Business: Big Loss, Bigger Bailout

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In fact, a loan guarantee is not a handout at all, but a promise by the Government to make good on the cash supplied by private banks to a company if the firm cannot repay the money. The borrower pays interest not only to the banks but also to the U.S. Treasury; in Chrysler's case the annual interest charged by Uncle Sam will be at least .5%.

Moreover, there are some important strings tied to the Chrysler aid package. The key one is a requirement that before Chrysler is allowed to make use of the $1.5 billion guarantee, it must first scrape up another $1.5 billion on its own to bring the company's total cash infusion to $3 billion. Explains one top Carter aide: "We reasoned that if we decided to help Chrysler we might as well do so with something that will actually work, instead of just putting up an amount that will only guarantee that the company will fail and the money would be lost."

Chrysler must also put together a convincing program for a return to profitability within two years, and it must accept close monitoring of its progress by the Treasury; indeed, Miller would be empowered to shuffle Chrysler's top executives if this was needed to give the company "a sound managerial base." Under the plan, no more guaranteed loans of any sort could be made after Dec. 31, 1983.

Political considerations clearly weighed heavily in the decision to help Chrysler. Indeed, Treasury officials concede that "a key role" in that decision was played by Douglas Fraser. Not only is his 1.5 million-member union the second largest in the nation, but Fraser himself is an admirer of Carter Rival Ted Kennedy, who has sponsored legislation to help Chrysler. Fraser himself has already declared that his union would be "neutral for Kennedy" in the 1980 campaign. With support for Carter weakening among urban blacks and blue-collar workers, who are strongly represented in the UAW ranks, the President's men have been at least keenly aware that many votes might be riding on the Chrysler decision. Said one top Carter aide last week: "It's not going to help us much with the UAW, but it might."

Despite all the dramatics in the past three months surrounding Chrysler's pleadings for federal help, there was never much doubt that Carter would agree to a bailout. The role of Miller, who rejected the company's initial aid proposal last August as too high, was to "play the heavy," as one Treasury aide says. Within the White House, the top operatives on the Chrysler case were Vice President Walter Mondale and Stuart Eizenstat, Carter's domestic affairs adviser. The momentum toward a bailout decision accelerated sharply after Oct. 11, when Mondale attended a Democratic fund-raising luncheon in Detroit and got an earful of company pleas and similar bailout advice from Motor City Mayor Coleman Young, who is also vice chairman of the Democratic National Committee. Back in Washington, Mondale argued that, given the political realities, the Treasury ought to be flexible on the Chrysler issue. Two weeks ago, Mondale and Eizenstat got Miller and Fraser together at a breakfast meeting. Next day, Treasury officials indicated that Miller would drop his insistence that any aid package for Chrysler be "substantially less" than $1 billion.