Dressing Up a Merger Partner

With $400 million in new loans, Chrysler seeks a suitor

Another chapter in Chrysler's struggle for survival was concluded last week, when the Government's Loan Guarantee Board gave preliminary approval to an additional $400 million in federally backed loans for the automaker. This time there were fewer of the reassuring promises that Chrysler can remain an independent automobile manufacturer. Instead, the latest negotiations stressed the need to make the nearly insolvent company a more attractive candidate for partnership or takeover. Company Chairman Lee Iacocca called the agreement a "super deal" that could bring "several suitors out of the woodwork."

Outgoing Treasury Secretary G. William Miller was the leading makeup artist trying to beautify the corporate wallflower. Just as President Carter negotiated against the clock for the release of the American hostages, Miller was pushing Chrysler's bankers, union and suppliers into a deal before the end of the Carter Administration. Reluctantly, they all agreed.

Miller persuaded representatives of Chrysler's 150 lenders, mostly banks, to wipe out the company's $1.1 billion in private debt; more than half of the outstanding loans will be converted to preferred stock, and the remainder can be paid off at the rate of 30-c- on the dollar. Miller also helped talk the United Auto Workers into what Union President Douglas Fraser called "the worst economic settlement we've ever made." The U.A.W. leaders accepted $622 million in additional wage concessions in exchange for a package of noneconomic gains, including a blue-collar profit-sharing program. But Fraser pointed out that "the only thing worse is the alternative, and that is having no jobs." Finally, Chrysler's suppliers will agree to $72 million in price cuts. The total package will reduce the company's yearly operating costs by $500 million.

In addition to the good news from Washington, Chrysler has recently received encouraging reports from the marketplace. During the first ten days of January, sales rose by nearly 5% over the same period a year ago. By comparison, General Motors' sales dropped by 17%, and Ford's sank by 33%.

Iacocca has long anticipated the need for a consolidation of the world's auto companies, and first floated the idea of a "Global Motors" to bankers in 1978. But his company has had little luck finding a partner. Volkswagen backed away from a deal nearly two years ago; France's PeugeotCitroen and Japan's Mitsubishi, with whom Chrysler already has business ties, have shown little interest.

Chrysler's problems, though, are only part of the whole American auto industry's troubles, as outlined in a report released last week by departing Transportation Secretary Neil Goldschmidt. The report warns that the Japanese will continue to win a greater share of U.S. sales because of lower labor costs, superior productivity and better business-government relations. Goldschmidt, for example, suggests that Ford may one day be forced to move most of its production overseas, which would severely injure basic U.S. industries like rubber and steel.

Goldschmidt's solution to the automakers' problems is for the U.S. to adopt some of the Japanese techniques. He says that the Government, management and labor should cooperate to cut manufacturing costs and increase profits through such measures as relaxed antitrust laws and slower and smaller wage increases. To buy time for this new effort, Goldschmidt proposes that Japanese auto imports be restricted for the next five years. He gloomily predicts that otherwise only General Motors will survive as a made-in-the-U.S.A. auto manufacturer.

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