Lee Iacocca Chrysler Turnaround
Rodger Strother
Keller Graduate School of Management

Executive Summary
Chrysler was founded by Walter Chrysler on June 6, 1925 when the Maxwell Motor Company (established 1904) was re-organized into the Chrysler Corporation. Walter Chrysler has arrived at the Maxwell organization in the early 1920’s and launched the Chrysler vehicle. This new vehicle had six cylinders with advanced engineering and was more affordable. This vehicle included (new at the time) air filter for carburetor, a high compression engine, full pressure lubrication. Among the new innovations at the time was the fact that it was the first mass produced practical four wheel hydraulic brakes and rubber engine mounts to reduce vibrations.
It was during the early 1920’s that Walter Chrysler assumed the presidency of Maxwell and the company incorporated under the Chrysler name.
From the company’s conception the Chrysler name continued down the path of continued growth and acquisitions of various and numerous brands that would in the years be associated with the Chrysler name. Dodge, Plymouth, AMC, DeSoto and various others over the years. The years following the Second World War with the restraint on consumer goods lifted there was an increase demand for automobiles. Vehicles steadily became more reliable and the implementation of interstate highway plans with more paved roads this attracted more motorist.
This resulted in an overall expansion of the automotive industry with it being the only source of large fast and affordable vehicles with most of the world’s other manufactures in the remaining industrial world now in the process of recovery from the last world conflict. This contributed greatly to the lack of long term planning and quality control.
By the 1970’s Chrysler was producing numerous brands and floundering deep in financial distress. During this time frame the company was losing millions mainly due to vehicle recall of the Dodge Aspen and Plymouth Volare. These automotive production lines it was determined later were of such that they should not have even been built and or sold. Additional issues discovered were that there were too many cars chasing too few customers (Iacocca, 2007) . The inventory system overall was chaotic and not tied to manufacturing by any means that could facilitate control procedure. Chrysler was buying back all of its vehicles from leasing agents and thus requiring the dealerships to thus process the vehicles. Thus in turn Chrysler was the largest used car dealer in the United States. When Chrysler brought on Lee Iaccoca to lead the organization, one of the leading indicators of the problem was clearly shown as any business man who knows the value of money and must meet a payroll and understands the ramifications. Shortly after Lee Iacocca joined Chrysler he asked the CFO (Chief Financial Officer) of the company Jerry Greenwald how much real cash he could have on his desk by 5 o’clock that afternoon. His response was about a million give or take. When questioned about the payroll was every Friday the response was about two hundred million. That was how he learned the company was for most practical purposes were bankrupt. (Iacocca, 2007) Thus with Chrysler constantly hemorrhaging money and no clear vision or strategic mission to recover, Lee Iacocca knew he had his work cut out for him to save the company. Second Quarter losses reached 207 million, it owed nearly 4 billion nearly ten percent of all the corporate debt and had eighty thousand unsold vehicles worth over seven hundred million sitting on their dealers’ lots. By the third quarter losses were upward to 460 million and Chrysler’s 1979 1.2 billion loss was the largest in corporate history at that time. (Ross, 1980)
Assessment
First Iacocca used Chrysler’s serious situation to convince vast numbers of people groups and interests affected by the crisis (as well the public) that saving the company was the appropriate and viable option. He had to keep the functional while he attempted to re-organize and restructured the company to achieve the goals of keeping the company intact. In conjunction various article and reports were about indicating that if the company failed in excess of 400,000 workers would be un-employed and the over un-employment rate for Detroit would jump to 16%. With that many workers out of work anticipated loss to the American economy was to be around 1.5 billion dollars. Thus with so much as stake the primary goal to stop the monetary drain and then keep the company afloat long enough to re-structure and return to the core values of the automotive industry and make Chrysler once again a competitive company.
The overall effort focused around one individual that was anticipated to conduct the recovery operation, Lee Iacocca. This was accomplished by calling on patriotism along with dire pleas to save the company worked in convincing all that if Chrysler failed then it would be a negative consequence for the country as a whole, this lead to the breaking of tradition operational procedures and going out and asking for government financial aid. The money was secured in the means of asking for loan guarantees thus no taxpayer money was actually taken. Thus with taking the assistance of Washington, D.C. it indicated a clear ability to work in various complicated situations and achieve results. With the Federal Government on the side of Chrysler then the further dealings with the local governments were more likely to come in line as well. The state government of Michigan purchased eight hundred Chrysler vehicles pledged another 185 million in loan guarantees and other efforts to support the company. Then there was the numerous and multitude of negotiations that were to take place with the vast amount of agencies, labor unions and banks. The UAW was in turn conducive to concessions and worked with the company to keeps the union workers employed. The vast number of lending institutions finally agreed thus allowing Chrysler to secure the loan guarantees. Among the Chrysler employees Iacocca had to fire thousands of managers and salaried staff. Iacocca took the lead and became the company spokesperson. He became the face of Chrysler thus the phrase from the commercials “If you can find a better car, buys it” He communicated the actions to the company and its staff and went the extra mile to communicate to the American people as well. He placed adds in newspapers and worked on re-working the image of Chrysler from a maker of gas guzzling land yachts and to restate Chryslers situation. Lee Iacocca with his personal drive and dynamic charisma was a one man show to save the ailing automotive giant.
With valid employment numbers and the effect of so many workers being out of work the detrimental consequences to the economy was considerable. The constant negative cash flows, the inventory system that did not function, the fact that the company could not manufacture vehicles that were desired by their customer basis was several of the factors going into the re-structure. The lag time on design and to production was over 60 months and growing the dealers were struggling to keep their end of the company viable. This was clearly indicated by the fact there were so many makes and models all along the same functional path there were more automobiles than the customer base could support. (Iacocca, 2007) Chrysler realized that at the onset they terrible customer service and press relations (thus the image of clunkers and gas guzzlers) and an outdated product line along with its deceasing market share. Thus it was highly apparent not only would the company have to be physically restructured but the overall culture and working environment was also outdated and needed improvement. Earlier in Chrysler’s stage they had acquired AMC a smaller automotive entity. The culture at AMC was to do more with less and to use collaboration and cross functional methods to make the company to function. This more concise approach was to be one of the many that would eventually lead to the success of the recovery. The realization that only small groups of personnel controlled the product line was re-addressed with the implementation of planners and personnel speaking out for the customers in the efforts to keep the company true its core values and mission along with its functional groups.
Change Strategy
The change strategy that was developed and initially implemented was at the initial onset was a director nature at first then morphed into a very elaborate navigator/caretaker process. It was clearly understood that in the new business environment there are demands for new process in decision making. “In a rapidly moving world, individual and weak committees rarely have all the information needed to make good non-routine decision. Nor do they have the credibility or the time required to convince others to make the personal sacrifices called for in implementing changes. Only teams with the right composition and sufficient trust among members can be highly affective under these new circumstances. This new truism applies equally to a guiding change coalition on the factory floor, in the new-product development process, or at the very top of an organization during a major transformational effort. A guiding coalition that operates as an effective team can process more information, more quickly. It can also speed the implementation process of new approaches because powerful people are truly informed and committed to key decisions.” (Kotter, 1996) The first step that was implemented was the implementation of power among the main managers coupled with the needed expertise relevant to the task at hand. The groups were credible and leadership was provided from the top down throughout the entire aspect of the change. (Kotter, 1996) One thing that was proven that as CEO you fail or succeed based on the team you assemble and you have to have a group of people who know what they are doing. You have to have the raw talent there to start with and they have to work together. “People who work together will win-period” (Iacocca, 2007) Once the team work was assembled this was done all the way down to the dealers as well they were instrumental in bringing the whole structure functionally together.
First the communication path was opened to all the members of the organization the goal of the changes required. Explanations of the potential problems if the change did not succeed were thoroughly explained in detail analysis. For if there is poor communication then resistance will set in and make the change more difficult. There was a consensus of ideas flowing that with the establishment of the communication process with proper education along with the full participation facilitated breaking down any change resistance. Management was prepared for supporting the decisions while at the same time addressing the concerns of the employees and those involved in the change process. Constant and ongoing negotiations took place with concern parties, stakeholders to lessen any fears and concerns about any perceived detrimental effects. Manipulation and coopt approached was used to bring the resistors into the change process thus the management called on the resistors to be part of the change management team. Finally Lee Iacocca used implicit and explicit coercion. This was done in order to bring about the speed of change when speed is of the most importance. “This was done when the unions threatened to strike. Because the union contracts meant that the employees would receive severance packages a closed Chrysler would still be indebted to pay them. Iacocca presented to all the employees that there were hundreds of jobs available at 14 dollars per. He also stated that there would no jobs available if the company was closed and bankrupt. He then told them his salary for the year was one dollar. The change was not resisted as anticipated and the changes were implemented. “Lee Iacocca’s approach was management was a code of values and judgments and in the end you have to be true to yourself.” (Iacocca, Talking straight, 1989) There was an implementation of the “Nine C’s” of leadership. A leader has to be creative, think outside the box be willing to go out on a limb and try something new. Communication not just sounding off but telling the truth and facing the reality of the situation (this will help in managing the change) The leader has to demonstrate the character to do the job thus meaning knowing the difference from right and wrong and having the intestinal fortitude to do the right thing. Courage in plain old fashion language the gumption to do the job at hand and to sit down at the negotiating table and talk. Conviction thus have the passion for the change and job at hand if you truly wish to get the job done. Charisma the ability to inspire others to follow you because they trust that leader. Competence is just that you truly know what you are doing and more important you have to surround yourself with the personnel who know what they are doing. Common sense which above all you have to be able to ascertain not to step into the dog pile. (Iacocca, Where Have all the Leaders Gone, 2007)
Analysis of Change Strategy
Support for the whole change was done from the top down it permeated the company infrastructure all the way to each individual dealer. Dealers were empowered to work with the local areas and make decisions based on guidance from the change management teams to facilitate the recovery. Dealer issues were addressed and restructuring their problems and concerns to make them part of the change and restructuring process. Throughout the entire process monetary flows, inventory and accountability measures were implemented to ensure that as the changes were implemented the detrimental negative cash flow issues were decreased. Product lines were trimmed to accommodate the customer needs, constant monitoring of quality and control issues was addressed and when new issue arose they were immediately addressed with extreme urgency. With the maintained since of urgency that established via the communication process the entire effort was to keep the company alive and personnel employed was the driving factor in sustaining the momentum of the changes that were taking place for it was for just pure survival that all efforts were undertaken.
Results
Results of all the change efforts provided a resurgence of that put Chrysler Corporation in back in the black by 1983. The company paid back all the creditors ahead of time without truly resorting to the federal aid. The return to prosperity came almost on clever and endless permutations of the K car compact line. The company’s greatest innovation was to shift more assembly to Canada where costs were lower and closed nonproductive costly facilities and cut costs to make the company more competitive. Leadership was changed to involve all that would be on board with the new culture and work force. Thus as staffing reductions took place any new personnel additions were made to fit into the new quality environment for the corporation. Shared sacrifice was truly functional in that all stakeholders to include unions were involved to save the company. With the re-tooling and restructure Chrysler was prepared to launch new product lines to consumers that were fuel efficient and met their expectations. With bringing on the personnel to work the change and the new product lines Chrysler with the presence of Hal Sperlich this brought the mini-van the U.S. market in the fall of 1983. The min-van revolution resulted in Chrysler holding the lead in this market space in sales for over 25 years till being overtaken by Honda in 2008. (Ross, 1980) Chrysler repaid all its loans with interest ahead of schedule thus restoring pride and prestige throughout the company and gaining in customer approval ratings. Dealerships were again operating as profitable sections of the company and with the additional new facilities that were turned up to accommodate new production lines the unions were satisfied that the company was on the road to recovery and the union member were to remain employed. Thus all the original sacrifices and efforts were seen to have been justified. Chrysler eliminated all the clutter and established and clear vision and mission to save the company. “A good vision can clear the decks of expensive and time consuming clutter. With clarity of direction, inappropriate projects can be identified and terminated, even if they have political support. The resources thus freed can be put toward the transformation process.” (Kotter, 1996)
Evaluation of Effort
The total effort demonstrated was effective in that Chrysler was saved and the dire circumstances brought about the much needed changes from the top to the very bottom of the organization. It is clear indication in that once a company and or organization gets to a very large size that it is too easy to lose focus on the core values and interests that put the company in existence in the first place. Complacency along with a lack of discipline and desire or interest to continue to change in order to stay competitive was embedded in the entire organization. It took a “near death” situation to stir people to action and bring on board the needed elements and team work to bring the company back to performance. First and foremost organizations should not lose contact with their consumer base, look forward to change as improvement and advancement and not allow progress to leave them behind. (Ross, 1980) The change management team has to truly understand the change efforts and should have a broad understanding of the effort to take place. This would include an understanding at a minimum the basic systems and structures of the organization including terms and roles within that organization. This includes understanding the leadership and organizational theory that would be required to address any and all changes. To be an effective element one needs the skills in planning, organizing, leading and coordinating all the activities and the crucial part is that to employs those skills at different times. Leading is different than the others while they place the emphasis on the resources leadership works with inspiring the people within those resources. Both management and leadership are needed to make organizations and or companies successful. It takes both to get the job done and keeps the organization prepared for the next round of change. The vision for any organization has to clear and concise and be a viable statement that all can believe in conjunction with the mission statement. Once the change has been implemented it must be embedded into the new organization and be the basis for the next round of change events or future development. Communication is the key and probably the most essential element for the change to take place. Without the proper communication process and procedures resistance will emerge and can prevent the change from taking place and build to the point that whatever change event is attempted it will fall back to the original status at the first opportunity. (Maynard, 2003) Good leaders and managers are only as good as those they have around them. Organizational leaders that surround themselves with “yes” members are doomed for failure or take over by other more energetic changing organization. Changes in any organization must be done when needed not necessarily for the sake of change, and when implemented they must have in place the means to measure that change and assess the outcome. Documentation of the entire effort is a must for if there is no historical data or means to review the change then it makes one think what was all this effort for in the first place. The roles that each individual plays or is expected of in the change is critical again this goes back to the whole process of communication and when all participants know the who, what when and why of the effort then more cooperation along with compliance will be expected and the resistance factor lowered considerably. Changes when implemented even with all the proper stages the initial changes and implementations are the processes and the personnel. From the Chrysler event it was clear that the last and final thing within the organization that changed was the culture of the company. Though there were substantial changes made to inventory, product and procedures the corporate culture was the last thing to be changed and that being that it took longer for the people element to change the cognitive thought process that had been instilled in the organization over such a long period of time. Once all the trials and tribulations had taken place the organization cannot sit back and rest on the last set of efforts for it must in the back of its mind prepare for the next round of events. In Kotter’s eight step plan for change step eight is that you anchor new approaches in the culture. You reinforce the changes by highlighting connections between new behaviors and processes and organizational success. Develop methods to ensure leadership development and succession. (Kotter, 1996) I found the succession element is a critical portion of the equation for if there is no viable successor that is based on what has gone before then the new successor may even with all good intentions undue all previous efforts and bring about more chaos and harm. Change is a natural process management must be proactive (in Chrysler the change was more reactive) if more management teams think proactively it will optimize future changes along with creating a productive environment than having the change take place in a rather who knows what scenario. Resistance to change is to be expected and is needs to be handled correctly based on the situation. When done with negotiation and rewards it gives the employees incentives to ensure their cooperation and working through the change. When Chrysler had to in some instances use coercion though it was done as the last resort due to the urgency of the situation it did produce some lingering negative affects working with the UAW that took some time to overcome and regain their trust and compliance. For as soon as the recovery effort was starting to take place the UAW was looking at ways to recover some of their original concessions and could have resulted in longer recovery. Organizations with all their processes and systems are composed of people and that is the most difficult element to understand. People are emotional entities and will react accordingly thus it is crucial as a managerial change element to be receptive to the input and pay attention to the employee needs and concerns for they are the body of the organization will be expected to perform the work upon completion. Personnel respond more readily to positive actions of rewards, compromises, and bargaining against any personal losses with that in mind it lowers the resistance level and ensures compliance and helps set the base for the new change environment. Too often in this day and age we are overwhelmed by our use of technology for in handling the change it is so easy to send out just an email or communicate with out involvement, the people portion of the change need the personal contact from their management team to satisfy that personal need that they feel they are truly needed and respected in this ongoing process. Change management needs to be addressed as it is a needed an necessary change management process that is part of the ongoing growth of the organization. It does not need to be turned into chance management. The more we understand people’s needs the more we will be to manage the change. Empower people at the local level and delegate power and responsibility as much as possible. This will at least encourage personnel to make recommendations which can be quickly approved and brings them more readily into the change process. Modify the recruitment and training to accelerate the people that contribute to the change and culture. Autocracy and interference are the biggest obstacles to establishing the new change and culture going forward. Customer input on changes are critical for they will the first to inform any organization what they are lacking and need to focus on for improvement. Without a consumer and or customer base for they are the main reason the company is in the business in the first place. Without your customers you are now longer a business just a going out business sale event and or bankrupt entity. The whole change process has to be handled with respect and dignity, honesty and a clear understanding from both sides of the effort. Treat the employees as you would like to be treated if you were in their situation.

References
Chrysler. (1979). Analysis of Chrysler Corporation and proposal. Bently Historical Library.
Iacocca. (1984). Iacocca. New York: Bantam books.
Iacocca, L. (1989). Talking straight. New York: Bantam.
Iacocca, L. (2007). Where Have all the Leaders Gone. New York: Simon & Schuster.
Kotter, J. P. (1996). Leading Change. Boston: Harvard Review Press.
Maynard, M. (2003). Business Yes Assembly lines Can Mix. New York Times.
Ross, I. (1980). Chrysler's 1.1 Billion loss ever. Toronto Star.

Appendix
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Down Below 50% “Detroit 3”U.S. Market Share 1986 –June 2008
(Sales of Detroit 3 N. American “owned”production)

Source: Center for Automotive Research