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Chrysler pays off its loan

Confidence. There was no scarcer commodity at Chrysler two years ago, when the company tottered at the edge of bankruptcy. But that quality was center stage last week when Chairman Lee Iacocca announced that the company is ready to repay its remaining $800 million in federally guaranteed loans. "This is our declaration of independence--financial independence," said Iacocca. The money is being paid off seven years before it is due. Only last month the automaker unexpectedly returned $400 million of the $1.2 billion it borrowed in 1980 and 1981.

Chrysler can well afford to write these big checks. With auto sales zipping upward, the company's cash horde has grown to $1.5 billion. Sales in the first half of 1983 increased 24% from a year ago (349,978, vs. 432,814), and they jumped 51% in early July. Profits are also accelerating. Second-quarter earnings, to be announced this week, are expected to be nearly $300 million, the highest in company history. Analyst David Healy of Drexel Burnham Lambert predicts that Chrysler will make $875 million this year and $1.4 billion in 1984.

The company decided to settle its debt immediately in order to save an estimated $392 million in interest payments and to free itself from restrictions imposed by the Government's loan board. No longer will board approval be required on such minor corporate decisions as trips on the company's newly purchased jet. Chrysler will be allowed once again to pay dividends to stockholders and give bonuses to executives. The company's clean slate will also improve its credit rating and allow it to resume normal borrowing arrangements with banks.

The dramatic loan payoff was announced with quintessential lacocca fanfare at a National Press Club meeting. Surrounding himself with key supporters of the Loan Guarantee Act of 1979, including Michigan Senators Donald Riegle and Carl Levin, Iacocca twitted those who doubted whether Chrysler would ever be heard from again. "We at Chrysler borrow money the old-fashioned way," he said proudly. "We pay it back."

The automaker still has to resolve one more sticky item of business with the Federal Government. As part of the loan agreement, the Government insisted upon the right to buy 14.4 million shares of Chrysler stock for $13 a share. When the agreement was made, Chrysler stock was selling for about $5.50. But it is currently trading at $31.50 a share, and the agreement could earn the U.S. Treasury about $250 million. In order to provide the shares for the Government, Chrysler claims, the company would have to float a new stock issue that would dilute the value of its existing stock. In May, Chrysler asked the Government to forgo its right to buy the stock, but the firm ran into such a blaze of protest that the company withdrew the proposal. Now it is seeking to negotiate a lower settlement. Iacocca hopes for an agreement soon, but he adds, "We've made a lot of offers, and they've turned the proposals down." Treasury Secretary Donald Regan, chairman of the Loan Guarantee Board, said the board would definitely not give up its claim. Nonetheless, it appears the Government might well settle for less than its full profit.

Chrysler's unions now want a share of the company's new prosperity. Said United Auto Workers President Owen Bieber last week: "Iacocca knows full well that it was the Chrysler workers, more than anyone, who made the sacrifices." The company's U.A.W. employees gave up nearly $1 billion in wages and benefits. Chrysler workers currently make $2 less an hour than their counterparts at General Motors and Ford. This week Chrysler and the U.A.W. will begin talks about immediate modifications of the current contract. An agreement could give workers at least a $1-an-hour raise by Labor Day. This file is automatically generated by a robot program, so viewer discretion is required.