By the time Sperlich entered the controversy in mid-1977 it was clear that the product people almost unanimously favored front-wheel drive, and the managers, to a considerable degree, favored the rear-wheel-drive car and saving the $300 million. Front-wheel drive, of course, was what Sperlich had been wanting at Ford for more than five years, and slowly he began to tilt Chrysler’s management. He faithfully presented both models, but his heart belonged to the K car. His friends believe he changed the decision by changing John Riccardo. He emphasized that front-wheel drive unlocked the future for Chrysler, and that under short-range conditions, the K car might save as much as two and even three miles a gallon over the H car. For a shaky company threatened by a government mandate which would set standards for a company’s entire fleet—an average of eighteen miles per gallon by 1978 and twenty miles per gallon by 1980—that difference was considerable. Sperlich insisted there was no real alternative to front-wheel drive: The government standards were permanent; they demanded long-range thinking. For Sperlich, emerging from the wars of Ford, Riccardo’s tolerance was a welcome change; he never fought back, he simply listened. In the end John Riccardo opted for the K car.
It was a courageous choice. Old-time Chrysler product men like Jack Withrow, who had been passionate about the K car but until Sperlich’s arrival had considered it almost hopeless, felt that Sperlich’s intervention had clearly made the difference. Taking place before the crisis in Iran, more than a year before Lee Iacocca arrived at Chrysler, the decision to go with front-wheel drive placed the company ahead of its American competitors. Years later, when Chrysler’s health was good and its stock was booming, Jack Withrow would often say that it was Hal Sperlich more than anyone else who had saved the company.
Riccardo made other exceptional decisions as well. He decided to sell the European empire, removing a major drain on the company and making about $300 million in cash. Then he decided, knowing that it was a threat to his own leadership of the company, to hire Lee Iacocca.
Sperlich, naturally, helped persuade Lee Iacocca to come to Chrysler. Knowing that Iacocca was considering the job, Sperlich drove over to see his old mentor. He showed him all Chrysler’s best new designs, the K car, already in preparation, and the sketches for a small van they had never been allowed to do at Ford. As much as Sperlich’s encouragement might have meant to Iacocca, however, his decision to go to Chrysler already smacked of inevitability. When he had been fired at Ford, he had been flooded with offers. Being fired had in no way damaged his reputation; it was instead regarded by the business world as an act that revealed more about the whimsical nature of Henry Ford’s business practices than about Iacocca’s competence. But he had hesitated to accept any of the jobs he was offered, no matter how handsome the deal. He wanted to stay in the auto industry. It was what he knew best; he liked the scale of it. And, not least, he wanted revenge against Henry Ford. He knew Chrysler was sick, and he had a sense that he might be offered the top job there, so on his own he had some financial analysts prepare a report on its finances. They were even more dismal than he had thought. Eventually the offer from Chrysler came through. On November 2, 1978, Lee Iacocca joined the company. That same day John Riccardo announced that it had lost a record $158.8 million for the third quarter.
From the start Iacocca was appalled by what he found. After he took his first tour of the operation he turned to Sperlich and said, “You son of a bitch, why didn’t you tell me it was this bad?”
“Because if I had, you never would have come,” Sperlich answered.
Their always tempestuous relationship became edgier than ever; although they admired and respected each other, their friendship had its limits, for, alone among Iacocca’s closest aides, Sperlich had always fought back. Both at Ford and later at Chrysler, Iacocca managed in a rage, often bludgeoning those who worked for him. Some learned how to take it. For others it was simply too much, and they drifted away. Only Sperlich responded in kind, pounding Iacocca back. The problem, Sperlich concluded, was that Iacocca was genuinely angry at him for having helped lure him to Chrysler, for now that he was there he was by no means sure that even if they could eventually get federal help, they would make it.
“You know,” Iacocca would sometimes say to him during those first few years, “I’m not sure we can pull this off.”
Iacocca held his first product meeting in the Rotunda, which was the styling room. The acoustics were terrible. “It sounds like we’re talking in a tomb,” he finally said, adding, “I wonder if someone is trying to tell us something.” He could joke about it, but his fear of failure was real. Whether it was his fault or not, he would be blamed for Chrysler’s collapse. He would have survived the humiliation of being fired by Henry Ford only to have Chrysler sink under his feet. For a man as proud as Lee Iacocca, who hated to lose in public, that would be unbearable. Worse, it might seem to prove that Henry Ford had been right. So it was that all through 1979 Lee Iacocca and Hal Sperlich went at each other in a constant fury. Very few outsiders watching them would have guessed that they had been the closest of professional allies for more than fifteen years.
Some who knew Iacocca well thought that when he first arrived at Chrysler he not only misunderstood the full extent of its sickness but the nature of it. He was aware that the company was ill, but he believed it was ailing because of bad decisions, not because of fearful systemic pressures that had forced bad decisions. Thus, fairly quickly, the coming of a good management team, the Iacocca team, would turn it around. Good decisions would replace bad decisions. Soon it would be like Ford in the old days, except with a slimmer, better team. One incident seemed to prove that. For a meeting with Chrysler’s product planners, Bernard Robertson, one of the more senior product men, had put together a paper that said that Chrysler had to concentrate its limited resources on small cars, that it had never made any money in big cars, that its credibility (limited though that might be) was with the smaller, less expensive ones, and therefore in these difficult times what little resource the company had should be concentrated in an area where the company already had some trust. When Robertson finished, he and the others in the room were treated to a patronizing lecture from Iacocca about how much money Ford had made on its big-car lines on quite limited investment, how you could take a basic chassis, add on a good grille and a few doodads, and the profits went off the chart.
That story had spread quickly through the company and the automotive world, and it had convinced some people that Iacocca did not really understand the horror at Chrysler and that he had not really changed. It also prompted a furious exchange between two old friends, David E. Davis of Car and Driver and Hal Sperlich, both of them critics of the old Detroit, both of them proponents of the new front-wheel-drive cars, both of them evangelists for an industry that would use its mind as well as its muscle. One night soon after Iacocca had taken over Chrysler they had a bitter argument in which Davis, having heard the story about Iacocca’s big-car lecture at Chrysler and some others before it, told Sperlich that Iacocca was just the old Detroit in a new office and, worse, that Iacocca did not really believe in Sperlich’s wonderful front-wheel-drive, fuel-efficient cars, he was merely using Sperlich. That was painful for Sperlich, and he turned to Davis and said, “All I ask is that you have lunch with him. One lunch. Then you make your own decision. Maybe he’s not the philosopher-king that I claim he is, but at least you’ll find out he’s not the barbarian asshole that you think he is.”
The lunch was duly arranged, and Davis came away impressed. Iacocca, he decided, had by that time perceived the full extent of the malaise of Chrysler (and thus the industry), and Davis had liked the indignation with which Iacocca regarded the Chrysler sales bank. That was not put on, it was real passion, directed against a kind of evil within the industry. More, unlike most of the auto men of his generation, who were wedded to the past, Iacocca seemed to Davis a man capable of real change. Davis later admitted as much to Sperlich, and he talked of the possible reasons Iacocca was
different. Part of it was probably that he was smarter than most of his contemporaries and had risen in the company against greater odds. He had probably never accepted the conventional wisdom the way men with more conventional backgrounds had. But part of it was also that he simply was not programmed to do things as they had always been done, not tied to platitudes. Many of his contemporaries had learned the rhetoric of change and could talk a good game, but whenever they made decisions they inevitably reverted to form. This was not true of Iacocca. He not only talked change, he had changed. He was willing to take risks and to pay attention to new realities and adapt his thinking to them. He was, Davis decided, a completely pragmatic man.
Nothing at Chrysler offended Iacocca’s pragmatism more than the sales bank. He was appalled that a company could try to do business by cheating and lying to itself. R. K. Brown, the outgoing vice-president for marketing, explained the system to him soon after he took over. Later, Brown came and asked Iacocca for some money for an advertising campaign to sell the sales-bank cars. It was March, the last month of the quarter. The sales bank, he said, had 100,000 cars in it. Iacocca was stunned. Sell 100,000 cars, millions of dollars’ worth? And sell them under deadline pressure? But Brown was quite confident they could do it. They’d always done it this way, he said. Just look, he told Iacocca, at the last ten days of March for each of the past ten years. Everyone in the sales force, he explained, went to the Tank, a large room, and divvied up the regions and the dealers and the number of cars. Sure enough, in Iacocca’s first year some 66,000 cars were pushed right through. But it took time to do that, and meanwhile every day that Iacocca went to work he drove by the old Ford plant at Highland Park. Chrysler was renting it from Ford to use for the sales bank, and the sight of his cars wasting away, the weeds growing among them, made him almost ill. He later figured out that it took about $125 a car to fix them up again for sale. It was immediately clear to him that the dealers were simply waiting each year until the last minute and then buying their cars at these fire sales.
The company’s disease was endemic. To cut costs in the mid-seventies Townsend had laid off the people who were critical to the company’s future, the engineers and the research-and-development experts. Now, in the late seventies, the company was paying for it. There were also the problems with the government safety and emissions standards. In December 1978, at the height of Chrysler’s frantic struggle for survival, John Riccardo went to the White House to argue for a two-year respite from some of the federal regulations. He said that Chrysler otherwise might fall more than $1 billion behind in the next two years in its capital needs, and he blamed many of its problems, particularly its expensive retooling to meet new fuel-efficiency requirements, on the federal government. Stuart Eizenstat, the Carter administration domestic-policy adviser with whom he met, made no promises, and his superior, President Jimmy Carter—who privately regarded Detroit executives as greedy in good times and whiny in bad ones—was not sympathetic.
Nothing in Iacocca’s first year was easy. Chrysler lost $205 million, and the next two years were to be a great deal worse. “We have quite detailed accounting that shows we have lost one billion dollars in this past year,” Jerry Greenwald mordantly told his fellow senior executives soon after he joined the company as controller. “The only trouble is that the systems are so bad we don’t have the foggiest idea why or where we lost the one billion.” Recovery would have been difficult under the best of conditions, but within a short time the crisis in Iran began. GM and Ford were shaken by it, but Chrysler nearly died.
Probably no one but Iacocca could have pulled off what followed, the government rescue of Chrysler and the slow, painstaking process of resuscitating a dying company. Many other talented men like Greenwald, Sperlich, and Steve Miller played critical roles, but what legitimized the rescue operation first in the business community and then in the Congress was Iacocca’s name and reputation. (The political muscle of the UAW during a Democratic administration did not hurt, of course.) He was aided not only by his strengths but by his tendency, not always attractive, to take everything personally. In this struggle, it was a major asset. To him, the battle to save Chrysler was not just an especially difficult job that it would be nice to succeed at; it was a chance to vindicate himself. It impelled him to work harder, to push everyone around him harder. Some of his closest friends believed he could not have pulled it off if it had been a mere corporate struggle. But to him it was the moral equivalent of war; it was Lee Iacocca against Henry Ford. It was the perfect role for him. Uniting his cause with the nation’s cause, he made it seem that he was bringing back not only Chrysler but also America itself. His skill at merging personal destiny with corporate destiny dated from the Mustang, when the car had become his car and he had ended up on the covers of both news magazines; now he exercised it on a scale that no one else in corporate life could ever have imagined.
There were two more Iacocca assets that proved crucial. The first was that he was probably the only man in the world of automobiles who could have attracted talented people to so sick a company. He brought in some of the most promising young men from Ford, offering them a chance not at riches but at the excitement of turning around an ailing company and doing some of the things they had been forbidden to do at Ford. (For a time all of the top executives at Chrysler seemed to be Ford exiles—Sperlich, Greenwald, Paul Bergmoser, Gar Laux. Some in Detroit started calling Chrysler “Little Ford.” One day early in Iacocca’s reign they sat around discussing a certain segment of the market. “Listen, in this segment there’s only GM, Chrysler, and us,” someone said.
“Wait a minute,” said Laux. “We’re Chrysler now.”)
The second asset was more basic. In an industry where leadership had become increasingly cautious and finance-oriented, he was market-driven; He could respond to product. Even in the darkest days at Chrysler he retained his instinct for product, for what the customer wanted.
More often than not in those critical months, Iacocca was an absolute monster to deal with. Not only had the task of salvaging Chrysler turned out to be ferociously difficult, but also his wife was dying. He was forced to spend too much time away from her by the constant need to be in Washington lobbying Congress or the banks. Everything in his life at that moment must have seemed impossible to him, one close friend thought. As far as he was concerned, no one knew how to do anything at Chrysler. All of the amenities he had become accustomed to at Ford—the people who were always there to smooth his way, who knew what to do for him even before they were asked, drivers, pilots, secretaries, batmen—were all gone. Once, upon checking into the Waldorf and finding that his room wasn’t ready, he pointed at the high Chrysler executive trying to help him check in and said to him, “I want you to call those guys at Ford and ask them how they do this.” He had left a world of private jets to come to a company where he was lucky if someone met his plane. These inconveniences seemed to symbolize the deficiency he sensed everywhere around him at Chrysler.
His friends and employees became accustomed to his bursts of fury and profanity, his tendency to blame everyone but himself for his problems. The moods had always passed quickly, and he would neither apologize for them nor even acknowledge them. But now sometimes an eerie moodiness settled upon him; in his study with his closest friends, whether he was smoking a cigar or watching television, he was clearly alone—building, as one friend said, a wall around himself. He snapped at everybody, including, to everyone’s surprise, his mother.
Fortunately for Iacocca and Chrysler, Sperlich was already there when he arrived, and the K car was already on the drawing board. Otherwise, the company would never have made it. From the moment John Riccardo approved the K, Chrysler entered a race to fend off bankruptcy until it reached the marketplace in the fall of 1980. There were times during the next two years when it seemed as if the company would not last until the K car appeared. All the normal channels of financing had dried up. No bank was interested in lending more money to Chrysler, no fi
nancial house anxious to do a public issue of its stock. Its only hope was the government. Even with Chrysler’s best efforts—the most brilliant and expensive lobbyists in Washington, the strength of organized labor, the added force of black power (Chrysler was the largest industrial employer of blacks in America), and the energy of all Chrysler’s dealers—the program was often in doubt. To satisfy critics in Congress who wanted a scapegoat, Riccardo resigned as chairman. He had not endeared himself to them by criticizing federal regulatory programs. In September 1979, Iacocca became chairman of Chrysler. In the weeks after that, the company edged perilously close to bankruptcy, and in December the bills to rescue Chrysler went to both houses of Congress. The government moved slowly, and the banks, which were already supporting Chrysler, moved slower, but eventually an immensely complicated bail-out program was approved that brought the company $1.2 billion in guaranteed funds, enough to keep the K cars in the pipeline.
For long periods in 1980, the company actually was bankrupt and existed only at the mercy of its thousands of suppliers, which it was gently and politely stiffing. For about four months the suppliers carried the company; any one of them could have pushed it over the brink by demanding payment. Chrysler’s internal bloodlettings were terrible. On the day in August 1980 when the K car went into production, Chrysler laid off three thousand of its sixty-five hundred engineers. There was simply no money to pay them. It was one of the darkest days in Chrysler’s history. Rarely had a company so large been suspended on a thread so frail.
Reckoning Page 72
