A Mild 'Yes' for Chrysler
WEINTRAUB, SIDNEY
TO LOAN OR NOT TO LOAN A Mild'Yes' for Chrysler by sidney weintraub While hardly trying man's soul, the current contretemps over government loan guarantees to the Chrysler Corporation provides a...
...Well...
...Senator Proxmire says he does not intend to be stampeded into appeasing the loan seekers...
...Once more ideologues will object, but in the circumstances their protests will be muted...
...Mainly, the job shock might be allayed...
...Our foreign trade balance would become somewhat more adverse, and the unemployment of Chrysler staff would become more entrenched...
...Thus aiding Chrysler would not establish a precedent, except in its overt-ness...
...On one side are the adamant opponents of anything that smacks of bailout...
...Banks who lend will want virtually ironclad insulation from default...
...There are omens for the future, too, in the acceptance by Chrysler workers of lower pay jumps than at the Big Two...
...With Donald Fraser, president of the UAW, named to the Chrysler board of directors, an experiment in participatory industrial democracy is also about to be launched...
...I f ours were a closed economy, there would be a simple demand transfer to GM, Ford and American Motors...
...Employees were counted as 158,000, so that the jobs of a little over 0.15 per cent of the total work force are at stake...
...Perhaps his main legacy in uncluttered wisdom is that a sharp ideological stance on pragmatic issues is likely to serve us badly...
...for employee succor at, say, $5,000 a year, would sum to about $750 million-half the loan guarantee being sought...
...In the cud, if Chrysler survives and succeeds in improving its market position, we should be prepared for complaints of "unfair" competition from the Big Two or American Motors...
...Any guarantee undoubtedly will be amply hedged to protect the government from severe loss...
...Sales of about $16 billion were tallied, and the company's share of the market edged on 10 per cent...
...Moreover, the degree of domestic competition-such as it is in the auto industry-would shrink from essentially an oligopoly trio to a duopoly pair...
...Ideologues will protest that this will shove the camel of government participation into the tent of private enterprise...
...These, then, are the assorted themes mixed up in the loan decision...
...They include the relatively moderate Senator William Proxmire (D-Wis...
...Then again, there have been Lockheed, New York City, Milwaukee Railroad, as well as innumerable less conspicuous examples of the specific kind in the recent past...
...To be sure, the loan came to a "mere" (vaguely estimated) $80 million...
...Emissions of poverty, distress and collapse would be frequent and, barring an inordinate amount of luck, the automaker would finally succumb to bankruptcy...
...Yet if in law "hard cases make bad precedents," in economics fuzzy outcomes can in time rear policy responses that will haunt us, whichever way we decide...
...But any act of this nature must arouse some misgivings, and generate much heat to befog the light being sought for national policy...
...But this is mostly an illusory loss, considering the disparity in size of the country's auto makers and the fact that it has been car imports that have mostly defied the ossified Detroit perspective...
...Finally, a domino repercussion would hit Chrysler suppliers, and suppliers of suppliers, in lost sales and jobs down the line...
...Aid to it automatically qualifies as a national policy of "welfare to the mighty...
...Our trade balance would be helped, directly and through lessened oil dependence...
...Still, in granting a loan to Chrysler with ample financial safeguards an important good may be accomplished...
...Interestingly, on November 2, at the same time that the Chrysler bailout was grabbing headlines, Congress rushed through a comparable rescue for the Milwaukee Railroad to keep that debilitated system afloat...
...Free enterprise," or let the market prevail, has a nice gutsy ring to it in heralding a triumphant individualistic spirit...
...There would also be various local tax losses or delinquencies over an extended period due to Chrysler's inability to pay...
...Creditor claims would pile up and law suits would be filed in a vast internecine hassle over who gets what, in what order, and when...
...Continued over time it could yield sensibly discriminatory pay standards, with positive implications for our "Hundred Years War" on inflation...
...Energy consequences, foreign trade imbalances, inflation, and pocket book erosion have not been primary Detroit concerns as it has sought to escape producing functional vehicles...
...In an expanding economy the associated unemployment could be readily absorbed...
...This is an admission of some connection between profits, jobs and pay...
...It would be an outrage to subsidize gas guzzling Chrysler Newports whose best market is in a museum...
...How Chrysler can fare in the projected recessionary environment is a further complication considering the short interval covered by the loan currently being contemplated...
...From railroads to shipping, trucking, road building to facilitate car sales, airlines, and aerospace, and millionaire farmers, the record is replete with the contradictions between profession and practice...
...Arrayed in the opposite camp are those who are less doctrinaire about the marketplace in our diluted market order...
...Chairman of the Senate Banking Committee, plus a more extreme group that breathes the fervor of the marketplace in a knee-jerk flaying of all government intercession...
...In the intermediate parable, sans government loan guarantees, Chrysler would go on gasping for life with funding that was insufficient to revise its production models, and losses commensurate to the $460 million dissipation in the third quarter of 1979 would continue...
...Presumably, Chrysler would be able to borrow on rate terms comparable to government obligations of equal maturity, though lenders may exact a bonus for fancied paperwork or other contingencies...
...The rub here is that the same Treasury Secretary Miller seems hellbent for much higher unemployment as he subscribes to another futile swipe at inflation through monetary policy, readying his whisk broom to assault a mountainous rubbish heap...
...Of course, if Chrysler went under -on convenient and flexible principles invoked as a particular ideological rationalization-despite the hardships, in theory its disappearance need not be an unmitigated economic disaster...
...Plant and machinery would rust, waste, and eventually go to highest bidders...
...What the outcome would be for the economy is far loo conjectural...
...Not least, there should be a pledge by the firm that it will produce fuel efficient vehicles comparable to the best in foreign cars...
...Most job hardships would therefore be temporary...
...Obviously, however, the above assumes artificially that the typical Chrysler car buyer would forgo competing makes...
...In the best and most unlikely scenario, a marriage suitor for Chrysler would appear from across the Atlantic or Pacific, and would introduce a different model line...
...But the principle was the same...
...For 1978, Chrysler ranked numero 10 on the Fortune list of industrial giants...
...This is worth a trial...
...The Chrysler loan appears to be such an instance...
...For whatever comfort it brings, the $1.5 billion would be "only" $750 million at the price level of 10 years ago...
...To be sure, other bailout requests will surface from big business in our big economy...
...This outcome would be a clear gain, in fact, for Chrysler, for competition, for our economy...
...Add up the unemployment insurance and welfare in a nonexpanding economy, and the bill Sidney Weintraub, professor of economics at the University of Pennsylvania, is the author of Capitalism's Unemployment and Inflation Crisis and Keynes, Keynesians, and Monetarists...
...Why not, if government has to come to the rescue...
...After all, larger vehicles command a higher price and lend themselves to faster obsolescence...
...In any case, what is really new about the Chrysler request is, first, its magnitude...
...At issue is whether the proposed $1.5 billion loan authorization by Treasury Secretary G. William Miller, acting for an embattled Carter Administration, is in the general interest or dedicated to a narrow special interest...
...Over the next three years the $1.5 billion total may be worth just about $500 million in 1970 prices, given the Carter crew's bungling on the inflation front...
...Expansion by the Big Two would absorb many of the Chrysler employees and revive business among the suppliers...
...and second, its origin in Detroit, that bastion of "free enterprise," of outspoken opposition to state socialism-when this suits its purpose...
...In the Great Depression the legendary FDR was no stranger to the problem...
...Allied as curious bed-partners are many who abide intervention but shun "welfare handouts for the rich...
...After all, everything is bigger in this inflationary age...
...On balance, without great enthusiasm, it is possible to register a mild vote in favor of the Chrysler loan guarantees without envisioning the fate of our economy or the future of our system as being at stake...
...Its employees would lose their jobs and income...
...Without the German and Japanese models, Detroit would probably still be huckstering its fin-tailed monsters capable of 8 miles per gallon...
...would grab some of the usual Chrysler customers and mitigate the growth in GM and Ford business...
...Since ours is an open economy, foreign competition from Toyota, Dat-sun, Volkswagen, Fiat, etc...
...TO LOAN OR NOT TO LOAN A Mild'Yes' for Chrysler by sidney weintraub While hardly trying man's soul, the current contretemps over government loan guarantees to the Chrysler Corporation provides a trial and test of ideology...
...merchandising can be accomplished by sex symbols...
...after a reshuffle, the ultimate job and income losses would be far smaller than the usual direct estimates of Chrysler jobs at stake...
...Consistently, its loudest proponents are unhesitant in enlisting government to their side when, by identifying their benefit with the social good, they can wring vast concessions of great personal profit...
...A sure onesided verdict is not easy, except for those who cling to rigid rules forced into an improvised ideology, regardless of consequences...
...It is simply absurd for the country to go on suffering Detroit's technological failures...
...In a happier scenario, Chrysler would secure private financing, shuttle some more executives, and scurry about to win its competitive place in the smog...
...It would enjoy some benefits from a lower pay scale than the Big Two, and undoubtedly gain some friendly assistance in price and credit terms from its suppliers as it goes pellmell after the market segment that energy facts dictate-namely, cars that emulate and beat the foreign competition...
...As for the size of the loan, we might as well get accustomed to big numbers...
...Their position is that if a judicious dose of government action can preserve a large number of jobs and inject a bit more competition in the auto industry, then the prescription is warranted so long as the prospects of government loss are minimal...
...Although bankruptcy is a legal stale not always as decisive as coronary arrest, in the worst possible scenario Chrysler would be unable to arrange private financing, and would be forced to shut its doors forever...
...We will have to become inured to them, rejecting some and supporting others...
Vol. 62 • November 1979 • No. 22
