Carter Signs Chrysler Bailout, Corporate Welfare Precedent Set

President Jimmy Carter signed the Chrysler Corporation Loan Guarantee Act of 1979 into law on January 7, 1980, following House passage on December 13, 1979 (271-136 vote) and Senate passage on December 21, 1979 (53-44 vote). The legislation provided up to $1.5 billion in federal loan guarantees to prevent the bankruptcy of Chrysler, one of America’s “Big Three” automobile manufacturers, which faced collapse due to declining sales that fell to 8.3 million units in 1979—one million fewer than the previous year. The decline was driven by a slowing economy, growing consumer demand for fuel-efficient imported cars, and the 1979 oil crisis triggered by reduced production in Iran and Iraq. Chrysler president Lee Iacocca had approached Congress to secure the bailout, which was by far the largest government rescue in U.S. history at that time.

The bailout had precedent in the 1971 Lockheed loan guarantees, which Congress approved after the company claimed its uncertain status presented a national security risk. However, the Chrysler rescue represented a significant escalation in scale and established the principle that large corporations were entitled to government intervention to prevent failure, regardless of management decisions that led to their difficulties. The bailout ultimately succeeded in keeping Chrysler operational, allowing the company to bring the Dodge Aries and Plymouth Reliant K-Cars to market, followed by the Dodge Caravan and Plymouth Voyager minivans that became market successes. Chrysler repaid the loans by 1983, and Iacocca later described Carter’s support as a turning point in American capitalism.

The Chrysler bailout established a dangerous precedent for corporate welfare that would enable much larger rescues during the 2008-2009 financial crisis when both Chrysler and General Motors again faced bankruptcy. Carter’s intervention demonstrated that corporations could operate with moral hazard, making risky decisions secure in the knowledge that government would rescue them from the consequences if they were large enough. The bailout socialized corporate risk while privatizing profits, as the loans protected shareholders, executives, and creditors rather than being structured to transfer ownership to workers or taxpayers who assumed the risk. This precedent helped normalize the principle of “too big to fail,” creating incentives for corporate consolidation and reckless behavior while establishing that government’s primary obligation was protecting capital rather than promoting competition or holding failed management accountable. The relatively painless Chrysler rescue—repaid loans, no bankruptcy—made future massive bailouts politically feasible, contributing to the 2008 TARP program and subsequent decades of corporate dependency on government backstops while corporations simultaneously lobbied for deregulation and attacked social safety nets for workers.