Crunch Time Again For Chrysler

"If you're not scared, you're too stupid to work here."

--Lee Iacocca at a senior management meeting in December

He's as blustery and supremely self-assured as ever. At 66, Lee A. Iacocca hasn't lost the in-your-face swagger that made him something of a national hero during Chrysler Corp.'s brush with bankruptcy just over a decade ago. Few CEOs can grab you by the lapels better than Iacocca. And as Chrysler's corporate pitchman, Iacocca has always delivered his best, most operatic, performances just when the auto maker seems closest to the abyss.

You'll probably be seeing a lot more of Iacocca's combative mug on TV in the months ahead. Despite Chrysler's amazing turnaround in the past decade, it enters the fiercely competitive global industry of the 1990s in a position of extreme peril. Many of Chrysler's current woes can be laid directly at Iacocca's feet. But others are beyond his control.

Later this year, Japan's Honda Motor Co. will probably overtake Chrysleras the nation's No. 3 car producer. Chrysler's minivans, Jeeps, and trucks still give it an edge over Honda in overall vehicles. Even so, it will be a se-vere psychological blow to the company that was founded in 1925 by an enterprising machinist, Walter Percy Chrysler, and was once home to such cherished American nameplates as DeSoto. Whether Chrysler will be much of a force at all in the industry five years from now is an open question. Speculation continues to swirl that Chrysler may soon be acquired by a giant foreign auto maker such as Peugeot or Fiat. Both companies deny the rumors. Another wild card is Los Angeles investor Kirk Kerkorian, who holds a 9.8% stake in Chrysler. Iacocca himself believes Chrysler needs a more global presence and last year even held talks briefly with Fiat about a joint venture or outright merger. In the end, Fiat balked--and it's not hard to see why.

PENSION WOES. Chrysler is under enormous financial pressure just as it confronts a critical five-year, $15 billion product-development program. The company's auto operations had a negative cash flow of $2 billion last year, and its balance sheet carries a staggering $3.6 billion in underfunded pension liabilities. While Chrysler's coffers hold roughly $3 billion in cash and marketable securities, the company is still expected to have a 1991 cash-flow shortfall of $750 million, according to Prudential Securities Inc.

The financial crunch forced Chrysler in early March to seek easier loan terms from its bankers. In exchange, it will probably see its standby credit line shrink from $2.6 billion to $1.7 billion. In another move to save cash, on Mar. 7, Chrysler's board cut the quarterly dividend 50%, to 15~. That came despite long-standing assurances from Iacocca that the dividend wouldn't be touched short of a "nuclear war."

Armageddon hasn't visited Chrysler's Highland Park (Mich.) headquarters just yet. Iacocca is barreling through every facet of his operation looking for ways to slash more costs. The company announced that it will cut its board to 13 directors from 18. And Chrysler is readying new Jeeps, minivans, and passenger cars that could restore much-needed momentum. So Iacocca may yet be able to use the current troubles to turn Chrysler into a leaner, more fiery competitor. Says General Motors Chairman Robert C. Stempel: "I always think that the guy who wrote the book is pretty likely to ace the course."

Still, there are plenty of ominous problems ahead. After years gf phenomenal growth, Chrysler's star minivans--representing one in every five of vehicles sold by the company and more than 50% of operating profits--and its Jeep nameplates aren't quite the cash spinners they used to be. That's troubling, since Chrysler's new wave of LH vehicles, the carmaker's first wholesale engineering upgrade since 1980, won't be in showrooms until late 1992.

Meanwhile, competitors such as Ford Motor Co. and the Japanese have zeroed in on the minivan and Jeep lines with fancy new vehicles of their own. In a stunning upset, the Ford Explorer last year sprinted past the Jeep Cherokee in off-road vehicle sales. Both Toyota Motor Corp. and Mazda Motor Corp. have rolled out minivans to compete with Chrysler's Voyager and Caravan models. Damaging criticism of the reliability of Chrysler's electronic Ultradrive transmission, used in nearly all Chrysler minivans, hasn't helped matters. Meanwhile, the company lost money on its Chrysler, Dodge, Plymouth, and Eagle car lines.

In the recession-wracked first two months of the year, Chrysler's car and truck sales fell 24%, forcing Iacocca to idle plants. Lost sales, combined with a planned $257 million write-off for an accounting change, guarantees a loss for the first quarter. If Chrysler's own, conservative 1991 sales forecasts hold true, the drop in volume could erase "something on the order of $400 million pretax," estimates Chief Financial Officer Jerome B. York. All told, Chrysler is expected to lose $89 million in 1991, on $27.7 billion in sales.

In many ways, Iacocca is paying dearly for missed opportunities. During the mid and late-1980s, when Chrysler rolled up big profits of $8 billion, he skimped on investing in new-car development programs that might now be carrying Chrysler through hard times. Instead, he spent $637 million to diversify by acquiring Gulfstream Aerospace Corp., a maker of corporate jets. Chrysler also spent $1.4 billion buying back stock. In addition, Iacocca paid about $15 million to pick up Lamborghini, the Italian luxury nameplate.

Although Chrysler later sold Gulfstream for a $188 million profit, Iacocca now admits his diversification fling was a mistake. And some of his mystique has been lost in the process. Says a former manager: "The feeling is that time has really passed the company by. He's as much a liability as an asset."

This isn't exactly the way Iacocca expected to round out his career at Chrysler. Just a year ago, it looked as if Iacocca, always cagey about his retirement plans, might finally drive off into the sunset. He had found a promising successor in Gerald Greenwald, a savvy finance man he had lured away from Ford in the late `70s. But suddenly in June, Greenwald resigned to lead an attempted employee buyout of UAL Corp.

CRASH DIET. With Chrysler's outlook deteriorating rapidly, the board has extended Iacocca's contract indefinitely. At the moment, he's flanked by two capable executives. Chrysler President Robert A. Lutz is an engineering whiz and former Marine pilot whose office is filled with models and paintings of cars and planes. Vice-Chairman R. S. "Steve" Miller Jr. is a talented and affable finance executive who is also chairman of the Detroit Symphony Orchestra. But for now, Chrysler has to rely on the old Iacocca magic. And given his ability to manage--and talk--his way out of a jam, nobody is writing off the chairman yet.

In fact, Iacocca moved decisively last year to start slashing Chrysler's costs. He has already squeezed $1.5 billion through layoffs and other measures and has identified $1 billion in future savings. In February, the company announced that it would seek out an additional $500 million for a total savings goal of $3 billion by July. It will be painful: About 14% of the salaried work force will be eliminated in all.

Chrysler's partnership with Mitsubishi Motors Corp.--the two own the Diamond-Star Motors joint-venture company--has apparently taught it how to make do with less. Says Lutz: "We're like a 300-pound guy who has lost 100 pounds. We just have to keep losing fat until we're as lean as our best competitor."

The carmaker has also been working closely with suppliers to eliminate waste. Even the smallest details aren't escaping scrutiny. One example: Timken Co. had been shipping its bearings in a reusable container, but Chrysler had been repacking the bearings into another container at its engine plants. At Timken's advice, Chrysler began using the original container--a move that will save millions. In another case, Foamade Industries worked with Chrysler to use a less-expensive material for a seal assembly, resulting in a 70~-per-vehicle saving. Together, some 2,300 similar suggestions have spelled savings of $150 million a year.

BAD PRESS. Iacocca may also pick up cash by selling a minority stake, around 25% or so, in Chrysler Financial Corp., the arm that provides car and truck loans as well as other loans and insurance. Although the unit posted its seventh straight year of solid earnings, its association with the ailing car business prompted Standard & Poor's Corp. in February to lower the credit rating of Chrysler and Chrysler Financial to junk-bond status--a move that greatly boosts the auto maker's borrowing costs. Chrysler has hired investment bankers First Boston and Blackstone Group to find a partner. A 25% stake could fetch $625 million to $780 million, according to Dean Witter Reynolds Inc.

On another front, Chrysler is trying to wean its consumers away from costly incentives. So far, the company has worked its average incentive cost down from $1,200 per vehicle in 1990 to an average $900 this year. That has held out the promise of saving Chrysler about $600 million in pretax income by yearend. If another incentive war breaks out, however, Chrysler will be in a fix. It has less cash on hand than its competitors--and higher borrowing costs.

While such cost-cutting measures will help, Iacocca faces a more immediate--and critical--problem in coping with the Ultradrive public-relations crisis. In February, Consumer Reports ran an article blasting the electronic transmission as a "lemon," prone to software kinks and breakdowns. Considering that it is standard in about 60% of the company's models, Iacocca had a problem on his hands.

A few weeks before the article appeared, Iacocca taped an urgent message for Chrysler's 4,000 dealers: "We have a very serious problem right now that could drive us all out of business if we don't address it--and I mean fast." Chrysler spent millions to waive warranty deductibles, provide loaner cars, and pick up other expenses for those inconvenienced by breakdowns. "Chrysler has been very, very good about accepting much more responsibility than they have in the past," says John Daub, a Chrysler dealer in Easton, Pa.

For such customers as Emile S. Dulion of Sonora, Calif., that kind of hand-holding couldn't come soon enough. His 1989 Plymouth Voyager minivan is on its fourth Ultradrive. But the pampering seems to be paying off. Says Dulion: "Other than the transmission, it's a great vehicle. I've been thinking very seriously about buying a new one."

Iacocca has also taken to the airwaves to shore up Chrysler's image. In one TV ad, he gives an impassioned speech to the company's board about how the carmaker has broken ground by being the first to equip its minivans with air bags. Chrysler is indeed the first, though Iacocca, like many Detroit executives, was once a critic of air bags.

BIGGER CHEROKEE. Chrysler's biggest challenge will be winning a new generation of buyers--not just keeping the mld ones. To get there, Iacocca is betting mightily on a number of new products. First, there's the 1992 ZJ Jeep, a larger version of the Cherokee that the company hopes will put the Ford Explorer in its place. The auto maker is also readying a new full-size pickup truck, a snappy, retro-look model that should help position Chrysler in that profitable segment.

Iacocca's trump card, though, is the LH series vehicles, the equivalent of Chrysler's K-car lineup of the 1980s. Due out in the fall of 1992, the group will feature a "cab-forward" design that shortens the hood and pushes the windshield forward to provide more interior space without making the car longer or heavier. It will be the foundation for everything from the Chrysler New Yorker to the new minivans, due out in 1995. Iacocca hopes the LH series will add some much-needed panache to Chrysler's reputation for design.

Iacocca has pestered managers to bring those cars out ahead of schedule--without success. And he has jealously guarded any cuts to the $15 billion product-development push. Too much is at stake. "If they pull the LH program off right, it will be the salvation of the company," says George C. Peterson, president of AutoPacific Group Inc., a Santa Ana (Calif.) research firm.

Until then, Iacocca will rely on his bravado and gift for crisis management to hold Chrysler together. Should he pull off yet another turnaround, his legacy as the cardiac kid of U. S. business seems assured. If not, the folklore that has surrounded Iacocca could be in for some dramatic revisions.