Friday, November 25, 2016

Oil Shock Shockwaves: A Brief History of Chrysler and American Motors Corporation during the Late 1970s and Early 1980s

Oil Shock Shockwaves:  Chrysler and American Motors Corporation

1977 Volare

The complex economic consequences from Oil Shocks I and II  hit the Chrysler Corporation and American Motors Corporation particularly hard.[1] Under accountants Lynn Townshend and John Ricardo, Chrysler was at best characterized by uninspired leadership until November of 1978 when Lee Iacocca, recently fired at Ford, came on board. In 1975 Chrysler shut down a number of plants in the U.S., and its European operations, small but not insignificant, were in shambles. Needing to move a massive inventory, Chrysler was the first car company to offer rebates in a commercial aired during the 1975 Super Bowl. Yet at the time Chrysler’s story was not totally bleak: its 1976 Plymouth Volare was awarded Motor Trend’s Car of the Year. It sold well, but later became the most recalled vehicle of its era. And no wonder, since the Volare’s defects included models without a necessary muffler heat shield; failed seat belt retractors; corroded brake lines, and upper control arms separating from the sub-frame assembly.  But what the Volare was most known for, and what brought Chrysler to near bankruptcy, was its non-galvanized front fenders, which quickly rusted away. It was a visual testimony to Chrysler Corporation’s lack of quality products.  And the from also sold the wrong products, as Iacocca later confessed: “The classic mistake was to build all our production on speculation, carry those tremendous inventories and let them get old on us. We weren’t meeting the market – we always had the wrong stuff built.”[2] By 1978 Chrysler was giving away its foreign subsidiaries – British Roots was sold for $1 to Peugeot, and Spanish Barrieros truck operations went to Renault. 
It remained for Lee Iacocca to step in and save Chrysler with government assistance.[3] Preaching equality of sacrifice and accountability, Iacocca asked for concessions from the UAW. On the corporate side, Iaccoca fired 51 of 52 Chrysler vice-presidents, thus eliminating a host of corporate fiefdoms. With a leadership team he brought from Ford that included Hal Sperlich, Iacocca gradually pulled the firm out of its death spiral with popular 1980s products that included the K-Car and the minivan. Iacocca sold these vehicles personally in television ads, and what could have been an economic disaster was at least averted until a second major American manufacturing decline after 2007. In part, Iacocca blamed Detroit’s problems in the early 1980s on Japanese imports and preferential tariffs in Japan, and to that criticism the Japanese cleverly responded by erecting transplants in the U.S.

a dorky K-Car

American Motors Corporation was hardly any better off than Chrysler by the mid-1970s.  In 1975, AMC followed up on its relatively successful Gremlin with the fishbowl looking Pacer, a car that was slow, heavy, and got poor gas mileage. Its Jeep brand kept the company going, but AMC’s Kenosha plant was old and outdated. In 1978, 1976 AMC cars were the subjects of a massive pollution control recall that was costly and further tarnished the brand.
A large percentage of AMC was sold to Renault in 1982 (22.5%) and 1983 (49%).  American consumers were now offered the AMC Alliance, a reworked Renault 9. Stories of the Alliances’ poor quality abound, as tears were shed then and laughter now. The end came in 1987, with Jeep being sold to Chrysler; the last AMC Eagle left the Kenosha plant that same year. What remained was the Detroit Big Three, and it was not so big given the onslaught of Japanese and German brands. While European markets were largely inaccessible to the Japanese, American politicians, including President Jimmy Carter, had looked the other way to the Japanese and their unfair trade practices. The French had not been so kind to the Japanese, who moved quickly to exploit American markets. In the end it was the French who picked up some of the pieces of the American industry after the economic storm of the 1970s and early 1980s had done its damage.

[1] Steven Parissien, The Life of the Automobile (New York: St. Martins, 2013), pp. 285-7; Judith Stein, Pivotal Decade: How the United States Traded Factories for Finance in the Seventies. (New Haven and London: Yale University Press,  2010), pp. 254 ff..
[2] “Why Bail Chrysler,” U.S. News & World Report, 87 (December 17, 1979), 64.

[3] Lee A. Iacocca, with William Novak, Iacocca, an Autobiography (New York: Bantam Books, 1984).

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