Putting Brakes on a Bailout

While Congress grows wary, bankers and workers may balk

The deal seemed all set when Treasury Secretary G. William Miller declared early in November that the Administration was, after all, prepared to back a $1.5 billion rescue fund for Chrysler. But now the outlook is a lot less sure. Opposition to Government aid is gaining ground, not only in Congress but also among the company's own bankers.

Last week the Senate Banking Committee upset the carefully stacked apple cart when it voted 10 to 5 not to approve the Administration's bill. That would have given $1.5 billion of federal loan guarantees, if the company managed to raise a similar amount of nonguaranteed loans. Both liberal Democrats and conservative Republicans on the committee concluded that this plan was too soft and generous; it did not ask for any specific financial sacrifice from workers, dealers, suppliers, shareholders and bankers.

So the committee instead wrote and approved a much tougher bill. It offers Chrysler federal guarantees of $1.25 billion and demands, as a firm precondition, major concessions from all who stand to benefit from the company. It also seeks the creation of an employee stock ownership plan, which some Senators are promoting as a way to give workers a stake in their firms and share in profit growth. But, following Inflation Fighter Alfred Kahn's earlier attack on the "outrageous" United Auto Workers' wage settlement with Chrysler, the committee's most contentious call was for a three-year wage freeze. Potential saving to the company: $1.32 billion.

The bill now goes to the full Senate, where it will face some fierce lobbying. Douglas Fraser, the president of the U. A.W. and a director-elect of Chrysler, protests that a wage freeze is ridiculous. Still, the freeze seems to have a good chance of passing. Even if it fails, the Senate bill will differ markedly from the Administration-designed aid package soon going before the House. There is not much time to resolve the differences. Congress aims to recess by Dec. 21, and probably will not convene before Jan. 22. Chrysler has warned that if it does not get aid by St. Valentine's Day, Feb. 14, bankruptcy will strike.

The two bills also require the company's banks to make additional unsecured loans on top of any federally guaranteed funding. Some bankers are unwilling to pour more good money into Chrysler. "There is a reasonable chance that loans might not be repaid," warned Citibank's chairman Walter Wriston.

The company's 102 lenders fear that if guarantees are granted, but Chrysler still goes bankrupt, federal law requires the Treasury to have a first claim on its assets. Probably not enough money could be raised from selling off its plants and other assets to cover both federally guaranteed loans and Chrysler's burdensome debts. So if Chrysler slid into bankruptcy --a real possibility because its survival plan depends not only on federal guarantees but also on many optimistic projections--the Government would grab most or all the assets.

The Treasury has managed to get into both congressional bills a clause waiving the Government's right to be first in line at the assets trough, at least for new loans. But opponents to a Chrysler rescue intend to submit amendments rejecting this waiver. Since they would protect taxpayers' funds, the amendments stand at least some chance of passing, particularly with an election coming next year.

Congressmen may have found a novel way out of their political problem of whether or not to support aid. Everyone who feels pressure to vote for a bailout may now be able to do so with a clear conscience that the Federal Government would never have to risk a cent. If an aid bill is passed with the provisos that the Treasury has first grab at assets and the U.A.W. must agree to some form of wage freeze, the blue-collar workers and the blue-flannel bankers may refuse to play ball. Then this package would collapse, and all parties would have to grope and hope for some new compromise, while the nation's tenth largest manufacturer would roll closer to the cliff.

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