Iacocca's Tightrope Act

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restrictions. He told anyone who would listen that Chrysler's future was threatened unless it could get financial help to transform its aging, oversize fleet into economical front- wheel-drive cars. It took losses of $1 billion, plus all of lacocca's lobbying during his first year at Chrysler, to ram the mes sage through.

After Congress's approval in December 1979 of loan guarantees covering $1.5 billion of Chrysler's borrowings—money it would need to survive—lacocca's hard est task began. Congress made the guarantees contingent on Chrysler's winning about $2 billion of concessions on its own: from the United Auto Workers, suppliers, state and local governments and 446 lenders. Those negotiations took six months and were concluded just as the company was days away from declaring formal bankruptcy.

But money alone could not solve Chrysler's problems. When lacocca arrived, he found management in disarray. Executive responsibilities were ill defined, and there were few of the sophisticated financial tools needed to keep track of operations. The quickest fix lacocca knew was to hire people who understood the same system he did: other Ford executives. Some were called out of retirement, others were wooed away and enlisted with lacocca for the challenge of engineering a turnaround. Today the four top officers are Ford alumni: lacocca; Vice Chairman Gerald Greenwald; Harold Sperlich, president of North American automotive operations; and Executive Vice President of Finance Robert S. Miller. Of the 28 highest-ranking Chrysler executives, only four remain from pre-Iacocca days. Says Survivor Stephan Sharf, 62, executive vice president of manufacturing: "As the newest vice president when lacocca arrived, I followed a tradition and sat next to the chairman at meetings. Now I'm nearly at the end of the table."

As he swept out the old management, lacocca also axed some bad business practices. The most insidious was a device known as the sales bank. Unlike other automakers, which build few cars except those ordered by dealers either for customers or showroom stock, Chrysler turned out a lot of cars that simply sat in inventory. Although theoretically this meant that production lines could be kept running efficiently, the sales bank became a tool to hide mistakes. Managers ordered tens of thousands of cars built so that they could boost production figures, as well as their bonuses. Most of the vehicles were eventually sold to dealers at cut-rate prices, often after months of outdoor storage had taken their toll. lacocca's cure for Chrysler's peculiar addiction to production mandates was to kill the sales bank. The company took some heavy losses to sell off its backlog of inventory, but once the last car was gone, Chrysler stopped making cars on speculation.

lacocca's next task was to convince car buyers that Chrysler was indeed alive, even if it was not exactly well. Again he turned to his old employer and wooed away Kenyon & Eckhardt, the New York City advertising agency that had represented Ford for 34 years. lacocca's carrot was a $140 million account, the second largest (after Chevrolet) in the auto industry. The agency decided the most sensible way to spend the money was to market the chairman himself.

Kenyon Chief Leo Kelmenson began to find himself on the phone with lacocca at all hours: