Now that the Reagan administration has decided to make Chrysler Corp. keep its word and to cash in its warrants to buy Chrysler stock, it's time to face two more tough questions: what to do with the money and how to handle the deal.

The government stands to make something like $300 million in profits on warrants it got from Chrysler in return for guaranteeing the automaker's debts. Two possible uses for the cash have come up, neither with much to recommend it.

The profit from the Chrysler bailout certainly shouldn't be used to bail out the Reagan administration by reducing its budget deficit. That's what will happen to the cash unless Congress finds a better solution.

The Reaganauts didn't create the Chrysler loan guarantee program, probably wouldn't have endorsed it if they had been in office at the time, and shouldn't get the benefit of a reduced deficit as a result of Chrysler's recovery.

A group of House Banking Committee members wants to give the money back to the auto industry by using it to retrain unemployed auto workers. "It makes eminent good sense to us to use the 'rescue fee'--as the warrants may be viewed--to help those people who will give up the most in the industry's transition," urged the 19 House members, most of them Democrats.

Not surprisingly, United Auto Workers President Owen Bieber quickly endorsed the idea, saying it is "appropriate that the payoff on that investment be directed to the maximum social good . . . there is no clearer area of need than the workers laid off."

The auto workers' claim on the Chrysler profits is only marginally better than that of the Reagan administration. There are conservative economists and auto industry analysts who will tell you that the workers are one of the reasons Chrysler almost went under. High wages and poor productivity certainly made it harder for the auto industry to compete with imports.

More importantly, it wasn't the auto workers who guaranteed Chrysler's debts, it was all the U.S. taxpayers. The taxpayers have done enough for the auto industry already--saving the jobs of thousands of Chrysler workers, paying higher prices for cars as the result of voluntary quotas on Japanese exports and paying higher repair bills because bumper standards were rolled back to save the automakers a few bucks.

A far better case can be made for recycling the Chrysler profits. Using the cash in much the same way that Chrysler was helped, the $300 million could finance loan guarantees for other troubled companies in ailing industries. Admittedly, $300 million is not a lot of money, but the success of the Chrysler loan guarantee suggests that big-bucks bailouts are not essential to the nation's emerging industrial policy.

A government commitment--backed by even $300 million in cash--could, over time, create jobs in emerging industries such as biotechnology and solar energy as well as aid industries-in-transition.

How best to realize the government's profit on the Chrysler loan warrants is another vexing issue. Chrysler executives have wasted so much political capital arguing against the government's right to its profit, that no one is paying attention to their legitimate concerns about the plan to sell the warrants to the highest bidder.

Chrysler Chairman Lee A. Iacocca warns that his company's long-term financial strength will be hurt by sale to the public of warrants to buy 14.4 million shares of Chrysler stock at $13 a share any time in the next seven years. The warrants will become a loose cannon in the stock market, capable of blasting the price of Chrysler shares any time anyone pulls the lanyard.

Wall Street brokers, counting on earning themselves a healthy underwriting profit and years of commission income from warrant trading if there is a public sale, object to selling the warrants back to Chrysler.

If that can't be done, Iacocca suggests accelerating the warrants' expiration date to reduce the overhang on the market. Surely there must be some way to prevent the warrants from becoming a gun at Chrysler's head.