August 16, 1979

Why Chrysler Will Be Saved

"A company is too big," says my son the college philosophy major, "when it can't be allowed to go bankrupt."  Just so.

What, then, shall we do about Chrysler Corporation which says it may go under without a billion dollars of government aid?

The nation's third largest automobile manufacturer, with a measly 10 percent of the market, is the sole supplier of Army tanks.  It also is the tenth largest U.S. firm - providing livelihoods for a half-million, workers and their families.

Chrysler has lost $380 million so far this year and estimates it will suffer a total annual deficit of up to $600 million.  It have over a billion dollars of debt and is unable to meet a half million dollars of obligations now due.

Private enterprise advocates shake their heads sadly.  Too bad, but that's the penalty for incompetent management in a capitalist system.

Thomas Murphy, board chairman of General Motors, opposes a bailout for its competitor.

The proposal undermines the disciplines of the market place, avers Murphy, "and presents a basic challenge to the philosophy of America."

"If you say, 'O.K., if somebody fails in the competitive race, then we're doing to bail them out anyway,' I don't think that's in accordance with what really made this country great."

A philosophically correct stance by the world's largest car maker -- but a bit hypocritical.

Only a few months ago Mr. Murphy was touting President Jimmy Carter's wage and price guide lines -- the very anti-thesis of competition.

Chrysler Chairman John Riccardo says his company's troubles stem from unreasonably stiff safety and emission standards imposed arbitrarily by government planners.

The rules will, he insists, cost about a billion dollars which Chrysler does not have and has no prospects of obtaining.

Riccardo wants either of two things:

1. Postponement of environmental standards, or
2. An immediate billion-dollar cash rebate et anticipated income tax loss-credits.

President Carter -- himself the captain of a sinking ship -- is receptive to some pumping of the bilges.  However, both he and Congress take a dim view of the Chrysler proposal.

An advance of unrestricted cash would leave Chrysler management free to pursue policies that might be as ineffectual as those of the past.

The politicos prefer a loan guarantee which would load Chrysler with more debt but give the government some say-sown terms.  It's like putting Dracula in charge of the Blood Bank.

Either way, taxpayers would have to pick up the tab for a bankruptcy.  It is this possibility that riles private enterprise buffs.  Once a precedent is set, they say, the government will besieged with pleas for relief from other marginal businesses.

This world be a persuasive argument if it wasn't few years too late.  The Lockheed Aircraft Company was rescued eight years ago with a $250 million loan.  Since then Penn Central Railroad received substantial government tax concessions to save it from bankruptcy, and New York City got Uncle Sam to underwrite its worthless bonds.

The fact is that the pure strain of capitalism died out years ago, unnoticed and unmourned.  They hybrid that survives today is a weak/variety dependent upon careful tending.

With the advent of centralized planning in Washington, market forces have been suppressed.

The federal government has demanded that U.S. manufacturers "re-invent the auto" to meet a standard of perfection buyers neither want nor can pay for.

Oil companies were ordered to produce oil for less than actual costs and sell gasoline at artificially low prices.

The railroads were starved to death by profit regulation.

Environmentalists created an energy shortage with laws that prohibit the burning of coal or the splitting of atoms.

None of these were decisions of freely operating companies competing to meet market demand.  All were official coercion.

Chrysler was a willing mistress to government largesse.  The company was reduced by fat military contracts, by a car market pumped up with subsidized gasoline and highways, and by a work force guaranteed security by law.

The result was predictable.  Chrysler grew lazy, sloppy and careless.  It could happen to GM and Ford.

Nevertheless, the army needs tanks.  Chrysler employees must work or become wards of the state.  Banks, suppliers and stockholders will claim big tax credits if their investments are wiped out.

Having raped the private enterprise system, the government now must support the creature it fathered.

Consequently Washington will come through with about half the cash Chrysler needs.  Performance regulations will be relaxed a mite.  Some jobs will be absorbed by welfare.  Quite a bit of investment capital will go down the drain.

Chrysler will survive -- barely.

And the lesson that suppression of market forces creates big economic headaches will be forgotten once more.

Author: Lindsey Williams