Cash Is King

Introduction

Smartly dressed in a blue suit, white shirt, and a pocket square, matching his brilliant red tie, Lee Iacocca strode confidently into a House committee room to formally ask Congress for a bailout of the Chrysler Corporation. It was September 1979, and Iacocca, the newly installed chairman of Chrysler, was nearly as famous as the company he had started leading.

Chrysler was the 10th largest company in the United States, but the third of the big three automakers. It had a storied past filled with great innovations in engineering and design such as antilock brakes, key‐start ignition, cruise control, and, perhaps most important, cup holders. But the 1960s and 1970s were hard on Chrysler. Attempts to expand globally coupled with several product failures left Chrysler very vulnerable going into the 1980s. The company did not have a balance sheet strong enough to weather three recessions, two oil crises, new environmental regulations, and soaring inflation. Chrysler simply did not have enough cash.

The seemingly simple concept of managing positive cash flow, on the balance sheet, trips up so many businesses. You must have enough cash on hand to pay your bills, invest in research, develop new products, build efficient plants and so on. Those with strong balance sheets are resilient and can take advantage of growth opportunities. Those who are too leveraged—too much debt and too little cash—are vulnerable any time the economy shifts. Despite its illustrious history, Chrysler ...