I was a college student in 1979 when Chrysler Corporation made its appeal to the Carter Administration for a government bail out. Back then, the automaker was bleeding through cash and seeking a one billion dollar loan guarantee in a bid to stay afloat. After months of bargaining, the federal government agreed to help Chrysler, signing off on a larger 1.5 billion dollar loan guarantee, a move that insured the survival of America's third largest automaker while saving tens of thousands of jobs.
Today, Chrysler is looking for new assistance from the federal government, but this time they are being joined by their two largest American competitors, General Motors and Ford. Unlike in 1979, the chances of any one of the three automakers getting government help -- beyond the $25 billion already earmarked for plant retooling -- is greatly diminished for reasons that neither one of the companies may fully understand.
Let's take a look at the current automotive climate and what the three automakers must do to win federal bailout approval.
In 1979, Chrysler's survival was at stake as were tens of thousands of automaker jobs. With 250,000 employees, Chrysler's demise could have sent shock waves through an already strained economy, an economic climate not too different from what is being experienced today.
Back then, Chrysler took five months to lobby Congress for assistance, even replacing their chairman, John Riccardo, with Lee Iaccoca, the executive who helped bring the iconic Ford Mustang to market. Iacocca, unlike today's automaker chiefs, traveled back and forth to Washington on commercial jets to negotiate on behalf of Chrysler. Today's automotive bosses have private jets to whisk them back and forth, a source of contention for many who oppose helping the automakers.
Even before the federal government offered to help Chrysler in 1979, the automaker was forced to seek union concessions while state and local governments connected to plants provided tax concessions. White collar workers, dealers, suppliers and banks each chipped in, providing what eventually amounted to two billion dollars in cost cuts.
It was only after Iacocca and Chrysler managers made these changes did the federal government intervene. Finally, when Chrysler had the money in hand they were able to develop new products including their popular K-Cars and managed to pay back their loan seven years early. In the end, the federal government made a profit on lending money to Chrysler.
Today, the automakers are asking for cash, but they're going about it all wrong. As recently as October, General Motors was considering purchasing Chrysler while saying that they had enough money to last through 2009. Now, the purchase is off and both companies say that they probably only have enough cash on hand to last through 2008. Ford, is somewhat better off, saying that they should have enough money to last through the end of next year. Still, Ford has joined its Detroit brethren in asking for government assistance.
Public support for helping the Big Three isn't anywhere as strong as it was three decades ago when the three companies dominated the automotive scene. At that time, only Chrysler, Ford, and General Motors were building cars in the US, but today a number of foreign automakers have set up shop. Americans see plants being run by Honda, Subaru, Toyota, Mercedes, Hyundai, and BMW making money and cannot understand why union run shops continue to bleed Ford, Chrysler and GM dry. As long as there are stark differences between the labor arrangements between foreign and domestic producers, support for any loan assistance is tepid at best.
Perhaps the most difficult part of bailing out the automakers is that it is coming on the heels of a massive $700 billion bail out of the financial industry. That earlier plan is increasingly unpopular with many citizens who see that financial accountability is virtually nil and that the so-called emergency isn't as dire as once made out to be.
Thus, even if the Big Three can find the time to make a compelling case for government assistance, support from legislators may not enough to help out. In that case, a Chapter 11 bankruptcy filing would be necessary, a move that could repair automaker problems quicker and more forcefully than any sort of assistance from Washington, D.C.
