Lee Iacocca is sometimes called the ‘Father of the Ford Mustang’. When the racy, sports-car style Mustang was launched in 1965, it appeared on the covers of both Čas a Newseek magazines. Originally forecast to sell less than 100,000 in its first year, it sold nearly 500,000 in year one and 1,000,000 in the first twenty-four months: the fastest sale of one million models in history. Iacocca was made president of Ford in 1970 and managed to walk the fine line between achieving results and not upsetting the autocratic Henry Ford II, grandson of Henry Ford. In 1978 Henry Ford II fired Iacocca without any particular reason, saying, after the event, ‘Sometimes you just don’t like somebody.’ Iacocca was quickly taken up by Chrysler. The company had been hit hard in the 1970s by two spikes in oil prices, contributing to a slowing US economy, higher inflation and rising interest rates. The higher cost of finance slowed car purchases; consumers were also turning to more energy-efficient European cars. As sales fell, credit-rating agencies downgraded Chrysler’s debt, increasing the cost of its borrowing. With the company’s working capital shrinking rapidly, it was in danger of violating its credit agreements. Iacocca’s turnaround of Chrysler is the stuff of legend.
Don’t just stand there. Make something happen.
Lee Iacocca grew up in Pennsylvania, U.S. during the Depression. Iacocca says that his parents taught him to ‘Get all the education you can, but then, by God, do something. Don’t just stand there. Make something happen.’ Iacocca got a degree in industrial engineering, won a place on the Ford engineering training scheme, and deferred this to take his masters degree at Princeton. As a Ford trainee at the Ford River Rouge plant, Iacocca learned the business of making motor cars, but decided that the engineering was not what interested him most; he asked to be transferred to sales.
Iacocca worked as a truck salesman; soon he was selling cars as well as trucks; by 1949 he was a district sales manager. In the 1950s, soon after the first finance deals were introduced for car purchase, Iacocca introduced a plan called ’56 for 56’: the chance to buy a 1956 Ford for a 20% deposit and three monthly payments of $56. The scheme was adopted by Ford nationwide. In the same year, Henry Ford II took the Ford Motor Company public, raising $643 million in what was then the world’s largest Initial Public Offering. Half of that money was lost on the unsuccessful Ford Edsel range, named after Henry Ford II’s father. By 1960, at the age of 36, Iacocca was head of the Ford division of the world’s second largest car manufacturer (after General Motors). After the successful launch of the Mustang, Henry Ford II and Lee Iacocca went their separate ways.
‘Let’s do a deal’.
As president of Chrysler, Iacocca found that the company had thousands of unsold cars sitting in secure car parks, costing money. He organised a low price ‘Tent Sale’ in Minneapolis-St Paul. The event worked so well that it was rolled out to major cities across America under the slogan, ‘Let’s do a deal’. Iacocca renegotiated the company’s contract with rental firms, Hertz and Avis, encouraging them to add more Chryslers to their fleets. He offered buyers cash incentives to test drive a Chrysler, with enhanced guarantees and a promise of reliability. Iacocca brought in management talent, introduced a programme of layoffs, and is said to have talked to over one hundred banks, as well as many private investors, in his search for capital. In the end, his only resort was to approach the U.S. government; a difficult prospect for a man who had once told government to ‘get off our backs’ concerning federal automotive legislation.
Iacocca presented in Washington to both the House of Representatives and the Senate, arguing that the failure of Chrysler would cost the American government $2.7 billion in unemployment compensation and other payments to employees laid-off at Chrysler and in the company’s network of dealerships and suppliers. A government guarantee of the company’s loans would cost the American taxpayer nothing. In the face of arguments that the government guarantee was a reward for failure that was unfair to Chrysler’s competitors, Iacocca was able to point out that the federal government had guaranteed loans for similarly troubled players in the railroad (Penn Central Railroad in 1971) and aerospace industries (Lockheed Corporation, also in 1971). Both of these companies had been able to argue that they were significant to U.S. national security in the middle of the Cold War; Iacocca argued that Chrysler was the biggest builder of U.S. and NATO military tanks, and a significant supplier of other military vehicles. Iacocca got his government guarantee for $1.5 billion of private loans.
‘If you can find a better car, buy it.’
Between 1979 and 1982, Iacocca closed 20 of Chrysler’s 60 plants, reduced staffing levels from 130,000 to 74,000 and negotiated pay cuts with unions, reducing his own salary to a token $1 per annum (Iacocca was also rewarded with stock options that were to prove highly valuable). Iacocca became a symbol of Chrysler’s struggle to survive, and started to appear in the company’s advertisements, offering a personal backing of the company’s commitment to deliver quality and good value. He appeared in TV advertisements saying, ‘If you can find a better car, buy it’. Iacocca’s programme turned Chrysler around from a $1.1 billion dollar loss in 1979 to an $800 million profit in 1983. In that year he wrote a cheque for $813,487,500 to clear the outstanding debt guaranteed by the U.S. government. Iacocca retired as President, CEO and Chairman of Chrysler in 1992.
Lee Iacocca, born October 15th, 1924, died on July 2nd, 2019.
Iacocca is one of the hundred short biographies of modern business leaders featured in 100 Great Business Leaders by Jonathan Gifford
