publican Reagan had crusaded to reduce the role of
government in economic affairs. If he lived up to his
free market beliefs, he would allow Chrysler to col-
lapse. Such a collapse would have been the largest
bankruptcy in American history. It would also have
angered the many car workers who supported Re-
publicans, including Reagan, in the 1980 elections
and could have spelled the end of the new majority
coalition that Reagan hoped to build. Ford also had
horrifying losses, however, and a rescue of Chrysler
would set a precedent for government assistance to
other businesses. Reagan came into office without
taking a clear stand on Chrysler or the automobile
industry’s plight. On February 23, 1981, the Reagan
administration sanctioned $400 million in federal
loan guarantees for Chrysler.
Support from the federal government did not en-
sure Chrysler’s survival. The company remained
short of investment funds. It had reduced capital
spending by 38 percent to qualify for federal assis-
tance, at a time when Ford and General Motors were
spending billions of dollars to develop new, smaller
cars. According to the operating plan that it pre-
sented to the federal loan guarantee board, Chrysler
expected to realize a profit, so long as it held 9 per-
cent of the automobile market and had sales of at
least $10 billion. In the second quarter of 1981,
Chrysler had a 9.5 percent market share. It paid
banks $71 million under a plan that allowed the
company to write off most of its $1.3 billion of out-
standing debt. Lenders accepted about half of the
debt in Chrysler’s preferred stock. In February,
1982, Chrysler completed the second part of a two-
step plan to pay off its debts. The February payment
came six weeks ahead of the agreement’s deadline.
Iacocca restructured the company to improve
Chrysler’s chances for long-term survival. Chrysler
had employed 85,000 workers in 1981, down from
160,000 in 1979. About half of these workers lost
their jobs, as Iacocca slashed more than $1.2 billion
from workers’ salaries and benefits. The 40,000 blue-
collar workers, represented by the United Auto
Workers, who kept their jobs did so by granting wage
and benefit concessions to help the company sur-
vive. Under the terms of the concessions, Chrysler
paid abut $3.50 per hour less than the other domes-
tic automakers. It closed or consolidated twenty out-
dated plants, thereby reducing annual fixed costs by
$2 billion. It managed to cut its break-even point in
sales from 2.4 million units to 1.2 million units. It in-
creased fleet-average fuel economy to twenty-eight
miles per gallon. The K-car platform (including the
Dodge Aries, Plymouth Reliant, and Chrysler
LeBaron) helped vault the company from near
oblivion. The front-wheel drive compact range ac-
counted for 70 percent of Chrysler’s output.Impact By August, 1982, Chrysler had completely
emerged from bankruptcy with two consecutive
profitable quarters. It did so at a time when all other
domestic automakers suffered from a steep drop in
sales. However, automobile analysts remained pessi-
mistic about the company’s long-term survival pros-
pects. At the time of Chrysler’s rescue by the federal
government, financial analysts suggested the com-
pany would have the best chance of survival if it
merged with another manufacturer, possibly a for-
eign firm. The company would remain indepen-
dent, however, until the late 1990’s.Further Reading
Hyde, Charles K.Riding the Roller Coaster: A Histor y of
the Chr ysler Corporation.Detroit: Wayne State Uni-
versity Press, 2003. Complete history of the com-
pany from its beginnings through its merger with
Daimler-Benz at the end of the twentieth century.
Jefferys, Steve.Management and Managed: Fifty Years
of Crisis at Chr ysler.New York: Cambridge Univer-
sity Press, 1986. A mid-1980’s perspective on pre-
and postwar Chrysler management and the firm’s
string of mistakes in the 1950’s and 1970’s.
Moritz, Michael, and Barrett Seaman.Going for
Broke: Lee Iacocca’s Battle to Save Chr ysler.Garden
City, N.Y.: Anchor/Doubleday, 1984. Portrait of
Iacocca and his struggles to rescue the Chrysler
Corporation.
Car yn E. NeumannSee also Business and the economy in the United
States.; Iacocca, Lee.Claiborne, Harry E.
Identification U.S. federal judge
Born July 5, 1917; McRae, Arkansas
Died January 19, 2004; Las Vegas, NevadaJudge Harr y Claiborne was removed from the bench for
evading his income taxes. Claiborne was the first federal
judge to be impeached in more than fifty years.214 Claiborne, Harry E. The Eighties in America