OPINION:
In order to understand the folly of Congress’ decision to consider a second $25 billion-guaranteed loan bailout for Chrysler, Ford and General Motors, one need only look at what happened when Chrysler was given $1.2 billion in guaranteed loans in 1979 and ask one question of Chrysler. What should Chrysler do now to survive?
An analysis by policy consultants with the Heritage Foundation shows that what Chrysler did to stay alive in 1979 was enact internal policies similar to reorganization under a bankruptcy, but Chrysler made its decisions without going to court, and they used federal dollars to guarantee large loans at reduced interest rates. Chrysler executives did take salary cuts of 2 percent to 10 percent, and CEO Lee Iacocca did accept only $1 a year. That only lasted two years, however, because they received retroactive salary payments to make up for the reductions while the company continued to lose money. Creditors, meanwhile, were forced to take a return that amounted to 30 cents on the dollar on $600 million in loans. Another $700 million in debt was converted to preferred stocks that earned no dividends and wouldn’t pay off for nearly a decade. Chrysler also cut more than 62,000 jobs, and research and development dollars were also cut.
Even with all of that, Chrysler soon discovered that in order to reach profitability it needed the federal government to do more. That “more” was President Reagan’s decision to stifle foreign-car imports - without decreased competition, Chrysler couldn’t survive.
Competition is something Congress should encourage. Cutting imports will not save the Big Three. Besides, foreign-car manufacturers wisely moved their operations to America and are now paying Americans to build their cars. Foreign-car makers also do not have the noose of Big Labor and collective-bargaining agreements hanging over their heads. Another wise move.
Congressional insistence that the Big Three present a plan in exchange for the new loans is belied by the Chrysler model: Chrysler had a plan, but it didn’t work. And perhaps the most egregious aspect of the decision made in 1979 was that GM and Ford might be better off now without Chrysler competing for capital.
If the Big three are to survive, they will have to do what Chrysler refused to - file for bankruptcy, reorganize and renegotiate labor contracts. No more loans to delay the inevitable.
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