By Associated Press Writer Ken Thomas
November 23, 2008
WASHINGTON – When Chrysler teetered on the brink of bankruptcy
in 1979, the automaker spent months building support for a
$1.5 billion loan guarantee that helped save the company and
tens of thousands of jobs.
Nearly 30 years later, the U.S. auto industry is getting only
weeks to make its case.
Still, the Chrysler chapter offers lessons to the executives
of General Motors Corp., Ford Motor Co. and Chrysler LLC — the
private equity successor to the old Chrysler Corp. — as
well as the United Auto Workers union as they try to win support
in Congress for a stalled $25 billion rescue plan.
Chrysler's predecessor secured the loan guarantees because
labor, management and other stakeholders all made concessions,
analysts and lawmakers said. The company also benefited from
the salesmanship of its chairman, Lee Iacocca, as well as a
broad coalition of supporters and a more dominant hold of the
domestic auto market.
"The loan guarantee wasn't just handed to them on a silver
platter," said Charles Hyde, author of "Riding the
Roller Coaster: A History of the Chrysler Corporation."
Contrast that to the two days of high-profile hearings this
past week when automakers stumbled and congressional leaders
told them to come back after Thanksgiving with a better case.
Detroit's chief executives arrived aboard private jets, denied
culpability for the jam their companies are in and blamed their
problems on the economic downturn. The UAW said it had already
taken wage and benefit concessions in 2007 and declined to
endorse new givebacks.
"We're asking the taxpayers to throw money in. We're
not asking management to do anything," said Sen. Charles
Grassley, R-Iowa, who supported the Chrysler deal as a House
member. "We're not asking unions to do anything and we
aren't asking government to do anything except throw the money
in. We aren't undoing a lot of the reasons why they're in trouble."
Chrysler's efforts in 1979 did not get off to a fast start,
either. Struggling with its largest-ever quarterly loss, a
fleet of inefficient cars and high gas prices, chairman John
Riccardo appealed to the Carter administration that July for
$1 billion to stabilize the company and protect its 250,000
workers.
Hyde, a Wayne State University history professor, said many
people forget that Chrysler was forced to come up with $2 billion
in concessions from unions, white-collar employees, dealers,
suppliers and banks as part of the deal. State and local governments
connected to plants provided tax concessions and Chrysler was
required to adhere to tight government supervision after they
received the loans.
Sen. Richard Lugar, R-Ind., who helped write the 1979 legislation
with the late Sen. Paul Tsongas, D-Mass., remembered that UAW
president Douglas Fraser told him that his union "never
made concessions — never" and Chrysler's leaders
were "equally cavalier about it."
But Lugar said Congress approached the Chrysler loans "pragmatically — that
there would need to be substantial changes in the offerings
by Chrysler, likewise substantial changes in the labor agreement
with the UAW."
Riccardo announced his resignation in September and was replaced
by Iacocca, a master salesman who introduced the wildly popular
Ford Mustang in the 1960s.
Iacocca agreed to work for a $1 a year until Chrysler turned
a profit. He traveled between Detroit and Washington on commercial
airlines.
"You don't fly around on your private jet when you're
asking the government for a big loan," said Reginald Stuart,
who covered the 1979 rescue as The New York Times' Detroit
bureau chief and wrote a book about it.
Iacocca teamed with then-Detroit Mayor Coleman Young to make
the case for the loans. Together, they served as a "one-two
punch," Stuart said in an interview, bringing in the Urban
League and National Association for the Advancement of Colored
People to their cause and organizing a grass-roots campaign
by business and city leaders, dealerships, auto suppliers and
others.
Four days before Christmas, Congress passed the bill, providing
Chrysler a $1.5 billion loan guarantee — 50 percent more
than the company originally sought. Signed by President Jimmy
Carter in January 1980, the legislation gave the government
broad oversight of the company and an ownership stake. Chrysler
avoided bankruptcy and went to develop its highly successful
fuel-efficient K-cars.
Chrysler eventually drew down $1.2 billion in loans and repaid
them within three years, seven years early. Chrysler turned
a profit in 1982 and the government made $311 million in the
sale of stock warrants and another $25 million in loan guarantee
fees.
"We at Chrysler borrow money the old-fashioned way," Iacocca
said later. "We pay it back."
Former Michigan Gov. James Blanchard, as a congressman, spent
five months helping steer the Chrysler loan guarantees through
the House. "They don't have this kind of time now, in
my opinion," he said.
He said the car makers now need to present an operating plan
that shows they can return to profitability in the next three
to five years. "It's going to be very hard to help them
if it appears that all it's going to do is let them limp along
until we get an upturn in the economy."
U.S. automakers also face a different sales reality now. None
of the Japanese companies had started building cars in the
United States in 1979 and Detroit's automakers held more than
three-fourths of the market. Cars carrying foreign nameplates
represented 49 percent of U.S. sales last year and Toyota is
on the NASCAR circuit.
Now, Hyde says, "The minute you leave Detroit, most of
the rest of the county says, 'We're not against the auto industry,
we're only against those backward Detroit companies.'"
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