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 24th, 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.
By the mid 1980s, Chrysler was in a strong position thanks in part to the build up of credibility that Iacocca had earned through his leadership. It also helps if you appear in TV commercials to get your message out. Iacocca did not want to do the ads at first because it would be time consuming. The logic of wheeling out the CEO was that a) Iacocca was well known, b) after you make the commercial, customers know you have to go back to work to improve the cars you just mentioned on air.
The best lines from the ads were: “If you can find a better car – buy it!” When the 1981 commercial came out, people thought that Iacocca was running for president because he was talking about Made in America, and the better days were ahead of us. Iacocca became a major celebrity and would be routinely stopped in the streets. Fame is fleeting for Iacocca. He spent a lot of time denying that he wanted to be president of the United States of America. Across the US, the television set was on an average of 42.7 hours per week. So committing to advertise on TV made huge sense for Chrysler.
This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.
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…
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.
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.
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.
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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 24th, 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.
