The Carter administration asked Congress yesterday to approve up to $1.5 billion in loan guarantees to keep the Chrysler Corp. from going bankrupt -- a doubling of its earlier offer and a record bailout for an American corporation.
As outlined by Treasury Secretary G. William Miller, the plan was proposed with strings attached.
Chrysler would have to raise another $1.5 billion from private sources before any loans would be guaranteed, and the government would have powerful leverage over the company's operations, including a right to demand management changes.
Although the Chrysler rescue plan is the most dramatic development in a recent trend toward governmental propping up of the country's shrinking manufacturing sector, Miller said it was a "unique situation" that does not portend a policy of more government intervention.
While the congressional outlook remained uncertain, Chrysler's supporters said they were encouraged, and committees in both houses moved to expedite consideration of Chrysler aid legislation.
Chrysler Chairman Lee Al Iacocca hailed the plan as "good news" and a "vote of confidence we needed." The United Auto Workers union indicated it would consider additional concessions to help Chrysler raise the $1.5 billion in matching funds. Security analysts said the No. 3 automaker, despite its staggering $460.6 million third-quarter loss announced earlier this week, could probably expect to come up with the necessary matching funds.
In explaining the plan, Miller said the administration agreed to go above its earlier $750 million target figure for Chrysler aid after government and corporate consultants indicated the company's need was greater than anticipated last summer.
It is essential, Miller said, that any aid program "be sufficient to achieve the purpose" of keeping Chrysler afloat, rather than only postponing "the day of reconing." To be successful, he said, a plan had to encompass $3 billion in publicly guaranteed as well as privately raised funds.
Chrysler originally asked for $1 billion in tax credits, later converting the request to $1.2 billion in loan guarantees, only to be rebuffed by Miller, who told the company to trim it "well below $1 billion."
Last month Chrysler submitted a scaled-down plan for $750 million in loan guarantees, tailored to what was viewed then as the administration's outer limits. The $750 million limit ran into criticism from the UAW and others who contended it was insufficient to save the company.Meanwhile, Congress was going ahead with consideration of its own proposals, some of which totaled $1.5 billion in guarantees.
Under loan guarantees, a company borrows from a private bank and the federal government assumes responsibility in the event of a default.
The Chrysler loan guarantee would far exceed the controversial $250 million in bank guarantees Congress approved by slim margins for the Lockheed Corp. in 1971, although the government has undertaken billions of dollars in loan guarantees for a variety of other enterprises over the years.
As with the Lockheed loan, the government would have first claim on Chrysler's assets in case of bankruptcy, with one important qualification. The administration bill would permit the Treasury secretary to waive the government's first-priority claim but only if such a move becomes "necessary" for Chrysler to raise its matching funds and if there is still a "reasonable prospect of repayment."
The administration plan also bans payment of stock dividends unless it is necessary to get matching funds. Chrysler announced yesterday it was deferring payment of a fourth-quarter dividend on the company's preferred stock as well as omitting its common stock dividend, as expected.
As another condition for loan guarantees, Chrysler would have to submit to the government a "satisfactory operating plan" each year through 1983, when the company expects to get back on its feet.
The Treasury secretary would be empowered to demand management changes if he "determines that the inability of the corporation to obtain credit without a guarantee under this act is the result of a failure on the part of management to exercise reasonable business prudence . . . "
The administration proposal does not tell Chrysler where to get its $1.5 billion in matching funds. But Miller, in a letter on the plan to President Carter, said it would come from "a combination of asset dispositions, financing contributions and other concessions from persons with an economic stake in the company."
Miller described possible sources as including the UAW, banks, creditors, suppliers, dealers, local governments, states, stockholders and possibly Canada, where Chrysler has some plants. The commitments would have to be new since Oct. 19, when Chrysler submitted its second rescue plan.
The UAW has made $403 million in economic concessions to the company, about half of which could be charged against the matching-fund account, union officials said. In praising the administration proposal, UAW President Douglas A. Fraser ruled out changes in the union's recently negotiated contract with Chrysler, but said the union is "willing to listen" to proposals about its pension and strike funds.
In asserting the administration's rationale for Chrysler aid, Miller said collapse of the nation's 10th largest company could trigger "substantial unemployment and economic disruption," with costs "more onerous to our country than the risk of loan guarantees."
He urged Congress to speed action on the proposal, saying a delay until next year would be a "substantial set-back."
There has been speculation that creditors may begin closing in on the company unless a bailout is assured soon.
The House Banking subcommittee that is considering Chrysler aid proposals scheduled Miller to testify next Wednesday, with hopes of completing a markup by Friday. Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) said the House will complete action this year. In the Senate, Banking Committee Chairman William Proxmire (D-Wis.), although a critic of Chrysler aid, set hearings to start Nov. 19. (