Life of a Salesman
Iacocca: An Autobiography.
by Lee Iacocca.
With William Novak. Bantam. 352 pp. $19.95.
Since the escape of the Chrysler Corporation from what seemed almost certain bankruptcy, Lee Iacocca, who speaks unapologetically about such values as the importance of family ties, thrift, and patriotism, has emerged as a genuine folk hero and a potential political leader. His popularity, bolstered by the phenomenal sales of his autobiography, is no doubt attributable in part to the new national mood, the same mood that accounted for Ronald Reagan's election victories. But Iacocca also has a particular economic/political agenda to promote, which has unfortunately been for the most part ignored in the attention lavished on his book and his career.
Lee Iacocca is, first and foremost, a salesman. He was hired by Ford in 1946 as a student engineer, but after nine months on the job he was “eager to be where the real action was—marketing or sales.” His climb to the top of the Ford Motor Company began at the district sales office in Chester, Pennsylvania. Over the next ten years he would hold a number of different sales positions, finally ending up as district manager in Philadelphia. In 1956, a weak year for automobile sales, Iacocca devised a plan that allowed customers to purchase a car with a down payment of 20 percent, followed by three years of monthly payments of $56. The plan, known as “56 for 36,” was so successful that in three months it moved the Philadelphia division from last to first place in sales. This attracted the attention of head-office executives, and Iacocca was brought to Dearborn as national truck-marketing manager.
In Michigan he worked directly under Robert McNamara. It was McNamara who introduced North America's first compact car—the Ford Falcon—priced to compete with the imports which were just beginning to make inroads on the market. Iacocca writes that “McNamara believed in transportation without gimmicks”—yet when, less than two years later, Iacocca himself became president of Ford, the car he helped develop was a gimmick incarnate. The Ford Mustang, introduced in 1964, was designed for the youth market. Rather than offering several different versions of the same model, Ford decided to produce one basic car with a wide variety of options. This would allow the customer to purchase as much economy, luxury, or performance as he wanted or could afford.
The Mustang became one of the great success stories in American business. Originally Ford had expected to sell 75,000 in the first year. Just before the car was launched, predictions of first-year sales had leaped to 200,000. Actual sales during Mustang's first year were more than double this figure.
Iacocca's account of his ongoing feud with Henry Ford II has received more attention than any other part of this book, and certainly it is a gripping and dramatic tale. When Ford, on what Iacocca portrays as totally irrational grounds, turned on his president, he pursued him ruthlessly. Iacocca's phone was tapped and his office searched. Under the guise of running a check on executive accounts, Ford launched a full-scale investigation into Iacocca's professional and personal life. When the investigation turned up no evidence of wrongdoing, Ford did not even have the decency to tell Iacocca that his name had been cleared. Then all of Iacocca's closest associates in the company were fired. The ultimate indignity came with Iacocca's own firing, announced to the press before Iacocca had the opportunity to break the news to his family.
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Within four months, Iacocca had joined Chrysler. Most of the last half of the book is devoted to his career at this, the country's third largest automaker, and most of his account of that career focuses on the financial turnaround of the company with which he has been credited. It is here that what he has to say becomes problematic.
“Let me be clear where I stand,” writes Iacocca. “Free-enterprise capitalism is the best economic system the world has ever seen. I'm 100 percent in favor of it. All things being equal, it's the only way to go.” How does he reconcile this faith with the federal bailout that saved Chrysler from collapse? The answer is that he sees the federal loan guarantees as actually enhancing free enterprise, since, he argues, an auto industry without the smallest of the Big Three would have been less competitive. Besides, had Chrysler been allowed to go bankrupt, thousands would have been thrown out of work, not only at Chrysler but at its suppliers as well, and since these suppliers were located in all fifty states, a Chrysler collapse would have reverberated throughout the entire economy.
Whether the failure of Chrysler would have been so disastrous for the American free-enterprise economy is a debatable matter. Presumably, some of its cars were still being bought, and presumably that demand would have had to be filled after the company ceased to operate. This makes it very likely that at least some of Chrysler's plants would have been purchased by other interests, and cars would have continued to be built in them. Furthermore, Iacocca's concern for American workers has not prevented Chrysler in the years since the rescue from marketing 140,000 subcompacts built by Mitsubishi in Japan or from using Japanese and German parts and engines in many of its cars.
Instead of asking the federal government for loan guarantees, Chrysler could have filed under Chapter 11 of the Federal Bankruptcy Act. This would have protected the company against creditors until it got its financial affairs in order. According to Iacocca, such a strategy would not have worked. Cars are different from other products, and as soon as it became known that the company had filed for bankruptcy, customers would have canceled their orders en masse, fearing that warranties would not be honored and parts and service would not be available. Perhaps, but then again perhaps not; we will never know.
Iacocca also maintains that penalizing Chrysler in this way would have been unfair, since most of the company's problems were not of its own making. At various points he blames Chrysler's problems on the OPEC-induced energy crisis, high interest rates, and excessive government regulation. There is obviously some truth in this last. Government regulations in such areas as emissions control and fuel efficiency have increased the cost of producing cars, and absorbing these costs was harder for Chrysler than for its larger competitors. Since the public as a whole benefits from mandated features like emissions controls, an argument can be made that government should pick up part of the cost of installing them.
Yet Iacocca's proclaimed commitment to free enterprise stretches to cover even more extreme qualifications than these. In addition to defending Chrysler's request for loan guarantees, he advocates the enactment of a wide range of protectionist measures. Thus, he favors the extension of the quotas on Japanese auto imports, and wants to see an $800 tax placed on every Japanese car entering the United States. This is justified, in his view, because the $1,500 differential between the price of American and Japanese cars derives from a 15 percent “undervaluation” of the yen and to subsidies that the Japanese government provides Japanese exporters.
Iacocca wants to afford similar protection to other large American manufacturing industries, such as steel, electronics, aircraft, and textiles. Without government action to preserve these industries, he writes, millions of jobs will be lost. Nor can the “high-tech” industries be considered a source of replacement jobs—especially since it is the basic industries that represent most of the market for “high-tech” products. Says Iacocca: “There can't be a Silicon Valley without Detroit.” He caps his argument with the claim that, to the public, the cost of protection is more than offset by the increased productivity it helps to engender.
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It is true that by July 1983 Chrysler was again profitable enough to repay all of its loans to the federal government. But it cannot be concluded that there was no cost to the public. If American consumers in recent years have increasingly shown their preference for foreign-made, particularly Japanese, cars, quality has been just as much of a factor in their choice as price. Iacocca claims that Chrysler no longer deserves its reputation for building poor cars, but in its April 1984 issue Consumer Reports, rating cars by incidence of repair, found four 1982 and 1983 Chrysler models “average” while nine were deemed “worse than average” and five were rated “much worse than average.” By comparison, sixteen of Toyota's seventeen models were “much better than average,” and the seventeenth was “better than average.”
An analysis of the price differential between Japanese and American cars done by the U.S. Department of Commerce in 1982 concluded that the Japanese edge was “primarily due to management factors and lower wage rates.” To compete, the Big Three would have to redesign their plants to build cars with “less labor and less waste.” In his book, Iacocca partially corroborates this view of the problem, criticizing management for giving in too quickly to the demands of organized labor. Particularly disturbing to him are certain fringe benefits granted to auto workers. Cost-of-living adjustments, rather than protecting workers from the effects of inflation, have only added to it, while contract provisions that allow all workers to retire with full pension benefits after thirty years of service have the effect of forcing the industry to pay its most productive employees to stay off the job.
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Yet in fact, contrary to what Iacocca claims, labor and management cooperate more than they conflict. They certainly have a common interest in promoting protectionism, which insulates both from the discipline of the marketplace; it was no accident that Douglas Fraser, head of the United Auto Workers Union, joined with Iacocca to lobby Congress for loan guarantees or, for that matter, that in 1984, with quotas on Japanese imports in place, the chief executive officers of both Ford and General Motors received record bonuses.
Although we are told that American industry needs protection just long enough for it to “restructure” itself for the new competitive environment, in fact, by breeding waste and greed, it makes restructuring that much harder. Free trade, by contrast, would likely induce organized labor to moderate its demands, and management to curb inefficiencies, and could gradually bring American costs more into line with those in competing countries.
One of the truths of protection is that whenever government rescues a failing industry, the general public pays. Taxpayers are burdened with the permanent subsidization of inefficient and in many cases obsolete enterprises; consumers end up purchasing goods and services of poorer quality and at higher prices than would be the case in a truly competitive environment. Lee Iacocca's failure even to acknowledge these costs of protectionism brings into question his much reiterated concern for the national welfare. In this book he is still the salesman, promoting his own interest.
