Lee Iacocca: Don’t Go Quietly, Address Criticism With Strong Responses 

During the government negotiations over a Chrysler bailout, K&E put ads together to emphasize that Chrysler was in trouble but that America would be worse off if Chrysler no longer existed. The goal was to restore faith in Chrysler directly to the public. People had questions about Chrysler’s future and these newspaper ads addressed those concerns.

Lee Iacocca: Sacrifice Comes From the Top Down

People are willing to accept pain if they know that everyone else is also accepting that pain. After getting the government loan guarantee, Iacocca reduced his salary to $1.00 per year because he believed that leaders should set an example. By doing so (for good pragmatic and cold reasons makes sense) Lee could say that he too was feeling the sacrifice at Chrysler.

With unions, Iacocca put it bluntly that he had “a shotgun to their heads”….there are either thousands of jobs at $17 an hour and none at $20. Over Chrysler, the average working person lost up to $10,000 per year. Meanwhile at GM, Roger Smith cut his own salary by ONLY $1,620 a year while the worker benefits dropped by $2.5 billion. During the downsizings, Iacocca would go to each plant and deliver a speech to those who were loosing their jobs. Chrysler employees made $2.00 less than Ford or GM employees as a result. Even with workers pay cuts of $2.00 an hour the retirees did not get a reduction in benefits because Chrysler could not renege on the pension plan therefore current workers had to suffer. Iacocca even brought Doug Fraser (who was a Union leader) onto the board at Chrysler even though he was a ‘fox in the henhouse’ ie he wanted to squeeze management and margins for worker compensation.

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

Chrysler Motor Company had traditionally been a heavily leveraged company and borrowed heavily from banks. When heavily leveraged, good times are amazing and bad times are suicidal. To dissuade banks from trying to support a bankruptcy, Jerry Greenwald made it clear that all loans would be tied up for 5 to 10 years before banks could access them again so the banks smartened up. Banks did not want to cooperate much because their survival did not rely on Chrysler. There were outstanding loans with low-interest rates of 9% and others ranging for 12% to 20% then back down to 11% when the loan agreement was finalized. According to Iacocca, ironically, whenever banks were in trouble in foreign countries, the bankers received bailouts without question because the FED is full of bankers itself. There is a double standard with banks that is totally unfair. To get the Canadian banks on side, Chrysler agreed to have Canadians as 11% of the North American Chrysler work force which was easy because the Chrysler New Yorker was being built in Canada.

Negotiating with banks was complicated but Steve Miller used charm and humour to disarm the banks: the result was a total of $660 million in interest deferrals and reductions with a 4 year extension of $4 billion worth of loans at 5.5%. BUT all the banks had to agree to cooperate so everyone got a raw deal. One small bank threatened to screw up the entire loan even though they only had a $75,000 loan with Chrysler. However, finally, all of the banks signed documents and those signatures had to be collected together through a conference call where all banks were present. Finally on June 24^th, 1980 the first cheque for $500 million was chased. All of this occurred with Salomon Brothers taking their $13,250,000 off the top immediately leaving $486,750,000 for Chrysler.

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

Chrysler had big suppliers knocking on their door with accounts payable at $800 million per month. Chrysler couldn’t just say that they would be slow to pay their suppliers but they had to say they wanted more spend per month. If this starts to come undone, the suppliers get nervous and act in their own interests, which is a problem. The solution is to always keep suppliers happy.

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