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                                                                                COVER STORIES, Page 51

GENERAL MOTORS

Chrysler's Second Amazing Comeback


By WILLIAM McWHIRTER/DETROIT -- With reporting by Joseph R.
Szczesny/Detroit


    Only a year ago, General Motors wasn't the only industrial
crisis brewing in Detroit. Chrysler, the smallest of the Big
Three, seemed to have everything going wrong. Finances? The
company was losing $795 million for the year. Products?
Chrysler's midsize cars were based on a 10-year-old platform
plagued by rattles and defects. Leadership? The company's
succession battles would have appalled Al Capone.

    Then why is Lee Iaccoca popping up on TV again, flashing
his patented proud-paterfamilias smile? Because Chrysler
customers have begun to notice that something is different. The
new Jeep Grand Cherokee (base price: $19,000) is an instant
favorite of all those suburban Indiana Joneses. The Viper, a
politically incorrect, 10-cylinder roadster ($50,000), is the
most sought-after sports car in years. And thanks to a redesign,
the Chrysler Town & Country and Dodge Caravan ($14,600) have
held on to their 50% share of the lucrative minivan market.

    As a crowning touch, Chrysler last week began selling its
long-awaited LH models, a new line of midsize sedans: the
Chrysler Concorde, Dodge Intrepid and Eagle Vision ($16,000 to
$22,000). The cars feature an innovative "cab-forward" design
to allow more passenger room and window area. Highly praised by
auto experts, the new cars are expected to be worthy rivals to
such popular models as the Ford Taurus, Honda Accord and Toyota
Camry. All told, "Chrysler is the hottest company in the car
business," declares David E. Davis Jr., editor of Automobile
magazine.

    Chrysler's second success story bodes well for its
incoming management. The first comeback belonged almost
exclusively to Chrysler's self-touting legend, Iacocca, who
towed the company out of the wilderness in the early 1980s. The
second was much more the victory of a management team that
learned painful lessons and persevered through fierce internal
clashes. In late 1987, Chrysler was slipping again, and Iacocca
began to recognize the problems, including the overly autocratic
force of his own leadership. He instigated what has since become
known as Truth Week, during which the company's top 500
executives went to a rural Wisconsin retreat to conduct an
unsparing self-examination. Doug Anderson, a motivational expert
who acted as a session leader, recalls the intensity of emotion.
"The pain within the Chrysler corporation was evident from Day
One," he says. "They cared a lot about the business and took
enormous pride in having been part of the greatest turnaround
in U.S. industrial history. There was a grave sense of disquiet
that it could happen again, damn it, on their watch."

    Even more surprising was Iacocca's admission that in spite
of all his public Japan-bashing, Japan was in fact building
superior cars. After the retreat, Chrysler assembled a team of
25 young recruits to spend a year at Honda's plant in
Marysville, Ohio, to study everything from its assembly methods
to corporate culture, which the Japanese company allowed as a
political courtesy. No senior executives went along on the
mission. "We wanted open minds not poisoned by Detroit," admits
Iacocca. Their report, still secret, led to a greater emphasis
on customer satisfaction, an increase in continual training and
the empowering of shop-floor workers to make decisions.

    Those changes became a matter of necessity because
Chrysler was preparing to eliminate 23,000 salaried and hourly
jobs, fully 25% of its work force. That meant not only
streamlining its bureaucratic structure and reducing layers of
supervisers, but also ending the turf wars between separate
divisions, especially design and engineering. Iacocca himself
agreed to surrender some of the chairman's prerogatives,
including military-style reviews on the design floor in which
he had been able to issue imperial orders for a new grill design
or a new fender curve.

    Rather than simply demanding that their key suppliers cut
costs overnight, as GM is now doing, Chrysler enlisted supplier
support to make design and engineering changes that would add
value and boost productivity. As a result, Chrysler's parts
suppliers have turned in 3,900 suggestions that have saved the
company an estimated $156 million in production costs.

    Finally, Chrysler spent money where it counted, notably on
a $1 billion technical center where teams are developing a new
generation of compact cars, among other creations, with little
meddling from top brass. The company also committed $30 million
to a training blitz last summer for its dealer and service
networks, staging two-day workshops to prepare them for the new
LH cars and the high expectations of drivers who have grown
accustomed to imports.

    Iacocca plans to retire in January, at age 68, but he will
leave behind a noticeably happy family at Chrysler. Last spring
he chose as his successor Robert Eaton, the chief of GM's
successful European operations, which rankled some Chrysler
insiders at first but has produced a smoothly working
triumvirate that includes the former heir apparent, president
Robert Lutz. Iacocca sees the upheaval as a positive force. "We
do run better scared," he says. "When we have trouble, we're
used to that. That has been the beauty of Chrysler for 50
years." While Chrysler still has $15.9 billion in debts rated
at junk-bond levels, last month the company surprised analysts
by posting $202 million in earnings for the third quarter,
making Chrysler the only profitable member of the Big Three.