Many thanks for your this revealing chapter of the Chrysler "bailout" saga. The following treatment for a fact based drama captures another chapter : the Iacocca sale of the Army M-1 contract.
"The Endless Sale of the M1-A1"
Premise: "Greed never constrains itself"
In the Fall of '81 I was General Counsel of the Army. Iacocca called the Under Sec of the Army and told him that Chrysler wanted to sell the Army Tank Contract to the highest bidder. There was no precedent for this. The Under assigned to me the responsibly to look into (validate) the propriety of the sale and to run the sale if proper. I (my Office) determined that the sale would be lawful and in the interest of the Army (i.e, in the public interest) so long as several conditions were satisfied, chief among them that the Army would have to be a signatory (a novator) to the transfer of obligations under the sale. With that understanding, we permitted the "auction." Chrysler agreed. This was communicated to all the potential bidders in a pre-bid conference.
The auction proceeded with General Dynamics being selected by Chrysler as the winning bidder. Discussions get underway to satisfy the terms of the sale. Among the parties: Lehman Brothers, the deal-making finance advisor to Chrysler.
Action: I am in my office on a very snowy day. Almost all of the staff had left early. My Deputy for Contracts and Logistics comes in before leaving and tells me that our Counsel at the Tank and Automotive Command has called and informed him that the Chrysler General Counsel and Vice-President for Finance would be calling the Under Secretary to set up a dinner that evening with the four of us to inform the Army that Chrysler had determined that pursuant to its interpretation of the law, a novation of the sale was not required and that the Chrysler Board was prepared to vote the next day to consummate the sale with GD in NYC.
The call came to the Under and the meeting was set up. I did not have time to talk to the Under before the meeting(the purpose of which he ostensibly was not aware). My secretary had left early and the secretary covering for her had fingers so arthritic that she seldom was given dictation. I drafted the Army position. It was short and sweet addressed to the Chrysler GC : (roughly)”It has come to our attention that the Chrysler Board is prepared to vote the transfer of the Tank contract without satisfying the novation requirement of the Army. Please be advised that any action by the Chrysler board without an Army novation will be considered actions in contravention of national defense. The Army is prepared to begin negotiations immediately to satisfy the agreed upon novation requirements.
Please read the foregoing to the Chrysler Board prior to any vote on concerning the transfer of obligations of Chrysler to the Army.”
The letter was typed; I put it in my pocket and headed for the dinner meeting.
What happened? Much drama, with my ass hanging out at the dinner meeting. This would be a play in itself.
But I ( the Army) won. Chrysler did not vote but came to the table to negotiate. I organized and ran the Army negotiations.
Joe Califano (former GC Army and LBJ Chief of Staff) was on the Chrysler Board.
The Lehman Bros. Peter Peterson, former Commerce Secretary, ran the small cell which was making the deal.
His annoying front man, partner, was Steve Schwartzman (now Blackstone Group)
Because Chrysler and GD were forced to novate, we found that there were unpaid pension obligations that would have become obligations of the Government. Those benefits amounted to over $30M. The sale price was to GD was $342M.
This was the beginning of the private equity that burrowed itself into national security finance and totally corrupted what remained of its integrity.
The first Chapter.
The generational failures of the M-1 began with the decision of the SecDef Rumsfeld to over-rule Army leadership, Military and Civilian, to select Chrysler over GM as the contractor for the Army's main battle tank in 1975, as depicted in this little poem from my substack:
"It was not only the integrity of the All-Volunteer Force
That was betrayed,
The formerly 31 M1-A1’s in possession of the Ukrainian
Brought on-line by the powers that were in ‘75
Before a Democrat could decide
That the Chrysler option, too heavy, too complex to maintain,
Too life cycle costly, too operationally bewildering
To the Reasoned Analytics of Aberdeen
But mainly it was such that Chrysler needed
That line of cash--faults unseen
Especially to the troops who would never know
What they were missing
Now Ukies do"
Two years after the fielding of the M-1, there were still no official operational or maintenance training manuals, fielding support manpower structure was still being debated, and two of the four crew members engaged in operational testing were graduates of Baltimore Poly High School—beyond smart and empowered. Unique to the Army of 1983.
The Army, and DOD generally, was finally forced to address failures to consider the effectiveness, survivability, and sustainment of the soldier in the development of its systems in Manpower Estimate Regulations. Now complete with an enormous bureaucracy. But no Abrams can ever be effective as a tank without the 30 thousand German nationals maintaining it.
The "failure" M1 Abrams has been a massive success for 45 years. Would the GM tank have been just as good if it had been chosen for the M1 contract? Maybe. But pretending the Abrams was a failure is just silly.
Wow. What a great behind-the-scenes story from people who were there. Blanchard was a so-called Watergate baby.
Phoebe, thanks for a great story. The events of the multiple auto bailouts would make a good podcast.
Ms. Howard,
Many thanks for your this revealing chapter of the Chrysler "bailout" saga. The following treatment for a fact based drama captures another chapter : the Iacocca sale of the Army M-1 contract.
"The Endless Sale of the M1-A1"
Premise: "Greed never constrains itself"
In the Fall of '81 I was General Counsel of the Army. Iacocca called the Under Sec of the Army and told him that Chrysler wanted to sell the Army Tank Contract to the highest bidder. There was no precedent for this. The Under assigned to me the responsibly to look into (validate) the propriety of the sale and to run the sale if proper. I (my Office) determined that the sale would be lawful and in the interest of the Army (i.e, in the public interest) so long as several conditions were satisfied, chief among them that the Army would have to be a signatory (a novator) to the transfer of obligations under the sale. With that understanding, we permitted the "auction." Chrysler agreed. This was communicated to all the potential bidders in a pre-bid conference.
The auction proceeded with General Dynamics being selected by Chrysler as the winning bidder. Discussions get underway to satisfy the terms of the sale. Among the parties: Lehman Brothers, the deal-making finance advisor to Chrysler.
Action: I am in my office on a very snowy day. Almost all of the staff had left early. My Deputy for Contracts and Logistics comes in before leaving and tells me that our Counsel at the Tank and Automotive Command has called and informed him that the Chrysler General Counsel and Vice-President for Finance would be calling the Under Secretary to set up a dinner that evening with the four of us to inform the Army that Chrysler had determined that pursuant to its interpretation of the law, a novation of the sale was not required and that the Chrysler Board was prepared to vote the next day to consummate the sale with GD in NYC.
The call came to the Under and the meeting was set up. I did not have time to talk to the Under before the meeting(the purpose of which he ostensibly was not aware). My secretary had left early and the secretary covering for her had fingers so arthritic that she seldom was given dictation. I drafted the Army position. It was short and sweet addressed to the Chrysler GC : (roughly)”It has come to our attention that the Chrysler Board is prepared to vote the transfer of the Tank contract without satisfying the novation requirement of the Army. Please be advised that any action by the Chrysler board without an Army novation will be considered actions in contravention of national defense. The Army is prepared to begin negotiations immediately to satisfy the agreed upon novation requirements.
Please read the foregoing to the Chrysler Board prior to any vote on concerning the transfer of obligations of Chrysler to the Army.”
The letter was typed; I put it in my pocket and headed for the dinner meeting.
What happened? Much drama, with my ass hanging out at the dinner meeting. This would be a play in itself.
But I ( the Army) won. Chrysler did not vote but came to the table to negotiate. I organized and ran the Army negotiations.
Joe Califano (former GC Army and LBJ Chief of Staff) was on the Chrysler Board.
The Lehman Bros. Peter Peterson, former Commerce Secretary, ran the small cell which was making the deal.
His annoying front man, partner, was Steve Schwartzman (now Blackstone Group)
Because Chrysler and GD were forced to novate, we found that there were unpaid pension obligations that would have become obligations of the Government. Those benefits amounted to over $30M. The sale price was to GD was $342M.
This was the beginning of the private equity that burrowed itself into national security finance and totally corrupted what remained of its integrity.
The first Chapter.
The generational failures of the M-1 began with the decision of the SecDef Rumsfeld to over-rule Army leadership, Military and Civilian, to select Chrysler over GM as the contractor for the Army's main battle tank in 1975, as depicted in this little poem from my substack:
<https://delbertspurlock.substack.com/p/king-crane-the-cost-of-ignorance>
"It was not only the integrity of the All-Volunteer Force
That was betrayed,
The formerly 31 M1-A1’s in possession of the Ukrainian
Brought on-line by the powers that were in ‘75
Before a Democrat could decide
That the Chrysler option, too heavy, too complex to maintain,
Too life cycle costly, too operationally bewildering
To the Reasoned Analytics of Aberdeen
But mainly it was such that Chrysler needed
That line of cash--faults unseen
Especially to the troops who would never know
What they were missing
Now Ukies do"
Two years after the fielding of the M-1, there were still no official operational or maintenance training manuals, fielding support manpower structure was still being debated, and two of the four crew members engaged in operational testing were graduates of Baltimore Poly High School—beyond smart and empowered. Unique to the Army of 1983.
The Army, and DOD generally, was finally forced to address failures to consider the effectiveness, survivability, and sustainment of the soldier in the development of its systems in Manpower Estimate Regulations. Now complete with an enormous bureaucracy. But no Abrams can ever be effective as a tank without the 30 thousand German nationals maintaining it.
The "failure" M1 Abrams has been a massive success for 45 years. Would the GM tank have been just as good if it had been chosen for the M1 contract? Maybe. But pretending the Abrams was a failure is just silly.
Great story