Reckoning

by David Halberstam

  The first K cars came onto the market in October 1980, with 100,000 of the previous year’s cars still unsold. They were not the immediate success that everyone had hoped. The prime rate had just gone up again, and customers were cautious. 1981 was a bad year for cars, coming on the heels of the Shah’s fall. Auto industry sales were down 27 percent overall; interest rates were so high it was hard to tell the difference between banks and loan sharks. Furthermore, the early K cars were loaded with too many options and priced too high. The basic stripped-down K was supposed to sell at $5880; instead, the average model in the dealers’ showrooms cost some $2000 more. Iacocca, pushed by Greenwald, had opted to go for maximum profit per car. It was an attempt to gain additional cash, but in that economy it turned out to be the wrong move. The company, shell-shocked, wanted to reverse its fortunes too quickly, but with interest rates often above 15 percent, many would-be customers held back and repaired their old cars. The haste also threatened the K’s reputation; not everyone thought the cars were quite ready for the launch, that all the bugs were out of them. Iacocca fought on, doing everything he could to hold down costs. He relentlessly slashed his white-collar staff, eventually cutting it in half. That was probably the most difficult aspect of his cost-cutting. When an aide once complained to him about how painful he found it to trim his own staff, Iacocca snapped, “Don’t fucking bother me with your hard-luck stories about firing people—I fire a thousand people every goddam day, so don’t come and tell me about your goddam problems.” Labor granted concessions, perhaps in part because he forged a strong and mutually admiring relationship with Doug Fraser of the UAW, who became a member of the Chrysler board. Many suppliers continued to allow Chrysler to hold off on their bills, thereby giving the company an additional free loan of hundreds of millions. The check was always going to be in the mail. Chrysler stumbled through 1981, a terrible year in which it lost $479 million.

  Iacocca made a decision at the height of the company’s illness that was to have a considerable effect upon the long-term issue of quality. It had been a continual grievance among the Ford manufacturing people that the bonus or compensation system undermined quality, corrupting even the most moral of men into putting their short-range selfish interests over the larger interests of the customer, the product, and the future of the company. There was a financial reward for maximizing annual profit and no reward for foresight, and so inevitably decisions were tilted to profit because it was so directly connected to bonus. Iacocca had been a beneficiary of that system at both Ford and Chrysler—in the eyes of his friends, a ready and uncomplaining one. Quality had always been sacrificed. Now, at Chrysler, he moved to protect quality. In 1981, when the company was at its wobbliest, he told his inner circle that he wanted to go back to Lynn Townsend’s five-year-or-fifty-thousand-mile warranty, which had been dead for ten years.

  He was met with disbelief. Steve Miller, one of his top finance people, opposed him because the expense of covering such a warranty was terrifying—no one could predict what it might cost, perhaps $100 million a year, perhaps more. Steve Sharf, the manufacturing man, was quite unhappy about the idea. “Jesus, Lee—that’s nothing but problems,” he said. Even Jim McNaughton, the marketing man, was against it. As far as he was concerned, if there was that much money in the company, he would much rather spend it on advertising. “No,” Iacocca said, waving away their objections, “if we have the five-fifty, if we have to live up to it, then I know damn well that finance is going to give us the money for the plants, and I know the marketing people will really use it in their ads, and I know that manufacturing, if it’s a question of doing a thousand new pieces or doing a smaller number right, we’ll do it right.” He held the day. It was an important victory of the enlightened Iacocca over the old Iacocca.

  Finally, tentatively at first, things began to improve. Hal Sperlich and his colleagues had done their work well, and the K car averaged twenty-five miles a gallon on arrival. Early in March 1982 Chrysler sold its tank division, for $335 million, to General Dynamics, and the cash immediately strengthened the company and eased the tension with the suppliers. The Japanese agreed to a voluntary limit on imports, and because they were using their restricted number of cars to move into the middle rather than the low end of the market, it took pressure off Chrysler and the K car. In the first quarter of 1982, Chrysler showed a profit, but only because of the sale of the tank division. Without it, the company would have lost $90 million. By the company’s existing standards, however, that was virtually a profit. In the second quarter the profit actually came, $107 million. It was the first time in five years the company had posted two successful quarters back to back. That summer, interest rates began to come down significantly, and as they did, the market for new cars began to swell. The impact on Chrysler was instantaneous. “It looks like Lee dodged the bullet again,” his old colleague Don Frey said that summer. But the bullet had come very close.

  Soon Iacocca became the most unlikely of modern figures, the Detroit car maker as national hero, the one-time creator of big, luxurious cars at Ford who was bringing Chrysler back from the ashes with small, fuel-efficient ones. Someone had proposed using him in Chrysler’s commercials. He had credibility, it was suggested, while the Chrysler Corporation did not. (“Why did they go to you, Lee?” a friend asked. “They wanted Walter Cronkite,” he replied, referring to the most trusted man in the nation, according to polls, “but he wouldn’t do it, so they asked me”) It was risky to use a CEO in commercials for a troubled company, because his career could be irrevocably damaged if the company went deeper in the red despite the campaign. But Chrysler was in such bad shape that qualms like this were unimportant. Iacocca himself, however, was ambivalent about the idea; while he knew it might help the company, it would also result in a considerable loss of privacy. Wendell Larsen, the company’s top public-relations man, warned that even if the campaign was successful, it might somehow leave the impression that Chrysler had been saved only because Lee Iacocca was a fast-talking supersalesman who could persuade Americans to buy almost anything, even inferior cars. Although he was uneasy, Iacocca went ahead, and the first commercial with Iacocca as the company’s main pitchman appeared in the fall of 1980. Slimmer than in the past, his suits less flashy, with fewer white-on-white shirts in his wardrobe, he was the new Iacocca.

  For someone who had been so shy in the early days of his career, and who—appearances to the contrary—was in fact still shy, the transformation was remarkable. The people at Kenyon & Eckhardt, the agency that did the Chrysler commercials, were impressed by how quickly he picked up the technique and how good he became. He was much better than most of the professional actors they dealt with. The professional actors, trained in their work, frequently blew lines; Lee Iacocca, novice to the art, almost never did. He seemed to get it right every time, almost to the second. He always had the beat of it. Of course, the actors were mouthing alien words, while these words were his own, crafted by the advertising people from what he said at press conferences. But what set him apart was the almost feral intensity of his performances and of his concentration while he was doing them. No one at the advertising agency had ever seen anything like it. He had, of course, despite his ambivalence, always sought exposure. He liked to protest that he did not like doing the commercials. He would come in at the beginning and complain, “My kids say I look too fat.” He worried that his nose might look too big, and the cameramen were told to be aware of that. Inevitably, however, he became a professional, giving direction to the directors, telling the writers what to write. He liked the celebrity that the commercials brought. In the old days, one of his friends noted, when you walked around New York City with Lee he was always checking the streets to see how many Fords there were. Now he checked to see how many people recognized him and turned around.

  By the middle of 1982 he was pressing his aides to get him on the cover of Time magazine, as if that one fact could authenticate and assure the Chrysler turnaround. As other accolades po
ured in, the cover of Time became an obsession. He spoke constantly of men he knew in the publishing world who said they could help fix it for him. Time, however, skeptical as to whether the Chrysler rebound would last, hesitated. When John DeLorean was arrested in a drug bust in the fall of 1982 and Time put him on the cover, Iacocca was enraged. “Here I’ve saved this goddam company, and I can’t get on the cover of Time,” he said, “and that son of a bitch DeLorean gets caught dealing drugs and he makes it. What the hell kind of magazine is that? What the hell is wrong with those people?” Time, in its own good time, finally came around, and Iacocca, looking more like a huckster than he might have wanted, adorned an issue in March 1983.

  As Chrysler’s financial situation continued to improve, Iacocca became more egocentric than ever. In meetings he was often exceptionally hard on his old friends. He began to complain that it was difficult being at the top because everyone wanted something from him. There was no small irony in that, some of his old associates thought, for that was precisely the attitude he had detested in Henry Ford. If there was still a certain shyness to him, he had managed fairly well to overcome it. He obviously liked his new fame. It was hard, he complained, to fight off the networks that wanted to do specials and the magazines that wanted to put him on the cover. He was marvelous with the press—quick, funny, always, it seemed, on the attack. To a nation somewhat on the defensive that was particularly appealing. He was the man who had saved Chrysler. The more public recognition he got for that, the more he came to believe it.

  The role of others in Chrysler’s newly won success gradually diminished in his mind. He was less than generous about sharing credit with those—like Greenwald, Sperlich, and Miller—whose part in saving Chrysler nearly equaled his own. Of course, sharing credit had never been one of his strong points. In 1982 a small design company in Brighton, Michigan, named Cars and Concepts, which did highly specialized and innovative styling for the bigger companies, brought Chrysler the idea of bringing back the convertible. Unlike the other big companies, Chrysler was willing to take a risk, and soon the convertible, designed by Cars and Concepts and built on a K-car frame, was in production. It was a lovely small success for Chrysler. The public response was overwhelming, the car was remarkably profitable, and everyone had fun doing it. But when an automotive reporter called Cars and Concepts to get additional information on the genesis of the idea, he was told to cool it because the word had come down from Chrysler that the original idea was not theirs, it was Mr. Iacocca’s.

  He also played a crucial role in giving the go-ahead signal to a vehicle that the product planners at both Chrysler and Ford had long wanted, what eventually became known as the Minivan. Since 1974 Chrysler’s product people had been working on plans for a relatively inexpensive, vanlike wagon which would be easy to drive, have a great deal of room, and get good gas mileage. So far they had been thwarted. From the moment Sperlich arrived at Chrysler he had pushed the program, but the K car was draining almost all of the company’s resources, and by the time Iacocca arrived, the Minivan was almost dead. It was, however, something both he and Sperlich had wanted to do for a long time.

  In the late 1960s at Ford, Don DeLaRossa, one of the best designers in the company, had mentioned an idea of his rather casually to Gene Bordinat, his chief, for a new, modernized, efficient wagon. Bordinat had picked up on it immediately. There were, thought Bordinat, a few times in a designer’s life when he knew, absolutely knew, that he had a winner, and this was one of them. DeLaRossa had spoken of an all-purpose vehicle, neither station wagon nor van, which women as well as men could drive, a car for the suburban housewife during the week and for the family on the weekends, a sawed-off hybrid of a van and a wagon, with lots of interior room. The designers envisioned it as being more stylish than a normal van, and it would handle more like a car than a truck; it would get exceptionally good gas mileage, perhaps as much as twenty-five miles a gallon. It was, in short, to be the perfect vehicle for modern suburban living, a world of short hauls, most of them under fifteen miles, yet it would be capable of long trips.

  Sperlich and Bordinat, more than the others in the company, loved the Mini/max, as it was called. Iacocca seemed interested in it, though he was hardly passionate about it, and never, in the prolonged battles that followed, did he make it his, as he had the Mustang. In the early part of the Mini/max’s history, when Iacocca still had muscle at the company, his mind seemed to be elsewhere; later, when he was more interested in the product, he was a man of diminishing influence. Some of his subordinates thought his attitude toward the car reflected not so much a lack of enthusiasm for the wagon as for the battle necessary to force it through. Indeed, from the start the resistance within the company was considerable. The slow-walking, Bordinat thought, was the most deliberate he had ever seen. Sometimes it seemed to him like watching Death in the Design Shop. The finance people, he knew, had learned that you could kill a car there: Don’t shoot the program down; shoot down the execution of it. Make them do it over again and again, so that the product never really gets out of the shop and never gets any exposure at a high level of the company.

  The problem from the beginning, Sperlich believed, was that Henry Ford was against the Mini/max. It showed not so much in overt opposition but in a constant wariness and relentless grumbling. Sperlich suspected Ford was more negative in private with Lundy than he was with most other high executives. It was as if the signals given at the meetings were lightly negative but the signals given outside the meetings were very negative. Ford was distressed that the Mini/max would have to be a totally new car; it could not be a spin-off from an existing technology. For the Mini/max to work, it had to have front-wheel drive. The same van done with rear-wheel drive would have to be higher and heavier, more like a small truck; with front-wheel drive and a transaxle—a front axle incorporating a transmission—the car could be lower and lighter to handle; it would be, in Sperlich’s phrase, a more friendly vehicle. He loved it because it had so many possibilities, and because, as the engineer designing it, he faced so many challenges. But the resistance because of the front-wheel drive was enormous. Henry Ford was still shying away from that commitment on cars, and now they were asking him to authorize still another front-wheel-drive vehicle.

  Periodically the design people would bring it out again, and it would be shot down again. It was something new, therefore it was untried, and therefore it was likely to be risky and expensive. The finance people focused on that, and they stayed with it, despite overwhelming evidence that the new van was likely to be a brilliant success. That evidence came in from marketing research and was marshaled by a man named Norman Krandall, who was known in the company as something of a maverick, almost by choice not a member of the inner club. He was a Pole who participated actively in liberal Democratic politics and seemed to have taken pleasure over the years in defying the assumptions of the finance people. He was a natural comrade-in-arms for Sperlich, for Krandall believed that the company, now run by people who did not want to make cars, had become stagnant. By 1976 it was clear to Krandall that the possibilities for this van were greater than anyone’s expectations, including, until then, his own. The research showed that the Mini/max might sell more than 800,000 pieces in its first year, or almost 400,000 more than the Mustang had. More, those sales would not subtract from Ford’s other lines; they promised to come from people who owned traditional sedans, large cars that had been giving their owners ten or twelve miles a gallon. The Mini/max would give them twelve miles a gallon more—and carry just as many kids and groceries. Stunned by his research, Krandall decided to do it again; the results were the same. But that wasn’t all. His findings showed that Ford could charge a great deal of money for it, between $8000 and $10,000, a large price back in 1976. Those figures made Iacocca really interested for the first time.

  When some of the finance people challenged Krandall’s numbers, he gladly gave way. Even if we’re off by 50 percent, he replied, we’re still talking about 400,000 pie
ces. Thus, he suggested, it still makes sense. In fact, he added, cut it in half again; use the figure of 200,000, and it still makes sense. Even the research findings for the Mustang, which had been remarkable, had never shown numbers like these. It was an exceptional market just waiting to be taken, Krandall argued, and if Ford acted quickly it could get in before anyone else and skim the cream off it for two or three years before GM could move. Bordinat, watching Krandall fight back at these meetings, was amazed by how audacious he was, how closely he stayed with his figures. Usually when the numbers were good and there was opposition, there was a normal tendency to soften them so that if the car was approved and did not pan out, the executive could protect himself. But in this instance Krandall was holding nothing back. It was almost as if he had a death wish, Bordinat thought.

  Krandall was surprised by how little reaction there was to his research. This was a brand-new market he had uncovered, and the Ford Motor Company was supposed to react to the market. But the market, he realized, no longer mattered to most of the men running the company; they thought that they could dictate the market. Iacocca was clearly interested, he could see, but the fight seemed to be going out of him; ten years earlier with numbers like these he would have been unstoppable.

  Krandall first unveiled his statistics in 1976. Two years later, with no action, he brought them forward again. At that moment the hard times had not yet hit the company, and there was at least $3 billion in the Ford coffers. At the critical meeting Krandall found himself challenging both Philip Caldwell, who was then deputy chief executive officer, and Ed Lundy. Krandall, looking at Lundy, knew he was probably in for a confrontation. For, as Krandall himself well knew, he had done the unthinkable within the Ford company: He had directly challenged the theology of the finance people and of Lundy himself. He had done this, two years before, with a paper. The paper had analyzed Ford’s investment program in comparison with that of General Motors and had proved that Ford was now investing less in future models than it had historically. It had tried to show a direct relationship between investment and success in the market. In the past Ford had invested roughly 55 to 60 percent as much as GM, Krandall’s paper showed; it then demonstrated that Ford had retrenched more than GM, and that the ratio of spending had fallen to 45 percent. Ford had to assume, he wrote, one of two things: Either its people had suddenly gotten much smarter than the General Motors people in the way in which they spent, or inevitably its fortunes would decline. Krandall had sent a copy of his paper to Iacocca and a number of other senior Ford people, and it had been passed around at the highest levels of the company. Lundy had written a very tough rebuttal of it and sent the rebuttal to everyone who had gotten Krandall’s original—but not, of course, to Norman Krandall. That, Krandall was sure, was a sign that Ed Lundy was very, very angry at him.