Tag Archives: innovation

Lee Iacocca: Avoid Short-Termism & Expensive Labour Costs

In 1970, GM employees went on strike for 67 days in the US and 95 days in Canada, the 400,000 workers lost $760 million in wages,and GM failed to produce 1.5 million vehicles resulting in a loss of $5 billion in profits. When Chrysler had a 104-day strike in 1950, Ford was able to overtake Chrysler. Strikes were devastating. In 1914, Henry Ford famously paid his workers $5.00 in order to create a middle class that could afford his automobiles. Today, the issue between United Auto Workers and management is not wages but fringe benefits. According to Lee Iacocca, the fault lies with management at Ford, GM and Chrysler who focused on expediency, profits for the next quarter and earning large bonuses for themselves instead of worrying about the long-term impacts of unsustainable benefits for union workers. Regularly, when the UAW threatened to strike, they played management hard and convinced them to accept their demands for better benefits so that short-term management goals could still be maintained.

Management gave in on three areas that has effected the US auto-industry deeply. They gave in because they were focused on the short-term rather than the long-term objectives…

  1. The Cost-Of-Living Allowance (http://en.wikipedia.org/wiki/Cost_of_living): COLA causes run-away inflation since millions of autoworkers and regular Americans benefit from it because it pins the worker’s salary to the Consumer Price Index. Ironically, it was Charlie Wilson of GM’s idea in response to inflation when government lifted price controls in 1946. When the US was booming in the 1950s and 1960s the COLA was not an issue BUT when inflation soared as productivity declined the real problem was revealed.
  2. Thirty And Out: early retirement takes away qualified specialists and then leave the Big 3 to pay their $800 per month pensions (1984 numbers) while they sit at home being unproductive. In reality, the retired guy would work as a cab driver illegally on the side. This results in the best electricians ending up driving cabs. The policy was an UAW driven idea to make way for younger people to take on new jobs but the reality was people live longer than thirty years these days.
  3. Medical Benefits: the Big 3 pay $3 billion per year for hospitals, medical, surgical and dental insurance. This cost means $600 per car sold at Chrysler per year. Iacocca believes that there is immense abuse of the system where a podiatrist had charged Chrysler workers a total of $400,000 a year. There were over 240,000 blood tests done for only 60,000 employees.

For Iacocca, reforming and clawing back on union power and management weakness is imperative for the future of the US auto-industry. UAW never fought automation because it was a way to be more productive.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: Basic Management Tips

  • Play dumb when you have to: In December of 1960, McNamara pressured Henry Ford to promote Iacocca to head of the Ford Division, Lee was told to play it cool when being taken to Henry Ford’s office and when offered the position. The reason was that Ford II wanted to make the offer as though it was his own decision and surprise Iacocca.
  • Use common sense and experience in management: Iacocca relays this message about common sense that he picked up from Charlie Beacham (top sales guru) from Iacocca’s Chester, Pennsylvania days; “if you can’t tell the difference between a scope of horse crap and vanilla ice cream then there is no hope for you.” Common sense is something you have to be born with. Logical reasoning is a kind of common sense.
  • Be decisive as a manager: To act is the one key. The most important decision in a company is made by individuals and not by committees. Decisions by committee take dialogue, which is not what you need when you are trying to shoot a moving object like a duck, according to Iacocca. You need to look at the facts as far as you are able to outline them and make decisions accordingly. Too many MBAs will wait until they have 100% of the facts. The problem is that too much education leads managers to over analyze their courses of action. For Iacocca, timing is everything, getting the right decision at the right time is the difference between success and failure.
  • A leader takes a leap of faith: 1) even the right decision is wrong if it’s too late; 2) there is no such thing as certainty so stop trying to create it; 3) don’t be the little boy with the big dog that leads the boy wherever he wants.
  • Always be careful of those who may be jealous of your success: Iacocca had no real credentials when he was made head of the Ford Division. He was an ideas guy not a product guy, you need to have a major success in order to prove your worth, hence Iacocca spearheaded the development of the Mustang…
This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: The Japanese Obsession and Protecting Your Industrial Base

US states are being played off of one another in a competition for Japanese auto factories in the US. Iacocca believed in 1984 that the Japanese were outcompeting the US because of the close ties between management and government officials in Japan. Like China today, Japan according to Iacocca in 1984 was manipulating the yen by pegging it to the US dollar.

In 1984, Iacocca believed that the US was a free trade bastion and Japan had many restrictions for US trade. Japanese car prices fluctuate based on where they are being sold around the world for example in Paris a car would sell at $10,500, San Francisco at $7,200 and $9,000 in Frankfurt, there was no free trade policy in Japan in the 1980s. Iacocca advocates for economic nationalism and protectionism by restricting the number of Japanese cars sold in the US market (with the benefit going to Chrysler, of course). Iacocca believes in dependency theory when he asks: “Question: What do you call a country that exports raw materials and imports finished goods? Answer: A colony.”

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: Government Is Self-Interested & Transfer R&D Where Squandered

By 1983, the operating profit of Chrysler was $925 million, which was the best performance in Chrysler history. A new stock offering of 12.5 million shares was made. Within the first hour, 26 million shares were sold with a market value of $432 million. Since any new issue of equity dilutes the existing outstanding shares the price typically dips but at $16.63 the shares then surged to $25 and then $35 per share.

Fortunately, Chrysler was in a position to repay its government loan guarantee that was made from 1980 in 1983 which was 7 years earlier then expected. Unfortunately, the government could force Chrysler to issue 14.4 million shares at $13 at anytime until 1990, this also includes the interest rates of 24%. When Iacocca asked the government to not impose this indecent profit that it had been privy to, the public outcry was massive. Chrysler ended up buying back the warrants at $350 million and the government used those funds not help laid off workers (which might have been appropriate) but rather towards the US deficit.

The final cherry on top for Chrysler was the production of the world’s first minivan. Hal Sperlich developed the Mini-Max at Ford with initial R&D of $500,000 in 1974. There were 3 rules for its creation. 1) the step up height had to be low, 2) the car to fit in a North American-style garage, 3) there had to be ‘nose’ with an engine up front to protect the occupants in the event of an accident. Unfortunately, Henry Ford shot the idea down because he did not want to experiment. So Chrysler released the mini-van in 1984 with major traction and Ford and GM quickly scrambled to develop their own minivans.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.

Lee Iacocca: Go Small Or Go Home

Hal Sperlich and Lee Iacocca had initiated the K-car series in 1977 with the intention of bringing these four cylinder, 25 miles per gallon vehicles into market. The Aries and the Reliant were genuine sellers for Chrysler. All new cars were derived from the K-car platform including the LeBaron, Chrysler E Class, the New Yorker, Dodge 600 etc. Instead of creating a car for the different price ranges in the 1980s every car was built on the same chassis to save money. Building a new car off of the old was common in Detroit, considering the Mustang was a retooled Falcon.


Initially, these K-cars were priced at $5,880 but with options that would hike the price up to $8,000 or $9,000. This triggered sticker-shock for consumers because too many Chryslers were released with multiple-options. Also, in 1980, the interest rates were as high as 18.5% and as low as 13.5%. And because the government loans came in 3 installments the publicity was bad every time a cheque was carved. For the last loan, Chrysler had to find more concessions from banks. The government even made Chrysler sell the private jets even though they were used to get a top manager from plant to plant quickly. The corporate jet was not a perk but rather a necessary tool for completing their work.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.