The Forgotten Lessons of Lee Iacocca

Richard Drew / AP Photo Nearly 30 years ago, Lee Iacocca rescued Chrysler from near implosion. As GM and Chrysler fight for survival, Paul A. Eisenstein asks: Why doesn’t the industry ever learn from its mistakes?

Ask Rick Wagoner about Oldsmobile, and he’d be likely to cringe. Early in his tenure as CEO, the now-ousted General Motors executive had to pull the plug on the ailing century-old brand, a move that cost GM billions of dollars and doomed hundreds of dealers.

Last year, Wagoner told a close confidant he didn’t want to close off more of the auto maker’s troubled brands because of how difficult it had been, personally, to shut down Oldsmobile. “Never again,” he said.

It was a decision that contributed to the end of his reign as GM chairman—and potentially doomed the troubled auto maker.

“History,” automotive pioneer Henry Ford liked to say, “is bunk.” An odd sentiment, it turns out, for nowhere does history have a tendency to repeat itself more often than in the auto industry. And those who ignore its lessons should beware.

Have the domestic auto makers learned nothing from their years of seemingly constant reorganization?

On Monday, President Barack Obama rejected the requests of General Motors Corp. and Chrysler LLC for billions of dollars in government loans, on top of the money they received last December, during the waning days of the Bush administration. The White House automotive task force, the president explained, decided the viability plans submitted by the two auto makers simply wouldn’t work. GM, Obama announced, would get 60 days to restructure or face the probability of bankruptcy. Chrysler, meanwhile, would have just 30 days to complete a proposed alliance with Italy's Fiat SpA or face a similar fate.

It’s the biggest Big Three shakeup—aside from Ford Motor Co., which, at least for now, is not seeking a federal bailout—since the last big Mideast oil shock, in 1979. It was nearly three decades ago that Lee Iacocca first called the automotive press corps to Chrysler’s crumbling headquarters, in the Detroit enclave of Highland Park, to admit his company was failing fast. It would take huge concessions on the part of workers, bankers, bondholders, dealers, along with a massive government bailout, “or the pieces of the mosaic would fall off the wall,” he somberly explained.

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It took all of Iacocca’s persuasive powers—he was arguably the auto maker’s best pitchman ever—to win over Washington and the other stakeholders, but the aid Chrysler won helped it turn the corner and was eventually repaid with a 30 percent bonus for American taxpayers. By the mid-1980s, Chrysler was being hailed as one of the biggest turnaround stories in American business history. By the end of that decade, history forgotten, it was once again nearing collapse.