Read an Excerpt
8 Laws of Business from One of the Most Innovative Business Leaders of our Time, Revised and Updated
By Robert A. Lutz
John Wiley & Sons
Copyright © 2003
Robert A. Lutz
All right reserved.
DEJA VU ALL OVER AGAIN
A FUNNY THING HAPPENED TO CHRYSLER IN THE EARLY 1990s. THE COMPANY
that, just a decade before, had been saved with the aid of historic-and
very controversial-federal loan guarantees, was in deep trouble
How did this happen?
It would be easy, I suppose, to paint the reasons in stark black and
white, complete with stock villains from Central Casting-as writers
of books and articles are so often wont to do. But I hate it when writers
do that, when they oversimplify the reality of what was really an
incredibly complex business situation. The truth of Chrysler's situation
was more shades of gray than black and white-and since this is
my book (and since I believe that the ultimate key to success in business
is truly understanding complex situations by using more of your
gray matter), I'm going to give it to you straight (or at least as straight
as my admittedly skewed personality will allow!).
Some of the seeds of Chrysler's second unraveling were, undoubtedly,
sown in the headiness of thecompany's remarkable
comeback from the brink in Turnaround #1. And I, for one, can
almost understand why. In 1979, even the pro-business Wall Street
Journal had told Chrysler to "die with dignity." But the plucky band
of survivors at Detroit's number three automaker, led by Lee Iacocca
and his rough-and-tumble gang of refugees (and castoffs) from the
buttoned-down Ford Motor Company, would have none of it. Sure,
they'd bent the rules of free enterprise a bit in wrangling $1.2 billion
in loan guarantees out of the Carter administration (something that
I myself, from my perch at Ford at the time, had a tough time sympathizing
with), but the company had also gone through hell and
back in terms of coughing up additional billions in pay cuts and
concessions-not to mention having to go to the mat to wrestle
concessions from its bankers, suppliers, and dealers. All in all,
Chrysler in the early '80s was like a heart-attack victim that had
undergone an emergency transplant right by the side of the road for
all to see-and had survived! And if nothing else, you had to give
them credit for their sheer spunk.
This was, after all, the company that, in the midst of all its travail,
brought to market the cheap, fuel-efficient "K-car"-badged the Dodge
Aries and Plymouth Reliant-laughable underachievers by today's
standards, but exactly the right cars for those recessionary, post-oil-embargo,
stagflation times. The K-cars were America's first front-wheel-drive,
transverse-engine, six-passenger cars, and they sold like
hotcakes. Even more important, they served as the basis for a true
automotive sensation-the minivan. Introduced in the fall of 1983,
the Dodge Caravan and Plymouth Voyager (and later the Chrysler
Town & Country) not only created an all-new segment in the American
auto market (arguably the first all-new segment since the Ford
Mustang defined the "pony car" segment in the '60s), but they became
a cash cow of almost unbelievable proportions. In 1984, Chrysler
earned a then-record $2.4 billion-adding another $3 billion in earnings
over the next two years.
It was at that point in time, 1986, that one Robert A. Lutz, age 54,
decided to jump ship at Ford and cast his fortunes with the swash-buckling
crew at Chrysler.
Why, exactly, did I go to Chrysler? One reason, quite honestly, was
that it had become obvious to me that I had risen about as high as I
would go at Ford. After stints earlier in my career with General Motors
(mostly in Europe) and with BMW in Munich, and after serving as
chairman of Ford of Europe (a huge company in its own right), I had
risen to executive vice president of all of Ford's international operations
and been elected to Ford's board of directors. For a while, there
was even speculation in the press that I was a dark-horse candidate to
succeed Phil Caldwell as chairman of Ford. Throughout my career, I
guess I was what you'd call, in today's parlance, a "change agent," and
that active, sometimes exacting temperament had certainly served me
well. However, change agents, by definition, stir things up-and it's
one of the ironies of modern business that while companies all say
they want positive change, they very often get uneasy about anybody
in the organization feeling "uncomfortable" (which of course is how
change often makes people feel).
And so it was for me at Ford. Don't get me wrong: I didn't leave
Ford "one step ahead of the sheriff"; I could have finished out my
career there. But a gnawing feeling had descended upon me-a feeling
that I'd started running in place.
Meanwhile, there was a lot about Chrysler that I found very appealing.
Chrysler was seen in those days as sort of the last refuge of automotive
malcontents, and I guess I pretty much fit that description. In
fact, throughout my life, I've never really fit into the standard mold
For starters, unlike what seemed to be true of virtually all American
automobile executives at the time, I was not born in that small, bucolic
town in the Midwest called "Humble Origins." Quite the contrary. I
was born in cosmopolitan Zurich, Switzerland, into the family of one
of those Swiss bankers you hear so much about, and I grew up sort of a
"mid-Atlanticer," as my father's bank, Credit Suisse, kept transferring
him back and forth between Zurich and Wall Street. In fact, by the
time I was eight years old, I'd crossed the Atlantic five times and, by
age 11, held both Swiss and U.S. citizenship.
It was certainly a privileged life, but it also contained a lot of
upheaval for me, as I was regularly held back a grade whenever I
returned to school in Europe following a stint in the United States.
Even though the U.S. public school system in those days was
absolutely stellar compared with today, and even though I always
had a rigorous course load that included Latin, literature, higher
mathematics, and all of the other subjects of a traditional liberal education,
invariably I'd be hopelessly behind my Swiss counterparts.
("Okay, Bobby, we see here you've had a little Latin; would you now
please conjugate these verbs for us?")
Plus, as is so often the case, privilege in my young life (combined
with all these upheavals and setbacks) had a way of leading to a certain
amount of restlessness and even outright rebellion. The worst example
of this is when my family finally settled down for good in the Zurich
area following World War II, and I managed to get myself booted out
of high school. Official reason: "Academic and disciplinary problems."
Translation: At the same time I was showing little interest in my
assigned studies, I was showing a little too much interest in the daughter
of the biggest industrialist in town.
Luckily for me, six months of manual labor in a leather warehouse
taught me that maybe buckling down in school wasn't such a bad idea
after all. But my father, in his infinite wisdom, wasn't going to let me
off with just that. In exchange for his promise to fund one more
chance for me at education (at a public school in French-speaking Lausanne,
Switzerland, where I eventually picked up that language in
addition to my German and English), he made me promise to return to
the United States immediately upon graduation and enlist in the U.S.
Marine Corps. (Why the Marines? Well, I think at least part of it had to
do with the fact that during one of his stints in New York my father
had gotten to know a very impressive former Marine colonel, and, in
addition to being a great guy, the colonel used to walk around the
office on his hands-and I think maybe my father thought that all
Marines walked on their hands, and that any breed of people who can
do that must be pretty neat!)
At the time, I thought my father's deal might be a Faustian pact-especially
since the Korean War was in full swing at the time, and the
survival rate of enlisted Marines in Korea was none too high! Instead,
it turned out to be a godsend: After graduating from high school (at,
yes, the ripe old age of 22-I was so old the other kids had taken to calling
me "Dad"), I went through boot camp at Parris Island, South Carolina,
and acquired a sense of discipline (including self-discipline) to
temper my heretofore unbridled bent.
I was also, eventually, able to fulfill one of my (and probably just
about every other boy's) lifelong dreams: to become a fighter pilot.
Because I didn't have a college degree and wasn't an officer, I entered
the Naval Aviation Cadet Program (NAVCAD), which was then open to
promising enlisted men from either the Navy or the Marine Corps
(and even civilians). As events would have it, the Korean War ended
before I got my wings; however, I did serve in Korea for a time as the
Air Liaison Officer of the 2nd Battalion, 3rd Marines, based on Okinawa.
All told, I served five years as an active-duty Marine aviator from
1954 to 1959 and received my commission as an officer.
I loved the Corps, and I loved what it did for me in turning around
my life. In fact, I loved it so much I intended to make it my career. But
to advance as an officer, I would have to get that college degree. So, following
my tour in the Far East, I returned to the site of one of my earlier
assignments (northern California) to become a Reserve aviator,
flying out of the Alameda Naval Air Station, and to finally pursue a
degree at the University of California at Berkeley.
But at Berkeley, a funny thing happened to me: While pursuing
my degree, I became just totally fascinated with the world of business,
particularly the whole bundle of human psychological constructs
involved in marketing; and I started to think seriously about
combining my second burning passion in life-cars-with a career in
business. So, after obtaining my bachelor's degree (at age 29), I went
on to get an MBA at Berkeley, and soon thereafter got into the auto
industry with a series of marketing and, later, management jobs at
General Motors, BMW, and Ford.
When I finally landed at Chrysler, two decades and three car companies
later, I found a place where (at the top of the company, at least)
a nonconformist like me seemed to fit right in. Moreover, I saw
Chrysler's smaller size (at least in comparison with Ford and General
Motors) to be a tremendous potential advantage for the company. In
the Marine Corps, and later, when I oversaw the disparate departments
that would someday be the motorcycle division at BMW, I'd seen the
power of small, dynamic organizations firsthand-organizations that
through vision, wile, and, yes, just plain guts were able not only to
overcome their size and resource deficiencies, but to turn them into
advantages. And I was anxious to work again in an organization that
wasn't too large (or to be more exact, too lethargic) to get out of its
There was one other thing, however, that I quickly discovered on
joining Chrysler: that the company, despite its bold demeanor and
strong profits, was basically following a defeatist strategy in its core car
and truck business.
Some of the rationale for this strategy was perfectly understandable.
From time immemorial, the auto industry has been one of the
most cyclical industries anywhere in the business world-"Every time
the American economy catches cold, Detroit gets pneumonia," goes
the old adage. And a lot of people, including the money managers on
Wall Street, had long pressured us to try to minimize this cyclicality by
diversifying our risk-or else pay hell for it in stock prices, credit ratings,
even our jobs. Now, though, there was an additional dynamic:
Japanese competition. To be more exact, the challenge was Washington's
growing reluctance to do anything about the plainly unfair
advantages that Japanese automakers then enjoyed over their American
It was Washington, to begin with, that in the 1970s had saddled
Detroit with a stringent array of fuel-economy regulations to combat
an "energy shortage" that, in reality, turned out to be a mirage. (Case
in point: A gallon of gasoline in the United States today costs less than
a gallon of bottled water!) And in this respect, Chrysler's smaller size
was not an advantage, because in not having the resources to place two
bets at once (one on fuel-sipping four-cylinder cars and a hedge on
larger cars and V-6 and V-8 engines, as GM and Ford had done), the
company found itself with its chips stacked on the wrong color when
the energy crisis turned out to be a false alarm. As a result, the company
also found itself-to a greater degree than GM or Ford-right in
the teeth of the full-fledged Japanese onslaught of the mid- to late '80s.
Meanwhile, on another front, in the recession of the early '80s-which
was really a depression for autos-Japanese automakers, under
pressure from Washington, had agreed to "voluntarily" limit the number
of cars they imported into the United States to 1.68 million per
year. This was called the Voluntary Restraint Agreement, or VRA-and
it made sense because Japan's own auto market was (and is) locked up
tighter than a drum to foreign competition. For example, in the year
the VRA was enacted the Big Three American automakers sold a grand
total of 4,219 vehicles in Japan, and by 1997 that number had climbed
to just 25,000 vehicles.
In 1985, however, Washington decided to let the Japanese lift the
VRA (in essence, to eliminate it). On the face of it, this seemed like a
sensible decision-after all, the Big Three were all making money once
again. However, with foreign nameplates already taking more than a
quarter of the U.S. market that year (and now threatening to take a lot
more), and with autos accounting for more than half of the nation's
all-time record $130 billion trade deficit, it wasn't inconceivable to
consider the future for American auto producers, especially those
whose products competed so directly against the Japanese, a little
Moreover, there were a few other Japanese-related factors at work as
well: The original imposition of the VRA had given the Japanese an
incentive both to sell a higher mix of upscale cars in the United States
(just as gasoline prices were falling) and to build what turned out to be
a bevy of "transplant" assembly plants in the United States (just as the
yen had finally strengthened against the dollar)-proving, much to
Detroit's chagrin, the old saw, "Be careful what you ask for, because
you just might get it!" Adding insult to injury, as the yen rose from its
previous absurdly weak (read rigged) levels, the Japanese complemented
their growing U.S.
Excerpted from Guts
by Robert A. Lutz
Copyright © 2003 by Robert A. Lutz.
Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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