IACOCCA'S MINIVAN How Chrysler succeeded in creating one of the most profitable products of the decade.
By Alex Taylor III REPORTER ASSOCIATE Joyce E. Davis

(FORTUNE Magazine) – IF YOU TAKE a long-lens camera into the flatlands around Chrysler's Auburn Hills, Michigan, test track, you might just steal a glimpse of the automaker's + 1996 model minivan. But what you'll see won't tell you much. Instead of just camouflaging critical body parts, such as the front and rear overhang and the outline of the windshield, Chrysler has taken the extraordinary precaution of actually reshaping them with fiberglass panels. Any spy photograph will show a vehicle that looks nothing like the real thing. If this strikes you as a lot of trouble to protect a vehicle that, however designers jazz it up, will always essentially remain a box on wheels, you've underestimated one of the most profitable consumer products ever built. Chrysler executives refer to it as one of their ''crown jewels'' -- and no wonder. The first original automotive design since the Jeep was decommissioned for civilian use in 1945, the front-wheel-drive minivan kept Chrysler afloat during some of its bleakest hours in the past 11 years. Today it accounts for more than a quarter of the company's car and truck sales and perhaps as much as two-thirds of its record $918 million in first-quarter profits. By all accounts, the minivan's market is only growing. Combined sales of the Plymouth Voyager, Chrysler Town & Country, and Dodge Caravan (the model shown on the cover and at left) hit a record 140,773 in the first three months of 1994, outselling every passenger car on the road, including the Ford Taurus, Chevy Cavalier, Honda Accord, and Toyota Camry. Ford hopes that its Windstar van, introduced earlier this year, will sell as many as 328,000 units annually. Honda will launch a Japanese-built minivan, based on the popular Accord, at year's end. GM has a new van in the works for the 1997 model year, and reports from Japan say Toyota is planning to assemble a minivan at its Tennessee plant for 1998. Autopacific, a California automotive consulting firm, predicts that minivan sales by all makers, estimated to be 1.2 million in 1994, will rise another 40% by the end of the decade. Since the minivan's introduction in 1983, Chrysler has virtually owned the market for these five- to seven-passenger, $15,000 to $29,000 vehicles. But it didn't have to be that way. Both GM and Ford blew chances to beat Chrysler to the showroom in the late 1970s, and both they and the Japanese continually misjudged the market in the years since. Today's managers can learn a truckload from the minivan case study about creativity and innovation in large organizations. The story underscores the crucial advantages that Chrysler had over its competition during the early 1980s -- flexibility of management, absence of institutional barriers, strong leadership, and urgency of mission. As always, luck, timing, and personality also played major roles. But more than anything, Chrysler's minivan success is a tribute to superior market research and to the extraordinary consumer instincts of Lee Iacocca. He championed the concept at two companies, scavenged the resources to develop it, and fought for its success. Says Bennett Bidwell, a top marketing executive who worked with Iacocca at both Ford and Chrysler: ''When the battle lines were drawn, Lee said yes.'' The minivan that Iacocca built stands apart from other Detroit success stories in several important ways. For starters, its appeal is based almost entirely on utility, not style or marketing. In shape, function, and mechanical layout, it signifies a genuine breakthrough in efficiency. Its high roof makes it easy to enter, and its blend of trucklike seating with carlike handling makes it easy to maneuver. Though mainly used to haul passengers, it's roomy enough when the rear seats are removed to accommodate 4-by-8-foot sheets of plywood lying flat, a capability that no station wagon and few small pickups can match. The minivan also happens to be the most profitable model line in Detroit. It sells in huge quantities, has changed little since introduction, carries premium prices, and rarely requires rebates or other marketing incentives. Auto industry analysts estimate that Chrysler averaged $6,100 in gross profit (on an average sticker price of $19,000) on each of the 569,449 minivans it sold in North America last year. Luxury versions like the Chrysler Town & Country (typical sticker price: $30,000) produce $10,000 each in profits. A few other consumer vehicles, including luxury cars and fancy four-wheel-drive sport-utilities, can generate higher profits per unit, but none even approaches the minivan's volume. The idea for a passenger-carrying van goes back to the 1930s (see box, ''The Minivan's Family Tree''). In the 1960s, GM and Ford began developing boxy vans to carry passengers and cargo, though their commercial image and awkward handling kept them largely out of the consumer market. About the only consumers who appreciated vans at the time were hippies, who adopted Volkswagen's flat-nosed, rear-engine Microbus as their unofficial vehicle, painting psychedelic designs on the outside and furnishing the interiors with carpets and beds. In the 1970s all three U.S. automakers began studying ways to modernize their existing vans, shrink them, and broaden their appeal. Rising gas prices and government fuel-economy regulations provided much of the impetus. But those rear-wheel-drive vans possessed several obvious shortcomings as family transportation. The long, heavy vehicles were ungainly to drive and impossible to park. And the drive shaft, which carried power from the engine in front to the wheels in the rear, necessitated a high floor, making for awkward entrances and exits. As a result, engineers began to study a front-wheel-drive layout. That format required no drive shaft, and thus no high floor, because the engine drives the front wheels. While the engineering solutions converged at GM, Ford, and Chrysler, each company's development efforts were shaped by its own unique set of imperatives, strategic considerations, and biases. GM's program was perhaps the least focused, since the company was then preoccupied with a costly drive to downsize its entire fleet of passenger cars. However, late in the 1970s, GM designers produced a minivan that is a dead ringer for the Chrysler van. Its existence was unknown to the outside world until this spring, when a picture of it dated 1981 was unearthed in the files of GM's design center. ''We had the minivan market nailed, but nobody wanted to do it,'' laments Vincent Barabba, a top GM marketing executive, who discovered the photograph while poring through design staff archives. WHAT HAPPENED? Barabba diagnoses it as a classic case of mistaken priorities. Says he: ''GM had the market research to support the viability of the ((minivan)) idea early. But in 1979 we were considering a whole family of front-wheel-drive vehicles, along with the van, and because the resources were limited, the van didn't make the cut. It got killed right inside the design studio.'' While institutional constraints held back the compact van at GM, an explosion of combustible personalities stopped it dead in its tread marks at Ford. The pro-van contingent included the mercurial Iacocca, then president of Ford, and Harold Sperlich, an intense product engineer. Against the idea: Henry Ford II, chairman, CEO, and proprietor. Having been designated ''father of the Mustang'' in 1964, Iacocca was looking to put another feather in his fedora. Around 1973 he discovered that Sperlich, along with two designers -- Gene Bordinat and Don DeLaRossa -- had put together a small van based on a radical front-wheel-drive small car code- named ''Wolf.'' To keep it from the eyes of the company's ultraconservative chairman, the van was stored ''in the basement,'' says Iacocca, ''as we used to have to do with Henry or he'd stop the damn thing.'' It was called the Mini/max -- for minimum size, maximum space. Since Ford didn't have the appropriate front-wheel-drive unit, a Mini/max prototype was assembled in 1974 with an engine and transmission made by Honda. Iacocca remembers driving it to his office at Ford headquarters from his home in Bloomfield Hills, north of Detroit. ''I loved it because it was so wide and roomy, but it was shuddering, I couldn't shift gears, and I didn't think I'd make it to work.'' Iacocca tried to buy 300,000 front-drive power trains from Honda for the van, and presented the company's founder, Soichiro Honda, with a new Mustang to ease the negotiations. Even so, the deal foundered. Sperlich wanted Ford to produce the Mini/max anyway. But he couldn't sell it to Ford's top management: Henry was still gun-shy after the embarrassing failure of the Edsel some 20 years earlier. Besides, the car was expensive. The Mustang, which used components from the Falcon, had cost only $75 million to develop. By contrast, the Mini/max would have cost some $600 million, because the front-wheel-drive components had to be designed from scratch. Says Sperlich, today an industry consultant: ''I tended to push hard, and that made me unpopular with top management.'' Iacocca recalls: ''Henry Ford just didn't want to do it. Hal used to take him on, and when you do that with people around . . .'' In the end, Sperlich had to go. Says Iacocca: ''Henry made me can Sperlich. He wouldn't do it himself.'' In 1977, Sperlich departed Ford for Chrysler. The next year Iacocca followed, Henry having decided that Iacocca would not succeed him as head of his family's company. These days executives get marched out the door on the day of their dismissal, but Iacocca stayed on for a couple of weeks in an office at a remote parts depot so he could accumulate retirement benefits. When he finally did leave, he took with him the customer research on the minivan. Says Iacocca: ''I didn't know I was going to Chrysler then. But I had a hankering to do this car because the research was so overpowering.'' Unlike J. Ignacio Lopez de Arriortua of GM and Volkswagen notoriety, Iacocca asked William Clay Ford, Henry's younger brother, for permission to take the material, and Ford gave it. By then judged worthless by the automaker, the research had cost $500,000 to compile, by Iacocca's estimate. BACK in the early 1970s, Chrysler had begun work on the ''Super wagon,'' an oversize station wagon with a flat floor and lots of utility features, such as fold-down seats. But the company was struggling through one of its regular periods of financial constraints. Says John Herlitz, a designer who worked on the project and is now vice president of product design: ''We couldn't sell the concept to management.'' Nevertheless, the project started Chrysler designers thinking about conveniences such as cup holders and an easy walk- through between the front and rear seats. By the time Iacocca arrived in late 1978, the company's financial condition was critical. Its cars were rusting away on dealers' lots, another management upheaval was under way, and its balance sheet belonged in intensive care. But Chrysler also owned the minivan's missing link: a front-wheel-drive engine and transmission that it used in the Dodge Omni and Plymouth Horizon subcompacts. Besides the right power train, Chrysler possessed two other scarce ingredients: crisis and opportunity. ''This company was history in everybody's mind,'' recalls Glenn Gardner, an engineer on the minivan program and now head of large-car development. ''We needed a success to stick in everybody's ear.'' Working with Chrysler's talented designers, Sperlich had begun to turn the Super wagon into a minivan. He quickly applied what he had learned at Ford about size and packaging and combined it with Chrysler's front-wheel-drive components. Says Tom Gale, now Chrysler's top designer: ''You could see the potential for the blurring of cars and trucks. We kept working to make it more carlike and to improve the utility of the interior. We pushed the instrument panel on the passenger's side as far forward as possible, for example, to increase the feeling of space.'' Chrysler would need about $700 million to develop the minivan as well as modernize the plant in Windsor, Ontario, where it would be built. Finding the money proved tricky for Iacocca, the new CEO. He tried to offer a half interest in the project to Volkswagen, but Chairman Carl Hahn refused, saying the vehicle would never sell in Europe and would erode the market for VW's Microbus. So Iacocca decided to divert the money from a long-planned program to replace the Dodge Ram pickup truck. (It was to be one of many diversions for the Ram project: By the time Chrysler finally got around to redoing the Ram this year, its predecessor was 23 years old.) When development of the minivan, code-named T-115, started in earnest, the research provided an unusually clear picture of customer needs. Since Chrysler viewed the minivan as a superior station wagon, it strove to make it owner- friendly. The roof had to be low enough to fit in residential garages, the hood had to be visible from the front seat, and the engine had to be positioned in front of the driver. In commercial vans, the engine sat between the two front seats, leaving nothing in front of the driver except the instrument panel and a little sheet metal -- not much protection in a front- end collision. The proposition was expressed as a joke, but Chrysler wanted to make sure that the engine, not the driver, was the first to arrive at the scene of an accident. To help buyers recognize the van as a passenger vehicle, stylists added such design cues as whitewall tires, wire wheel covers, and ersatz-wood side trim, but they rejected such vintage Detroit gimmicks as padded vinyl roofs and round opera windows. One holdover from commercial vans did make the transition to the new one: a single sliding door on the side. Having one door instead of two saved weight and expense and added a measure of safety because it forced passengers to exit away from traffic on the sidewalk side of the vehicle. LISTENING TO customers also helped Chrysler avoid two crucial design errors that would later befall other manufacturers. It rejected a silhouette with a long, wedge-shaped nose because drivers, especially short ones, couldn't see the end of the hood. GM, by contrast, produced a trio of long-snouted minivans in 1989 that have been resoundingly rejected in the market. Chrysler also scrubbed a design that placed the engine under a hump in the floor because it blocked passage from the front seats to the rear. Toyota employed that layout from its 1983 van to its current entry, the Previa -- and has been criticized for it. Reports from Tokyo say that Toyota's next version will use conventional front-wheel drive. As work on the minivan proceeded, the biggest obstacle Iacocca faced was financial. The project was delayed for a full year in part because of a cash shortage. Worse, since the company couldn't afford to develop a six-cylinder * engine, the van's length was limited to 176 inches -- equal to a compact car -- deemed the maximum for the four-cylinder Omni/Horizon engine. Chrysler did not offer a 190-inch model until 1987, when it purchased V-6 engines from Mitsubishi. Its own V-6 debuted only in 1990. Chrysler began gingerly to unveil the new vehicle several months before the van's official introduction in the fall of 1983. To Iacocca's relief, the industry buzz was almost entirely positive. Car & Driver raved about the minivan's utility and called it a ''sparkling example'' of new Detroit thinking. While the 1984 model didn't catch on immediately with buyers, sales began to pick up within a few months, and the Windsor plant soon ramped up to capacity. Before long, Chrysler executives realized that they had more than merely a sales success. Bennett Bidwell recalls: ''The first thousand buyers included people who had previously owned coupes and sport-utilities and every kind of vehicle. That opened our eyes. We realized that this wasn't just a replacement for the station wagon but a new kind of vehicle and a new kind of market -- and a market probably a lot bigger than we had imagined.'' As minivan sales raced toward 190,000 in 1984, the stage was set for an internal debate that participants remember as the bitterest in the minivan's history. The Windsor plant was reaching capacity and there was no way to keep increasing production. Chrysler would have to commit several hundred million dollars to equip a second plant that would produce another 250,000 vans annually. If the minivan turned out to be a fad, the investment would be wasted and cash-strapped Chrysler would have to sell its excess production at fire-sale prices. THE DEBATE over the second plant was Iacocca's finest hour. Stephan Sharf, who headed Chrysler's manufacturing operation, recalls, ''Iacocca stood behind it. That's Lee. He may be wrong sometimes, but when he's right, he's really right.'' Bidwell waffled. ''We weren't flush, and there were a lot of other product requirements,'' he said. Sperlich worried whether Chrysler could sell the extra volume. But Iacocca was convinced that he had a huge hit and pushed the second plant through against the opposition of all his top executives. ''Everyone fought me, including Hal,'' says Iacocca, ''but that's what makes horseraces.'' The minivan's public acceptance didn't go unnoticed at GM and Ford, which by 1984 had decided to go ahead with their own minivans. But both made a critical mistake: They handed responsibility for the van to their truck engineers, partly because the smaller vehicle would help the truck divisions meet federal fuel-economy regulations. Predictably, what truck engineers developed were trucklike, rear-drive vehicles. Robert Lutz, now president of Chrysler but head of truck operations at Ford in 1986, explains it this way: ''Truck groups fundamentally don't like passenger-car components because they are not rugged enough. The tendency is to use existing truck parts that are already in the system.'' Thus, Ford's minivan became the 1986 Aerostar, built on the same chassis as the compact Ranger pickup truck. With its workaday origins, the Aerostar attracted fewer crossover passenger-car buyers, and sales peaked at 188,130 in 1988. It took Ford until 1992 to build its first front-drive minivan, the Mercury Villager, and even then it worked in partnership with Nissan. (The Japanese company shares the output of the Avon Lake, Ohio, plant where the Villagers are made and markets its version as the Quest.) The new Windstar is the first 100% Ford front-drive minivan, and Chairman and CEO Alex Trotman is blunt about Ford's failure to bring a serious competitor on line sooner: ''Lee and Hal had the guts to put the money down and we didn't.'' GM's rear-wheel minivan arrived in 1984 and sold respectably as the Chevy Astro and the GMC Safari. But GM also had a big stake to protect in station wagons. As recently as 1985, it sold 366,500 wagons -- 40% of the market -- and saw little to gain from front-drive minivans. Since then, of course, station wagons have shriveled, and last year GM sold only 66,100 -- 16% of the total. In 1989, GM finally produced a front-drive minivan, the plastic-bodied APV, one of the great product fiascoes of the past ten years. Its wedge-shaped nose and expansive windshield made the driver feel as if he were piloting the QE II. Lutz christened it the Plastic Pachyderm, and Iacocca says it reminded him of something out of the Jetsons. With the APV plant running on a single shift, Chevrolet, Pontiac, and Oldsmobile together sold just 81,628 last year. GM restyled the APV for 1994 by shortening the front end, but a completely new model won't be ready until 1997. Chastened, GM has devised a new product-development process. Instead of being shunted into either the car or truck groups, new-model plans now bubble up from customer research and get reviewed as part of a portfolio of products that cover the entire market. That way no gaps go unfilled, and inertia can't kill new ideas. Then the new models get voted up or down by the 15-member North American Organization strategy board. The intent is clear: Henceforth, customers will dictate product choices to GM, not vice-versa. Ford is using a different approach. To make sure that it doesn't miss out on any more big ideas, it organized a Breakthrough Products Team five years ago, consisting of 20 to 30 engineers, designers, product development and manufacturing specialists, and others, to dream up new-vehicle concepts. Says Jim Engelhart, who in April was named vice president of personal-use trucks in Ford's new vehicle program center: ''Few of the suggestions were breakthroughs, but they brought out a lot of good ideas we couldn't have thought of.'' Organizational flexibility and market research, while valuable, are no substitute for the drive of a Sperlich, the talent of a Gale, or the gut instinct of an Iacocca. People do make a difference, even in large institutional settings. Iacocca, for example, may never have sketched a fender or designed a valve cover, but it is surely no coincidence that both the Mustang and the minivan came into being under his stewardship. Arguably, he also helped spur the current surge in four-wheel-drive sport-utility vehicles by purchasing Jeep -- Chrysler's other crown jewel -- in 1987 and vastly expanding its production. Even so, necessity deserves at least godmother status in ascribing the parentage of the minivan. Chrysler was desperate; GM and Ford were not. As Tom Gale says, ''We didn't have much to lose.'' Its engineers and designers were forced to work together -- and under Sperlich, a renegade from Ford, no less. They focused intently on the voice of the customer, knowing that if they listened wrong, they'd be out of business. And they found the money they needed to do their work, while their richer competitors were lavishing billions in the mid-1980s on such forgettable cars as the Oldsmobile Cutlass Supreme, Pontiac Grand Prix, and Ford Thunderbird. WHERE HAVE the Japanese figured in this narrative? Almost nowhere. Toyota actually beat Chrysler to market in 1983 with a van in which the driver sat all but directly on top of the front wheels rather than behind them, but it sold in very small quantities. Toyota's later effort, the Previa, along with Nissan's Access, Mazda's MPV, and Mitsubishi's Van, have been too small, too & slow, too quirky, or, lately, too expensive to attract many buyers. None has copied the size or layout of the Chrysler van, probably because it's too big for Japanese roads. The Japanese aren't through yet, however: Honda is coming. As Chrysler gets ready to unveil the redesigned 1996 minivan at the Detroit auto show in January 1995, it faces some serious challenges. No. 1 is maintaining the loyalty of its owners as they age. Although older folks buy minivans (including Iacocca, who owns four) to haul around their grandchildren, ownership tends to be concentrated among young adults. Once the kids hit their teens, they don't want to be seen in a minivan, and their parents don't either. Marketers call minivans a lifestage, as opposed to lifestyle, vehicle. Some minivan owners are gravitating to sport-utility vehicles, which also serve as station wagon surrogates, but have a more exotic image. And just how do you improve on a vehicle whose appeal is utilitarian and whose shape is already optimized as a box? Very carefully. Ford made its Windstar longer, rounded off the sharp edges, and improved the handling. Chrysler has to do the same without compromising the overall package. No hood bulges, side air scoops, or trunk-lid spoilers are needed here. One clear task remaining for Chrysler is to improve the minivan's quality. Consumer Reports accords the Chrysler minivans one of its ''recommended'' ratings, but grades them below average in reliability, meaning they are more prone to breakdown than the typical new car. The National Highway Traffic Safety Administration is studying whether the rear hatchback latches are prone to pop open and whether the antilock brakes are up to snuff. Failures of a new electronic transmission called the A604 in 1989, 1990, and 1991 models undermined customer loyalty and nearly killed new sales. Chrysler put on a full-court press to mollify owners by replacing the faulty units and providing free roadside assistance, but Iacocca says the effort cost hundreds of millions of dollars -- ''more than Ford spent on the Edsel.'' BREAKTHROUGH vehicles on the order of the minivan come along only a few times in a generation. As Iacocca puts it: ''In a capital-intensive business, nobody wants to be the guy who breaks the mold and fails. You are down a billion dollars for openers.'' Lots of novel concept cars are paraded before the public at auto shows and then vanish because their creators lacked the courage to see them into production. Even so, it's possible to speculate about the next major advance. Those of the past 20 years have all blended the appeal of cars and trucks. The next one would logically combine the utility of a van with the excitement of a four- wheel-drive vehicle, scaled down to reflect new environmental thinking. If nobody in Detroit is working on such a concept, somebody else certainly is. The Japanese showed off at least a dozen such designs at the Tokyo Motor Show in November last year.