Back in November of 2009, when GM announced that it would repay its government loans, it didn’t take much investigation to realize that The General was simply shuffling government money from one pocket to the other and that true “payback” was still a ways off. The New York Times asked me to write an op-ed on the subject, and I took the opportunity to point out the reality of the situation and note
G.M.’s global interests are far too diverse for it to serve its taxpayer owners faithfully, and it can’t afford to subjugate its business prerogatives to the political needs of its major shareholder in the White House. So, unless Americans develop a sudden obsession with G.M.’s $40,000 Volt electric car just in time for an I.P.O., taxpayers will be stuck with tens of billions of dollars in losses.
Afterward, while our government contemplates its runaway deficit and getting rid of its 8 percent of Chrysler’s equity, perhaps we’ll get an admission that General Motors still owes the American people. Without one, the relationship between the public and the automaker, and the Obama administration as well, may never be the same.
And now that our government finds itself “contemplating a runaway deficit and getting rid of its 8 percent of Chrysler’s equity,” would you believe that a similar federal money-shuffle is under way? Believe it.
In today’s Automotive News [sub], Fiat sources are talking about the Italian automaker raising its stake in Chrysler from 30% to 46% by this June, with one source saying
that “it is technically possible” for Fiat to get to 46 percent of Chrysler by June. Whether Fiat raises its Chrysler stake depends on how talks with the banks turn out.
The “talks with the banks” bit refers to Fiat’s negotiations with international banks in order to refinance some part of its $7.4b debt to the US and Canadian governments. After all, until Fiat reduces its bailout-related deb, the US Treasury won’t allow it to own more tof Chrysler’s equity. Philippe Houchois, head of European auto research at UBS in London explains:
There is a lot of flexibility in the contract to achieve control of Chrysler, so Fiat could exercise its 16 percent call option if it reduces the loans to below $4 billion
Which means Fiat needs at least $3.5b of its $7.4b debt to be refinanced by a private bank. Pay attention because here’s where it gets interesting: according to the Detroit Free Press, there’s one major issue that apparently affects Chrysler’s ability to refinance its government debt: whether or not it gets more government debt.
Fiat, which effectively took control of Chrysler in 2009 and now has a 30% stake in the company, is in discussions with major banks and the government for the refinancing.
Fiat and Chrysler CEO Sergio Marchionne has said that the Department of Energy loan is a crucial part of those discussions.
The Freep story goes on to explain that the DOE loan program, which GM recently dropped out of and the GAO recently lambasted, had its budget reduced but that Chrysler’s pending loan request will not be affected. It also reveals that Chrysler recently reduced its loan request in light of the program’s funding issues, from $8.55b to… you guessed it, $3.5b. That’s right, the exact same amount of money that it needs to pay back to the US and Canadian governments in order for Fiat to up its stake to 46%.
Now, technically the DOE loan program is supposed to be used for specific, qualifying retooling projects, so Fiat can’t literally take the DOE money and use it to pay back the government loans. But freeing up $3.5b in capital that would otherwise be spent on retooling with low-cost loans will make it infinitely easier for Chrysler to secure the $3.5b in debt refinancing it needs. And, in light of the GAO’s pointed criticisms of the DOE loan program’s fairness and transparency, it’s hard to overlook the coincidental nature of Chrysler’s need for $3.5b and the government’s allocation of extra funds to apparently guarantee a low cost loan to Chrysler for precisely the same amount. After all, we’ve seen this movie before…