June 1981 Annual Meeting Speech - Lee Iacocca
The United States automobile industry has just suffered through the two most devastating years in its history. The combined pre-tax losses of General Motors, Ford, and Chrysler on their North American car and truck operations in 1980 alone were just under $8 billion. More than 200,000 automobile workers are still on layoff. More than 2,000 independent automobile dealers have gone out of business. Interest rates have been jerked like a yo-yo from 12 percent to 21 percent, down to 17 percent, and up to 20 percent again. Inflation is in double digits, and the national budget is running the same deficit it ran in World War II.
Yet out of this unprecedented economic crisis, Chrysler Corporation continues on the road back to profitability. Our sales are up, month after month. Our new products are gaining an increasing percentage of the market. Our plants have been working overtime. Our quality is well above two years ago and climbing. We've cut our breakeven point to nearly half of what it was. And even though we are only two-thirds of the way through the second quarter, if we get any kind of a break in interest rates, we have a good shot at reporting a profit when we announce our second quarter results.
The true story of the personal effort, the sacrifice, and the dedication that have brought this great company to this point in history will probably never be told. Yet it represents a historic achievement by the members of an outstanding management team, a dedicated and loyal workforce, the financial community, our dealers, our suppliers, and yes, the federal government and the governments of several states led by the great state of Delaware.
I'm not here to announce that Chrysler is completely out of the woods. We are not. Interest rates are far too high. The rate of inflation is far too high. The economy is not healthy yet. The entire industry is still a little sick.
But one thing has been achieved. Those who once warned the nation of the dangers of catching the Chrysler disease are now urging the rest of the country to take the Chrysler cure. And for good reason. Just as Chrysler was once on the leading edge of everything that was going wrong with America, we are now on the leading edge of everything that is good with America.
And there are lots of things that are right. We have good people. We have quality products. We have leadership in fuel economy. We have a strong sense of unity and cooperation. We know how to sacrifice. And we are not afraid to ask for help and to provide it in return. That's what is right with Chrysler, and that's what is right with America.
Now let me review briefly the progress this company has made in the past year.
First, we have completed the most ambitious corporate restructuring program in history. We have negotiated new wage contracts with our unions, new debt arrangements with our lenders, cost reductions from our suppliers, and substantial reductions in our operating and fixed costs.
Under these plans, all of our workers—union and non-union—will provide us with wage concessions of nearly $800 million through September 1982, and that's on top of the $462 million they sacrificed in the previous negotiations.
Our banks have agreed to convert half of their outstanding loans to preferred stock, taking more than $686 million of debt off the balance sheet and converting it to equity. We have the option of paying off an additional $623 million of debt at 30 cents on the dollar. We plan to pay off the full amount.
At the end of the first quarter we made the first payment of $71 million, much to the surprise of many of our critics who thought we wouldn't even last that long. And we ended the quarter with over $300 million of cash in the till. The next paydown will come by the end of September, and we will make that payment as well. In the process of all this, we will save $200 million per year in interest expenses. Our suppliers have agreed to price concessions that will equal $72 million in savings over the 1981 calendar year.
While we have rebuilt and modernized several of Chrysler's key plants, we have consolidated others that had become obsolete or unnecessary. And we have reduced our white-collar staffs by 50 percent. With all those actions, we have reduced our operating expenses by nearly $2 billion a year.
We have also reduced our capital spending plans by almost $2 billion over the next five years without sacrificing any of the future products we need to keep us competitive. We have the best line of future products in the history of this company, and we intend to maintain that position.
With this restructuring program, we have cut our breakeven point nearly in half for 1981, putting Chrysler in a position to earn a profit even in today's depressed car and truck market. I think we will demonstrate our improvement when we announce our second quarter results in July.
Second, we have established the best management team in the automobile business at Chrysler Corporation. Man for man, I would not trade this team of managers for any other team in the business. We've moved some first-rate Chrysler executives into new positions to make the best use of their talents. We've attracted new talent from Ford, General Motors, Volkswagen, and other companies. And we've molded them into a solid team that knows how to work together.
We've changed the organization to put a strong Vice Chairman, Jerry Greenwald, in place to coordinate all line and staff activities. We've established a President of North American Automotive, Hal Sperlich, to coordinate all of product development, manufacturing, and purchasing so we can meet our goals for cost, quality, and productivity.
We have a strong sales and marketing organization, led by John Naughton, reporting directly to the top corporate office, so we can respond fast to any developments in the marketplace. And we have a restructured and very strong Defense and International group, led by John Day, which builds the world's finest battle tank, and which has made Chrysler the number one automobile company in Mexico.
Third, we have invested $1 billion in the last year in the most modern manufacturing technology in the world. We're using the most sophisticated equipment available—robots to weld car bodies, electronic systems to machine the components in our drivetrains, and computer-controlled tests to guarantee quality in our engines and transaxles.
Right now we're investing $75 million in the conversion of our St. Louis Assembly Plant to production of our 1982 front-wheel drive Chrysler LeBaron and Dodge 400 intermediate size. When that job is done, every one of our United States car assembly plants—our plant here at Newark, the Jefferson Plant in Detroit, our Belvidere plant in Illinois, and our plant in St. Louis, Missouri—will be the most modern, productive, front-wheel drive car plants in the world.
We'll also have plenty of fuel-efficient engines and drivetrains for all of those new cars. One year ago we invested more than $300 million to convert our Trenton Engine Plant in Michigan into one of the most modern plants of its kind in the world, building our new 2.2 liter engine. Now we're adding another $30 million to increase our engine capacity by 25 percent to 500,000 2.2 liter engines a year. We've also started production at our new engine plant in Saltillo, Mexico, and we have agreements to purchase both gasoline and diesel engines from Volkswagen, Mitsubishi and Peugeot.
As a result, we will offer for sale in North America for 1982 more than a million four-cylinder, front-wheel drive cars—87 percent of our total product line-up. That's a greater proportion by far than Ford, GM, or any foreign company.
The fact is that Chrysler Corporation is now taking advantage of the most modern technology in the world. We have over 220 automatic welders in our American car assembly plants. And we'll install even more in the years ahead. They do the most difficult jobs in the system, and they never make a mistake. That's how you get solid car bodies and good quality.
Those of you who take the tour of our Newark Assembly Plant later today will see that new technology in action. Those new machines are the equal of anything in the world today.
Fourth, we have products that deliver the best value in the market, with strong entries in every major segment.
Our line-up starts at the small end of the scale with Colts and Champs from Mitsubishi. We've just signed a new agreement with our Japanese partner to get an expanded line of these fuel-efficient models.
We match those with our own Miser version of Omni and Horizon, giving us four solid entries that deliver 50 miles per gallon of gasoline on the highway.
On the other end of the scale is the classic Imperial—a luxurious, high technology, personal car that is the finest domestic car on the market.
In between we have a full range of models including our standard Omnis and Horizons. I get more raves about these cars than any other car we sell.
Then we have the K-cars — Dodge Aries and Plymouth Reliant, the most widely known new models in the history of the business. The K-cars seat six people. They are rated at 41 miles per gallon on the highway, and they're easy to service. And, because of their quality and reliability, the American public is spreading the word that they beat the competition hands down.
We have 024, TC3, and the new Charger 2.2 — the hottest new sports car to come out of Detroit in years. You can hear it coming, and the kids love it.
We also have a competitive line of two-wheel and four-wheel drive trucks, vans, wagons, and sport utility vehicles. Most of these were all new last year. They represent a great combination of Chrysler engineering and quality that make Dodge trucks best on the market today.
Add to that line-up our Dodge Mirada, which I still believe is the best looking car on the road today, the Corinthian Edition of our Chrysler Cordoba, our family size Diplomats and LeBarons, and you have a line-up that meets every demand in the marketplace.
All of these cars together have the best fuel economy average in the industry—25.6 miles per gallon. That's two and a half miles per gallon better than GM and Ford. We have more models over 25 miles per gallon than any other company, foreign or domestic.
And we have the best quality in our history, better than Ford, better than GM.
This graph is taken from an internal General Motors study that ran in the Flint Journal. It is based on surveys of new car buyers. Chrysler Corporation is rated ahead of Ford, ahead of GM, and we're still improving. The imports are perceived to be better in quality by new car buyers, but we're moving up fast.
This confirms everything our own studies have been telling us. It is the first time in eight years that Chrysler has been in first place, among domestic producers, and we intend to stay there.
Fifth, we are the only company in the industry to improve our car sales in 1981. Our domestic sales so far this year are up 23 percent. Ford, General Motors, Volkswagen, and Datsun are down.
Sixth, we're investing $6.5 billion over the next five years in future products that will keep us competitive through the 1980's. Each year from here on out, we'll introduce at least two new models of cars and trucks—sedans, sports cars, family cars, luxury models, convertibles, vans, trucks—each one fuel-efficient, top value for the money, and best in class.
We'll have a downsized, even more elegant Chrysler New Yorker in 1982, with all the features people expect in a New Yorker—style, elegance, comfort—along with great fuel economy.
We will also take another dramatic step in our conversion to front-wheel drive with the introduction this fall of a new kind of intermediate-size personal car. It has fuel economy. It has luxury. And it's all Chrysler. It's the new luxury 40 mpg Chrysler LeBaron, with fuel economy of 40 miles per gallon on the highway, designer interiors, Mercedes paint and finish, and luxury appointments never before found in a car of this size with this kind of mileage.
We'll have a companion car—a handsome model for the Dodge line as well—the Dodge 400 coming out of our St. Louis plant.
Along with these new cars, we have a small, front-wheel drive pick-up truck coming later in the 1982 model year, built off the powertrain of our Omni/Horizon. This is the first 30 mpg truck in America. There's a growing demand for sporty little vehicles like this one.
Later in the model year, we'll also introduce a front-wheel drive station wagon—the classic Town & Country wagon—to be built right here at Newark. It's on display here today so you can take a close look at it.
To round out the full LeBaron line, we'll also have a front-wheel drive convertible coming out next spring. You may have seen the picture in the paper. We already have a waiting list of people who have signed up to buy that car, and from the mail we're getting it looks like they can hardly wait.
For the 1983 model year, we'll introduce a new line of 6-passenger cars with even more leg and shoulder room and outstanding fuel economy. These will be the full-size cars of the future, and we'll have models for both the Chrysler and the Dodge lines.
We're also going to get back into the sporty and youth market with a sensational new sports car that will take on any Porsche or Maserati in style and value.
Even beyond that, we have a new luxury personal car scheduled for 1984 that's a natural for the affluent buyers in their 30's and early 40's.
And everybody's favorite is a totally new, small, front-wheel drive van/wagon. It has all the features and qualities of a van, and it's small enough to fit into the family garage. Everybody who comes in to see our future products walks right over to this vehicle and wants to know when they can get one.
In my judgment, it's the most exciting new vehicle in our future product line.
The best news of all is that all of these great new cars are on budget, and on time. And that's the way a car company has to be run.
Lastly, and most importantly, we've got a solid operating plan that puts us in the black even in a depressed automobile market. We've overhauled the entire Corporation, improved all of our operations, and lowered our breakeven point to nearly half of what it was just one year ago.
That is a very quick, but I hope impressive analysis of what the management of Chrysler has accomplished in the last two years. But impressive as it is, it may not fully explain the basic strengths of this company. People still associate us with the old company we once were, and make an unfair assumption that we've done all this with band-aids and baling wire. So let me explain it another way.
Imagine that a totally new automobile company were to be established in this country. And imagine that it brought with it the following attributes:
A strong, young management team with broad experience in every aspect of the automobile business.
Four modern front-wheel drive assembly plants, with more to come, supported by 30 key engine, drivetrain, stamping, and component plants.
A line of front-wheel drive products with the best quality, the best fuel economy, and the best all-around value on the market.
The best engineering department in the industry, which has won two Car-of-the-Year awards in the last four years for front-wheel drive cars.
A solid base of 10 percent of the market as a foundation to build on.
A dealer organization of 3,800 tough dealers who have survived the worst recession in 50 years, with 200 new ones signed up with Chrysler in the past year.
The most complete and the fastest parts distribution system in the industry.
A forward product plan that provides at least two new front-wheel drive cars and trucks each year for the next five years.
An agreement with a Japanese partner that calls for a broader range of small, fuel-efficient cars, trucks, and components for the rest of the 1980's and beyond.
A strong partner in Europe with a tradition of powertrain technology, especially in diesel engines.
A dedicated workforce that cares about quality and productivity, and a new program of productivity that will make the most of their talents and expertise.
A committed group of 20,000 suppliers who are working to improve quality and to hold the line on costs.
(PAUSE)
You would say that a brand new company with all of those factors going for it couldn't miss. Well, that list of basic strengths is an accurate description of The New Chrysler Corporation. And I am convinced we can't miss.
The struggle for survival is behind us. We're moving up onto the high ground. We're going to become the pre-eminent automobile company of the 1980's, with a firm commitment to quality, durability, and reliability in our products. We'll do it by making each front-wheel drive car we build a little jewel—a precision machine that's engineered better and made better than any other car on the road.
We'll be a responsive automobile company with a range of clean, safe, fuel-efficient cars and trucks that meet America's transportation needs. All the elements for success over which we have any control are now in place. And we're ready to go.
Having said all that, there are limits to how much any single company or industry can do on its own. We can't solve the problems of inflation, recession, energy, and a 20 percent prime rate all by ourselves. There is a continuing urgent need for some fundamental changes in the way the government manages the economy and in the way it behaves toward this industry. There is a need for a more balanced approach—a total program to get America and the automobile industry back on their feet again. And it is needed fast.
I have told everyone who will listen, from the President of the United States to magazine editors, to newspaper reporters, what's required.
We need a monetary policy that assures a steady supply of money at a rate the country can afford.
That is the absolute top priority. You can't have a supply side economic policy and a demand side monetary policy at the same time. It just won't work. This industry and its dealers have got to get some relief from a prime rate that's parked at 20 percent.
We need a stable monetary policy and a stable dollar so our dealers and our customers can have the confidence to make a long-term investment in the products we build and sell.
In addition, we need some relief from the usury laws in several states which prevent our customers from getting the financing they need when they do decide to buy a new car.
We also need a fiscal policy that puts the brakes on government spending, and a lid on taxes. It looks like that's coming and not a minute too soon.
We need to get rid of the wasteful and unnecessary regulations that have crippled our industry. We may get some help at long last. The Administration has published a list of 34 regulations that should be revised. They have identified a number of other regulations which should be challenged. These recommendations, if they're acted on, could save Chrysler $500 million in expenditures by 1985.
Right now, everybody is waiting to see what Washington will do about taxes, spending, and interest rates. The economy is at a standstill. Housing starts are down. Unemployment is stuck over seven percent. Consumers are cautious, waiting for something to break.
But if the prime does come down a few points, and Congress passes the President's tax bill, then the consumer is going to decide this is a good time to buy a new car. All the signs are there, and they point to a healthy recovery for the industry. There is a tremendous pent-up demand for fuel-efficient automobiles—87 million that are ripe for loss. The consumer has money in his pocket; he'll be able to buy a new car when he thinks the time is right.
Chrysler is in a strong position to capitalize on any improvement in the market. We have the right products. We have the right value. And we have the right people. Chrysler is a fighting organization that didn't quit when the going got tough. And we won't quit now.
We have just brought this company through two of the most difficult years in the history of American business. I think that the American people are beginning to sense that while the job is not yet completed, Chrysler Corporation is once again a strong and competitive force in the American economy. And when we meet again next year, we intend to have even further progress to report to our shareholders.
Thank you.
