Business: Chrysler’s Cry

Can you spare a billion ?

Congressional sources say that Chrysler Corp. representatives have warned them that unless financial aid comes forth by the end of the year, the stricken automaker may have to close its doors. Two months ago, Chairman John Riccardo was telling legislators that the company would need some federal assistance by early next year, but last week’s long awaited announcement of the company’s $207 million second-quarter loss has compressed that timetable. A shutdown of the nation’s tenth largest manufacturer (1978 sales: $13.6 billion) and sizable defense contractor ($625 million in 1978) would have far-reaching consequences. It would leave the U.S. auto industry basically in the hands of General Motors and Ford, throw 130,000 employees in seven states out of work, and affect about 400,000 people employed by Chrysler’s suppliers and dealers.

Unprepared for the double whammy on auto sales caused by gasoline shortages and recession, Chrysler is stuck with the highest inventory of the Big Three. In all, 80,000 cars and trucks, about a 95-day dealer supply, are lined up outside plants in rows resembling Flanders Field. President Lee lacocca, who will become Chrysler chief executive by year’s end, made an unprecedented appearance at the United Auto Workers’ bargaining table last Friday to ask the union to accept a two-year wage and benefit freeze.

Cannily laying the blame for Chrysler’s bloodletting on federal safety, mileage and emission regulations, Chairman Riccardo is asking Congress for $1 billion in tax refunds, exactly the amount that meeting Government standards will cost the company between now and the fall of 1980. By then lacocca will produce those front-wheel drive Mustangs-in-Chrysler-clothing that are supposed to restore the company’s competitive edge.

There are strong arguments against giving Chrysler the cash. Opponents cite the British experience of never-ending subsidies to sick companies and its disastrous effect on the taxpayers. G.M. Chairman Thomas A. Murphy argues that federal aid insulates companies from the effects of competition in the marketplace, perpetuates inefficiency and creates unfairness. There is no precedent for what Chrysler wants. In 1971 Lockheed was rescued with a federal loan guarantee for $250 million of its private debt. But that cost the taxpayers nothing, and by the time the Lockheed loans were paid off in 1977, the Government made a profit of $31 million in fees. Perm Central’s plea for a handout in 1970 was ignored, and the Government stood by while the company went bankrupt.

Still, Congress seems to favor doing something for Chrysler, although $1 billion in tax refunds is distasteful to legislators who yearn to narrow the federal deficit. They may move instead for a loan guarantee. Senate Finance Committee Chairman Russell Long has pledged some aid for Chrysler. Says he: “It is better than letting the company fold. That would cost a lot of revenue and jobs.” House Ways and Means Chairman Al Ullman is unenthusiastic but promises to expedite whatever bailout measures the Carter Administration proposes.