When Lee Iacocca issued Chrysler Corp.'s "Declaration of Independence" last week, he not only proclaimed that Chrysler is alive and well in Detroit, he vindicated the Washington advocates of the Chrysler bail-out.
Plenty of people in this town believed that the government's decision to guarantee Chrysler's debts was like booking a round-trip ticket on the Titanic after the icebergs had been sighted.
Chrysler is going bankrupt, the opponents were telling us, and the government is going socialist by co-signing Chrysler's loans.
Things didn't turn out that way. Chrysler will pay off the last $800 million of its government-guaranteed loan in September, seven years ahead of schedule, Chrysler Chairman Iacocca vowed. Rather than becoming a permanent partner of the auto industry, the government will get a quick divorce.
Iacocca--more than anyone else--wants to get the government out of the auto business, and for good reason. He wants to be freed from the onerous terms of the loan agreement that were dictated by G. William Miller, Treasury secretary in the Carter administration and first chairman of the Chrysler Loan Guarantee Board.
The Chrysler Loan Board turned out to be exactly what executives of the auto company feared it would be--another layer of government bureaucracy that hamstrung Chrysler managment, turned internal operating issues into matters for public debate and forced the company to petition Washington over even routine corporate decisions.
That's good. That's just the way government subsidies ought to work. Offensive as it was to Chrysler, the government interference in the company's management provided exactly what the company needed: powerful incentives to get the government off its back.
Faced with a choice of borrowing more millions via the Loan Board or selling its profitable defense contracting business to raise cash, Chrysler sold the tank factory. When it was either curtail new model development or put the touch on Uncle Sam, the new cars had to wait.
But working around the Loan Board has become more and more difficult as Chrysler moved away from the brink of disaster and into a solid niche in the auto business.
The company desparately needs to develop new models for the late 1980s, a job postponed by the cut in development funds and Washington's relentless scrutiny.
Through the engineering equivalent of gene splicing, Chrysler has managed to clone a whole family of cars from two basic species--the little Omni-Horizon subcompacts and the mid-size K-cars. The same engine and drive train that created the astonishingly successful K-car convertibles will soon give Chrysler a revolutionary mini-van that neither Ford nor General Motors can match. Also coming this fall on the K-car platform is a luxury sport coupe that looks suspiciously like a Mercedes-Benz.
A lover of German automobiles who would probably have a Mercedes and a Porsche in his garage if he weren't president of Chrysler, Iacocca reportedly wants to develop a new small car in partnership with Volkswagen, in much the same way that General Motors and Toyota are cooperating to build a car in California. The VW Rabbit is already a close cousin of the Dodge Omni and Plymouth Horizon and some Omni-Horizon's have VW-built engines.
Volkswagen's Porsche and Audi divisions have been extraordinarly successful in exploiting the high-tech, high-ticket segment of the U.S. market, but VW's small cars have not exactly multiplied like Rabbits. But unlike Chrysler, VW has poured millions of deutschemarks into developing an ultra-efficient subcompact to replace the Rabbit.
Combining a VW-engineered subcompact with Chrysler's manufacturing, management and marketing know-how could create a car capable of knocking the Japanese out of the market.
But negotiating such a complex deal with the Germans while the U.S. government is monitoring his every move would be extraordinarily difficult, even for Iacocca. That may be the prime motivation for cutting Uncle Sam's apron strings as quickly as possible.
That fact is perhaps the most important success of the Chrysler bail out. Along with saving the company and the jobs of thousands of workers, the stringent loan guarantee package proved that government help does not have to lead to permanent federal participation in private enterprise.
Contrast the temporary Chrysler aid package with our permanent government farm programs or the endless subsidies to the maritime industry and the success of the Chrysler plan becomes even more apparent.
As Congress and the administration struggle to develop a national policy to aid industry, it is essential they incorporate the incentives to independence that lead Chrysler to buy back its freedom as fast as possible.