The government's decision to auction off its rights to 14.4 million shares of Chrysler Corp. stock could stifle the resurgent company's return to financial health, a ranking Chrysler official warned yesterday.
The decision by the Chrysler Loan Guarantee Board to sell its rights--called warrants--could lead Chrysler's unions, bankers and suppliers to make their own demands on the auto company, Chrysler Vice Chairman Gerald Greenwald told a house subcommittee.
Those demands in turn could divert money from product and plant investments Chrysler needs to gain lasting health, Greenwald said in testimony before a House banking panel, which began a two-day hearing on the status of the domestic auto industry and the shaping of a national industrial policy. He said the government's decision to sell the Chrysler warrants "is clearly setting the wrong example" of how to implement such a policy.
By agreeing to grant Chrysler $1.5 billion in federal loan guarantees in 1979, the government indicated it believed "that Chrysler and the 500,000 jobs it represented were worth saving," Greenwald said. He argued that the only reason the government demanded the warrants was because, "They were saying: 'We're going to make it so difficult and so painful for you that no one will ever come back and ask for this kind of aid again."
U.S. Treasury officials contend, however, that a deal is a deal.
The deal in 1979 was that the government got the rights to 14.4 million shares of Chrysler stock. Each warrant allows the holder to buy one Chrysler common share at $13 each by 1990.
Chrysler stock, which was worth $5 when the warrants were issued, closed at $28 5/8 yesterday and its warrants were selling at $17 1/2. The government could exercise the warrants, buy the stock, and realize a profit of more than $250 million. But for the Loan Board to exercise the warrants, Congress would have to authorize spending of about $187 million, and there is no assurance Congress would do that.
"We're doing the fairest thing we could do, offering the warrants on the open market. The highest bidder will get them. We'll get a fair return. It's a fair deal for Chrysler and the taxpayers," a Treasury spokesman said.
In what Greenwald admitted yesterday was a bad move, Chrysler asked the government to give back the warrants. When that was rejected, the company then offered $250 million for them, which Greenwald said would have given the government what amounts to a 22 percent profit on the $1.2 billion Chrysler drew from the $1.5 billion loan guarantee. The advantage to Chrysler, Greenwald explained was that the warrants would have been taken out of circulation, strengthening Chrysler's position in private lending markets.
Greenwald suggested that, instead of selling the warrants as is, the government speed up the expiration so the warrants will have to be exercised in six months rather than seven years.