Within the next two weeks, officials of 150 banks in this country and Europe will make a cold-eyed decision on whether to support Chrysler Corp. or pull the string.
Every one of the banks must approve Chrysler's newest emergency financial plan if the No. 3 U.S. automaker is to receive approximately $400 million in government-guaranteed loans -- money it must have within a month or two at the most to remain in business.
Chrysler officials publicly are confident of the banks' verdict. "We really don't see any problem," said Vice President Wendell Larsen. However, interviews with representatives of the banking group indicate that, although the odds favor Chrysler, the banks are wrestling with troubling questions about the company's future:
Can Chrysler survive even with the $400 millon from the government-backed loans? And even if it can, would the banks be better off financially if Chrysler gave up its fight now before the $400 million comes through and were reorganized under the federal bankruptcy law or simply sold off to the highest bidders?
The answers aren't simple, according to analysts such as Larry Fuller and David Healy of the New York financial firm, Drexel, Burnham, Lambert. The government-backed loans -- guaranteed, in effect, by American taxpayers -- are protected by secure claims against Chrysler's best remaining assets, its modern production plants. Eight of these plants could be sold for $1.8 billion to other auto companies if Chrysler folded, according to an independent appraisal provided to the government. Under the strict terms of the congressional Chrysler aid plan, the government loans get paid off first, before those of any other creditor.
Chrysler already has borrowed $800 million in government-guaranteed loans, and another $400 million simply would add to the amount of the government's priority claims against Chrysler's assets, leaving that much less for the banks, Fuller noted. Moreover, if the new Chrysler financing plan takes effect, banks and other creditors would receive cash payments of about $150 million for $500 million in long-term debt, a settlement of 30 cents on the dollar. Some banks may not like that deal, analysts say.
But a case can be made for the plan if the banks conclude Chrysler can survive.
The customary concepts of life and death don't fit the special case of Chrysler, however, which has clung to life, sustained by the life-support system of the government, banks, parts suppliers and its employes.
Seen one way, Chrysler is clinically dead and has been for more than a year since banks refused to lend it any more money without government guarantees.
The heart of the support system is the government loan guarantees. Even with that aid, Chrysler had a cash loss of more than $1 billion last year.
The company had a cash surplus only one month last year, in October, when it introduced its new line of front-wheel-drive K cars and sales were boosted by fleet orders and a flurry of consumer interest.
To stretch its dwindling funds, Chrysler has had to "downsize" its operations relentlessly, closing eight of its plants, and cutting its union work force from 130,000 in May 1979 to 64,000 today. Additionally, it plans to cut $670 million from this year's budget for new machinery and other capital investments -- most of which affects future models.
But Chrysler's needs, even in the company's reduced shape, dwarf the government's resources.
Chrysler Vice President Wendell Larsen notes it takes about $1 billion a month to run the company. That is the starting point.
To break even, Chrysler must sell at least 875,000 cars this year, Larsen said. Last year -- the worst for the American auto industry in 19 years -- Chrysler's auto sales totaled 660,000, which was only 8.8 percent of the total for domestically produced cars, far below the 10.1 percent share it had planned on.
Now Chrysler is torn by conflicting goals: the need to squeeze every dollar of profit from current sales, and the necessity to sell its cars, particularly the new K car. It continues to head in the second direction, offering rebates that average $500 or more per car to boost sales, but that eats into the profits.
In short, the company still is not solvent. "Chrysler has been short of cash since mid-December," company Treasurer R. S. Miller said recently. "We're riding on the confidence of our dealers, suppliers and customers" who are willing to stand by the company so long as there is hope of getting the $400 million from the government guarantees.
And the $400 million would not stay with Chrysler very long. A crowd of creditors are waiting, hands out. Chrysler owes at least $200 million to thousands of suppliers who furnish parts for cars and trucks, and the figure could be considerable higher.
How does Chrysler make it? Simple, says Larsen: by selling cars.Traditionally, the Lincoln's Birthday weekend in mid-February marks the start of the spring car sales season, and Chrysler has to get off to a strong start. Most analysts believe that Chrysler's prediction of a total of 9.6 million cars sold by all companies this year is about right unless the economy dips into another recession in the second half of the year. But Chrysler's chances of meeting its goal of getting better than 9 percent of that market are not at all certain.
In addition to meeting its sales goal, Chrysler has to cut costs further. The government's Chrysler Loan Guarantee Board tentatively approved a cost-savings plan requiring $1.2 billion in financial concessions by the banks, suppliers and the United Auto Workers, all of whom must approve the plan in order for Chrysler to qualify for the $400 million.
Chrysler's UAW members are asked to accept a freeze on pay and benefits that will cost them $622 million over the next 20 months. Nonunion employes must contribute another $161 million, and suppliers who already have $200 million in bills unpaid by Chrysler must accept deferred payments of between $36 million and $72 million, according to the plan.
The banks and insurnace companies are asked to accept preferred Chrysler stock for half of their $1 billion in debts. For the other half, they would receive the 30 cents on the dollar.
This a crucial concession for Chrysler, wiping off $1 billion in debt: With that debt on the books, Chrysler would have little hope of joining with a foreign automaker, and the government loan board sees that as Chrysler's only route to long-term financial recovery. It is far from certain that foreign automakers will be interested in buying into Chyrsler now -- with its existing labor costs, pension debts and warranty obligations, for example -- if they assume the company will fail. Then the plants they want might be purchased at fire-sale prices, analysts note.
However, the Treasury has concluded that Chrysler need not fail -- with the proposed package of savings, the $400 million in guaranteed loans, a continued downtrend in interest rates and a dramatic improvement in auto sales -- with all this and luck.
The betting among auto industry analysts is that Chrysler probably will get the approvals it needs from the union, suppliers and banks and receive the $400 million -- if only because the company has established itself as a symbol of oppressed U.S. industry and there are political risks in letting it go under.
But if sales don't rebound, Chrysler will have to return for $300 million more in guaranteed loans, the last of the $1.5 billion authorized by Congress a year ago, and this time the verdict will be rendered by the Ronald Reagan administration.
President Reagan's budget chief, David A. Stockman, who as a Republican congressman from Michigan opposed the Chyrsyler aid plan a year ago, says the Reagan administration will strictly follow the rules of the plan. First and foremost, they direct the government to continue aiding Chrysler only if there is evidence that Chrysler can survive. That case can't be made if Chrysler's sales don't revive.