Six ways Lee Iacocca transformed the auto industry

Thursday, 4 July 2019

During his career Lee Iacocca was responsible for a number of iconic vehicles and transformed the auto industry.

Lee Iacocca was a corporate giant for Ford and Chrysler, an executive whose legacy includes the births of both the Mustang and the minivan, and the saving of Chrysler.

He died Tuesday night at age 94. Here are six ways the man who the Harvard Business Review referred to as 'the first modern example of a charismatic business leader' transformed the auto industry.

Invoking patriotism to sell cars made in the USA

Iacocca stood out from other corporate executives by applying a strong patriotic message to products. He aligned buying and driving cars made domestically with American patriotism.

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Sonnenfeld said Iacocca tried an experiment: thanks to a partnership with Mitsubishi Motors, he put the Japanese manufacturer's diamond logo on some Chrysler cars and found that people preferred the cars when they thought they were Japanese. That showed that a prejudice existed at home against cars made inside the United States.

Iacocca was the man behind the Ford Mustang, seeing an emerging market of younger buyers and serving it with an affordable sports car.

'He was unabashedly a supporter of the home team, first and foremost,' Sonnenfeld said.

An eye for marketing strategy

One of Iacocca's most well-known marketing strategies with his Chrysler television commercials: 'If you can find a better car, buy it.'

Just a few week after Henry Ford fired him, Iacocca was hired by Chrysler. A year later he was in charge the company.

That same knack for catchy promotions is what initially caught the attention of Ford Motor Co. after he had been working for the company since 1946. Iacocca called his breakout promotion for Ford ''56 for '56': Any customer who bought a new 1956 Ford could do so with an initial 20 per cent down payment and three years of monthly $56 payments. Ford sales in Philadelphia jumped to the front in three months, and the company's vice president, Robert McNamara (who would become defense secretary), incorporated it into the company's national marketing strategy. The promotion was responsible for selling 75,000 cars.

The muscle behind the Mustang

After he became Ford's president in 1964, Iacocca noticed a new demographic trend in the market: younger buyers. He based new vehicle designs and appearances on the model of 'a car you could drive to the country club on Friday night, to the drag strip on Saturday and to church on Sunday.' And so, the Mustang was born.

Before it hit the market, Ford aggressively promoted the Mustang through test drives by college newspaper editors and commercials frequently broadcast on television networks.

And it worked. The Mustang brought in a record number of sales for the company, with 418,812 models sold and US$1.1 billion in profits within the car's first year. More personally for Iacocca, it started the series of promotions that led to his promotion to be Ford's president in 1970 - at 36 years old.

The great Chrysler rescue

Iacocca knew he would have to work with the United Automobile Workers union to save Chrysler. So he did.

In 1978, Iacocca joined Chrysler Corp., now Fiat Chrysler Automobiles, two weeks after Henry Ford fired him. The following year, he was elected Chrysler's chairman and CEO, at a time when the company was falling behind the two other members of Detroit's Big Three (Ford and General Motors) and nearing bankruptcy.

Iacocca said at the time that he had no other option - it was federal help, or bust. He appealed to Congress in person and via national news broadcasts, exposure that boosted his publicity. In 1980, during the Carter administration, Iacocca persuaded Congress to approve federal loan guarantees of up to US$1.5 billion.

Sitting across from Iacocca, Sen. Adlai Stevenson, D-Ill., asked him during a November 1979 hearing if he believed his appeal flew in the face of the free market and Iacocca's allegiance to it.

'It sure does,' Iacocca responded. 'I've been a free enterpriser all my life. I come here with great reluctance. I'm between the rock and the hard place. I cannot save the company without some kind of guarantee from the federal government.'

The company paid back US$1.2 billion and interest in three years - seven years ahead of schedule.

Iacocca was the motivator behind the Plymouth Voyager/Dodge Caravan, the vehicle that, along with the Renault Espace, invented the modern people mover segment.

'We at Chrysler borrow money the old-fashioned way,' Iacocca said at a news conference at the time. 'We pay it back.'

The value of unions

Iacocca was the rare industry executive, at the time and even today, who added a union representative to corporate leadership. He brought United Automobile Workers president Douglas Fraser onto the Chrysler board of directors in 1980 after his crucial role in lobbying for the legislation that saved the company.

'He understood if he wanted people to give, they had to have a seat at the table where it was spent,' said Harley Shaiken, a professor at the University of California, Berkeley who specialises in labour.

Part of saving Chrysler and cutting down costs meant working with Chrysler employees who were UAW members to give up some concessions, mainly by accepting lower wages - which set them apart from competitors like Ford and GM.

'That was a very hard sell at the time,' Shaiken said, adding that Iacocca relied on Fraser's guidance to do it. 'They went into the plants. They talked to people. He didn't issue the order. He understood he had to convince, and it was radiating the depths of his own conviction that I think had an important impact on people.'

As Chrysler recovered and had profitable sales, the groundwork for a productive relationship for negotiations with UAW had been established, resulting in preserving Detroit-area plants and setting up profit-sharing for employees.

The birth of the minivan

Iacocca was responsible for Chrysler's creation of the minivan, which rolled off the assembly line in 1983 and transformed the world's options for family-oriented transportation.

Under his direction, the company applied the technology of the compact, fuel-efficient 'K-car' platform, which cut down on production costs through parts interchangeability, and applied it into minivan with models like the Dodge Caravan and Plymouth Voyager.

Chrysler was to minivans as minivans were to suburban life in the 1990s, and the cultural impact preserved the company's recovering profits.