How Lee Iacocca Changed Ford’s Image and Saved the Company

Lee Iacocca could be abrasive, impatient, and obstinate. But he also could be a good listener and open to new ideas. He wasn’t particularly brilliant like, say, Robert McNamara, who preceded him as vice president and general manager at Ford. McNamara was courteous, thoughtful, and ever the gentlemen. Iacocca might shout you down in a meeting, and later pull you aside, ask about your wife and kids, and say off-handedly, “You know, Bert, that idea of yours has some merit. Come see me tomorrow and we’ll talk about it.” McNamara would give every impression of being open to differing points of view when in fact he wasn’t. If McNamara didn’t like your idea, there was no chance it would ever be accepted. If Iacocca didn’t like your idea, there was always the chance he might reconsider. Under Iacocca’s watch, ideas would get kicked around awhile. Iacocca might curse your idea one day, and the next call everyone to his office to have it implemented.

Iacocca could be vain and egotistical, but knew he didn’t have all the answers. As soon as he was made head of the Ford division, he created a special committee comprised of eight creative department heads. Known as “The Fairlane Committee” they met regularly after working hours at Dearborn’s new Fairlane Inn on Michigan Avenue less than a mile from Ford’s World Headquarters. At first, they talked about ways of retooling Ford’s stodgy image. General Motors was known for styling, Chrysler Corporation for engineering, and American Motors for economy. What was Ford known for? Well, to be honest, the spectacular failure of the Edsel. Another issue was motor racing. All the Detroit auto makers had agreed to honor the ban on racing imposed by the AMA (Automobile Manufacturers' Association), but everyone on the Fairlane Committee knew GM and Chrysler were secretly providing equipment, engineering and funding to a number of NASCAR and NHRA teams. Iacocca was particularly ill-humored about this, and made it a topic of discussion in one of his first meetings with corporate president and CEO Henry Ford II.

Last, but not least, there was the Falcon, an economy car pushed into production by Robert McNamara. Iacocca and everyone on the committee hated the Falcon. Yes, it sold well, but the customers who bought the Falcon seldom ordered options, such as power windows, power steering and tinted glass, which is where Detroit made its money. In other words, while the Falcon sold well, it didn’t generate a great deal of profit. Members of the Fairlane Committee referred to the Falcon derisively as “a granny car,” because buyers were mostly senior citizens. Research, meanwhile, was telling them buyers between the ages of 25 and 35 were the fastest growing segment of the car-buying public.

The Fairlane Committee began thinking of ways to reach young car buyers, and came up with an advertising slogan, “The Lively Ones.” Iacocca didn’t like it because it wasn’t specific. Eventually, they dreamed up “Total Performance,” which Iacocca approved whole-heartedly. Ford was going to focus on “Total Performance,” because it attracted younger buyers and equated into a longer list of options (and greater profits): bigger displacement V8 engine, four-speed transmission, multi-carburetors, bucket seats, and tachometer. The first car to receive these “Total Performance” options was the Falcon, partly because Iacocca wanted to show Henry Ford II that he knew how to make a dull car exciting and, more importantly, generate bigger profits for the company.

As fate would have it, the company had recently developed a new small block V8 engine that just fit inside the Falcon’s small engine bay. With larger tires and the newly available performance options, Ford had a seriously fast car on its hands. The company entered the car in the European Monte Carlo Rally—and won. Alas, the newly reconstituted Falcon didn’t sell as well as hoped which confirmed Iacocca’s belief that the car itself wasn’t exiting. Something new and different was needed to attract young buyers.

THE MUSTANG I

A member of the Fairlane Committee named Don Frey had been dreaming of a new, sporty car to compete with the Chevrolet Corvette, only less expensive and more practical. Iacocca liked the idea immediately and authorized market research to investigate public interest. Frey and his people, meanwhile, began designing various prototypes of how the car might look. One of the initial prototypes was actually built: a small, rear-engine sports car, called the Mustang I. The car not only engaged the creative effort of Ford styling but a select few chassis engineers normally engaged in research. Chief among them was a German named Klaus Arning, who had patented a revolutionary independent rear suspension. The Mustang I employed Arning’s tricked-out suspension, a rear-mounted V4 engine, and a stylish low-slung roadster body that beguiled the eye. The car was highly impractical, but it attracted huge crowds at various car shows across the country and lapped Watkins Glen Raceway nearly as fast as the Formula Ones.

Exciting things were happening but Iacocca was having trouble dealing with his boss. He knew how to deal with a number-cruncher like McNamara, or a car guy like Ernest Breech (both former bosses), but Henry Ford II was a completely different animal. Nothing seemed to move him. Iacocca would show him clay mockups of the latest concept car, positive results of the latest market research, sales and profit increases that exceeded expectations, new and exciting ideas being hatched by the FairLane Committee, and Mr. Ford (as Iacocca addressed him) didn’t show the slightest interest. If Iacocca asked for anything that wasn’t spelled out specifically in the budget, the answer was invariably “No.”

Henry Ford II (or “the Deuce” as he was sometimes called) was the oldest son Edsel Ford and the grandson of company founder Henry Ford. He attended Yale but wasn’t a particularly good student, and was kicked out when it was discovered his term papers were ghost written. (“I didn’t write this one either,” he remarked in 1969, while giving a speech to the Yale Political Union.) After college, young Henry was given an ensign’s commission, and assigned to a desk job at the Great Lakes Naval Training Station near Chicago. Two years later, after the death of his father, he was released from the Navy “to assist in managing the company’s business.” The Ford Motor Company was having difficulty honoring its wartime contracts with the U.S. government and, in fact, was on the verge of bankruptcy. With the help of his mother and grandmother, the elder and increasingly senile Henry Ford was forced into retirement and Henry Ford II was put in charge. He was 26 years old.

Young Henry was shocked to discover the accounting department was in complete disarray. No one knew the exact state of the company’s finances, but it was estimated to be hemorrhaging $10 million a week. With the urging of the U.S. government, Henry Ford II hired The Whiz Kids to sort through the accounting disaster and make the company profitable again. The Whiz Kids were a group of supremely bright systems analysts employed by the U.S. government during World War II who developed a system of statistical controls that brought order to military production. Among them were Robert McNamara, destined to become Secretary of Defense in the Kennedy Administration, and Tex Thornton, who would go on to found Litton Industries. The Whiz Kids applied the same statistical controls to the Ford Motor Company. As a result, for the first time in 25 years, the company knew where it was financially, how much it was spending and how much it was making, and it could project both costs and earnings.

Hiring the Whiz Kids made Henry Ford II look like a genius. The problem was the Whiz Kids were not car guys, and never really understood that the industry was part show biz, and needed people like Lee Iacocca who knew what it took to go belly-to-belly with customers and sell cars. Iacocca tried repeatedly to get Robert McNamara outside the insular world of Detroit and mix it up with car dealers in places like Des Moines, Allentown, and San Bernardino, but McNamara refused to go. “Can you imagine Mac trying to hawk a car?” Iacocca used to quip. McNamara wouldn’t set foot inside the assembly plants either. All that interested him was the numbers. By 1960, when Iacocca was appointed head of the Ford Division, people like McNamara and Tex Thornton were gone, but the systems they employed and the mentality they fostered remained. Henry Ford II relied on the numbers guys like a general relies on the army for his personal protection.

FORD GOES MOTOR RACING

The one thing Iacocca and the chairman did agree on was automobile racing would give the company’s image a much-needed boost. Henry Ford II approached General Motors senior management about the ban on motor racing, and asked how Chevrolets and Pontiacs were consistent winners on NASCAR super speedways without factory support? GM’s senior management explained that while they supported the industry ban on motor racing they had no control over their division managers who chose to race anyway. Ford didn’t buy it. He returned to World Headquarters and gave Iacocca the green light and authorized a special budget to cover motor racing expenses on a large scale. Overnight, Ford was back in the racing business, supplying parts, technology and financing to Ford runners in NASCAR and the NHRA (National Hot Rod Association).

It was around this time a one-time Texas chicken farmer turned race car driver named Carroll Shelby arrived at Ford’s doorstep with the idea of coupling an AC English sports car with Ford’s new small-block V8. Carroll Shelby even had a name for his Anglo-America sports car that the Ford marketing people loved—Cobra. While Shelby didn’t have any significant money to put up, he did have loads of charisma, and his timing was perfect. Ford sent a couple of engineers to England to see if Shelby’s idea had merit. The engineers returned highly enthusiastic. With only a few slight modifications, the English sports car and Ford V8 meshed perfectly. More importantly, their analysis revealed the Cobra-Ford would not only beat the Chevrolet Corvette on the race track but beat it quite soundly.

Meanwhile, Ford began running the numbers on the cost of building a racing engine and chassis to compete in the Indianapolis 500. It was a huge undertaking and costs were projected to be in the millions of dollars. Again, as fate would have it, another racer arrived at their door with a practical alternative. His name was Dan Gurney, and what he offered was a way for Ford to compete at Indy on the cheap. His partner in the venture was an Englishman named Colin Chapman, designer/owner of Lotus Ltd., builder of some of the world’s most successful racing cars. What they proposed was building a small lightweight rear-engine car powered by Ford’s small-block V8. With his calculations and graphs, Chapman presented convincing data that his chassis coupled with Ford’s engine (mildly tweaked for racing) would win the 500 quite easily. Iacocca’s people were suitability impressed, and the number crunchers were impressed as well. Why not? Costs were minimal. The advertising possibilities were endless, even if they didn’t win. A deal was consummated whereby Chapman would set the engineering parameters and Ford would bear the costs.

Things were happening. In early1963, Ford won the Daytona 500, Shelby’s Cobra-Fords were easily winning the SCCA (Sports Car Club of America) championship, and in preliminary tests at Indianapolis a Lotus-Ford was lapping in near-record time. As if that weren’t enough, Henry Ford II sent a team of negotiators to Italy to see about buying Ferrari Automobiles, which was on the block. Negotiations were going well until Enzo Ferrari had a change of heart. He didn’t mind Ford taking over production of his passenger cars; it would relieve him of a very big headache. What he didn’t like was Ford taking over his racing program. Racing was his passion, his life, his entertainment. What would he do without building racing cars and seeing them win at Le Mans, Monza and Monaco? Ford could take over passenger car production, but Enzo Ferrari could not let go of the racing program. That proved to be a deal breaker, because the only reason Henry Ford II wanted Ferrari Automobiles was for the race car technology.

STEAMROLLING THE COMPETITION

Henry Ford II didn’t take Ferrari’s rejection lying down. He was angry, so much so that he was determined to beat Enzo in the only way the Italian could truly appreciate—on the race track. Budgets and number crunchers be damned—Ford wasn’t just going to win at Le Mans, it was going to steamroll all manner of Ferraris, Aston Martins, Maseratis, and Porsches—the very cream of Europe racing technology.

Building cars to compete at Le Mans engaged nearly every department of the Ford Motor Company—engine, transmission, suspension, chassis, styling, computer programming, even interior design. Henry Ford II wanted a team of cars ready to compete in the 1964 Le Mans 24 Hour—a mere 18 months away. Ford even created its own racing department, called Kar Kraft. To speed things along, the design of an existing English racing car was purchased and completely revamped by Ford’s engineers. Klaus Arning revised the suspension geometry with help from a commuter programer named Chuck Carrig. It was the first time a computer was used to determining suspension geometry, and would lead to the same computer program being applied to passenger cars and trucks (who says racing doesn’t improve the breed?).

While this was going on, Iacocca’s people focused on the development of the Mustang II. The Mustang II was yet another prototype. This one seated four, had a front-mounted V8 engine, four-wheel independent suspension, and a sporty appearance sure to attract young buyers (as well as cash in on the Company’s racing publicity). The price was higher than anticipated, but everyone in the Ford Division was excited. Iacocca decided it was time to show off his latest creation to the boss. Henry Ford II took one look, said he wasn’t interested, and walked away. Iacocca was dumbstruck.

Clearly, a change of tactics was called for. Instead of approaching the boss head on, Iacocca decided to take a less direct approach. First, he ordered his staff to find a way to price the Mustang on par with the Falcon. Second, he loaded his briefcase with renderings of the Mustang and began meeting casually with automotive writers from Motor Trend, Road & Track, Car and Driver, and the like. Ford was winning races, and passenger cars like the Ford Galaxie 500 XL and Falcon Sprint were ungodly fast and generating excitement, and, well, Iacocca had color prints to show them of an even-more exciting car in the works, called the Mustang. “It’ll be sporty like the Corvette,” Iacocca said, “only it will seat four, and be priced competitively with the compacts.” After a while, every time Henry Ford II picked up a magazine he would see an article about the Mustang, a car that didn’t exist. Even the bartender and cocktail waitresses at his favorite watering hole were talking about the Mustang. “When can we buy one?” everybody was asking him.

One day, he had enough. “How much to build the car?” he asked Iacocca. “I’m tired of hearing about this car of yours. How much?”

“$40 millions,” Iacocca replied. Being the consummate salesman, he had to bite his tongue to keep from saying, “Over 18 months with nothing down,” which was literally true (it took 18 months to put in production at a cost of $40 million). Compared with the Edsel, which cost in the neighborhood of $150 million to tool for production, the Mustang was a steal, and Henry Ford II knew it. It was the greatest sale of Lee Iacocca’s life and huge profit maker, what with most buyers ordering up to a thousand dollars in options. All told, the Mustang generated $1 billion in profit, more than enough to cover Ford’s ample racing budget (later estimated to be in the neighborhood of $100 million).

It was a classic win-win situation. Iacocca got his car (and his legacy), Henry Ford II got to watch his cars win Le Mans four years running, the Indy 500 three years running, and dominate stock car and sport car racing for over a decade, and “Total Performance” as conceived by the Fairlane Committee returned the Ford Motor Company to blue-chip prominence in the marketplace.

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