This scholarly book has a fascinating chapter on the Chrysler bailout of the late-70s. Author Davita Silfen Glasberg challenges the usual story lines found in the auto buff press, such as that safety and emissions regulations put Chrysler at a competitive disadvantage relative to its larger Big Three rivals.
Instead, Glasberg presents a wide-ranging critique of Chrysler’s management that reaches all the way back to the late-40s. For example, by 1957 Chrysler’s debt-to-equity ratio was seven times higher than GM’s and almost four times higher than Ford’s. This led to a cash-flow shortage.
As with other scholarly writing about the auto industry, Glasberg doesn’t always get the details correct. Consider the following passage: “Chrysler’s chairman, Lynn A. Townsend, decided in the 1950s to ‘match every Ford and GM product line with one of his own'” (p. 66). Particularly with the 1955 and 1957 models, Chrysler did indeed try to compete head on with the Big Two. However, Townsend did not take a top role until 1961 (Petersen, 2000; Langworth and Norbye, 1985).
Glasberg also cherry picks data, e.g., noting that Chrysler’s profits dropped from 5.8 percent in 1950 to – 3.4 percent in 1958. Given the cyclical nature of the auto industry, how is it meaningful to compare profitability at the peak of the post-war sales boom with the depths of the Eisenhower recession? What’s particularly odd is that Glasberg presents this comparison as part of a discussion about Chrysler’s foreign expansion in the late-60s and early-70s.
Chrysler is also criticized for not coming out with a subcompact car in the early-70s and instead investing in a major redesign of its full-sized cars for the 1974 model year — right before the first gas crisis. I’ve argued that Chrysler should have extended the life of the fuselage big cars (go here) but question why it was a bad move for the corporation to avoid the huge costs of developing a subcompact platform rather than concentrating on their highly profitable compacts.
Glasberg goes on to note the poor quality of the 1976 Volare and Aspen, but refers to their introduction as “Chrysler reentering the compact car market” (p. 68). Huh?
One of the most provocative points made by Glasberg is that the biggest impact of the bailout was to prop up Chrysler’s lenders. It’s interesting analysis and the strongest part of the chapter.
The Power of Collective Purse Strings: The Effects of Bank Hegemony on Corporations and the State
- Davita Silfen Glasberg; 1989
- University of California Press, Berkeley, CA
- Available on Google Books
“Moreover, results of a National Highway and Traffic Safety Administration (NHTSA) study contradicted Chrysler’s assertion that regulations placed a disproportionate burden on the smallest of the Big Three automakers. The study concluded that regulations actually imposed higher costs on the larger automobile firms. . . .” (p. 64).
“In another critical strategy that set Chrysler apart from GM and Ford, Chrysler’s management purchased parts from outside suppliers rather than vertically integrating as GM and Ford had done. By 1964 Chrysler’s outside purchases amounted to 64 percent of revenue, compared with 52 percent for GM and 62 percent for Ford. . . .” (p. 67)
“As I argued earlier, banks do not have absolute or unconstrained power. At the conclusion of the struggle over federal loan guarantees for Chrysler, the banks had written off $600 million of Chrysler’s debt. All parties involved with Chrysler lost in negotiating the rescue. Labor, suppliers, and local, state, and federal governments all compromised and made major concessions. But the banks lost the least and were able to achieve more of their original demands. They never put up any new money, and they emerged from the struggle with the trimmed-down Chrysler Corporation they wanted, with no risk of losing their money later” (pp. 95-96).
OTHER REVIEWS:
RE:SOURCES
- Langworth, Richard M. and Jan P. Norbye; 1985. The Complete History of Chrysler Corporation 1924-1985. Publications International, Skokie, IL.
- Petersen, Melody; 2000. “Lynn Townsend, Ex-Chrysler Chief, Dies at 81.” The New York Times. Posted, August 22; accessed April 1, 2013.
Be the first to comment