Hang on to your wallet when you go to work in Washington today. The Chrysler gang is back in town and they're after your money again.
When Lee Iacocca and company rode in a couple of years ago, they came begging for a handout and left with an extraordinary government loan guarantee that saved the company from bankruptcy and protected the jobs of thousands of employes.
Chrysler made all kinds of promises to get that bailout, including a vow to share future profits with the government. No one paid much attention to that promise at the time, because not many people ever expected Chrysler to survive, let alone make money.
But thanks to the taxpayers' bailout, Iacocca's brains and much help from the government in limiting foreign competition, Chrysler is back in the black again.
Now the company wants to be let off the hook on its promise to share its success with the people who made it possible--you and me and the U.S. government.
Word of Chrysler's plan to try to beg off on the deal leaked out on Friday. The Chrysler Loan Guarantee Board is supposed to consider the request today. We haven't heard the excuse yet, but the word is out on what the company wants.
When the government agreed in 1980 to co-sign Chrysler's loans so the auto company could borrow the money needed to stay in business, Congress insisted on getting some collateral.
The government got what are called stock "warrants" giving it the right to buy 14.4 million shares of Chrysler stock from the company for $13 a share. The warrants weren't worth the paper they were printed on when Chrysler issued them. The stock then was selling for $5 a share and nobody would pay for the privilege of offering 2.6 times what the shares were worth.
Now that Chrysler is out of the woods, its stock is selling for $28.50 a share and the warrants are worth a bundle. You could exercise the warrants, buy Chrysler shares for $13 and immediately resell them for a profit of $15.50 each. Or you could simply sell the warrants for roughly the same gain.
The hitch is that Chrysler now wants the government to give back some or all of the warrants and forego the profit to which it is entitled.
Investors who bought Chrysler at $5 have more than quadrupled their money already and stand to benefit further if the government gives back its warrants. If the government exercised the warrants, it would tend to dilute the value of the publicly owned shares.
Any company that tried to pull this trick on private investors would find the Securities and Exchange Commission breathing down its neck. A profitable company that asked shareholders to voluntarily give back warrants worth $15 apiece would be laughed off Wall Street.
On 14.4 million shares, the government has made a paper profit of $220 million on its Chrysler warrants. It might make even more by holding onto them in hope Chrysler stock goes higher. If the government is going to be financing private companies, it ought to manage its investment for maximum profit, just like any other investor.
But Chrysler's deal is with politicians, not stockholders. The Chrysler loan board consists of Secretary of the Treasury Donald T. Regan; Paul A. Volcker, chairman of the Federal Reserve Board, and Charles Bowsher, head of the General Accounting Office. Chrylser's hot potato is in their laps.
The rationale behind the company's request is not clear. Iacocca's side-kick Gerald Greenwald, vice chairman of Chrysler, says the terms of the loan guarantee are too onerous. Chrysler has to pay 14.9 percent interest on its loans plus a 1 percent annual fee, which the company also wants the government to reduce.
Greenwald used the word "usury" to describe the 15.9 percent financing. That ought to get a laugh out of any customer who paid 16 or 18 or even 20 percent interest on a loan to buy one of Greenwald's cars. If Chrysler gets out of the deal, shouldn't every Chrysler car buyer be able to renegotiate the loan?
Chrysler's bid threatens to set dangerous precedents for all kinds of deals in which government and business have agreed to share profits. The District of Columbia recently sold the downtown Metro Center site under a plan to share future earnings with the developers. Right now it looks like the city won't make much on the deal, but if Metro Center turns into a gold mine, should the developer be allowed to cancel the profit sharing?
The political arguments on this one are also going to be tricky. Many conservatives in the Reagan administration thought it was virtually socialism for the government to bail out Chrysler in the first place. Will they argue that it's even more socialistic for the government to profit from what it did?
Budget Director David Stockman was so opposed to the Chrysler loan guarantee that he fought it even when he was a congressman from Michigan. Will he now give up $220 million in badly needed revenues?
A couple hundred million bucks won't go very far toward paying off the national debt, reducing the federal budget deficit or spurring economic recovery. But the profit on Chrysler warrants would be $220 million that wouldn't have to be paid by the taxpayers. In round numbers, that's $1 apiece for each of us.
Personally, I want my dollar.