No More Big 3 Loans

Article excerpt

Byline: THE WASHINGTON TIMES

In order to understand the folly of Congress' decision to consider a second $25 billion-guaranteed loan bailout for Chrysler, Ford and General Motors, one need only look at what happened when Chrysler was given $1.2 billion in guaranteed loans in 1979 and ask one question of Chrysler. What should Chrysler do now to survive?

An analysis by policy consultants with the Heritage Foundation shows that what Chrysler did to stay alive in 1979 was enact internal policies similar to reorganization under a bankruptcy, but Chrysler made its decisions without going to court, and they used federal dollars to guarantee large loans at reduced interest rates. Chrysler executives did take salary cuts of 2 percent to 10 percent, and CEO Lee Iacocca did accept only $1 a year. That only lasted two years, however, because they received retroactive salary payments to make up for the reductions while the company continued to lose money. Creditors, meanwhile, were forced to take a return that amounted to 30 cents on the dollar on $600 million in loans. Another $700 million in debt was converted to preferred stocks that earned no dividends and wouldn't pay off for nearly a decade. Chrysler also cut more than 62,000 jobs, and research and development dollars were also cut. …