DID ANYONE EVER doubt that it would happen? The Chrysler Corporation's losses are looming larger than ever, and the conditions of federal aid are proving very difficult to meet. Chrysler is struggling to comply, but it's an open question whether it can achieve eligibility for aid before its deficits catch up with it.
When Congress enacted the Chrysler rescue bill last December, it offered $1.5 billion in loan guarantees. But the condition was that Chrysler would first have to raise $1.43 billion in unsecured loans. Congress felt that those who benefited from the bail-out -- Chrysler's employees, its banks, its suppliers, its dealers -- ought to help. Even at that time the requirement seemed like a bad idea. Its implications are now growing progressively darker. It means that Chrysler is desperately pressing every possible source for loans. The securities being offered the suppliers and dealers bear in their prospectus this uninviting notice, in bold type: "An investment in the debentures is highly speculative, involves a high degree of risk and should be considered only by persons who can afford a total loss of their investment."
If Chrysler can't raise the $1.43 billion soon, it will go under. But if it succeeds in raising the money, that will not ensure the company's survival. It only means that hundreds of large banks, small businesses, unions and individuals will have their own money at risk, compounding the social and financial damage of any eventual bankruptcy.
Meanwhile, the company's needs are rising. After the legislation was passed, Chrysler was able to find interim financing. But that's evidently getting harder. Chrysler originally expected to lose $500 million this year. Last month, its estimate was up to a range of $550 million to $650 million. Currently it foresees losses of $750 million.The chief reason is the severe impact of high interest rates.
But even the company's present forecast may be too low. A federal board has been set up to oversee the loan guarantees, and it issued its first report on Thursday. Automobile sales over the next two years are likely to be lower than Chrysler assumes, the board warned, and Chrysler's share of the market is running below its target.
Meanwhile, another agency, the Federal Trade Commission, has extracted from Chrysler an agreement to replace rusted fenders on some of its cars. That will cost perhaps $45 million. The liability had been anticipated in the company's planning, but it comes at an awkward moment.
Congress should never have tried to rescue Chrysler. But, having made that decision, it now needs to move fast to revise its conditions for that help. It would be very wise to reduce sharply the requirements for those hundreds of millions of dollars in unsecured loans. With a recession coming, it is simply wrong to push banks, union pension funds and small businesses into that kind of financial danger.