The 1970s were a difficult time for the United States. It was a period characterized by stagflation, stagnation, demoralization, and disillusion. To add to this, crucial industries went to the government for bailouts. Two industries that figured prominently were Lockheed Martin and Chrysler.
In 1971, with the US still having troops committed in Vietnam, Lockheed Martin, a prominent defense contractor, was in financial trouble as their liabilities exceeded their assets by $38.5 million (Trimble). Although they appealed to private banks for a loan, they refused to do so unless the government was supporting them. Lockheed Martin going under would have been highly disruptive for the Pentagon, as they were the largest contractor working with them, and they supplied the C-130, P-3, and S-3A aircraft in addition to the Poseidon, Polaris, and Trident ballistic missiles (Trimble). There were also up to 60,000 people who would be out of work as a result, particularly in California. In 1971, Congress responded with the Emergency Loan Guarantee Act, crafted by Treasury Secretary John Connally, permitting the government to guarantee up to $250 million in private loans to private businesses, which was understood to be directed at Lockheed Martin. The House vote was the most difficult hurdle, with the bill passing 192-189 (D 102-129, R 90-60) on July 30th, one of the closest votes of the session on major legislation. The Senate passed the measure on an exceptionally close 49-48 (D 22-30, R 27-16, I 0-1, C 0-1) vote on August 2nd.
Interestingly, this was an issue in which the liberal Americans for Democratic Action (ADA) and the conservative Americans for Constitutional Action (ACA) took the same position: they both opposed. ADA was opposed to anything that would bolster the Vietnam War and ACA was consistently opposed to subsidies and bailouts. Both Barry Goldwater and George McGovern voted against, but there was more opposition from Democrats and support from Republicans for this measure. Republicans had two compelling arguments to deal with: supporting national defense or backing free market orthodoxy. You might call this the “Horseshoe Theory” in effect, but most of the “Horseshoe Theory” is simply ultra-conservatives and ultra-liberals voting the same but for considerably different reasons. The New York Times also noted there were local interests involved in the voting, “The one pattern in the roll call was that Senators with Lockheed installations or the plants of subcontractors in their states voted for the legislation. Those with plants in their states of the McDonnell Douglas Corporation, makers of the DC‐10, which would be the principal competitor of the Tri star, voted against the Lockheed bill, as did those with plants in their state of the General Electric Company, which makes the engines for the DC‐10” (Shanahan). The case of Chrysler would be a bit less stark and fits considerably better on a left to right scale.
The Chrysler Bailout
By the late 1970s, multiple factors had hurt Chrysler over the years. The quality of American cars declined, gas prices were rising, car sales were declining, and many consumers were finding greater appeal with foreign-made cars, particularly from Japan and Germany. By 1979, Chrysler was facing bankruptcy, and by November they were reporting $721 million in losses for the year (Cole). The aid they sought was a $1.5 billion loan, six times larger than the bailout of Lockheed Martin and twice as large as the Carter Administration had initially set as its maximum. Under the proposed bailout, Chrysler would have to obtain $1.5 billion more in concessions and private loans.
Although an argument can be made for national defense in backing a Chrysler bailout as they were contracted to produce the M-1 Abrams tank for the Pentagon in 1977, the larger issue was the biggest four-letter word in politics: jobs. 360,000 people would be out of work immediately if Chrysler folded, with double the amount occurring additionally due to a ripple effect (Seabury). In other words, they had become, like Lockheed, thought of as “too big to fail”. While free marketeers could argue that its competitors would pick up the slack, the risk wasn’t one that the US government or a majority of Congress was keen on taking. There was also a good deal more incentive for liberal Democrats to vote for given the influence of the prominent United Auto Workers, who with 1.5 million members would find themselves with a considerable loss in union dues and were major backers of the Democratic Party. This was a strong motive for the Carter Administration to back the bailout, and what’s more UAW was at that time neutral in the 1980 Democratic primary, with a considerable possibility that there would be an endorsement of Ted Kennedy of Massachusetts should he launch a challenge, and UAW president Douglas Fraser did end up endorsing Kennedy when he challenged Carter. An Administration official frankly commented on the bailout, “it’s hard to argue with the fact that this is a fundamental political decision” (Cole).
The adoption of the conference report of the bailout was adopted by the House on December 20th on a 241-124 (D 191-42, R 50-82) vote and by the Senate on a 43-34 (D 31-11, R 12-22, I 0-1) vote, being signed by President Carter. The bailout also included concessions by UAW for $203 million in wages and $200 million in pension deferrals (Cole). ACA counted a vote against initial passage as positive, while ADA did not count this measure at all. Although you had some Democrats who were consistent in opposition to bailouts, such Senators Claiborne Pell of Rhode Island and William Proxmire of Wisconsin, many supported for the UAW and jobs. It also didn’t hurt that by 1979 the Lockheed bailout had actually netted the Treasury $31.2 million (Cole). The choice for opposition was easier for Republicans given their opposition to strong organized labor, particularly those unions which actively back Democrats, as well as less emphasis on national defense, and that this was a Carter rather than a Nixon Administration proposal. This bailout’s legacy is more controversial, as although proponents can say that Chrysler did get back on its feet, the government would again bail out Chrysler in 2008 with the onset of the Great Recession, eventually being sold to Fiat in 2014. The Heritage Foundation in 1983 also pointed out in a report some groups of people not considered or cast aside by the proponents of bailing out Chrysler:
“. Current and future laid-off Ford and General Motors workers, who never understood that their tax dollars were being used to destroy their own jobs in order to save jobs at Chrysler.
. Small businessmen and private individuals, who never understood that the Chrysler bail-out would squeeze $1.2 billion out of the credit market, making it difficult and more costly for them to raise business capital or finance a mortgage on a new house, all of which would have created new job.
. Over 60,000 now laid-off Chrysler workers, who expected the bailout to save their jobs.
. American car buyers, who never understood that Ford and General Motors would have taken over much of a bankrupt Chrysler’s market and produced cars more efficiently, reducing the cost of domestic automobiles” (Hickel).
Bailouts continue to be a controversial issue and as I have argued in the past, the financial services bailout was a major motivator for increasingly populistic politics.
References
Cole, R.J. (1979, November 4). Politics and Jobs: Chrysler Corporation’s $1.5 Billion Bailout. The New York Times.
Retrieved from
Hickel, J.K. (1983, July 12). The Chrysler Bail-Out Bust. The Heritage Foundation.
Retrieved from
https://www.heritage.org/government-regulation/report/the-chrysler-bail-out-bust
Seabury, C. (2021, September 18). The Chrysler Bailout of 1979: A Retrospective. Investopedia.
Retrieved from
https://www.investopedia.com/articles/economics/chrysler-bailout.asp
Shanahan, E. (1971, August 3). Senate Backs Lockheed, 49-48. The New York Times.
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To agree to the conference report on H.R. 5860, Chrysler loan guarantees (motion passed). Voteview.
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https://voteview.com/rollcall/RH0960672
To agree to the conference report on H.R. 5860, Chrysler loan guarantees (motion passed). Voteview.
Retrieved from
https://voteview.com/rollcall/RS0960506
To pass H.R. 8432. Voteview.
Retrieved from
https://voteview.com/rollcall/RH0920152
To pass H.R. 8432, authorizing $250 million for emergency loan guarantees to major business enterprises. Voteview.
Retrieved from
https://voteview.com/rollcall/RS0920164
Trimble, S. (2020, March 24). Nearly 50 Years Apart, Lockheed Bailout Resonates During Boeing Crisis. Aviation Week Network.
Retrieved from
https://aviationweek.com/defense-space/supply-chain/nearly-50-years-apart-lockheed-bailout-resonates-during-boeing-crisis
Mad Politics: The Bizarre, Fascinating, and Unknown of American Political History 