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Leadership
The Saga of Lee Iacocca: from Ford to Chrysler
- P Mohan Chandran
The case discusses the leadership qualities and management style of Lee Iacocca
and how he transformed a near bankrupt company, Chrysler, into one of the
leading automobile manufacturers in the world. The case discusses at length the
major achievements of Iacocca at Ford Motors and Chrysler, and critically
examines the positive as well as negative aspects of Iacocca's leadership.
Iacocca's speeches are often blunt and humoros; they're always interesting and
delivered in a unique style. Iacocca is a master at turning a phrase. He is one of
the best communicators on the American scene.
- Douglas Fraser, President Emeritus, United Auto Workers; Professor of
Labor Studies, Wayne State University.1
Iacocca was honest, shared the power and glory of Chrysler's success with the
workers and went on to challenge the graduating seniors. He knew his audience
and appealed to them. His integrity and values came across loud and clear. He
gave inspiration to the graduating seniors to get out there and give it your best
shot.
- Stan Kahn.2
In 1982, Lee Iacocca (Iacocca), the then Chairman and CEO of Chrysler was
presented with the `Automotive Industry Leader of the Year' award 3. This award
was instituted for the first time in 1982 and Iacocca became its first recipient.
Soon after in 1984, Iacocca also won the Ralph Coats Roe Medal. The medal
recognized the exceptional contribution of an engineer towards better public
understanding and improving the standard of society. In 1994, Iacocca was
inducted into the coveted `Automotive Hall of Fame'. The Automotive Hall of Fame
was the highest place of honor accorded to the achievers in the global automotive
industry.
According to Jeffrey K Leestma, President of the Automotive Hall of Fame, "The
honor is bestowed each year to the individual who best exemplifies the image,
foresight, leadership, integrity and purpose contributing most to the success of the
motor vehicle industry." 4
These awards and recognitions stand testimony to Iacocca's invaluable
contribution to the automobile industry. In his 32-year stint at the leading global
automobile giant, Ford Motor Company (Ford) and 14-year stint at Chrysler
Corporation (Chrysler), Iacocca played a major role in introducing several
innovative products. He transformed Chrysler into one of the leading automobile
manufacturers in the US.
Chrysler was facing a severe financial crisis and was on the brink of closure, but
Iacocca resurrected the company and turned it into a profit making one in a short
span of six years. He was proclaimed as a turnaround specialist, who saved
Chrysler from bankruptcy.
Complementing the skills and abilities of Iacocca, author Anthony Robbins5 said,
"All truly successful people such as Lee Iacocca have a driving force within them
that sets them apart from others. A desire, an energy that gives them the fuel to
reach their true potential. This force is a part of them 24 hours a day, seven days
a week. It never subsides. Their total existence is sustained for the fulfillment of
their goals. The passion within this individual to achieve has been so deeply
implanted, that their mental power is driven by this force and will not let them do
anything other than achieve." 6
Background Note
Lido Anthony Iacocca, popularly known as Lee Iacocca (Refer Table I) was born in
Allentown, Pennsylvania in the US on October 15, 1924. His father, Nicola Iacocca
and mother Antoinette Iacocca were Italian immigrants. Since his childhood,
Iacocca believed in the value of hard work and never shirked from any kind of
work. At the age of 10, he used to take his vehicle to departmental stores and
transport shoppers' items for a small amount. At the age of 16, he worked for 16
hours a day in a fruit market. Iacocca graduated in Science (Bachelors in Industrial
Engineering) from Lehigh University, Bethlehem, Pennsylvania, US in 1945. In
1946, he also completed his Master's degree in Mechanical Engineering from
Princeton University, New Jersey, US.
Iacocca began his career at Ford in August 1946 as an apprentice engineer. He
was inducted in a training course known as `loop training,' which provided on-thejob training for a week in every department of the company. However, after
staying for nine months in this 18-month program, Iacocca realized that he was
not interested in an engineering job. He gradually changed his career path and
moved to sales. He worked in a small office at Ford in Chester, Pennsylvania.
Within a decade of joining Ford, i.e., 1956, he became a sales manager.
Iacocca made notable contributions as a sales manager at Ford. In the very first
year, Iacocca introduced a program called `56 for 56.' This program enabled a
customer to buy a new 1956 model of a Ford car by paying just 20% of the car
amount as down payment. The balance was to be paid in installments of $56 a
month for the next three years. Due to this unique and innovative program, Ford
was able to sell an additional 75 million cars. Iacocca's district, which had
registered the lowest position in sales prior to this program, went on to register
the highest sales among all districts in the US.
In 1960, Iacocca was promoted as the Vice-President and General Manager of
Ford. Soon after becoming the Vice-president and General Manager, Iacocca
constituted a group of young men and women with innovative ideas. This group
was known as the Fairlane Committee. The objective of this committee was to
introduce a small-sized, light and economical sports car. The committee gathered
and utilized extensive research data for the same. The research during the early
1960s revealed that there would be a 50% increase in car consumers between the
age group of 20 to 24 in the US. The committee also predicted that the number of
families owning two cars would increase and that there would be a substantial
increase in the number of female buyers.
Taking all these factors into consideration, a set of specifications were laid down. It
was decided that the car should be small, should seat a minimum of four persons
and the cost of the car (along with accessories) should not exceed $2500. The
group wanted the car to appeal to all segments of consumers simultaneously. This
resulted in the creation of Ford Mustang in 1962. In October 1962, the prototype
of Mustang, christened `Mustang I' was introduced while the car was officially
launched in April 1964.
The car offered a host of benefits to the consumers including style, performance
and economy. It was designed to match the needs and tastes of consumers. Its
slogan read - "the car to be designed by you." Mustang initially offered three
options to the consumers in three unique styles - Affordable, Sporty and Luxury.
Mustang soon became Ford's most popular model after Model `T' (Thunderbird).
More than one million Mustang cars were sold in the first 16 months of its
manufacturing.
The Mustang project earned him international recognition. His inherent qualities
like willingness to listen to customers' demands, risk taking ability to introduce a
new product, and creative management style were appreciated by consumers and
automobile experts all over the world.
Iacocca was also hailed as the stepfather of Falcon, one of the most popular cars
of Ford introduced in 1960. Falcon was positioned as an economy car with simple
styling. Though Falcon had registered impressive average sales of 4,17,000 units
per annum during 1961-63, the profit margin on each car was very less. Iacocca
devised ways to improve this margin by introducing Falcon at a higher price with
value-added features such as bucket seats, air conditioning and power steering.
The customers responded positively to the new Falcon and its sales increased
significantly.
Following the success of Mustang and Falcon, Iacocca was promoted as the
President of Ford on December 10, 1970. Iacocca was primarily responsible for
developing cost-cutting strategies and increasing profits of Ford. With this
objective, he introduced a program called `Shuck the Losers.' The program aimed
at making the various departments of Ford profitable within three years, or close
them down.
In 1971, Iacocca introduced another model called Pinto 7. He was very particular
about the design and cost specifications of Pinto. Giving instructions about his
specifications, Iacocca said, "The Pinto was not to weigh an ounce over 2,000
pounds and not cost a cent over $2,000." The Pinto was targeted to provide fuel
efficiency and be cost-effective so as to compete well with other international cars.
Unfortunately, this project boomeranged.
The crash tests conducted during the production and design stage revealed that
the fuel tank of the car was susceptible to inflammation on being hit from behind.
The tests also disclosed that in a crash at a speed of over 25 miles per hour, its
fuel tank busted. The design of the fuel tank was later modified and the tank was
made tougher.
During his tenure at Ford, Iacocca was perceived as a change agent and nonconformist, dexterous and `on-the-feet-thinker'. He was responsible for taking up
many new initiatives at Ford. However, a personality clash with Henry Ford II, the
CEO of Ford, led to Iacocca's resignation in 1978. He had worked in Ford for 32
years spending a major part of his career with the company. In the same year,
Iacocca took up his new assignment as the Chief Operating Officer (COO) of
Chrysler. Within a year of his joining (September 1979), Iacocca was promoted as
the Chairman and CEO of the company.
Tenure at Chrysler
When Iacocca joined Chrysler, the company was facing problems on several fronts.
Coordination across different functions was virtually absent. Iacocca identified that
information dissemination, the spirit of camaraderie8 and esprit de corps9 were
completely absent among the employees in the company. The company's products
were perceived to be of poor quality. Financial controls were virtually non-existent.
The company's finished goods inventory had risen to unprecedented levels, which
resulted in production cuts from time-to-time. Iacocca later recalled, "What I
found at Chrysler were 35 vice-presidents, each with his own turf. There was no
real committee set up, no cement in the organizational chart, no system of
meetings to get people talking to each other. I couldn't believe for example that
the guy running the engineering department wasn't in constant touch with his
counterpart in manufacturing. But that's how it was. Everybody worked
independently. I took one look at that system and I almost threw up. That's when
I knew I was in really deep trouble."10
Soon after becoming the Chairman and CEO of Chrysler, Iacocca thoroughly
revamped the management and set up a new team. He recruited several key
executives from Ford. They were asked to look after important functions such as
finance, product planning and quality. Iacocca himself began to look after public
relations. He was also forced to take harsh measures which included sacking off
talk shows like `Today Show' and `Larry King Live Show.' He had appeared in 80odd TV commercials. Iacocca never believed in origin or race of the people. He was
against ethnic discrimination. To prove this point, Iacocca appointed Gerald
Greenwald as Vice-President of Chrysler, though he was a Jew. He always gave
due significance, recognition and respect to people for their contribution to the
organization.
The other Side of Iacocca
Although most people recognized Iacocca's achievements in the corporate world
and his leadership qualities, a section of analysts and media reports highlighted
the negative side of Iacocca's leadership. Iacocca's management style was
reported to be dictatorial due to which he was disliked by his subordinates. Critics
also felt that Iacocca's self-confidence sometimes took the form of arrogance and
affected everyone he dealt with including his employees, suppliers, government
and banks. Iacocca was also believed by some analysts to be head-strong and
over-enthusiastic. He was considered to be egoistic and self-centric.
According to media reports, Iacocca had a large appetite for money. He was paid
$3,60,000 as annual compensation at Ford and he earned around $1 mn including
all bonuses. In 1986, Iacocca earned approximately $24 mn which was the highest
among all CEOs in top automobile companies. When he joined Chrysler, he lost his
severance package of $1.5 mn, due from Ford, but he claimed it from Chrysler as
the signing amount for joining the company. At one time, Iacocca's annual
compensation was even more than that of John Riccardo ($3,40,000) 17, the
Chairman of the Board of Chrysler. It was reported that Iacocca constantly
engaged in disputes with the management of Chrysler over his compensation
package. He even sued Chrysler when the company's board refused to pay him the
money on 1,12,500 shares which he held as stock options. He was successful in
the lawsuit and compelled Chrysler to pay him $21 mn as compensation. Iacocca
also pressurized the company's board with his lawyer to hike his pension amount
which was already considered very high.
Analysts also accused Iacocca for taking many wrong decisions, which deteriorated
Chrysler's financial performance. Some of these included diversifying Chrysler into
the advanced technology and financial sector, investing millions of dollars in a
single project on a sports car which did not click and buying back Chrysler's shares
at $22 and re-issuing it later for $10. His decision to acquire AMC in 1987
weakened Chrysler's financial position considerably. Chrysler was in deep trouble
when an economic downturn struck the automotive industry in 1990. The
company's market share in the US automotive industry declined from 13.9% in
1988 to 9.3% while its revenues dropped from $359 mn in 1989 to $68 mn in
1990. In 1991, Chrysler's market share declined further to just 8.4%. The share
price of the company also plummeted from a high of $30 in 1989 to a low of $10
in 1991.
In the last few months prior to his retirement, Iacocca vehemently opposed
Chrysler when they wanted to elect a successor18 to him. Reportedly, Iacocca
worked hard to thwart the chances of product specialist, Robert Lutz becoming the
Chairman of Chrysler. This episode led some employees working in Chrysler to
sarcastically ridicule him by saying that Iacocca stood for `I Am Chairman of
Chrysler Corporation Always.'
Even after his retirement, Iacocca demanded Chrysler to provide him a private
airline and stock options. In 1995, Iacocca fell into a major controversy when he
helped Kirk Kerkorian (Kerkorian)19 in a hostile takeover bid to purchase Chrysler's
shares at the rate of $55 per share. The top management of Chrysler turned down
the bid and strongly reprimanded Iacocca for supporting Kerkorian. Iacocca was
also accused of sharing some secret information with Kerkorian, and demeaning
the company and its products. Chrysler also alleged him of behaving in a manner
which was detrimental to the interests of the company. According to the
advocates, "Iacocca has acted willfully, wantonly, maliciously, and outrageously to
injure Chrysler."20 Recollecting some of his ill experiences at Chrysler, Iacocca once
said, "I forgot to shake hands and be friendly. It was an important lesson about
leadership."
Additional Readings and References
1. Taylor, Alex III Legend in His Own Mind? www.fortune.com, July 24, 1995.
2. Sharf, Stephan Lee Iacocca as I knew him; he was certainly the right
man at the right time... wardsauto.com, May 1, 1996.
3. Taylor, Alex III A Superstar CEO Crashes Back to Real life- The Story of
Iacocca's Troubled Retirement is a Cautionary Tale For E-Fortune,
www.fortune.com, June 24, 1996.
4. Irvin, R Whatever Happened To...? www.csmonitor.com, September 16,
1999.
5. Lee Iacocca's EV Global Motors Company the Recipient of Clean Air
Award; Company Recognized for their Efforts to Promote Zero Emission
Transportation, www.findarticles.com, May 5, 2000.
6. Motivation is everything, www.dailycelebrations.com, October 15, 2000.
7. A Suit to undo the Chrysler Merger, www.cbsnews.com, November 27,
2000.
8. Collins, Jim Level 5 Leadership, Harvard Business Review,
January 2001.
9. Cole, Dave Lee Iacocca, the Man with the Plan,
www.news.smallbusinessstudio.com, March 8, 2001.
10. Once Again, Lee Iacocca Leads the Way towards A New Transportation
Era, www.lidomotors.com, April 2001.
11. Aiello, Al Lee Iacocca, Stepfather of the Falcon,
www.westcoastfalcons.com, August 2001.
12. Lee Iacocca named Honorary Chairman of 2001 Golf Cart Parade, Palm
Desert Chamber of Commerce, www.lidomotors.com, October 2001.
13. Lee Iacocca Named Honorary Chairman of Palm Desert's Golf Cart
Parade, The Desert Sun Newspaper, www.lidomotors.com, November 4, 2001.
14. Lee Iacocca- Lido Electric Car, www.hammacher.com.
15. Swinfin S Connie, Biography of Lido A Iacocca, www.stfrancis.edu.
16. Pennsylvania Lee Iacocca, www.netstate.com
17. Useem Jerry, The Embattled CEO, www.fortune.com, 2002.
18. Lehigh and The Iacocca Institute, www.lehigh.edu.
19. Lee Iacocca, www.emediaplan.com.
In an article titled "TACOM conducts 3rd Annual Quality Survey" by Stan Kahn
posted on www.pica.army.mil dated December 1997.
2
The Automotive Industry Leader of the Year Award was a mark of honor for those
who contributed significantly to the automotive industry. The award was given to
those committed, hardworking and determined people who converted their dreams
and visions into reality.
3
In an article titled "The Automotive Hall of Fame," December 11, 2001 posted on
www.dispatch.co.za.
4
In an article titled "Cool Cash Ezine," dated March 15, 1998, posted on
www.freecoolcash.com.
6
The Ford Pinto was launched in 1971 as a competitor to the imported and
domestic small-sized cars. Pinto was targeted to compete with Volkswagen and
various other Japanese automobile companies. Pinto was produced in a record
time of 25 months as against an average of 43 months. It consisted of nonventilated windows, slim line high uplift bucket seats, vinyl upholstery, 2 pod
instrument bundles, glove box, interior dome light, floor-mounted transmission
controls, hot water heater, rack and pinion steering, direct-air ventilation system,
and 6 x 13 rayon black wall tyres.
7
11
UAW, established in 1935, is one of the largest and diversified unions in North
America and includes members from every economic field. The UAW includes over
950 local unions. UAW has been engaged in all civil rights litigations since the
1950s. A few breakthrough laws brought about by the UAW include the Family and
Medical Leave Act, Employee Retirement Act, Occupational Safety and Health Act
and so on.
12
The K-car was robust, well-designed, fuel-efficient and spacious. It could seat six
persons. It was a luxurious front-wheel-drive vehicle that worked on just four
cylinders. It gave a mileage of 25 miles per gallon on city roads and 41 miles on a
highway drive.
13
14
John Riccardo's salary was later raised to $3,60,000 by giving him a raise of
$20,000 and making it on par with Iacocca's salary.
17
Robert Eaton was named as the successor to Chrysler after Iacocca's retirement.
He had worked with General Motors for 30 years from 1963 to 1993.
18
In an article dated June 24, 1996 in Fortune.com, titled, "A Superstar CEO
Crashes Back to Real Life-The Story of Iacocca's Troubled Retirement is a
Cautionary Tale for E-Fortune" by Alex Taylor III.
20
Place of Birth
Allentown, Pennsylvania
Mary McCleary
Peggy Johnson
Bachelors Degree
Masters Degree
Professional Profile
Posts held at Ford Motor Company
Salesman and Sales Manager
1946-56
1956-57
1957-60
1960
1960-65
1965-69
Executive Vice-President
1967-69
President
1970-78
Posts held at Chrysler Corporation
1978-79
1979-92
Books on Iacocca
Autobiography
Biography
Ford Mustang
Ford Pinto
Chrysler Minivan
Daytona Turbo
Daytona Turbo Z
Chrysler Laser
Daytona Pacifica
Daytona Shelby Z
Daytona ES
Daytona ES Turbo
Daytona Shelby
Plymouth Laser
Daytona IROC/RT
CASE ANALYSIS
The Good, the Bad and the Ugly
- Bala Krishnamoorthy
Lee Iacocca, the automobile industry legend, has earned his place of pride due
to relentless hard work and a brilliant streak of innovation. While admiring his
leadership skills, one must appreciate the inner driving force that worked as a
propeller and facilitated quick decision-making. Lee made notable contributions
at Ford as a sales manager. When he introduced `56 for 56' in 1956, making
people visualize a car as a durable item instead of a luxury would indeed have
been quite a difficult task. Lee made the car a utility. For a common man, a
scheme like `56 for 56' was a boon as all his worries of bank loans and
guarantee were put to rest.
Lee did not stop at that. as he rose to higher posts, he carried his team with
him. The Fairlane Committee was a unique team-building exercise. This
scheme would have helped retain the youngsters and enthusiastic people to
stick to their job. I would say it was an excellent retention policy and served as
a great non-monetary motivator for people to be associated with Ford and
identify themselves with the company.
The issues of customer focus and roping in the customer into the company
were given due attention by Lee Iacocca. This is evident in his Mustang I
experiment. Customers designing the car along with the company experts and
developing a feedback system can be seen as precursors to the customer
relationship management techniques of today. He was ahead of his time and
thus established a distinct identity of his own in the automobile industry.
Lee was daring in his style of leadership. Look at his program of Shuck the
Losers. This scheme put the departments on fire and compelled them to
perform. Lee had innovative ideas and cost-cutting strategies. A perfect
change agent and, as an analyst rightly pointed out, an `on-the- feet-thinker'.
He had the ability to go ahead unhesitatingly with his change plans and the
caliber to sustain it with his charismatic leadership style. I call it charismatic
because at Chrysler where he made major changes, he was already
appreciated for his contributions to Ford.
The uniqueness of Lee's leadership was also due to another important factor,
which was his lack of fear of criticism. Very few people can forge ahead
ignoring the comments of colleagues and seniors in an organization. This was
an attribute inborn to Lee's style of functioning. One can also see this as a
contributing factor for his very high demands and unrealistic negotiations with
Chrysler for compensation.
Lee also did not bother to compare himself with his counterparts. His sense of
identification with the companies that he worked for was so great that he very
often forgot that he was only an employee and not the owner. One can refer to
him as a headstrong person because of his confidence in himself, but one must
admit that he could influence and motivate people and encourage them to
perform. From this perspective, he was also a people's leader. He was certainly
a trendy contemporary leader as he focused on cost-cutting, the mantra of
many leading global corporations today, which paid rich dividends at that point
of time as well.
Lee had certain shortcomings too as a leader. He had a very long tenure at
Ford followed by a 14-year stint at Chrysler. At Ford, his leadership role was
different because he rose from the ranks and file, and the extent of impact of
his leadership must have been limited. At Chrysler his entry was dramatic, as
he entered as a troubleshooter and had to shoulder major responsibilities and
deliver results. His team was with him throughout the difficult time and
sustained the pressures of recovering from the crisis. However, over a period, I
think, these types of leaders generate a lot of discomfort in the team and
ultimately the team gets tired of the leader. This factor is amply evident from
the comment from the employees that Iacocca stood for, "I am Chairman of
Chrysler Corporation Always."
This statement clearly shows the negative inner feelings amongst the
employees about Lee's autocratic nature and about how he thought himself to
be indispensable. His relationships with the management and persistent
demands for higher compensation could have made the employees grow sick
of his ways of handling things. This could have demoralized the employees,
resulting in a stagnant situation. This was perhaps one of the major factors for
the deteriorating performance of Chrysler before Lee stepped down. However,
all said and done, one must also realize that leadership alone would not have
led to the deterioration of a huge corporation like Chrysler.
The author is Faculty Member, Narsee Monjee Institute of Management Studies
(NMIMS), Mumbai.
ICFAI Press. All Rights Reserved.