Chrysler Drives for a Tax Break

No. 3 tries even harder, but can it skinny through?

America's tenth largest industrial company is like an old gas guzzler hurtling along the dangerous edge of a cliff, and in this difficult year the road is trickier than usual. Chrysler Corp., long plagued by uncompetitive products and a lack of cash, is expected to follow its first quarter $53.8 million loss with a second quarter deficit that could come close to $200 million. The company may end the year with a loss of more than $400 million, double last year's $204.6 million deficit. Chairman John Riccardo has made a dozen trips to Washington since mid-1978 to plead for tax breaks and relief from some federal environmental and safety regulations. His hope is to ease the financial strain enough to skinny through to 1981, when President Lee lacocca is expected to bring out a series of front-wheel-drive compacts to compete with General Motors' successful X cars. By then, a new plant will also be producing small engines for Chrysler's popular but scarce subcompact Omnis and Horizons.

Last month Riccardo told Treasury Secretary Michael Blumenthal and White House Domestic Affairs Adviser Stuart Eizenstat that without aid Chrysler would soon cease to be a major force in the U.S. car market. He repeated this two weeks ago to Senate Finance Committee Chairman Russell Long and House Ways and Means Chairman Al Ullman. Riccardo asked for tax relief that would bring an immediate cash refund to the company.

One of his requests was for a unique dispensation from the tax code's complex "loss carry-back and carry-forward" provisions to permit Chrysler's net operating losses to be applied now against future profits. Result: Chrysler would get a refund from the Treasury equal to the amount of taxes it would have paid if it had had profits instead of losses.

Congress might place limitations on the refund, but if Chrysler really loses $400 million this year, it could collect as much as $186 million. That is the amount it might have had to pay on a $400 million profit, assuming the usual 46% corporate tax rate. If Chrysler makes money again, it would not be able to offset those earnings with this year's loss, and the Treasury would start to get its money back from Chrysler's higher taxes. A dispensation from the loss carry-forward provisions stands a fair chance in Congress.

In this bad time for auto sales, Chrysler has been hit harder than its competitors because it tends to market relatively more big cars, vans, trucks and recreational vehicles. The company's unit sales are off 16.9% for the year so far, vs. 5.3% for General Motors and 16.2% for Ford. At its present pace, Chrysler would need more than 200 days to sell off the substantial inventories of its big New Yorker and St. Regis models. In May lacocca announced the closing of the second plant in 30 days, the large factory in Hamtramck, Mich.; 2,200 of its workers will be laid off.

The company should scrape through 1979 on cash raised from bank loans, the sale of plants and tax breaks from state governments. The real problem is finding the money to get by in 1980. An ambitious $7.5 billion, five-year spending program to keep Chrysler competitive and to meet Government emission and safety standards has to be funded, but there is not much left to sell off or borrow from. Chrysler's debt load is already a hefty $1.2 billion.

Help might have come from the rumored merger with Volkswagen. There were nervous little jokes in hushed German accents in the corridors of Chrysler's Highland Park headquarters, and a number of executives were discreetly looking into VW's employee benefits. Yet the rumors were apparently unfounded; in fact, the two companies have been discussing only a possible cooperative venture for engine production. Several months ago, Lazard Freres quietly quit as Chrysler's investment banker because the company was unwilling to consider merger with a foreign automaker. Says a top Lazard partner: "I do believe their situation is desperate."

Most auto and stock market analysts expect that Chrysler will be saved. It is a national institution that has dealers in every state and factories in many of them. Chrysler is a name that every Congressman and Senator has to reckon with. Washington could not face the unemployment and the further concentration of the auto industry that a Chrysler failure would produce. Unless lacocca can deliver the cars Chrysler needs to struggle through on its own, the only long-term solution seems to be a deal with a foreign automaker that could, for very little money, acquire a huge stake in America. qed

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