Chrysler Corp., seeking to stay eligible for a vital infusion of government-backed loans, is proposing to cut costs by a further $1.5 billion next year by freezing wages and through price cuts by suppliers and concessions by creditors, according to informed sources.
Chrysler is expected to submit the new version of its 1981 operating plan to the government's Chrysler Loan Guarantee Board next Friday, hoping for fast approval of between $300 million and $400 million in guarantees, sources said. The company needs the new funds within a few months to keep from running out of cash, sources say, and Chrysler officials are pushing hard to obtain the money before the Reagan administration takes office on Jan. 20.
The new cost reductions that Chrysler is planning will help its case with the loan board, but they are almost certain to produce protests from the United Auto Workers and Chrysler's suppliers, who have already made economic concessions to help bring the company this far in its struggle to survive.
Whether the employes and suppliers will approve Chrysler's new plan in time to enable the company to draw down the new guaranteed loans before Jan. 20 is not clear.
Douglas Fraser, president of the UAW and a member of Chrysler's board of directors, said yesterday that the question of new wage concessions by union members had not been raised at Chrysler's most recent board meeting Wednesday. If the issue does arise, he added, "one of the things we could say is, 'Go elsewhere first this time. We were first last time.'" Wage and pension concessions by the UAW so far amount to $460 million, the union says.
Sources said Chrysler directors were not given the details of the new 1981 operating plan because it was not then completed.
UAW members will be asked to give up all scheduled cost-of-living and other raise for 1981, a concession worth $250 million to Chrysler, sources said.
Chrysler's 20,000 suppliers will be asked to contribute an additional $350 million by freezing the prices they now charge for metal, parts, tires and components. These prices would be cut 5 percent during the first three months of 1981, then maintained at the current levels through the balance of the year, according to Chrysler's plan, sources said.
Chrysler officials also plan to reduce 1981 costs $500 million to $700 million by canceling plans for future products. Chrysler has already announced it will not produce a heavyduty transaxle for 1984 model vehicles, and other production actions are expected. Chrysler officials say the cutbacks will not affect 1981 through 1983 vehicles.
The company yesterday asked representatives of 100 creditor banks to convert about $500 million in existing unguaranteed loans into preferred stock, according to the Associated Press. In effect, that would permit the company to keep paying interest on the debt while foregoing payment on the principal.
Chrysler vice president Wendell Larsen, the spokesman on loan guarantees, would not confirm or deny the reports of the new 1981 operating program.
A plan will be presented to the loan board next week that will show how Chrysler can remain a going concern and return to profitability by the end of 1983, as the congressional loan guarantee requires, Larsen said. The plan "has to be irresistible," he said.
Part of the company's haste in seeking approval of new guaranteed loans arises from concern that the Reagan administration might be less sympathetic to its plight, company sources said.
President-elect Ronald Reagan said during the campaign that he supported the Chrysler loan program. Reagan's choice to head the Office of Management and Budget, Rep. David Stockman (R-Mich.), predicted the new administration would look "very carefully" at the conditions Chrysler is required to meet under the law to remain eligible for government aid.
Even if the new administration is disposed to continue aiding Chrysler, it would take weeks for Reagan's appointees to the Treasury Department to master the complicated financial issues, forcing the company to wait until March or April for the next loan installment, Carter administration officials note.With auto sales deeply depressed by high interest rates, the company cannot wait that long, these officials say.
Chrysler has drawn down $800 million of the $1.5 billion in guaranteed loans authorized by Congress a year ago. The funds have provided Chrysler with essential working capital unavailable anywhere else because banks are unwilling to lend to Chrysler unless the government guarantees repayment. Chrysler, in turn, has pledged vehicles from its inventory, equipment and other assets as collateral for the loans.