IACOCCA In his own words, the Chrysler chairman talks candidly about Henry Ford II and GM's Roger Smith, reflects on his four decades as an automaker, and speculates on what the 21st century holds for business around the world.
By Lee Iacocca Alex Taylor III REPORTER ASSOCIATE William Bellis

(FORTUNE Magazine) – TO PARAPHRASE a line from F. Scott Fitzgerald, there are no second acts in American business. Except Lee Iacocca's. Ten years after he was fired by Henry Ford II as president of Ford Motor Co., his second career at Chrysler is cresting. As chief executive and top pitchman, he is selling more cars and trucks than the company's esteemed founder ever did and has increased market share to 14.7%, the best since 1970. His second book, Talking Straight, is perched atop the best-seller lists -- further evidence, if any were needed, that he is the most popular business figure in America. Lately, Iacocca, 63, has been pruning his nonautomotive activities. He has nearly finished raising $40 million for the Iacocca Institute at his alma mater, Lehigh University, where he plans to spend some time after retirement. His main outside interest is the National Economic Commission; he is a member of that body, created by Congress and President Reagan to devise ways of cutting the deficit. Iacocca's contract calls for him to remain Chrysler's chief executive at least until December 1991. Before then he wants to attack what he sees as the company's remaining weaknesses: its high cost structure following the AMC acquisition, its dependence on K-car spinoffs for its new models, and its skimpy profits in the face of rising sales. Recently he spoke with FORTUNE associate editor Alex Taylor III about his careers at Ford and Chrysler, the current condition of the auto industry, and its prospects for the future.

''Here is one problem I worry about: It is difficult to get the best college graduates to come to work in the auto industry. When you do get them, they either want to go into finance and count beans or spin visions of the future as product planners. Nobody wants to go into the heart of the business: engineering and manufacturing. It is gritty, gutty, tough work. You live or die by what you do on the factory floor, and they don't teach that at Harvard business school.

When I went to school they said, 'Specialize in something.' So I studied aeronautical engineering, and then I went into mechanical engineering. I knew I wanted to work for Ford, so I zeroed in on cars. Then I got a little antsy around the end of my second year in college, and decided I was going to be an industrial engineer. I took all these heavy electives in economics, statistical analysis, and labor relations. And I liked it. The curriculum rounded me out a bit.

A lot of people have told me that Henry Ford II did me a favor ten years ago by firing me. They say that if I had stayed at Ford, I would have been in a comfortable ivory tower. The company would have given me a gold watch when I retired, and that would have been the end of my life. I guess I could have run Ford well. Ford's doing better now because it was democratized once Henry retired. Well, I didn't plan it that way, but by getting canned in 1978, I got thrown into a situation where I became a leader. You need to have a war to make general. Fortunately the war doesn't let you know what's coming tomorrow, or you'd go nuts. Some days at Chrysler I wouldn't have gotten up in the morning if I had known what was coming. My difficulty with Henry Ford was over long before he died last year. Most people were remembering the last years of his life, when Henry was sick with a bad heart, realizing that he was mortal and worrying about his health day and night. I tried to remember the years beginning in 1960, when we were buddies. We hunted together, we went to parties together, we caroused in Europe together. So I try to remember the 16 good years, and not the two bad ones in 1977 and 1978. Chrysler had its heyday in the 1920s and 1930s under its founder, Walter Chrysler. He always paid attention to product. If you look it up, Chrysler had more firsts -- station wagons, all-steel bodies, even the first electronic clocks and engine controllers. In fact, if GM President Ed Cole hadn't jumped in with the catalytic converter for exhaust emissions that he promoted back in the 1960s and won government support for, Chrysler would have saved the country a ton of money. It had something called the lean-burn engine that produced very few pollutants and got much better mileage. If you burn gasoline cleanly, you don't have to put a garbage disposal on the tailpipe in the form of a catalytic converter. But Chrysler couldn't afford to develop the lean- burn engine quickly enough; it needed help. The government should have waived the antitrust laws so that all the automakers could have gotten together on clean air and fuel economy. It sure would have helped us at Ford at the time. I ALMOST WENT to work for Chrysler in 1962 instead of 1978. There was a conflict-of-interest scandal involving William Newberg, president of the company, who owned an interest in a Chrysler supplier and was forced out. Heidrick & Struggles, the Chicago headhunters, contacted me about the job of executive vice president. Nobody had heard of me outside Detroit because the Mustang didn't come out until 1964, but I had been running the Ford division at Ford for two years. To me the job sounded terrific -- like being elected Pope -- but I turned it down because I thought I had a better future at Ford. They gave it, instead, to Lynn Townsend, who was chief executive when the company started going in the soup. Would things have been different at Chrysler if I had taken that job? Maybe. But you can't ask yourself where you might have been if you had taken that turn instead of this turn. You might be dead. After Henry fired me, I went to Chrysler because it was the only game in town. Not General Motors. Today GM might hire me, but even that's debatable. GM was in that wonderful catbird seat. They would have said to me, 'We can't use you because you haven't had at least 40 years at GM, gone to General Motors Institute, come up through the ranks, and stepped on every rung on the ladder. We never go to the outside for executives because that's an admission that we didn't build our people right.' Well, GM did go outside recently for a couple of big guys. ((Ross Perot and Elmer Johnson, the Chicago lawyer who was rumored to be Roger Smith's successor until he quit in July.)) But it didn't work out. MY BEST MOMENT at Chrysler came five years ago when we paid off the $1.2 billion in government-guaranteed loans at that famous Press Club luncheon. Treasury Secretary Don Regan and House Speaker Tip O'Neill were there. Nothing is ever going to top it. I hated being in the government's pocket for that money, and when we got out, how sweet it was. I've been in the auto business 42 years now. I started at Ford in August 1946, as a student engineer in the Rouge plant where they once made the Model T. The part of the job I still enjoy most is messing around with cars. The other day, I was in a meeting with executives from Lamborghini, the Italian manufacturer of superfast, superexpensive exotic cars that we bought last year. We were going over the Formula 1 racing engines and the new $130,000 Countach, which, by the way, is a smash. You'll see it next year. We were looking at the design and studying the marketing plans. When I left the ) meeting, I said, 'You guys here are having all the fun with this expensive hardware. Now I've got to go back to selling everyday stuff.' I've always spent a lot of time in the international area. Several times I've wanted to buy Honda. Back in the 1960s, when I was at Ford, we looked at them. I'll never forget the meeting. I said, 'I want to buy a toy-car company, and then Schwinn bicycle, and then Honda' -- which was then primarily a motorcycle company -- so I could get customers from the time they were in kiddie cars up until they were buying Cadillacs. I got voted down. Motorcycles were too unsafe, and it looked like they might be banned. Then Honda grew, and I got a second crack at them in 1975. I went to Soichiro Honda's house, and I gave him a Mustang and he gave me a beautiful cloisonne vase. That's when he offered to sell us 300,000 engines and transmissions for a new small Ford we were thinking about, and we stupidly turned him down. Honda is a genius. He is like old Henry Ford. He went to the lab every day, put on a white coat, and worked on engines. Now they are doing well all around the world. Back in the late 1970s, I tried to arrange a troika with Nissan, Volkswagen, and Chrysler. My theory was that you needed U.S. distribution, European technology, and the manufacturing discipline and quality of the Japanese. It would have been a helluva conglomerate, but it didn't work. For one thing, we lost $1 billion in 1979 alone while we were negotiating with Volkswagen, and they thought we were going down the tubes. Chrysler was partners with Mitsubishi and had been since the early 1970s. And we still held a lot of stock in Peugeot in those days. We sold the Peugeot interest, but now we've gotten together with Renault because we bought their stake in American Motors. We're not partners with them per se, but Renault has given us a good product in the Eagle Premier, which we now make in our new plant in Ontario. Our joint venture with Mitsubishi, called Diamond Star, is a ten-strike. We shared a lot of styling and engineering with them, and they shared their manufacturing expertise with us in the plant we built together in Bloomington, Illinois. We'll get a new sports coupe called the Laser, which we couldn't afford to develop on our own, and they will have a similar car that they will market as the Eclipse. Mitsubishi did an unbelievable job. It opened my eyes. Japanese kids figure that being on the factory floor is like being a hero at the front during a war. They're educated to know there is nothing wrong with getting their hands dirty and building something. I wonder if everyone on Wall Street making millions is as happy. They may be richer but they don't produce much of anything. No matter how good the Europeans and the Japanese are, they haven't done anything like the minivan. It's a worldwide home run. We sold 42,000 in May alone, we'll do over 450,000 this year, and that's out of a total U.S. minivan market of less than one million. There are some guys who thought we'd be lucky to sell 42,000 in a year. Several competitors in Europe and Japan are designing minivans for themselves. Their dimensions are within a quarter inch of ours. I've seen their specifications, and they are equal or comparable to Chrysler all the way down the line. I've even suggested to some of them that they license our design so they don't have to start from scratch. There aren't too many ways you can change the design. The floor has to be flat, and it has to be front-wheel drive. You can skin it in plastic and change it every year if you want. But you are not going to improve on it as a package. It may take five or ten years, but minivans will be as big a hit in Europe as they are in America. People with kids over there who have always owned four-door sedans will say to themselves, 'Why don't we go after true function and get a minivan?' WE'RE BREATHING down the necks of the Chevrolet division, if you count all our trucks. One of our guys told me that Ford doesn't watch us in cars, they watch us in trucks, because we're up to 20% of the market. Trucks are a great business. The import competition isn't as fierce because there's a 25% duty on imported trucks. And the emission and safety requirements don't have to be as stiff on trucks as they do on cars. We don't need but another two points out of Ford, two points out of GM, and if the yen stays strong, we'll get 25% of the truck market. A lot of people think that because of our roaring success with minivans and Jeeps -- which are classified as trucks -- that we're more of a truck company than a car company. But we still get about 12% of the car market. Business conditions are always changing. The Japanese are coming in with their own minivans and Jeep-like products, so there will be a lot of changes up and down. It used to be said that the tough market, where you don't make a lot of money, is under $10,000. That is 30% of the business. The other 70% is where you can make your profits. I always thought the donnybrook would be in the $10,000-and-under market, and now it's getting tough in every segment. Today everybody wants a piece of the luxury market. First you had the Honda Acuras. Now we're going to have Nissan Infinitis, Toyota Lexuses, all grown upscale. Mercedes is always going to get its chunk, but BMW may not be as well off. That's not because all the yuppies are dead. It's just getting tougher to shell out $35,000 for a foreign car when you can get virtually the same features in an American car for under $20,000. Chrysler has gotten over its bad times from the early 1980s, and now GM is having them. Five years ago I would never have guessed it would be where it is today. Some people blame Roger Smith or the acquisitions, but the truth of the matter is that GM, which owns so much of the market, didn't realize that the onslaught of the foreigners had to come out of somebody's hide. When imports went from 15% of the market to 30%, somebody had to lose. GM had about half the market then, and it gave up ten points to imports. GM has a 37% market share now, and it will never get back to 40%, any more than imports are going to drop under 30% ((they are now at 32%)). The problem all of us -- GM, Ford, and Chrysler -- have with foreign cars, both imports and ones made in the U.S., is to make sure the imports don't get to 40%. That would leave only 60% of the market for us, and that would be slim pickings. GM has to decide on its own, but I would think a third of the market is ambitious for it. So if GM gets 33% of the market and the imports get 30%, that leaves 37% for Ford and us. That's okay. That would give Ford 22% and us 15%, which is about right. We figure we should get about two-thirds of what Ford gets. But will the imports stay at only 30%, and will GM be content with 33%? GM executives say they're determined to get back to 40%; I don't think they really believe that. But I'll bet you that internally they believe anything under 35% will be a disaster. So everybody will go nuts over that last 5%. GM is a formidable institution that did everything right for a lot of decades. I think its great years were due to the fact that its presidents -- and it always had them waiting in line -- were good product guys who understood cars and liked them, not just drove them fast. And a lot of the other executives were strong. Even John Z. DeLorean -- I knew him before he ( went Hollywood -- was a great engineer. He did a lot of good things at Pontiac. GM has always had a finance guy as chairman, and some of them were terrific. I think Tom Murphy, Roger's predecessor, was the best. I feel sorry for Roger sometimes. I know what he is going through now, because I've been through worse than that, really, with the government loan and so on. Misery is misery. I may disagree with some of the things he did. The decision to pay $5.2 billion for Hughes Aircraft in 1985 was crazy. GM will never get a worthwhile return on that. I got out of the bidding at $3 billion. Nobody else bid as much as $5 billion. Still, Roger couldn't have gotten as bad as people say he is that fast. History will be kinder to Roger than the media have been. DON'T EVER sell GM short. When people say GM got in trouble because its cars look alike, that's crazy. Its cars have always looked alike. GM's costs are just too high. They never believed they'd have to adapt to a lower level of total volume, and they never got their overhead in line with that volume. It's not that it was bad management; the management just didn't move fast enough. Now they're doing it. It's tough to get a bull out of a ditch. But once he gets out don't tease him, or he'll knock you in the ditch. You gain advantages sometimes, just because you're in the right place at the right time. I think Ford has done a good job, but so much of its profits are on a lot of old stuff -- cars whose basic engineering was done back in the 1970s. Ford's making a lot of money because it has $28,000 Lincoln Town Cars that produce $10,000 each in gross profit. You throw in 110,000 Lincolns at $10,000 profit each, that's $1.1 billion, and the tooling for that car was paid for a decade ago. Their pickup business is a boomer also. The Lincoln, and the pickup, by the way, are vehicles that Hal Sperlich, my protege at Ford and later president of Chrysler, designed 15 years ago. Even the Mercury Marquis and Ford Crown Victoria are ancient. We were the lowest-cost producer for three or four years until Ford came along with this boom on the upper end of the market. Now Ford is the lowest- cost producer. We're second in costs, but GM is dragging. I tell you, I've watched it come and go. You better know what you're doing, and you better keep your costs down. Quality is the eternal -- I call it infernal -- problem you face every day. I figure our cars are good quality now. Our customer satisfaction is the best of the Big Three, though not as good as the Japanese. We've been the best of the domestics for two years running now. It is tougher and tougher to meet our goals of getting 15% quality improvements every year. We've done all we can throwing money at the problem. Not as much money as GM, but enough. You have to change your basic culture to get better quality. One of our most expensive and highly automated plants gives us the most trouble. Maybe it is lousy management, maybe a lousy work force, maybe a combination of the two. It may be personality clashes, whatever, but it permeates down, and the guys don't do their job right. Neither labor nor management is always right or wrong. It takes two to screw it up royally. On the other hand, it appears that our plant with the least automation and least investment is turning out the best quality. You ask, 'What's going on?' Well, it has to be the people in the plant -- management and labor. It is how the people approach their jobs that does it. Everybody talks about quality circles, worker involvement, wearing the same uniform, and eating together in the same cafeteria. I think that is all nice, but it is not the answer. The answer is to make a guy -- any guy -- feel that when he comes to work, he does something and contributes something, so that he can't wait to come back tomorrow. Unions in our industry, like all unions back then, were pretty good at outright featherbedding. Under the union contract, you would have to have 28 electricians in a plant, if you can believe it. A guy would say, 'My job classification says I can only touch electric light bulbs, not electric motors.' Atrocities like that persisted until recently. That's why we fight so hard for these modern operating agreements in our plants and we've been fortunate that the United Auto Workers has joined us in this effort. Instead of having 100 job classifications, we're down to ten or 12. That's still not as good as the Japanese, who only have about five. When you get down that low, you save more than money. Everybody pitches in, and you get rid of that line, 'It's not my job.' The Japanese ask, 'Can I help you with your job?' But the world is changing. The law of comparative advantage has come into play, and Korea will start replacing Japan as the car-building center of Asia. Shipbuilding is already going to Korea. The Koreans have the same work ethic as the Japanese. I think some of their factory workers make less than a dollar an hour. In the elite auto plants, it is about three dollars an hour. In October I am going to China. We have two projects there. One is a plant that makes Jeeps, which I inherited in the AMC deal. The other one is a new project to make four-cylinder engines. I was at the Chinese embassy in Washington recently, getting ready for my trip. They gave me some books, and I was flipping through one of them. One passage said, 'We should industrialize carefully so we don't create unrest and dislocate people, and phase two should be completed by 2050.' I was afraid to ask about phases three and four because they have got to be out in the 22nd century. Holy cow! Talk about taking the long view. I DON'T bash Japan. I have a lot of friends there. We have great relations with our partner, Mitsubishi. It has taken me ten years, and we've had some rocky times, but they are good people and we're getting along terrifically today. But you have to understand the Japanese, and know when to say yes and when to say no. I don't think our government knows how to do that yet. I'm rooting for a stronger dollar, believe it or not. With the yen going from 250 to 125, Toyota has come up in price way above mine and I'm selling more cars. But this cheap dollar is letting them buy up our country at half price. The Japanese win all the bids because they are only paying 50 cents on the dollar. Even I can look smart buying a Las Vegas casino at half price. It's a sad commentary to have your dollar that weak, and I'm glad to see it stabilizing a little. We should be able to compete with the yen at 180. Competing with the yen at 150 is a breeze, and if it stays at 120 we slaughter them. But in the long term, that's not the way to do it. It cuts down on their profits, but they will just give their profits away to hold on to their beachhead here a while longer and, of course, keep moving more and more of their operations over here. The Japanese don't live high off the hog; they really don't. They're disciplined and they have all this wealth, but they are all crowded together on an island, and they wait for years to own a home because land is so expensive. All the Japanese do is outthink us and outsmart us. Japan has the plans for its postindustrial future already. Look at what they are doing with their wealth -- investing in American real estate. That doesn't worry me so much. What worries me is their investments in American banks, American insurance companies, and American credit cards. And I know they are making detailed studies about getting into America's health-care business. They know that if something is going up at three times the inflation rate, somebody must be making a ton of money at it. Joe Califano, the former Secretary of Health, Education, and Welfare and a Chrysler board member, went over there as their guest, and they picked his brains for a week about health-care delivery systems and whether they should be in that business. And now seven of the ten largest banks in the world are Japanese. So imagine that your bank account, your credit card, your house, and your health care are all in one guy's hands. We'd never allow one company to have that much power over us. Does it make sense to let another country have so much power? Politics gets in the way of economics every time. Everybody seems to have said we've got a terrible problem with the deficit, and the trade deficit has something to do with the budget deficit, or vice versa. Yet you've got two presidential candidates, Bush and Dukakis, who are saying, 'We won't cut defense because we don't want to appear soft on defense. We won't talk about oil taxes because OPEC doesn't worry us anymore. We won't offend any group that has a strong lobby in Washington.' And today that's just about everyone. I say, 'Wait a minute, I don't need a pencil and paper to figure out that the math doesn't come out. You can't get there from here.' It is the Mondale syndrome. Mondale got crushed in 49 states for saying he would raise taxes. The other day Bush said he might agree to higher user fees, 'but that's different.' But, nothing. He won't agree to any kind of tax. Dukakis says that he wants to use the Massachusetts plan to get all the tax cheats. The problem is people always think all the tax cheats are in a bracket other than their own. I've met and talked with both candidates. They're good, bright guys, but for the life of me I don't know where they stand on the issues. Bush and Dukakis are going to paint themselves into a corner where the public will say they are both full of it. Here are these candidates, who want people to vote for them, saying that the deficit is a helluva problem but as President I will not address it. They are both getting very close to saying they wouldn't raise taxes under any condition. To one-up each other, they may start saying they are going to start reducing taxes. It is almost getting to that. As an American, it makes me angry. If they don't bring up the issues, then who will? We have to smoke these guys out, for the good of the country. Churchill said democracy is pretty sloppy, but it is better than anything else around. Well, ours is getting pretty sloppy, believe me. People are happy with their lot, but deep down they are afraid of the future. There is a veneer of confidence there that is easy to crack. People are worried about losing their jobs and everything they've worked for, and they're worried about their children's future. You begin to sense there is something screwy here. As for ourselves, Chrysler has done pretty well getting ready for the 1990s. There is nothing wrong with our market share. We're up to 15% of the total North American car and truck market. That's one in seven of everything sold on this continent, though we should be making a little better profit on the terrific volume we're selling. I tell our people, 'If you are the lowest-price guy, give away the biggest rebates, and do the most advertising per car, I'll show you a classic squeeze on margins.' Wall Street analysts don't like me because we're not getting as much profit, but the customer sure likes me because he's getting a good deal. If I take good care of him, I've got his repeat business knocked. If that isn't building for the future, I don't know what is. I think Chrysler is healthy. The balance sheet is good. We've still got the overhang from the unfunded pension liability. We've got one guy working for every guy that's retired. That's because we're a very mature industry, so we take a beating on that. But we've got a ten-year program to handle that -- a ten-year program, not a two-year program. Gianni Agnelli, the head of Fiat, gave a famous speech 15 or 20 years ago in which he said there were too many companies in the automobile business and that there would be a big shakeout. Some people think that if there are three auto manufacturers in the U.S. now, there should be two or even one, and Chrysler should go next. The reasoning is that GM and Ford are global companies and are so strong they do not have to worry. I don't agree with that because I think we're pretty strong. We're trying to expand outside North America by selling cars in Europe without going berserk the way Chrysler did before, buying all those second-rate companies like Rootes Group in England and Simca in France. You have to diversify worldwide to beat all these up-and- down cycles. We expect to be big in Europe. The Jeep brand name in Europe is ^ fantastic. The minivan, with two- or four-wheel drive, will be a winner. But there should be some consolidation in Europe. France's Renault and Peugeot should be one company. Volkswagen, Mercedes, BMW, and Porsche could be another one -- and a formidable one, I might add, maybe the General Motors of Germany. In England, Jaguar has made a comeback, but its product line is so narrow and its volume so low that it cannot be considered a major player anymore. In Italy, Fiat is practically a second government, so it will be around for the future. In Japan I'd say it will be tough for everybody in ten years. It is tough for some of them now. Subaru, Suzuki -- those guys are not having a field day. Toyota and Nissan are the big two. Then comes Honda and maybe Mitsubishi and Mazda, and that is about it among the survivors. So Agnelli was right when he said we might end up with ten companies. The auto business is so international that we need more than just industrial engineers to run GM, Ford, or Chrysler. If a guy wants to be a chief executive 25 or 50 years from now, he will have to be well rounded. There will be no more of 'Is he a good lawyer, is he a good marketing guy, is he a good finance guy?' His education and his experience will make him a total entrepreneur in a world that has really turned into one huge market. It is not even enough to say a kid has to have an international outlook. What does that mean? If a guy is going into the auto business today, I say he'd better speak Japanese or German, he'd better understand the history of both of those countries and how they got to where they are, and he'd better know their economics pretty cold. LOOKING 20 years out at what we will be making, there will be lots of changes, but we'll still have a car that is much the same as we see it today. It will have four wheels -- perhaps the spare tire will be gone -- it will be made essentially of steel, though 20% to 25% of it could be plastic. Despite all those years of research into turbines, electric power, and so forth, it will be powered by an internal combustion engine. It is tough to knock that engine out, even after two fuel crises. With the electronic controls, we've gotten rid of the rough spots. It will stay around for another century. So the car's not going to fly or have radar or any of that stuff. That's too exotic to think about at the moment. Innovations come and go. Everybody's nuts around here about four-wheel steering. I'm not holding my breath. I don't even need four-wheel drive. All these Beverly Hills people who buy Jeep Cherokees and drive them to Rodeo Drive never throw them into four-wheel drive. The more things change, the more things stay the same. A company with the best distribution system and the best service will win all the marbles -- because you can't keep an advantage in the other areas for long. Even if you come up with a Mustang or a minivan, you have it for three or four years, and the other guys all join in. We will all have to be good at the basics -- quality, service, safety -- if we want to survive. Quality is the price of admission. If you don't have that improving every year, you are dead. No hassle in the sales experience. No hassle taking care of the car. I tell my guys all the time, 'Why do you think leasing is so popular?' All the driver has to do is keep the car gassed. If anything goes wrong, he even gets a loaner while his car is in the shop. In the end your legacy is: Did you know what the hell you were doing? Were you building good products, giving good service, and were your employees happy doing it? If you've built a well-oiled machine and it works over time, that's all you can look back on with any good feeling.''