Changeover Time at Chrysler

The ex-Ford men will now try to manage the bankruptcy threat

Like an auto company showing off its new cars, the beleaguered Chrysler Corp. last week unveiled its shining new 1980 model management. Lee Iacocca, 54, the razzmatazz marketing whiz and former Ford president who joined Chrysler only last November, was elected chairman to replace John Riccardo, 55, who surprisingly retired, citing as a cause his recent heart trouble. Joining Iacocca at the top were several cronies from his 32 years at Ford. J. Paul Bergmoser, 63, former purchasing vice president at Ford, takes over as president; the new executive vice president for finance is Gerald Greenwald, 44, once president of Ford's Venezuelan subsidiary. With most of the old Chrysler management replaced, a Ford engine now powers Chrysler.

The new look at Chrysler was in part a tactic to win greater sympathy for the automaker in its drive to get as much as $1.2 billion in federal loan guarantees. The company needs an infusion of funds by year's end in order to launch work on its 1981 models. Treasury Secretary G. William Miller has asked for revisions in the Chrysler rescue proposal. In rejecting the initial request, which would leave the taxpayers holding the bag if Chrysler defaulted on loans from private bankers, Miller bridled not only at the size of the financial package but also at the fact that Chrysler's plan did not include aid commitments from unions and local governments. He told Riccardo and Iacocca that about $750 million in loan guarantees was the limit for Government aid and that he wanted wider participation in the rescue operation.

One financial blood bank for the company might be the $300 million strike fund built up by the United Auto Workers. After the contract settlement with General Motors two weeks ago, that fund will not be needed to pay picketing workers, and Chrysler may try to borrow from it This week Chrysler will open its own contract negotiations with the U.A.W., and ways in which the union might help the automaker will be discussed. U.A.W. President Douglas Fraser rules out using the $300 million kitty, but may accept partly deferred wage or benefit payments in return for a voice in management by workers. Fraser, a fan of the West German system of worker representatives on boards of directors, said he is likely to ask for "representation on the board, limitations on investing pension money in South Africa, and setting aside money for socially desirable objectives. Worker representation cannot be a facade."

As Chrysler continued to proclaim in press conferences and full-page newspaper ads the disaster that would sweep the nation and the auto industry if the U.S.'s tenth largest industrial corporation went bankrupt, the consequences of a Chrysler failure came under closer scrutiny. Some 200,000 U.S. firms declare bankruptcy annually, and the right to fail is as much a part of the capitalist system as the right to succeed. Bankruptcy is the free system's harsh but necessary means of purging companies that, through bad luck or bad management, fail to win enough customers in the marketplace.

If Chrysler is forced to go belly up, it will immediately be a test of new bankruptcy laws that become effective this week. The automaker would enter the dark tunnel of the federal code, especially Chapter XI, which protects firms against the forced sale of plant or equipment to pay off creditors. A court-appointed trustee would probably be named to run the company and develop a reorganization strategy. Some analysts suggest that the firm could continue producing cars, trucks and Army tanks much as before. Eventually some money-losing divisions, like the one making outboard motors, might close, and the employees and management might be fired. But other divisions, like those producing the hot-selling Omni and Horizon, could conceivably become part of a smaller Chrysler Corp. or be sold to another automaker.

Many companies have emerged from such an ordeal shrunken but viable. In 1974 Interstate Stores Inc. ran into bankruptcy, but one surviving part has prospered under the name Toys "R" Us; the New Jersey-based toymaker earned $17 million last year. For other companies Chapter XI has meant quick execution.

In 1975 W.T. Grant, the budget store chain, went into reorganization and six months later was out of business because management could find no way to make it profitable. Old competitors or new retailers acquired its customers and hired many of its workers.

Chrysler claims that reorganization is not a feasible option. The 27-page report given to Miller by Riccardo and Iacocca said bluntly that bankruptcy would mean that "the company's financial structure would quickly collapse." Chrysler officials say that few, if any, customers would be willing to buy a car from a bankrupt Chrysler Corp., because they would feel uncertain about obtaining future servicing or parts. Executives also argue that most of the firm's mammoth $4.8 billion debt is owed to hundreds of small suppliers who themselves would go broke if they had to wait years for a judge to decide whether they would be paid. "There are a lot of ways to die," laments one top Chrysler officer, saying that court-ordered reorganization of the company would only lengthen death throes by three or four years.

The bewailing by Chrysler executives, however, has won scant sympathy from their corporate colleagues. Almost unanimously, business leaders fear that bailing out Chrysler would increasingly lead companies big and small to view the Government as the sugar daddy of last resort. Said William W. Weide, president of Fleetwood Enterprises, Inc., a Riverside, Calif, recreational vehicle and mobile-home manufacturer whose sales have slumped because of gas scarcity and $1-per-gal. prices: "If the Government helps in one case, what will it do when a second or third one comes along?" If federal aid is used to prop up failing businesses, the consequences would include an increase in Government intervention, a decrease in efficiency, and unfair competition for well-managed companies that make it on their own.

Adam Smith, the evangelist of free enterprise, foresaw some management failures. In The Wealth of Nations he wrote: "Bankruptcy is perhaps the greatest and most humiliating calamity which can befall an innocent man. The great part of men, therefore, are sufficiently careful to avoid it. Some, indeed, do not avoid it; as some do not avoid the gallows."

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