A friend reminded me about this section of the book. This is an excerpt from early draft of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. Given the bankruptcy filing today, it is totally suitable.  (The final version is thematically similar, but different in actual content).

~~~

The current no strings attached bailout demands of the Big 3 stands in stark contrast to the 1980 Chrysler deal. Regardless, the subsequent decades post-bailout reveals the deal wasn’t particularly good for either the industry or the firm’s employees.

In the 1950s, Barron’s described the Detroit automakers as the big two and a half – with Chrysler, the perennial sales laggard, as the half. When the embargo hit, Chrysler suffered the most of the Big Three.

By the mid-seventies, the company was hemorrhaging cash. Chrysler lost $52 million in 1974, and a record $259.5 million in 1975. As smaller, less expensive and more fuel-efficient from Japan and Europe gained increasing market share in 1970s, Chrysler found itself in an ever-deepening hole. It looked like they might have to declare bankruptcy.

As soon as the energy crisis ended, it was back to business as usual. 1976 a hugely profitable year: the company’s net income was $422.6 million. 1977 was profitable, but less so: $163.2 million net income. By late 1978, they were running in the red again, losing $204.6 million. The fall of the Shah of Iran and a new US Oil embargo sent prices higher once again. By 1979, Chrysler was looking at its first billion dollar annual loss.

Management decided to was time to visit their Uncle Sam.

The Chrysler bailout was everything Lockheed was – its predecessor in the bailout timeline by 9 years – and more. It was bigger and more expensive. Lockheed had loan guarantees worth $250 million dollars; Chrysler’s were for six times that amount,. The rationale for the rescue of Lockheed, the country’s biggest defense firm, was national defense. With Chrysler, it was the economy, and saving 200,000 jobs in the U.S.

But the big difference between the two was that the Chrysler recue package was much more complex. The terms of the Chrysler loan guarantees required an additional $2 billion in commitments or concessions from: “its own owners, stockholders, administrators, employees, dealers, suppliers, foreign and domestic financial institutions, and by State and local governments. ”

The Chrysler bailout of 1980 was not quite a pre-packaged bankruptcy reorganization. It left the company with the same management team, the same union contracts, the same pension obligations, and the same health care coverage; all the bailout did was buy the company a few more years. Indeed, the pre-bailout industry looked almost identical to the post-bailout industry. None of the Detroit automakers, Chrysler included, received any long-term benefits from the bailout.

Chrysler survived, but a slow necrosis gradually handed over the dominance of the US automobile market to the Japanese, Koreans, and Germans. In 1980, Detroit had a ~75% market share of autos sold in the US. For the first time ever in May 2008, that number slipper under 50%, and its now down to ~48%.

You read that right, the majority of automobiles sold in the USA are no longer vehicles made by US companies.

The UAW’s membership suffered even more than Detroit’s market share. It peaked in 1979, a year before the bailout, when the Union had over 1.5 million dues paying members. 25 years, UAW membership had fallen by two thirds — down a million to to 538,448 (2006).

And, year-over-year totals are still falling. From 2006 to 2007 (the most recent full year of data ) the union saw its membership decrease yet another 14% –down another 73,538.

~~~

Had Chrysler been allowed to fall into bankruptcy, it’s not too difficult to imagine a vulture investor obtaining all of the aforementioned assets, and putting them to good use. Just picture a refurbished Chrysler Corporation – newly recapitalized, minus the onerous labor contracts, pension obligations, and healthcare overhead. Its new owner would have been free to pursue new manufacturing methods, new automobile designs, even new markets – with all the advantages Chrysler itself had, but without the defunct company’s baggage.

A post bankruptcy Chrysler would have been as leaner, meaner and more cost-efficient, and maybe even more fuel-efficient machine than the rest of Detroit. Surely, they would have been willing to take chances on some new designs that broke free of the stodgy boring cars put out by Detroit in the 1970s and 1980s.

Not only would Chrysler have been much more competitive in the US and world markets, their mere existence would have forced GM and Ford to streamline their own processes improve their vehicles in terms of attractiveness, mechanical reliability, and fuel efficiency.

~~~

Down Below 50% “Detroit 3”U.S. Market Share 1986 –June 2008
(Sales of Detroit 3 N. American “owned”production)

Source: Center for Automotive Research

Category: Bailout Nation, Bailouts

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “The 1980 Chrysler Bailout”

  1. CNBC Sucks says:

    “Just picture a refurbished Chrysler Corporation – newly recapitalized, minus the onerous labor contracts, pension obligations, and healthcare overhead.”

    Even in the upcoming bankruptcy proceedings, you aren’t expecting a new Chrysler to emerge minus the onerous labor contracts, pension obligations, and healthcare overhead, are you, Ritholtz?

  2. willid3 says:

    i wouldn’t expect much out of the bankruptcy for a long while. they may try to time it where they come out when the car market goes up if they don’t fail before then. nobody is really going to take a chance on buying a car from them unless they have absolutely no other choice. and the last car company to go into bankruptcy is no more and hasn’t been in a long long time. while they may get rid of their debts, dealers and other contracts. but that will still leave them needing some body to do the work and some body to sell the cars. that knows how to, as neither will be there . and this fiat thing is a pointless exercise, they won’t get any thing from it for at least 2 years if then. as neither company has money to put into doing so.

  3. teraflop says:

    It smells like an elephant waltz to me. Fiat is hardly an exemplary firm to merge with: it’s had decades of problems and the Fiat family had to relinquish some control to GM in 2000 just to survive. Additionally, in many of these like dire/forced “mergers”, the “buyer” ends up happier with the intellectual properties, largely the ones not showing up on the balance sheet than anything tangible.

    As much as I applaud retaining some form of automobile manufacturing capability in addition to our ailing remaining two others, this is a new frankenstein subject to raiding and illegible merger documents which may (again) hardly make it look like a “merger of equals.”

    For any globally-bent fanatics who think manufacturing, engineering, process excellence, or (gasp) patents have no place in America, please turn off your iPods.

  4. Stillaway says:

    “Even in the upcoming bankruptcy proceedings, you aren’t expecting a new Chrysler to emerge minus the onerous labor contracts, pension obligations, and healthcare overhead, are you, Ritholtz?”

    Why not? The beneficiaries will own 55% of the company.

  5. call me ahab says:

    willid3 & teraflop-

    here here- no shit- Chrysler as a company shouldn’t make it out of BK- Fiat- please- it’s all an illusion for a maybe future that won’t happen

    stillaway-

    55% of a company that will be liquidated- oh by the way- is this a bruce wayne/batman thing going on?

  6. teraflop,

    you may know that Daimler already walked off w/ much of Chrysler’s R&D Treasury, and peep think they, just, made ‘cars’..

    also, see MunichRe walking away w/ Hartford Steam Boiler, from AIG, for a mere song..

    The Hartford Steam Boiler Inspection and Insurance Company is one of the world’s leading specialty insurers and reinsurers. We are a global provider of:

    equipment breakdown insurance products;
    other specialty insurance and reinsurance products;
    inspection services and engineering consulting.
    Since our founding in 1866, Hartford Steam Boiler has had a culture that values technical expertise. Our engineering knowledge and experience enables us to understand the causes for loss. We then recommend risk management and loss prevention solutions that help our customers reduce their losses and improve their underwriting results.
    Hartford Steam Boiler (HSB) is headquartered in Hartford, Conn. We serve businesses, industries and institutions worldwide.
    HSB Group, Inc., the parent company of The Hartford Steam Boiler and Inspection Company, was acquired by Munich Re Group on April 1, 2009. HSB is managed by Munich Re America.
    http://www.hsb.com/about.asp
    ~
    When Walter P. Chrysler was looking for air conditioning equipment for the new Chrysler Building (finished in 1930), his engineering background told him that contemporary equipment was both too bulky and too pricey; he enlisted the Chrysler Engineering staff and Charles Neeson to create something better, and thus was born the first fully air conditioned skyscraper along with Airtemp. One of the fruits of their efforts was a new high-speed radial compressor which was far better than the compressors then in use. With that in hand, the Airtemp Corporation was incorporated in October 1934; it built systems in a former Chrysler stamping plant in Detroit until 1936, when it moved to the former Maxwell Motor Company plant in Dayton, Ohio, at Leo and Webster. The company air conditioned Pullman cars (railroad cars, that is) long before air conditioners were applied to passenger cars.
    –as a single ex.
    http://www.allpar.com/corporate/airtemp.php

  7. Stillaway says:

    @ ahab

    “bruce wayne/batman thing”

    No, it’s more of an Ace and Gary thing.

  8. teraflop says:

    Ahab, thanks. Great points, Mark, I just didn’t wish to name names but, yes, I had something teutonic in mind. I also had other bankruptcies in mind where I observed butchering and absconding of un-valued intellectual properties. Another favorite, classical raid target is any remaining pension holding, however these days after the generational decline in many pension funds’ holdings, I don’t think (or know) whether Chrysler’s pension assets would be worth going after.

    I had this classic book in mind, having enjoyed it 15 years ago: http://www.amazon.com/America-Wrong-Donald-L-Barlett/dp/0836270010

    And my comment on the Fiat family literally was about the family, not the firm.

    If one were to draw a timeline of chefs in Chrysler’s pot since the first government bailout, it’s going to look very sick.

  9. MRegan says:

    Ok, you screws, you asked for it: http://www.joeydevilla.com/2005/02/18/look-out-batman-here-come-the-boners/

    BTW I heard from a guy who knows a guy plugged into a wallsocket in the Gov’s in Lansing that at 9.45 pm last night there were only 3 holdouts, by 10.30 pm he knew it was going down FIAT Ave.

  10. call me ahab says:

    MRegan-

    HAHAHA- you have to wonder about that Joker

  11. hr says:

    Meanwhile,

    Monday, April 27, 2009
    Geithner: The Fox Guarding the Henhouse? by Larry Kudlow

    What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization.

    http://kudlow.nationalreview.com/post/?q=NGY4Y2JjNTBiNmMwNjQxNjYwZWJhMGFkZThjOGE5MzE=

    When did he start drinking again?

  12. new high-speed radial compressor which was far better than the compressors then in use.

    this radial Compressor technology then morphed into Turbine engine breakthroughs..

    Chrysler was building Turbine engined Automobiles in the ’50s, and provided moto-go to the DoD (Tanks) and Nasa (MoonRovers) among many other apps..

    still a mere fraction of what Chrysler was into..F & GMs Histories are even broader, and way more extensive..

    designed in Cupertino made in Shanghai is no way to run a Ho’-House, even Velvet Jones would tell you as much..
    http://www.youtube.com/watch?v=lZVnve5wG0A

  13. teraflop says:

    Mark, great points. Definitely agree the iPod example was a poor one to demonstrate American manufacturing right but I was speaking on terms most readers of this blog can relate to. People who have set foot in factories or worn steel-toed boots (as I have, in my former career) quickly get labeled as neanderthals unless you can bring to mind something they’ve actually touched.

  14. Transor Z says:

    Personal anecdote: bought a new minivan this week for the Z clan. Interestingly, conducted all negotiations by email.

    Really tried to squeeze the Boston area Dodge-Chrysler dealerships but they couldn’t/wouldn’t compete with the warranty and price I ended up getting from an Asian manufacturer. Oh well.

    Tip: I got 33% off sticker . . .

  15. karen says:

    Stillaway, I’m glad you are back, but I will not be able to follow your wit with no television exposure (other than LOST, which i watch on abc.com.)

    http://en.wikipedia.org/wiki/The_Ambiguously_Gay_Duo

  16. teraflop,

    remind them that the i-net Is “brick n’ mortar”, and if it wasn’t for the dudes that knew how wear Chippewas, they wouldn’t playing Cowboyz n’ Injuns via XBOXLive w/ their psuedo-cyberpal, Rajiv, in Mumbai..

    Silly the Satellite, may be made, in part, by Roger the Robot, but they don’t launch themselves, yet..Hardhats all around~

  17. Transor,

    how do you like that new Quest?

  18. Transor Z says:

    Nope. :)

  19. Itiswhatitis says:

    “Had Chrysler been allowed to fall into bankruptcy, it’s not too difficult to imagine a vulture investor obtaining all of the aforementioned assets, and putting them to good use. Just picture a refurbished Chrysler Corporation – newly recapitalized, minus the onerous labor contracts, pension obligations, and healthcare overhead. Its new owner would have been free to pursue new manufacturing methods, new automobile designs, even new markets – with all the advantages Chrysler itself had, but without the defunct company’s baggage.

    A post bankruptcy Chrysler would have been as leaner, meaner and more cost-efficient, and maybe even more fuel-efficient machine than the rest of Detroit. Surely, they would have been willing to take chances on some new designs that broke free of the stodgy boring cars put out by Detroit in the 1970s and 1980s.

    Not only would Chrysler have been much more competitive in the US and world markets, their mere existence would have forced GM and Ford to streamline their own processes improve their vehicles in terms of attractiveness, mechanical reliability, and fuel efficiency.”

    Intellectual bs. You don’t know any of that and are just spewing more vulture nonsense.

    Here is a more likely possibilty: Chrysler died and never returned. But the other car companies went along their merry way to the free traders and other global cartels basically gutted American manufacturing spirit and killed the country. Talk about treason.

    ~~~

    BR: That’s all you got? You disagree, but offer no evidence, data, arguments theory — just NO?
    By definition, its conjecture — so NO ONE KNOWS WHAT IF.

    Weak ass criticism makes it too easy.

  20. Itiswhatitis says:

    Chrysler’s bankruptcy is a farce as well. It is nothing more than Obama’s attempt to trigger a “green/bio” boom in investment to try and stop a depression. The capitalist need something to invest in so we are told………….

    Basically the company will be used as the governments sword into forcing all companies into “clean cars”.

  21. Iiwii,

    not ‘clean cars’, electrics are their goal. limited range, on-board computer/GPS tracking, data downloaded via ‘smart grid’ upon recharging. your RealID/DL will be pointed everytime you sit behind the wheel–yes, complete with ‘face recognition’ camera-technology in the dash and breathalyzer ‘ignition’ inter-lock–std. equip.

    168. track n’ trace. Total Information Awareness.

    part: “The Commission is still working on the recommendation,” Gerald Santucci, who heads RFID at the European Commission, tells Ward’s. “Industry must be encouraged to innovate in a technology that holds potential economic and social benefits, but at the same time, citizens have the right to an appropriate level of information transparency and protection with respect to privacy and data security.
    “We intend to identify the right balance between the obligations for the industry and the level of risk involved.”
    In a related initiative, the EC is drafting plans to use logos to indicate the presence of embedded chips in products.
    The French government is calling for consumers to have the right to deactivate these chips, which could cause considerable difficulties for operations such as the remote reading of vehicle license plates or tracking the whereabouts of delivery vehicles. France argues that drivers of vehicles with embedded tracking chips have legitimate concerns about privacy during off-duty hours.
    Viviane Reding, EU information society commissioner, was planning to issue another EU recommendation in November 2008 that called for the introduction of an opt-in principle at the point of sale of products with embedded chips. In practice, consumers would be asked whether they wanted to deactivate tags when they bought a product.”
    http://wardsautoworld.com/ar/auto_chips_raise_privacy/

  22. Transor Z says:

    Mark, good stuff! Had never heard of them. Thanks.

    Not sure you know Ian Richardson as MP/PM Francis Urquhart from the BBC series “House of Cards” that aired on PBS a long time ago. One of my all-time favorite villains and he had that great line.

    @Itiswhatitis: Whatchoutalkinabout, Willis?

    Pay now, pay later. How sad is it that Chrysler was “saved” by the K Car — or are you old enough to remember that? http://www.chryslerkcar.com/

    American auto manufacturing spirit was gutted by the cartel control of the U.S. domestic market in the post-WWII era by the Big Three. The Big Three made shit cars and were monolithically unresponsive to consumer demand.

  23. Stillaway says:

    @karen
    I’ve been busy this evening installing a GPS in the DuoCar.

    BTW- ES now cruising along the bottom of the hourly channel. Another battle with 875 tomorrow and retest of the Leftback Top?

  24. Transor,

    this: “American auto manufacturing spirit was gutted by the cartel control of the U.S. domestic market in the post-WWII era by the Big Three. The Big Three made shit cars and were monolithically unresponsive to consumer demand.” is a tidy, and factual summation of the scene.

    as well, yon’ K Car was an unmitigated POS, just like the first ‘minivans’ whose back latches were so flimsy, kids were spilling out onto the roadway after they were rear-ended..

    the cult of Iacocca was one of the first in the long parade of, supposed, super CEOs thought to be building “Morning again in America”..

    the only thing that ‘saved’ C was the USGov’t’s unending and unhealthy appetite for their marginal product..

    past that, though, I think I missed Sir Richardson, I’ll keep an eye peeled. And, yes, that Group is pretty interesting..

  25. jeff in indy says:

    you figure barry (no, the one that walks on water barry) needs to have the auto problem “resolved” soon enough to plan (more like pray) for a turn by next election cycle. expend the political capital now. it will either work or be forgotten by then. you can always rely on the electorate’s attention span. the ‘k’ car was the classic example. it helped keep many an incumbent in office.

  26. S Brennan says:

    Love ya dude, but this post sucks and this:

    “Had Chrysler been allowed to fall into bankruptcy, it’s not too difficult to imagine a vulture investor obtaining all of the aforementioned assets, and putting them to good use. Just picture a refurbished Chrysler Corporation – newly recapitalized, minus the onerous labor contracts, pension obligations, and healthcare overhead. Its new owner would have been free to pursue new manufacturing methods, new automobile designs, even new markets – with all the advantages Chrysler itself had, but without the defunct company’s baggage.

    A post bankruptcy Chrysler would have been as leaner, meaner and more cost-efficient, and maybe even more fuel-efficient machine than the rest of Detroit. Surely, they would have been willing to take chances on some new designs that broke free of the stodgy boring cars put out by Detroit in the 1970s and 1980s.” – Barry R

    …is crappola.

    Whatever Chrysler’s failings:

    Chrysler came up with “new automobile designs, even new markets”..ever hear of a Mini-Van? It did not exist until Chrysler came up with it.

    Chrysler followed CAFE standards while Ford & GM did not. Consider:

    “…In the late 1970′s, President Jimmy Carter implemented CAFE standards to combat an oil shortage driven by policies of the Organization of Petroleum Exporting Countries. The standards raised fuel efficiency in American cars by 7.6 miles a gallon over six years, causing oil imports from the Persian Gulf to fall by 87 percent. Our economy grew by 27 percent during that period. Detroit, predictably, figured out how to build more fuel-efficient cars largely without reductions in size, comfort or power.
    The CAFE standards worked so well that they produced an oil glut by 1986. That’s when the Reagan administration intervened to rescue America’s domestic oil industry from gasoline price collapse. Ronald Reagan’s rollback of CAFE standards caused America, in that year, to double oil imports from the Persian Gulf nations and to burn more oil than is in the Arctic National Wildlife Refuge.

    According to a recent report by Amory Lovins of the Rocky Mountain Institute, if the United States had continued to conserve oil at the rate it did in the period from 1976 to 1985, it would no longer have needed Persian Gulf oil after 1985. Had we continued this wise course, we might not have had to fight the Persian Gulf war, and we would have insulated ourselves from price shocks in the international oil market. Fuel efficiency is a sound national energy policy, economic policy and foreign policy all wrapped into one. Every increase of one mile per gallon in auto fuel efficiency yields more oil than is in two Arctic National Wildlife Refuges. An improvement right now of 2.7 miles per gallon would eliminate our need for all Persian Gulf oil!

    Yet the Republican Congress in 1995 made it illegal for the Environmental Protection Agency even to study higher CAFE standards. The result is that America now has the worst energy efficiency in 20 years.”

    http://www.frugalmarketing.com/dtb/kennedy.shtml

  27. SB:

    First, the minivan were not introduced to the world until 1983 (Dodge Caravan and Plymouth Voyager). Second, I would hardly call them “fuel-efficient machines” as noted in the excerpt.

    Third, the minivan is not exactly a huge automotive innovation — take a regular van, make it smaller, build it on a car chassis. If you think the minivan in going to impress any car guy, well, I got news for ya: It wont.

    What the minivan was in the real world was a commercial innovation –repackage a truck as a car, and sell millions of them. It was a sales smash, a huge hit for Chrysler, but hardly a work of technological breakthrough or engineering innovation.

  28. Froglips says:

    Would not bother me to see Opel (GM), Fiat, Rover, Chrysler and GM go. Would be good for the industry. These companies have been poorly managed, produce inferior products and cost/will a lot to their respective tax paying base.
    This is what the USSR did, keep badly run operations in business.

    Let me take you down….

  29. [...] Barry Ritholtz reminisces about another Chrysler bailout and wonders The 1980 Chrysler Bailout [...]

  30. you know you’re a fucked company when people reminisce about your old bailout on your way into your new one

    Fiat should keep Jeep and shut the rest of this freakshow down.

  31. grabowcp says:

    Fuel efficiency is a sound national energy policy, economic policy and foreign policy all wrapped into one.

    http://mjperry.blogspot.com/2009/04/fuel-efficiency-doesnt-lower-demand-it.html

  32. batmando says:

    @MRegan -
    Thanks for that Naked Capitalism link “Is Optimism All It’s Cracked Up to Be?” ending with
    “A man should swallow a toad every morning to be sure of not meeting with anything more revolting in the day ahead.”
    though even a frog a day is no specific against the bail-outs, news and markets these days.

  33. eren says:

    Canadian Chrysler plants shut down as parts not delivered

    http://www.wheels.ca/reviews/article/542582

  34. S Brennan says:

    Barry,

    I made two separate points:

    [1] Chrysler came up with “new automobile designs, even new markets” Period. Stop. No mention of fuel efficiency, I did imply that this occurred after the bailout…which it did.

    [2] Chrysler followed CAFE standards while Ford & GM did not…and got royally screwed for their efforts

    I did not call minivans “fuel-efficient machines”, anybody can read my words above…why lie about what I said.

    What innovation “new design” do you consider bigger than minivans in the last thirty years? FYI, hybrids were some of the earliest cars.