Raciest Rumor

A Chrysler-VW merger? "There is not a shred of truth in these reports." --A Volkswagen executive

"This is utter speculation. It's an asinine price." --Chrysler President Lee Iacocca

Despite those vehement denials, the story that West Germany's largest auto firm was aiming to take over the U.S.'s deeply troubled No. 3 automaker immediately became the hottest non-news of the week. Even though the report was scoffed at by both parties concerned, the rapidity with which it ricocheted through Detroit and Wall Street testified to the atmosphere of anxiety that surrounds Chrysler, which is expected to lose at least $285 million, and possibly more, this year.

The episode was touched off by an article in the Detroit-based weekly Automotive News, the bible of the U.S. auto industry. It asserted that Volkswagen's directors had approved a takeover bid that would pay $15 a share for Chrysler stock.

Faced with denials, Automotive News Editor Robert M. Lienert said that his magazine would stand by its story. Meanwhile, Chrysler's somnolent stock suddenly became the most heavily traded shares on the New York Stock Exchange, where they quickly jumped by $2.50 to close the week at $10.38.

The notion of a Chrysler-Volkswagen combination seemed plausible, at least superficially, because of the ties that exist between the companies. They are currently renewing a contract under which Volkswagen has been supplying 300,000 engines annually for Chrysler's Omni and Horizon subcompacts, its only two brisk sellers. The two companies also have jointly run an auto plant in Brazil, and Volkswagen makes its popular American Rabbits in a Pennsylvania plant that once belonged to Chrysler.

A takeover could be highly beneficial for Chrysler, which is struggling under a $50.6 million short-term debt. The company urgently needs infusions of fresh capital to modernize old plants and increase its output of small gas-sipping models. But a Chrysler deal would make little sense for Volkswagen, which has just regained its old momentum after a long period of drift, during which Japanese automakers zipped past it in many major markets. Detroit executives point out that Volkswagen, which is the most firmly established foreign automaker in the U.S., does not need Chrysler's dealer network or antiquated plants. Most of all, VW does not need Chrysler's huge unsold inventory of big autos that could become the albatrosses of the gasless summer of '79.

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