Chrysler bailout of 1979 Summary

  • Last updated on November 10, 2022

Although Congress had declined to provide economic assistance to other companies in the past, the consequences of those decisions convinced the legislature that aiding Chrysler was necessary. Taxpayers and advocacy groups, however, warned that the bailout would set a bad precedent for American businesses.

After losing more than $200 million in 1978 and nearly the same amount in just the first quarter of 1979, the Chrysler Corporation was on the verge of bankruptcy. Many factors had contributed to Chrysler’s decline: the costs of complying with federal regulations, an influx of foreign imports, and the gas crisis caused by the Arab oil embargo, which diminished market demand for Chrysler’s large, gas-guzzling vehicles. Chrysler hired Lee IacoccaIacocca, Lee, a former Ford executive to turn the company around. Iacocca began restructuring Chrysler and also sought loan guarantees from the federal government. Advocates of government aid argued that a bankruptcy would result in a tremendous loss of jobs and disruption of the stock market, but opponents countered that government help would set a precedent of rewarding failure and involving the government in private business.Chrysler Motors, bailout of 1979

Congress provided aid in the form of the Chrysler Corporation Loan Guarantee Act of 1979Chrysler Corporation Loan Guarantee Act of 1979, which provided Chrysler with $1.5 billion in federal loan guarantees. After the act’s passage, the United Auto Workers made concessions worth many millions of dollars in their contract negotiations with the company. These concessions also helped the company recover from bankruptcy and regain a competitive position in the industry. In 1998, Daimler-Benz bought Chrysler and formed DaimlerChrysler. In August, 2007, the Chrysler group was sold to Cerberus Capital Management, and it was renamed Chrysler LLC.

In October, 2008, the Big Three automakers were suffering huge losses because of falling sales, legacy costs, and a drop in the popularity of sports-utility vehicles and trucks that were the mainstays of their product lines. They appealed to the federal government for financial aid, with Chrysler and General Motors facing possible bankruptcies. On December 19, President George W. Bush announced that $13.4 billion in emergency loans would be made available to prevent the automakers’ collapse. However, the loans were given on condition that automakers make major concessions and organizational changes by March 31, 2009, to demonstrate that they could return to profitability. Ford, which was in a better financial state, was not expected to make use of the federal loans. On February 18, 2009, General Motors and Chrysler asked for $14 billion more in aid.

Further Reading
  • Breer, Carl, and Anthony J. Yanik. The Birth of Chrysler Corporation and Its Engineering Legacy. Warrendale, Pa.: Society of Automotive Engineers, 1995.
  • Dammann, George H. Seventy Years of Chrysler. Glen Ellyn, Ill.: Crestline Publishing, 1974.
  • Gup, Benton E. Too Big to Fail: Policies and Practices in Government Bailouts. Westport, Conn.: Praeger, 2004.

Automotive industry

Bankruptcy law

U.S. Congress

Enron bankruptcy

Ford Motor Company

General Motors

Lee Iacocca

WorldCom bankruptcy

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