In 1970, Iacocca was made president of Ford Motor Company ie. head of 432,000 employees with a payroll of $3.5 billion, with over 2.5 million cars and 750,000 trucks produced per year. Overseas production was an additional 1.5 million vehicles. Total sales in 1970 were $14.9 billion with a profit of $515 million. According to Iacocca, there are two ways to make a profit.
(1) sell more goods or 2) spend less on overhead.
It is always easier to cut spending in the name of efficiency than to increase sales. For example, Iacocca cut 4 problem spots down by $50 million in a) timing foul-ups, b) product complexity, c) design costs, and d) outmoded business practices. There was room for improvement in switching production from one vehicle to another at Ford plants, which usually took 2 weeks. By 1974, conversion times were down to a weekend through computer programming. Iacocca attacked freight spending as well, which had only a small percentage of the total expenses, but was at over $500 million a year. Under Iacocca, freight cars were much more tightly packed, a few millimeters meant the difference between packing a car or paying to ship air (ie. space). Iacocca closed down the appliance side of Ford, which made laundry machines that were not competitive within that industry.
Another more personal example of analyzing spending was in the Glass House (Ford HQ). Henry Ford II loved the Glass House cafeteria hamburgers because he could not get anything like it anywhere else and so Iacocca investigated with the head chef how Henry Ford’s hamburgers were made so delectable. The chef showed Iacocca the process revealing that these hamburgers were actually grinded down New York strip steaks shaped it into patties. Waste was abundant at Ford. The lunches in the cafeteria cost $2.00 per day, but that was after tax spending for each management executive. Everyone in the cafeteria was in the 90% bracket of the 1960s era taxation so $2.00 meant you had to earn $20.00 to pay for that hamburger since 0.90 x $20.00 = $18.00 which went to the government. Iacocca conducted a study of the cafeteria and determined that the cost per head was $104 per day. Cutting costs would earn respect with the bean counters of the company.
