Big Three Rescue Part 2 -- Let's learn from Chrysler 1979

I am hopeful that my proposal for government-guaranteed loans and credit lines for the Big Three, in exchange for the meaningful structural changes, will soon become reality.

Without knowing it, I was in some ways recounting what happened under President Jimmy Carter in 1979 with Chrysler. Check out this wonderful article from Time Magazine’s archives:,9171,947356-1,00.html

To summarize,
  1. The government guaranteed loans to Chrysler totaling up to $1.5 billion
  2. Chrysler had to secure another $1.43 billion in private financing at reduced rates from banks
  3. Chrysler had to gain concessions from suppliers on cost and financing
  4. Chrysler committed to $462.5 million in concessions from the company’s union employees, plus another $125 million from salaried workers.
  5. Chrysler shed unattractive assets (wholly owned parts and components factories), cut the workforce.
  6. The US government also extended the deadline by two years for Chrysler to meet C.A.F.E. requirements.

As referenced in the above article, the Holy Grail was the K car platform. Since I drive one, a 1986 Plymouth Reliant to be exact, I am obviously a big proponent. The K car was under development and would lead to over 10 million vehicles produced off of one platform. The first minivan was derived from the K platform.

The other point made in the article was the charismatic sales leadership of Lee Iacocca. But the substance of the turnaround was both operating changes, AND new great product. Iacocca had to fire thousands of managers and salaried staff. The UAW leadership begrudgingly agreed to concessions. While many suppliers initially balked at the concessions required by the company, they all eventually agreed. Finally, the U.S. banking system, 442 lending institutions, agreed to terms which led to Chrysler accessing the loan guaranteed by the U.S. government.

As I have argued, a radical restructuring must take place.

The other point which cannot be forgotten is that we must stimulate demand. Iacocca did it through pragmatic patriotism. I don’t know if patriotism will work this time around.

Also remember, Chrysler benefited from falling interest rates and a rebounding economy.

Oh, and yes, President Ronald Reagan imposed a “voluntary” restriction on Japanese imports. It may be wise for President-elect Obama to consider that as well for 2009.

I believe some intelligent form of "buy American" -- I have suggested Tax Credits but another idea is more than welcome -- is necessary. Comments welcome!


Unknown said…
I agree that bold moves are required but I wonder whether you go far enough. Personally, I think we need to question some of the fundamentals and whether it is in our best interest in having them exist in a form that even resembles the present. Let me explain my thinking.

1) Is there an argument that an automobile company benefits from efficiencies of scale like they use to - design, manufacturing, distribution, marketing, et al. I would suggest the model may be better off if it is broken up. Their present structure doesn't allow for enough innovation - let alone the speed of innovation required to thrive in today's environment.

2) If we all agree that climate change and energy independence is at a tipping point and should be a driving focus of whatever happens with the big 3 (let alone other industries), than we should break the industry's dependance on the internal combustion engine. Remember, Honda strategically considers itself an "engine company". They want to put 4 engines in each home. It doesn't really matter what they wrap around it. That is the mindset of the auto industry and why the Prius is not really a hybrid.

3) In the end, any restructuring and the accompanying investment should be spent for the long-term, as you rightly point out, but should be the bridge loan to the new structure. Personally, I think a managed bankruptcy that breaks up the assets that exist so that they can be used more efficiently and in a different way makes sense. Imagine the power of giving the assets to brilliant entrepreneurs to figure out what the next best use of the asset is. Here is a high-tech factory, labor force, etc. and seed funds (serious seed funds) - what would Steve Jobs do with it? What if you or I were given that chance. One hell of a fun challenge. Sure, about half of the experiments might fail but that would not be worse than the present situation.

4) If that all sounds too radical, then maybe we let one of them (my vote is GM) go under and support the other two. That way they get more market share (or we help them do that) that helps them with their volume issues in the short term. In return, they have to make your suggested structural changes. Hey, we let Lehman fail and the crisis isn't any worse from it.

In the end, this is the time to make a huge investment in new ideas and leverage the existing assets and investments - not perpetuate old models that were right for an economy that no longer exists.
Craig Daitch said…
I don't think I could have penned a better response than Don's. I actually like the idea of GM taking the C11 burden while allowing Ford and Chrysler to breath. I'm sure Rick Wagoner would argue otherwise.

One quick comment - I know there's a lot of discussion over consumer confidence in a bankrupt car company. I think in times where their brand equity was sky high, this would be an obvious concern. Today's world, and their perception of the Big 3 is drastically different. Would a bankruptcy deter prospective buyers? Not when the product is as bad as it has been. I say use the bankruptcy as a means to correct the UAW relationship, right the ship, and build better, smarter products with less brand engineering.
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