"Would America be better off without Chrysler?" screams the headline on a two-page ad that's been appearing in major magazines of late. And it goes on with dire talk about Chrysler's 140,000 employees, its dealers' 150,000 employees, and the "hundreds of thousands who supply goods and services to Chrysler." All, we are led to believe, face the loss of their jobs if the company goes bankrupt. Moreover, the ad raises the specter of a "Big 2" instead of the present "Big 3," darkly invoking the perils of shared monopoly.
What we're seeing is a replay of earlier calls for federal bailouts of Lockheed and Pan Am. And the argument is as phony now as it was then. With the unwitting cooperation of shallow news reporting, Chrysler is fostering the impression that bankruptcy means disappearance—as if the company's physical assets were literally going to be liquidated, never to be seen again. But (as pointed out on this page in June 1975) the assets of a company are resources, things of value. Chrysler's creditors—especially the banks that have loaned it $1.8 billion—are not about to let those resources disappear. A bankruptcy proceeding is designed to buy time to transfer those resources into more competent hands, so that creditors can eventually be paid off.
Nobody knows exactly what would take place during a Chrysler bankruptcy: perhaps reorganization as a single firm, perhaps the sale of various plants and facilities to other auto firms, both domestic and foreign. But given the level of demand for cars in this country, there's no question that the vast majority of Chrysler's assets (and therefore jobs) would remain involved in automobile production.
So much for the argument from hysteria. And the justice of the case? Critics of a federal bail-out correctly argue that it flies in the face of free-market principles, rewarding management failure and giving Chrysler an unfair advantage over its competitors. And why, they point out, should one firm be singled out for rescue, when thousands of others go bust every year?
But no, says Chrysler management, we are a special case. We have been victimized by government regulations, which have cost us billions and affect us more severely than our larger competitors, GM and Ford. All we're asking for is "temporary assistance for 1979 and 1980 equal to the cost of meeting government regulations for those two years." This argument has met with some approval from conservatives, including National Review (Aug. 31). But it, too, is misleading and wrong.
The auto industry is hardly the only industry faced with massive government regulation, so if Chrysler is to get aid, the waiting list is likely to lengthen tremendously. But, more important, all the other firms in the auto industry, most of which are smaller than Chrysler, somehow seem to be coping with the regulations. American Motors, Toyota, Volkswagen, Nissan, Honda, Fiat, et al. are all managing to turn out cars that people like and that meet the myriad of federal standards.
American Motors is a good case in point. After losing money in 1975 and 1976, the firm dropped its intermediate-sized Ambassador and Matador lines and concentrated on what it knows best—compacts, subcompacts, and jeeps. By thus restricting its line-up, AM's market share has dropped, but its profits have steadily increased. If tiny AM can afford the cost of government regulations, then surely Chrysler—with eight times the sales volume—ought to be capable of doing the same.
But there's the rub. The hard fact is that Chrysler has been out of touch with the market. The company that brought us tail fins in the '50s and failed to build a subcompact to compete with the Pinto and Vega in 1971 (bragging about "no junior editions to compromise your investment") restyled its complete line of big cars just when the Arab oil embargo hit and invested a fortune in failing European carmakers instead of tooling up at home to build cars for the conditions of the '70s. It's the market that has caused Chrysler's share of auto sales to dwindle to just 11 percent.
Clearly, taxpayers should not be asked to bail out Chrysler, either by loans or loan guarantees. But the federal government could take steps to ease the plight, not just of Chrysler, but of all automakers. A three-point program to revitalize the auto industry would include the following:
• Repeal federal safety standards. The industry and consumers are far more safety-conscious now than 10 or 15 years ago. Repealing these rules would not lead to wholesale abandonment of safety features. What it would do is subject such features, especially costly boondoggles like air bags, to the test of the marketplace, yielding important savings for consumers and automakers.
• Repeal federal fuel-economy standards. In this area, particularly, the market is working admirably. Precisely because of the move away from gas-guzzlers, Chrysler's big-car fetish has been dragging the company down. That's exactly how the free market is supposed to work. Bureaucratically defined MPG targets are totally unnecessary when fuel prices are allowed to rise to free-market levels (as they are at last beginning to be).
• Repeal remaining tariffs on imported cars. This last is a key to the whole program. The most important real competition in today's US auto market comes from imported cars, which now command 20 percent of all sales. Imports should not be singled out for special taxes, which only serve to artificially increase their selling prices. Instead, this vital, innovative sector of the market should be allowed to compete all-out with Detroit. If we really want to avoid "shared monopoly" and ensure a wide variety of cars, offering consumers maximum choice of safety, performance, and fuel economy, it is competition, not bureaucracy, that we must look to.
In short, though wrong in its arguments, Chrysler management does have a point. Federal regulations are a heavy burden on the auto industry—and a totally unnecessary one. But the answer is not for the federal government to soak the taxpayers. What it must do, instead, is get off the industry's back.
This article originally appeared in print under the headline "Rescue Chrysler?".