Chrysler Corp. yesterday asked the government to surrender warrants that could fatten the U.S. Treasury by $220 million if used to purchase Chrysler stock at current prices.
The warrants, allowing the government to buy 14.4 million shares of Chrysler stock at $13 a share by 1990, were issued to the government in 1979 as part of an agreement granting Chrysler access to $1.5 billion in life-saving, federally guaranteed loans.
At the time of the agreement, Chrysler stock was worth less than $5 a share. But yesterday, largely as a result of the company's remarkable resurgence, Chrysler stock was trading a little above $28 a share.
Analysts estimate that the government could reap a $220 million profit--$15 a share--by exercising the warrants. But the company contends it issued the warrants under duress, and that if the government exercises them it would set back Chrysler's recovery.
Treasury yesterday withheld response to Chrysler's request. But some cries of indignation came from Wall Street and Capitol Hill.
Sen. William Proxmire (D-Wis.), the highest ranking Democrat on the Senate Banking Committee and an original opponent of the Chrysler loan guarantee, yesterday said he wants the company's request to be "firmly rejected" by Treasury.
"I think Chrysler ought to go fly a kite. That money belongs to the taxpayers," said analyst David Healy of New York-based Drexel Burnham Lambert Inc. A government giveback of the warrants "would be good for Chrysler stockholders, but the taxpayers would get the shaft," Healy said.
Healy added: "The government made a very risky loan for social purposes, primarily to help save jobs. The thing has paid off, and now Chrysler wants to come back after the fact and change the rules."
But Chrysler officials, who have come this far by being aggressive, yesterday showed no signs of backing down. The collapse of the nation's third largest automaker would have resulted in a loss of 600,000 jobs at a cost to the taxpayers of "several billion dollars," Chrysler Vice Chairman Gerald Greenwald said yesterday in Atlanta.
"The loan act was passed on the basis that it would not cost the taxpayer one cent. Chrysler has not received one nickel from the U.S. government," Greenwald said, pointing out that the money for the federally backed loans came from private banks and other lenders.
Furthermore, said Greenwald, Chrysler already has paid nearly $500 million in interest on the $1.2 billion it drew from the loan guarantee pool, and is making plans to pay $400 million of the principal. And though the government's cost in administering the program has been $1.5 million annually since 1980, Chrysler has paid $31.2 million in program fees to the government, Greenwald said.
"Chrysler really had no choice" in yielding to the Chrysler Loan Guarantee Board's demands for warrants in 1979, Greenwald said. "If somebody across the table had said to you, 'We want warrants and we want this and that,' and you knew your choice was either to say yes or to go bankrupt, I think you know what you might have said," Greenwald said.
But "Chrysler knew what it was doing when it gave the warrants. . . A deal is a deal," a government official who helped shape the agreement said yesterday.