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                                                                                BUSINESS, Page 46

AUTOMOBILES

Jockeying for Position


Chrysler's board reaches outside for an heir apparent. But the
race to replace Iacocca may be far from over.

By JOHN GREENWALD -- Reported by William McWhirter and Joseph R.
Szczesny/Detroit


    For more than a decade now, Lee Iacocca has been
synonymous with Chrysler Corp. -- for good and for ill. Almost
singlehandedly he persuaded Congress in 1979 to bail out the
ailing car company with a $1.5 billion loan guarantee, then paid
back the money seven years ahead of schedule. After two
best-selling autobiographies and 11 years of hawking his cars
on TV, he became a household fixture.

    Back at the Highland Park, Mich., headquarters of
America's third largest automaker, platoons of loyal lieutenants
toiled in his broad shadow, the best of them hoping to inherit
the Chrysler crown one day. Yet, as the years passed, Iacocca
led an elaborate executive-suite game of musical chairs.
Somehow, every time the music stopped, Lee was still in the
chair -- and eventually no fewer than five leading contenders
for his job were left standing idly on the sidelines.

    So it seemed like deja vu all over again when Chrysler's
beleaguered directors last week plucked Robert Eaton, 52, from
his post as president of General Motors' profitable European
business to become Iacocca's latest heir apparent. No sooner had
Eaton arrived than insiders began to speculate privately about
his departure. "Eaton's biggest problem is that he's probably
a nice guy, and nice guys won't last long," predicted a senior
executive. "Lee will kill him."

    But the time for a smooth transition to the post-Iacocca
era may finally have come. Chrysler directors chose Eaton
during a 12-hour weekend showdown in which they apparently
called the chairman on his two-year-old promise to step down.
The compromise deal, which muscled aside Chrysler's respected
president, Robert Lutz, brought Eaton into the company as vice
chairman and chief operating officer. If all goes as planned,
he will succeed Iacocca as chairman and chief executive when the
latter retires Dec. 31. Iacocca, who had sought to stay on as
chairman past that date, will take the lesser but still
influential post of chairman of the executive committee.

    Despite plentiful skepticism within the company, Iacocca
and Eaton downplayed any talk of possible friction. "I'm going
to be the public-policy guy," says Ia cocca. "He's coming back
to the U.S. after a four-year absence when the culture has
changed. I don't play elder statesman, but he needs my guidance
for a while. He understands that. There's plenty of
responsibility to go around." Concurs Eaton, who pulled into
Chrysler headquarters in a new Jeep Grand Cherokee at 7:45 a.m.
last Friday for his first full day on the job: "If there weren't
any personal chemistry between us, I wouldn't be sitting here
right now."

    But the protean treatment by Iacocca of his own proteges
hardly inspires confidence that the road will be smooth. The
consummate car guy has repeatedly extended and withdrawn his
favor since 1978, when he arrived at Chrysler from Ford
following his own bitter ouster by Henry Ford II. The first heir
apparent was Harold Sperlich, who preceded Iacocca from Ford and
developed the K-car line of compact autos that kept Chrysler
alive in the early 1980s. Then came financial wizard Gerald
Greenwald, also from Ford, in 1979. As Sperlich faded, Greenwald
rose to become vice chairman. Just as he was approaching the
throne, however, Iacocca plucked another Ford star in 1986, when
he hired Lutz as executive vice president.

    The constant shuffling raised suspicion that Iacocca had
no real plan for stepping down but rather, as a bemused insider
put it, "wanted to beat Armand Hammer's record" for executive
longevity. (Hammer died in 1990 at 92, still at the helm of
Occidental Petroleum.)

    Whatever Iacocca's motives were, he and Lutz soon found
Chrysler too small for both their reputedly full-size egos. Lutz
sealed his fate by being "honest to a fault," in the words of
a close observer (who, like many others, spoke only off the
record). Lutz declared all too openly that he thought Iacocca
was past his prime and that credit for Chrysler's upcoming line
of vehicles was as much his as Lee's. While many experts agreed
that Lutz had been the chief engineer, an infuriated Iacocca
began talking to directors last year about yet another outsider
-- this time, race car driver-turned-businessman Roger Penske.
But Penske apparently got cold feet over Iacocca's foggy
arrangements to surrender the wheel and pulled out of the race.

    He wasn't alone. In the past three years, nine top
Chrysler executives have deserted. They included Greenwald, who
left in 1990 to lead an aborted worker buyout of United Air
Lines' parent company (after pocketing $9 million for his work
on that deal, he landed as a managing director for investment
banker Dillon Read); and Robert S. ("Steve") Miller, another
vice chairman and prospective Iacocca heir, who quit in February
to go to Wall Street after telling the board that the right
management team for Chrysler would be Lutz as top man and Miller
himself as No. 2.

    All of this turmoil convinced company directors that the
succession issue had to be settled. But the comings and goings
had left the company divided into factions. So when board
members met on March 14 in Chrysler's opulent suites on the 38th
floor of Manhattan's Waldorf-Astoria Hotel, they faced four
possible choices:

    -- Eaton, who had been suggested by Penske and had been
talking with directors since late last year.

    -- Lutz, 60, on whom Iacocca held an effective blackball.

    -- Greenwald, 56, who had been courted by Iacocca but
wanted assurances that he would get quick possession of the
CEO's chair, a demand some directors saw as overplaying his
hand.

    -- Iacocca himself, who at 67 wanted to remain chairman
past his formal retirement date but was now an isolated faction
of one.

    Exasperated with Ia cocca's failure to create a clear line
of succession, the directors obviously wanted a change. Some
were further irritated by his blustery anti-Japanese
performance as a member of President Bush's trade mission to
Tokyo in January. Yet the task of facing down Iacocca remained
daunting to the board. "Lee could see the end, but he couldn't
believe it," said a Chrysler insider. "This was not just his
career and his company. It was his life and his creation. It was
like trying to bring down a lion."

    Eaton, by contrast, is a rumpled, low-key executive who
arrives free of entangling alliances and is willing to wait
nearly a year to take Iacocca's job. While Eaton was not the
architect of GM's European turnaround, he maintained the mo
mentum of that business after becoming president in 1988. Last
year he helped make GM-Europe the most profitable car firm on
the Continent, offering its $1.96 billion in earnings as an
offset to GM's staggering $8.7 billion loss in North America.
"Bob was a very high-energy, direct and pragmatic manager,"
notes John Smith, vice-president for planning at GM-Europe. "He
was engaging, and he loved cars. It was a personality
combination that worked."

    Yet experts view Iacocca's failure to groom a successor
from within as perhaps his greatest managerial shortcoming.
"Chrysler should never have gone outside the company," observes
Eugene Jennings, a management professor at Michigan State
University. Even after Iacocca nominally retires, predicts
Jennings, he will try to cling to power through his chairmanship
of the executive committee.

    Other students of Chrysler contend that Iacocca will
inevitably find fault with Eaton's management before next
December and will raise the succession issue again by relaying
his doubts to the board. Iacocca could then suggest delaying his
own departure until the problems are solved. "Lee hasn't
changed," says a longtime associate. "He's as predictable as the
sun that follows the night. His game plan is to be the folk hero
by turning Chrysler around for the second time. The first
mistake Eaton makes, Lee will be right back in there." Advises
another insider: "The first time Lee sticks his fist through,
Eaton's got to cut it off."

    With that kind of talk still in the air, it's little
wonder that many have not ruled out Lutz as the eventual winner.
While the Chrysler president graciously pledged allegiance to
the new order last week, friends say he has not given up. "Lutz
has an interesting problem," says a confidant. "He has to
figure out whether his real enemy is Eaton or Iacocca. Lutz is
just saying he lost the first round and is still going to get
it by default. Meanwhile, he is going to stand aside and let
Eaton take the heat and get chewed up."

    Executive turbulence could be a dangerous distraction from
Chrysler's real task of completing the comeback that Iacocca
began more than a decade ago. On the positive side of the
ledger, years of employee teamwork have created a new generation
of promising Chrysler cars, Jeeps and minivans. "You couldn't
want better vehicles to market, heading into an upturn in the
economy," says Joseph Phillippi, who watches the industry for
Shearson Lehman Hutton. At the same time, Chrysler's chronic
cash crunch (it lost $795 million last year) makes it crucial
for the vehicles to be a hit.

    Whether the power struggles represent a serious threat to
the company's survival or not, friends and colleagues of
Iacocca know it will be wrenching for him to bow out, gracefully
or otherwise. "Lee is constantly plotting," says a family
acquaintance and fellow auto executive. "If he sees someone out
there who can help him, he's thinking about how to approach him.
If he sees someone as an enemy, he watches him. That impassive
face covers a hyperactive mind with just one focus, and that's
Lee." Iacocca might do well to heed the advice of his latest --
and perhaps last -- commercial for Chrysler: "In this
business," he says, "you either lead, follow or get out of the
way."