off another round of price competition, one that manufacturers say they can ill afford.

U.S. sales of Japanese-made cars were 1.8 million last year, and are not increasing, thanks to Tokyo's recent acceptance of a third year of "voluntary" import restrictions. Although Detroit is at last beginning to approach the Japanese on quality, evidence suggests that an extra twelve months will enable U.S. carmakers to become significantly more competitive on price. After ten years of mostly futile trying, Detroit continues to watch the small-car market slip away to the Japanese, who are now training their sights on the midsize and luxury end of the market as well.

The international competition that challenges the U.S. auto industry today was unknown when lacocca began his career. His father Nicola immigrated to the U.S. from southern Italy in 1902 and eventually built a small auto-rental business in Allentown, Pa., with 33 cars, mostly Fords. Surrounded by Model A's, Son Lido always wanted to work for Ford. After graduating from Lehigh and getting a master's in engineering at Princeton, he joined the company as an engineer in 1946, then quickly switched to a district sales job. By 1970, he had risen so far that only Henry Ford H, grandson of the founder, outranked him.

lacocca succeeded by indulging the passionate American love affair with the automobile. He combined a knowledge of an automobile's innards with a shrewd, almost intuitive sense of what car buyers wanted. He stripped the plain-Jane body off Ford's dowdy Falcon and replaced it with a long-hood, short-rear-deck configuration called the Mustang that in 1964 set a record for automobile sales by a first-year model (418,000). Four years later he reached into Ford's spare-parts bin again and launched the limousine-like Continental Mark III on a Thunderbird chassis.

lacocca personified Detroit