Chrysler's Crisis Bailout

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The roots of this crisis are old and deep. In the 1960s, under Chairman Lynn Townsend, Chrysler glanced jealously at the worldwide power of both GM and Ford and tried to emulate them by expanding rapidly at home and abroad. The forced growth was ill-timed, haphazard and too fast. Chrysler entered the 1970s lacking the financial resources to weather three recessions, two oil crises and an enormous wave of environment, safety and fuel-economy regulations.

When Riccardo took over in 1975, the public was demanding smaller, more fuel-efficient cars, but Chrysler, unlike GM and Ford, lacked the money to retool and redesign quickly. With smaller sales than the other two automakers, Chrysler had to spend nearly twice as much per vehicle to meet Government rules. Pressed for cash, the company had to slash its budget for plant modernization.

Now Chrysler appears to have one hope: to stay solvent in any way possible until lacocca, who is to auto sales what Patton was to tank warfare, can bring forth the cars to save the company. He will need help—and not just from Washington. The United Auto Workers rejected his plea for a wage freeze, but delegates from its Chrysler council agreed to reconsider making concessions once the UAW agrees to a new three-year contract with GM and Ford. Said UAW President Douglas Fraser: "We'll take into consideration whatever is needed for the survival of Chrysler Corp." The union probably will accept smaller raises at Chrysler than at GM and Ford.

As for other sacrifices, common stockholders will have to wait a long time for dividend payments to resume. Top managers could well announce token salary cuts* and the sale of the company's three corporate jets. Bankers may have to accept deferred payment and lower interest. A committee representing Chrysler dealers has offered to lend the company $50 for every car they receive—a deal that ultimately could amount to an interest-free credit totaling $120 million. lacocca has already confirmed that certain suppliers have agreed to extend terms of payment. Chrysler has also asked some to cut prices by as much as 20%.

Chrysler may have to sell off some more operations. Its small marine products division, which makes outboard motors and boats, and its 15% investment in France's Peugeot could well go on the block. The company may also sell one or more of its U.S. engine or transmission plants to a major importer like Volkswagen or Japan's Honda and work out a deal for Chrysler to buy back some of the production. In sum, the company will have to accept a reduced role in the auto market.

The combination of squeeze and sacrifice is expected to meet the Treasury's conditions, but Congress will be harder to sell. The aid package will go before the banking committees of both the Senate and the House.

Their chairmen, Senator William Proxmire and Representative Henry Reuss, both Wisconsin Democrats, opposed aid to Lockheed. "A terrible precedent," said Proxmire of the proposed Chrysler deal. Reuss expressed distaste for guaranteeing loans for Chrysler to build "gas guzzlers that nobody will buy."