The Last Great Senate

by Ira Shapiro

  Lowell Weicker had earned a reputation for fiercely independent judgment, and he hated bailing out failing companies. He expressed anger about the unfairness of helping Chrysler when thousands of small businesses were allowed to fail each year without any hope of government help. “I am not going to stand by and watch inefficiency rewarded while thousands of other businesses go down the tubes,” Weicker warned. “More jobs will be lost if the Government hands out money to every Lockheed, Wheeling Pittsburgh, or Chrysler that comes along.”

  The task of making the case for helping Chrysler and changing the tenor of the debate in the Committee fell to Don Riegle, who had already been close to the center of the effort to save Chrysler for months. He had earned some credibility with the Banking Committee the year before by actively supporting the loan guarantees to New York City. At that time, he had expressed pessimism about his city of Detroit and the health of the auto industry. Now he termed Chrysler’s situation a “danger signal” for the rest of the country:In industry after industry, the United States today is encountering increasingly tough and sophisticated competition from foreign firms. This is no accident. Many of those firms are part of a modern industrial base that was built after World War II, unlike ours, and they have benefited from supportive policies of their governments. Japan, West Germany, France and almost every other nation have mechanisms for charting the development and if necessary the redevelopment of major sectors of their economy. Government, industry and labor in those countries have cooperated to influence how major industries affect the national interest. The flow of capital, tax policy, import and export policy, government regulation and other public action are often coordinated in a coherent strategy to modernize major industries, increase their international competitiveness, and stabilize employment.

  But what of the United States? Unfortunately—and with a few notable exceptions such as agriculture—the United States has not thought to develop national policies and strategies for its major industries. Instead, government, labor and industry are often adversaries. We have moved into a full-blown world market situation and yet our national economic mentality is still largely geared to insular notions and strategies that really do not properly fit today’s new circumstances.

  It was an early, cogent statement in the debate over trade, competitiveness, and “industrial policy” that the United States would conduct over the next decade.

  Riegle then turned to the plight of the auto industry. Unlike its competitors, the United States kept gasoline prices artificially low, producing a market for large cars that could not be exported. After decades of inattention, fuel conservation was then imposed through government regulations. The cost of complying with these regulations was staggering, hitting the auto manufacturers at precisely the time when foreign competition was most intense and the demand for their cars was crumbling.

  Riegle noted that two years before, Chrysler had embarked on a massive revitalization program that would allow it to produce fuel-efficient cars with four-cylinder engines and front-wheel drive, which could compete with foreign imports. But now that revitalization program was in jeopardy. He outlined his assessment of the grim consequences that Chrysler’s failure would have: Chrysler’s assets tied up in court for years; 600,000 workers out of jobs, at least temporarily; disproportionate damage to the inner cities where Chrysler was a major employer; 20,000 suppliers, many well managed and technologically advanced, also driven to the wall.

  “So Chrysler would not be just another bankruptcy,” Riegle concluded, “any more than a nuclear explosion would be just another bomb going off, and no intelligent and responsible Government should permit the unleashing of such a devastating, uncontrollable and far-reaching chain of events.”

  Testifying in support of helping Chrysler, Eagleton honed in on the critics’ concern about the precedent being set. “What is the precedent,” he asked, “of standing rigidly on some supposed principle while one of our major auto makers, and perhaps the entire U.S. auto industry, is overwhelmed by foreign competition which finds itself particularly well served by our energy crisis?” Eagleton contended that in our mixed economic system, he could find a precedent for almost any action. The genius of America’s system was adaptability to problems at hand, and in this case, federal guarantees, however risky, were far preferable to letting Chrysler go under.

  Robert Byrd was not on the committee, but had been following the situation closely and asked to testify. Two weeks earlier, he had expressed the view that “Chrysler must exhaust all self-help possibilities before the Government could properly offer assistance.” He was not sure that test had been met but was pleased that Treasury’s loan guarantee proposal would require the company to raise additional unguaranteed capital. But Byrd’s principal point was Chrysler’s employees should receive a substantial part of Chrysler’s stock as a condition for federal help to Chrysler. By creating an employee stock ownership plan (ESOP), “Chrysler’s work force would be offered a tangible financial incentive to make the sacrifices which the Treasury plan would require.” Byrd made it clear that he meant “blue collar employees,” since Chrysler’s white-collar employees already held a significant amount of stock.

  Moreover, Byrd argued that “the bitter medicine” of requiring Chrysler to provide its employees with one-third of the stock would deter other companies from seeking federal help. “Diluting existing shareholders’ ownership, together with the inevitable election of employee representatives to the board of directors, will discourage all but the most desperate companies from approaching the Government for help,” Byrd observed. “To authorize federal assistance without this disincentive would pass an unacceptable windfall from the Federal government to Chrysler’s financiers.”

  ON NOVEMBER 15, THE more liberal House Banking Committee approved the Chrysler bailout by a vote of 24–17. The next day, the Chrysler workers voted to approve the three-year contract negotiated by Fraser and the other union leaders. It broke with UAW’s long tradition of “pattern bargaining” by getting a less generous deal from Chrysler than from GM and Ford. But the rank and file accepted their leaders’ view that the terms were necessary because Chrysler was “on the brink” of going under.

  Nevertheless, several Senate Banking Committee members condemned the action by the House Committee. Former commerce secretary Peter Peterson, who had significant stature on the Hill, told the Banking Committee that he would reluctantly rather let Chrysler fail than set a precedent. After testifying himself on November 19, Doug Fraser told the press that based on the attitudes of the Senate Banking Committee, he felt less optimistic that Congress would bail out Chrysler. “After listening to some of the comments in there,” Fraser said, “I began to wonder.”

  Opposition from staunch free-market advocates was expected. But the idea of rescuing Chrysler was also under assault from the left. By 1979, consumer advocate Ralph Nader had been a national icon for almost fifteen years. Since he burst into the public consciousness in 1965 with his book Unsafe at Any Speed, no one had played a larger role in forcing change on the reluctant auto companies. On November 20, Nader testified in vehement opposition to saving a company “with a two decade pattern of mismanagement, which includes . . . the production of too many of the wrong kind of vehicles at the wrong time and the production of too few of their better selling vehicles at the right time.” Nader ripped Chrysler for opposing every effort to improve fuel economy and auto safety, including the installation of seat belts, and urged that as a condition for any federal aid, Chrysler should be required to manufacture only safe and fuel-efficient cars, and mass transit equipment.

  Jake Garn injected a note of humor, saying that Nader’s testimony disturbed him because he found himself agreeing with so much of it. But Garn quickly went on the attack, ripping Nader for being one of the “toughest arm-twisting people that come around this Hill” and for “being anti-business, anti-profit, pro-government” in virtually every case. Garn went on to say that if the American consumers knew
what Nader was costing them, through excessive government regulation, “they would have run you out of the country.”

  The exchange became unexpectedly infused with emotion when Nader noted that Garn’s wife had been killed in a car accident in 1976:Nader: I suspect, Senator Garn, that some senator’s personal tragedy might not have occurred if the auto industry had listened to some of us in the early years to build safer cars.

  Garn: I think that is one of the cruelest comments that you have ever made. Yes, my wife died in an auto accident.

  Nader: And she could have been saved. She could have been saved with cars that should have been built 20 years ago.

  After an angry exchange about the details of the accident, Garn exploded:Garn: That’s a personal tragedy of losing my wife of 19 years, to interject that into a hearing. What kind of a human being are you?

  Nader: A human being who is working to save lives on the highway. Don’t try and over-emote. I’m saying that safer cars would have saved many Americans, including people in a crash of that kind. And for you to try to pillory me because I am trying to say that your wife could have been saved in a casualty of that kind is irresponsible.

  The next day, Citicorp Chairman Walter Wriston testified against the bailout, and the President of Manufacturers Hanover Trust, John McGillicuddy, said that Chrysler’s creditors might not approve new loans. Opposition to helping Chrysler was producing strange political bedfellows, from Nader to the nation’s leading bankers, from arch-conservatives like Barry Goldwater to neo-liberals like Gary Hart and Adlai Stevenson. With Thanksgiving imminent and the year-end coming fast, Chrysler, its future uncertain, hung by a thread.

  IT WAS TIME TO fish or cut bait. At the heart of the effort, working every day to put together an acceptable compromise, were the key senators. Eagleton and Riegle were joined by Carl Levin from Michigan and Bill Roth and Joe Biden from Delaware, because of their deep interest in the fate of Chrysler’s plant in Newark, Delaware. These Chrysler advocates would turn to Richard Lugar and freshman Paul Tsongas from Massachusetts, Banking Committee members who were positioned to cut the deal in committee.

  The senators could use their positions to negotiate with all the key players, from the White House and Treasury Department, to Chrysler and the United Auto Workers, to the banks on Wall Street and Main Street. They had the credibility that came from their commitment to rescue Chrysler if at all possible. They had the ultimate authority because they were producing the legislation that would authorize the loan guarantees and set the conditions that had to be met before Chrysler would receive any money. They had the vantage point and the political acumen needed to assess what package could command congressional and public support. They rolled up their sleeves and worked tirelessly in a desperate effort to stave off Chrysler’s collapse.

  Anyone who has been involved in a high-stakes, multiparty negotiation will recall that there is a time, often late at night, when you are exhausted, when differences seem unbridgeable and failure appears likely, if not inevitable. But very often, the feeling of likely failure signals a prelude to the final negotiations and the concessions that everyone must make to reach an acceptable result. Although Proxmire was a political maverick, he had keen insight, and he had been through the New York City experience just eighteen months before. He predicted that despite his opposition, his committee would report a favorable loan deal for Chrysler before Christmas.

  ON NOVEMBER 27, JUST after Thanksgiving break, Lugar, a key architect of the New York City loan guarantees, once again stepped forward with a crucial contribution to a possible compromise. He proposed a “pure” $4 billion bailout with only $1 billion coming from the government. His proposal would freeze UAW wages, freeze management wages, and require Chrysler to sell $50 million in stock in 1980 to dilute the value of the stock held by the current Chrysler shareholders. “This plan is based on the principle that taxpayers should help save the Chrysler jobs,” said Lugar, “but only after driving a reasonable bargain in terms of real sacrifice by the workers, management, stockholders and bankers who are asking for the help.” Tsongas, who had been previously on the fence, expressed his willingness to support a package based on shared sacrifice.

  On November 29, the Senate Banking Committee, by an emphatic 10–5 vote, approved the bailout for Chrysler that had seemed impossible just a few weeks before. Lugar and Tsongas, sitting at far ends of the committee dais (Proxmire referred to them as his “wide receivers”), produced the near-final bill.

  “Shared sacrifice” had become the watchword of the day, and the bill certainly took pains to dole out misery for many. Chrysler stockholders would give up 40 percent of their shares to employees; banks, which had $400 million in outstanding loans to Chrysler, must lend $400 million more. Most tellingly, the Lugar-Tsongas bill required the UAW to give up the modest wage increases it had just negotiated with Chrysler for the next three years. A wage freeze for three years, at a time when inflation was running at 13–14 percent, could mean a 40 percent reduction in earning power. The freeze would save a potential $1.3 billion.

  But negotiations were not quite finished. In fact, the bill inflicted too much misery for the UAW to accept. Its lobbyist, Howard Paster, who had worked for Birch Bayh and was widely respected on the Hill, called the proposed wage freeze “so unfair as to be unacceptable.” Paster said “anti-union” senators “are laying the burden on us for saving the company. . . . If the price of preserving the company is not to feed their families and give up their homes, it may not be worth paying.” On December 4, Doug Fraser termed the three-year pay freeze “unacceptable.” On December 6, Chrysler issued a formal announcement denouncing the Senate banking bill as “unworkable because it would impair worker productivity and would cause a serious loss of highly skilled design, engineering and technical workers so essential to the company’s future success.”

  Auto sales continued to plummet, increasing the precariousness of Chrysler’s position. Chrysler said that without an interim loan, by January it would run out of money. The vise was tightening on all the key players.

  On December 14, Mondale, speaking for Carter, said that it was essential for Congress to act immediately. Lugar said that he might bend on the wage freeze, if the UAW would make other concessions. “I’d rather see a demonstration of people trying to save their jobs rather than negotiate a figure,” Lugar commented. “The wage increases are only increases if you have a job, if there is a wage at all.” Tsongas reluctantly indicated that he would compromise further, but expressed doubt that a reduced package—$3.3 billion rather than $4 billion—would be enough to save Chrysler.

  On December 18, both the House and Senate took up the Chrysler loan guarantee bill. Quick approval seemed certain in the House. The Senate outcome remained in doubt as the debate began. Roth argued that the wage freeze was too much to ask; many of Chrysler’s best employees would leave for other jobs. Lugar responded strongly that “the brain drain argument is specious from beginning to end.” He described himself as being “weary of those who are serving as champions of Chrysler and of the workers trying to diminish any potential success of this package.” Off the Senate floor, the key senators negotiated to find the delicate balance: inflicting enough pain on Chrysler and the UAW to win Senate support, without pushing the company and the union into outright opposition.

  Riegle held the Senate floor for hours, rebutting every attack on Chrysler’s plan, warning that the Senate bill asked too much of the UAW, and chiding Proxmire for his earlier support for assistance to American Motors. It soon became clear that he was stalling for time. He wanted the House bill to pass first, with its $400 million contribution by the UAW. When the House passed the legislation at 7:30 p.m., by a vote of 271–136, it seemed to have the effect sought by the UAW’s supporters.

  Byrd called a brief recess and again summoned the key senators to his office. They emerged with a deal: the final vote would be postponed until the next day, and Eagleton, Biden, and Roth offered a new version of t
he legislation cutting the UAW contribution to $400 million. Despite the opposition of Proxmire and Lugar, the Eagleton-Roth-Biden amendment passed the Senate by a 54–43 vote. Chrysler supporters were jubilant. The final vote seemed close, and the outcome assured.

  Just as swiftly, a furious Lowell Weicker punctured the celebratory atmosphere with the promise of a filibuster. “I assure the Senators that I and many others on their side of the floor now feel it is the worst of all worlds,” Weicker boomed. “I suspect there would be no great difficulty in assuring that debate will be thorough, very thorough.” Weicker would use the filibuster to delay, and Chrysler, with cash evaporating, needed the legislation quickly.

  No one doubted Weicker’s seriousness. Byrd summoned the key senators into his office again, where they were joined by Fraser, and they produced a new compromise. Labor’s contribution was set at $525 million, and the government’s loan guarantee figure was increased to $1.5 billion to match the House legislation. Levin attempted an amendment that would have granted Chrysler $500 million of the $1.5 billion as “interim financing,” to be granted immediately while the overall package was being worked out. Proxmire, and many other senators, adamantly refused. Weicker called Levin’s bridging loan “the wickedest part of the proposal” and threatened to filibuster again. Levin and Riegle went to Gerald Greenwald, Chrysler’s chief financial officer. “They told me ‘pick your poison,’” Greenwald later recalled. “We could either have no act at all, or an act without interim financing. I took about three minutes to call Lee [Iaccoca] and told them to do what they had to do.” Supporters of the amendment staged a tactical retreat, and the Levin amendment was defeated.