Chrysler Receives The Biggest Rescue Package From The Government – 5/10/1980

US History |

Founded in 1913, as the Maxwell Motor Company, Chrysler expanded into the Chrysler Corporation after 1925 when its control was taken over by Walter P. Chrysler. The company then became a major force in the U.S. automotive industry after it purchased Dodge Brothers in 1928. Chrysler Corporation continued to perform remarkably, but its success came to a stop after the 1973 oil crisis.

The crisis led to new and strict government standards on emissions, and the skyrocketing of gas prices. These factors resulted in a major problem for the then biggest American automakers: General Motors, Ford, and Chrysler. These companies found themselves in a dire situation. In the 1960s, the popularity of the so-called “muscle cars” had led these companies into producing vehicles with powerful engines that consumed plenty of gas. Cars like the Plymouth Roadrunner, the Dodge Charger, and Challenger used Chrysler’s famous Hemi engine.

Chrysler made a move to buy shares in Japan’s Mitsubishi motor company. The move was supposed to steer the production of lighter and efficient vehicles. In 1970, Mitsubishi began manufacturing subcompact cars in America, and these cars were built under the Chrysler name. By late 1970’s, Chrysler was facing serious financial problems.

In July 1979, the then Chrysler chair, John Ricardo, went public with Chrysler's problems, admitting that the company was in dire need. In 1979, Chrysler recorded a $1.2 billion loss, which was the largest in U.S. corporate history. By the end of 1979, the company owed $4billion. Ricardo called for immediate assistance. He wanted the company to be given a tax holiday; to be exempted from federal exhaust emission standards; and concessions from Autoworkers. He warned that failure to meet the conditions would cause Chrysler to collapse. The former Ford executive, Lee Lacocca, who became Chrysler’s president and chair of the board in 1978, requested for a loan from the government.

Lacocca was confident the government would issue the loan because the economy was already in a depression and the government would not allow one of the country’s biggest automakers to declare bankruptcy. He was right. The government heard his plea and accepted to issue a loan. The government agreed to give a loan of $1.5 billion, but with one term: Chrysler would raise another $2billion on its own. The United States Secretary of the Treasury, William Miller, stated that the government “recognizes that there is a public interest in sustaining [its] jobs and maintaining a strong and competitive national automotive industry.” The secretary was trying to explain the justification for the loan.

On May 10, 1980, William Miller announced the approval of nearly $1.5 billion to the Chrysler Corporation. At the time, the loan was the biggest rescue package the government ever granted to an American organization.

In raising the $2 billion, Lacocca persuaded union leaders to accept wage cuts and layoffs, and he streamlined operations. Through his effort, coupled with his focus on fuel-efficient vehicles, Lacocca was able to steer Chrysler to recovery. In fact, the company posted record profits of around $2.4 billion in 1984, which was just a year after the company finished paying its loans.

Chrysler has continued to perform remarkably since then. However, the company found itself in trouble in early 2009 due to the sharp drop in sales and a growing global financial crisis. The corporation received $4 billion in federal funds around that time. Later, the company filed for federal bankruptcy protection and was supposed to enter a partnership with Fiat, the Italian automaker.

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