Program in Search of a Policy: The Chrysler Loan Guarantee

A GAO associate director, who was formerly the GAO representative on the staff of the Chrysler Corporation Loan Guarantee Board, co-authored an analysis of the rationale behind the establishment of the program, which appeared in the Journal of Policy Analysis and Management, Vol. 1, No. 4, 1982, which made up to $1.5 billion in federally guaranteed loans available to the ailing Chrysler Corporation. Prior to the implementation of this program, federal assistance to the private sector did not target specific firms for special help. However, Chrysler was the nation's tenth largest industrial company and the third-ranked major automobile manufacturer which was suffering from a narrow production line, the impact of the oil crisis on the automobile industry, and a consumer demand for smaller cars. Congress justified its relief to Chrysler on the basis that it was cheaper for society to provide assistance to the firm than to permit the company to go bankrupt. It was also concluded that the firm, a major employer in the Detroit area, could not continue operations in the event of bankruptcy, and it was unlikely that private sector assistance would have been available in this case. Changes that Chrysler was making in its management also convinced Congress to approve the loan. This decision was made on an ad hoc basis, without regard for any articulated policy. A general policy on such matters, which would serve the national interest, still remains to be developed.