Full text of Paul A. Volcker Papers : Chrysler, Box 29, Item c201
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Collection: Paul A. Volcker Papers
Call Number: MC279
Box 29
Preferred Citation: Chrysler, 1979; Paul A. Volcker Papers, Box 29; Public Policy Papers,
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Citation Information
Document Type: Board of Governors
Citations:
Number of Pages Removed:
Restricted: Memorandum to Board of Governors from Division of Research and Statistics
(James L. Kirchline), "Chrysler Corporation," August 9, 1979.
Federal Reserve Bank of St. Louis
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DepartmentoftheTREASURY
WASHINGTON, D.C. 20220
TELEPHONE 566-204
FOR RELEASE UPON DELIVERY
Expected at 10:00 a.m.
November 7, 1979
STATEMENT OF
THE HONORABLE G. WILLIAM MILLER
SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON ECONOMIC STABILIZATION OF THE
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
Mr. Chairmam and Members of this distinguished Committee:
The Administration seeks your support for authority to provide
up to $1.5 billion in Federal loan guarantees for the benefit of
Chrysler Corporation on the condition that the Company raise
on its own $1.5 billion of new cash or savings from third
We believe that this
parties and on an unguaranteed basis.
$3.0 billion will finance the Company through 1983 and enable
it to reemerge as a commercially viable, self-financing
entity.
first, the
My testimony will cover four major areas:
arguments for Federal financing assistance in this case;
second, the Company's current business and financial situation;
third, its financing needs; and fourth, our specific legislative
proposal. Attached are appendices that provide additional
detailed information on certain issues.
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For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402
Stock Number 041-001-00191-3
2
REASONS FOR FEDERAL FINANCING ASSISTANCE IN THIS CASE
This Administration approaches Federal financing assistance
to private corporations with great caution. Normally, corporations should be financed in the private markets, but there
We think that
are cases in which exceptions should be made.
Chrysler represents one such case.
Chrysler is the tenth largest industrial corporation in
the United States. Its 1978 revenues were $13.6 billion,
generated almost entirely from the sale of 1.2 million cars
and 490,000 trucks. Its employment at the beginning of
this year was 131,000 and today approximates 113,000. Approximately a quarter of a million others are employed by Chrysler
dealers and principal suppliers. In addition, the Company
is the largest employer in Detroit and operates 25 of its
44 total production facilities in the State of Michigan.
The alternative to a Federal aid program appears to be
reorganization under the bankruptcy laws. Such reorganization
would be costly. On the other hand, loan guarantees authorized
now might prove to be costless if they are based on operating
and financing plans which cause Chrysler to emerge from its
present problems as a viable concern which no longer needs
governmental assistance.
Our view of the costs of bankruptcy may be less bleak
than some of the "worst case" predictions which have been
But those costs would probably be
publiicized recently.
this proposed legislation. In any
of
greater than the cost
below, should be avoided if
described
event, those costs, as
length in Appendix 1.
at
described
are
possible. They
0
A Chrysler bankruptcy could cost the Federal Government more than $1.5 billion in 1980 and 1981 alone:
We estimate the Federal cost for those years at a
total of at least $2.75 billion, an amount that
includes loss of revenues, unemployment claims, welfare
costs, and other incidental costs. 1,urthermore,
there would be a substantial cost to the state and
Moreover, this does not take
local governments.
the Pension Benefit Guarantee
to
cost
any
of
account
Corporation on Chrysler's unfunded pension liabilities
of $1.1 billion, which would ultimately be borne by
other insured plans.
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3
In addition to these out-of-pocket costs, other serious
adverse effects of bankruptcy would include:
o
A serious direct impact on the people that work for
Chrysler, its dealers, its suppliers, and for their
families. There are now approximately 113,000 Chrysler
employees, about an equal number of employees of its
dealers, and 150,000 employees of its suppliers.
Many would be affected. Conservatively, unemployment would increase by 75,000 - 100,000 during the
1980-81 years.
o
A serious impact on Detroit, the State of Michigan, and
other areas in the Midwest region, as well as specific
localities around the country -- not only where Chrysler
has plants, but in p:1 -es where automotive suppliers and
dealers operate. Substantial unemployment and economic
More than half
distress would occur -- certain areas.
of Chrysler's workers (over 60,000 employees) are
located in Detroit; and there are an additional 20,000
Chrysler employees in the rest of Michigan, with more
than 40,000 supplier employees located in Michigan.
Unemployment in the Detroit area could increase up to
approximately 4 percentage points from its already high
level of approximately 8 percent.
o
The need to maintain a competitive domestic auto inWithout Chrysler, the two remaining major
dustry.
domestic producers would represent a very narrow
competitive base. This would be especially troublesome given current concerns about the strength of the
competitive process and the high barriers to entry.
Chrysler has exercised an important competitive role
in challenging GM, Ford, and others throughout the
market, despite its current lack of profitability.
Its recent producer success in the subcompact market
is indicative of its competitive importance.
o
The potential loss of Chrysler's current, and planned
increases in capacity in the small car market, at a
time when the amount of small car, domestic capacity
is critical for trade, environmental and other reasons.
o
Automobiles represent a crucial industry, competing on
a world-wide basis. A Chrysler failure would have
important, negative effects on the U.S. balance of
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4
be dispayments because Chrysler's production would
There could be
placed by substantial foreign imports.
through 1981
a dimunition of up to $1 billion per year
mpacts but
from increased imports, largely of subco
also of other models.
er as a result
Our conclusion is that Chrysler can recov
more sense than a
of this proposed financing plan. It makes
It is not clear that the Company's
reorganization in bankruptcy.
anization in bankruptcy
consumer franchise could survive a reorg
emerge.
and that a viable automobile company could
CHRYSLER'S BUSINESS AND FINANCIAL CONDITION
the long term
Chrysler's current predicament reflects
ler's diffiChrys
transformation of the U.S. auto industry,
weakness
1979
cular
culties in coping with it, and the parti
in the auto and the truck industries.
try product
The combination of radical changes in indus
cost changes,
y
energ
and mix dictated by foreign competition,
dictated
has
s
ation
and Federal environment and safety regul
signifimost
the
far,
By
.
a basic redesign of the automobile
small
d
towar
shift
cant aspect of this has been the market
d 16 percent of the
fuel efficient cars. Such cars represente
percent, and
35
sent
total market in 1968; now they repre
1985.
by
nt
are projected to increase to 60-80 perce
whole will spend
It is estimated that the industry as a
period to
1985
to
1979
approximately $80 billion over the
amounts are
These
tion.
forma
implement this product line trans
of General
even
ity
capac
cing
so large as to stretch the finan
alone
let
wers,
borro
Motors and Ford, both triple-A rated
al
capit
1985
1980ler's
Indeed, while Chrys
Chrysler.
one of the largest five
spending is planned at $13.6 billion,
is only 40 percent
this
year capital budgets in the U.S.,
period.
same
the
of GM's planned spending over
to finance
It is exceedingly difficult for Chrysler
the weakest
been
long
has
ny
this transformation. The Compa
high cost
a
with
ers,
actur
manuf
of the three major domestic
leverage
sheet
ce
balan
er
great
structure, small market share,
n for
margi
t
profi
net
Its
.
and other fundamental weaknesses
ler
Chrys
nt.
perce
0.7
only
the period 1969-1978 has averaged
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5
incurred heavy losses during the last half of this period,
while GM and Ford averaged a 5.1 percent and 3.2 percent net
margins.
For the ten year period ending in 1978, Chrysler's
aggregate earnings were $720 million, a very marginal return
on its large revenue and asset base. It experienced losses
of more than $200 million in both 1975 and 1978. Appendix 1
provides additional historical information.
Until recently, Chrysler had intended to address this
problem on its own. Beginning in 1977, the Company initiated
a major capital expenditure program to upgrade plant and
equipment and develop new products to permit it to compete
in the market of the 1980s. In addition to compensating for
past deferrals and making other improvements, this program was
aimed at improving its product line and meeting Federal
regulatory requirements. To finance this program, Chrysler
began a retrenchment in which it disposed of most of its
foreign operations and took other actions to increase the
availability of funds.
Chrysler's ability to generate funds through earnings
was eroded, however, by the gasoline crisis of this past spring
and the economic slowdown. Domestic automobile industry
sales have been slow in 1979, falling 9 percent from 1978
levels through September, and 17 percent below last October's
rate. Chrysler's sales have been even weaker, however,
falling by 14 percent and 24 percent for the two respective
periods.
Some of the earlier losses in volume were recouped
through an aggressive rebate program. However, the rebates
resulted in substantial losses on sales. The Company lost
$721.5 million through September and projects losses of
$1,073 million for the year and $482 million for 1930.
Chrysler's worsening financial situation has prompted
some creditors -- both lenders and suppliers -- to withdraw
or to seek to reduce credit in an attempt to protect their
positions against a failure.
CHRYSLER'S FINANCING NEEDS
Let me turn now to a review of Chrysler's aid request and
our analysis of it and of the Company's future.
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The Company's Request
On October 17, Chrysler submitted a request for up to
$750 million in Federal loan guarantees. This amount reflected
the Company's attempt, at Treasury's request, to minimize
its need for Federal financing help and to address various
other questions posed by Treasury.
The Chrysler aid request was based on a six year business
and financial plan. The Company's strategy is to remain a full
line automobile and truck producer. It projects capital spending of $13.6 billion over this period to modernize that product
line and to comply with regulatory requirements. Furthermore,
operating losses are projected through 1980 before a return
to profitability in 1981.
The plan also forecasts an unfunded, cumulative cash flow
deficit of $2.1 billion through 1983. This assumes the continuation of those financing commitments which existed on
October 17. Any reduction in these commitments would increase
the Company's need for Federal financing assistance.
The October 17 plan assumes that Chrysler would meet
$1.350 billion of the $2.1 billion shortfall from non-Federal
sources: $850 million from "asset dispositions, financial
institutions, state and local governments and others;" and
$500 million from "constituents and employee participation."
The bulk of the Federal financing assistance would be
required during 1980 and 1981, when Chrysler projects financing
shortfalls of $1.5 billion and $400 million, respectively
with an additional shortfall of $201 million in 1982. A
return to positive cash generation is projected beginning
in 1983. The schedule for Federal assistance is unspecified,
since it would depend on the timing of assistance from other
sources.
Booz Allen & Hamilton, the Company's consultants on
product planning, have recently expressed their view that
the Company's funding needs may exceed the levels of the
October plan. On October 22, these consultants issued a report
which recommends provision for contingencies of up to $700
million to meet variations that are "more probable than
not" in industry sales, shifts in market shares, and ability
to achieve profit improvements. This $700 million addition
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to Chrysler's original estimates of financing needs means a
total three year need, in Booz Allen's view, of at least
$2.8 billion.
Boaz Allen also recommends additional operating cost
reductions, and a detailed study of alternative capital
expenditure and product strategies to help reduce Chrysler's
In this regard, it indicated that the Company
capital needs.
itself is considering alternate product plans to reduce its
needs should other risks materialize.
The Administration's View on the Company's Financing Need
Based on the October plan, Treasury has concluded that the
appropriate level of Federal loan guarantees is $1.5 billion,
rather than the $750 million which was originally requested.
This reflects our judgment that the Company's gross financing
need over the 1980-1983 period approximates $3 billion and
that up to, but no more than, half of this amount would take
the form of Federal loan guarantees.
Several factors have led to this recommendation for significantly larger financing assistance. One major reason
has been the recently worsened outlook for the auto industry
in 1980 and 1981. There have been major industry changes.
For example, Data Resources, Inc., has dropped its forecast
of auto industry sales to 9.8 and 10.0 million units for
1980 and 1981, respectively, from its earlier projection at
Furthermore, other forecasters have
10.6 and 10.3 million.
similarly reduced their estimates and Chrysler itself has
also done so. A second factor is the results of Treasury's
own analysis of the Company's financing needs, which was
completed last week with the help of outside experts. Let
me turn now to a review of that analysis.
Nature of Treasury Review
In our review of Chrysler's financing request, we have
been assisted by the accounting firm of Ernst & Whinney,
Which assigned more than 25 professionals to this matter,
and by John C. Secrest, a former group vice president of
American Motors Corporation.
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Throughout our efforts, we also had regular consultations
with other Federal agencies on matters within their expertise,
and special assistance from the staff of the Federal Reserve
System. In addition to Chrysler submissions which are now
public information, we have analyzed, reviewed and challenged
private Chrysler information and internal plans and had
numerous meetings with Chrysler officials and staff.
Together with our consultants, we reviewed historical
data on Chrysler for insights into its operations and any
implications that might bear on future projections.
We also
studied the Company's accounting practices and control and
management systems. We then addressed the plan's revenue
projections, the underlying profit improvement program, and
related capital expenditure program since these are the key
elements.
A data base and computer model were prepared to test the
Company's projections at varying levels of industry sales,
market share and profit margins.
We tested Chrysler's
projections at 95 percent and 90 percent sales achievement
levels in order to clarify the potential range of results.
And finally, the plan was adjusted for possible shortfalls
in profit improvement programs, and other programs, and that
series was also tested versus the 95 percent and 90 percent
achievement standards.
A complete exposition of our analysis of the October 17
Chrysler submission is attached as Appendix 3.
Base Case 1
Specifically, the Chrysler plan became Base Case 1 with
the following major changes including the following:
0
Projected industry sales for 1980 and 1981 were
reduced from 10.5 million and 11.1 million units
to 9.3 and 10.3 million, respectively.
0 The
wage concessions of $200 million for 1980 and
1981 incorporated in the recent UAW contract were
included. The October plan had assumed a GM-type
settlement.
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o
Cost
ment
were
over
savings from Chrysler's variable margin improve(VMI) and fixed cost reduction (ecR) programs,
reduced from $6.87 billion to $6.0 billion
the six-year period of the plan.
0 Correction of computational and other errors.
Base Case 2
Second, a more drastic revision of the Chrysler plan Base
Case 1 based on our best judgment of Chrysler's likely ability
to achieve the plan's basic assumptions. These revisions
required the following major changes.
o
Reduction of projected savings in Chrysler's VMI program
in light of its ability to achieve its goals by reference
to its existing programs and its history of difficulty
in obtaining cost improvements.
o
Adjustment of the FCR program. Advertising and sales
costs were modified to reflect the projected volume
reductions. An assumed cost was added for additional
rebates that we believe may be necessary in 1980 and
1981. The assumed interest cost was modified for the
recent interest rate increases.
Adjusted Base Case 2
A third case addresses possible reductions in the Company's
spending, as described below. Our judgment is that this "adjusted
base case 2" approach presents the most realistic operating
plan.
At least $1 billion in 1982 and 1983 capital spending,
largely for post-1983 purposes, could be eliminated without
resulting in a fundamental reduction or "downsizing" of the
Company. This reduced capital spending would save $600 million
of cash, net of earnings and depreciation.
The following table compares cash shortfalls under the
Chrysler October 17 plan and each of the adjusted plans I have
described:
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Cumulative Funds Required
($ million)
1980
1981
1982
1983
Chrysler Plan 10/17
1,554
1,915
2,116
2,113
First Base Case
100% Base Volume
95%
90%
1,472
1,571
1,669
1,959
2,230
2,502
2,266
2,773
3,280
2,342
3,133
3,923
Second Base Case
100% Base Volume
95%
90%
1,593
1,689
1,784
2,308
2,572
2,836
2,860
3,351
3,843
3,261
4,025
4,789
Adjusted 3ase Case 2
100% Base Volume
95%
90%
1,593
1,689
1,784
1,994
2,258
2,522
2,196
2,687
3,179
2,309
3,073
3,837
From these analyses Treasury concluded that Chrysler
needs $3 billion. Based on the Company's estimates, its seems
reasonable to suppose that the Company could raise at least
half that amount.
We considered the potential for a major downsizing of the
Company, as American Motors has done. The nature of Chrysler's
operational structure and dealer system does not appear to
permit this over the short term, however, without a severely
disruptive effect. On the other hand, there may be some
potential for alternatives over the long term, and we intend
to pursue these. Chrysler has agreed to report on such alternatives by mid-December.
If further study reveals that a
less expensive solution can be devised without impacting
Chrysler's long-term viability, we would be favorably disposed
toward it since a less ambitious plan would entail a lower
level of government involvement.
Treasury's judgment is that a $3 billion financing plan
has the potential oi assuring the Company's viability. There
can be no assurance of success with this or any other plan,
but we believe that the financing approach is sound and
that the underlying business plan can remedy Chrysler's
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Nonetheless, even with $3.0 billion, Chrysler's
weaknesses.
situation will remain very tight and the Company must consider
achieving additional efficiencies to provide adequate additional cushions against potential long-term risks.
Regulatory Burden
In formulating this $3 billion plan, the Administration
has not attempted to justify Federal assistance on the basis
that Chrysler is burdened by excessive costs of complying with
Federal environmental and safety regulations.
O It would raise difficult policy problems, both with
respect to the purposes of the regulations and equity
vis-a-vis other producers. The Administration has
already sought to eliminate unnecessary burdens of
regulation.
O
Regulation is only one of the many elements and costs
in the environment in which Chrysler operates. All
companies must bear the cost of regulation in their
industries.
O
There has been no persuasive evidence that Chrysler
would not be in the same dilemma now without these
regulatory requirements. Chrysler has been unable
to quantify adequately the portion of its financing
needs which relate to compliance with regulatory'
requirements.
THE ADIIINISTRATION'S LEGISLATIVE PROPOSAL
Our analysis shows that Chrysler requires $3 billion of
financing to make the transition to the auto market of the
1980's. The primary building block for this financing must
be $1.5 billion in commitments from non-Federal sources. The
United States would provide the balance needed, up to $1.5 billion. In this way, the Federal Government would serve as a
partner to these private groups, not the Company's dominant
financier.
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By requiring appropriate levels of contributions from all
those who have a financial stake in the health of Chrysler,
we test whether these contributions can really turn Chrysler
into a viable concern, capable of repaying its new debt.
Presumably, private investors will not provide additional
financing to the Company unless they are convinced that
Chrysler can repay the new amounts borrowed.
The Federal loan guarantees would be made available,
therefore, only if Chrysler obtains at least $1.5 billion
of new assistance from non-Federal sources. If the non-Federal
portion is not obtained, Federal loan guarantees would not
be provided since the resulting shortfall would frustrate
this rescue effort.
Only new resources beyond those considered by Chrysler
in determining the $2.1 billion shortfall on the October 17
plan would count against this non-Federal assistance. Effectively, this would freeze into place at least those credits
outstanding on October 17. For example, to the extent that
any bank or other credit resource of the parent is reduced
subsequent to October 17, it must be replaced to maintain
the base of credit which then existed.
To qualify, the non-Federal assistance is to be from
the following types of sources: (i) financing commitments
or concessions from parties with an existing financial stake
in Chrysler's health; (ii) capital obtained through merger
or sale of equity securities, or otherwise, and (iii) the
proceeds of asset dispositions.
The specific level of assistance from any category or
participant would be left to the Company and its interest
groups to work out; however, to the extent practicable, we
expect Chrysler to obtain assistance from all sources, consistent with their stakes in Chrysler, and, as a practical
matter, its needs should require all to participate. Probably,
the most immediate and most significant assistance would be
from all those that would be directly affected by failure:
o
Banks, financial institutions and other creditors who
would benefit by avoiding a default or bankruptcy and
who would continue to profit from their relationship
with Chrysler.
In addition to firming existing commitments for the period of Federal aid, they could
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help satisfy this need by providing additional financing
and restructuring existing debt to reduce debt service
or subordinate their loans so as to facilitate additional
more senior borrowings.
o Suppliers who would benefit in a similar way, and who
might liberalize their credit terms and provide price
concessions.
o Labor unions and employees who would benefit from
continued employment, could provide additional compensation and work rule concessions or provide direct
financing.
o
State, local and other governments who would benefit
by the revenue from Chrysler's continued economic
activity and would want to avoid the costs of its failure,
might provide direct loans, grants, or tax concessions.
o Dealers who would avoid current losses and retain the
potential for future earnings might reinvest part of
their profit in Chrysler.
o Shareholders and other investors, who would avoid the
potential for immediate loss and retain the potential
for future earnings might make additional investment
in the Company or have their investment diluted.
o Asset dispositions will also provide a major source
of cash to the Company. The Company owns several
large assets which are marketable and where continued
ownership by Chrysler is not crucial to the Company's
business success.
In addition, an equity capital infusion is important to
strengthen the Company, since the Company requires a much
larger equity base than it now has. Chrysler has been unsuccessful in its efforts in this area in part because of its
With Government aid, it should
current precarious position.
We
be a more attractive candidate for equity financing.
intend to make certain that Chrysler pursues this avenue
vigorously.
Safeguards
The bill includes specific provisions to maximize achievement of the aims of assistance and to protect the Government's
position:
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o Sound Operating and Financial Plans. Before a guarantee
commitment could be issued, Chrysler would be required
to submit a satisfactory four-year operating plan for
the period through 1983 which demonstrates that the
Company will emerge viable and self-financing thereafter.
It would also be required to provide a financing plan
through 1983 which demonstrates that it can satisfy
its projected financing needs under the operating plan,
including assurance of at least the minimum of $1.5
billion from other sources. Each must be accompanied
by satisfactory assurances of feasibility and be updated
at least annually so long as any guarantees are outstanding.
Before actually guaranteeing any loan, the Secretary
must find that those conditions continue to be satisfied.
o Continuation of Present Financing Commitments. Maturities
on the present financing commitments, and the $1.5 billion
of new commitments, which will be obtained, must be no
shorter than the maturities on Federal guarantees involved.
The guarantees may not be issued at a faster rate than
the other commitments are utilized.
O Reasonable Prospect of Repayment. Throughout, the bill
includes provisions to further minimize the financial
risk to the United States. Before committing and
issuing guarantees, the Secretary must determine that
there is reasonable prospect for the repayment of a
guaranteed loan. In addition, the guaranteed loans
must mature by 1990, in order to preclude Chrysler's
long-term dependency on Federal aid.
O Restrictive Covenants. Guarantee and loan agreements
are to include all affirmative covenants and other
protective provisions that are usual and appropriate
to transactions of this nature; these terms will not be
amended or waived without the Secretary's consent.
o
Unless the Secretary otherwise
Security Required.
determines necessary and finds there to be adequate
assurance of repayment, security must be obtained,
existing loans must be subordinated, and dividends
prohibited. The Secretary can waive the technical
bankruptcy priority of the United States only if he
also finds there to be adequate assurance of repayment
without the priority; and, he may not waive it so as
to subordinate the position of the United States.
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- 15 0 Payments to the Government. The Uovernment would receive
an adequate return for its participation. At a minimum
a guarantee fee of at least one-half percent per annum.
The Secretary could also negotiate additional compensation. Chrysler would be required to pay an approIf the program is
priate interest rate on the loan.
successful, it will produce no direct cost to the
Government.
The negotiation of the non-Federal financing for Chrysler
will be a long and complex process. Our experience in the
New York City financing demonstrates the need for flexibility
to accommodate the variety of problems which inevitably arise
in this process. Thus, while the legislation builds in a
number of these protections for the Federal investment, it
also permits sufficient flexibility to permit the financing
package to be assembled.
Employee Stock Ownership
Our proposal does not link Federal aid to the establishment of an employee stock ownership program -- either an ESOP
or a different program -- as some have suggested. 4e are
not opposed to these programs, but do not favor conditioning
this guarantee legislation on employee ownership. To do so
could infringe on the collective bargaining process, among
other things.
Furthermore, certain of the Chrysler ESOP proposals made
to date are troublesome since they would effectively require
that public funds directly finance employee ownership. For
example, it has been suggested that a portion of the proceeds
of guaranteed loans be used by an ESOP to purchase Chrysler
equity. This and similar approaches might put the Government
in a highly junior position in the event of a Chrysler failure
We question whether this type of subsidy should be provided in
addition to direct aid to the Company. Furthermore, the
reasons why this cost should not be borne, for example, by
Chrysler employees have not been adequately addressed.
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- 16 -
CONCLUSION
In closing, let me emphasize that no guarantees will be
issued until the full amount of non-Federal assistance is
committed. This means that, as in the case with the New York
City aid program, the ultimate resolution of the Chrysler
problem may extend beyond enactment of this legislation. It
may be resolved only after extensive negotiations that end
in legally binding loan agreements and financial commitments.
In the last analysis, there are three key points underlying our recommendations to Congress on Chrysler. First,
the Administration believes that Federal financing assistance
is justified in this case. Second, estimates of the Company's
financing needs have been carefully prepared and appear
reasonable. Finally, we have submitted responsible legislation
which would adequately protect the Federal interest. We urge
your support for it.
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APPENDIX 1
TREASURY STAFF ANALYSIS OF
ECONOMIC IMPACT OF A SHUTDOWN OF
THE CHRYSLER CORPORATION
Office of the Assistant Secretary for Economic Policy
Office of Financial Analysis
November 7, 1979
304-856 0 - 79 - 2
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TABLE OF CONTENTS
PAGE
Summary
1
The Chrysler Corporation in the U.S. Economy
4
The Outlook for Motor Vehicle Sales
and Production
7
Impacts of a Shutdown on Aggregate
Economic Activity
24
Regional Impacts
37
Competitive Structure of Motor
Vehicle Markets
43
Tables
49
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1
SUMMARY
The following provides an assessment of the impact on
aggregate economic activity of a shutdown of the Chrysler
Corporation.
It also outlines potential impacts on the
Detroit area where Chrysler facilities are heavily concentrated.
o
In summary:
Sales and production of motor vehicles are expected to
be depressed in 1980 and 1981 as the economy moves
through a period of slower economic activity, followed
by a moderate rate of recovery.
o
The level of demand for motor vehicles in the two years
is likely to be such that other domestic producers will
have sufficient capacity to make up production losses
stemming from a Chrysler shutdown.
Thus, assuming that
would be purchasers of Chrysler products will buy from
other U.S. manufacturers rather than switch to products
of foreign origin, then the greatest effects of closure
of Chrysler facilities would be on the distribution of
employment by locality and among manufacturers rather
than on total job loss in the motor vehicle industry or
the economy.
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2
o
Some loss of market to foreign producers could ensue, and
this might be substantial should demand for subcompact
model cars be exceptionally strong so that Chrysler's
share of this market could only be met through increased
imports.
A
scenario was constructed on this assumption
and on the assumption of limited loss of share in other
market segments.
Total GNP would be reduced by about
$4 billion in 1980 and approximately $6 billion in 1981
from what would otherwise develop (about 0.15 percent
and 0.2 percent, respectively, in the two years). It
is calculated that the Federal deficit might be widened
by about $1 billion in CY-1980 and by approximately $1-3/4
billion in CY-1981. The balance of payments surplus would
be reduced by just over $1 billion in each year. Most
of these impacts would be expected to fade beyond 1981,
unless lack of availability of U.S. autos in 1980 and
1981 would lead to a permanent shift in preferences in
favor of foreign products.
o
Some adverse impacts on aggregate economic activity could
be expected, even if domestic producers have sufficient
capacity to meet Chrysler's share of the market and there
is no shift in demand to foreign products.
These impacts
would reflect job loss by overhead personnel and an interruption of the capital spending stream until such time
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3
as other producers bring offsetting capital outlay
programs into being.
Except for balance of payments
effects, which then would be negligible, economic impacts
are calculated at roughly three-fifths those of the
foregoing.
o
A Chrysler shutdown would have substantial and relatively
long-lasting impacts on the Detroit metropolitan area,
where activities of Chrysler and its suppliers are heavily
concentrated.
Other areas would be severely affected,
though in a number of cases Chrysler facilities in those
localities would be attractive to other firms and would
be converted to other operations.
o
The highly competitive structure of markets for small
cars would probably be little affected should Chrysler
no longer be a competitive force, unless Chrysler
facilities for producing small cars were acquired by
one of the major U.S. producers.
However, in markets
for larger automobiles, the already dominant position
of the leading producer would be enhanced.
No attempt was made in this paper to assess the less
tangible and possibly detrimental impacts on general business
and consumer confidence that a Chrysler shutdown might induce.
If closure should come during a period of rapid change and
uncertainty in the business climate, such impacts could be
substantial.
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4
THE CHRYSLER CORPORATION IN THE U.S. ECONOMY
The Chrysler Corporation in 1978 ranked tenth in sales
among all U.S. industrial corporations.
Total sales in
the U.S. were $12.9 billion, equivalent to 0.6% of GNP.
Purchases by the Chrysler Corporation of materials and
services from domestic suppliers were placed at $7.9
billion in 1978.
Employment by Chrysler in the U.S. in May of this year
was 131,000, of which about 99,000 were engaged in motor
vehicle operations, 12,000 in central offices including
product development, 7,000 in sales and marketing, and
12,000 in other operations.
The combined total of workers
in motor vehicle production and central office staff
represented 0.1 percent of total establishment employment
in May and 0.6 percent of employment in manufacturing.
The Bureau of Labor Statistics estimates that 1.0 million
workers were employed in the motor vehicle and equipment
industry in May.
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5
o
As of late September, employment at Chrysler had been
d
reduced to 113,000, of which about 82,000 were engage
May.
in motor vehicle operations, or 17,000 less than in
Staffs of central offices and sales and marketing had
each been reduced by about 300 from May.
o
Wage and salary payments by Chrysler in the U.S. were
$2.9 billion in 1978, representing 0.3 percent of total
wage and salary payments.
o
Chrysler dealers as of May 1979 employed 150,000 persons.
Total employment by retail motor vehicle dealers for that
month was placed at 900,000.
o
Chrysler is the third leading U.S. producer of motor
vehicles. Its shares of the automobile and truck markets
have been declining over the past few years. Of total
new cars sold in 1978, 10.1 percent were Chrysler built.
The corresponding share of truck sales was 11.8 percent.
Chrysler shares of both markets are down sharply so far
this year.
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6
Sales of new automobiles in the U.S.
(thousands of units)
Total
1973
1974
1975
1976
1977
1978
1979:
Jan.-Oct.
Domestic
model
Chrysler*
Percent share
Domestic
Number
Total
model
11,437
8,866
8,640
11,110
11,185
11,311
9,676
7,454
7,053
8,611
9,109
9,312
1,529
1,204
997
1,302
1,220
1,146
13.4
13.6
11.5
11.7
10.9
10.1
15.8
16.2
14.1
15.1
13.4
12.3
9,153
7,168
836
9.1
11.7
Sales of new trucks in the U.S.
(thousands of units)
1975
1976
1977
1978
1979:
Jan.-Sep.
2,478
3,181
3,675
4,109
2,249
2,944
3,352
3,773
299
430
469
486
12.1
13.5
12.8
11.8
13.3
14.6
14.0
12.9
2,708
2,372
265
8.8
11.2
* Excludes sales of captive imports produced by foreign
manufacturers.
Note:
Data on trucks sales in October are not yet available.
Source:
o
Ward's Automotive Reports and Yearbooks.
The motor vehicle industry is highly cyclical.
Typically,
swings in motor vehicle production are several times
as wide as swings in the real gross national product
for the entire economy, as may be noted from Table 1,
attached.
Motor vehicle production of Chrysler has
typically swung more widely than that of the total
industry.
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(The standard deviation of year-to-year
7
percentage changes for Chrysler was more than one and
one-half times that for the entire industry.)
Both
employment and corporate profits of the industry are
highly volatile, as may be noted from the table.
THE OUTLOOK FOR MOTOR VEHICLE SALES AND PRODUCTION
The potential impact on the economy of reduced operations
or a complete shutdown of Chrysler operations depends heavily
on the outlook for motor vehicle sales and production.
If
the industry is likely to be operating at close to full
capacity, then a closure of a significant portion of that
capacity would lead to reduction in overall supplies and
adversely affect the performance of the economy.
On the
other hand, if the industry is likely to be operating sufficiently below capacity for an extended period so that other
producers are able to increase production to offset lost
Chrysler output, and if those who would have purchased
Chrysler products switch to products of U.S. rather than
foreign manufacture, then effects on the overall economy
should be considerably smaller, beyond initial transitory
impacts.
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8
Recent developments in motor vehicle markets
Automobile sales turned down quite sharply this spring
in the aftermath of short gasoline supplies and resulting
queues.
Sales had totalled 11.3 million units in 1978,
reached a seasonally adjusted annual rate of 11.6 million
..
units in the first quarter of this year, then fell to a low
of 9.4 million in June.
Sales of trucks followed a similar
pattern, with weakness concentrated in markets for light
trucks, which may be used for personal as well as business
purposes and which account for the bulk of truck sales.
Motor vehicle sales
Total
11.2
11.3
Apr.
May
June
July
Aug.
Sep.
Oct.
Total
Light*
)
9.1
9.3
2.1
2.0
3.5
3.9
3.1
3.6
seasonally adjusted, annual rate----)
(
1979-I
II
III
Trucks
Import
models
millions of units
(
1977
1978
Automobiles
Domestic
models
11.6
10.6
10.8
9.3
8.1
8.6
2.3
2.5
2.1
3.8
3.0
3.2
3.4
2.6
2.8
11.1
11.1
9.4
10.5
11.0
10.8
9.4
8.5
8.4
7.2
8.3
8.9
8.7
7.3
2.6
2.6
2.3
2.2
2.1
2.1
2.1
3.3
3.1
2.8
2.9
3.2
3.3
n.a.
2.8
2.7
2.4
2.5
2.9
3.0
n.a.
* Light trucks are defined as less than 14,000 lbs. gross
vehicle weight.
Source:
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Bureau of Economic Analysis, Department of Commerce.
,
9
There was partial recovery in auto and truck sales in
July, August, and September.
Some of this recovery apparently
was associated with improved availability of gasoline and
consequent disappearance of gasoline lines.
However, much
of the recovery has been the result of sales incentive programs
designed to reduce inventories which reached record levels
in July for both autos and trucks.
The incentives included
direct rebates to customers in the case of Chrysler but
primarily were in the form of discounts to dealers which
then could be passed on to customers.
This sales effort was quite successful, and the inventories of new cars were reduced on a seasonally adjusted basis
by 230,000 units in August and September. Domestic model sales
averaged a 9.3 million annual rate during the period late
July through the first two-thirds of September while these
incentives were in full force, versus 7.8 million during the
period May through July 20.
Some of these sales may have
been purchased at the expense of future sales, so that a drop
in the sales volume in the fourth quarter of this year is
likely.
(October sales of domestic model cars were down to a
7.3 million annual rate.) Sales tend to be quite sensitive
to price influences in the short run when a sharp change in
prices can be readily predicted.
This was the experience in
the summer of 1974 when announcement well in advance of
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10
large price increases for the forthcoming model year resulted
in a burst of sales, followed by a severe decline.
Similarly,
domestic model sales fell by 400 thousand units at an annual
rate between the first and second quarters of 1975, following
the end of rebate programs in force early that year.
•
Incentives were also provided during the summer in the
market for light trucks.
These incentives contributed to a
reduction in inventories of light trucks of an estimated
180,000 units on a seasonally adjusted basis in August and
September.
Forecasts of automobile sales in 1980
Economic forecasts are generally for a moderate recession
in the U.S., with a trough in the first half of 1980, followed
by a relatively moderate rate of recovery.
Such forecasts are
conditioned by the relative absence during the recent expansion
of the types of excesses out of which sharp contractions have
emerged in the past.
The prospect that the downturn will not
be steep has similarly led forecasters to expect a relatively
moderate recovery.
In the past, sharp recoveries have generally
emerged out of the correction of imbalances during prior severe
downturns.
Forecasts of moderate recovery also are based on
the prospect that growth of real household incomes will be
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11
retarded by (1) the tendency of inflation to raise effective
personal income tax rates and also by (2) the rising costs
of energy.
In addition to the likelihood of slow growth of real
disposable personal income during 1980 and 1981, other
•
variables which have been shown to be determinants of
automobile sales are likely to act as negative elements
in automobile demand.
o
The price index of gasoline at retail in September had
increased 53 percent from the average of 1978, or 39
percentage points more than the increase for the total
Consumer Price Index.
The relative price of gasoline
is expected to continue to increase into the indefinite
future.
Overall, costs of operating a car, including
fuel, are expected to rise more rapidly than all prices.
o
Unemployment rates and other measures of labor market
conditions are likely to deteriorate, at least into 1980.
o
Interest rates on automobile installment loans are expected
to rise over the near term and credit terms to tighten.
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12
Forecasts of four of the leading private forecasting
concerns are summarized in the tabulation below.
All but
the Townsend-Greenspan forecast were made subsequent to the
Federal Reserve actions of early October. Flat to declining
real GNP year-to-year in 1980 is associated with a moderate
decline in automobile sales to about 9.6 million units from
the 10-1/2 to 10-3/4 million that appear likely for 1979.
Only moderate increases in automobile sales are projected
for 1981.
Summary of economic forecasts
Forecast
date
Growth of real
spendable
Real GNP
Auto sales
income
growth
percent change---) (millions)
1980
Data Resources, Inc.
Chase Econometrics
Wharton EFA
Townsend-Greenspan
Average
(10/24)
(10/23)
(10/30)
( 9/17)
-1.4
-1.4
0.0
-1.0
-1.0
0.4
0.0
0.1
1.3
0.4
9.8
9.1
9.8
9.5
9.6
1981
Data Resources, Inc.
Chase Econometrics
Wharton EFA
Average
3.3
2.7
3.4
3.2
3.3
1.7
1.8
2.4
10.0
9.8
10.7
10.2
The Chase, Wharton, and Townsend-Greenspan forecasts all
are based on the assumption of enactment of tax reduction
effective during the first half of 1980.
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The income elasticity
13
of spending on cars is quite high in the short run.
Assuming
an elasticity on the order of 3, 1980 sales in those three
forecasts have been boosted directly by up to 250,000 units
by the assumed tax reductions.
The Data Resources forecast
is based on the assumption of a tax reduction early in 1981.
Outlook for composition of sales
Because of its volatility, a substantial error band
surrounds any forecast of the auto sales series.
Attempts
to project the composition of sales involve even greater
uncertainties.
The chart on the next page presents quarterly
movements of percentage shares of U.S. automobile sales
by size class.
attached.
o
Annual figures are presented in Table 2,
Certain points may be noted:
The share taken by full-sized cars has been declining
over time, and cyclically has been weak during periods
of depressed activity, as occurred during 1975, and
also during periods of uncertain availability of fuel.
The share taken by mid-sized cars has trended upward, at
least through early 1977.
Its share too appears to have
been depressed by the recent short supplies of gasoline.
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-14-
MARKET SHARES OF U.S. AUTOMOBILE SALES, BY SIZE CLASS
(BASED ON SEASONALLY ADJUSTED DATA)
PERCENT
0
0
1
...
.L
k
4
SIZE
40.0.1...... FI.J
40
•••
•.
li s0
••
•
14
..
.•
:1 DOMESTIC44,.SMALL
SIZE
4.
.
8
•
•
•
•
• r".%
(,• •
•••
,.:
'%*
••
V
:
•
:: • 11,01110000
30
P •
•
.•
.
....,' '
•
..•••..,•.........-.....
A ,-....... i.%
1'v...., .
•
..
•
•
1•
•
'
mo t
W 0,
,411L
s
i-... .
•ur- 1.4)
irv;:".
wo
MID-SIZE
---...••
ip•••41,
.
• •
t:
V
0
-
.
.."
20
1
e/
fo. •
.0•
•
41.4 •••
iA
_ .......i k--„,
%
1
**ty-•"
Se
,,.....tee.
_
a
.
•
•
ie ••••••••.•104-.fp
l:
i
,
+IMPORT
10
1
i
i
1
I
I
I
1111
I
1271
1972
1973
litall
1974.
1975
III
III
1976
1977
SOURCE OF DATA: BUREAU OF FCONOMIC ANALYSIS, DEPARTMENT OF COMMERCE
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i I'll
1978
1979
15
o
The share of small domestic cars exhibits an upward trend,
and the share tends to rise during periods of weak economic
activity and during periods of uncertain availability of
fuel.
o
The import-model share has gradually been rising, and it too
increased during the recent period of uncertain availability
of gasoline.
While point estimates of market shares would be subject
to a wide band of error, the foregoing provides some guidance
as to the likely composition of the market in the next two
years.
Generally depressed demand for automobiles should be
accompanied by a relatively larger market share for smaller
domestic cars and imports.
The share of the latter should
benefit from the fact that prices of 1980-model imported cars
are being increased on the order of 3 percent or less, or
substantially less than increases being posted for domestic
small cars.
(For example, press reports state that the
price of a Chevette is to rise 8.6 percent at the start of
the 1980 model year, the price of a Pinto by 10.1 percent,
and prices of four-door Omni's and Horizon's by 10.2
percent.) Increases in the relative price of gasoline will
favor the market share of the smaller cars, both domestic
and foreign, as would any renewal of gasoline lines.
304-856 0 - 79 - 3
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16
The chart and table on market shares do not show the
breakdown of sales of small domestic cars between subcompacts
and compacts.
This has been swinging widely.
Domestic
subcompacts accounted for 30 percent of the domestic small-car
market in 1977, 35 percent in 1978, 50 percent in the first
half of 1979, and then 45 percent in the three months ending in
September.
Of the total market, these translate to 9 percent,
11 percent, 18 percent, and 15 percent, respectively.
Outlook for automobile production
The automobile industry has announced production schedules
for the fourth quarter of this year for plants in the U.S. at a
seasonally adjusted annual rate of about 7-3/4 million units.
The fourth-quarter rate may be pared if sales fall below
expectation.
Such production probably implies little increase
in inventories of new domestic model cars by the end of the
year from the 1.7 million units, seasonally adjusted, at the
end of the third quarter.
Such inventories would appear to
be above desired levels, and some further inventory correction
might develop early in 1980.
Aside from inventory correction, production in 1980 and
1981 will be closely related to the sales volume of domestic
model cars.
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The average of the private forecasts noted above
17
was for total unit sales of 9.6 million units in 1980 and
10.2 million in 1981.
These are used as midpoints for the
translation of sales to production, with allowance for a
band of error on either side.
The following assumes a 20
percent import share of the market, or midway between the
share for the first nine months of this year and the average
for the prior two years. (Details of the translation for the
midpoint projection are shown in Table 3, attached).
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Implication for production
of alternative sales assumptions
Sales
assumption
Sales
Total Domestic
Production
1980
low
medium
high
9.0
9.6
10.2
7.2
7.7
8.2
7.1
7.6
8.1
1981
low
medium
high
9.6
10.2
10.8
7.7
8.2
8.6
7.8
8.4
8.9
18
Ability of competitors to absorb
Chrysler share of production
For 1980, the range of likely rates of production is
well below the 9.2 million units produced by the industry
in both 1977 and 1978.
That rate did not appear to strain
industry capacity, though seasonally adjusted annual rates
of 9.5 million in the fourth quarter of 1978 and 9.6 million
in the first quarter of this year appeared to do so.
In both 1977 and 1978, the industry excluding Chrysler
produced about 8 million cars, and the capacity of these
other producers has since been augmented by the addition
of V.W. production facilities, which were in operation for
only part of 1978, and by new GM facilities.
This would
imply that Chrysler competitors would have capacity to offset
production losses stemming from possible closure of Chrysler
facilities for any likely rate of total output in 1980--aside
from possible difficulties posed by the composition of demand,
as discussed below.
Somewhat more precision can be incorporated into such
calculations by taking published figures on numbers of shifts
and assembly line speeds for automobile plants and multiplying
these by the number of workhours in a year.
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This provides a
19
rough estimate of production capability without overtime.
The results of such calculations are shown in Table 4,
attached.
All estimates are rough.
The line speed figures
on which they are based are subject to adjustment.
(Calculations are based on the assumption of 240 working
days of eight hours each.
This allows for some downtime at
Christmas and for model changeover.
Because of slack demand,
line speeds have been reduced in some cases since the dates
of reports on which these calculations were based.)
These
are in the nature of estimates of minimum production
capability, as rates of production can readily be increased
by adding an extra hour on one side of each of the normal
two shifts per plant and/or by adding Saturday overtime.
The substantial unutilized capacity of American Motors
facilities is not fully reflected in these figures.
Combining (1) a range of potential market shares by
size classes, (2) the range of likely rates of overall
production, (3) the movement of automobiles between Canada
and the U.S. by size class, and (4) the calculations of
production capability with allowance for overtime, it would
appear that Chrysler's U.S. competitors should be able to
meet total 1980 demands by themselves.
Exceptions would arise
if (1) the market share of subcompacts is high and total
sales are toward the high range of estimates or (2) if the
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20
market share of mid-sized cars recovers toward 1978 levels
in a total market with sales approaching the upper range of
sales estimates.
For 1981, demands will be rising, but there would be
some margin of time to increase production capability by
increasing line speeds. In some limited cases, an additional
shift might be added.
Further, major model introductions
are scheduled late in CY-1980. Ford plans to introduce its
front-wheel drive subcompact model at the start of the 1981
model year, and G.M. also plans to introduce such a car
during the 1981 model year.
to rationalize production.
Thus, there will be opportunity
However, capacity constraints
could still be a problem should Chrysler close and should
demand remain strong for subcompacts or rebound for
intermediates.
While capability would exist for domestic producers
to meet Chrysler's share of demand under most circumstances,
substantial resort to overtime might be required, depending
on the size and composition of demand, and this could imply
somewhat higher costs of production and ultimately higher
prices than otherwise.
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21
Outlook for sales and production of trucks
A set of calculations similar to those made for autos
can be made for trucks.
Sales of trucks are forecast at
3.2 million units in 1980 by Townsend-Greenspan and 3.1
million by Data Resources.
(Dates of forecasts are September
17 and October 24, respectively.)
For 1981, Data Resources
projected sales of 3.3 million units.
Schedules call for production of trucks in the fourth
quarter of this year at a seasonally adjusted annual rate of
about 2-1/2 million units. This would imply some probable
further inventory correction during the quarter. However,
inventories would still remain in the 900,000 range at the
end of this year, or more than the industry normally carries,
so that production in 1980 should be retarded by additional
inventory correction.
The combination of moderate sales in the range of 3-1/4
million in 1980 and some inventory correction would imply
production in the range of 2-3/4 million.
Sales of 3.3
million in 1981, as in the Data Resources forecast, would
translate into production of a little over 3 million units,
after allowance for some slight inventory building and a net
balance of imports exceeding exports.
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22
Ability of competitors to absorb
Chrysler share of truck production
Chrysler has discontinued production of heavy trucks
and is now a factor only in the lighter end of the market,
which accounts for about 90 percent of total truck sales.
Estimates of production capability without resorting to
overtime can be made for light trucks as well as for automobiles.
The results of such calculations are shown in
Table 5.
It is noted that capacity is scheduled to increase
(beyond that which is shown) in the summer of 1980 when
GM opens new facilities.
It is also noted that rates of
production during 1978 generally exceeded the figures shown
in Table 5 by wide margins, as manufacturers made extensive
use of overtime operations to satisfy demand.
Reconciliation can be made of projected rates of
production with these estimates of capacity (after allowance
for the 10 percent share of medium and heavy duty trucks in
total production, also making allowance for the fact that
the capacity figures encompass vans which do enter truck
sales figures, and allowing for overtime). It would appear
that for 1980 Chrysler's competitors would easily have capacity to absorb production losses resulting from a Chrysler
shutdown.
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For 1981, unless sales of all trucks (including
23
medium and heavy duty trucks) substantially exceed 3-1/2
million units, then Chrysler competitors could similarly
absorb Chrysler's share of the market.
Availability of labor
Because of differences in location, Chrysler workers
losing jobs in the event of a closedown would not necessarily
be picked by other motor vehicle manufacturers as they stepped
up operations to make up for Chrysler's share of production.
However, these other manufacturers should not be constrained
by availability of labor.
The standard metropolitan statistical
areas (SMSA's) in which motor vehicle assembly plants of Ford,
American Motors, and G.M. are located contained a total of
1-1/2 million unemployed persons in June of this year and
had an unemployment rate of 6.0 percent (not seasonally
adjusted).
On a nonseasonally adjusted basis, the unemply-
ment rate nationally was 5.6 percent in June.
For these
areas, as well as nationwide, labor market conditions will
probably be easing in the months ahead.
Recent press
reports place the number of G.M., Ford, and A.M.C. workers
on layoff at 60,000, so that production, at least at some
plants, could be stepped up without need for training new
workers.
That, of course, would not be the case at small
car assembly plants, which, in many cases, are currently
operating at high rates of utilization.
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24
IMPACTS OF A CHRYSLER SHUTDOWN ON AGGREGATE
ECONOMIC ACTIVITY
The foregoing analysis would indicate that other domestic
producers would be capable, at least through 1980, of increasing rates of output to offset most production losses associated
with a shutdown of Chrysler activities.
Lack of capacity to
produce subcompact cars could be the notable exception.
As
the economy moves into 1981, motor vehicle sales and production should be improving gradually.
With a lead time of one
to two years, the industry, if starting to plan now, should
be able during 1981 to rationalize and increase capacity to
meet new market conditions.
be constructed by that time.
New assembly plants could not
(Only one motor vehicle assembly
plant is now under construction. It is scheduled to begin
producing trucks during 1980.)
However, there should be some
leeway to augment capacity of existing plants.
As noted,
shifts can be added in some cases and line speeds can be
increased.
Restructuring of operations in late 1980 and in
1981 will be facilitated by the large number of new model
introductions scheduled for that time.
Given time for
retooling and integration into new product lines, viable
Chrysler facilities could be back into operation.
Cost
pressures could develop if extensive resort to overtime is
required to meet demand.
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25
The major exception would be capacity to produce
subcompact cars should demand remain strong.
If this were
to be the case, that share of the market would likely be
lost to foreign competitors (and/or some share of export
markets, particularly in Canada where no subcompacts are
produced).
A less likely alternative is that demand for
intermediate-sized cars rebounds to a high level. In this
case, since foreign producers are not generally in the
intermediate market, sales would probably be shifted to
large or compact models, with small loss to overall domestic
production.
Weakness in economic activity and/or uncertain
availability of fuel would tend to spur the subcompact car
share of the market but would have the opposite impact on
the share for mid-sized cars.
For that reason, relatively
strong demands for both subcompacts and intermediates are
unlikely to coincide.
Even if capacity were to be available, however, it is
not certain that domestic producers would pick up all of
Chrysler's share of the market.
It is likely that some
share of the small car market would be lost, as foreign
producers are highly competitive in this sector of the market.
In other segments of auto and truck markets, foreign products
do not for the most part compete directly with Chrysler-built
vehicles.
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Assuming that foreign producers Would garner
26
Chrysler's sales in the same proportion that they now take of
all autos except subcompacts and do the same for Chrysler's
share of the light end of the truck market (under 6,000
pounds gross vehicle weight), this would amount to about
50,000 vehicles excluding subcompacts.
Elements of a Chrysler shutdown
To provide a measure of the possible impact on the economy
of a Chrysler shutdown, a
scenario was constructed in which
it is assumed that Chrysler Corporation ceases motor vehicle
operations at the end of 1979. It is assumed that non-motor
vehicle operations are spun off and that activity continues
without interruption in those segments.
While there are
parts of the motor vehicle operations that might be viable
and picked up by other producers, either foreign or domestic,
it is assumed that in such event these facilities would be
shutdown for up to two years for retooling and integration
into the purchaser's line. As an example, a most likely
candidate for such purchase would be the Belvidere, Illinois
plant where Chrysler's subcompact models are produced.
However, the fact that Chrysler projects losses on small car
production could weigh against the likelihood that these car
lines would continue to be produced without modification in
the event of a takeover.
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Also weighing against uninterrupted
27
operation of selected facilities is the fact that parts and
materials for one Chrysler operation are often supplied by
another Chrysler facility.
In this scenario, it is further assumed:
o
There would be loss to foreign competitors of 200,000
units or about two-thirds of Chrysler's subcompact car
production.
This could be due to inability of other
domestic producers to make up Chrysler's share of output,
in which case such loss would be consistent with a
market share for subcompacts in 1980 at about the 18
percent of the first six months of this year and also
with a total auto market of about 10.2 million units.
Alternatively, it could be consistent with a shift in
preferences so that two-thirds of potential buyers of
Chrysler subcompacts purchase foreign-built cars instead.
(This would be somewhat higher than the 54 percent share
of the subcompact market taken by imports in the first
nine months of this year.)
o
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Foreign producers capture the remaining lost Chrysler
output of automobiles in proportion to their market share
for all cars excluding the subcompact category.
Similarly,
28
they pick up lost output of trucks in the under
6,000-pound category in proportion to market share.
Combined, these would total about 50,000 cars and trucks.
o
Chrysler's planned capital spending program of about
$1 billion per year would be discontinued.
Eventually
other producers would be expected to raise capital
outlays by roughly offsetting amounts, but there would
be some hiatus before such spending plans could be
formulated and implemented.
o
There would be a virtually complete job loss by the
corporate staff (except for some possessing skills
currently in short supply), including those in product
development, and by the sales staff.
(Approximately
14,000 persons would be affected.)
o
There would be at least temporary loss of output of
purchased materials and services used in support of
these staffs.
o
There would be job loss of Chrysler workers engaged in
motor vehicle operations and of workers in supplier
companies.
However, except for the share of the market
lost at least temporarily to foreign producers, this job
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29
loss by Chrysler workers would be offset by increased
employment by other domestic producers of motor vehicles
and parts.
o
Aggregate value added by motor vehicle dealers would be
little affected, since the total volume of cars to be
sold and serviced is assumed to be unchanged.
Reduced
operations or closure by Chrysler dealers would largely
be offset by increased operations of other dealers.
Economies of scale probably would lead to some overall
reduction in dealer employment and in workers engaged
in distribution of replacement parts.
o
The possibility of a Chrysler liquidation has been
sufficiently well publicized so that it may have been
discounted by financial markets.
•
Effects on household wealth have already largely taken
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place.
The current market value of Chrysler preferred
and common stock of about $600 million represents a
small fraction of the $3.6 trillion of household financial
assets.
Responsibility for unfunded pension liabilities
would fall to the Pension Benefit Guaranty Corporation.
Ultimately employers would have to pay increased premiums
to that corporation.
30
o
Chrysler creditors have long been aware of the
possibility that the company might cease operations and
have taken steps to minimize the impacts of such
eventuality on operations and financial positions.
However, some dislocations could result from delay or
default on payments due creditors.
Translation to aggregate economic impacts
In deriving aggregate economic impacts, multipliers
(used to derive secondary effects on economic activity)
were applied to the following:
o
The output loss caused by reduction of 200,000 of U.S.
production of subcompact cars. (Output loss was calculated
on 200,000 units times a selling price including options
but excluding transportation of $5,500, less a dealer
margin and less cost of imported materials which is
reported by Chrysler at $800 per car.)
o
Lost output associated with the capture by foreign
producers of an additional 50,000 motor vehicles from
Chrysler's current share of the market.
(Unit value
estimates were derived from figures supplied by the
Department of Commerce.)
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o
Lost Chrysler capital spending in the amounts indicated
by the company proposal.
•
The loss of estimated income of the corporate and
marketing staffs, with offset for unemployment insurance
benefits.
o
The loss of the estimated value of purchased materials and
services used in support of the corporate and sales staffs.
Except for any permanent loss of market share by domestic
producers, effects would be expected to begin to phase out
in 1981, or at latest at the end of that year.
Specifically,
introduction of new subcompact models would ease capacity
constraints in that sector. Other producers begin to augment
capital spending programs in 1981. Multipliers used were
those derived by an interagency group and were based on
properties of leading macroeconomic models.
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- 4
32
Calculated impacts on aggregate activity
On the basis of the foregoing assumptions, it is
calculated that GNP might be reduced in nominal terms in
1980 by about $4 billion from what it might otherwise be and
by about $6 billion in 1981. Such figures would represent
about 0.15 percent of nominal GNP in 1980 and roughly 0.2
percent in 1981.
Applying an "Okun's law" relationship to
the equivalent effect on real GNP, unemployment would be
raised by approximately 75,000 in 1980 and 100,000 in 1981.
Aside from any permanent loss of market share to foreign
producers, effects would be expected to fade out over time
as market forces become governing.
Impacts on aggregate
activity of the dimensions cited here are too small to have
much effect on inflation.
These effects can be translated to impacts on the
Federal budget by applying marginal tax rates to the GNP
change and by allowing for impacts of higher unemployment
on outlays. The Federal deficit would be widened in CY-1980
by $1 billion, or slightly more, and in CY-1981 by roughly
$1-3/4 billion. In each year about three-fourths of the
impact would reflect reduced receipts from what otherwise
would develop and the rest increased unemployment benefits
and other transfer payments under a range of programs.
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33
These figures do not include liabilities of up to $1 billion
over a thirty-year period that might accrue to the Pension
Benefit Guaranty Corporation.
Alternative scenarios
Estimates of the impact on nominal GNP and other
variables would be approximately three-fifths as large should
domestic producers have sufficient capacity to satisfy demand
for subcompact cars and if there were to be no shift in
demand to motor vehicles of foreign origin, so that there
was no loss of auto output to this country.
This would
provide a lower bound of estimated impacts on the economy of
a Chrysler shutdown.
It is cautioned that any such estimates as to impacts
on aggregate economic activity are imprecise at best, no
matter what method of estimation is used.
Whether fed through
large econometric models or otherwise derived, such estimates
depend on a number of assumptions that cannot be verified
until after the fact.
No attempt has been made here to assess
the possible effects on such intangible factors as business or
consumer confidence.
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34
Impacts on the balance of payments
The primary impact on the balance of payments under this
scenario would consist of the assumed loss of output to foreign
producers of the 200,000 subcompacts and 50,000 other motor
vehicles.
Value after deduction of dealer margin and $800
per unit for imported components on subcompacts is calculated
at just over $1 billion.
Except for the possibility of reduced shipments of
subcompacts to Canada (for which allowance is made in the
200,000 unit figure), there would appear to be little impact
on the trade balance with Canada.
Trade balance with Canada
in motor vehicles and parts*
Industry
Chrysler
All other
Exports
Imports
Net
(millions of dollars)
1978
9,253.8
10,349.6
-1,095.8
1,423.4
1,426.0
-2.6
7,830.4
8,923.6
-1,093.2
1979 - 1st 6 months
Industry
Chrysler
All other
5,553.2
736.2
4,817.0
5,373.7
582.2
4,791.5
179.5
154.0
25.5
* Excludes used cars.
Source:
Industry data from Bureau of the Census, Department
of Commerce. Chrysler data provided by Chrysler.
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35
Chrysler reported a roughly zero net trade balance
with Canada in 1978, so that the industry total is little
affected if Chrysler figures are subtracted.
Figures for
the first half of 1979 are thought to be atypical for both
Chrysler and the industry, as demand for larger cars was
sharply depressed in this country by gasoline lines while
remaining little changed in Canada.
Since Canadian
production is weighted to larger model cars and vans, this
caused a swing in the trade balance.
Some long-lived impacts on the U.S position in world
motor vehicle markets could result from disappearance of
Chrysler from markets.
Quite probably, some dealers who
formerly sold Chrysler products would make arrangements
with foreign producers.
This was the pattern in Great
Britain when British Leyland and other manufacturers there
scaled back the size of their operations.
The major foreign
producers selling motor vehicles in U.S. markets are now
well entrenched and have extensive dealer arrangements,
so that additional penetration from abroad would not be as
substantial as occurred in Great Britain.
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36
It is noted that the relative position of the U.S. in
world motor vehicle production declined very sharply during
the 1950's and 1960's, then held relatively level during the
1970's.
Chrysler in 1978 was sixth in the world among
producers of motor vehicles, and its demise and
resulting
shifts in dealer arrangements in this country could contribute
to renewed deterioration.
World production of motor vehicles
Year
Total
U.S.
Canada
Europe
Asia
Other
Thousands of units
1978
1970
1960
1950
42,307
29,267
16,488
10,577
12,899
8,284
7,905
8,006
14,706
9,471
8,303
8,397
16,222
13,154
6,824
2,128
9,368
5,365
811
32
2,011
1,277
550
20
22.1
18.3
4.9
0.3
4.8
4.4
3.3
0.2
Percent distribution
1978
1970
1960
1950
100.0
100.0
100.0
100.0
Source:
Motor Vehicle Manufacturers Association, Motor Vehicle
Facts and Figures, 1979.
30.5
28.3
47.9
75.7
34.8
32.4
50.4
79.4
38.3
44.9
41.4
20.1
Ultimately, the share of U.S producers in domestic and
world motor vehicle markets will largely be determined by
relative costs and exchange rates.
However, some countries
tend to shelter and support domestic producers, so that market
forces are not completely free to operate.
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37
REGIONAL IMPACTS
Chrysler's activities are heavily concentrated in the
Detroit metropolitan area.
For the 1978 model year, 46 percent
in the
of Chrysler's U.S. automobile assemblies were made
Detroit area, compared with 11 percent for cars manufactured
by all other producers.
For calendar year 1978, 70 percent
of Chrysler U.S. truck assemblies were in the Detroit area,
versus 16 percent for all other producers.
Chrysler's suppliers are also concentrated in the Detroit
er
Of total supplies purchased domestically in 1978, Chrysl
area.
than
reported that 41 percent ($3.3 billion) came from more
6,000 firms located in Michigan.
It is believed that these
were largely concentrated in and around the Detroit area.
Employment
The attached Table 6 presents figures for Chrysler's U.S.
employment in motor vehicle operations as of May 1979 by
location.
Table 7 presents similar employment figures as
of September of this year.
Neither table includes corporate
ting, and
staff (about 12,000 workers), those in sales, marke
service divisions (about 7,000 workers), or workers in
activities not related to motor vehicles.
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Nearly 52,000 workers in motor vehicle operation were
employed in the Detroit standard metropolitan statistical
area (SMSA) in May.
(Inclusion of the corporate and sales
staffs would have raised that figure well above 65,000.)
This represented 2-1/2 percent of the total labor force in
the SMSA (about 3-1/4 percent including corporate staff).
By September, Chrysler motor vehicle employment in the Detroit
SMSA had declined by about 10,000 to 42,000.
Figures on the
labor force for September are not available, but the decline
in employment of 10,000 workers between May and September
was equivalent to 0.5 percent of the labor force measured as
of May.
For each Chrysler automobile worker laid off in the
Detroit area because of a shutdown, about one job would
probably be lost at area firms supplying Chrysler. Thus, it
is likely that the direct job loss in the greater Detroit
area in event of a Chrysler shutdown would be well in excess
of 80,000, measured from September levels of employment
(100,000 measured from the higher levels of last May). The
Detroit area unemployment rate would be directly raised by
4 percentage points (5 percentage points if May is used as
the base), and secondary effects would raise this percentage
still higher.
Rule of thumb regional multipliers range to
the order of 2--i.e., for each job lost directly there would
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39
be loss of one additional job through indirect effects.
Some of this could be mitigated if Chrysler workers find
jobs in plants of other motor vehicle manufacturers in the
Detroit area.
While other producers have been shifting
operations away from the Detroit area, they still have
substantial operations there. Of motor vehicles produced in
the Detroit area in 1978, Chrysler accounted for about
two-fifths.
The latest available figure for the unemployment rate
in the Detroit SMSA was 7.8 percent for the month of August
In May, the rate had been 7.0 percent. (Area unemployment
rate figures are not calculated on a seasonally adjusted
basis.)
National figures for those months were 5.2 percent
in May and 5.9 percent in August (both nonseasonally adjusted).
Chrysler workers represent a significant portion of the
workforce in several other areas.
Among these, plants in
Kokomo, Indiana, and Belvidere, Illinois (Rockford SMSA),
along with plants in Ann Arbor, Michigan, Syracuse, New York,
and at least some facilities in St. Louis, Missouri, are
thought to be likely candidates for purchase by other firms.
For these plants, disruptions would probably be two years at
most.
Generally, plants in the Detroit area are aged, some
dating back to before World War I, and would not be attractive
to a potential buyer.
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Longer-range regional considerations
Some jobs in the Detroit area will be lost even if
Chrysler continues operations.
The Hamtramck plant, which
accounted for 26 percent of Chrysler's 1978 model-year U.S.
automobile assemblies, is to operate at only one shift
during the 1980 model year and to close at the end of that
year. Some workers involved will be shifted to other plants.
Another plant in the Detroit area is slated for closure,
and a facility in Lansing, Michigan (well outside the Detroit
area) has recently been closed. Aside from these, however,
Chrysler reports no further closings are currently
anticipated. Chrysler plans for assembly are as follows:
Auto assembly plants
Michigan:
Hamtramck
- To be closed at end of 1980 model year.
Lynch Road
- Continued production of larger model cars.
Eventually to produce planned X-body cars.
Jefferson
- Currently producing light trucks and vans.
Scheduled to shift to production of
planned K-body compact in 1981 model year.
Missouri:
St. Louis
Delaware:
Newark
Illinois:
Belvidere
Canada:
Windsor,
Ontario
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- Continued production of larger model cars.
Eventually produce planned X-body cars.
- Currently producing compact cars. To produce
planned K-body cars in 1981 model year.
- Continued production of subcompacts.
- Continued production of larger model cars.
Eventually produce planned X-body cars.
41
Truck assembly plants
Michigan:
Warren
- Continued production of light trucks.
Missouri:
Fenton
- Continued production of light trucks.
Canada:
Pillette
- Continued production of light trucks.
Note: X-body cars are to replace intermediate and full-size
models in 1984 and 1985 model years.
Table 8, attached, presents figures on Chrysler's planned
rates of production for these various assembly plants and
compares these plans with production in 1977 and 1978.
The
planned rates of output are consistent with overall rates of
production in Chrysler's guarantee request of October 17
which envisaged a recovery of market share as well as improved
overall demand for motor vehicles.
It should be noted that closedown of major facilities
need not relegate an area to permanently depressed status.
While some industries are in decline or phasing out of an
area, others are generally growing. That has been the
experience of the Detroit area where jobs in manufacturing
declined by 4.9 percent between 1973 and 1978, while jobs
in nonmanufacturing industries grew by 10.3 percent.
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42
The experience of the Seattle-Eve
rett metropolitan area
provides one example of a major
metropolitan area that
suffered severe job loss.
Between 1968 and 1971, employment
in the aircraft and parts industry
fell by more than 60,000,
representing 10 percent of all
employment in the area. It
took a number of years to overcome
this job loss, but by
last year, the unemployment rate
for the area was less than
the national average, though empl
oyment in aircraft and parts
in the area was still well below
its previous peak level.
Employment and unemployment in the
Seattle-Everett SMSA
Total
1968
1969
1970
1971
1972
1973
1975
1976
1977
1978
Note:
Source:
633
636
569
523
545
582
612
636
655
723
Aircraft Other manu& parts
facturing
thousands
)
104
91
61
40
41
50
50
45
45
59
68
72
67
64
67
71
74
75
81
88
Unemployment rate
(percent)
2.9
4.0
9.7
12.4
10.9
7.6
9.1
9.1
8.3
5.3
There is a slight break in data
between 1969 and 1970.
Data provided by Bureau of Labo
r Statistics,
Department of Labor.
Experience of the Seattle-Everett
area does not necessarily
provide a good analogy with pote
ntial problems facing the Detr
oit
area. The workforce in the airc
raft industry would tend to be
more highly skilled than in the
motor vehicle industry, and thes
e
skills might be more transfer
able and the workforce more mobi
le.
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COMPETITIVE STRUCTURE OF MOTOR VEHICLE MARKETS
The Chrysler Corporation is the third largest of five
U.S. producers of automobiles (six if tiny Checker Motors
is included).
Unit sales are less than one-half those of
Ford and roughly one-fifth of G.M.'s.
.
In addition, there
are over fifteen foreign companies producing cars for sale
in the U.S., and these also compete with Chrysler.
The truck
market consists of nine major domestic producers and eight
foreign manufacturers currently active in the U.S. market.
Markets for automobiles
Table 9, attached, shows Chrysler's position in the
automobile market for the first nine months of 1979 and for
the full calendar year 1978.
Chrysler's share of the total
automobile market of 10.1 percent in 1978 and 9.3 percent so
far this year compares with 11.7 percent and 10.9 percent in
1976 and 1977, respectively. (As a caution, classification
of imported models by size class was arbitrary to some degree.
Because of limited sales data, classification by manufacturer
rather than model was required in some instances.
Sales of
Chrysler and other captive imports are included in the "import"
column.
Figures differ from those cited in the earlier
section on the outlook for the composition of sales in which
imports were treated as a completely separate market category.)
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As can be seen in the column showing the size category
as a percent of total sales (second from right hand column
of the table), the subcompact market (including imports) has
expanded dramatically from 25.9 percent in 1978 to dominate
with 36.0 percent of total car sales this year.
Chrysler's
Omni and Horizon models were able to hold 7.1 percent of
this growing market and might have even been able to gain
market share had it had not been for inability to obtain
additional engines which are purchased from foreign suppliers
This expanding market is also the one with the greatest
number of competitive manufacturers.
Testimony before the
Senate Banking Committee hearings on the Chrysler proposal
indicates that some foreign producers have a substantial
cost advantage at current exchange rates over U.S. producers
of subcompact cars, including Chrysler.
Among other markets, Chrysler had a 15.3 percent share
of compact car sales in 1978, declining to 14.5 percent in
1979.
G.M. introduced a new line of models in this market
category in the spring of this year, placing other producers
under substantial competitive pressure.
Chrysler was the largest seller in the market for vans.
This is a relatively small market and there is little
differentiation from light trucks. Industry figures will
be restructured in the future to include vans with trucks.
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Chrysler's share of the market for intermediate sized
cars was 14.6 percent in 1978, dropping to 10.3 percent
so far this year. There are currently three producers in
this market.
In the market for full-sized cars where Chrysler
introduced restyled models last year, Chrysler gained an
increased share to 7.5 percent during the first nine months
of this year.
Chrysler is not now a factor in the market
for luxury cars, though its October 17 proposal indicated
that it has plans to become one again in the future.
Shifts in the pattern of sales this year from last
provide an indication of how changing economic conditions
impact on Chrysler's share of the market.
The following
tabulation presents the change in unit car sales so far this
year from a year earlier for Chrysler and the industry.
Change in unit car sales in the first
nine months of 1979 from same period of 1978
(thousands of units)
Total domestics
Subcompact
Compact
Van
Intermediate
Full
Luxury
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Total
Chrysler
Number
Percent
Number
Percent
505.5
-247.3
-28.8
-491.8
-242.6
-63.2
57.9
-14.3
-24.5
-21.4
-15.3
-15.2
54.5
-46.8
-15.5
-153.6
44.6
34.6
-16.5
-31.9
-45.2
79.9
-568.2
-8.1
-116.9
-13.2
46
Markets for trucks
Figures on shares of the truck market are shown in
Table 10.
Chrysler's share of the total market was 11.8
percent in 1978, falling to 8.4 percent in the first eight
months of this year in a market that was generally weakening.
Sales of light weight models make up close to 90 percent
of overall truck sales.
Trucks in this cateogry may be used
for personal as well as business purposes, and sales this
year have been more sensitive to the gasoline situation than
have sales of larger trucks.
Most of Chrysler's products
in the light-truck market are at the heavier end (6,001 to
14,000 lbs.) of the light truck range --the grouping most
vulnerable to shortages of fuels. The tabulation below presents
figures on changes in unit sales this year from a year earlier.
Change in unit truck sales in the first eight
months of 1979 from same period of 1978
Total domestics
Chrysler
Number
Percent
Number
Percent
-513.9
-21.7
-133.6
-39.6
-92.4
-421.5
-11.2
-27.3
-0.5
-133.1
-0.9
-47.2
Medium
-1.2
-1.1
-0.6
-19.3
Heavy
21.6
15.8
-493.4
-18.8
-134.2
-39.4
Light total
0 to 6,000
6,001 to 14,000
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Total
47
Overall market position
etitive position for
For both cars and trucks, the comp
nd heavily on economic
Chrysler over the near term will depe
. Chrysler was generally
conditions and availability of gasoline
larger end of both the
most strongly positioned toward the
ered the most from short
auto and truck markets which suff
subcompact market,
supplies of fuel. The exception was the
where its production
where Chrysler had popular entries but
capability was limited.
a competitive force
Overall, disappearance of Chrysler as
of substantial competition
would not radically alter the pattern
in the market for subcompacts.
A number of new entries are
heel-drive "world" cars
planned for this market, including front-w
.
by Ford and G.M. in the 1981 model year
plans to introduce its
In the market for compacts, Chrysler
start of the 1981 model
K-body front-wheel-drive car at the
year.
which have taken a
This will compete with G.M. entries,
e introduction of its
dominant position in this market sinc
year.
front-wheel-drive X-cars in April of this
304-856 0 - 79 - 5
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
48
G.M. has a dominant position in markets for larger model
cars, and that position would be somewhat enhanced by
disappearance of a competitor. Similar considerations apply
to G.M.'s and Ford's positions in the market for light trucks
.
Chrysler plans to have completely revamped and downsized models
in the larger car categories in the 1984 and 1985 model years.
Acquisition of Chrysler facilities
As has been noted previously, in the event of a Chrysler
shutdown some of its facilities would be purchased by other
firms, either foreign or domestic.
This would have serious
anticompetitive effects only in the event that acquisition
were to be by a firm which is currently a major domestic
producer.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 49 -
Table 1
Production, Employment, and Corporate Profits
in the U.S. Motor Vehicle Industry
Total US
Real GNP
% Change
Production
Chrysler
Industry
% Ch. Number % Ch.
Number
(000)
(000)
Motor Vehicles & Equipment
Profits*
Employment
% Ch.
Number
($ Billions)
(000)
1954
1955
1956
1957
1958
1959
1960
-1.3
6.7
2.1
1.8
-0.2
6.0
2.3
6,533
9,188
6,906
7,207
5,115
6,734
7,894
-11
41
-25
4
-29
32
17
818
1,458
961
1,299
640
810
1,089
-39
78
-34
35
-51
27
34
765.7
891.2
792.5
769.3
606.5
692.3
724.1
-17
16
-11
-3
-21
14
5
2.1
4.1
2.2
2.6
0.9
2.9
3.0
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
2.5
5.8
4.0
5.3
5.9
5.9
2.7
4.4
2.6
-0.3
6,644
8,189
9,100
9,300
11,114
10,363
8,992
10,794
10,183
8,263
-16
23
11
2
20
-7
-13
20
-6
-19
714
813
1,159
1,378
1,611
1,599
1,506
1,760
1,557
1,452
-34
14
43
19
17
-1
-6
17
-12
-7
632.3
691.7
741.3
752.9
842.7
861.6
815.8
873.7
911.4
799.0
-13
9
7
2
12
2
-5
7
4
-12
2.5
4.0
4.9
4.7
6.1
5.1
3.9
5.5
4.8
1.4
1971
1972
1973
1974
1975
1976
1977
1978
3.0
5.7
5.5
-1.4
-1.3
5.9
5.3
4.4
10,649
11,297
12,663
9,984
8,966
11,485
12,699
12,896
29
6
12
-21
-10
28
11
2
1,518
1,692
1,934
1,539
1,223
1,775
1,710
1,615
5
11
14
-20
-21
45
-4
-6
848.5
874.8
976.5
907.7
792.4
881.0
942.0
997.2
6
3
12
-7
-13
11
7
6
4.9
5.9
5.8
0.2
1.7
7.4
9.1
8.9
* Corporate profits with inventory valuation adjustment.
Sources:
Production:
Employment:
Profits and
real GNP:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ward's Automotive Yearbooks. Figures are combined
totals of autos and trucks.
Bureau of Labor Statistics, Department of Labor.
Bureau of Economic Analysis, Department of Commerce.
11/7/79
- 50 -
Table 2
Trends in Sales and Market Shares by Size Classes
Small
Sales
Domestic
Mid*
Full
(----thousands of units
Import
)
Market Shares
Domestic
Import
Small
Mid*
Full
(
percent
)
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1,500
1,645
1,896
2,411
2,636
3,126
2,887
3,026
3,365
3,222
3,476
2,451
2,165
1,862
2,027
2,390
2,575
2,174
2,038
2,716
3,096
3,162
4,661
4,624
3,360
4,218
4,343
3,972
2,382
1,994
2,532
2,793
2,674
1,030
1,117
1,283
1,566
1,621
1,762
1,412
1,587
1,498
2,075
2,000
15.6
17.2
22.6
23.6
24.0
27.3
32.6
35.0
33.3
28.8
30.7
25.4
22.7
22.2
19.8
21.7
22.5
24.6
23.6
26.9
27.7
28.0
48.3
48.4
40.0
41.3
39.5
34.7
26.9
23.1
25.0
25.0
23.6
10.7
11.7
15.3
15.3
14.7
15.4
15.9
18.4
14.8
18.5
17.7
19799 mos.
2,898
1,910
1,638
1,814
35.1
23.1
19.8
22.0
* Includes vans.
Source:
Data provided by Bureau of Economic Analysis, Department of
Commerce. Size classification may not match that used by
the industry.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11/7/79
,
.
.
Table 3
Reconciliation of Sales and Production Forecasts
(millions of units)
Total
Sales
Import
Number Share
Domestic
Exports less
imports from
Canada
Inventories
Change
End of
period
Production
1976
10.1
1.5
14.8
8.6
-0.1
1.5
0.0
8.5
1977
11.2
2.1
18.6
9.1
-0.1
1.8
0.3
9.2
1978
11.3
2.0
17.7
9.3
0.0
1.7
0.0
9.2
1979 est.
10.6
2.2
21.1
8.4
0.1
1.7
0.0
8.5
1980 est.
9.6
1.9
20.0
7.7
0.1
1.5
-0.2
7.6
1981 est.
10.2
2.0
20.0
8.2
0.1
1.6
0.1
8.4
Note:
Detail may not add to total because of rounding.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11/7/79
- 52 -
Table 4
Estimated Auto Production Capability Without Overtime
(thousands of units)
Subcompact
Compact
Intermediate
Full &
Luxury
Total
United States
GM
Ford
Chrysler
AM
VW
Total
748
541
269
n.a.
216
1,774
1,477*
415
346
129**
1,432
641
202
1,888
756
192
2,367
2,275
2,836
5,545
2,353
1,008
129
216
9,252
Canada
GM
Ford
Chrysler
Total
223
223
272
-211
483
211
119
483
342
211
1,036
330
U.S. and Canada
GM
Ford
Chrysler
AM
VW
Total
748
541
269
n.a.
216
1,774
1,477
638
346
129
-2,590
1,704
641
413
2,099
875
192
2,758
3,166
6,028
2,695
1,220
129
216
10,288
* Includes second shift to be added at Oklahoma City plant
in November 1979.
** Includes some subcompacts.
Source of data:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ward's Automotive Yearbook, 1979 and
Ward's Automotive Reports
11/7/79
- 53 -
Table 5
Estimated Light Truck Production Capability Without Overtime*
(thousands of units)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
United States
GM
Ford
Chrysler
AM
International Harvester
Total
1,233
958
536
185
48
2,960
Canada
GM
Ford
Chrysler
AM
Total
173
196
84
54
507
U.S. and Canada
GM
Ford
Chrysler
AM
International Harvester
Total
1,406
1,154
620
239
48
3,467
* Includes a limited number of medium trucks.
Source of data:
Ward's Automotive Yearbook, 1979 and
Ward's Automotive Reports.
Table 6
Chrysler Employment in Motor Vehicle Operations
May 1979
Metropolitan
area or county
State
Chrysler
employment
Michigan
Ann Arbor
Detroit
Lansing
Indiana
Indianapolis
Kokomo
(Howard County)
Michigan City
(La Porte County)
New Castle
(Henry County)
4,042
6,764
Dayton
Fostoria*
Sandusky
(Erie County)
Toledo
Akron
Lima
Missouri
1,276
51,676
652
Establishment employment
All
Manufacindustries
turing
thousands
(
139.7
1,823.6
199.4
47.0
606.2
47.3
Labor
force
)
Chrysler as
Unemploya percent of
ment rate
labor force
(
percent
)
142.5
2,061.5
237.4
5.4
7.0
5.8
0.9
2.5
0.3
520.7
n.a.
132.4
n.a.
590.2
45.1
4.2
12.1
0.7
. 15.0
n.a.
n.a.
50.8
5.2
0.6
2,607
n.a.
n.a.
24.7
6.4
10.6
1,926
652
344
366.6
n.a.
n.a.
109.9
n.a.
n.a.
386.9
107.6
39.7
5.7
4.1
4.7
0.5
0.6
0.9
2,389
3,748
347
312.6
273.0
n.a.
91.5
84.8
n.a.
367.4
299.9
102.0
5.8
5.4
5.4
0.7
1.2
0.3
St. Louis
8,900
985.8
254.6
1,091.7
4.2
0.8
Illinois
Rockford
5,076
122.7
57.0
133.3
4.1
3.8
Delaware
Wilmington
4,477
219.4
63.7
238.7
6.3
1.9
New York
Syracuse
3,679
259.2
60.4
299.2
4.6
1.2
Alabama
Huntsville
1,741
120.4
36.0
136.7
6.3
1.3
Ohio
295 .
i
01
'P.
* Falls in Seneca, Hancock, and Wood Counties.
1
SOURCE:
Chrysler employment figures from Department of Transportation.
Other data from Bureau of Labor Statistics.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11/7/79
- 55 Table 7
Chrysler Employment in Motor Vehicle Operations
September 1979
State
Metropolitan
area or county
Chrysler
employment
Change from
May
Chrysler employment
as percent of May
labor force
Michigan
Ann Arbor
Detroit
Lansing
1,158
41,909
13
-118
-9,767
-639
0.8
2.0
0.0
Indiana
2,930
Indianapolis
5,055
Kokomo
(Howard County)
293
Michigan City
(La Porte County)
2,167
New Castle
(Henry County)
-1,112
-1,709
0.5
11.2
-2
0.6
-440
8.8
Dayton
Fostoria*
Sandusky
(Erie County)
Toledo
Akron
Lima
1,491
505
232
-435
-147
-112
0.4
0.5
0.6
1,870
3,532
320
-519
-216
-27
0.5
1.2
0.3
Missouri
St. Louis
7,313
-1,587
0.7
Illinois
Rockford
5,104
28
3.8
Delaware
Wilmington
4,646
169
1.9
New York
Syracuse
3,438
-241
1.1
Alabama
Huntsville
1,691
-50
1.2
Ohio
* Falls in Seneca, Hancock, and Wood Counties.
SOURCE:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Chrysler Corporation
11/7/79
Table 8
Planned Chrysler Assembly Operations, by Location
1977
1978
Michigan - Hamtramck 1/
- Lynch Road—
- Jefferson _
2/
380
209
96
292
142
84
137
180
201
260
Missouri - St. Louis
269
236
196
Delaware - Newark
226
189
Illinois - Belvidere
173
Canada -
220 3/
1984
1985
251
282
249
293
253
300
168
129
207
238
180
259
283
293
300
188
277
302
279
268
264
179 3/
200
226
232
231
248
310 3/)
)
172
16
176
20
275
21
301
22
337
23
Automobiles
Windsor
1981
1982
1983
thousands of units
Trucks
Michigan - Warren
- Sherwood
( 328 3/
(
Missouri - Fenton
124 3/
124 3/
119
142
148
146
135
Canada -
107 3/
76 3/
82
91
98
97
90
Pillette
1/ Scheduled for one-shift operations in model-year 1980 and closure thereafter.
2/ Producing trucks during model years 1979-80 at rate estimated at 90,000 per year.
3/ Calendar year figure.
Source:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Back data from Ward's Automotive Yearbooks.
Projected output provided by Chrysler.
11/7/79
Table 9
Shares of Automobile Market by Size Category
(in percent)
Chrysler
GM
Ford
AMC
VW
Domestic
Import
Total
Size as
% of
market
No. of
manufacturers
CY-1979 - Cumulative through September
Subcompact
Compact
Van
Intermediate
Full-size
Luxury
Total
7.1
14.5
32.5
10.3
7.5
17.1
41.9
24.1
74.3
72.2
62.7
16.8
30.0
30.5
15.3
20.3
23.0
1.3
4.5
9.3
45.8
20.1
1.4
4.0
1.4
14.3
100
100
100
100
100
100
36.0
19.7
1.2
21.8
16.2
5.0
15
9
4
3
3
7
78.0
22.0
100
100.0
21
41.2
92.6
86.4
100.0
100.0
88.3
58.8
7.4
13.6
11.7
100
100
100
100
100
100
25.9
21.2
1.5
26.6
18.9
5 8
15
9
4
4
3
7
82.3
17.7
100
100.0
21
46.3
90.9
87.1
100.0
100.0
85.7
53.7
9.1
12.9
CY-1978
Subcompact
Compact
Van
Intermediate
Full-size
Luxury
Total
Source:
7.1
15.3
34.0
14.6
3.5
--
18.3
37.3
25.5
63.9
74.6
59.7
14.2
34.3
26.9
21.2
22.0
28.6
0.8
5.7
-0.3
10.1
47.6
22.8
1.5
0.8
0.2
Yearbooks.
Sales data from Ward's Automotive Reports and
and by
cars
ic
domest
for
Ward's
by
Size classification
.
models
import
for
ble
availa
where
Consumer Reports
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
(II
ssi
11/7/79
1
Table 10
Shares of Truck Market by Size Category
(in percent)
Weight
Category (lbs)
Chrysler
GM
Ford
AMC
Jeep
International
Other
Total
domestic
Import
Size
as %
of
Total market
No. of
manufacturers**
CY-1979 - Cumulative through August
Light-total
0 to 6,000
6,001 to 14,000
Medium
14,001 to 26,000
Heavy
26,001 +
Total
9.3
5.1
13.3
39.9
45.1
34.9
30.8
14.3
46.5
2.4
44.1
8.4
4.3
4.7
3.9
0.7
*
1.4
*
85.0
69.2
100.0
35.8
17.8
*
100.0
13.1
17.4
31.8
36.3
98.6
38.3
30.2
3.5
2.4
1.0
*
1.6
3.8
15.0
30.8
100
100
100
88.9
43.2
45.7
10
9
5
100
4.5
5
1.4
100
6.5
9
86.6
13.4
100
100.0
17
8.9
21.8
*
91.1
78.2
100.0
100
100
100
91.0
37.2
53.9
10
9
5
100
4.0
5
CY-1978
Light-total
0 to 6,000
6,001 to 14,000
Medium
14,001 to 26,000
Heavy
26,001 +
Total
12.8
5.1
18.2
41.0
54.2
31.9
32.0
13.7
44.6
3.6
40.5
36.0
19.9
*
100.0
12.5
19.5
26.3
40.6
98.9
1.1
100
5.0
9
39.5
31.5
3.0
2.0
91.8
8.2
100
100.0
17
11.8
4.3
5.2
3.7
3.9
* Less than 0.1 percent
** Represents major manufacturers. Truck sales statistics do not cover the entire industry.
Note: Mercedes-Benz sells both heavy and medium weight trucks. Since the breakdown is unknown,
all Mercedes-Benz sales are listed here under heavy trucks.
Source:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sales data are from the Motor Vehicle Manufacturers Association of the U.S., Inc.,
and Ward's Automotive Reports and 1979 Yearbook
11/7/79
1
Ul
CO
1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
APPENDIX 2
HISTORICAL PATTERNS FOR CHRYSLER
AND INDUSTRY
Office of the Assistant Secretary for
Domestic Finance
Corporate Finance and Special Projects
November 6, 1979
CONTENTS
Chrysler Corporation
Consolidated Sales and Earnings, 1945-78
Percent of Retail Sales Attained, 1976-79 .
1
2
Highlights of Chrysler's Performance vs.:
Industry Comparative Analysis
Expense Structure
• • •
Cost of Goods Sold
Deprection
••
Selling, general and administrative...
Operating profit, interest & net income
3
6
7
10
12
14
Balance Sheet
18
Capital Spending
26
Return on Stockholders Equity
29
Industry Comparisons, Years 1974-78
30
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
Chrysler Corporation Consolidated
($ in thousands)
Net
Earnings (Loss)
Year
Unit Sales
1945
6
7
8
9
93,517
677,379
944,379
1,003,564
1,267,470
1950
1
2
3
4
1,313,239
1,395,833
1,114,228
1,344,583
883,769
2,190,693
2,546,679
2,600,959
3,347,864
2,071,598
127,877
71,973
78,697
74,789
18,517
1955
6
7
8
9
1,579,215
1,077,877
1,381,951
704,099
917,364
3,466,222
2,676,334
3,564,983
2,165,382
2,642,980
100,063
19,953
125,090
( 29,663)
( 1,990)
1960
1
2
3
4
1,183,311
802,003
892,299
1,518,586
1,807,258
3,007,049
2,127,292
2,377,593
3,505,275
4,287,348
35,142
8,983
65,813
163,370
215,372
1965
6
7
8
9
2,076,523
2,133,816
2,245,583
2,610,016
2,431,551
5,299,935
5,582,545
6,135,817
7,353,572
6,942,128
239,543
194,065
203,189
302,946
98,971
1970
1
2
3
4
2,434,398
2,662,517
3,028,212
3,402,413
2,762,842
6,887,356
7,892,682
9,640,777
11,667,404
10,859,956
( 7,603)
83,660
220,455
255,445
( 52,094)
1975
6
7
8
2,475,597
3,130,307
2,328,302
2,211,535
11,598,405
15,537,788
13,058,559
13,618,324
(259,535)
422,631
163,162
(204,635)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Net Sales
994,546
870,000
1,362,627
1,567,933
2,084,603
$
$
37,465
26,889
67,181
89,187
132,170
PERCENT OF U.S. RETAIL SALES ATTAINED
DOMESTIC AND IMPORTED PASSENGER CARS
Period
Year
1976
1977
197e,
C1PYSLE7
Year
to
Date
FOPD
GENERAL MOTORS
Year
Period
Year
to
Date
Period
Date
46.9
to
is; .uarter
2nd quarter
3rd .;.uarter
4th quarter
14.3
14.3
14.3
14.3
22.7
22.7
22.7
22.7
46.9
47.7
13.5
14.1
22.9
22.8
45.2
47.4
46.6
12.5
13.7
21.1
22.3
50.2
1st
2nd
3rd
4tn
Quarter
',11.arter
quarter
Quarter
12.6
12.3
12.6
12.4
23.2
22.0
23.2
22.5
46.2
45.9
12.2
10.9
12.3
12.0
21.8
24.6
22.3
22.8
1st
2nd
3rd
4th
Quarter
Quarter
quarter
Quarter
11.3
11.7
10.6
10.6
11.3
11.5
11.2
11.1
23.9
23.5
21.3
22.6
10.9
10.5
10.6
10.9
10.7
10.6
21.8
19.6
18.9
1979 - 1st Quarter
2nd Quarter
3rd Quarter
Source:
Chrysler Corporation
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AMERICAN MOTORS
Year
to
Date
Period
47.5
2.9
2.4
2.0
2.5
2.9
2.6
2.4
2.5
F.:PORTS
Year
to
Period
Date
13.2
12.9
16.4
13.7
13.2
13.0
14.1
14.0
46.2
1.8
1.8
16.2
16.2
44.7
47.5
46.0
45.6
46.1
1.7
1.5
1.6
1.8
1.7
1.7
18.1
19.8
15.4
17.3
18.1
17.4
23.9
23.7
22.9
22.9
45.1
47.1
47.6
50.7
45.1
46.3
46.7
47.6
1.5
1.7
1.5
1.2
1.5
1.6
1.6
1.5
18.2
16.0
19.0
14.9
18.2
16.9
17.6
16.9
21.8
20.6
20.1
45.8
45.4
46.2
45.8
45.6
45.8
1.0
1.5
1.5
1.0
1.3
1.4
20.5
23.0
22.8
20.5
21.8
22.1
HIGHLIGHTS OF CHRYSLER'S
PERFORMANCE VS. INDUSTRY COMPARATIVE
ANALYSIS
SALES
• CHRYSLER'S PATTERN IS CLOSE TO THE AVERAGE
THROUGH 1977
• DOWNTURN IN 1978
COGS
• CHRYSLER'S COGS % IS TYPICALLY 7% HIGHER THAN
OTHER INDUSTRY PARTICIPANTS
• TREND IN 1979 (1st SIX MONTHS) SHOWS FURTHER
EROSION TO 97.4%
• A SUBSTANTIAL LEVEL OF SALES GROWTH HAS BEEN
NECESSARY TO FAVORABLY AFFECT THE GROSS
MARGIN PERCENTAGE
DEPRECIATION
• CHRYSLER'S DEPRECIATION AS A % OF SALES IS
ONE-HALF FORD OR GM VALUES(LOW CAPITAL
INVESTMENT IN RECENT YEARS)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
S.G.&A.
• CHRYSLER'S PATTERN IS COMPARABLE TO THE LEVELS
(AS A PERCENT OF SALES) OF GM AND FORD
OPERATING PROFIT
• GM PERFORMANCE IS TOP OF COMPETITORS
• FORD IS A CLEAR SECOND
• GROSS MARGIN PROBLEMS HAVE "TRICKLED" DOWN
TO THE OPERATING PROFIT LEVEL AT BOTH CHRYSLER
AND AMC
CAPITALIZATION
• CHRYSLER'S DEBT/EQUITY RATIO PATTERN SHOWS A
HIGHER LEVEL THAN THE INDUSTRY NORM
• AMC'S LEVEL IS CURRENTLY INFLATED DUE TO
AGGRESSIVE CAPITAL EXPENDITURES DURING 1973 TO
1976
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
INVENTORY TURNOVER
• CHRYSLER HAS HISTORICALLY OPERATED AT A LOWER
LEVEL THAN THE INDUSTRY
• "SALES BANK" INVENTORY/PRODUCTION
• NEW PRODUCT LAUNCHING PROBLEMS
ASSET TURNOVER
• LITTLE VARIATION FROM PARTICIPANT TO PARTICIPANT
EXCEPT AMC
• AMC TYPICALLY 20% HIGHER THAN INDUSTRY
CAPITAL EXPENDITURES
• CHRYSLER'S RATIOS ARE COMPARABLE TO THE
INDUSTRY
• CAPITAL EXPENDITURES PER SALES
• CAPITAL EXPENDITURES PER NET PROPERTIES, PLANT,
AND EQUIPMENT
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
EXPENSE STRUCTURE WITH THAT
COMPARISON OF CHRYSLER'S
ITORS
OF INDUSTRY AND KEY COMPET
*AVERAGE OF 1974-78 RATIOS
NET SALES
LESS: COST OF GOODS SOLD
GROSS PROFIT
LESS: DEPRECIATION
SELLING, GEN Et ADMIN.
_AMC_
100.0
93.8
100.0
86.8
100.0
87.5
100.0
85.0
100.0
89.3
100.0
90.0
6.2
1.1
4.0
13.2
2.0
3.9
12.5
1.9
4.2
15.0
2.1
3.7
10.7
1.9
3.8
10.0
.9
9.0
1.1
.1
1.0
7.3
1.1
.7
6.5
1.0
.8
9.2
1.0
.6
5.0
1.1
.7
.1
.8
.7
0
.1
7.7
3.5
6.7
3.1
9.6
4.5
5.4
2.2
.2
.2
4.2
3.6
5.1
3.2
0
( .1)
PRETAX INCOME
INARY
LESS: INCOME TAX/EXTRAORD
* Average of GM, Ford, and AMC
** Value Line " Industry Average"
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
FORD
VLO5 **
OPERATING PROFIT
ADD: OTHER NET INCOME
LESS: INTEREST
NET INCOME
GM
AGG*
CHRYSLER
COST OF GOODS SOLD
• GRAPH SHOWS CHRYSLER'S HISTORY (1969-1978) IN
COMPARISON WITH KEY COMPETITORS.
• CHRYSLER'S COST OF GOODS SOLD AS % OF NET
SALES:
- GENERALLY EXCEEDS THAT OF KEY COMPETITORS; BY
1978, IT WAS MORE THAN 7% HIGHER THAN ANYONE
ELSE.
- SHOWS AN INCREASING TREND, WHICH APPARENTLY
CONTINUED IN FIRST SIX MONTHS OF 1979.
- HAS REACHED 97.4% OF SALES IN THE FIRST SIX
MONTHS OF 1979
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
COST OF GOODS SOLD, AS % OF NET SALES
_
-
-
,
1
.......1--
T
,
..
•I
'
Ef
11
lr
1
6M0.
-
•
.
1
f
....
,
CHRYSLER
;
,
e,
,
*
A
/
\ \V
4/...4I,
•
I ;i
I'
I es
y
,/
, ii•_,..
r
.
t
•
1
t
..
.4
\
.......
41
/
••
Ne I
I
.
V ..\•s4
‘
,
.•
1,,. 1 . . .•,
...
AMC
•
\
10'.-•
I
FORD
\
.
-
11
f
,
'
-
'
/1
i
r..
i
/
Ar
1
/
,
„,foL
i
I
GEN. MOTORS
_
_I
;
•
,
.
A
.i
I
•.........11.
__
...
'
I
Ma
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I
..
.
mu. IDs
.
/111 1,7, 1,1, 1,4 if
• AN ANALYSIS OF CHRYSLER'S INCREASES IN CofGS
RELATIVE TO INCREASES IN SALES REVENUE REVEALS
CofGS, AS A % OF SALES, GENERALLY DECLINES ONLY
WHEN SALES INCREASE BY MORE THAN 14% OVER THE
PRIOR YEAR.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
% INCR. IN
SALES
1970
1971
1972
1973
1974
1975
1976
1977
1978
(0.7)
14.3
22.0
20.7
(6.9)
5.7
34.0
7.5
(18.5)
% INCR. IN
CofGS
4.2
12.9
20.5
22.2
(3.0)
6.5
29.0
10.1
(16.1)
CofGS,
% OF SALES
91.4
90.3
89.2
90.3
94.1
94.8
91.3
93.4
96.2
10
DEPRECIATION
• GRAPH SHOWS COMPARISON OF CHRYSLER'S
DEPRECIATION, AS % OF SALES, WITH THAT OF KEY
COMPETITORS
• ALL COMPETITORS SHOWN HAVE REDUCED
DEPRECIATION %'s OVER THE PAST DECADE
• CHRYSLER'S DECLINE IS MOST DRAMATIC, A HIGHER
PORTION OF EARLIER LEVELS. IT HAS JOINED AMC AT
A LEVEL WHICH:
- IS NEARLY HALF THAT OF FORD AND GM
- REFLECTS A RELATIVELY LOWER LEVEL OF CAPITAL
INVESTMENT IN RECENT YEARS.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
DEPRECIATION, AS % OF NET SALES
,' •
•
2.tib"
•
•
GEN. MOTORS
\4
2.f
-4
•
f
-
-4
-
-
riel
W1,
https://fraser.stlouisfed.org
•
-:
Federal Reserve Bank of St. Louis
-4
11473 fin los fix M uS, mt-ey
thb pito
SELLING, GENERAL AND ADMINISTRATIVE
• GRAPH MAKES SIMILAR COMPARISON
• AMC HAS VERY HIGH SGEtA EXPENSES, AS % OF SALES
• CHRYSLER HAS REDUCED THESE FAIRLY STEADILY OVER
THE PAST DECADE AND IS COMPARABLE TO FORD AND
GM IN THIS EXPENSE CATEGORY
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
SELLING, GEN. Et ADMIN. EXPENSE,
AS % OF NET SALES
•
•
•
*
mei
AMC
1••• T
CHRYSLER
GEN. MOTORS .
Or
mil mu
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1473 147ft ik plz
mit
14
OPERATING PROFIT
• GRAPH SHOWS SIMILAR COMPARISON
• EACH MANUFACTURER SHOWS CONSIDERABLE
FLUCTUATION FROM YEAR TO YEAR
• GENERAL MOTORS IS CLEARLY BETTER THAN THE
OTHERS AND FORD IS A DEFINITE SECOND
• AMC AND CHRYSLER HAVE EACH DIPPED SIGNIFICANTLY
INTO THE NEGATIVE FIGURES PERIODICALLY, HOWEVER:
- AMC APPEARS TO HAVE A SLIGHT FAVORABLE
TREND TO ITS PATTERN
- CHRYSLER APPEARS TO HAVE UNFAVORABLE
LONGER TERM TREND AND SHARP DECLINE SINCE 1976
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OPERATING PROFIT, AS % OF NET SALES
1
MI NUMMI 11101111E11111111
111111111111111111M.11111
if IN1111111111111111111111111.11 T•
11111111111111111,111111
111111111111110111111111111111111111111 II
I
1111111121111111111111111111111181111ME
111111111111111111NEUREMEN. MIMI
11111111111111111111111M111111111111111111 11111111111111
IIIIMIIINIIIIMIIIIMMMMII
111
111
GEN. MOTORS
1111111111111111
1111111111111/
4-1011111•allhz
I
I
• 11111111
RENEMIIIMUM1111
111111111111/
411111iliii WI
ummummrAvg ma
1111MWAINGIIIIIVI MI
NOW/111112111111111111111112111111111
11
1111111111111
1
(011111111111
1
111
110111111/1111111111111 11111111111111
AMC
IniallEMMINIMMI
t
/961 0-Al
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1972. 1973 117f-
M
•
MEM'
•
1971- 1174 1177 /171 /177 rylb Mir
414 o.sw ku :al LW
i.w siv k4 Eim ?Li
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
W14/
0
_1
•
SHOIOIN N39
11-
1
11
01:10A
1:131SMAH3
MAYS 13N AO
SV `1S3E13.1.N1
17
7°
NET INCOME, AS % OF NET SALES
g
•
-\
GEN. MOTORS
I -
7
/i.
_ i.__
.1' I
/ - et
i .FORD
__
3
.
I
1
CHRYSLER
1-
—
-!--.-
1
0
4
2.)
(
5
)
(I)
(s)
Ti
kc)
(
)
7
Mal Itap /471 11;2. 1073 gis71
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11 4 let7)
4171 ntto
Pia
18
BALANCE SHEET
CAPITALIZATION
• DEBT TO EQUITY RATIO HAS HISTORICALLY BEEN
HIGHER FOR CHRYSLER VERSUS THE OTHER "BIG
THREE" AND VERSUS THE INDUSTRY NORM.
• FORD AND GM HAVE ENJOYED INCREASED CASH
FLOWS DUE TO THEIR PROFITABILITY AND THUS
DEBT REQUIREMENTS HAVE BEEN LESS IN RELATION
TO THEIR EQUITY BASES.
• THE OVERALL TREND IS UPWARD WITH THE •
GREATEST INCREASES DURING THE 1973 TO 1978
TIME PERIOD PARTIALLY DUE TO THE CAPITAL
REQUIREMENTS ASSOCIATED WITH THE GREATER
EMPHASIS ON THE SMALLER CAR MARKET.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
DEBT/EQUITY
_
-
I
- ;-
11
i
—4—1 —t-
_
__,_....4 1_, 7
-e-
-
I
4
110
10
40
10
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ihr
di. Ifs)
ifts
/1/1
^
ASSET TURNOVER
• CHRYSLER'S PAST HAS BEEN IN TUNE WITH BOTH FORD
AND GM AT A LEVEL OF APPROXIMATELY 1.8
• AMC HAS TRADITIONALLY BEEN HIGHER AT AN AVERAGE
OF 2.3
• THE FLUCTUATIONS (AS WITH INVENTORY TURNS)
CORRELATE IN TIME WITH THE OVERALL INDUSTRY
VOLUME FLUCTUATIONS
• SINCE 1976 CHRYSLER'S RATIO HAS DROPPED
DRASTICALLY WHICH CAN BE ATTRIBUTED TO THEIR
DECLINING MARKET SHARE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ASSET TURNOVER
1
4
a
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-4
6
FORD
ril
.GEN. MOTORS
0-
rri%
Ii,')-
rs
erIS
rn%
rro
22
INVENTORY TURNOVER
• CHRYSLER'S INVENTORY TURNOVER HAS HISTORICALLY
BEEN LOWER THAN THE REST OF THE INDUSTRY WITH
THE "STOCK INVENTORY" METHOD AS ONE MAJOR
FACTOR
• ANOTHER POSSIBLE FACTOR WOULD BE THE PAST
TIMING PROBLEMS WITH LAUNCHING OF NEW MODELS
WHICH HAS BOOSTED INVENTORIES ON A SHORT TERM
BASIS
• THE FLUCTUATIONS CORRELATE PRECISELY IN TIME
WITH THE INDUSTRY VOLUME FLUCTUATIONS
• 10 YEAR AVERAGE INVENTORY TURNS
CHRYSLER
GM
FORD
AMC
VLO5(5 YEAR)
AGGREGATION (5 YEAR)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6.0
6.7
6.6
7.2
6.5
6.9
INVENTORY TURNS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7 1
1
t
'
I -
ij
T
1
-t
I
1
1
-- t
-4
i
,
I
-i I .
[i.i _1t
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i ---;
1
-
i
t
.
1 - ,. -- -"-•
,.. i
___I, 14 I ....f 1,
-- 4-
_
•
n'ff We:
m'ry
1\1
24
CURRENT RATIO
• CHRYSLER'S HISTORY MATCHES THAT OF FORD AND
AMC AT AN AVERAGE VALUE OF 1.4
• GM HAS TRADITIONALLY ENJOYED A HIGHER CURRENT
RATIO AVERAGING 2.0 WHICH CORRELATES WITH THEIR
SIGNIFICANT LOWER DEPENDENCE ON DEBT
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Lc
C\1
h44) Gs‘i 'tlIts
1141
CA4)
k,Lbi
9LLI
U.1,1
ILP.)
%ill
ilL4)
cubl
1.Lki
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
0•I
4111•••••••
31AN
-r
s•I
1131SAIIHO
S•I
4
i's
6-
9•
I
Si:10101N *N30
4'1
4
,
iii
t't
OLIVE! IN31:11:1113
26
CAPITAL SPENDING
• CHRYSLER'S CAPITAL SPENDING IN RELATION TO SALES
AND NET PROPERTY, PLANT, AND EQUIPMENT HAS
BEEN IN TUNE WITH THE SAME STATISTICS FOR FORD
AND GM
• AMC EMBARKED ON AN AGGRESSIVE PROGRAM IN THE
1972 TO 1975 TIME FRAME AND HAS SINCE SLOWED
CONSIDERABLY AS THEY CONCENTRATE ON SELECTED
MARKET SEGMENTS
• THE TREND TYPICALLY LAGS THE FLUCTUATION IN
INDUSTRY VOLUME BY ONE YEAR
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
CAPITAL EXPENDITURES, AS % OF SALES
••••••••••
I FORD
-1
r
5,0
-r -
1
4
4.
-4
,
I
;
I
71-
I
1
;-
Min it; tth /472
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i(
f 73
MIN /17
/147i
167 g7l
/ye_L.
— 40/
tfo
CAPITAL EXPENDITURES, AS % OF NET P. PEtE
I
I
V-
AMC
b-
1.
-.6
4
4
•
CHRYSLER
- GEN. MOTORS
-4
1
1
Pik
I
-•
•
0
V
1%4
ari-0
till
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-a
1.11S
1414
IV*
Pen
pot
h11
Igo
4I
//$1-
.,.sit
RETURN ON STOCKHOLDERS' EQUITY
• CHRYSLER'S RETURN ON EQUITY HAS FLUCTUATED
GREATLY DUE TO BOTH THE FLUCTUATION IN EARNINGS
AND THE ATTENDANT EFFECT OF THE MAGNITUDE OF
THE LOSSES ON NET WORTH
• THE AGGREGATION OF GM, FORD, AND AMC IS 15.1%
OVER THE LAST FIVE YEARS COMPARED TO CHRYSLER'S
AVERAGE RETURN OF 2.8%
• THE PATTERN FOR AMC IS IMPORTANT IN THAT IT
SHOWS
(1) AN AGGRESSIVE CAPITAL EXPENDITURE PROGRAM
DURING 1973 TO 1975
(2) A DETERIORATING PROFITABILITY DURING 1973 TO
1976, AND
(3) AN UPWARD TREND IN PROFITABILITY SINCE 1976
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
INDUSTRY COMPARISON
Chrysler Corporation
1974
Chrysler
Ford
AMC
GM
*AGG
Total
Industry
1074
10/4
10,4
11174
1074
1174
1/4
M/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
NIA
N/A
1/A
11/A
11/1
1/1
N/A
1/A
0/A
11/4
N/A
N/A
N/A
N/A
11/1
Profitability Ratios (1/i
mot Profit Margin
Oros' Profit Margin
Altura ea Isagible Assets
letern os Total Assets
'totem op Lennox Stock
totem oa Ovaer's Equity
(0.45)
5.05
(1.74)
10.741
(1.17)
11.17)
1.61
1.21
2.71
2.73
0.20
6.28
.
1.31
11.71
3.23
If:::
10.35
3.43
Liquidity Patios:
Curreat Ratio
'nick Ratio
Yorkist Cap. to L.T.Debt
1.30
0.46
0.11
60.24
152.40
27.23
Asses) Amodio fates 1111
Met Salm
Operating Profit
lit limo
tarots's per Share
::::
10.77
23:31:
3.15
73,21:
7.20
7::13
7
7:f:
234.14101
6.:
1.21
0.41
1.82
1.44
0.00
1./0
1.11
0.16
4.32
1.61
0.61
2.06
1.51
0.05
2.21
55.06
123.21
11.1,
53.44
125.43
17.41
31.04
63.71
4.51
45.110
15.11
11.32
48.78
05.17
14.11
'
1.45
1.73
4.07
4.1,
9.56
1.21
15.21
12.31
8.15
7.11
6.73
5.43
Morita, Capital,
tamest Assets
Correa' Liabilities
3,617.11
2,701.34
6,141.20
5,340.08
513.15
356.12
11,044.10
6,142.13
11,011.10
11,710.10
24,624.10
15,471.10
157.03
0,152.14
1,500.30
1,111.26
017.14
5,541.13
Nit gerbil, Capitol
4.47
5.20
1.64
5.55
4.16
1.70
6.70
7.11
2.34
4.03
4.41
1.55
5.22
4.17
1.63
4.12
4.4,
1.60
N/A
(0.14)
(0.11)
1.33
(1.64)
N/A
3.31
2.11
2.31
1.16
N/A
4.14
4.13
1.11
1.46
111/A
3.27
1.27
3.40
0.40
71.06
5.42
5.34
5.31
0.40
N/A
2,851.27
2,743.21
2,437.71
1.80
Debt Positios lilt
Tot. Liab. to Tot. Assets
Total Lisa. to Equity
LT.). to Capitallsatlom
Coveraye Ratios:
Filled Charges
Tinos lattrest Domed
'remover letioss
laveatory
Flood Assets
Tasgible Assets
lovestmeat Isdicatorsi
look Value per Share
['ratans 'or Shore (Primary
Carols's per Share (P.O.)
livadeads per Wm
Price Lorniogs Oaths
*AGG = GMC + AMC + Ford
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Federal Reserve Bank of St. Louis
0
INDUSTRY COMPARISON
Chrysler Corporation
1975
Chrysler
4173
&siva 6r4e19 141.011 4104
Ist Solis
Operollee /refit
Set loam
irritirps per Shari
Profitability lathe 11$4
Net Protlt IWO"
Stoic Profit Morels
Ietura oa Taolibli *oasts
**tura sa Total Moto
Altura ea Ceases Stack
Aiwa as Mosses Lolly
liquidity
*10Cureat
lotto
Iola Ratio
Ionia, tsp. to L.T.Islt
lo bt tasitioa 111i
Tot. list. to Tst. Mots
Total Lilt. to lausty
LTA. to Capitalisatiss
Cavort,. totem
Fixed Charles
%An !Mutt Korai/
Capital'
Current Assets
Unrest liabiliti'a
Markt*,
Met WM" Capital
1 vvvvv er latissi
monetary
fiNtd Assets
Taseible Assets
lavettatat !adlesterel
J,ot Value per Wry
tireless per Share (Primary)
[gulags per Share 0.1.1
livideads prr Shire
Price tireless Retie
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Federal Reserve Bank of St. Louis
Ford
1175
AMC
GM
*AGG
Total
Industa
'vs
11125
107,
1173
14.10
1242.321
1119.751
1198.411
13.23
53.18
31.00
32.21
1.41
25.85
14.93
18.15
7.13
22.43
111.661
112.101
5.71
153.27
(421.82)
1414.56)
1.64
132.15i
111.511
112.201
12.241
5.14
14.17)
14.14/
110.77)
110.771
1.42
1.48
2.52
2.47
5.55
$.55
11.201
7.45
12.75/
12.72/
(7.70/
17.761
3.51
12.94
5.81
3.66
9.74
0.62
2.53
11.01
4.14
4.30
1.08
1.63
1.7,
10.45
3.00
2.97
5.17
5.14
1.27
0.43
0.61
1.3)
0.5?
1.41
1.22
0.63
141
1.11
1.11
5.23
1.61
8.86
2.14
1.65
0.10
2.12
41.38
150.46
38.78
54.44
122.34
11.1'
64.66
112.96
24.43
39.73
65.03
1.51
44.00
15.84
12.17
41.64
/5.73
16.14
6.61
643
4.24
3.32
(1.02)
14.241
11.64
11.6,
7.71
6.41
3.13
5.06
3,116.61
2,462.28
4455.10
4,981.50
4113.07
42,131.51
6,445.47
21,116.10
11,918.00
24,175.10
13,162.11
1,645.40
128.06
6,304.81
8,188.57
1,113.73
654.40
5.61
5.31
1.14
6.31
4.31
1.77
7.44
7.04
1.21
6.28
5.82
1.66
6.33
4.78
1.72
5.12
4.90
1.70
8/11
14.32/
14.19/
0.80
12.141
N/A
2.91
2.6)
2.07
12.14
8/4
10.031
10.841
0.16
11.101
11/A
4.33
4.33
2.48
13.32
76.64
4.19
5.15
3.7 1
12.1]
8/4
2,512.54
2,421.74
1,137.2f
6.46
*AGG = GMC + AMC + Ford
INDUSTRY COMPARISON
Chrysler Corporation
1976
Chrysler
Ford
AMC
fl76
GM
(974
*AGG
Total
Industry
1971
11'6
1976
31 7
3.361 I
262 .3
262. ,4
20.12
212.26
115.34
194.16
1.46
24.03
(61.57)
(67.11)
32.67
110.46
111.66
133.40
26.1:
130.15
146.6,
141.1;
27.75
159.58
234.71
239.41
Profitability Ratios 1111
Nit Profit Morel%
Pose Profit taros
',tura so Toolible Assets
Rotors so Total Assets
Rotors so Cosmos Stec)
Altura so Opsor's Equity
2. 2
I. 1
6. 1
5..7
IS. 1
15-1
3.50
11.51
6.52
6.40
14.23
14.23
12.00
9.09
(4.731
(4.17)
114.11)
114.11/
6.15
16.35
11.94
11.93
20.64
20.32
14.38
1.46
9.41
11.00
17.12
4.63
13.76
1.10
1.03
17.76
17.52
Liquidity Rstiesi
Curtest lotto
Suitt Natio
Vorkiol Cop. to L.T.lobt
1. 7
0.,4
1. 0
1.37
0.65.
1.59
1.11
1.41
0.54
1.93
1.16
7.66
1.111
0.92
3.10
1.67
0.17
2.76
59-4
ISO. 1
27.2
53.91
119.9i
16.61
61.60
211.46
26.40
41.31
70.40
4.97
46.13
111.72
10.60
49.17
17.39
14.47
6.1
6.16
11.75
11.03
0.37
0.05
22.15
21.24
17.41
13.14
12.73
Working Capital:
Curreat Assets
Wrest Liabilities
3,171.17
2,125 ,2
1,242.50
5,496.10
597.13
537.56
15,472.60
7,916.10
24,212.40
14.450.40
20,073.71
17,912.10
Net Martial Capitol
1,152 3
2,245.70
59.77
7,556.60
9,162.07
12,011.60
6. .0
6.61
$.17
1.16
4.01
1.52
1.36
7.44
6.77
1.94
7.11
6.11
1.92
6.73
6.10
1.12
11/01
1.57
7.11
2.24
3.74
N/A
11.561
11.21/
0.00
12.491
N/A
05.34
10.10
3.54
7.77
15.36
14.77
7.31
7.12
0/A
1,327.71
1,264.61
1031.10
Asaral frost% bites (I)1
Not Isles
loorsties Profit
Not loco*,
Earsioss pot (bare
/obt Posities
1s1. Liab. to Tot. Assets
Total Liab. is Equity
L.T.J. to Capitalitatiss
Ceserase Ratios)
Flied Charges
Tames lettered [mod
Tur..... Mafiosi
laveatory
fluid Assets
Tallible assets
losestaeat lodicetersi
look Value per Shore
Earoisys per Share (Primary)
lorolass per Mors 11.1.1
lividoods per Short
Price WS11111 lithe
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Federal Reserve Bank of St. Louis
1. 1
1 /A
7.01
col
0.30
2.91
*AGG = GMC + AMC + Ford
hoe
cot
INDUSTRY COMPARISON
Chrysler Corporation
1977
Chrysler
Ford
AMC
GM
*AGG
Total
Industry
1777
1177
1077
13.301
125.13
117.17
117.60
14.49
11.29
14.77
13.31
21.32
32.88
21.93
32.a6
11.61
25.11
20.31
11.86
0.37
11.72
8.11
0.86
2.30
2.51
1.07
14.27
11.51
11.39
21.61
21.3)
5.20
12
1:3
115
1.72
17.86
19.16
10.12
10.76
20.79
20.60
4.16
13.65
1.46
1::4
8;
11.90
1.34
0.50
1.16
1.31
0.70
2.21
1.11
1.50
1.14
1.01
1.05
7.14
1.14
0.10
4.26
1.64
1.83
2.13
161.11
161.34
21.71
33.33
126.13
13.88
16.49
111.31
21.11
41.18
41.73
1.41
47.47
11.11
7.35
41.75
71.15
13.86
3.74
3.56
17.14
17.51
2.56
2.36
125.15
24.21
22.51
21.17
16.40
15.11
Vorkins Capital'
Corset Assets
Currrot Liabilities
4,132.10
3,187.10
10,172.41
7,083.10
611.12
317.42
13,137.20
1,326.90
27,447.41
16,730.30
33,714.51
21,511.30
lot Vortiog Capitia
1,142.10
2,118.51
78.40
7,430m
10,717.30
13,116.10
Tur 66666 latiesi
lerostory
Fired Assets
T1151110 assets
6.37
6.61
2.19
7.71
4.10
2.00
6.11
9.27
2.37
7.66
6.70
12.07
7.65
6.41
2.05
7.21
6.48
2.13
1ontstotot 1111(stotsi
look Value per gal"
foroless pot thorn (Moiety)
isroloos pop Mort (P.O.)
11vIdeods par Share
trice Lorolops 01110
1/4
2.71
2.63
$.10
4.64
N/A
14.13
13.17
3.03
3.23
N/A
0.21
1.24
1.01
13.11
N/A
11.64
11.44
6.11
1.40
111.03
20.31
11.61
1.17
4.94
N/A
10,221.41
9,161.16
4,363.72
0.01
1077
1,77
7.53
150.421
(61.38)
461.41/
31.21
73.11
64.20
15.11
ProNtaffitty Itstios flli
Ott Profit Narita
trait Profit avail
letup, op %alibis Assets
litura oil Total Assets
latura on Cosmos Stott
lituro so Orates Comity
0.18
1.58
2.14
2.13
s.se
5.31
liquidity Ratios'
Currant Rollo
(Witt halo
10r0111 Cap. to L.1.1obt
Annual 'tooth 1111.11 1I/1
lot tales
;wolfs, Profit
let !scoot
Istsfoos pop Short
241tt ?tittles (I)4
Tot. liob. 16 Tot. Louts
Total LOA. to [quits
L.T.). to CspIto1116tioo
Cortrost listless
Flood Charsts
Times !stunt lorood
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Federal Reserve Bank of St. Louis
*AGG = GMC + AMC + Ford
4.43
1177
INDUSTRY COMPARISON
Chrysler Corporation
1978
Chrysler
1078
itse.s1 Perth 1stes 11)1
lot Solos
0watts, Profit
Met Iscese
forams per Short
GM
*AGG
Total
,Industry
Ford
AMC
itro
1078
1078
1178
1970
9.53
11.241
13.13/
14.761
(11.411
1164.721
(223.37)
1226.671
13.06
17.901
(4.33)
13.221
15.30
471.01
343.11
341.11
15.13
1.42
3.11
8.23
14.24
3.66
2.t.1
3.71
(1.30)
3.00
(2.03)
(2.931
18.05)
16.91)
3.73
11.11
7.33
7.26
14.31
14.31
1.42
,11.2
3.73
4.74
13.00
..4.09
13.04
' 1::g
11.23
5.35
15.61
11.33
11.33
20.43
20.17
:::9
2
11.13
11.71
1iiii
16.34
1.43
0.64
0.81
1.33
0.72
2.71
1.2,
0.14
143
1.71
1.14
8.12
1.56
0.01
3.01
1.51
1.16
3.13
Debt Potitloa
Tot. loot. to Tot. Assets
Total list. to Equity
1.1.1. to Capitals:sties
31.01
130.39
21.14
35.53
126.12
1048
64.00
177.77
11.17
42.13
74.11
5.33
41.47
14.57
7.44
50.01
100.82
11.17
Ceverim Patios'
Flood [billet.
Tinos Interest Larsed
(0.02)
10.221
11.04
16.26
3.87
3.80
22.03
20.33
20.36
18.43
14.51
13.37
Profitability k61164 11)1
Met Profit nargin
;rots Profit berg's
leturo oil lonsiblt Assets
Arturo Co 1otal Assets
lotura oi Cannon Stott
Arturo so Owner's (011111
Lieuidltr RatielS
[west Ratio
Quick title
Uprises Cap. to 1.1.1,14
Uorking Capital:
Current Assets
Current liabilities
3,561.10
2,403.00
12,370.61
1,271.10
661.44
$14.70
17,111.313
10,130.60
31,031.70
10,143.30
37,063.20
23,432.00
lot 0orks., Capital
1,074.00
3,112.51
131.14
704141
114113.40
13,612.40
6.11
6.60
1.05
7.31
3.77
1.16
7.60
11.67
2.63
1.34
6.50
2.01
1.01
6.30
2.04
7.55
6.29
1.11
1/A
(3.43)
(3.35)
141
(2.12)
.
N/A
13.42
12.30
3.41
3.14
•
11/A
1.22
1.01
1.01
3.11
N/A
12.23
12.22
1.01
4.31
111.75
21.13
20.43
1.77
4.08
N/A
/,734.45
1,322.16
4,113.13
1.04
Turoovpr katioss
Inventorr
need Asset&
Tangible Assets
Investment Indicators;
look value per (Nara
Earnings per Sheri, (Priatry)
Earnings per (hero 1f././
Dieldendt per Share
Prato Carats's lathe
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Federal Reserve Bank of St. Louis
*AGG = GMC + AMC + Ford
APPENDIX 3
REVIEW OF CHRYSLER CORPORATION'S
PROPOSAL FOR FEDERAL ASSISTANCE
November 1, 1979
-
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Federal Reserve Bank of St. Louis
TABLE OF CONTENTS
Page
I.
II.
Introduction and Scope
1
Construction of Plan Analysis
A. Volume Assumptions
• First Base Case
• Second Base Case
5
6
7
7
B.
III.
IV.
Revised Estimates of Profitability and Cash Needs . . . . 8
• Estimated Cash Needs With Modified Capital Program .
8
e Summary of Cash Needs
10
Detailed Discussion
A. Variable Margin Improvement Program
B. Fixed Cost Reduction Program
C. Nonrecovery of Economics and Regulations
D. Other Adjustments
E. Capital Program Modifications
Exhibits
A. Graph of U. S. Car Industry
B. Graph of U.S. Truck Industry
C. Key Market Assumptions
D. Comparison of October 17 Plan With Base Cases
Income and Funding Requirements
E. Projected Impact of $1.0 Billion Cutback in
Capital Spending
F. Variable Margin-October 17 Submission Rates at Revised
Volumes
G. VMI Adjustments
H. Annual VMI Included in Estimates
I. Adjustments to VMI Attainment
J. Nonrecovery of Economics and Regulations
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11
11
13
16
17
18
22
23
24
25
26
27
28
29
30
31
REVIEW OF CHRYSLER CORPORATION'S PROPOSAL FOR FED-RAL ASSISTANCE
I.
INTRODUCTION AND SCOPE
On October 17, 1979, Chrysler Corporation (Chrysler) submitted a revised
request to the U.S. Treasury Department for Federal goverment financing aid
and a financial plan presenting the results Chrysler projected should the
aid be granted.
While various alternative courses of action were
discussed, the plan presented a single forecast of expected results.
In
addition to a presumption of obtaining needed financing through Federal aid
and other sources, the financial plan incorporates several key assumptions
by Chrysler as to conditions and accomplishments which would enable
Chrysler to regain financial viability.
Particularly crucial among
Chrysler management's assumptions and conclusions are that:
1. The market for cars and trucks in the U.S. would continue along
an historical trend line unaffected by the swings of the
national economic cycle.
2. Product and marketing actions by Chrysler would result in
regaining market share levels lost in recent years.
3. A wide range of management actions in all areas of corporate
activity would materially improve variable margins--revenues
less variable costs--thereby eliminating losses and moving the
Company toward a profitable position during the forecast period.
4. Aggressive evaluation and stringent control of fixed costs would
further contribute to profit improvement.
5. There will not be significant adverse changes to the Chrysler
dealer network.
6. A $13 billion investment program is necessary from 1979 through
1985 to enable Chrysler to accomplish the projected
improvements.
7. Chrysler will experience a critical cash shortfall, peaking at
$2.1 billion in 1982, in executing the plan.
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Federal Reserve Bank of St. Louis
1
-111111111111
8. Chrysler's financial condition precludes raising all of the
funds needed to restore financial health from traditional
private sources, but Chrysler can survive with Federal
government financing assistance.
9. The net result of all of the above would be a healthy,
restructured corporation which could repay incurred debt and
function as an important and self—sufficient member of our
domestic economy.
10. Failure to receive Federal aid will result in corporate collapse
with national hardships--to the economy, employment, balance of
payments, etc.--far more costly to our society than the amount
of Federal aid sought.
A special review was initiated to evaluate Chrysler's submission.
The
review was conducted on behalf of the Treasury Department by the
international accounting and consulting firm of Ernst & Whinney in
cooperation with automative expert John C. Secrest, retired Group Vice
President of Corpoarate Staffs for American Motors Corporation.
It was
conducted for the exclusive use of the Treasury Department in connection
with our evaluation of Chrysler's proposal for assistance and is not to be
relied on by others.
The purpose of their review was not to come to a
conclusion or recommendation on Chrysler's request for Federal assistance,
but, rather, was designed to provide Treasury Department officials with
that information we considered important in the decision making process.
The projections included herein are based on assumptions, originally
developed by Chrysler management, of future events which should not be
construed as statements of fact.
The scope of this review did not include
a comprehensive evaluation of the assumptions which underly the projections
and, therefore, Ernst & Whinney and John C. Secrest were unable to comment
as to the reasonableness of the assumptions as a basis for such
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Federal Reserve Bank of St. Louis
2
projections.
The assumptions may be affected fdvorably or unfavorably by
future events and, therefore, the actual results achieved during the
projection periods extending to December 31, 1983, may vary significantly
from the projections.
The scope of Ernst & Whinney's and John C. Secrest's work does not
provide for updating or revising their review for events and circumstances
which may occur subsequent to November 1, 1979.
Emphasis of the review was on:
•
Use of the most currently available
information.
•
Assessment of the difficulty of meeting
planned accomplishments.
•
Consequences of achieving lesser degrees of
accomplishment due to either the rate of
internal progress toward objectives or
unfavorable external conditions.
The scope of this work did not include an evaluation of Chrysler
Corporation's forecasted market share assumptions or dealer organization,
nor did it include an engineering cost analysis of Chrysler's cost
estimates related to new product plans.
Also, because of severe time
constraints, the review conducted was confined to North American Automotive
operations, and was not comprehensive in nature, but rather, focused on
what the Treasury Department considered priority areas.
Since forecasts of events are increasingly uncertain with each more
distant future year, this review focuses on the 1980-1983 period, rather
than the 1980-1985 period included in Chrysler's plan.
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Federal Reserve Bank of St. Louis
3
This period
appears to be sufficiently long to encompass important model year decisions
which must be made in the near term.
Current decisions will heavily impact
1980-1982 expenditures for 1983 models to be introduced in late 1982.
Decisions during 1980 will set investment plans for 1981-1983 relating to
1984 models to be introduced in late 1983.
Both the 1983 and 1984 model
year programs presently planned involve substantial product actions and
expenditures.
Decisions beyond the 1984 model year are subject to
reevaluation and redirection beyond 1980 and mid-1981 as progress on
executing earlier phases of the recovery plan becomes known.
Similarly,
projections of cost and revenue relationships, improvement program results,
market conditions and other factors as far forward as 1984 are necessarily
based on very broad assumptions.
Consequently, the review focuses on the
outlook through 1983.
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Federal Reserve Bank of St. Louis
4
II.
CONSTRUCTION OF PLAN ANALYSIS
Key assumptions of Chrysler's plan addressed by this review were analyzed
under the following considerations:
1. Economic forecasts made subsequent to June 30, 1979 (the date
of the economic forecasts included in the October 17 submission)
have significantly reduced estimates of U.S. automotive sales
for 1980 and 1981. Also, Chrysler has similarly lowered market
size estimates in its 1980 budget plan currently under
preparation.
2. Chrysler has more recent information on expected results of
improvement programs, labor negotiations, and other matters
since the October 17 submission was prepared.
3. A review of the difficulty and potential of attaining fixed cost
and variable margin improvement objectives was performed, and
some estimated adjustments to attainment were made based upon
the findings of the review.
4. Some sensitivity tests using combinations of decreases in market
size and market share were performed to indicate generally the
magnitude of risk associated with decreased Chrysler sales
volume.
5. The possible magnitude of capital expenditure program
reductions, in the event such actions become necessary, was
revised.
A computerized corporate financial model consistent with the Chrysler
submission was developed by Ernst & Whinney to permit analysis of the above
considerations and their impact on profitability and cash needs.
The
analyses were performed on two basic plans, and further analyzed at three
levels of Chrysler sales volume.
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5
VOLUME ASSUMPTIONS
Both base cases reviewed in this study use idential assumptions for
Chrysler sales volume and mix.
Estimates from Chrysler's October 17
submission are significantly reduced for 1980 and are reduced to a lesser
degreee in 1981 and 1982.
These changes incorporate the most recent
projections of U.S. automotive sales for 1980-1981 from Chase (Chase
Econametrics) Auto and Data Resources Inc. (DRI).
Estimates for 1983 are
unchanged from Chrysler's October 17, 1979, submission.
The specific
Chrysler volume and mix for 1980 are preliminary figures Chrysler is using
in developing its internal 1980 budget plan.
These estimates are based on
the scaled down market size foreseen by Chase and DRI.
Exhibits A and B
show graphically the total U.S. car and truck market size assumptions
included in Chrysler's October 17 submission and the revised estimates used
in this study.
Exhibit C shows the industry volume and Chrysler market
share statistics as submitted and the revised estimates.
Both base cases also include analyses with Chrysler volumes at 95% and
90% of the revised estimates.
These analyses were made to indicate the
magnitude of change in results in profitability and cash needs (without
regard to management actions that might be taken) should either the
Chrysler market share drop or the industry volume drop, or some combination
of the two.
The analyses should not be construed to represent Chrysler's
future sales volumes, nor should they be considered the maximum "downside
risk" which the Company might experience.
Rather, these reduced volume
analyses provide a basis for assessing sensitivity, or risk, when volume is
reduced.
Exhibit C shows the industry volume and market share assumptions
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6
represented by the 95% and 90% volume levels.
First Base Case
The first revision of Chrysler's October 17 submission, referred to herein
as the First Base Case, is essentially an updating of the original
submission to incorporate the most recently available information:
1. The volume revisions just described.
2. Changes to costs and revenues resulting from more current
information on the Fixed Cost Reduction program and Variable
Margin Improvement program.
3. The October 1979 labor contract settlement of the U.A.W.
4. Various other minor adjustments to the original submission.
5. Modification of future interest expense charges to incorporate
an assumption that $650* million of the cash shortfall is funded
internally (e.g., from asset disposition). The projected cash
deficits included in this document do not give effect to the
actual receipt of the $650 million in funds from the sale of
assets because this document's purpose is to identify total
estimated cash needs under the various alternatives analyzed.
Second Base Case
The second level of revision, or Second Base Case, includes all of the
changes from the Chrysler submission included in the First Base Case plus
additional changes based on a review of Chrysler's improvement
programs--the Fixed Cost Reduction program and the Variable Margin
Improvement (VMI) program.
These two programs were reviewed to estimate
the difficulty of meeting program goals.
* This number was suggested by Chrysler's financial advisors as an amount
that could be raised by Chrysler from sale of assets.
7
304-856 0 - 79 - 8
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REVISED ESTIMATES OF PROFITABILITY AND CASH NEEDS
Application of the assumptions of the two revised cases produces the
profitability and cash needs estimates shown in Exhibit D, which also
includes the Chrysler October 17 submission figures as a reference.
The
schedule indicates the general magnitude of the effect of the alternative
assumptions prepared in a manner consistent with Chrysler's submission.
Particularly noteworthy are the cash needs shown for the Second Base Case
at revised volumes and at the 95% level of attainment of revised
volumes--$3.2 billion and $4 billion respectively.
The $3.2 billion
includes all identified changes since the submission plus estimates to
recognize difficulties in achieving certain profit improvement programs.
The $4.0 billion includes the effect of a 5% shortfall in Chrysler sales
volume which might occur for any of a variety of reasons--such as reduced
industry volume or not meeting market share goals.
Note, however, that the estimates presented in Exhibit D include the full
effect of the capital program Chrysler incorporated in the October 17
submission.
Estimated Cash Needs With Modified Capital Program
At some level of cash needs, a reduction of the scope of the capital
program becomes warranted to reach an "affordable" level, even though
product programs and efficiency results may be compromised.
A general
review of the capital program indicated that a reduction of as much as $1.0
billion is feasible in the crucial 1980-1983 period by a combination of
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8
trimming, delaying and deleting programs and projects.
This curtailment
would carry with it a reduction in variable profit margins from vehicle
sales due to lesser attainment of efficiency goals and possibly reduced
appeal of product offerings.
This shortfall would be more than offset
Initially by interest expense reduction and reduced program related fixed
expenses.
Exhibit E shows the projected impact on profitability and cash
needs of a $1.0 billon curtailment of capital programs during 1980-1983
period.
The Exhibit indicates a reduction in peak net cash needs of
approximately $950 millon in the critical 1980-1983 period.
The profit
reduction consequences of the capital program modifications would extend
beyond 1983 if reinstatement of programs and projects does not become
affordable.
Only approximately half of the effect of the capital spending reduction
flows through to the income statement in the 1980-1983 period.
The
remainder would be realized through reduced amortization and depreciation
in future years.
While this adjustment is hypothetical in that it does not
identify in specific terms what product programs are affected thereby,
there is some reason to believe it may be attainable.
See the section
"Capital Program Modifications" for further discussion of this matter.
These adjustment can be viewed either as a contingency which can be acted
upon should short-term events prove unfavorable (e.g., for 1980), or as
deletions from and modifications to the present capital program which can
be reinstated if short-term events prove favorable.
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Particularly noteworthy in Exhibit E are the peak cash needs during
1980-1983 for the Adjusted Second Base Case at 100% of revised volumes and
at 95% of revised volumes--$2.3 billion and $3.1 billion, respectively.
Summary of Cash Needs
The Chrysler submission includes a contingency provision which totals about
$250 million over the 1980-1983 period.
The Second Base Case at 100% of revised volume without capital program
modifications and without consideration of the contingency provision
indicates a peak cash need slightly in excess of $3.0 billion.
The
adjusted Second Base Case at 95% volume levels indicates peak cash needs
could be approximately $3.0 billion, with a $1.0 billion capital spending
cut back.
Essentially, the capital program modifications plus the contingency built
into the Chrysler submission represent a zone of flexibility for meeting
adversity.
However, it should be noted that the automotive industry is
highly subject to economic cycles and some contingency should be included
in any financing plan of this nature.
Additional contingency amounts might
be realized through additional funding or alternatively through further
product action modifications.
However, at some point Chrysler's capital
structure and capacity to pay debt service charges will limit the amount
that it can borrow.
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III.
DETAILED DISCUSSION
VARIABLE MARGIN IMPROVEMENT (VMI) PROGRAM
Chrysler has a very extensive program for improving variable margins per
average car and truck sold (i.e., average unit revenue less average
variable cost).
Some actions are aimed at realizing variable cost
reductions (e.g., improved purchasing and component redesign), some at
enhancing basic revenues (e.g., increasing the proportion of higher priced
cars and trucks), and some at increasing the value of the sale (e.g., by
selling more options on the average).
The variable margin improvement is
expressed as a gain or loss in margin over a base period, which is the 1979
model year in Chrysler's October 17 submission.
The program includes
hundreds of individual actions involving virtually all activities in the
organization--purchasing, manufacturing, engineering, product planning,
marketing and others.
The Chrysler VMI program was reviewed to gain a general understanding of
the program, underlying assumptions, past results, related trends and other
pertinent matters.
Based on this review, estimates were made to adjust the
degree of attainment of certain elements of the VMI program.
The WI program was incorporated in the revised base cases as follows:
1. The per unit VMI gains used by Chrysler in the October 17
submission were applied to the revised volumes used herein to
establish a base level.
2. Changes based on more current information were incorporated in the
First Base Case.
3. Changes based on the review of VMI assumptions were included in the
Second Base Case in addition to the changes included in item 2.
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Several exhibits summarize the VMI data included in each Base Case:
Exhibit F--Shows the October 17 submission data applied
to the revised volumes. Base variable margin is based
on the 1979 model year car and truck average variable
margin as estimated by Chrysler at the time the
submission was prepared. The VMI data shows the
1980-1983 cumulative amounts of VMI gains added to base
year variable margins at the October 17 submission
rates per average car and truck.
Exhibit G--Shows the 1980-1983 cumulative WI amounts
at plan program rates from Exhibit F, the cumulative
reduction from changes included in the First Base Case,
and additional changes based on the review which are
included in the Second Base Case.
Exhibit H--Shows the same estimates as Exhibit G,
except on a year by year basis.
Exhibit I--Shows the percent of attainment by WI
action element used to compute the additional
adjustment in the Second Base Case.
In all instances, the exhibit computations are based on the mix of cars and
trucks as existed in Chrysler's October submission.
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FIXED COST REDUCTION PROGRAM
Chrysler has developed a program for reducing fixed costs, identified as
"Management Profit Improvement Actions," in the following six areas:
Annual Cost Reduction
($ millions)
1981-1983
1980
Personnel
Compensation
Facility closings
Operating expenses
Marketing
Other
$201.9
22.2
69.5
91.6
137.8
(9.2)
$204.2
12.2
121.5
91.6
137.8
(.5)
Total
$513.8
$566.8
Over 50 potential independent actions impacting the areas above were
identified.
Almost all organizational entities are anticipated to be
impacted by these fixed cost reductions.
A brief review of each element of the planned reductions and a review of
reported reductions through the third quarter of 1979 was completed.
Based upon the review and discussions with key personnel in each area,
certain adjustments were made related to the attainability of the fixed
cost reductions.
The following details identify each modification made to
the second base case:
1980
Increase in expenses--PERSONNEL
$3.8
($ millions)
1981
1982
1983
$7.0
$7.0
$7.0
Costs were increased by $7 million each year for added
health care costs for retirees. In 1980, savings of
$3.2 million were recognized to correct an error in
computing health care termination costs in the October
17 submission.
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COMPENSATION
(No adjustment)
Increase in expenses--FACILITY CLOSINGS
1980
($ millions)
1981
1982
1983
$14.0
$18.0
$18.0
$18.0
Projected savings to be achieved in closing Hamtramck
and Outer Drive plants were reduced. The adjustments
reflect 50% attainment in 1980 and 75% attainment in
1980-1983.
Increase in expenses--OPERATING EXPENSE
1980
($ millions)
1982
1983
1981
$21.0
$51.0
$27.0
$20.0
These increases in operating expenses were included on
the assumption that only 90% of the planned reductions
would be achieved.
MARKETING
There were several individual elements of marketing fixed cost reductions
in the October 17 submission which were revised, as follows:
1. Advertising expense was adjusted to reflect the
change in sales volume. The revised amount was
based on an assumed $100 per unit in 1980, and $60
per unit for adjusted sales volumes above the 1980
level in 1981 and 1982, with no sales volume
adjustments in 1983.
Decrease in expenses
1980
($ millions)
1983
1982
1981
$14.4
$3.1
2. Sales incentive expense per unit was adjusted as in
the case of advertising above, based on adjusted
sales volumes in the years 1980, 1981 and 1982, with
no adjustments in sales volume in 1983.
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14
$12.6
$-0-
Decrease in expenses
1980
($ millions)
1981
1982
1983
$5.1
$2.4
$.8
$-0-
3. The policy of leasing fleet cars on a six-month
basis and reselling in the wholesale market was
changed to reflect outright sales. Discounts on new
models to fleet purchasers were eliminated or
reduced. Adjustments were made on the basis that
the total projected savings of $45 million per year
will not be achieved.
Increase in expenses
1980
($ millions)
1981
1982
1983
$14.0
$14.0
$14.0
$14.0
4. The October 17 submission reflected an annual
savings of $7 million per year in warehousing
efficiency or manpower reductions. These manpower
reductions had already been included in the
Personnel Reduction Plan. An adjustment was made to
eliminate this duplication.
Increase in expenses
1980
($ millions)
1982
1983
1981
$7.0
$7.0
$7.0
$7.0
5. The proposed plan did not provide additional amounts
for increased sales incentives. An adjustment to
the October 17 submission was made to reflect
increased expenses that may be necessary to
stimulate sales volumes.
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Increase in expenses
15
1980
($ millions)
1983
1981
1982
$25.0
$25.0
$-0-
$-0-
Marketing Fixed Cost Reduction Summary
1980
($ millions)
1983
1982
1981
October 17 planned reduction
Decrease in expenses
Subtotal
Increase in expenses
$137.8 $137.8 $137.8 $137.8
-013.4
5.5
19.5
157.3 143.3 151.2 137.8
21.0
21.0
46.0
46.0
Adjusted
$111.3 $ 97.3 $130.2 $116.8
Difference
$ 26.5 $ 40.5 $
7.6 $ 21.0
FIXED COST REDUCTION PLAN AND ADJUSTMENT SUMMARY
1980
$513.8
October 17 Plan
Adjustments--net:
Personnel
Facility closings
Operating expenses
Marketing
($ millions)
1982
1981
$566.8
$566.8
1983
$566.8
(7.0)
(7.0)
(7.0)
(3.8)
(18.0)
(18.0)
(18.0)
(14.0)
(21.0) (51.0) (27.0) (20.0)
(7.6) (21.0)
(26.5) (40.5)
(65.3) (116.5) (59.6) (66.0)
Total Net Adjustments
$448.5
Adjusted
$450.3
$507.2
$500.8
s
Over the four-year period the original plan presented fixed cost reduction
totaling $2,214.2 million.
With the adjustments noted, the revised fixed
cost reductions over the same four-year period total $1,906.8 million, or
$307.4 million less over the four-year projection period.
NONRECOVERY OF ECONOMICS AND REGULATIONS
than
In recent years, price increases established by Chrysler have been less
fixed and variable cost increases which are partially attributable to
inflation and compliance with Federal government regulations for safety,
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16
environmental controls and fuel economy.
be a price leader in the industry.
Chrysler is not in a position to
Consequently, it must generally follow
the competitors pricing response to inflation and other factors.
This
pricing "shortfall" was recognized by Chrysler in the October 17 plan as
"Nonrecovery of Economics and Regulations."
Since the plan was submitted various changes have been identified, such as
the 1980 model year being priced by Chrysler and its competitors.
The
identified adjustments have been included in the First Base Case.
No
additional adjustments were noted as appropriate for the Second Base Case.
Exhibit J shows the cumulative amount included in the October 17 plan, and
the adjustments identified for the First Base Case.
OTHER ADJUSTMENTS
Two additional types of adjustments were made to the October 17 submission
In developing the First and Second Base Case figures:
•
Decreases in expenses related to the UAW contract
settlement.
•
Refined computations of interest expense.
The UAW Contract settlement reached in the latter part of October provided
labor cost terms that were favorable in comparison to the GM settlement
pattern included in developing the October 17 plan.
Estimated savings were
developed for each of the years affected by the settlement (1979 through
1982) and were reflected in the financial projections for the First and
Second Base Cases.
The computation of interest expenses in the First and Second Base Cases
differs from that in the October 17 plan in two ways:
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• The October 17 plan interest computation assumed
all funds required carried an interest obligation;
the First and Second Base Cases recognized
availability of certain funds (e.g. through asset
dispositions).
• The financial model used to develop the First and
Second Base Cases includes a more refined
technique (simultaneous equations) for estimating
future interest expense than the October 17 plan.
CAPITAL PROGRAM MODIFICATIONS
Major reasons for Chrysler's cash needs are capital expenditure programs
and related program expenses Chrysler deems necessary to restore
financial viability.
These expenditures are aimed primarily at providing a
full-line of competitive cars and trucks, improving efficiency and meeting
various regulations.
Chrysler's October 17 submission presented programs
totaling $7,840 million during the 1980 through 1983 period.
Of this
for
total, $2,128 million is for a variety of nonproduct actions, primarily
improving manufacturing efficiency.
Car programs total $2,853 million, truck programs $908 million and related
powertrain (engines and transaxles) programs $1,951 million--a product
program total of $5,712 million.
Should unfavorable circumstances be prolonged for Chrysler, a program of
this magnitude may be more than Chrysler can afford, despite the potential
long-term desirability of the planned actions.
Accordingly, the make-up of
the expenditures was reviewed as to whether Chrysler might have the
flexibility to modify program plans in order to reduce expenditures should
such action become necessary.
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Product expenditures for the 1980 and 1981 model years were not considered
candidates for modification.
Expenditures are already substantially
committed as 1981 models will be in production in about 10 months.
Thus
cancellations, delays or curtailments would likely yield limited
expenditure reductions.
Also, the primary product action is a new,
fuel-efficient compact car which Chrysler believes is particularly
important to maintaining competitive products.
Expenditures during the 1980-1983 period for 1986 and later model years
offer the greatest flexibility, and total $168 million during the period.
The more difficult decisions relate to the 1982 through 1985 model year
programs which total $4,627 million.
The following table summarizes
program expenditures by model year ranges:
1980-1983 Program Expenditures
($ Millions)
1980-1981
1982-1985
1986 - Beyond
Model Years
Model Years
Model Years
Cars
Trucks
Powertrains
TOTALS
$561
77
279
$2,266
784
1,577
$ 26
47
95
$917
$4,627
$168
A variety of product program actions are candidates to conserve
expenditures from the $4,627 million planned for 1982 through the 1985
model years should the need arise.
Some of the major possibilities are:
(1) A new small pick-up/utility truck for 1983 model year
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• Slide program entirely, or utility model only, one year
• Same action but two year delay
• Cancel program
19
(2) An all new larger size (D body) car-basic model for 1984 model
year; derivative models for 1985 model year:
Delay program one year
Reduce or eliminate powertrain changes
Reduce distinctiveness of derivative models
Reduce number of derivative models
•
•
•
•
(3) A new compact specialty (1983 model year) and renewed compact
(1985 model year)
• Delay either or both one year
• Reduce degree of change from basic models
• Reduce extent of 1985 renewal
(4) Cancel, reduce extent of change or delay one or more of a variety
of smaller programs, such as:
•
•
•
1982 Chrysler and New Yorker additions
1983 middle specialty renewal
1983 - 1984 subcompact renewals
(5) Reduce or delay powertrain programs related to above changes.
The above listing indicates that Chrysler has a degree of flexibility
available if expenditure curtailment is needed.
In addition to the above
the potential exists for trimming from the $2,128 million of manufacturing
and other program expenditures, as well as the $168 million for 1986 or
later model years programs included in 1980 through 1983.
Based on the above considerations capital expenditure plan reductions of
$1.0 billion during 1980 through 1983 do not appear to be unreasonable, if
they should become necessary.
Reductions of this amount could impact
long-term profit margins due to reduced product appeal and decreased
efficiency.
For example, changes in capital programs of the nature noted
above could have many ramifications on various aspects of Chrysler's
activities and plans, as well as on its market performance.
Accordingly, a
specific combination of modifications which Chrysler might select, should
such action become necessary, could not be specified without extensive
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evaluation being performed by the Company.
The approximate impact of such
changes during the 1980 through 1983 period is shown in Exhibit E.
No
attempt was made to project the potential impact of such actions in years
subsequent to 1983.
I
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U.S. CAR INDUSTRY
Exhibit A
13.0 -
12.0-
OCTOBER 17 PLAN
11.0-
.,----"
...
X
10.0 -
Vit
\
\s
9.0.
MILLIONS OF UNITS SOLD/YEAR
----)1
/
BASE CASE
8.0 -
7.0.
6.0
5.0.
4.0.
3.0
2.0
1.0_
0
-4-
1977
1978
1979
1980
1981
4
1982
4-
1983
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Exhibit B
U.S. TRUCK INDUSTRY
5.0 -
OCTOBER 17 PLAN
I
MILLIONS OF UNITS SOLD/YEAR
4.0 -
BASE CASE
3.0 -
2.0 -4-
1.0 -
_
0
1977
1978
1979
1980
1981
1982
1983
EXHIBIT C
KEY MARKET ASSUMPTIONS
1980
CAR
•
•
U.S. Car Industry Volume
October 17 Plan
First and Second Base Cases
10.5
9.3*
Chrysler Penetration of U.S. Car Industry
October 17 Plan
First and Second Base Cases
10.2%
10.5
TRUCK
. U.S. Truck Industry Volume
October 17 Plan
First and Second Base Cases
3.4
3.1**
Chrysler Penetration of U.S. Truck Industry
October 17 Plan
10.9%
First and Second Base Cases
10.9
CHRYSLER UNITS (TOTAL CAR AND TRUCK FOR
NORTH AMERICA)
October 17 Plan
First and Second Base Cases
1981
1982
1983
(Millions of units)
11.2
11.1
11.4
10.8*
10.3*
11.4
(Share of market %)
11.1%
11.9%
11.6%
11.9
11.6
11.1
(Millions of units)
3.7
4.0
3.9
3.6**
4.0
3.7
(Share of market %)
11.4%
11.9%
12.2%
11.4
11.9
12.2
1.65
1.51
(Millions of units)
1.85
2.01
2.12
1.75
1.96
2.12
1.51
1.43
1.36
(Millions of units)
1.75
1.96
2.12
1.66
1.86
2.01
1.57
1.76
1.91
* Reflects updated Chase Auto outlook
** Reflects updated DRI truck outlook
SENSITIVITY CASES
Chrysler Units
First and Second Base Case
95% Volume
90% Volume
Share of U.S. Car Market if Volume Adjustment
Is Due Only to Lower Chrysler Market
Penetration
First and Second Base Case
95% Volume
90% Volume
Industry Volume if Volume Adjustment Is
Due Only to Lower Industry Volume
First and Second Base Case
95% Volume
90% Volume
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10.5%
10.0
9.5
9.3
8.8
8.4
11.1%
10.6
10.0
11.6%
11.0
10.4
11.9%
11.3
10.7
(Millions of units)
10.8
10.3
11.4
9.8
10.9
10.3
9.3
9.7
10.3
EXHIBIT D
COMPARISON OF OCTOBER 17 PLAN WITH RASE
CASES INCOME AND FUNDING REQUIREMENTS
($ Millions)
1982
1981
1980
1983
NET INCOME (LOSS)
J
393 $
516
$ 610
(538)
265
390
531
95% Volume
(665)
85
149
242
90% Volume
(792)
(94)
(91)
(47)
(659)
36
145
206
95% Volume
(783)
(138)
(87)
(72)
90% Volume
(907)
(313) (320)
(350)
October 17 Plan
$ (482) $
First Base Case
Second Base Case
FUNDING REQUIREMENTS
$1,915 $2,116
$2,113
October 17 Plan
$1,554
First Base Case
1,472
1,959
2,266
2,342
95% Volume
1,571
2,230
2,773
3,133
90% Volume
1,669
2,502
3,280
3,923
1,593
2,308
2,860
3,261
95% Volume
1,689
2,572
3,351
4,025
90% Volume
1,784
2,836
3,843
4,789
,
Second Base Case
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EXHIBIT E
PROJECTED IMPACT OF $1.0 BILLION CUTBACK IN CAPITAL SPENDING
($ Millions)
1982
1981
1980
.
1983
ADJUSTED SECOND BASE CASE ASSUMPTIONS
$ -0-
Reduction in Capital Spending
Mix of tooling, facilities and
equipment and other Capital
Spending in cutback:
$
350
300 $
$ 350
Same as for October 17 Plan;
specific program detail not
identified
. NET INCOME (LOSS)
$ (659) $
Second Base Case
(659)
Adjusted Second Base Case
.
95% Volume
(783)
90% Volume
(907)
36 $
173
(1)
145
$ 206
318
356
86
78
(176) (147)
(199)
CUMULATIVE FUNDING REQUIREMENTS
$1,593
Second Base Case
$2,308 $2,860
$3,261
1,593
1,994
2,196
2,309
95% Volume
1,689
2,258
2,687
3,073
90% Volume
1,784
2,522
3,179
3,837
Adjusted Second Base Case
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EXHIBIT F
VARIABLE MARGIN - OCTOBER 17 SUBMISSION AVERAGE UNIT
RATES AT REVISED VOLUMES (1980-1983 CUMULATIVE)
Truck
Car
Variable margin improvement program
1979 model year base
Variable margin
$2,909.0
Total
($ Millions)
$ 468.4 $ 3,377.4
6,651.4
3,036.0
9,687.4
$9,560.4
$3,504.4
$13,064.8
Variable margin improvement program
(Percent of total)
25.9%
13.4%
30.4%
1979 model year base
69.6
86.6
74.1
100.0%
100.0%
100.0%
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Federal Reserve Bank of St. Louis
Variable margin
27
EXHIBIT G
VMI ADJUSTMENTS
(1980-83 Cumulative)
Car
($ millions)
Total
Truck
Car
Percent
Truck Total
FIRST BASE CASE
At October 17 Plan
Average Unit Rates
First Base Case
adjustments
First Base Case
$468.4
$2,909.0
(97.2) (118.2)
350.2
2,811.8
$3,377.4
(215.4)
3,162.0
100.0% 100.0% 100.0%
(3.3) (25.2) (6.4)
96.7
74.8
93.6
SECOND BASE CASE
Second Base Case
additional
adjustments
Second Base Case
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Federal Reserve Bank of St. Louis
(359.9)
$2,451.9
28
(91.8)
$258.4
(451.7)
$2,710.3
(12.4) (19.6) (13.4)
84.3%
55.2%
80.2%
EXHIBIT H
ANNUAL VMI INCLUDED IN ESTIMATES
($
1981
1982
$759.5
$1,008.9
1980
At October 17 Plan
Average Unit Rates
Adjustments
First Base Case
Additional Adjustments
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Federal Reserve Bank of St. Louis
Second Base Case
$385.3
Millions)
(27.4)
(55.2)
(62.3)
357.9
704.3
946.6
(48.7)
(86.3)
$309.2
$618.0
29
1983
$1,223.7
(70.5)
1,153.2
(184.0)
(132.7)
$
813.9
$
969.2
Total
19801983
$3,377.4
(215.4)
3,162.0
(451.7)
$2,710.3
EXHIBIT I
ADJUSTMENTS TO WI ATTAINMENT
Estimated
Attainment
Percentage
100%
New product programs
New and discontinued options and
equipment changes
65%
100%
Component insourcing
85%
Design cost reductions
115%
Warranty improvements
65% - Car
85% - Truck
Market demand changes
65%
Purchasing programs
100% - 1980
75% - Thereafter
Manufacturing
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Federal Reserve Bank of St. Louis
30
EXHIBIT J
NONRECOVERY ECONOMICS AND REGULATIONS
(1980-1983 Cumulative)
Car
October 17 Plan
$(550.1)
First Base Case adjustments
$(110.6)
(70.3)
Adjusted total
Second Base Case additional
adjustments
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Federal Reserve Bank of St. Louis
($ Millions)
Truck
Adjusted total
Total
$(660.7)
30.4
(39.9)
$(620.4)
$ (80.2)
$(700.6)
$
$
$
-0-
$(620.4)
-0-
$ (80.2)
-0-
$(700.6)
31
U. S. GOVERNMENT PRINTING OFFICE : 1979 0 - 304-856
THE SECRETARY OF THE TREASURY
WASHINGTON
November 1, 1979
Identical letters sent to President of the
Senate and Speaker of the
House with copies to Senator Proxmire and
Congressman Reuss.
Dear Mr. President:
There is enclosed a draft bill, entitled the
"Chrysler Corporation Loan Guarantee Act of 1979."
There is also enclosed a detailed section by section
analysis of the bill.
The Chrysler Corporation Loan Guarantee Act of 1979
reflects the Administration's decision to recommend
financing assistance for Chrysler Corporation in order
to avoid the adverse impact that a Chrysler failure
would have on its employees and those of its suppliers
and dealers, and especially the local economy of Detroit,
the State of Michigan and the Midwest region. In addition, the Act should ensure that strong competition will
continue among automobile producers, with consequent
benefits for the American people.
The Act would authorize the Secretary of the
Treasury to issue loan guarantees- in amounts up to
$1.5 billion. This authority can be exercised only
upon fulfillment of a series of stated conditions.
These conditions include a requirement that
existing creditors maintain their position and that
Chrysler raise $1.5 billion of new, unguaranteed capital
on its own through a combination of asset dispositions,
financing contributions and other concessions from
persons with an economic stake in the Company. Chrysler
Corporation also will be required to present a satisfactory four-year operating plan showing its ability to
operate as a going concern through December 31, 1983 and
after such date without additional Federal assistance.
These Federal guarantees will provide the cornerstone around which an overall financing plan can be
developed. Also, this bill contains sufficient flexibility to enable the financing plan to be negotiated
while adequately protecting the Federal interest.
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Federal Reserve Bank of St. Louis
1
- 2 The draft bill is in accord with the program of
the President and has been reviewed by the Office of
Management and Budget.
Sincerely yo rs,
•
William Miller
The Honorable
Walter F. Mondale
President of the Senate
Washington, D. C. 20510
\vt41611'44411.1.P
Enclosures
CC:
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Federal Reserve Bank of St. Louis
The Honorable
William Proxmire
Chairman
Senate Committee on Banking,
Housing and Urban Affairs
U.S. Senate
Washington, D. C. 20510
Chrysler Corporation Loan Guarantee Act of 1979
Section
101.
Title; Definitions
lj2.
Authority for Loan Guarantees -- Findings for Commitments
103
Findings; Effect of Determinations; Guarantee Fee
(a)
(b)
(c)
104.
Requirements Applicable to Loan Guarantees.
(a)
fb)
105.
Necessary findings for issuance.
Effect of determination.
Guarantee fee.
Maturity of guaranteed loans.
Terms and conditions.
Powers and Duties
(a)
(b)
Secretary -- inspection of documents.
General Accounting Office; audit; report
to Congress.
106.
Maximum Obligation.
107.
Protection of United States' Interest.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Secretary's enforcement authority.
Recovery rights; subrogation.
Other remedies.
Institution of Federal proceeding.
No Guarantees of Tax Exempt Loans.
Federal Priority Waiver.
Severability,
108.
Reports to Congress.
109..
Authorization of Appropriations.
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Federal Reserve Bank of St. Louis
- 2 SECTION 101.
TITLE:
DEFINITIONS
(a)
This Act may be cited as the "Chrysler.
Corporation Loan Guarantee Act of 1979"
(b)
For purposes of this Act, the following
terms shall have the following meanings (i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
SECTION 102.
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Federal Reserve Bank of St. Louis
Borrower - Chrysler Corporation, or
any of its subsidiaries or affiliates,
or any other entity the Secretary
may designate from time to time which
borrows funds for the benefit or use
of the Corporation.
Corporation - Chrysler Corporation
and its subsidiaries and affiliates.
Financing Plan - the financing plan
required pursuant to Section 102(c);
in each case, as revised in accordance
with Section 103(a)(iv).
Fiscal year - the fiscal year of the
Corporation.
Operating Plan - the plan required
pursuant to Section 102(b), as revised
in accordance with Section 103(a)(iv).
Persons with an existing economic stake
in the health of the Corporation--banks,
financial institutions, and other creditors, suppliers, dealers, stockholders,
labor unions, employees, management,
state, local and other governments,
and others directly deriving benefit
from the production, distribution and
sale of products of the Corporation.
Secretary - the Secretary of the
Treasury.
AUTHORITY FOR LOAN GUARANTEES -- FINDINGS FOR
COMMITMENTS
Subject to the provisions of this Act,
the Secretary, on such terms as he deems appropriate, may make commitments to guarantee
loans to a Borrower only if, at the time the
commitment is issued, the Secretary determines
that:
- 3 -
(a)
the commitment is needed to enable the
Corporation to continue to furnish .goods
or services and failure to meet this
need would adversely and seriously affect
the economy, or employment in the United.
States or any region thereof or competition in the automobile industry in the
United States.
(b)
the Corporation has submitted to the
Secretary a satisfactory Operating
Plan (including budget and cash flow
projections) for the 1980 fiscal year
and the next succeeding three fiscal
years demonstrating the ability of the
Corporation to continue operations as
a going concern in the automobile
business and after December 31, 1983
to continue such operations without
additional guarantees or other Federal
financing; and the Secretary has received
such assurances as to the feasibility
of the Operating Plan as he may require;
(c)
the Corporation has submitted to the
Secretary a satisfactory Financing Plan
to meet the financing needs of the
Corporation as reflected in the Operating
Plan for the period covered by such plan,
which includes an aggregate amount of nonfederally guaranteed assistance of at
least $1.5 billion
(i)
1
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Federal Reserve Bank of St. Louis
from financial commitments or concessions from persons with an existing
economic stake in the health of
the Corporation in excess of their
outstanding commitments or concessions
as of October 17, 1979, provided that,
to the extent practicable, at any
point the amounts of commitments or
concessions obtained under this subsection which have been used and not
repaid as a proportion of total
commitments and concessions obtained
under this subsection, shall not be
less than the proportion of principal
amount of guarantees issued and outstanding under this Act to the total
principal amount of guarantees committed by the Secretary;
_ 4 _
SECTION 103.
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Federal Reserve Bank of St. Louis
(ii)
from capital to be obtained
through merger, sale of securities,
or otherwise after October 17,
1979; and
(iii)
from cash to be obtained from the
disposition of assets of the
Corporation after October 17, 1979;
(d)
to the extent practicable, commitments
consistent with the stakes of persons
with an existing economic stake in the
health of the Corporation have been made;
and
(e)
the Secretary has received adequate
assurances as to the availability of
all financing contemplated by the Financing Plan and as to its adequacy (taking
into account the amount of guarantees
to be issued) to meet all the Corporation's projected financing needs during
the period covered by the Financing
Plan.
FINDINGS: EFFECT OF DETERMINATION: GUARANTEE FEE
(a)
Guarantees may be issued only pursuant
to commitments. The terms of any commitment shall provide that a guarantee
may be issued under this title only if
at the time the guarantee is issued,
the Secretary determines that:
(i)
credit is not otherwise available to
the Corporation under reasonable terms
or conditions sufficient to meet its
financing needs as reflected in the
Operating Plan;
(ii) there is a reasonable prospect of
repayment of the loan to be guaranteed
in accordance with its terms;
(iii) the loan to be guaranteed bears
interest at a rate determined by
the Secretary to be reasonable which
shall not be less than the current
average yield on outstanding obligations of the United States with
remaining periods to maturity comparOle to the average maturity of such
loan;
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Federal Reserve Bank of St. Louis
— 5 _
(iv)
the Operating Plan and the Financing
Plan of the Corporation continue to
meet the relevant standards set forth
in Section 102 or appropriate
revisions to such plans (including
extensions of such plans to cover .
the then current four year period)
have been submitted to the Secretary
to meet such standards; the Corporation is in compliance with such
plans; and the Secretary has
received such assurances as to
the feasibility of such plans and
the Corporation's compliance
therewith as he may require;
v)
the Corporation has agreed for as
long as guarantees issued under this
title are outstanding (A) to have
prepared and submitted on or before
the 30th day preceding each Fiscal
Year beginning after December 31,
1960, a revised Operating Plan
and Financial Plan covering the
four year period commencing with such
Fiscal Year which meets the relevant
standards of Section 102 and (B)
to prepare and deliver to the
Secretary within 120 days of the end
of each Fiscal Year, an analysis
reconciling its actual performance
for that Fiscal Year with the
Operating Plan and the Financial
Plan for that Fiscal Year; and
(iv)
the Borrower is in compliance with
the terms and conditions of the
commitment to issue the guarantees
required by the Secretary pursuant to
Section 104(b) except to the extent
that such terms and conditions are
modified, amended or waived by the
Secretary.
EFFECT OF DETERMINATIONS
(b)
Any determination by the Secretary that the
conditions set forth in Sections 102, 103(a)
104(b) or 107(f) have been met shall be
- 6 -
conclusive, such determination to be evidenced
by the making of the guarantee for which
such determination is required. The validity
of any guarantee made by the Secretary
shall be incontestable in the hands of a
•
holder, except for fraud or material misrepresentation on the part of such holder. The
Secretary is authorized to determine the
form in which any guarantee made under this
Act shall be issued.
GUARANTEE FEE
(c)
SECTION 104.
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Federal Reserve Bank of St. Louis
The Secretary shall prescribe and collect no
less frequently than annually a guarantee
fee in connection with each guarantee under
this Act. Such fee shall be at least 1/2
of 1% per annum on the outstanding principal
amount of loans guaranteed pursuant to this
Act computed daily. In addition, the
Secretary shall be authorized to negotiate
any terms he deems appropriate to compensate
adequately the United States for the risk
it assumes in issuing guarantees under this
Act. All amounts collected by the Secretary
pursuant to this subsection shall be deposited in miscellaneous receipts of the
Department of the Treasury.
REQUIREMENTS APPLICABLE TO LOAN GUARANTEES-MATURITY OF GUARANTEED LOANS
(a)
Loans guaranteed under this Act shall
be payable in full not later than
December 31, 1990, and the terms of such
loans shall provide that they cannot be
amended, or any provision waived, without
the Secretary's consent.
TERMS AND CONDITIONS
(b) (i)
Any commitment to issue guarantees entered
pursuant to this Act shall contain all
the affirmative and negative covenants
and other protective provisions that the
Secretary determines are appropriate. The
Secretary shall require security for the
loans to be guaranteed under this Act,
subordination of existing loans to the
- 7
Corporation to the loans to be guaranteed,
and prohibition of the payment of dividends
on any common or preferred stock iasued by
the Corporation, unless he determines
waiver of any such requirement is necessary
to facilitate the ability of the Corporation
or any Borrower to obtain financing, and
he determines that, despite the waiver,
there is a reasonable prospect of repayment
of the loans guaranteed under this Act.
(ii)
SECTION 105.
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Federal Reserve Bank of St. Louis
If the Secretary determines that the
inability of the Corporation to obtain
credit without a guarantee under this
Act is the result of a failure on the
part of management to exercise reasonable business prudence in the conduct
of the affairs of the Corporation,
the Secretary shall require before
issuing any guarantee to the Corporation that the Corporation make such
management changes as the Secretary
deems necessary to give the Corporation a sound managerial base.
POWERS AND DUTIES--SECRETARY:
DOCUMENTS
(a)
The Secretary is authorized to inspect and
copy all accounts, books, records, and transactions of the Corporation and any other
Borrower for which an application for a
guarantee to be issued under this Act has
been made.
GENERAL ACCOUNTING OFFICE:
SECRETARY AND CONGRESS
(b)
INSPECTION OF
AUDIT:
REPORT TO
The General Accounting Office is authorized
to make a detailed audit of all accounts,
books, records, and transactions of any
Borrower with respect to which an application for a guarantee under this Act has
been made. The General Accounting Office
shall report the results of such audit to
the Secretary and to the Congress.
- 8
SECTION 106.
MAXIMUM OBLIGATION
The outstanding principal amount of loans
guaranteed by the Secretary shall not exceed. at
any one time $1,500,000,000.
SECTION 107.
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Federal Reserve Bank of St. Louis
PROTECTION OF GOVERNMENT'S INTEREST—SECRETARY,
ENFORCEMENT AUTHORITY
(a)
The Secretary shall take such action as may
be appropriate to enforce any right accruing
to the United States or any officer or agency
therefor as a result of the issuance of
guarantees under this Act.
RECOVERY RIGHTS:
(b)
SUBROGATION
The Secretary shall be entitled to recover
from the Borrower, or any other person
liable therefor, the amount of any payments
made pursuant to any guarantee entered
into under this Act; and upon making
any such payment, the Secretary shall be
subrogated to all the rights of the
recipient thereof.
OTHER REMEDIES
(c)
The remedies provided in this Act shall be
cumulative and not in limitation of or substitutions for any other remedies available
to the Secretary or the United States.
INSTITUTION OF FEDERAL PROCEEDINGS
(d)
The Secretary may bring action in any
United States district court or any other
appropriate court to enforce compliance with
the provisions of the Act or any agreement
related thereto and such court shall have
jurisdiction to enforce such compliance and
enter such orders as may be appropriate.
NO GUARANTEES OF TAX-EXEMPT LOANS
(e)
A loan shall not be guaranteed if the income
from such loan is excluded from gross income
for purposes of Chapter 1 of the Internal
Revenue Code of 1954, as amended, or if the
guarantee provides significant collateral or
security to other obligations, the income
from which is 80 excluded.
- 9 -
FEDERAL PRIORITY WAIVER
(f)
The Secretary is authorized to waive, •
wholly or partially, the priority of the
United States established under section
3466 of the revised statutes (31 USC 191)
with respect to any debt owed to the
United States by the Corporation or any
Borrower with respect to any guarantees
issues under this Act, to the extent he deems
such waiver is necessary to facilitate the
ability of the Corporation or any Borrower
to obtain financing as reflected in the
Financing Plan, provided that he determines
that, despite such waiver, there is a reasonable prospect of repayment of the loans
guaranteed under this Act. A waiver under
this subsection may not by its terms subordinate the claims of the United States
under this Act to those of any other
creditor of the Corporation or any Borrower.
SEVERABILITY
(g)
SECTION 108.
If any provision of this Act is held to be
invalid, or the application of such provision
to any person or circumstance, is held to
be invalid by a court of competent jurisdiction, the remainder of this Act, or the
application of such provision to persons or
circumstances other than those as to which
it is held invalid, shall not be affected
thereby.
REPORTS TO CONGRESS:
RECOMMENDATIONS
The Secretary shall submit to the Congress annually
a full report of his activities under this Act.
SECTION 109.
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Federal Reserve Bank of St. Louis
AUTHORIZATION OF APPROPRIATIONS
(a)
There are
beginning
available
such sums
this Act.
(b)
Any other provision of this Act to the contrary notwithstanding, the authority of the
authorized to be appropriated
October 1, 1979, and to remain
without fiscal year limitation,
as may be necessary to carry out
- 10 -
Secretary to make any guarantee under this
Act shall be limited to the extent such
amounts are provided in advance in appropriations Acts.
_
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Federal Reserve Bank of St. Louis
CHRYSLER CORPORATION LOAN GUARANTEE ACT OF 1979
Section by Section Analysis
The Bill authorizes the Treasury Secretary to provide
financial assistance in the form of loan guarantees of up to
$1,500,000,000 to Chrysler Corporation.
The Bill has 9 sections:
101.
Title; Definitions
102.
Authority for Doan Guarantee
103.
Findings; Effect of Determinations; Guarantee Fee
104.
Requirements Applicable to Doan Guarantee
105.
Powers and Duties
106.
Maximum Obligation
107.
Protection of the United States' Interest
108.
Reports to Congress
109.
Authorization of Appropriations
Findings for Commitments
Section 101. Definitions. This section sets forth the
definitions of various terms used in the Act.
The definition of "Corporation" makes it clear that the
various conditions set forth in the Act are to be applie
d to
Chrysler Corporation and to its subsidiaries and affil
iates,
considered as a single enterprise. The definition of
"Borrower"
indicates that a loan to a separate entity, not includ
ed
within the definition of Corporation, may be guaran
teed if
such separate entity is borrowing funds for the benef
it or
use of the Corporation.
The definition of "persons with an existing economic
stake in the health of the Corporation" is intend
ed to include
all those who would be most directly affected
by a failure
of the Corporation, including but not limite
d to banks,
financial institutions, and other creditors,
suppliers,
dealers, shareholders, labor unions, employees,
State,
local and foreign governments.
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Federal Reserve Bank of St. Louis
2
Section 102. Authority for Loan Guarantee -- Findings
for Commitments. This section grants the Secretary the
authority to commit to guarantee principal and/or interest on
loans, subject to specified determinations. Among the determinations the Secretary must make before giving a commitment
are that (a) such commitment is necessary to enable the
Corporation to continue to operate and the failure to meet
such need would adversely affect the economy or employment in
the United States or any region or competition in the automobile industry; (b) the Corporation has submitted a satisfactory operating plan for its 1980 fiscal year and the next
three fiscal years, demonstrating its ability to continue as
a going concern in the automobile business, both during the
period prior to December 31, 1983 and thereafter, without
additional federal assistance under the Act; and (c) the
Corporation has submitted a satisfactory financing plan
covering the financing needs reflected in its operating
plan, which plan must include funding from non-Federal sources
at least equal to $1,500,000,000 that is not guaranteed by
the United States from (i) commitments or concessions from
persons with an existing economic stake in the financial
health of the Corporation in addition to their commitments
and concessions as of October 17, 1979, (ii) capital to be
obtained from merger, sale of securities or otherwise
after October 17, 1979, and (iii) disposition of assets
entered after October 17, 1979. Section 102(e) requires
the Secretary to receive adequate assurances as to the
Section 102 (c)(1)
feasibility of the financial plan.
contains the further restriction that the outstanding amount
of guarantees may not be proportionately greater than the
non-Federal funding obtained and not repaid.
The Secretary shall have wide discretion to determine
those items and amounts that may be included in satisfying
the non-Federal aid requirement, except that, to the extent
practicable, the commitments should be commensurate with
the financial stake in the corporation. In determining whether
the goal of $1,500,000,000 has been reached, commitments and
concessions existing on October 17, 1979 and included in the
revised Chrysler submission of that date to the Treasury
even if subject to conditions that were not then met -- such
as the full amount of Chrysler's then outstanding domestic
bank lines of $567 million and credit line with Japanese
banks of $400 million and the loan from Blue Cross-Blue
Shield of Michigan of $50 million -- do not count. A
similar test would be used for the proceeds on asset dispositions: the proceeds from transactions prior to October 17
would be excluded even if proceeds were not received as of
that date and even if the transaction were conditional; for
example, the $1,500,000,000 would not include the proceeds
from the sale of Chrysler Realty.
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Federal Reserve Bank of St. Louis
3 -
Section 103. Issuance of Guarantees. Subsection (a)
specifies the conditions to be satisfied before the Secretary
may issue a guarantee under the Act. It indicates that each
commitment which has been issued must require that the conditions specified in subsection (a) must be met each time a
guarantee is issued under that commitment. These conditions
are that:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
credit is not otherwise available on reasonable terms
in amounts required by the financing plan;
there is a reasonable prospect of repayment;
the interest rate is reasonable, but may not be less
than the current average yield on Treasury securities
of a similar maturity;
the operating plan and the financing plan continue
to meet the applicable standards of Section 102 or
has been revised as appropriate; the Corporation is
in compliance with such plans; and the Secretary has
received assurances as to the feasibility of such
plans and the Corporation's compliance therewith;
the Corporation has agreed to deliver rolling four-year
operating and financing plans to the Secretary and
an annual analysis of deviations in performance from
the targets set forth in the plans; and
the Borrower is in compliance with the terms
of the commitment to guarantee required under
Section 104 (b), unless compliance is waived by the
Secretary.
All guarantees must be issued pursuant to commitments to
assure that the condition of both Section 102 and 103 have
been met.
Subsection (b) provides that the determinations of the
Secretary under any provision of the Act shall be conclusive,
that the validity of guarantees shall be incontestable, and
that the Secretary may determine the form of the guarantees.
Subsection (c) requires a guarantee fee of at least 1/2
percent per annum on the outstanding guaranteed loans and
authorizes the Secretary to negotiate appropriate additional
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Federal Reserve Bank of St. Louis
4
terms to compensate for the risk assumed, which compensation
need not necessarily be in the form of a cash payment.
All of these amounts are to be treated as miscellaneous receipts
of the Treasury.
Section 104. Requirements Applicable to Loan Guarantees.
Subsection (a) provides that all guaranteed loans shall
be payable not later than December 31, 1990, and that the
terms of the loans cannot be amended or waived without the
Secretary's consent.
•
Subsection (b)(i) requires that any commitment to guarantee
contain appropriate covenants and protective provisions and
that the Secretary require security, subordination of existing
creditors, and prohibition of dividends unless he determines
that a waiver is necessary to facilitate the ability of the
Corporation to meet its financing needs and that, despite
the waiver, there is a reasonable prospect of repayment of
the guaranteed loans. Subsection (b)(ii) authorizes the
Secretary to require a change in management if he determines
that failure of management to exercise reasonable business
prudence has inhibited its ability to obtain financing.
Section 105. Powers and Duties; Audit. Subsection (a)
authorizes the Secretary to inspect and copy accounts, books,
records and transactions of the Corporation and any Borrower
who apply for a guarantee.
Subsection (b) authorizes the General Accounting Office
to make a detailed audit of any Borrower who applies for a
guarantee.
Section 106. Maximum Obligation. This section limits
the outstanding principal amount of loans guaranteed to
$1,500,000,000. Interest is not included in determining
this ceiling.
Section 107. Remedies; Miscellaneous Provisions.
Subsection (a) authorizes the Section to take appropriate action to enforce any right under any guarantee.
Subsection (b) authorizes the Secretary to recover from
any Borrower the amount of any payment made under a guarantee.
Subsection (c) provides that the Secretary shall have
all other available remedies.
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Federal Reserve Bank of St. Louis
- 5 -
Subsection (d) provides that the Secretary may bring
action in any United States district court or other appropriate
court to enforce agreements relating to the commitments of
the Secretary and grants such courts jurisdiction.
Subsection (e) prohibits the Secretary from guaranteeing
directly or indirectly any tax exempt securities.
Subsection (f) authorizes the Secretary to waive the
priority of the United States granted by section 3466 of the
Revised Statutes (31 U.S.C. S191) to the extent necessary to
facilitate other financing contemplated by the financing plan,
provided that the Secretary determins that despite the waiver,
there is a reasonable prospect of repayment of the guaranteed
loans. Such a waiver may not subordinate the claims of the
United States to any other creditor.
Subsection (g) provides for the severability of any invalid
provision or application of the Act so that the remainder of
the Act and its application shall not be affected.
Section 108. Reports. This section directs the Secretary
to report to Congress annually on his activities under the Act.
Section 109. Appropriations. Subsection (a) authorizes
the appropriation and availability without fiscal year
limitation, beginning October 1, 1979, of such sums as may
be necessary and to pay principal and interest on the loans
guaranteed. The appropriation will remain available for one
year after final maturity.
Subsection (b) limits the authority of the Secretary to
make guarantees to the extent of amounts provided in advance
in appropriations acts.
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Federal Reserve Bank of St. Louis
•
Tables on Chrysler and Chrysler Financial
Time Period
Page
Income Statement
1973 - 79
1
Selected Balance Sheet
1973 - 79
2
Detailed Income Statement
1978 - 79
3
Detailed Balance Sheet
1978 - 79
4
Bank Credit
Sept. 30, 1979
5
Credit Market Obligations
June 30, 1979
6
CFC Commercial Paper & Bank Loans
1974 - 79
7, 8
Income Maintenance Payments to CFC
1968 - 79
9
Credit Agreement Covenants
1974 - 79
10
Dec. 31, 1978
11
Share of Auto Market
1974 - 79
12
Industry New Car Sales
1973 - 79
13
Car & Truck Inventories
1975 - 79
14
Sales & Inventories (By Units)
1973 - 79
15
Industry Auto Inventories (Day's Supply)
1974 - 79
16
Auto Inventories by Models
1976 - 79
17
Industry Retail Dealer Outlets
1970 - 79
18
Stock Prices
1973 - 79
19
Bond Yields
1973 - 79
20
Rating Changes
1974 - 79
21
Pension Funds
Moody's Rating Criteria
22, 23
Standard & Poor's Rating Criteria
24, 25
Capital Markets Section
October 31, 1979
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
0-
Chrysler Corporation and Consolidated Subsidiaries
Income Statement
First 9,Months
1978
1979
Fourth Quarter
197911
1978
Year ended December 31
1979!!
1978
1977
1976
1975
1974
1973
(millions of dollars)
Sales:
After deconsolidation
of European & South
American Operations
//
8,937
9,638
3,386
3,994
12,415
13,618
(16,708)
Before deconsolidation
Profits before taxes (loss-)
Income taxes (credit-)
Net Profit (loss-)
13,059
-733
-11
3/
-722—
-328
-80
-248
-327
-327
-44
-1
43
-1,073
-1,073
-286
-81
-205
15,538
11,598
10,860
11,667
541
118
423
-256
4
-260
-130
-78
-52
458
203
255
235
72
163
1/ Chrysler estimates as of September 19, 1979.
2/ Third quarter sales of $2,480 million were $61 million less than projected in September.
-5/ Third quarter loss of $461 million was $24 million less than projected in September.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AMIN
Chrysler Corporation and Consolidated Subsidiaries
Selected Balance Sheet Items
Sept. 30
1979
December 31
1
19791
1978
1977
1976
1975
1974
1973
(Millions of dollars)
ASSETS
Cash & marketable securities
Inventories
Total current assets-
553
2,228
3,672
Net property, plant & equipment
2,274
2/
Total assets-
2,737
523
1,981
3,562
409
2,623
4,153
572
2,354
3,878
228
2,068
3,117
268
2,453
3,697
562
1,803
3,238
2,023
2,425
2,087
2,115
2,062
1,926
7,154
6,415
6,981
7,668
7,074
6,267
6,733
6,105
Short-term debt
Current maturities of long-term debt
2/
Total current liabilities _
586
202
3,317
16
123
2,422
49
12
2,486
250
91
3,090
172
69
2,826
374
59
2,462
620
184
2,709
155
71
2,094
Long-term debt
1,043
1,166
1,189
1,240
1,048
1,054
995
956
4,954
4,239
4,054
4,743
4,259
3,858
4,072
3,377
2,200
1,842
2,927
2,925
2,815
2,409
2,660
2,728
356
315
1,076
1,063
1,052
655
988
1,144
LIABILITIES
Total liabilities-
SHAREHOLDERS' INVESTMENT
Memorandum:
Working capital
1/ Chrysler estimates as of October 17, 1979.
2/ Includes items which are not shown separately.
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Federal Reserve Bank of St. Louis
r\.)
CHRYSLER CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMErn OF NET EARNINGS
Vine Months ended September 30, 1979 and 1979
(In millions of dollars)
THIRD QUARTER
1979
1978#
$ 2,904.0
$ 8,936.5
$ 9,637.5
7.6
16.5
8.1
4.7
2,916.3
8,953.0
2,565.2
40.7
50.7
152.6
63.9
64.9
2,785.2
39.0
49.4
136.5
70.8
8,615.7
125.1
151.9
430.9
201.7
160.6
9,005.3
118.2
155.6
418.6
216.3
2,936.0
32113.2
9,0b5.9
10,003.9
$ 2,480.3
Nat sales
Equity in net earnings of
unconsolidated subsidiaries
Net earnings from European and
certain South American operations
(
1.7)
2,478.6
Costs, other than items below
Depreciation of plant and equipment
Amortization of epeciel tools
Dolling and adminiatrative expenses
Pension plans
Interest expense - net
LOSS BEFORE TAXES ON INCOME
VOW) on income (credit) (Note 2)
NET LOSS
Dividends on preferred shares (Includes
amortization of discount)
VET LOSS ATTRIBUTABLE TO COMMON STOCK
NINE MONTHS
1979
1978.
2-3
V.7
eit2
( 459.4)
1.2
.0.4)
196.9)
7n3
3TO)
( 46o.6)
( 158.5)
( 721.5)
( 247.8)
7.3
$(.. 467.9)
_
6.3
$(
164.8)
71.8
$(
6.3
741,3) $( 254.1)
Loss per share of Common Stock
$(7.15)
$(2.68)
$(11.41)
$(4.15)
Average number of shares of Common Stock
outstanding during the period (in thousands)
66,205
62,065
65,168
61,210
and South American operations.
'Restated to reflect deconsolidation of European
SP.
nAtea
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
to financial statements.
OhTYSLER. CORPORATIGN AND CO3S0LIDATFD SUBSIDIARIES
ccrarzysm CCVSOLIDATED BALANCE SPITT
September 30, 1979, December 31, 1978 and September 30, 1973
(In millions of dollars)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
ASSETS
1979
Sep. 30
Cash and marketable securities
Accounts receivable
Inventories
Prepaid expenses
Income taxes allocable to
the follawiag year
Refundable taxes on income
Cash proceeds to be received from
?SA Peugeot-Citroen
Total current assets
Investments and other assets
Property, plant and equipment
Less accarulated depreciation
Unamortized special tools
Net property, plant and equipment
Total assets
Ste notes to financial statements.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1978
Dec. 31 Sep. 30
$ 553.1 $ 522.8 $ 334.0
667.9
848.0
797.4
2,228.0 1,950.8 2,085.1
118.5
109.7
110.0
64.4
48.8
60.5
40.0
68.4
33.0
3,612.2
3,561A
230.0
3,667.T
1,207.8
1,396.5
1,357.6
3,632.4
2 060.2
1,572.2
701.5
2,273.7
$3
3,391.3
1,963.
1,]427.t
595.5
2,022.9
$98L2
$f-1981
2
'
3,44o.0
2,04,1.8
1,398.2
576.3
1797475
1979
Sep. 30
Accounts payable
Accrued expenses
Short-term debt
Current portion of long-term debt
Taxes on income
Total current liabilities
Other lis:zilities
Long-term debt:
Notes and debentures payable
Convertible sinXing fund debentures
Deferred taxos on income
Obligations under capital leases
Ndncrity interest in net assets of
consolidated subsiaiaries
Preferred stock - 20,000,000 no par value
shares authorized, 10,000,000 $2.75
shares issued and outstanii:g
(Redemption value $250.0 million less
unamortized issue costs and value of
warrants to purchase common stock)
Common stock - pax value $6.25 a shareShares issued:
September 30, 1979 - 66,703,605
December 31, 1978 - 63,634,293
September 30, 1978 - 62,644,365
Additional paid-in capital
Net earnings retained
Total liabilities and
shareholders' investment
1978
Dec. 31 Sep. 30
$1,670.7 $1,725.0 $1,745.1
731.5
857.9
698.40
49.2
586.4
143.8
201.6
12.4
49.8
36.9
1.2
3,31b.b 2,-485.8 2,707.1
7
'
432
253.5
226.1
949.8
93.6
110.9
13.4
1,082.6
105.9
107.1
15.0
972.7
1.07.3
69.7
16.3
36.9
4.8
12.5
218.2
217.0
216.7
416.9
692.2
872.5
397.7
683.1
1,628.7
391.5
679.5
1,599.1
$7,153.7 $6,081.2 $6.908.5
U. S. AND CANADA
BANK CREDIT FACIOTIES, EURflnaLAR AGREEMENTS AND TERM LOANS
(SMillions)
September 30, 1979
crHties
7RAT'C'N
CHRYSLFR
Credit Facilities
U. S. Credit Agreement
U. S. Letter of Credit Agreement
Recular Lines
Total U. S.
567
400
66
Si.033
Chrysler Canada Ltd.*
Chrysler Leasing Ltd.*
Total Canada
$
Total U. S. and C3nada
Usane
S
S
100
30
130
c1- 1.163
263
66
: 742
S
,
100
27
177
T
859
i27 -1 7ree77''stS 1 Term F-HaflCir.-!C
J. S.
Chrysler Canada Ltd.*
Total U. S. and Canada
Total Chrysler Corporation
305.
160
S465
.
c"
SI.523
160
4-35
'
— .
7"
=aciLti9s
R''.7..;!ar Lines
7,etail StandDy Purchase Acreement
'..:holesale/Retail Purchase '\nreemont -*.
Total U. S.
Chrysler Credit Canada Ltd.*
Total
S. and Canada
31,543
150
615
- 2.313
22.2
S
_
'
,35
51,!,34
113
S.l5
Term t7 i--,7irns
;
Chr-,71er Credit Canada Ltd.*
Total U. S. and Canada
Total Chrysler Financial Corporation
Grand Total
* Canadian bank facilities and usage shown in Canadian dollars.
**Liaco consisted entirely 01 sold wholesale receivables.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7,1)
6/1 -*
F., "2.1 45
S3.-=79
I
,/*
Credit Market Obligations—la/Pi(
June 30, 1979
Chrysler
Debt
Chrysler Financial
Total
(millions of dollars)
Bank debt
Commercial paper
. Current maturities of long-term debt
Total short-term debt
Long-term debt
Total
217
97
314
440
1,462
206
2,108
657
1,462
303
2,422
1 _162
' 1,753
2 915
1,476
3,861
5,337
Shareholders' investment
Common stock (at book value)
- Preferred stock (at book value)
Total
TOTAL CREDIT MARKET pLIGATIONS
2,441
218
2,659
4-435
* Outstanding shares held by Chrysler Corporation.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2,441
218
2,659
3,861
7,996
7
Chrysler Financial Corporation - End of Month
($ millions)
U.S. Commercial Paper
Outstanding
Change
1974 - Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1,155
1,177
1,277
1,183
1,250
1,218
1,341
1,375
1,312
1,255
882
567
-29
22
100
-94
67
-32
123
34
-63
-57
-373
-315
1975 - Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
529
514
480
479
522
464
457
445
409
394
342
347
1976 - Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1977 - Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
U.S. Bank_Loans
Outstanding
Change
---
---
100
102
151
63
6
206
381
819
1,118
100
2
49
-88
-57
200
175
438
299
-38
-15
-34
-1
43
-58
-7
-12
-36
-15
-52
5
1,058
1,055
1,112
1,083
1,048
1,142
1,110
1,129
1,230
945
1,001
1,134
-60
-3
57
-29
-35
94
-32
19
101
-285
56
133
464
512
542
736
930
919
1,219
1,441
1,531
1,672
1,776
1,753
117
48
30
194
194
-11
300
222
90
141
104
-23
1,101
1,016
1,062
852
629
524
288
64
-33
-85
46
-210
-223
-105
-236
-224
-64
1,756
1,781
1,797
1,666
1,690
1,703
1,630
1,524
1,590
1,607
1,714
1,846
3
25
16
-131
24
13
-73
-106
66
17
107
132
--
\
__
---
---
-------
14
-
14
-14
23
23
-23
8
Chrysler Financial Corporation - End of Month
($ millions)
U.S. Commercial Paper
Outstanding
Change
1972 - Jan.
Feb.
Mar.
Apr.
May
June
July
Aug. ii
Sept.—
Oct.
Nov.
Dec.
1,827
1,764
1,841
1,796
1,744
1,766
1,721
1,486
1,357
1,478
1,457
1,650
-19
-63
77
-45
-52
22
-45
-235
-129
121
-21
193
1979 - Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
1,617
1,683
1,771
1,184
1,416
1,312
1,161
246
187
-33
66
88
-587
232
-104
-151
-915
-59
U.S. Bank Loans
Outstanding
Change
--
--
73
65
73
-8
-65
509
294
420
518
1,445
999
509
-215
126
98
927
-446
1/ The company, utilizing arrangements made in July, received $205 million from the sale of its wholesale receivables to a group of 23 banks.
Chrysler Financial was able to replace receivables as they matured up to
this $205 million limit until December when the ceiling escalated to
$410 million. That ceiling was supposed to be raised to $615 million at
the end of March or April 1979. However, according to Mr. Corby, Treasurer
of Chrysler Financial, the finance subsidiary does not have a sufficient
amount of eligible receivables to take the amount sold each month above
$450 million. As a result, the group of banks has agreed to purchase $150
million of retail auto receivables if not enough wholesale paper is available.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
9
Income Maintenance Payments of Chrysler
to Chrysler Financial 1/
(millions of dollars)
Before taxes
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979—Q1
Q2
Q33/
Q4—
$13.8
37.5
49.1
24.8
18.1
49.3
25.7
36.1
8.5
20.7
21.1
2/
Net of taxesn.a.
n.a.
n.a.
n.a.
9.1
24.7
12.9
18.0
4.3
10.6
10.8
1/ Agreement extends through December 31, 2000 whereby Chrysler
Financial receives revenue as required to maintain the ratio
of earnings, before taxes on income and fixed charges, at
125% of fixed charges (interest and rent expense) on an
annual basis. (127% prior to July 1, 1975).
2/ Net cost to the parent. Chrysler consolidates CFC in its tax
return to IRS. However, CFC pays to the parent the amount of
tax it would have to pay if it filed separately even though
the parent may not be paying any tax to the Government.
3/ Confidential Chrysler Financial estimates as of October 31, 1979.
Capital Markets Section
go'
Major Chrysler Corporation Credit Agreement Covenants
(in millions of dollars)
Current Limitations
1/
Temporary—
December 31
Sept. 30
1979
1979—
1978
1977
1976
1975
1974
Working Capital
(Minimum $600)
($300)
356
315
$1,076
$1,063
$1,052
$ 654
$ 988
Current Ratio
(Minimum
1.2)
( 1.0)
1.1
1.13
1.43
1.34
1.37
1.27
1.36
Debt to Equity
(Maximum 0.75)
(0.88)
0.83
0.71
0.43
0.54
0.46
0.62
0.68
Contingent Liabilities
(Maximum $450)
n.a.
n.a.
294
n.a.
n.a.
n.a.
n.a.
_
1/ Lenders granted waivers through October 31, 1979 reducing these requirements.
extensions.
2/ Based on Chrysler estimates of October 17, 1979.
n.a.-not available.
Chrysler is currently requesting further
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
0
11
October 17, 1979
The tables below indicate the Pension Benefit Guaranty Corporation's
latest estimates in the event of a termination of Chrysler's pension funds.
Based on December 31, 1978 Information
Total claims under Insufficient Plans (in millio
ns)
Total liabilities for vested benefits
Loss to participants for phase-ins and
non-guaranteed benefits - estimated
Total liabilities for PBGC guaranteed
benefits - estimated
$2,143 to 1,993
Total plan assets - approximately
Plan Asset Insufficiency - estimated
Employer Liability collectible
Net PDGC Liability - est.imaLcd
1/
$1,043 —
1
$1,100 to
950 —/
Unknown
Up to $1,100
$2,243
$100 to
250
Cash Flow for Insufficient Plans (in
millions)
Total current annual benefit payments
Increase likely for early retirees (PBGC
estimate)
Total new annual payment
$175
40
$215
Initial annual earnings on plan assets
$120
Period until plan assets are exhaus
ted....About 6 1/2 years
Period for which existing PBGC assets
would carry payments
Annual benefit payments after 7 years
(PBGC estimate)
About 1 year
$120-140
1/ Given recent market developments current asset value may be somewhat
lower and plan asset insufficiency somewhat greater. It is not known
whether the funds have the permissible small amount of Chrysler Securities.
Plan asset insufficiency will also tend to widen this year as a result
of Chrysler's planned deferral of 197 contributions to its pension funds.
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Federal Reserve Bank of St. Louis
Chrysler's Share of U.S. Auto Market
U.S. Produced
as share of
U.S. Domestic
Car
Mont hlv
U.S. Produced
as share of
Total U.S.
Car
(incl. imp.)
Total
(incl. imp.)
as share of
Total U.S. Car
(incl. imp.)
U.S. Produced
as share of
U.S. Domestic
Car
Cumulative
Total
(incl. imp.)
as share of
Total U.S. Car
(incl. imp.)
1974-Dec.
1975-Dec.
1976-Dec.
1977-Dec.
13.8
13.0
12.9
11.0
11.7
11.1
11.1
8.9
12.3
11.7
11.8
9.7
1978-Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
13.1
12.7
12.7
12.7
13.3
12.0
12.2
12.3
11.9
12.1
10.4
11.4
10.4
10.3
10.5
11.4
11.0
10.0
10.0
9.7
8.9
10.4
8.8
9.6
11.5
11.1
11.3
12.4
11.8
10.7
10.9
10.8
10.0
11.4
9.6
10.5
1979-Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
11.4
11.5
13.0
10.8
11.7
11.8
9.9
12.3
15.0
9.4
9.3
9.7
8.4
8.9
9.1
7.7
9.5
11.7
10.4
10.4
11.5
10.0
10.7
10.8
9.0
10.4
12.8
1/ Details may not add to totals because of rounding.
16.2
14.1
15.1
13.4
12.9
12.9
13.1
13.2
12.9
12.8
12.8
12.6
12.6
12.4
12.4
11.5
12.1
11.8
11.8
11.8
11.5
11.6
11.9
13.6
11.5
12.9
10.9
10.4
10.4
10.7
10.7
10.6
10.5
10.5
10.3
10.3
10.2
10.1
9.3
9.7
9.3
9.2
9.2
9.0
9.1
9.3
Not Seasonally Adjusty
Industry Auto SalesDomestic i Imports! Tota_
(millions of units)
(percent)
(7e7.-ccnt)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
U.S. Produced
as share of
Total U.S.
Car
(incl. imp.)
8.9
8.6
10.1
14.0
12.3
13.7
12.0
7.4
7.1
8.6
9.1
1.4
1.6
1.5
2.1
11.3
11.3
11.6
11.7
11.5
11.4
11.3
11.2
11.2
11.1
11.1
.5
1.2
2.1
2.9
3.9
4.8
5.6
6.3
7.0
7.9
8.7
9.3
.1
.3
.5
.7
.9
1.0
1.2
1.4
1.6
1.7
1.9
2.0
1.
2.
3.
4.
5
6.
7.
8.9.
10.
11.
10.4
10.9
10.6
10.6
10.7
10.4
10.4
10.7
.6
1.3
2.2
2.9
3.7
4.4
5.1
5.8
6.4
.1
.3
.6
.8
1.0
1.2
1.4
1.6
1.8
2.
3.
4.
5.
6.
7.
8.
1
U.S. Dealer New Car Sales
First
1979
American Motors
Chrysler
Ford
General Motors
VW-U.S. made
Total Domestic
Imports I/
Total U.S. Mkt.
113
768
1,660
3,780
119
6,440
1,814
8,255
9mos.
1978
19 -0
137
885
1,969
4,012
5
7,008
1,587
8,596
171
1,146
2,533
5,385
93
9,309
2,000
11,308
Years
1976
1977
Number of Units (thousands)
184
1,920
9,559
5,143
9.104
2,074
11,179
1975
1974
1973
243
1,302
2,256
4,801
399
997
1,934
3,747.
335
1,204
2,215
3,696
396
1,599
2,672
5,073
8,607 1,495
10,102
7,050
1,583
8,633
7,449
1,408
8,857
9,669
1,773
11,443
Percentae Distribution of Total U.S. Market
American Motors
Chrysler 2/
Ford
General Motors
VW-U.S. made
Total Domestic
Imports
Total U.S. Mkt.
1.4
9.3
20.1
45.8
1.4
78.0
22.0
100.0
1.6
10.3
22.9
46.7
81.5
18.5
100.0
1.6
1.5
10.1(11.1)10.9 (12.0)
22.8
22.3
46.1
47.6
9
81.4
32.3
18.6
17.7
100.0
10u.0
9.3
12.9(13.7)
21.3
47.5
85.2
14.3
100.0
3.7
11.5(12.3)
23.0
43.4
81.7
18.3
100.0
3.3
13.6(n.a.)
25.0
41.7
3.5
13.!.(n.a.)
23.3
44.3
84.2
15.3
100.0
34.3
L3.5
100.0•
Percentage Distribution of Domestic Market
American Motors
Chrysler
Ford
General Motors
VV-U.S. made
Total Domestic
1.7
11.9
25.8
58.8
1.8
100.0
2.0
12.6
28.1
57.2
.1
100.0
1.8
12.4
27.7
57.9
2.1
13.4
28.0
56.5
15.1
26.2
55.3
4.7
14.1
28.1
53.1
4.5
16.2
29.7
49.6
44
- 5.3
27.6
52.5
100.0
100.0
100.0
100.0
100.0
100.3
").9
1/ Includes tourist deliveries as well as captive imports of U.S. manufacturers.
7/ Figures in ( ) indicate percentages if sales of Arrow and Colt imports were included.
Details may not add because of rounding
Source: Wards Automotive Reports.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Chrysler Inventories (Including Imports)
Total Corporate and Dealer Inventories
Total
Trucks
Cars
(thousands of Units)
1975
1976
1977
1978
1979-Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
*
291
360
366
386
67
78
115
130
358
438
481
516
93
98
123
119
67
59
92
85
7
21
9
42
2
3
4
2
2
1
8
10
402
411
377
341
341
355
331
277
270
145
166
174
169
177
185
172
145
121
547
577
551
510
518
540
503
422
429
128
113
79
87
79
95
104
78
66
112
123
112
153
165
190
196
133
78
77
93
57
50
53
57
58
18
30
28
38
18
17
23
34
39
10
9
23
42
42
45
56
61
58
39
39
Less than 500 units.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Number of Days Supply
Cars
Trucks
(number of days)
Memoranda:
Chrysler Corporation Inventories
Cars
Cars & Trucks
Trucks
Total w/o orders
Total
w/o orders
Total w/o orders
(thousands of units)
8
24
31
32
42
49
48
30
29
8
23
9
52
3
3
4
2
101
134
99
95
109
118
117
57
69
36
62
49
50
65
83
87
40
38
1/
Chrysler's New Car Sales and InventoriesNumber of Units
Monthly Sales
Chrysler
Industry
Percent
of total
Unit Stocks
Industry
Chrysler
(During month)
Percent
of total
Days' Supply
Industry
Chrysler
(End of month)
1973-Dec.
1974-Dec.
1975-Dec.
1976-Dec.
1977-Dec.
573,730
429,198
599,261
694,457
645,991
95,011
59,155
78,131
89,438
70,901
16.6
13.8
13.0
12.9
11.0
1,600,000
1,667,000
1,419,000
1,465,000
1,731,000
336,000
321,000
275,000
312,000
334,000
21.0
19.3
19.4
21.3
19.3
70
97
62
55
72
88
136
91
91
127
1978-Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
544,896
627,972
882,850
862,940
962,985
949,849
761,852
750,960
662,250
883,980
769,625
645,606
71,434
79,996
112,858
119,313
127,672
114,126
92,884
93,183
73,893
107,327
79,715
73,857
13.1
12.7
12.8
13.8
13.3
12.1
12.2
12.4
11.2
12.1
10.4
11.4
1,887,000
1,952,000
1,990,000
2,008,000
1,970,000
1,911,100
1,724,000
1,510,400
1,606,000
1,627,000
1,728,000
1,729,000
337,000
331,000
338,000
332,000
325,000
325,400
300,000
271,100
304,000
292,000
304,000
304,400
17.9
16.9
17.0
16.5
16.5
17.0
17.4
17.9
18.9
17.9
17.6
17.6
87
75
61
58
53
52
57
54
61
48
56
67
118
99
81
70
66
74
81
78
103
71
95
103
1979-Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
644,589
675,762
864,271
763,702
797,008
700,897
761,852
705,051
600,552
73,561
78,200
112,652
82,509
93,579
82,730
68,081
86,764
90,395
11.4
11.6
13.0
10.8
11.7
11.7
9.9
12.3
15.0
1,882,510
1,956,000
1,974,000
1,913,000
2,032,000
2,150,400
2,026,000
1,753,000
1,752,000
321,500
328,000
303,000
275,000
289,000
312,500
295,000
246,000
234,000
17.1
16.8
15.3
14.4
14.2
14.5
14.6
14.0
13.4
76
70
62
63
66
80
74
68
70
114
101
73
83
79
98
108
77
62
1/ All offshore imports are excluded.
Source: Ward's Automotive Reports
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
\It
16
Auto Inventories- Number of Days Supply1/
(not seasonally adjusted)
Sept. 30
19
American Motors
Chrysler
Ford
General Motors
VW
•
76
62
91
63
40
1• 8
60
103
67
50
50
1• 78
17
December 31
96
195
148
112
103(119)123(123)
75
64
54
62
56
77
91(98)
50
48
1974
96
120
91(93) 136(n.a.)
100
64
50
84
67
70
55
62
97
U.S. Industry
61
70
Imports/
n.a.
n.a.
n.a.
119
78
n.a.
n.a.
1/ Stocks of new cars in terms of daily selling rate for given month.
2/ Figures in ( ) indicate supply if stocks of Arrow and Colt imports were included.
57 Includes captive imports of U.S. manufacturers.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Chrysler's New Car Inventories by Models
Number of Days' Supply at End of Month 1/
1976
Dec.
:ubcompact:
Horizon
Omni
.ompact:
Volare
Aspen
ntermediate:
Fury
Le Baron
Monaco
Diplomat
Cordoba
Magnum
'ull-Size:
St. Regis
Chrysler
assenger Vans:
Voyager
Sportsman
'otal Chrysler
1977
Dec.
1978
Dec.
Jan.
Feb.
nemorandum: Lowest
current sticker price:
Apr.
26
26
27
98
37
36
76
66
225
193
$4,864
4,864
92
90
69
58
40
37
19
19
..
24
25
May
June
Aug.
Sept.
105
107
118
132
98
111
120
130
98
138
74
91
69
79
72
86
97
116
103
116
59
65
42
44
4,403
4,415
73
106
95
150
138
121
128
85
86
106
110
112
146
98
113
93
167
141
181
85
134
89
204
171
210
85
114
84
177
187
196
73
111
72
149
211
201
58
90
62
116
207
186
43
139
46
152
296
210
22
161
25
185
233
180
23
70
20
98
101
102
2
48
62
58
67
4,236
5,297
4,254
5,250
6,337
6,373
56
101
909
104
381
128
322
161
91
96
114
117
97
117
98
120
157
140
94
91
56
55
6,405
6,405
n.a.
n.a.
138
112
133
104
194
130
154
109
149
122
181
133
168
107
149
95
146
91
122
88
65
60
5,302
5,371
_1/
123
103
114
101
73
33
79
98
108
77
62
62
63
63
58
66
45
80
54
74
50
84
91
'otal All U.S.
Manufacturers
55
70
76
70
67
122
93
n.a.
119
mports
n.a.
Not available
Based on selling rate for given month.
/ Includes certain other models no longer produced.
.apital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1979
July
Mar.
i6i
'
n.a.
70
41/
Retail Dealer Outlets, U.S. Makes of Passenger Cars
January 1
1975
1974
1979
1978
1977
1976
American Motors
1,661
1,612
1,690
1,813
1,862
Chrysler
4,786
4,822
4,811
4,839
Ford
6,639
6,643
6,637
11,565
11,610
24,651
General Motors
Total
Minus Intercorp. Dealers
Net Outlets
Note:
Source:
1973
1972
1971
1970
1,918
1,952
2,025
2,256
2,374
5,142
5,323
5,418
5,485
5,688
6,038
6,641
6,706
6,713
6,676
6,666
6,697
6,864
11,670
11,750
11,860
12,025
12,050
12,125
12,240
12,520
24,687
24,808
25,043
25,570
25,979
26,096
26,301
26,881
27,796
600
540
540
590
590
630
655
680
755
725
24,051
24,147
24,268
24,453
24,980
25,349
25,441
25,621
26,126
27,071
Multiple units within corporation are eliminated.
Ward's Automotive Reports.
Capital Markets Section.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Chrysler's Stock Prices
End of Period
Oct.P/
Sept.
7.38
8.38
8.50
8.25
70.67
114.07
101.82
78.62
122.09
109.32 -
74.39
121.57
109.32
72.59
114.77
103.81
Chrysler
13.63
15.13
15.88
18.25
7/
moo=
S&P Preferred
72.10
76.70
77.00
73.00
78.50
Aug.
July
1973
1977
1976
1975
1974
1973
8.63
12.63
20.38
10.13
7.25
n.a.
69.25
107.21
96.11
79.26
104.71
95.10
69.70
100.38
90.19
40.61
76.47
68.56
Common
Chrysler
S&P Automobile
S&P Industrial
S&P Composite
Preferred
n.a. - not available.
1/ Change in series on July 1, 1976.
2/ Sold in 1978.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
95.52
1/
118.831/
106.88-
61.57
109.14
97.55
Chrysler's Bond Yields
End of Period
Oct. 31
body's
Seasoned Baa
Sept.
1979
July
Aug.
June
May
April
1978
(percent)
1977
1976
1975
1974
9.08
9.08
10.56
10.75
10.45
10.43
9.45
9.41
13.71
13.79
Baa/BBB
15.71
15.49
Baa/A
137
135
37
33
315
323
496
474
9.97
10.51
9.11
9.65
9.95
10.03
10.02
10.17
9.36
9.38
8.07
8.69
13.30
13.30
14.05
16.49
15.86
15.75
12.04
10.76
10.37
10.33
10.30
10.44
10.36
10.12
18.42
18.12
16.37
15.86
15.00
14.71
14.12
13.89
B/Blit
13.23
12.56
13.62
13.28
12.84
12.81
Ba/BB
13.78
13.79
Baa/BBB
'remium for: (basis points)
8.875% Deb.
638
8.00 % Deb.
608
561
510
463
434
379
356
293
226
318
284
248
245
15.79
15.83
14.22
13.27
13.05
12.93
13.88
13.81
19.15
18.70
18.40
18.19
16.55
17.00
16.48
15.70
15.07
13.82
15.02
14.64
14.16
14.08
13.14
15.56
15.07
15.63
15.24
14.20
Ba/BB11
12.47
12.92
15.49
13.75
13.93
14.09
13.59
13.70
12.84
12.98
13.37
13.08
13.51
13.14
14.04
13.29
12.80
12.64
12.42
11.63
13.20
12.42
13.06
13.13
1973
]hrysler Corp.:
8.875% SF deb. 1995
8.00 % SF deb. 1998
Ratings-M/S&P .
366
367
8.57
8.50
A/A
hrysler Financial:
8.35% Sr. deb. 1991
7.70% Sr. deb. 1992
7.00% Notes
1979
10.00% Notes
1981
1982
8.875% Notes
9.50% Notes
1983
8.875% Notes
1984
9.00% Notes
1986
Ratings-M/S&P
7.375% Sub. deb. 198618.24
9.375% - Sub. deb. 198718.28
Ratings-M/S&P
16.86
15.77
15.93
14.35
15.22
13.88
14.51
13.39
B/B 1/ <
1/ Standard & Poor's change occurred August 1, 1979.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13.75
13.64
13.53
13.90
13.06
14.22
15.23
14.96
14.73
14.26
Baa/BBB
15.16
13.38
14.16
12.97
Ba/BB- Baa/BB-
8.73
8.80
8.50
9.04
8.98
Baa/BBB
Baa/A
10.83
9.95
14.83
17.74
10.57
Baa/BB *------ N.R./BB N.R./BBB
A/A
9.52
N.R.
21
Rating Changes on Chrysler's Securities
Date
Corporation
Security
Rating
Agency
Action
From
To
Chrysler Financial
Chrysler Credit Canada
Comm. paper
Comm. paper
M
M
P-1
P-2
P-1
P-2
Chrysler
Chrysler
Chrysler
Chrysler
Comm. paper
Comm. paper
S.F. deb.
Deb., notes
M
M
M
M
P-2
P-2
A
A
Baa
Baa
Chrysler Corp.
Chrysler Financial
Chrysler Financial
S.F. deb.
Deb., notes
Sub. deb.
S&P
S&P
S&P
A
A
BBB
BBB
BBB
BB
4/12/76
Chrysler Financial
Chrysler Credit Canada
Comm. paper
Comm. paper
M
M
9/8/76
Chrysler Financial
Chrysler Credit Canada
Comm. paper
Comm. paper
M
M
8/6/77
Chrysler Financial
Sub. notes
8/15/77
Chrysler Financial
3/25/78
10/25/74
12/19/74
11/15/75
Financial
Credit Canada
Corp.
Financial
P-3
P-3
P-3
P-3
P-2
P-2
S&P
(new)
BB
Sub. notes
M
(new)
Baa
Chrysler Corp.
Chrysler Financial
Chrysler Financial
S.F. deb.
Deb. notes
Sub. deb., notes
S&P
S&P
S&P
5/29/78
Chrysler Corp.
Pfd. stk.
M
(new)
ba
6/3/78
Chrysler Corp.
Pfd. stk.
S&P
(new)
BB-
3/9/79
Chrysler Financial
Sub. deb.
M
Baa
Ba
4/12/79
Chrysler Corp.
Chrysler Financial
Chrysler Credit Canada
S.F. deb.
Comm. paper
Comm. paper
M
M
M
Baa
P-2
P-2
Ba
P-3
P-3
4/19/79
Chrysler Corp.
Chrysler Corp.
S.F. deb.
Pfd. stk.
S&P
S&P
BBBBB-
BB
B
7/13/79
Chrysler
Chrysler
Chrysler
Chrysler
Chrysler
Chrysler
Corp.
Corp.
Financial
Credit Canada
Financial
Financial
S.F. deb.
Pfd. stk.
Comm. paper
Comm. paper
Deb., notes
Sub. deb.
M
M
M
M
M
M
Ba
ba
P-3
P-3
Baa
Ba
B
b
8/1/79
Chrysler
Chrysler
Chrysler
Chrysler
Chrysler
Chrysler
Corp.
Corp.
Financial
Credit Canada
Financial
Financial
S.F. deb.
Pfd. stk.
Comm. paper
Comm. paper
Deb., notes
Sub. deb.
S&P
S&P
S&P
S&P
S&P
S&P
BB
B
A-2
A-2
BBBBB-
8/14/79
Chrysler Financial
Chrysler Credit Canada
Comm. paper
Comm. paper
S&P
S&P
B
B
B
CCC
B
B
BB
B
2/
--
BBB
BBB
BB
BBBBBBBB-
Ba
B
1/ M = Moody's Investors Service, Inc; S&P = Standard and Poor's Corporation.
2/ At Chrysler's request, the rating contracts were canceled and the ratings
withdrawn.
Capital Markets Section
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
22
MOODY'S BOND RATINGS
Purpose: The system of rating securities was originated by John Moody in 1
909.
The purpose of Moody's Ratings Is to provide the investors with a simple system
of
gradation by which the relative Investment qualities of bonds may be noted.
Rating Symbols: Gradations of investrnent quality are indicated by rating
symbols,
each symbol representing a .group in which the quality characteristics
are broadly the
same. "There are nine symbols as shown below, from that used to designate least
ment risk (i.e., highest investment quality) to that denoting greatest Investment investrisk (i.e.,
lowest Investment quality):
Aaa Aa A
Baa Ba B
Caa Ca C
Absence of Rating: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are not rated
as a matter of policy; e.g., the securities of real estate investment trust operations.
3. There Is a lack ofe;sential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Moody's
publications.
Suspension or withdrawal may occur If new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available reasonable
up-to-date data to permit a judgment to be formed; if a bond Is called for redemption; or
for other reasons.
Changes in Rating: The quality of most bonds is not fixed and steady over period of
time, but tends to undergo change. For this reason changes in ratings occur so as to
reflect these variations in the Intrinsic position of individual bonds.
A change in rating may thus occur at any time in the case of an individual issue. Such
rating change should serve notice that Moody's observes some alteration in the investment risks of the bond or that the previous rating did not fully reflect the quality of the
bond as now seen. While because of their very nature, changes are to be expected more
frequently among bonds of lower ratings than among bonds of higher ratings, nevertheless the user of bond ratings should keep close and constant check on all ratings--both
high and low ratings--thereby to be able to note promptly any signs of change in Investment status which may occur.
Limitations to Uses of Ratings: Bonds carrying the same rating are not claimed to be
of absolutely equal quality. In a broad sense they are alike in position, but since there are
only nine rating classes used in grading thousands of bonds, the symbols cannot reflect
the fine shadings of risks which actually exist. Therefore, it should be evident to the user
of ratings that two bonds identically rated are unlikely to be precisely the same in investment quality.
KEY TO MOODY'S CORPORATE RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is
secure. While the various protective elements are likely to change,
such
be visualized are most unlikely to impair the fundamentally strong changes as can
position of such
issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together
with the Aaa group they comprise what are generally known as
high
are rated lower than the best bonds because margins of protection grade bonds. They
may not be as large
as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or
there may be other elements present which make the long term risks
appear somewhat
larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be
considered as upper medium grade obligations. Factors giving security
to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to Impairment sometime In the future.
Baa
Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments
and principal security
appear adequate for the present but certain protective elements
may be lacking or may
be characterisically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
As ratings are designed exclusively for the purpose of grading bonds according to
their investment qualities, they should not be used alone as a basis for investment
operations For example, they have no value in forecasting the direction of future trends
of market price. Market price movements in bonds are influenced not only by the quality
of individual issues but also by changes in money rates and general economic trends, as
well as by the length of maturity, etc. During its life even the best quality bond may have
wide price movements, while its high investment status remains unchanged.
Ba
Bonds which are rated Ba are judged to have speculative elements:
their future cannot
be considered as well assured Often the protection of interest and
principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times
over the future. Uncertainty of position characterizes bonds In this
class.
The matter of market price has no bearing whatsoever on the determination of ratings
which are not to be construed as recommendations with respect to "attractiveness." The
attractiveness of a given bond may depend on its yield, its maturity date or other factors
for which the investor may search, as well as on its investment quality, the only characteristic to which the rating refers.
Bonds which are rated B generally lack characteristics of the
desirable investment.
Assurance of interest and principal payments or of rrieintenance
of other terms of the
contract over any long period of time may be small.
Since ratings involve judgments about the future, on the one hand, and since they are
used by investors as a means of protection, on the other, the effort is made when
assigning ratings to look at "worst" potentialities in the "visible" future, rather than
solely at the past record and the status of the present. Therefore, investors using the
rating should not, expect to find in them a reflection of statistical factors alone, since
they are an appraisal of long term risks, Including the recognition of many non-statistical
factors.
Though ratings may be used by the banking authorities to classify bonds in their bank
examination procedure, Moody's Ratings are not made with these bank regulations in
view. Moody's Investors Service's own judgment as to desirability or non-desirability of a
bond for bank investment purposes is not indicated by Moody's Ratings.
Moody's Ratings represent the mature opinion of Moody's Investors Service, Inc. as to
the relative investment classification of bonds. As such, they should be used in conjunction with the description and statistics appearing in Moody's Manuals. Reference should
be made to these statements for information regarding the issuer. Moody's Ratings are
not commercial credit ratings. In no case is default or receivership to be imputed unless
expressly so stated In the Manual.
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Caa
Bonds which are rated Caa are of poor standing. Such issues may be
In default or
there may be present elements of danger with respect to principal or Interest.
Ca
Bonds which are rated Ca represent obligations Which are speculative in
a high
degree. Such issues are often In default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can
be regarded as having extremely poor prospects of ever attaining any real
investment
standing.
23
Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of issuers to repay punctually promissory obligation, not having an
original maturity in excess of nine months. Moody's makes no representation
that such obligations are exempt from registration under the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers,
Prime- I
Prime-2
Prime-3
Highest Quality
Higher Quality
High Quality
If an issuer receives credit support, the name of the entity providing such support, together with the maximum amount, if any,
is listed within parentheses beneath the name of the issuer. Ratings assigned to
such issuers are based on representation to Moody's that their Commercial Paper obligations are supported by credit arrangements
with the indicated parent corporations, commercial banks, foreign
governments or other entities, that the aggregate amounts of such issued obligations do not exceed the maximum amounts authorized, and
that the credit arrangements have not expired. Moody's makes no
representations and gives no opinion as to the legal validity or enforceability of any support arrangement. You are cautioned to review with your
counsel any questions regarding particular support arrangements.
Effective February I. 1979, Moody's Prime-1 LOC rating designation for Commercial Paper Issuers was discontinued and the LOC rating
section of our rating has been eliminated. Issuers previously
designated as Prime-1 LOC are rated P-1 and are listed with all other companies rated by Moody's. As before, the name of the bank
providing the LOC, the maximum authorized under the LOC facility, and the
termination date, if any, are shown in parenthesis beneath the name of the issuer.
Moody's Preferred Stock Ratings
Moody's Rating Policy Review Board extended its rating services to include quality designations on preferred stocks on October 1, 1973. The decision to rate preferred stocks, which Moody's had
done prior to 1935, was prompted by evidence of investor interest. Moody's believes that its rating of preferred stocks is especially appropriate in view of the ever-increasing amount of thes.
securities outstanding, and the fact that continuing inflation and its ramifications have resulted generally in the dilution of some of the protection afforded them as well as other fixed-income
securities.
Because of the fundamental differences between preferred stocks and bonds, a variation of our familiar bond rating symbols is being used in the quality ranking of preferred stocks. The symbols.
presented below, are designed to avoid comparison with bond quality in absolute terms. It should always be borne in mind that preferred stocks occupy a junior position to bonds within a particular
capital structure.
Preferred stock rating symbols and their definitions are as follows:
"aaa"
An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment within the universe of
preferred stocks.
"ba"
An issue which is rated "ba" is considered to have speculative elementsand its future cannot be
considered well assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in theclass.
An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that
there is reasonable assurance that earnings and asset protection will remain relatively well maintained
in the foreseeable future.
An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks
are judged to be somewhat greater than in the "aaa" and "aa" classifications, earnings and asset
protection are, nevertheless, expected to be maintained at adequate levels.
"baa"
An issue which is rated "baa" is considered to be medium grade, neither highly protected nor
poorly secured. Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
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Federal Reserve Bank of St. Louis
An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurancc
of dividend payments and maintenance of other terms of the issue over any long period of time ma
be small.
"caa"
An issue which is rated "caa" is likely to be in arrears on dividend payments. This ratini.
designation does not purport to indicate the future status of payments.
24
STANDARD & POOR'S
Corporate and Municipal
Bond Rating Definitions.
A Standard & Poor's corporate or municipal bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into consideration obligors such as guarantors. insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security.
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources
it considers reliable. The ratings may be changed, suspended or withdrawn
as a result of changes in. or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation
II. Nature of and provisions of the obligation
Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors rights.
Standard & Poor's Corporation receives compensation for rating securities. Such compensation is based on the work done and is paid either by the
issuers of such securities or by the underwriters participating in the distribution thereof. The fees generally vary from $500 to $5,000 for municipal
securities, and from $500 to $15,000 for corporate securities.
AAA This is the highest rating assigned by Standard & poor.s to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA Bonds rated AA also qualify as high-quality dabt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree.
A Bonds rated A have a strong capacity to pay principal and interest.
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit protection parameters. adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the A category.
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Federal Reserve Bank of St. Louis
BB, B, CCC, CC Bonds rated BB, B. CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity
to pay interest and repay principal in accordance with the terms
of the obligation. BB indicates the lowest degree of speculation and CC
the highest
degree of speculation. While such bonds will likely have some quality
and
protective characteristics, these are outweighed by large uncertainties
or
major risk exposures to adverse conditions.
C The rating C is reserved for income bonds on which no interest
is
being paid.
D Bonds rated D are in default, and payment of principal and/or interest
is in arrears.
NR Issues reviewed by the S&P Rating Committee and a determination
made that no rating will be assigned.
... Issues not reviewed by the S&P Rating Committee and no determination of a rating has been made.
Plus (+) Or Minus (—): To provide more detailed indications of
credit quality, the ratings from "AA- to -BB- may be modified by the addition of a plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: A provisional rating assumes the successful
completion of the protect being financed by the issuance of the
bonds
being rated and indicates that payment of debt service requirements
is.
largely or entirely dependent upon the successful and timely completion
of
the project. This rating, however, while addressing credit quality
subsequent to completion, makes no comment on the likelihood of, or the risk
of
default upon failure of, such completion. Accordingly, the investor
should
exercise his own judgment with respect to such likelihood and risk.
Provisional Ratings Symbols The letter "p" preceding a rating
indicates the rating is provisional.
Unaudited Data The use of "t" with a rating such as "IA" is used
to indicate that the information that the rating is based upon is, at least in
part. unaudited or of an interim nature.
Canadian corporate bonds are rated on the same basis as American corporate issues. The ratings measure the intrinsic value of the
bonds,
but they do not take into account exchange and other uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds
rated in the top four categories (AAA, AA. A. BBB, commonly known as -Investment Grade" ratings) are generally regarded as eligible for bank
investment. In addition, the Legal Investment Laws of various states impose certain rating or other quality standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.
25
P
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Federal Reserve Bank of St. Louis
STANDARD & POOR'S
COMMERCIAL PAPER RATING DEFINITIONS
A Standard & Poor's Commercial Paper Rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 270 days.
Ratings are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. The four categories are as follows:
"A" Issues assigned this highest rating are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the designations 1,
2, and 3 to indicate the relative degree of safety.
"A-1" This designation indicates that the degree of safety regarding timely
payment is very strong.
"A-2" Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
"4-3" Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" Issues rated "B" are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
• short-term adversities.
"C" This rating is assigned to short-term debt obligations with a doubtful capacity for
payment.
"D" This rating indicates that the issue is either in default or is expected to be in
default upon maturity.
The Commercial Paper Rating is not a recommendation to purchase or sell a security.
The rating applies only to the actual debt securities being rated and not to any other
debt obligations of the same issuer. The ratings are based on current information
furnished to Standard & Poor's by the issuer and obtained by Standard & Poor's from
other sources it considers reliable. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information.
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Company report
Citations:
Number of Pages Removed: 34
Chrysler Corporation, Modification of Loan Guarantee Request, October 17, 1979.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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