Chrysler Squeezes the Feds

CHRYSLER IS a corporate lemon.

The nation's number three auto maker announced last week that its losses would surpass even the figure of $600 to $700 million it had announced earlier, putting Chrysler in striking distance of a new record for the largest loss in corporate history. Plagued with incompetent managers for the past decade, Chrysler is now close to defaulting on its loans, no small problem--the tenth largest corporate mogul in America is over half a billion dollars in debt. And its repeated boostings of its loss estimates have not reassured the lending institutions, which seem to have written Chrysler off as a bad risk: the Federal Reserve concluded last week that the commercial banks have only lent Chrysler 50 per cent of the credit they can legally extend.

Late this July, the then unrepentent company went to Capitol Hill with the crafty smugness of overconfidence. Its representatives intended to shake down the United States Congress for a fast billion.

Chrysler hired a lobbying army of some of the most sophisticated and experienced mercenaries in Washington. Among them were William Timmons, lobbyist for both Nixon and Ford; Joe Waggonner, who retired last year from his position as ranking Southerner on the Ways and Means Committee so he would "have more time to spend with his family"; and Tommy Boggs, son of the former House Majority Leader, Hale Boggs, and lobbying quarterback for a team of more than 50 lawyers in the firm of Patten, Boggs and Blow. In addition, Chrysler's own executives are reputed to have met with over 100 legislators themselves.

NO AMOUNT OF FINESSE in style, however, could mask the coarseness and presumption of Chysler's plea. The goal was an unprecedented tax credit, carved out just for Chrysler, that would have let the company count its losses as profits--allowing it to deduct the cost of capital improvements from its federal taxes, something only profitable companies are normally allowed to do. If Chrysler failed to turn a profit again, its losses would become the government's losses, a neat trick by anyone's standards. Chrysler's strategy for achieving this goal was a mixture of guilt-tripping and blackmailing the government.

Last month, before Chrysler struck its self-sacrificing pose, its lobbyist Tommy Boggs sat for a photographer at his sprawling desk. Boggs asked him not to take any pictures of his walnut bar stocked with the best scotch and whiskey, gin and vodka.

"I'm a hard-working fact merchant," he said. "The days of wining and dining and getting things done by favoritism are gone."

Boggs and the Chrysler lobbying contingent indeed deal in facts--very selectively. The responsibility for Chrysler's failure, according to its own fact sheets, rests squarely on the federal government. Boggs says that the massive expenditures required to meet the government's pollution, safety and fuel economy standards have hit his client harder than its larger competitors, General Motors and Ford, and will eventually put Chrysler out of business.

Boggs says that the person who objects to federal aid on the grounds that Chrysler has not made enough sacrifices or because the company bears much of the blame for its own downfall "is a much less difficult problem than someone who has a philosophical objection" to a federal bail-out of a particular company. "We'll just show them the consequences to the government if it doesn't choose to help Chrysler," he said.

Chrysler seemed to think it had the government coming and going. If the legislator or bureaucrat, ignorant of Chrysler's history, accepted the blame for Chrysler's failure, then it would seem that the government would have little choice but to bail the company out. If not, Chrysler points to the plants in your state that would shut down, citing the hundreds of thousands of workers who would be unemployed.

But Chrysler's pitch was based on a "worst-case analysis"--a tactic the Pentagon has honed to the finest degree. Few financial observers predicted that Chrysler would actually have to liquidate all its operations simultaneously. Assuming that it did continue to decline, Chrysler would more likely continue to lose its share of the market to GM, albeit at a faster rate than it has for the past decade.

The politicians then took a studiedly stern look at Chrysler's proposal. After all, barging into the free market system on behalf of a declining concern violated every tenet of what is supposed to be America's survival-of-the-fittest economy. And the politicians seemed to take a hard line on Chrysler, casting aspersions on Chrysler's tax code shenanigans, and substituting them with their own plan. Treasury Secretary G. William Miller said that the government might aid Chrysler with a guaranteed loan of $750 million, but only after the corporation made internal sacrifices and set out a sound plan of recovery. President Carter, worried about recession and unemployment, agreed with Miller.

ON THE HILL, there was substantial sympathy for some form of aid. Worried about jobs and competition in the auto industry, some liberals saw the Chrysler failure as an opportunity for the government to take control of a major auto corporation, which could be used to keep the other companies honest. Some, like Sen. Don Riegle (D-Mich.), who has more than 85,000 constituents employed by Chrysler, were just plainworried by the prospect of a rash of plant closings.

But Miller, Carter and the congressmen who came out for the guaranteed loan were playing political footsie, not political hardball, with Chrysler. The politicans seem to believe that the government-guaranteed loan is somehow radically new and different from Chrysler's original proposal of a tax credit. Just this weekend, Miller issued a curt statement that the tax credit "would not be acceptable."

The difference between the loan guarantee and the tax credit is, however, more one of form than of content. If the government guaranteed a loan of $750 million to Chrysler, and the company went bankrupt, the government--through the tax-payers--would foot the bill. If the government advanced Chrysler the money through the tax credit instead, it would take the risk of never getting its money back. But the choice between the two is like a choice between apples and oranges--pay now, pay later, it's all a matter of taste.

ERNIE CHRISTIAN, former deputy secretary of the Treasury for tax policy during Connally's tenure, now the top tax technician at Patten, Biggs and Blow, seemed to understand that the tax plan he had helped to conjure up for Chrysler was just one way to get the federal government to shell out the bucks. And he seemed a little confused that the politicians hadn't liked the tax credit plan better. After all, doing business through the tax code, which he called the guts of the economy, with fancy formulas and convoluted reasoning, is the best way to throw the public off the scent.

But the difference between what Ernie Christian does for his clients on a daily basis, and what he has done for Chrysler is that one is done in the calm obscurity of the Joint Tax Committee's staff meetings, the other in the public glare.

Usually, the tax remedy allows legislators to let a business have its way, and save their faces at the same time. The common ploy didn't work this time. Ergo, the public sits in on the birth of the guaranteed loan.

NEXT WEEK: The Argument Against Rescuing Chrysler--or, Why Spend Public Money on a Lemon?

Part one of two parts: the politics of corporate America--or how the politicians traded in their free enterprise articles of faith for the rhetoric of corporate redemption.