Iacocca's Tightrope Act

• Share

(6 of 11)

designing ads, plotting strategy, evaluating results. He recalls: "Lee used to phone late at night, and then I'd hear from him first thing in the morning. Two days later, the advertising would be on the air. It was fast paced all the time, and it went on for months and months." lacocca inherited the design of the front-wheel-drive K-cars. Though they were not brought out until the fall of 1980, they had been practically ready to go into production when he arrived two years earlier. (He still could not resist tinkering with the grille and adding louvers to the windows shortly before the designs were locked up.) Chrysler had botched the launch of the luxury New Yorker series in 1978, and the memory haunted lacocca. Now, with buyers clamoring for fuel-efficient cars and Chrysler short of cash, a trouble-free K-car rollout was critical.

It turned out to be a near miss. Problems with advanced robotic welders and material handlers slowed initial production so that only 10,000 cars, less than a third the number needed, were in showrooms on the official introduction date, Oct. 2, 1980. Chrysler flubbed in other ways as well. lacocca sent the earliest models out with high-profit options like velour upholstery and electric window lifts that pushed the sticker price from $6,000 up to $9,000. But buyers did not want the extras. Until the production imbalance was corrected, sales did not really take off.

Ever the optimist, lacocca had predicted before Congress that Chrysler would lose only $482 million in 1980. Instead, the losses ran to $1.7 billion, much higher than 1979's record $1.1 billion deficit. The company was hemorrhaging cash. Just in time, the K-car caught on; in its first year, it won more than 20% of the compact-car market. Despite this, Chrysler's survival continued to be a week-by-week proposition throughout 1981. The losses were lower, if still unspeakably high: "only" $475.6 million. lacocca and other executives periodically braced themselves for "drop-dead dates," deadlines when, the accountants calculated, accumulated expenses would overwhelm the amount of cash that was trickling in. lacocca found himself one Friday night in November 1981 with just $1 million left in the bank, a pittance for a company that was spending $5 million per working hour. Only by delaying payments to suppliers and strong-arming dealers into buying cars during this period was he able to keep out of bankruptcy. The crisis somehow passed, and Chrysler was still in business. With its break-even point now halved, new management in place and its share of the U.S. auto market back up to almost 10%, from a low of 8.8%, the company was slowly edging away from the financial precipice.

A Japanese colleague, Tomio Kubo, chairman of Mitsubishi Motors Corp., which builds two small-car models for Chrysler, pays lacocca a compliment. Says he: "In the person of Mr. lacocca we have developed a sense of security about the corporation and its future." He explains that lacocca "shows signs of Oriental wisdom." Perhaps Mitsubishi's boss has noticed that in rebuilding Chrysler, lacocca has turned from American role models and is looking to the Japanese. While he has tried to appropriate the expensive, high-gloss image of European automobiles for his more modest creations, lacocca has borrowed heavily | from the successful management and