Before Iacocca, Chrysler production was a giant guessing game. Prior to Iacocca’s arrival, the way Chrysler worked was that the Manufacturing Division would tell the Sales Division the car models what quantities it was going to produce, then the Sales division would try to sell them. This is the complete opposite of what makes sense since the sales people should be managing the demand side based on customer interest. Basically, Chrysler was not responsive to customer demand, if a customer wanted a red car it was not going to be built unless the Manufacturing Division had allotted some production for red cars.
This manufacturing organization meant that there was a sales bank of Chrysler cars. The extra cars that were not sold immediately were put on giant lots in Detroit at the Michigan State fairgrounds. In 1979, there were 80,000 models on display, which was worth approximately $600 million in finished inventory. The cost of this unsold inventory was immense because these assets were decaying. To fix this problem, Iacocca went to the dealers to pick up and reorganize demand side management. This was so that the dealers and salespeople could then come together to decide the next order for the following month + a 3 month projection of demand. A firm commitment from the dealers = a building schedule. The dealer makes an order and within a few weeks it is on location. Killing the sales bank was essential for efficiency.
This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.
In late 1979, when Iacocca dived deeper into understanding Chrysler, he realized that nobody in the company fully understood what was going on in terms of finances and projections. Finding out the return on investment for each plant was rather difficult because no one took responsibility at Chrysler. Lynn Townsend ran Chrysler and according to Iacocca, he focused on oversea expansion (to enhance the companies valuation) rather than quality vehicles at home. Townsend aggressively expanded in Europe and in the process made himself very wealthy but Iacocca maintains that Townsend did not understand the fundamentals of the car business. That was because Townsend was a banker. So much so that Chrysler was running a marginal or losing operation around the world.
This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.
On November 2, 1978, Lee joined Chrysler and on the very same day, the company announced a 3rd quarter loss of almost $160 million, the worst deficit in its history. The organizational structure alone made Iacocca cringe. Chrysler was structured as a cluster of smaller departments loosely connected to the center. There was no system of meetings to get different parts of the company in order to regularly communicate with each other. Chrysler needed to embrace the idea of Newton’s Third Law of Motion – that every action has an equal and opposite reaction. The engineers failed to interact with the manufacturing division so they were not able to understand how a product could work. Manufacturing and engineering need to work together. Riccardo and Bill McGagh the treasurer were constantly running from bank to bank in order to ensure that the Chrysler loans were intact. Even worse, the Chrysler cars were lousy, the morale was bad and the factories were deteriorating. If Iacocca had known all this going in, he would not have joined Chrysler as its CEO.
This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.
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Before Iacocca, Chrysler production was a giant guessing game. Prior to Iacocca’s arrival, the way Chrysler worked was that the Manufacturing Division would tell the Sales Division the car models what quantities it was going to produce, then the Sales division would try to sell them. This is the complete opposite of what makes sense since the sales people should be managing the demand side based on customer interest. Basically, Chrysler was not responsive to customer demand, if a customer wanted a red car it was not going to be built unless the Manufacturing Division had allotted some production for red cars.
This manufacturing organization meant that there was a sales bank of Chrysler cars. The extra cars that were not sold immediately were put on giant lots in Detroit at the Michigan State fairgrounds. In 1979, there were 80,000 models on display, which was worth approximately $600 million in finished inventory. The cost of this unsold inventory was immense because these assets were decaying. To fix this problem, Iacocca went to the dealers to pick up and reorganize demand side management. This was so that the dealers and salespeople could then come together to decide the next order for the following month + a 3 month projection of demand. A firm commitment from the dealers = a building schedule. The dealer makes an order and within a few weeks it is on location. Killing the sales bank was essential for efficiency.
