by Ira Shapiro
ON MAY 29, 1979, Chrysler Corporation announced that it was closing its most storied auto plant—“Dodge Main” in Hamtramck, Michigan. In the late 1970’s, 5,000 workers assembled Dodge Aspens and Plymouth Volares in that plant. Dodge Main had weathered hard times before, and the workers had become accustomed to threats of closure. But this time, the threat was real; the last car would roll off the line at Dodge Main in January 1980.
The fate of Chrysler Corporation, the nation’s tenth-largest company, would soon hang in the balance. Chrysler had major manufacturing facilities in St. Louis, among other places—its rescue would require the combined talents of a group of younger senators, of which the most senior was Tom Eagleton of Missouri.
Eagleton was a terrific politician: informal, likeable, a fine lawyer, and a rousing speaker and debater. His father had been St. Louis’s finest trial lawyer and counsel to the St. Louis Cardinals. Eagleton had grown up going to spring training every spring and remained a great baseball fan. But his true passions were American history, politics, and government. Eagleton had a rumpled appearance, with his shirttail often out. Many people detected a marked resemblance to Jack Lemon. He was customarily a whirling dervish of activity: chain smoking, racing from meeting to meeting, tearing articles out of newspapers and magazines, dashing off irreverent notes to staff members and friends, sometimes on note paper with the heading “Dear Fuckface.”
He was known for his sense of humor and comic timing. Once, in the senators’ elevator crowded with members going to vote, Eagleton started loudly telling a new Polish joke that he had heard. From the back of the elevator, Ed Muskie, who was Polish, growled, “I’m here, Tom.” “That’s all right, Ed,” Eagleton shot back, “I’ll speak slowly.” He took great joy in retelling the story of the time when Admiral Hyman Rickover, the father of the nuclear navy, came to his office. Rickover had dressed him down, turned smartly, and walked into the closet. Years later, Eagleton would act out all the parts, his body shaking with gales of laughter.
Eagleton’s rise through Missouri politics was meteoric. He moved from circuit attorney to state attorney general to lieutenant governor, reaching the Senate at the age of thirty-nine. He had never lost an election and had impressed enough experienced Washington political figures to be considered for vice president less than four years after reaching the Senate. When George McGovern, having finally clinched the 1972 Democratic nomination for president, turned to choosing his running mate, his disorganized and hurried search led him to choose Eagleton, who was young, appealing, and Catholic, with strong ties to the labor movement McGovern’s insurgent campaign had alienated. But McGovern and his advisers, exhausted by the final push for the nomination and a chaotic convention, made the vice presidential choice in haste, with virtually no vetting of the prospective candidates.
Almost immediately after the convention concluded, press reports revealed that Eagleton had a history of depression and had been treated with electroshock therapy. The ensuing national media frenzy overwhelmed McGovern’s general election campaign before it even got started. McGovern announced his intention to stand by Eagleton “1000 %,” and then reversed himself, asking Eagleton to leave the ticket. Many Americans sympathized with Eagleton and felt that his past medical history was not relevant, given his strong performance as a senator. Others, however, thought that Eagleton should have disclosed his past history to McGovern, letting the nominee decide how much weight to give it. Eighteen days after being selected, Tom Eagleton was off the Democratic ticket, and George McGovern, already facing an enormous uphill struggle, was on the way to a landslide defeat at the hands of Richard Nixon.
The whole experience might have broken a lesser man, and Eagleton lived with the possibility that no matter how much he accomplished, he might only be remembered for leaving McGovern’s ticket due to his past mental illness. But the voters of Missouri then stood by him in 1974, reelecting him by a wide margin. Eagleton had been on the way to being a great senator before the vice presidential debacle. He had been one of the leading opponents of the Vietnam War and one of the foremost advocates of reasserting Congress’s power to declare war. He had helped Muskie and Howard Baker fashion innovative provisions of the Clean Air Act. Eagleton was even proud of his work as chairman of the D.C. Subcommittee, although it was a thankless task and a political millstone. He had been instrumental in the legislation giving the District of Columbia “home rule” in 1973. He remained determined to be a great senator. And if Chrysler, the employer of so many of his fellow Missourians, was in jeopardy, Tom Eagleton would make rescuing it his highest priority.
CHRYSLER WAS FOUNDED BY Walter Chrysler in 1922. It played a major part in the U.S. effort during World War II, deftly switching from the manufacture of automobiles to airplanes. During the postwar period, although it was the smallest of the “Big Three” auto companies and constantly battling to hold its ground against GM and Ford, Chrysler had become the tenth largest U.S. corporation.
The U.S. auto industry had boomed along with the postwar prosperity and an expanding middle class with suburban lifestyles. But the auto industry’s situation changed abruptly in 1973 when OPEC embargoed oil shipments to the West, punishing the United States for its support for Israel. Suddenly, the Big Three auto manufacturers faced intense competition from Japanese companies that had manufactured small, fuel-efficient cars that previously lacked appeal to Americans. What Robert Reich would later describe as “the peculiar post-war preeminence by default” of American companies seemed to disappear overnight.
The U.S. economy entered a severe recession. Unemployment reached 9.2 percent by 1975, and auto sales shrank. At the same time, the auto industry was coping with an array of new regulatory requirements dealing with safety, emissions standards, and fuel efficiency. These requirements imposed billions of dollars in additional costs just as the industry was facing a recession and intense foreign competition. Chrysler, the smallest of the companies, would have the hardest time meeting the regulatory requirements.
The company seemed snake bit. It had restyled its large cars at precisely the moment when the oil embargo made them unappealing. Its new small cars, Aspen and Volare, earned Motor Trend’s car of the year award in 1975; eighteen months later, the Center for Auto Safety labeled them “the lemons of the year” after a series of safety recalls. Chrysler laid out a $7.5 billion modernization program, but in 1978, despite an expanding U.S. auto market, Chrysler lost $159 million. The banks that funded Chrysler’s debt were showing increasing impatience and decreasing confidence in the company.
In December 1978, John Riccardo, Chrysler’s CEO, had come to Washington to alert Stuart Eizenstat, Carter’s chief domestic policy adviser, about the company’s deteriorating financial situation. He lamented the double whammy of a crumbling auto market and looming capital requirements. Fully half of the cost of the retooling that Chrysler was doing came from complying with new government regulations issued between 1971 and 1977. Despite a determined strategy of divestiture, consolidation, and layoffs, Riccardo said that Chrysler could fail to meet its capital requirements by one billion dollars in 1979 and 1980.
Riccardo asked Eizenstat for temporary relief from certain federal regulations. He made it clear that Chrysler did not want a “Lockheed-style” loan guarantee, which had saved the aerospace company in 1971. In his view, the publicity surrounding such a loan guarantee would hurt Chrysler more than it helped. Eizenstat listened, but made no commitments, and Riccardo left empty-handed.
Now, in 1979, Chrysler’s losses mounted ominously. By the end of June, Riccardo returned to the White House as Chrysler was about to lose $230 million in a single quarter. Treasury Secretary Michael Blumenthal and Eizenstat listened attentively to Riccardo’s presentation and promised to keep an “open mind” about granting relief to Chrysler. They agreed to review all the options, including special legislation and even federal aid, although one official described that option as “very unlikely.”
Chrysler knew what it wa
nted from the federal government: two years of relief from federal regulations and an advance refund against federal taxes that the company would pay when it returned to profitability. But Treasury Department officials were adamantly opposed, calling it “a complete nonstarter.” Chrysler’s struggle to convince policymakers became even harder when Carter replaced Secretary Blumenthal, who was regarded as sympathetic to the company’s plight, with G. William Miller, the Federal Reserve Board chairman, who had been outspoken in his opposition to providing help for Chrysler.
On August 3, Miller advised President Carter that Chrysler and its congressional advocates (foremost among them Eagleton, Don Riegle, and Michigan House member Jim Blanchard) were running around Washington making the argument that the government had created their problems and that the solution was a large advance against future taxes. The Carter Administration was trying to hold the line on the federal budget, and it certainly did not want to do anything that would further intensify the anti-tax, antiregulatory fervor that was sweeping the country. Miller recommended that Chrysler’s proposal should be knocked down before it developed any momentum. The president agreed: “You’re absolutely right, put it any way you like, we’re not going to do it.”
Secretary Miller quickly disabused Chrysler of any illusions about tax relief. According to Wendell Larsen, Chrysler’s vice president for government relations, “Miller just blew us out of the water.” Larsen recalled Miller saying: “‘If you’re going to get anything, it’s going to be loan guarantees, and even then you’ll only get seven hundred fifty million dollars, and it’s going to be tough to pass, and even if it passes, it’s going to be so awful you’ll wish you never brought the whole thing up.’ . . . He was vicious.”
Only a year had passed since the Senate’s hotly debated decision to offer loan guarantees to New York City. But ultimately, the Senate had accepted the arguments of Jacob Javits, Daniel Patrick Moynihan, Governor Hugh Carey, and Mayor Ed Koch that the bankruptcy of the nation’s leading city would be damaging to the national economy and America’s place in the world. The American public seemed comfortable with that reasoning; there was no obvious buyers’ remorse coming from the taxpayers.
In comparison, Chrysler was a leading U.S. company, an employer of 140,000 people directly, whose failure would have a major effect on suppliers throughout the Midwest. But it was not New York City. Many senators were already expressing concern about the precedent to be set by bailing out a private company. Bill Proxmire, the Banking Committee chairman, and Jake Garn, now the ranking Republican after Ed Brooke’s defeat, had led the opposition to helping New York City. It was safe to assume that they would be adamantly opposed to helping Chrysler. But other committee members, generally moderate to liberal, including John Heinz, Lowell Weicker, and Adlai Stevenson, were also expressing opposition. The early headcount looked very bad for Chrysler. Russell Long, however, said that it was too early to predict how Congress would ultimately react. “We did save Lockheed,” Long noted, “and we made money. The alternative is the company going out of business.”
JIMMY CARTER HAD FRUSTRATED many members of Congress with his regular lack of sensitivity to their politics. But the Carter White House understood presidential politics and the dynamics of the Democratic Party. Rebuffing Chrysler in late 1979 would be very damaging to Carter in Michigan, Missouri, and throughout the industrial Midwest. Saying no to Chrysler meant saying no to the United Auto Workers (UAW), which occupied a special place in the Democratic Party. Douglas Fraser, the UAW president, had earned great respect from Democrats; he followed in the great tradition of Walter Reuther and Leonard Woodcock. Fraser had a longstanding and close relationship with Vice President Walter Mondale, but his friendship with Ted Kennedy was even deeper. It was not difficult to envision the UAW playing a powerful part in a Kennedy challenge to Jimmy Carter for the Democratic nomination. Ideology might have dictated the federal government standing aside rather than helping Chrysler; politics surely dictated the ultimate decision to find a way to help.
Chrysler recognized that in order to win the assistance of the U.S. government it would need to present a new face to the Congress and the country. Riccardo agreed to step aside as CEO to be replaced by Lee Iaccoca, a blunt-spoken engineer who had built a brilliant career at Ford but had been bypassed for company leadership by Henry Ford. (“I just don’t like you” were Ford’s last words to Iaccoca when he fired him.)
Iaccoca met with Treasury Secretary Miller on September 7 and advised him that Chrysler’s losses had doubled each quarter and would exceed $700 million for the year. Iaccoca asked Miller for $1.2 billion to save the company. Miller immediately responded that “was way out of line” and that the administration would support a move for $500 to $700 million in loan guarantees. Iaccoca knew that wouldn’t be enough. The task of bridging the gap would therefore fall to the Congress, particularly the Senate.
Further bad news was on the way. On October 31, Chrysler reported a staggering $460 million loss for the third quarter, compared to $150 million the year before. The company was hemorrhaging money. Seeing the political and economic necessity of action, Carter finally waded in.
On November 2, the Washington Post reported that the Carter administration had decided to provide $1.5 billion in federal loan guarantees to Chrysler, backed by $1.5 billion from other sources. That package would constitute the largest bailout ever provided to a private company. The administration had raised its ceiling because it had become convinced that Chrysler would fail if the rescue package was any smaller. Secretary Miller stated that the aid program should “be sufficient to achieve the purpose” of keeping Chrysler in business, rather than just postponing “the day of reckoning.” He observed soberly that the collapse of America’s tenth-largest corporation could trigger “substantial unemployment and economic disruption” with costs “more onerous to our country than the risk of loan guarantees.”
In six weeks, the administration’s commitment to Chrysler had tripled. This happened in part because the UAW demonstrated its readiness to play an important part in rescuing Chrysler. On October 17, the union announced that it would make concessions to Chrysler that it would not make to GM and Ford—a break from its usual negotiating approach. On October 19, Doug Fraser told a House subcommittee that the UAW would loan Chrysler $850 million from its pension fund if the federal government would guarantee Chrysler against default. Within the White House, Vice President Mondale and Eizenstat had taken the lead in educating administration officials to the urgency of Chrysler’s situation and the political realities facing the president. Mondale, for one, got an earful from Coleman Young, Detroit’s charismatic mayor who was also vice chairman of the Democratic National Committee. The economic health of Michigan, Missouri, and much of the Midwest hinged on the survival of the American auto industry, to be sure. But administration officials also acknowledged that presidential politics played a key role. No one in the Carter administration wanted to be the reason that Doug Fraser and the UAW threw their great weight to Kennedy and against the president. Economic realities and political realities coincided.
IT WAS NOW UP to the Senate. As chair of the Banking Committee, Proxmire would face the situation the same way he had approached the New York City challenge the previous year. Although vehemently opposed, he would hold hearings to allow Chrysler to make its case and the Senate to fully consider the issue.
On November 14, Proxmire gaveled the Banking Committee hearing to order in a hearing room packed with reporters and television cameras. After noting the urgency of the problem, he promptly ripped into the idea of providing relief to Chrysler. He disputed the contention that the cost of a Chrysler bankruptcy would be astronomical, or that hundreds of thousands of jobs would be lost. “No one wants to see jobs lost. And no one likes to see companies fail,” said Proxmire. “But why should some companies be worthier than others? We let 7,000 companies fail last year; we didn’t bail them out. Now we are being told that if a company is big enough, if
it’s the 10th largest corporation in the country, we can’t let it go under. Then how big is big enough to not be allowed to fail? Where do we draw the line?”
Proxmire saw the precedent as a dangerous path to follow: “We must face the possibility, even the probability, that if we give loan guarantees to Chrysler today, we may well have Ford on our doorstep tomorrow.” Proxmire kept his statement brief, saying that he wanted the committee to hear from the other senators; this was not a “routine situation” and these were some of the best statements on both sides of the issue that he had read in a long time.
Garn, the ranking member, further proved Proxmire’s point. Although stating a strong philosophical opposition to “government bailouts of business,” Garn expressed concern about the costs to the government, in terms of unemployment and pension benefits, if Chrysler were to fail. Garn committed to keeping his mind open, exploring all key issues, including the need for federal assistance; Chrysler’s business plans and prospects for the future; the union, dealer, and supplier efforts to keep Chrysler viable; and the cost to Chrysler from “unnecessary government regulations.”
John Heinz, bearer of one of the most famous corporate names in America, prided himself on his business acumen. He, too, expressed profound reservations about bailing out Chrysler, predicting “the precedent for bailing out a single business could well come back to haunt us.” Heinz also expressed a fundamental concern that the calls for sacrifice to save Chrysler had so far asked a great deal from Chrysler’s management, employees, suppliers, and creditors, but nothing from Chrysler’s stockholders, who stood to receive “the biggest windfall of all times” if the federal government bailed out Chrysler.
