Big Payoff

A Chrysler jackpot for the U.S.

Whatever its other economic failings, the Federal Government is normally not guilty of reckless stock market speculation. Nonetheless, Washington gambled on a very long shot a few years back and now stands to make a $200 million killing in Chrysler stock. The story begins in 1980, when a $1.2 billion loan-guarantee package was being assembled to save Chrysler from bankruptcy. The Chrysler Loan Guarantee Board, which had been set up by Congress, demanded that the Government be given the right to buy, at some future time, 14.4 million shares of Chrysler stock for $13 a share. No one outside Chrysler thought much of that condition then because the stock was selling for about $5.50 a share and the company's prospects were not exactly bright. In fact, the clause was included only to make the loan deal more palatable by holding out the possibility that the Government would benefit from Chrysler's return to health, if that ever happened.

But three years have made quite a difference. Chrysler stock is now $27.50, and the Government could clean up if it exercised its right to buy the shares. Therefore, Chrysler Treasurer Frederick Zuckerman last week appeared before the Loan Guarantee Board in Washington and asked the Government to forgo its right to buy the stock. The company, which two weeks ago announced that it was about to repay $400 million of the Government-guaranteed loans, argued that it would have to float a new stock issue to provide the shares for the Government. The result of that action, Chrysler claimed, would be to dilute the value of its existing shares by nearly 13%, which would affect all shareholders, including company officers with large stock options, who feel their reward for turning the company around would be diminished. The company also pointed out that it has already paid the Government $30 million in fees for the loans.

Chrysler critics, though, were many and loud last week. "Outrageous," said Kenneth McLean, staff director of the Senate Banking Committee when Congress passed the loan agreement. Said David Healy, an auto-industry analyst with Drexel Burnham Lambert: "They're trying to change the score of the game after it's over."

After the stock controversy blew up, embarrassed Chrysler officials quickly tried to down-play the whole episode. Said one: "It's a messy issue. We are not being shrill or overreaching. But there you are with the spotlight on, your hand's in the cookie jar and everybody's pointing fingers." Late in the week the company announced that it was no longer requesting that the Government drop its right to buy the stock. This file is automatically generated by a robot program, so viewer discretion is required.