As expected the US government has approved a guarantee of loans to Chrysler Corporation amounting to a total of $1.5 billion. The approval of the rescue package came just in time to save Chrysler from a bankruptcy which, presumably, would have led to its liquidation and a transfer of its assets to other corporations. It would have meant the end of the "big three" in the US automotive industry. Ford and General Motors would be the survivors.
But now, instead of going at once from a "big three" to a "big two," Chrysler is given a chance to make up for its failure to foresee and prepare for the end of the era of the big private cars. The classic punishment for lack of industrial foresight is bankruptcy and liquidation. Chrysler is reprieved from that punishment and given a chance to redeem itself as a major American corporation.
We will now find out whether Chrysler's new management is up to the challenge. The case for government aid to a distressed corporation is a poor one at best. The American economy would on the whole and over the long run be healthier if inefficient companies and corporations and obsolete activities were allowed to dwindle and die out naturally, thereby releasing needed labor and capital for modern and more efficient activities. That is "capitalism." No substitute has ever been found for it that works better, or as well.
In the case of Chrysler there is no case to be made that the country needs it to have enough automobiles. The market is glutted right now. Ford, General Motors, American Motors, Volkswagen, and the Japanese exporters can put into the US market all the cars the customers are willing to buy.
There is a marginal social argument that competition would be reduced by the passing of Chrysler. But American motors, Volkswagen, and the Japanese imports are giving General Motors and Ford more competition than they want. There would be ample and lively competition without Chrysler in the market.
The decisive argument behind the government rescue package was political, not economic. The bankruptcy of Chrysler would allegedly add half a million more workers to the unemployment rolls. Of course many of them would be taken up by Chrysler's rivals who would fall heir to Chrysler's lost share of the market. But the transition process of getting those half million back onto other payrolls would be tedious and, for most of the half million, painful.
Needless to say, this is an election year. In an election year no administration in Washington is going to allow so many persons to be dumped onto the labor market all at once -- if that event can be avoided at tolerable cost.
The hope of course is that Chrysler will emulate Lockheed. The case for big aid to a big corporation has been improved by the fact that Lockheed, the first beneficiary of a big government rescue package, has indeed done very well and at the moment is pulling ahead of its main competitor, McDonnell Douglas. Lockheed had a slow start and hard going at first with its new L-1011 Tristar, a wide-bodied transport. Today Lockheed is well ahead of McDonnell Douglas in orders. Lockheed proves that at least one corporation could take government funds and regain financial health.
If Lockheed can make the grade with its government loan guarantees, perhaps Chrysler can too. it will turn on whether its new, modern-technology cars will be competitive in price and quality with GM's cars, already on the market, and with similar new models Ford will soon be bringing out. All three are trying hard now, although belatedly, to get going with modern cars in place of their obsolete museum pieces.
Meanwhile workers in the automobile industry are asking Washington for a different kind of protection. They want a limit placed on Japanese imports. Ford is backing them. General Motors is not. President Carter is so far holding remarkably steady against this particular type of demand, for the obvious reason that consumers like and want the imports at this time when the American companies are not yet in production on their comparable models -- except for Chrysler's Omni and Horizon, which can't yet be built fast enough to meet the demand.
There would be no need for such protection if the US "big three" had been on their toes and seen what was coming. Should the government subsidize incompetence? Since the modern American models are beginning to come off the assembly lines, and will be pouring out massively in a few months, the case for any further rescue measures is a thin one indeed.