Lee lacocca's Hard Sell for Help

"The free-enterprise system has gone to hell"

The financially straitened Chrysler Corp. got a felicitously timed lift last week in its drive to persuade Washington to approve federal guarantees for loans from private banks. The Economic Development Administration decided to guarantee loans totaling $111.1 million for the Jones & Laughlin Steel Corp. to install pollution control equipment. Though that guarantee was granted under a special Administration program to help steelmakers meet the heavy cost of complying with environmental rules, Chrysler officials are sure to cite it as a precedent in their push for much bigger guarantees.

Treasury Secretary G. William Miller turned down the company's initial aid proposal partly because its $1.2 billion request seemed extravagant and partly because he wanted the automaker to induce unions, suppliers and other parties to join in its recovery effort. One intriguing possibility involves the United Auto Workers' allowing Chrysler's pension fund to be used as a source of cash--perhaps in exchange for worker representation on the board of directors or for some other say in management.

Although Chrysler is confident that Congress will approve guarantees in the $500 million-to-$700 million range, it may have trouble getting action before the legislators adjourn, probably in November, after which the company's petition might become an issue in the 1980 election campaign.

Last week Chrysler's voluble chairman, Lee Iacocca, took his corporate aid campaign on the road. In a session with TIME, Iacocca was characteristically outspoken. Excerpts:

On the outlook. We are in a hell of a mess and that's nothing to be proud of. The people at Chrysler look great even if the balance sheet looks lousy. It all comes down to the marketplace. We have to go head-to-head with every car there, and the key is the 1 million front-wheel-drive cars that we'll have in 1981. They'll have the same interior dimensions, but they'll be shorter, lighter and get 7 m.p.g. more on average than the compacts and subcompacts that they will replace. We will be profitable in '81--if we can't do that we should get out of business.

On big vs. small cars. We have some big cars, but really our problem is that we haven't built enough gas guzzlers. That is where the money is, for the same reason that in a meat market there is a bigger margin on steak than on hamburger.

General Motors builds 70% of all big cars today, and they make a $2,000 profit on them while we're making $700 on little cars. On top of that, they've got Sevilles selling at $5,700 profit per car; we don't have those baubles in our candy store. And GM is the price leader; it's not going to raise its prices $ 1,000 on little cars just so we can break even. We're the underdog, but that means we've just got to do it smarter.

On prospects for takeover or merger. In the real world auto market there will be associations, mergers and joint ventures by the hundreds. As for the rumor of a Chrysler-Volkswagen deal last summer, there was absolutely nothing to it. But if you ask me whether we are a prospect, the answer is yes. It would be a hell of an investment for someone. Sure, the balance sheet does not look good, but I am a great believer that if you buy a company, you buy its management and its future. And our management and our future products are Class A. Would we talk? Sure we would. Everybody's welcome. Why hasn't anybody asked? You never do anything until the smoke clears. The first thing we have to show them is that we know how to stop the losses.

On bankers, politics and aid. A banker has got to look at it cold turkey. He's got to look at minimum operating capital requirements and the debt-to-equity ratio. At the moment the bankers say, "We think we have done all we can." Well, we don't think they have. In Washington they ask me: "You won't come back for more money, will you? Once we do it and help you, don't come back a second time." Well, I'd rather not go to Washington at all; I'd rather figure out another way. If I found a rich Arab, I'd take him in a minute and under some pretty tough conditions. I say to Miller and group: "Hey, don't get mad at me, I'm new here too." They reply: "Geez, we wish you'd go away. You picked a lousy time to start going bankrupt--just before the New Hampshire primary."

On free enterprise. Everyone wants to engage me in a philosophical debate on free enterprise, but the free-enterprise system has gone to hell. Other companies have gotten federal aid, but it was "different." The Federal Housing Administration loan guarantees are "different." The agricultural subsidies on tobacco are "different." Everything is "different." Where were the free enterprisers in '67 with the Highway Safety Act, in '70 with the Clean Air Act and in '75 with the Fuel Conservation Act? Those laws have us so regulated that a while ago, when GM put out a price rise of $244, $186 of it was ascribed to Government mandates.

On Chrysler as a symptom. We are the classic microcosm of everything that is wrong with the U.S. You can list the problems. Energy? That's what cripples us. Inflation at 13%? Hold it, mine's higher than that because petrochemicals and lead are up more. Productivity? I'm glad you asked--we ain't got none. Sometimes when I wake up, I think of what I'm doing. Yeah, I'm trying to save a company but I never invent anything any more. I never create a job. Everything I do is to meet a law. It worries me for all industry. I'll make a prediction: the auto industry is the leading edge and will be in trouble between now and 1985 in varying forms. There will be other cries for help.

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