Sagging car market could keep spring out of Chrysler's rebound
If the car market stays as stagnant as it now is, Chrysler Corporation, even with a $1.5 billion loan guarantee by the federal government, could be back in the bread line again by next spring.Skip to next paragraph
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"Chrysler needs a strong recovery," asserts Eugene Tremblay of Wellington Management Company in Boston. "If the recession lingers, it will continue to chew up capital without any return."
Thus, even with a nod by the Federal Loan Guarantee Board to the deal worked out by Congress late last year to prop up the faltering carmaker, Chrysler needs a strong car market to make it work.
Heading up the Chrysler drive for survival is Lee A. Iacocca, who was fired as president of Ford Motor Company in 1978 by Henry Ford II. A few months later Mr. Iacocca took over the wheel at Chrysler. Says one observer of the automotive scene: "Iacocca is one who can costs and run the company very tightly internally, and this is what he is doing."
Treasury Secretary G. William Miller, chairman of the board that must approve the guarantees, says the decision will come Friday or Saturday this week.
If the loan board says no, it probably would force Chrysler into receivership. However, a no-go decision is seen as unlikely, mainly because of the severe impact it would have on Detroit, where Chrysler Corporation is the largest employer.
If Chrysler were to shut down completely, the jobless rate in the Motor City alone would top 30 percent and lead to possible urban unrest next summer, according to observers on the spot.
In a presidential election year, this prospect is ruled out completely.
Yet the federal government can't do much to stimulate domestic car sales. Indeed, recent administration decisions have had the opposite effect: President Carter's phasing out of price controls on domestic oil and his surtax on imported petroleum mean more expensive gasoline in coming months. This, in turn , makes the high-mileage imports even more attractive to car buyers.
While Detroit automakers remain eternally optimistic for a 1981-model rebound in sales, some economic forecasts indicate rather that there will be no recovery for perhaps another 12 to 18 months. "We expect it's going to be a protracted recession rather than a spectacular "V" recession by coming back strong," surmises Mr. Tremblay of Wellington Management Company.
Even Chrysler's new front-wheel-drive replacements for the Dodge Aspen and Plymouth Volare may not do the job for the lagging company. They will meet stiff competition not only from the imports, but from their domestic rivals.
Ford Motor Company and General Motors also will introduce new front-whell entries -- Ford in the fall and GM next spring.
With any kind of break, however, Chrysler still stands to make a modest profit in the fourth quarter of 1980, although its loss for the year is projected at $750 million on top of the $1.1 billion red-ink bath in 1979.
To slash costs, Chrysler Corporation has been whacking away at its work force by laying off thousands of production workers and firing, furloughing, or retiring (usually early), large numbers of white-collar workers and executives.
"I was at the Chrysler engineering gate last Friday evening," reports Arvid Jouppi, a stock-market analyst with John Muir & Co., "and saw one of the great sadnesses of my life when some 2,000 people walked out of the place, never to return."