Business: Chrysler's Crisis Bailout

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Its managers, said Miller, must draw up "an acceptable financial and operating plan" for dealing with the company's short-and long-term problems as well as spelling out its cash needs. This strategy will have to include sacrifices by everybody with an interest in saving the company: management, stockholders, employees, bankers and suppliers. Only such an effort can ease the Chrysler crisis. The long troubled company lost $204.6 million last year but topped that in this year's second quarter alone, when it ran $207.1 million in the red. Faced with the possibility of a shattering loss of more than $500 million for 1979, Chairman Riccardo held out the hand for $1 billion in federal aid.

Early last week evidence of the company's woes increased. Chrysler announced that another 4,600 workers had been laid off, bringing the total to 23,800, nearly a quarter of its normal blue-collar force. Chrysler also reported that, partly to save money, it was pulling out of a proposed joint venture with a Taiwan company to produce trucks. And lacocca disclosed that the company was considering dramatic cash rebates to customers of up to $500 a car; the aim would be to clear its staggering factory stockpile of nearly 80,000 unsold vehicles, valued at just under $700 million. Chrysler still has some 1978 models unsold, and, at current levels of demand, more than 200 days' supply of many of its 1979 cars.

The company specializes in making larger cars, vans and recreational vehicles. Since the gas crisis started, sales of these relics have, in lacocca's words, "been dropping like a rock." In this year's second quarter, unit sales were down 28% at Chrysler, compared with 27% at Ford and 15% at General Motors. GM and Ford, being bigger, are better able to withstand downturn. Also, they normally manufacture cars only after dealers order them; alone among the Big Three, Chrysler until recently produced autos essentially on speculation and then tried to market them to dealers. Because its dealers' lots are overflowing with slow-selling cars, Chrysler has been forced to add to its own sprawling stockpiles. Inflation raises the cost of financing this inventory and adds to the company's financial burden. The wholesale price index in July jumped at a 14% rate, the worst since February.

Since earlier this year, when the bond-rating agencies downgraded the company's credit and thus effectively prevented it from raising any further funds in the public markets, Chrysler has had to live off its own flesh and bone. Following earlier sales of some or all of its interests in France, Britain, Brazil, Argentina and South Africa, the company in the past few months has announced the closing of two U.S. plants.

Still, Chrysler's working capital —the difference between current assets and current liabilities, which is one measure of its ability to pay its bills from its own resources—has dropped from an acceptable $1.1 billion early this year to a weak $800 million in June. The figure now is still lower, and stock analysts predict that it could shortly fall below $600 million. That would violate the fine print of the company's 1977 revolving credit agreement with some 180 banks and could place it in technical default on $567 million in debt.