Chrysler Gets Some "Firepower"

Feisty Lee Iacocca is back at the wheel again ft

"Johnny called me and said, 'Why don't you come over and give me a hand?' " So said former Ford President Lee Iacocca last week, talking about how he had just made one of the most spectacular moves in Detroit's long history of high-level executive swapping. Iacocca was appearing at a press conference in the Highland Park, Mich., headquarters of his new employer with his new boss, Chrysler Chairman John J. Riccardo, whom almost no one ever calls Johnny. But Riccardo did not seem to mind the unaccustomed familiarity. Speaking of the man just named by Chrysler's board as the troubled company's new president, Riccardo beamed and said he was "personally, extremely pleased."

So, clearly, was Iacocca. "I really didn't want to retire at 54," he said. "I really didn't want to be banished from the auto scene."

Iacocca's return was almost as startling as his departure. Only last July, one of Detroit's sharpest marketing men was abruptly ousted after 32 years at Ford, the last eight years as president. The precise reasons for Iacocca's downfall are still unclear, but at least one of the causes was a clash of wills with Chairman Henry Ford II. After his firing formally took effect in mid-October, Iacocca was relegated to a drab, linoleum-floored office in a spare-parts warehouse near Ford's headquarters in Dearborn, Mich.

Ford executives say that Iacocca's new job "came as a surprise." Only 24 hours before, Ford had announced a severance agreement with Iacocca that granted him a termination payment of $400,000 plus a separation payment of $275,000; he also stood to get $1.1 million in additional payments, on condition he did not go to another auto company. No one at Chrysler would say what Iacocca would be paid now, but almost certainly he is not going to miss his forfeited Ford pay very much. According to some reports, he was guaranteed a salary package totaling more than $1 million over an unspecified term, as well as an option to buy up to 400,000 shares of Chrysler common, now selling at $11.25 a share.

Iacocca insisted on being given a free hand in running Chrysler's day-to-day affairs, and evidently he will get it. President Eugene Cafiero, who at 52 is only two years younger than Riccardo and was not a strong candidate to succeed him, was made vice chairman and given vaguely defined duties involving planning. Riccardo announced that he will turn over his job as chief executive officer to Iacocca next year and devote most of his energies to Government relations and Chrysler's finances, which he says already occupy "almost 100%" of his time.

Riccardo says he recruited Iacocca because Chrysler "needed additional firepower." While Ford and General Motors are both enjoying robust sales and profits, Chrysler is in the midst of its worst year since 1975, when it lost $260 million. The company lost $158.5 million in the third quarter alone, and its full-year deficit could reach $250 million. On the plus side, Chrysler in August sold its European automotive assets to France's Peugeot-Citroen in a deal that included $230 million in cash. Riccardo has announced that Peugeot-Citroen coughed up the $230 million this year, months earlier than expected. Nonetheless, Chrysler's board last week cut the company's quarterly dividend from 25-c- to 10-c- a share.

In a season when the industry considers a 60-day inventory of unsold cars to be normal, Chrysler has an 81-day supply; for some of its Japanese imports, including the Plymouth Sapporo and Arrow models, the sales backlog exceeds 150 days. For lack of models, the company has been virtually shut out of the full-size car market, which now constitutes 29% of industry sales. And when the company introduced its new full-size 1979 Chrysler New Yorker and Dodge St. Regis models with a vigorous publicity blitz in early October, it had almost no cars to sell because of production problems. Chrysler's only real winners this year are its front-wheel-drive Omni and Horizon.

Beyond its immediate marketing problems, Chrysler faces a more general need to change directions. Alone of the Big Three, the company has never really nurtured a specific vision of the kinds of consumers it hoped to reach. Its customers tend to be older, less affluent and more conservative than those of Ford or General Motors. The Omni/Horizon, Detroit's first front-wheel-drive car, is a promising breakthrough, but Chrysler still faces a changing marketplace with limited financial resources.

Many industry analysts are skeptical that the arrival of one of Ford's better idea men can have much immediate impact. Says Ronald Glantz, a vice president of Paine Webber Mitchell Hutchins: "It takes three years under a crash program to design a new car. Whatever happens in '79, '80 and '81 will be due to the programs already in place." He adds: "The auto game in the '70s and the '80s will be fuel efficiency, space efficiency, ease of assembly--and none of those are Iacocca's strong points." But others disagree. Says Michael Ward, vice president of Dean Witter Reynolds: "Chrysler's only problem is volume. Iacocca can help; he's a super marketing guy."

Iacocca says that he would like to see his new employer develop a "sports car," suggesting that something like the Mustang, which made Iacocca's reputation as a marketing whiz at Ford, may be in Chrysler's future. Iacocca is also expected to inject some new pep into the company's dealer organization. The real test of Iacocca's ability will be in how well he can maneuver within the narrow limits imposed by Chrysler's tight financial circumstances. The auto industry has changed dramatically since he introduced the Ford Mustang in 1964: costs are much higher, and so are risks. Whether Iacocca will succeed in turning the company around remains to be seen. But Chrysler is betting a bundle he can do just that.

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