IT IS NOT the Chrysler Corp. that needs saving. It is the nation that needs to be spared the heavy economic and political burdens the bailout portends.
The bailout plan marks not only an appalling escalation of narrow, self-pleading politics, but the introduction of a baleful new political economy based on the illusions of single-entry bookkeeping. Nothing could be more inimical to reviving our ailing national economy or to wise congressional policy leadership in the future.
Out of a faltering economic network -- Chrysler and its suppliers, unions, dealers, creditors and a handful of cities -- there has emerged a prototype political strike force seeking an extraordinary legislative license. It wants authority to pirate massive credit resources from healthy sectors of the economy in order to preserve a collapsing production chain of foundries, assembly plants, dealerships and work forces that are no longer generating products consumers want to buy, at prices that will return a profit.
The rationalizations used to justify this unprecedented economic coup d'etat are embarrassing. The essential contention is that if Congress refuses Chrysler a loan guarantee, the whole Chrysler network would disappear down an economic drain: Plants would be scrapped, weeds would sprout in dealer lots, and 5000,000 employes would become wards of the state.
Fortunately, the economy actually operates on a double-entry bookkeeping system. Product brands, plant assets, supplier orders and payroll slots that regularly disappear from one side of the ledger almost always reappear in new, and usually more productive, forms on the other side. Abandoned gas stations become pizza parlors; electronics suppliers that once made TV components now make automotive parts; 80,000 former W.T. Grant employes now punch the clock at K-Mart and Woolworth'ss.
Now larger than the usual case, the $15 billion Chrysler employment and production network still represents only 0.6 precent of our gross national product. Even a "worst case" outcome -- the total liquidation of the Chrysler corporate structure -- would not add appreciably to the normal adjustment of resources in a $2.5 trillion economy, nor measurably reduce national employment and production after a relatively brief transition.
There are two reasons why this is so. First, it is final vehicle demand that drives the level of economic activity -- components production, assemblies, dealer operations, and employment levels -- in the auto sector. There is no evidence that total sales would be affected, Chrysler or no Chrysler. Second, the preponderant share of Chrysler-related production and employment would be shifted to other domestic suppliers, manufacturers and dealers.
Nearly a fifth of the Chrysler network's activity, for example, takes place after vehicles leave the factory gates. Regardless of whether Dodges are replaced by Chevys or Toyotas, they would still be shipped, sold and serviced by U.S. workers and firms.
Similarly, 15-percent of Chrysler's 1978 U.S. sales were imports, principally Japanese-made cars and trucks. Regardless of future sales arrangements, a Chrysler collapse couldn't cause any loss of U.S. employment in this area. Another 55 percent of Chrysler's domestic production consisted of trucks, recreation vehicles, vans, and medium- to luxury-sized cars -- a market sector where there is minimal import is heavily penetrated by imports, Ford, AMC, GM and Volkswagen North America could be expected to absorb 50 to 60 percent of Chryster's domestic production initially and even more eventually.
Indeed, if the small-car boom continues, GM undoubtedly will find ways to make more "X-cars." Similarly, Ford is likely to accelerate introduction of its new 1981 front-wheel-drive compact, and Volkswagen is certain to keep shipping the 300,000 Omni-Horizon engines it currently makes for Chrysler to someone -- possibly even to Volkswagen North America. Overall, then, not more than 20 percent of the Chrysler network's domestic output would be captured by foreign producers even in the initial period.
Thus the single-entry bookkeeping logic advanced by the Chrysler coalition cannot possibly enhance the national economic welfare. The true aim of the bailout plan is far different anyway -- and far narrower.
Rather than maintaining or adding to the nation's GNP, its major effect would be to prevent financial losses to components of the Chrysler network itself -- while also preventing gains, naturally, to the many who would benefit on the other side of the ledger. But dragging this unending struggle over equities and income shares among regions, firms, workers and investors into the national political arena for ad hoc adjudication can only engender wildly inflated claims and essentially arbitrary indemnities.
The major permanent capital loses would accrue to holders of financial assets -- bankers, stockholders and dealer franchise owners. Yet thousands of similar investors write down billions each year in assets gone sour. Why should this particular set be singled out for indeminification?
Similarly, some suppliers would be hurt, but many have customers outside the auto sector and most do business with other domestic auto manufactures. Indeed, Chrysler's third largest supplier is GM, and Chrysler orders account for less than 5 percent of the total business volume of its other major suppliers. The scrappy firms that produce foundry products and electronic components understandably desire surcease from their constant hustle for new orders. But their capacity to survive and drum up new business is also well demonstrated.
Even at the dealer level, the loss would not be total. A significant portion of Chrysler dealers handle other makes; most, along with their employes, are presumably skilled at selling and servicing cars regardless of brand name; and a high fraction own valuable commericial real estate entirely separable from the franchise.
The longer-term prospects for Chrysler's 120,000 direct employes are not entirely bleak either. Nearly two-fifths are white-collar, supervisory or skilled production workers with strong prospects for re-employment. Another 22,000 are employed at modern, efficient plants like Belvidere or New Process Gear, or at strategically located plants like Newark, with good prospects for a new owner. Even the 50,000 hourly employes in the Detroit area represent less than 20 percent of total auto employment in the metro area -- or about 30 months of normal auto plant turnover due to quits and retirements.
To be sure, during the transition period there would be substntial temporary unemployment within the Chrysler network. And after the shake-out, there would be thousands of premanently "orphaned" workers formerly employed at Chrysler plants for which the economy could find no alternative productive use -- as in the case of Youngstown's Campbell Works closure.
But nearly every Chrysler facility has already been certified for the full trade adjustment assistance package. This will guarantee every production worker 95 percent of aftertax take-home pay for a year, free retaining benefits, and 80 percent of any job search or relocation expenses.
Vested pension rights, of course, are also protected by the federal pension guarantee program. In short, the support system goes about as far as possible in protecting worker equities -- short of freezing the economic system into lifetime employment guilds.
Ironically, in yet a further twist of single-entry bookkeeping, the prospective costs to these support systems are offered as justification for the bailout. But with 137,000 auto workers already on lay-off, it would be fatuous to count Chrysler benefit payments as a net cost to the government. The shift of billions worth of Chrysler production to other U.S. firms obviously would cause reemployment and benefit cost reductions elsewhere..
moreover, our basic labor market shock absorbers -- unemployment insurance, job training and adjustment assistance -- were created for just these situations out of a recognition that it is more cost-effective to help workers find new jobs than to prop up old ones. Each year hundreds of thousands of employes faced with permanent job losses due to plant closures, bankruptcies, production curtailments and import competition use these systems. Indeed, the temporary unemployment resulting form just six better-known bankrupticies of recent years -- including W.T. Grant, Food Fair, American Beef and United Merchants and Manufacturers -- exceeded the entire Chrysler payroll.
Perhaps recognizing their weak economic logic, Chrysler advocates have also resorted to a stupendous series of nonequiturs. For example, they point to the $362 billion in existing federal loan guarantees, as if to suggest they are proposing "nothing new." Eighty five percent of that total, however, represents housing guarantees designed to enhance consumer access to ownership, not to bail out faltering lenders or builders.
This merely hints of the potential for debasing the legislative process implicit in corporate bailout politics. Indeed, much of the selling job has consisted of contradictory appeals to wholly extraneous idealogical symphaties of the left and right.
For conservatives, there is the reminder of "regulatory overkill." Yes, pending safety, emission and fuel-economy requirements will add upwards of $1,000 per car by the early 1980s for what many of us consider modest social benefits. But that figure represents the total sticker price add-on to the consumer, not the extra cost to Chrysler via-a-vis its competitors.
Chrylser's smaller size is only disavantage inpure research and development overhead, where roughly equal costs must be spread over smaller volumes. But most of the actual compliance price tag is accounted for by manufacturing costs -- labor, materials and capital amortization -- items on which the nation's 14th largest corporation should be competitive, if it's still viable.
At best, Chrysler true regulatory compliance disadvantage is not likely to exceed $70 per car even during the peak years. This cannot begin to account for its nearly $700 per vehicle loss this year. Nor does it explain why, with its cash registers having wrung up $65 billion in sales since 1974, its comulative bottom line is a net loss of nearly $65 million.
Liberals are implored to vote for the loan because Chrysler employs 50,000 workers in Detroit, 50 percent of whom happen to be black. Chrysler's survival as a full-line auto maker thus becomes a major "urban issues." Needles to say, though, at the new contract's $25,000 total annual compensation level, these workers are not exactly among the normal poverty constituency.
The more important point is that potential demise of Chrysler jobs in Detroit constitutes only a modest footnote to a pervasive, seemingly irreversible economic trend that is progressively extinguishing heavy industrial jobs in the older central cities. Neither a Chrysler bailout nor a dozen future ad hoc corporate bailouts would alter the underlying competitive disadvantages -- obsolete multi-story plants, high tax, pollution control and land costs, inadequate transportation facilities -- or slow the march of heavy industry away from central urban areas.
What those areas really need is help in attracting jobs outside the heavy manufacturing sector. And if federal resources are to be committed, they would be far better spent on helping low-income workers acquire access to new manufacturing jobs in growth areas rather than on indemnifying high income investors in declining areas.
When all else fails, the Chrysler sales pitch finally comes down to a dare: After the "success" of Lockheed, why not roll the dice again? Never mind what the entire capital market has already voted "no on Chrysler's survivability as presently constituted. This includes the bond market, which has dropped Chrysler to its lowest rating; the huge money center banks with high-risk loans all over the globe and into Chrysler for $1.5 billion already; the big insurance companies holding huge additional loans; and the commercial paper market, which won't by at any price.
All these institutions live or die by their capacity to assess credit worthiness. Yet assurances that Chrysler's Lee Iacoca is a management dynamo or that Chrysler's pending "K-body" vehicle will be a smash hit -- when most of us wouldn't recognize a K-body if we saw it nude -- are supposedly enough for the "standby banker" on Capital Hill.
Unfortunately, this "get them over the hump" assurance fails to note what lies on the other side: a radically transformed and fiercely competitive auto market in which the globe rather than the continent will be the stage. Rising fuel prices and federal standards are forcing down the size, weight and horsepower dimensions of the U.S. fleet, while rising incomes abroad are increasing the demand for traditional U.S. staying and accessories. From this convergence is coming the so-caled "world car," of which the Ford Fiesta, GM Chevette and Volkswagen Rabbit are the prototypes.
Moreover, this protoype world car is indexorably generating a prototype worldwide auto firm: a far-flung multinantional enterprise with plants in many countries, world-wide sourcing of increasingly standardized components, and the ability to spread design and marketing overhead over huge international sales volumes.
Ford, the acknowledged leader in this process of globial integration, already sells more cars in Europe than Chrysler does in total. GM is racing to catch up overseas, and Volkswagen is already turning out 1,000 cars a day here and looking for a second plant. Nission is expected to announce shortly a similar intent to seek North American production, and Toyota can't be far behind.
That the major capital market institutions have pulled the plug on Chrysler may well reflect these emerging trends. With no remaining overseas operations and most of its production concentrated in one U.S. metropolitan area, in plants built more than 40 years ago, Chrysler is simply not well positioned to survive the automotive major league of the 1980s.
In the final analysis, the Chrysler loan guarantee must be rejected because the ear of bailout politics it would inaugurate is throughly incompatible with an effective national program for reindustrializing America's faltering economy.
Recent irreversible worldwide developments have dealt economy successive shattering blows. The oil price revolution has drastically reduced the productivity of much of our energy-intensive industrial plant. In the last decade, better than 90 percent of new steel, aluminum and other basic industrial capacity has been built outside America. Since 1968, the combined GNP of the nine most vibrant exonomies of the Far East has risen by a staggering $1 trillion, unleashing a flood of auto, steel and textile exports on the world market.
The fundamental "retooling" our economy needs to meet these challenges will require both a drastic increase in the rate of capital investment and maximum efficiency in its allocation. There simply isn't enough to squander on the walking wounded in this case -- or for the scores of future claimants it would generate.