From Mustang to Minivan: How Lee Iacocca Changed the Auto Industry

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Wharton's John Paul MacDuffie and Yale's Jeffrey Sonnenfeld discuss the life and career of legendary auto executive Lee Iacocca.

True to the tradition of union-management relationships, in the late 1970s, United Auto Workers president Douglas Fraser and Chrysler CEO Lee Iacocca had their share of clashes. But in a break from tradition, the two men also respected each other for what they stood for. Yale management professor Jeffrey Sonnenfeld recalled a conversation with Fraser in 1988 when Iacocca had briefly considered running for U.S. president. “[Fraser] told me that while [the two] had plenty of differences and fought on many fronts … he would have supported Iacocca for the presidency.” (Fraser later won on a seat on Chrysler’s board as part of its 1979 revival plan.)

That rare tribute captured just one of the many dimensions of Iacocca, who passed away last week aged 94. Iacocca is better known as a master salesman and the driving force behind the best-selling Ford Mustang that has is now in its sixth decade; for saving Chrysler from near bankruptcy in 1979 by negotiating, along with Fraser, federal government guarantees for loans; for being the first to identify and tap into a new market of American families desiring second cars; as America’s first celebrity CEO who appeared in car ads and magazine covers. His 1984 autobiography (with William Novak) topped the nonfiction charts for two years after publication, and he found time to work actively for Type 1 diabetes research and champion public policy causes like renewable energy and health care costs.

Iacocca, who is credited with the successes of the Ford Mustang and the Chrysler minivan, “had “amazing skills as an executive … you don’t just get those vehicles to appear out of nowhere,” said John Paul MacDuffie, Wharton management professor and director of the Program on Vehicle and Mobility Innovation at Wharton’s Mack Institute of Innovation Management. “There was recognition of a market, [and carrying a] concept through all kinds of barriers and budget hurdles, and [Iacocca] was just masterful at that.”

Sonnenfeld agreed, and said that Iacocca was both “a car genius [and] a master marketer.” He noted that in spearheading the Ford Mustang, Iacocca was “the champion of a lifestyle car … a very accessible sports car for people to capture that Pepsi Generation spirit.” (Pepsi Generation was the slogan for the soda maker’s youth-centric ad campaign in 1963). Iacocca also introduced the concept of auto loans with his 1956 campaign “56 for ’56,” which offered consumers a new Ford with a 20% down payment and a $56 monthly payment over three years. Sonnenfeld said that “extended payment plan was novel at the time.”

Sonnenfeld and MacDuffie discussed Iacocca’s contributions to the auto industry, American business and on other fronts on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

“There was recognition of a market, [and carrying a] concept through all kinds of barriers and budget hurdles, and [Iacocca] was just masterful at that.”–John Paul MacDuffie

A Man of Resilience

The son of Italian immigrants, Iacocca trained as an engineer, honing his skills at Lehigh University and Princeton. He started his career at Ford Motors as an engineer, but soon moved to sales and marketing, becoming president in 1970. He was fired in 1978 after disagreements on future car designs and personality clashes with the company’s CEO Henry Ford II, grandson of the company’s founder. Weeks later, he joined a struggling Chrysler as its CEO and later became its chairman; he retired in 1992.

Iacocca grew up as “a sickly kid in high school who despite his competitive instincts couldn’t really compete on the athletic field,” Sonnenfeld recalled. However, he did well in academics and made his mark in the business world. In the late 1970s, he led the resurgence from near bankruptcy of Chrysler, which was then struggling from the after-effects of the 1973 oil price crisis and was the weakest of the Big Three automakers (Ford and General Motors being the other two).

“To turn around Chrysler, which was hemorrhaging badly, is a great model of both personal resilience several times over but also institutional and enterprise resilience,” Sonnenfeld noted. Iacocca said years later that the solutions for Chrysler’s challenges would come not from bureaucrats, but from workers, plant managers and dealers, when the company again filed for bankruptcy in 2009. “He signed up for the Chrysler job at a very dark moment and then delivered on every front,” said MacDuffie.

Rebuilding Chrysler

Iacocca used his persuasive skills in securing for Chrysler the federal government’s guarantees for $1.5 billion in loans in 1979. “He made the case that Chrysler was too important to the American economy to let it fail,” MacDuffie recalled. Iacocca drummed up support for his plan, starting with a core group of Italian American congressmen, after which President Jimmy Carter came on board to back it.

Chrysler eventually borrowed only $1.2 billion in bank loans that the government guaranteed, and repaid it years earlier than scheduled. “Working with government support but doing it in a way that didn’t make it look like a handout or a bailout” was an important precedent for other bailouts of U.S. companies in later years, MacDuffie said.

“He pioneered the whole idea of a business government bailout that way,” said Sonnenfeld, adding that it paved the way for the 2009 government bailout of General Motors (that episode saw Chrysler merging with Fiat). “It was a model of business-government relations that many drew upon.”

Chrysler and other auto companies benefited from the negotiations with the government in other ways, too. The U.S. agreed to limit Japanese car imports and impose a 25% tariff on Japanese light trucks, a category that included SUVs and minivans. “That gave the U.S. a big head start in that category and a dominance which it still holds,” said MacDuffie.

“To turn around Chrysler, which was hemorrhaging badly, is a great model of both personal resilience several times over but also institutional and enterprise resilience.”–Jeffrey Sonnenfeld

The Mustang Man

One of Iacocca’s signature achievements was shepherding the launch of the Ford Mustang. Iacocca trained under [former defense secretary] Robert McNamara “to do the analytics,” said MacDuffie. (McNamara worked at Ford between 1946 and 1960, the year he became its president, before joining the Kennedy administration.) “[Iacocca] understood that there was a growing market of young buyers [and that] more American families were … attracted to a second car that was a fun car again,” said MacDuffie. “[The Mustang had] smart styling moves, stretching out the front end to make it look more powerful and shorten up the back end to make it look speedy.”

The Mustang was built on the platform of the Ford Falcon, which helped cut down development costs, and it was launched with a “very short product development cycle, and marketing like crazy,” MacDuffie noted. “It sold one million vehicles in the shortest time (18 months) ever of any new car model,” he noted. That year, Iacocca and the Mustang also made the covers of Time and Newsweek magazine in the same week. “It was his car in everybody’s mind. And that is absolutely the biggest event of his early career that set the stage for everything that followed at Chrysler.”

K-Car Platform Innovation

Iacocca also innovated with his strategy for Chrysler’s K-car platform in 1981. “It was a radical departure from the past; it had a front-wheel drive, a transverse engine, and it was easily reconfigurable,” said MacDuffie. Chrysler could use the K-car platform for other models. “[It had an] amazing return on investment — not an easy thing to orchestrate — and it was hugely impactful.” He noted that the K-car example set a benchmark in that it became the model for survival at other U.S. companies over time.

“[Iacocca] understood that there was a growing market of young buyers [and that] more American families were … attracted to a second car that was a fun car again.”–John Paul MacDuffie

MacDuffie explained how Iacocca came to strike out ahead of his rivals with the K-car platform, citing a dissertation by Daniel Engler, a professor of strategy and organization at Illinois State University when he was a doctoral student at New York University. All the Big Three auto companies understood at the time “that there was desire, a market, for a family mover to replace the station wagon,” he said. At GM and Ford, that product idea was assigned to their truck divisions, which blocked it saying they didn’t see a market for such a vehicle. Chrysler didn’t have a separate truck division at the time. “Within months of his arrival at Chrysler, Iacocca green-lit the minivan project. They hit the market first with the minivan and that was another huge success.”

Iacocca also showed remarkable foresight in leading Chrysler’s purchase of American Motors Corp. (AMC) in 1987, although many industry watchers saw that as “foolhardy,” said Sonnenfeld. AMC had products that were losing money, but the jewel in its portfolio was the Jeep brand. “That turned out to be Chrysler’s strongest product,” he added.

Champion of American Pride

Iacocca was also a master of the sound bite, and used it to boost American pride. In the years after the Chrysler revival and in battling the allure of Japanese cars in the marketplace, he megaphoned American-made cars through commercials, declaring, “The Pride is Back,” Sonnenfeld recalled. “If you can find a better car, buy it,” Iacocca challenged consumers in commercials, encouraging them to compare Chrysler’s cars with those of its rivals.

“Iacocca is the epitome of the boss’s brand, as the celebrity CEO,” said Sonnenfeld. “He put his name out on front of things so he became hyphenated with the names of the brands that he was selling. He ushered in something way ahead of Steve Jobs, Jack Welch and others who branded themselves by their enterprises.”

Iacocca “introduced himself to America” in turning around Chrysler, and that became part of a trend of CEOs being the face of their companies and brands, said MacDuffie. Iacocca’s work in raising funds for the restoration of the Statue of Liberty and Ellis Island in the 1980s was “one of his proudest accomplishments,” he added. “As the son of immigrants who had faced a lot of discrimination, he cared deeply about that project and did a wonderful job with that.”

“Iacocca is the epitome of the boss’s brand, as the celebrity CEO.”–Jeffrey Sonnenfeld

Warts and All, an ‘Amazing Legacy’

To be sure, Iacocca had his flaws, said MacDuffie. “He fought a lot about fuel efficiency and safety in the early years. I think he had a little bit of a blind spot with respect to why consumers were responding to Japanese products — he denigrated them. He wanted to talk up American brands, but he didn’t realize that the high reliability [of Japanese cars], the fuel efficiency, had their appeal to female consumers who were having a bigger role [in car purchasing decisions].” MacDuffie also said Iacocca failed to refresh the K-car product line with the changing times, so it “went from the boom years to the bust years pretty quickly.” All the same, he said Iacocca has left behind an “amazing legacy.”

Iacocca has also drawn criticism for overseeing several “disastrous acquisition decisions,” said MacDuffie. Those include Chrysler’s 1985 buy of Gulfstream Aerospace; and of Italian carmaker Lamborghini in 1987 to diversify into the corporate jet business.

“There’s something very wonderful about the Lee Iacocca story in the context of America.”–John Paul MacDuffie

Sonnenfeld said the Gulfstream purchase, in particular, reflected the prevailing wisdom at the time among U.S. companies, and that Iacocca was not alone in diversifying Chrysler beyond autos. “All the automakers went into some bad diversions. In fact, most of heavy industry was misguided at that time, going for a portfolio approach of investing in what they thought was going to be countercyclical businesses that took them out of their core areas.”

Sonnenfeld said he would remember Iacocca as “an inspirational legend,” and had praise for Iacocca’s leadership style. “He loved the good challenge. He loved adversity. He was extremely competitive throughout his career.”

“These larger-than-life American characters who put such a stamp on our country and on our economy are always flawed, and we should always remember the flaws,” said MacDuffie. “But we should celebrate them. There’s something very wonderful about the Lee Iacocca story in the context of America.”

Image credit: The World of the Ford Mustang [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)]

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