Lee Iacocca: Banks Are There To Lend, If Possible

Chrysler Motor Company had traditionally been a heavily leveraged company and borrowed heavily from banks. When heavily leveraged, good times are amazing and bad times are suicidal. To dissuade banks from trying to support a bankruptcy, Jerry Greenwald made it clear that all loans would be tied up for 5 to 10 years before banks could access them again so the banks smartened up. Banks did not want to cooperate much because their survival did not rely on Chrysler. There were outstanding loans with low-interest rates of 9% and others ranging for 12% to 20% then back down to 11% when the loan agreement was finalized. According to Iacocca, ironically, whenever banks were in trouble in foreign countries, the bankers received bailouts without question because the FED is full of bankers itself. There is a double standard with banks that is totally unfair. To get the Canadian banks on side, Chrysler agreed to have Canadians as 11% of the North American Chrysler work force which was easy because the Chrysler New Yorker was being built in Canada.

Negotiating with banks was complicated but Steve Miller used charm and humour to disarm the banks: the result was a total of $660 million in interest deferrals and reductions with a 4 year extension of $4 billion worth of loans at 5.5%. BUT all the banks had to agree to cooperate so everyone got a raw deal. One small bank threatened to screw up the entire loan even though they only had a $75,000 loan with Chrysler. However, finally, all of the banks signed documents and those signatures had to be collected together through a conference call where all banks were present. Finally on June 24th, 1980 the first cheque for $500 million was chased. All of this occurred with Salomon Brothers taking their $13,250,000 off the top immediately leaving $486,750,000 for Chrysler.

This is a synopsis & analysis based on Iacocca: An Autobiography and other miscellaneous research sources. Enjoy.