Chrysler Corp. Chairman Lee A. Iacocca yesterday disclosed a $2 billion plan of financial sacrifices that must be made to keep Chrysler from bankruptcy, including a 21-month freeze on auto workers' wages and concessions by suppliers and lenders.
Iacocca told a press conference in Detroit that initial reaction to the new cost reduction plan has been positive, but the company won't know until Monday whether the United Auto Workers will agree to consider the wage freeze, estimated to save Chrysler $600 million by September 1982.
The wage-freeze plan would hold total pay and benefits for an average Chrysler blue collar worker at the current $17.31 an hour through 1981, about $3 less than the Chrysler contract provides. By 1982, the difference between a Chrysler worker's pay and that of UAW workers at other auto companies would be more than $4.50 an hour, under the plan.
"Simply stated, Chrysler has good jobs available at $17.50. We don't have them at $20," Iacocca said.
The company has been compelled to cut operating costs sharply to qualify for $400 million in government-guaranteed loans under the Chrysler aid plan. The Chrysler loan guarantee board, headed by Treasury Secretary G. William Miller, by law cannot approve the guarantees unless Chrysler shows it can become profitable by the end of 1983. Chrysler has already received $800 million in guaranteed loans, and without a new infusion next month the company cannot continue operations.
The loan board meets again today and is expected to receive the Chrysler plan within a week. Iacocca said he is confident it will be approved. He and other Chrysler officials met last week with Edwin Meese III, President-elect Ronald Reagan's top aide, and although Meese and his colleagues didn't commit themselves to supporting Chrysler, "they made the right noises," said Chrysler Vice President Wendell Larsen.
The plan generally followed the outline reported last week. Chrysler lenders have been asked to convert $572 million in debt into preferred stock, reducing the company's interest obligations by about $100 million next year. Chrysler is proposing a two-step rollback and freeze on the prices its suppliers charge, for an estimated savings of $140 million. A 5 percent budget reduction throughout the company should save $75 million to $100 million, and the proposed wage freeze will save about $250 million next year and $410 million in 1982.
Finally, the company said it will modify some production plans and reduce manufacturing overhead to save $700 million, involving layoffs of 1,200 additional employes.
Chrysler's request for a 21-month wage freeze extending into 1982 surprised UAW officials, who had been expecting a one-year hold on pay.
UAW President Douglas A. Fraser, who also sits on Chrysler's board, said he would ask the union to reopen negotiations on its current contract with the automaker, but didn't say whether he supported Chrysler's plan. Union Vice President Marc Stepp said Chrysler workers would "rally to the cause" if they are convinced a freeze is essential.
Fraser and other union leaders heard Chrysler spell out the wage plan Tuesday night. "They left the impression that if the loan guarantee board doesn't come forward with funds, then Chrysler can't make it," Fraser said.
On Monday, the proposal goes before 250 rank-and-file UAW members who form the Chrysler council. They will decide whether to consider the company plan or not. "The bottom line of all this is that nothing can be done to alter the contract without the consent of the men and women who work in Chrysler plants," Fraser said.
At yesterday's press conference, Iacocca said the company couldn't survive without the wage concessions. "Until the economic engines start over again, until there's growth, until the auto industry starts coming back . . . we can't afford $20.45 an hour," he said, referring to the average 1981 wage under the current contract.
He said he had no regrets about the size of the UAW pay levels, well above the $14-an-hour average for manufacturing workers. "Let me put it the way I told them. You look them right in the eye and you say, 'Boys, you're the highest paid guys in the world. You're right up there with the elite. You earned it . . .
"I hope we can get back soon to making them the highest-paid jobs in the world . . . but with what we have today, it's impossible."
Along with the cost reductions, Chrysler yesterday said it was increasing its special "interest allowance" rebate plan on 1981 domestically produced automobiles (except Imperials) because of the increase in interest rates. The rebate is an allowance that lowers the effective interest rate on new car financing. The new rebate equals a 7 percent reduction or $420, for example, on a $6,000 car ($6,000 times 7 percent). According to Chrysler, with the rebate, its new K cars are $800 cheaper than X cars, General Motors Corp.'s competition.
Although the rebate may give Chrysler an edge over its rivals, its sales will continue to be below the survival point until the economy revives and car sales recover. With the current surge in interest rates, that recovery is looking more and more distant, a circumstance Iacocca plaintively acknowledged several times in his press conference yesterday. "The roughest times are directly ahead of us," he said. Chrysler's most recent sales figures were up over sales a year ago, "but the industry is still sinking."
There is a growing view among analysts in the Treasury Department and private industry that Chrysler must merge with another auto company, cutting back further on production overhead, if it is to remain in business.
Iacocca yesterday noted Chrysler's commercial ties with Peugeot-Citroen of France and Japan's Mitsubishi Motors Corp. "I can't use the word merger with them. The most I could use at this point in time is the possibilities of some joint ventures for some of these high capital items where we just can't afford to go it alone.
"We are studying some possibilities, but we do not have firm proposals" involving either of the two companies he said.