Lee Iacocca advises GM and Chrysler to quickly repay loans

In a recent interview, Lee Iacocca stated that Chrysler, the company that he famously led in the 1980s, should repay its government loans as fast as possible. Citing onerous oversight and restrictions, he suggested that both General Motors and Chrysler need to quickly recover their independence.

While Iacocca's statements are sure to elicit cheers from the non-regulation crowd, the man's own story suggests that his advice is, perhaps, excessively simplistic.

Chrysler's storied recovery, and Iacocca's own legend, owe a lot to the K-car and the Minivan, innovations that he brought with him to Chrysler when Henry Ford II fired him. The cars were conceived as a response to the gas crisis, but the years of planning and refinement that went into their final versions meant that, when they hit the market, they were well-designed, fully realized innovations that quickly caught on with the American public.

Admittedly, a large part of Chrysler's second act was due to massive loans that Iacocca solicited and the government underwrote. For that matter, the company's deep cuts and massive restructuring, which Iacocca oversaw, were instrumental in its ultimate success.

However, the impressive sales of K-cars and Minivans were the machine that propelled the company's salvation and enabled it to repay its loans seven years ahead of schedule.

On the other hand, while Iacocca's measured, thoughtful moves at Chrysler saved the company, his rash, pedal-to-the-metal actions at Ford cost him his job and permanently damaged the brand. The Ford Pinto, widely known as "Lee's car," was developed in the late 1960s as a response to rising gas prices and the emergence of European and Asian subcompacts. Setting a concrete manufacturing guideline of 2,000 pounds/2,000 dollars, Iacocca sped the car through design and production in a record-breaking 25 months. By comparison, this process takes 43 months for most cars.

The shortcomings of the Pinto quickly came into sharp relief. The goal of keeping the price low meant that the car's gas tank didn't have a rubber lining that would have protected it in the event of a rear-end collision. For that matter, the hard-and-fast guideline of 2,000 pounds meant that a 1-pound piece of plastic insulation, which would have cost $5.08 per car, was not installed. The combination of these events led to a final model that leaked gas in almost every rear-end collision. Ultimately, this flaw caused hundreds of Ford customers to die in fiery accidents.

The Ford motor company was eventually tried on charges of reckless homicide in association with the burning deaths of three Indiana girls. By that time, Iacocca was long gone, having been fired in the wake of a massive 1978 Pinto recall.

Notorious for his catchphrase, "Safety doesn't sell," Iacocca later wrote that "There are plenty of people who would say that the legal and PR pressures involved in such a decision excuse management's stonewalling [. . .] It seems to me, though, that it is fair to hold management to a high standard, and to insist that they do what humanity and common sense require, no matter what the pressures."

While these words show all the humility and lofty morality that one could possibly wish for in a sober corporate steward, it is worth noting that, from 1968-1976, Ford employed a team of lawyers and lobbyists to fight Federal Motor Vehicle Safety Standard 301, a provision that would have saved the lives of most of the Pinto's victims. During this period, the president of Ford was . . . you guessed it, Lee Iacocca.

In this context, it's hardly surprising that Iacocca is strongly opposed to government intrusion into industry. In his Associated Press interview, he stated: "They're on you day and night. Their oversight is just too extreme [. . .] That's why our 10-year loan, we paid it back in three years. We couldn't stand the government. The bureaucracy kills you."

On one level, it seems piddling and penny-ante to bring up a forty-year-old story to question the sage advice of one of America's most famous business heroes. On the other hand, it's worth asking why the august mutterings of a man who became a living legend in the early eighties are so heavily valued today. As Iacocca's own story demonstrates, recovery from a crisis requires a thoughtful, well-planned solution, and the decision to rush headlong into a course of action often carries horrifying repercussions.

GM and Chrysler need to focus on one single goal: making innovative, affordable cars that people want to buy. If stability and a strong recovery require years of government intervention, then that will simply be the cost of doing business. While the storied sage of Detroit is undoubtedly a legend, this is one place in which his brilliant pronouncements must take a back seat to the lessons of his life story.

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