Chrysler Corp., which yesterday reported a third-quarter loss of $460.6 million, will be forced to file for bankruptcy unless there is the "firm prospect of help" from the federal government in the next two months, according to Treasury Secretary G. William Miller.
Based on this assessment, the Carter administration has decided to recommend within the next week that financial assistance -- guarantees for bank loans in an amount to be specified later -- be provided the automobile manufacturer.
"Public money would still be involved" in a bankruptcy -- unemployment compensation and aid to Detroit, among other items -- and helping Chrysler stay in business would be "a better way to use your money," Miller said.
The losses reported yesterday by Chrysler are the largest at any corporation for a three-month period in American history. The company has forecast a loss of $1 billion for the full year. Yesterday's figures brought the firm's losses for the first nine months of 1979 to $721.5 million.
Vehicle sales in the July-September period plummeted to 353,000 from 474,000 a year earlier, and Chrysler said "adverse factors will continue through the fourth quarter." [Details on Page E1].
Chrysler's bankers testified on Capitol Hill yesterday that they have loaned all the money they can to the company, especially since federal banking regulators have classified loans to the auto firm as "doubtful."
Further extensions of credit to Chrysler could open the door for suits against the banks by stockholders, alleging a breach of responsibilities to protect assets, said Manufacturers Hanover Trust Co. Chairman John McGillicuddy.
"A loan at this point on an unsecured basis to the Chrysler Corp. is not feasible . . . [but] we are not running away from Chrysler," McGillicuddy told a House subcommittee. He emphasized that banks in the United States, Canada, Japan and Europe already have loaned $4.8 billion to Chrysler or its automobile financing subsidiary.
Moreover, the New York bankr revealed, Manufacturers Hanover and other leading banks have agreed to participate in putting up $919 million of new credit to the financing subsidiary. Letters have been sent to 193 banks asking them to take part, and no rejections had been received as of yesterday, McGillicuddy added.
McGillicuddy and U.S. Trust Co. Chairman Thomas Killefer endorsed federal loan guarantee assistance to Chrysler as the only solution to an "extraordinary" economic crisis facing a major business.
But both bankers testified that the most recent request of Chrysler for $750 million of loan guarantees is probably inadequate, and suggested that $1.2 billion to $1.5 billion could do a better job.
A spokesman for consumer activist Ralph Nader's Congress Watch organization argued, however, that Chrysler is seeking "a billion dollars in welfare."
Attorney Howard Symons said Chrysler's banks have loaned money to the company at a level that is about 50 percent of their lending limits. "Why then does Chrysler need federal assistance? To what extent is a bailout of Chrysler also a bailout of Chrysler's banks?" he asked.
The National Association of Manufacturers also testified against aid to Chrysler. NAM Chairman John Fisher said it "would set the stage for further government involvement ranging from outright nationalization to subsidization."
Lining up in favor of aid to Chrysler yesterday were such disparate political voices as Sen. Edward M. Kennedy (D-Mass.) and former president Gerald R. Ford.
Kennedy added his support to a bill that would provide for loan guarantees, bringing the number of Senate sponsors to 10.
And Ford, speaking to reporters at the U.S. League of Savings Associations convention in Chicago, said, "There should be a federal prescription of some kind to give Chrysler temporary help." Ford represented a Michigan district in the House for many years before becoming vice president. The largest concentration of Chrysler workers is in that state.
In an interview with Washington Post editors, Miller emphasized that new management at the nation's third-largest auto company "will have to change their aspirations" about how extensive a line of vehicles they can produce.
And the federal government would become deeply involved in Chrysler management decisions, in exchange for proposed government guarantees of bank loans, Miller said. "No mergers or acquisitions could occur without our approval," and a special Treasury office would "get into major decisions," including what types of cars and components are to be produced at certain plants, Miller said of the administration's forthcoming aid proposal.