Chrysler's Crisis Bailout

Questions about whether a quick federal fix is right—and will be enough The Carter Administration decided last week that now was the time to come to the aid of the nation's most beleaguered major company. After weeks of rising pressure for a federal fix for the multiplying problems of Chrysler Corp., Treasury Secretary G. William Miller produced—and Jimmy Carter approved —a Government bailout. It was designed to prevent the nation's No. 3 automaker (1978 sales: $13.6 billion) from sliding into a bankruptcy that could have put many thousands out of work and sent a shudder through U.S. financial markets.

Beamed Chrysler Chairman John Riccardo "We are extremely encouraged. This fits the bill."

In his first public act at the Treasury, Miller spelled out the ideological ground rules of federal aid and warned other troubled companies against expecting similar help. Such assistance, he said, "is neither desirable nor appropriate, being contrary to the principle of free enterprise." But Chrysler was an unusual exception, he added, in which the Administration "recognizes that there is a public interest in sustaining [its] jobs and maintaining a strong and competitive national automotive industry."

Despite Chrysler's immediate enthusiasm, the Treasury package falls far short of what the company sought. It does not give Chrysler the $1 billion cash aid that some analysts insist is the minimum it needs to keep going until late next year.

That is the earliest time Chrysler can expect to make money from the new generation of front-wheel-drive compact cars now being developed by President Lee lacocca, who will replace Riccardo as chief executive by this year's end.

The Government rejected Chrysler's plea that it receive aid in the form of either federal tax refunds or immediate relief from having to meet the costly safety, environment and mileage standards on new cars. Miller said the former idea would amount to an "interest-free, unsecured cash advance from taxpayers' funds." Instead, he recommended Government loan guarantees that will have to be approved by Congress and will "total considerably less than $1 billion."

Treasury aides were understood to be thinking of $500 million to $750 million over a limited period. With those guarantees, the company would be able to borrow from private bankers who would otherwise turn down Chrysler as an unacceptably high risk. In case of default, taxpayers would be left holding the bag, and the Government would probably have to take over Chrysler and hope to sell off its vital parts.

Wary of Congress's reluctance to bail out Lockheed in 1971 and New York City in 1975—the legislators finally voted for both programs by small margins—the Carter Administration laid down basic conditions that Chrysler will have to meet.