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What Was The Chrysler Bailout?

Political History

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The year was 1979. Jimmy Carter was in the White House. G. William Miller was Treasury Secretary. And Chrysler was in trouble. Would the federal government help save he nation's number three automaker?

Just before my birthday, in August, the deal came together. Congress, of course, had yet to approve the $1.5 billion loan package, the Chrysler Corporation Loan Guarantee Act of 1979. From Time Magazine: 20 August 1979

The congressional debate will resurrect all the arguments for and against giving federal aid to any company. There is a strong case that such help rewards failure and penalizes success, puts a dull edge on competition, is unfair to an ailing company's competitors and their shareholders, and inexorably leads the Government deeper into private business. Why should a huge company be bailed out, say critics, while thousands of smaller firms suffer bankruptcy every year? Where should the Government draw the line? GM Chairman Thomas A. Murphy has attacked federal help for Chrysler as "a basic challenge to the philosophy of America." ...

Supporters of aid argue with passion that the U.S. cannot afford the failure of a company that is the nation's tenth largest manufacturer, its biggest builder of military tanks and one of only three major domestic competitors in its supremely important automotive industry

Economist John Kenneth Galbraith suggested that taxpayers be "accorded an appropriate equity or ownership position" for the loan. "This is thought a reasonable claim by people who are putting up capital."

Congress passed the bill 21 December 1979, but with strings attached. Congress required Chrysler to obtain private financing for $1.5 billion -- the government was co-signing the note, not printing the money -- and to obtain another $2 billion in "commitments or concessions [that] can be arranged by Chrysler for the financing of its operations." One of those options, of course, was reduce employees wages; in prior discussions, the union had failed to budge, but the contingent guarantee moved the union.

On 7 January 1980, Carter signed the legislation (Public Law 86-185):

This is legislation which ... shows in vivid terms that when our Nation does have a genuine pressing economic problem, that my own administration and the Congress can act expeditiously...

The loan guarantees will not be made by the Federal Government unless the other contributions or concessions are given to Chrysler by its own owners, stockholders, administrators, employees, dealers, suppliers, foreign and domestic financial institutions, and by State and local governments. It's got to be a package deal, and everyone understands this. And because they have already probed for the best possible interrelationship to form a team to protect Chrysler's viability, I believe there's a good chance that this package will be put together.


Under the leadership of Lee Iacocca, Chrysler doubled its corporate average miles-per-gallon (CAFE). In 1978, Chrysler introduced the first domestically produced front-wheel drive small cars: the Dodge Omni and Plymouth Horizon.

In 1983, Chrysler paid off the loans that had been guaranteed by US taxpayers. The Treasury was also $350 million richer.
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