"On This Day" In Engineering History

On this day in engineering history, President Jimmy Carter authorized $1.5 billion in loan guarantees for the Chrysler Corporation, the smallest of Detroit's Big Three car companies. Headquartered in Auburn Hills, Michigan, the American automaker had been ill-prepared to deal with the 1973 Oil Crisis or new emissions standards from the U.S. Environmental Protection Agency (EPA).

Nevertheless, the company that Walter P. Chrysler founded in 1925 had continued to build large, fuel-inefficient cars – and a large, inefficient bureaucracy. As Chrysler president Lee Iacocca later admitted, "We've had problems not only in making decisions, but also in implementing them quickly". Critics also cited cutbacks in engineering, prompting one Chrysler executive to complain that the "only engineers around were working on government regulations."

A Summer of Discontent

During the summer of 1979, then Chairman John Riccardo admitted that the Chrysler Corporation was on the brink of financial disaster. After second-quarter losses topped $200 million, the carmaker owed $4 billion – almost 10% of all U.S. corporate debt. Meanwhile, 80,000 unsold vehicles worth over $700 million remained on dealer lots. As summer turned to fall, Chrysler's plight deepened. Third-quarter losses topped the then-staggered sum of $450 million. When the final amount was totaled, Chrysler's losses for 1979 topped $1.2 billion - the largest in U.S. corporate history. By the end of the 1970s, the Chrysler Corporation faced bankruptcy.

Did Lee Iacocca Save Chrysler?

John Riccardo's successor, Lee Iacocca, is often credited with securing a billion-dollar bailout and, through sheer force of personality, saving Chrysler from itself. During the 1980s, the automotive engineer turned corporate executive became an industrial icon, starring in the company's car commercials and even making a cameo appearance on Miami Vice. Yet business historians aren't so certain about his importance to Chrysler's resurgence. According to Dimitry Anastakis, Iacocca "did not develop, for example, a corporate philosophy similar to Toyota's kaizen, or an operational approach such as the same company's emphasis on 'Just-In-Time' operations". Nor did the company president institute "new production techniques" as Henry Ford did with the moving assembly line. Instead, Iacocca mainly cut costs.

James K. Hickel of The Heritage Foundation, a conservative think tank, is also skeptical about the so-called "Chrysler miracle". Between 1979 and 1982, Hickel reports, Chrysler cut spending on research and development (R&D), enabling the automaker to produce "quick paper profits at the cost of future innovation and competitiveness". Hickel also claims that cuts to long-term capital investment during the early 1980s boosted Chrysler's short-term profits. In a 1983 paper, Hickel cited automobile industry analyst Harvey Heinbach, who said "We still have long-term concerns about the company and the fact that during this period of trial and tribulation, they have not spent much money for product, plant, and equipment."

Resources:

http://en.wikipedia.org/wiki/Chrysler

http://en.wikipedia.org/wiki/Lee_Iacocca

http://www.h-net.org/~business/bhcweb/publications/BEHonline/2007/anastakis.pdf

http://www.heritage.org/research/regulation/bg276.cfm

http://www.bloomberg.com/apps/news?pid=20601103&sid=a7j3.G3lZrBA&refer=us