The Loan Agreement

In 1979 G. William Miller replaced Michael Blumenthal as Treasury secretary, and Chrysler found itself struggling anew for some relief. Miller based his strategy for handling the Chrysler situation on the hope of wringing "major concessions from the company, its suppliers, its bankers, and its union" (Business Week , 27 Aug. 1979, 36).

After frustratingly slow progress, the federal government finally conceded. In November 1979 the Carter administration endorsed a maximum federal loan guarantee to Chrysler of $750 million (New York Times , 29 June 1980, F1). But the threat of a coming recession forced the government to double this figure to $1.5 billion. The plan called for Chrysler to raise $1.5 billion from sales of its assets and from concessions made by its workers, suppliers, dealers, and bankers. It is not clear why the federal government determined to rescue Chrysler; what is clear is that it ultimately succumbed to the enormous lobbying efforts on the firm's behalf.^[1]

Carter's endorsement did not secure $1.5 billion for Chrysler. The loan guarantee still needed congressional approval. After lengthy hearings, Congress offered a proposal for a federal loan guarantee on the condition that the United Auto Workers (UAW) concede $1.2 billion—"the equivalent of a three year wage freeze for union and non-union employees." The proposal also required a total of $1.43 billion in concessions from Chrysler's dealers,

[1] Rogers-Millar and Millar (1979) have suggested that power involves a situation in which the participants in a conflict share a common perception of one another's resources and one another's ability to use those resources. This version of Thomas's (1928) definition of the situation may be seen at work in Chrysler's struggle. The federal government perceived real power in the financial community's collective control of capital flows. The government also considered the U.S. economy unable to withstand the shock and reverberations of a Chrysler bankruptcy (see Iacocca 1984). Regardless of the validity of that perception, the Carter administration endorsed the loan guarantee, setting in motion the long struggle over concessions. Although the process of federal involvement in and commitment to rescuing Chrysler is important and interesting, it is beyond the scope of this research.

suppliers, and banks, and from state and local governments (Moritz and Seaman 1981, 285). The stage was now set for a great struggle between Chrysler, its workers, the banks, and the federal and state governments.