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Okay, I'm doing this mostly from memory, but here goes...
The Chrysler bailout occurred circa 1979/1980. The nation had been stung (in recent prior years) by inflation, by gasoline shortages, by labor unrest and by an oil embargo. At that time, Chrysler sold mostly very large vehicles, which were gas guzzlers, not at all a selling feature when gasoline prices were going through the roof. Chrysler sales plummeted, threatening the very solvency of the company, or so it was claimed at the time.
Compounding problems for Chrysler were mounting competition from foreign automakers, in particular the Japanese, and Chrysler was uncompetitive (price-wise) against the cheap labor vehicles coming in from overseas.
Carter was President at the time, and the Congress was decidedly Democratic as well. Volcker came in to take over the Fed, which promptly raised interest rates (somewhere near 20% as I recall), which in turn killed off business (not only for Chrysler, but other companies as well) resulting in bankruptcies and imminent bankruptcies across the entire plane of the US economy.
The Republicans argued against bailing out Chrysler, largely because the act was a reward to Chrysler for failing miserably. But the Democrats, recognizing the large union voting bloc in Detroit, eventually pushed the thing through Congress.
In order to save their jobs, the union (UAW???) virtually signed away workers' rights accumulated over the prior 2 decades, and negotiated downwards pay rates and benefits to levels, which to this day (adjusted for inflation, etcetera) the union workers have never seen since.
Remember, as this piece of legislation was going through Congress, the Iran hostage situation was beginning. And remember also that this was a Presidential election year, and Carter (as well as incumbent Congressmen) was doing poorly in the polls.
Basically, the bailout gave Chrysler direct loans and loan guarantees of something over a billion dollars, a huge sum of money at that time. The government received Chrysler stock or warrants (I think) that were later sold by the government at a profit for taxpayers. I'm can't remember exactly when they were sold, or exactly how much profit was realized, but I'm fairly certain the government did not lose money on the deal.
Chrysler was saved, for the foreseeable future anyway, only to be later bought out by Daimler, which (to this day) continues to put the thumbscrews to the Chrysler autoworkers. (My opinion only, and my opinion is coming from a guy who is about as anti-union as they come)...
So to answer your question, the stock eventually did recover, but the recovery benefited only wealthy executives and eventually Daimler. Relatively little of the Chrysler stock price increase benefited Joe-6-Pack, as the stock (at the time) was not widely held by the common guy.
KJC |
