E. FRANK HARRISON

1. The Managerial Decision-Making Process E. FRANK HARRISON Fifth Edition

2. The Managerial Decision-Making ProcessFifth Edition Author: E. Frank Harrison, Ph.D. Slides by Monique A. Pelletier, Ph.D.

3. Chapter 13 The Chrysler Bailout Decision and the Challenger Disaster Case Set No. 2

4. Table 13.1 The Chrysler Bailout Decision: Significant Events Date Event February 1, 1978-July 30, 1979John J. Riccardo, chairman and chief executive officer of the Chrysler Corporation, lobbied key officials in the Carter administration for various forms of financial relief. November 2, 1978 Lee Iacocca joined Chrysler as president and chief operating officer. July 31, 1979 John J. Riccardo formally requested the federal government to rescue Chrysler. It was apparent that the company would lose approximately $2.5 billion during the 1978-1980 period. 1

5. Table 13.1 The Chrysler Bailout Decision: Significant Events (cont’d) Date Event July 31, 1979 Chrysler requested a $1.0 billion advance from the U.S. Treasury to be applied to tax credits earned in future years and a delay in meeting federal air-pollution and fuel-efficiency standards. August 2-5, 1979 The nation’s leading newspapers (New York Times, Wall Street Journal, Washington Post, and Los Angeles Times) editorialized about a financial bailout for Chrysler. August 2, 1979 Thomas A. Murphy, chairman of General Motors, publicly opposed financial assistance to Chrysler from the federal government.

6. Table 13.1 The Chrysler Bailout Decision: Significant Events (cont’d) Date Event August 10, 1979 G. William Miller, secretary of the treasury, publicly opposed financial support for Chrysler. Secretary Miller said the administration would consider loan guarantees for Chrysler if the company came up with a suitable financial plan. September 15, 1979 Chrysler submitted a revised rescue package to the Carter administration requesting one-third of the needed $2.1 billion with the remainder to come from outside sources. October 19 – December 18, 1979 Extended hearings took place in the U.S. Congress regarding the need and form of financial assistance for Chrysler.

7. Table 13.1 The Chrysler Bailout Decision: Significant Events (cont’d) Date Event October 25, 1979 Chrysler and the United Auto Workers agreed to a $1.3 billion wage pact over the next three years. November 1, 1979 The Carter administration proposed to Congress a $1.5 billion package of guaranteed loans for Chrysler, conditioned on matching concessions from Chrysler’s banks, stockholders, dealers, suppliers, and employees, as well as other levels of government. December 18, 1979 The U.S. House of Representatives approved the Chrysler Corporation Loan Guarantee Act of 1979 (vote: 241-124).

8. Table 13.1 The Chrysler Bailout Decision: Significant Events (cont’d) Date Event December 19, 1979 The U.S. Senate approved the Chrysler Corporation Loan Guarantee Act of 1979 (vote: 43-34). December 21, 1979 Senate and House conferees approved a $3.5 billion aid package for the ailing Chrysler Corporation. The bill was cleared for President Carter’s signature. December 31, 1979 Chrysler reported a net loss for 1979 of $1.1 billion. January 7, 1980 President Jimmy Carter signed the Chrysler Corporation Loan Guarantee Act of 1979 into law. The act called for $1.5 billion in guaranteed loans and $2.0 billion of matching funds to be provided by Chrysler’s stakeholders.

9. Table 13.1 The Chrysler Bailout Decision: Significant Events (cont’d) Date Event June 24, 1980 Chrysler took down $.5 billion of guaranteed loans. July 31, 1980 Chrysler took down $.3 billion of guaranteed loans. December 31, 1980 Chrysler reported a net loss for 1980 of $1.7 billion. February 2, 1981 Chrysler took down $.4 billion of guaranteed loans. December 31, 1981 Chrysler reported a net loss of $.5 billion for 1981. December 31, 1982 Chrysler reported a net loss of $69 million for 1982.

10. Table 13.1 The Chrysler Bailout Decision: Significant Events (cont’d) Date Event June 1983 Chrysler repaid $1.2 billion in federally guaranteed loans. December 31, 1983 Chrysler reported a net profit of $.5 billion for 1983.

11. Comparative Case Summaries of Decision Success • Managerial attitudes toward the decision-making process lChrysler bailout: open decision-making process; attainable objective lChallenger launch: closed decision- making process; unattainable objective

12. Comparative Case Summaries of Decision Success (cont’d) • Managerial attitudes toward the decision lChrysler bailout: Judgmental decision making strategy; satisficing outcome lChallenger launch: computational decision-making strategy; maximized outcome

13. Comparative Case Summaries of Decision Success (cont’d) • Strategic decision type lChrysler bailout: TYPE A lChallenger launch: TYPE D