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.
"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."
The reason the harried automaker could cut back its engineering effort so drastically is because it has moved to two basic "frames" instead of three. This results in a substantial saving in overhead costs.
Chrysler is caught up in its present debacle largely because of a devastating shortfall in cash flow at a time of rapidly changing tastes in automobiles by motorists and the need for huge cash outlays to meet the requirements of governmental programs in safety, emissions, and mileage.
Even if the company could build enough small cars to meet the demand, it couldn't get the four-cylinder engines to power them.
In the background of Chrysler's recent financial trouble is a management crisis that has been going on for years.
One former executive -- one of many -- says he had been with Chrysler for 15 years before he was forced out a couple of years ago. "During that time we had waves of management," he reports, "and the early waves were glorious."
"Bob Anderson (now chairman of Rockwell International) was there but he ended up a reject," he continues.
"At Chrysler, you had to retrain a new group of vice-presidents every three years. It moved from engineers, to accountants, to manufacturing people. The accountants and manufacturing people had towering egos but not too much automotive background."
It became a dog-eat-dog group over the past few years with a bunch of sharp elbows, he adds.
Indeed, the difficulties of both Ford Motor Company and Chrysler Corporation are the result of mistakes made primarily four to six years ago, including decisions to hold off in downsizing their automotive fleets.
Finding the "megabucks" to make the smaller components for the downsized cars and then getting rid of the equipment which the companies now have on hand to make the big cars is a massive, traumatic adjustment for any company.
In accepting federal help in meeting its financial crisis, the Chrysler Corporation has given Washington a measure of control over everything the company plans to do in the future.
And in return for United Automotive Workers Union cooperation in holding down operating costs, the firm has established a significant industry precedent: Douglas Fraser, president of the UAW, now is a member of the Chrysler board of directors.
The long delay in getting federal approval for Chrysler's rescue effort is the result of a head-to-head collision between the provisions of the law and Chrysler's ability to meet them. Chrysler was to line up $2 billion itself in order to qualify for $1.5 billion in federal loan guarantees. The company has probably been able to come up with no more than $1.5 billion, according to some estimates.
No matter, the board is expected to give a favorable nod to the effort. Too much is at stake to allow the company to fail.
"This is the first time in the history of industry that so many government agencies, suppliers, retail car dealers, customers, employees, and unions have banded together to try to save a company," Mr. Jouppi declares.
"If there were a turndown by the loan guarantee board, it would mean a defeat for the United States government," he adds.
A year ago it would have been a defeat for Chrysler alone.