By on May 30, 2011

When Chrysler celebrated its payback of “every penny that had been loaned less than two years ago” last week, I noted that CEO Sergio Marchionne’s triumphant line was technically correct, but hardly represented the whole truth of the story. I pointed to $1.5b in supplier aid that helped keep Chrysler afloat, as well $1.9b worth of the Bush Administration’s “bridge loan” to “Old Chrysler,” prior to its government-guided bankruptcy and sale to Fiat. Apparently my more-inclusive accounting of the price of Chrysler’s rescue (which was picked up elsewhere in the online media) caused Mr Gualberto Ranieri, Chrysler VP of Communication, to spend some part of his Memorial Day Weekend writing a response of sorts, outlining Chrysler Group LLC’s perspective on the situation. Hit the jump for Ranieri’s statement, and my brief answer to the headline’s question.

Ever take a really close look at fruit salad? It’s not necessary. Fruit salad is pretty self-explanatory. A collection of different fruits that makes up the whole salad. A cherry by itself, does not a salad make.

Well, unfortunately, we’ve seen some published, and posted, reports treating the entire $12.5 billion lent by the Federal government as the cherry and not the salad, and therefore questioning whether we had the right to mark our loan payback this past Tuesday.
It’s easy to be confused, so let’s pick apart the salad one fruit at a time.

Yes, the Federal government loaned a grand total of $12.5 billion to a former company known as Chrysler LLC, along with other entities including Chrysler Financial, GMAC and parts of the current Chrysler Group LLC. Those parts that did not go forward with the new company post-bankruptcy, and therefore were left behind for disposal, are under an entity commonly called Old Carco.

That’s your fruit salad.

Chrysler Group LLC is the cherry and stands alone. Chrysler Group LLC paid back its full obligation to the federal government—with interest.

Indeed, the U.S. Treasury lays it out soundly in its statement released on May 24. Of the $12.5 billion, “Chrysler has returned more than $10.6 billion of that amount to taxpayers through principal repayments, interests and cancelled commitments.”

“When Chrysler LLC (sic), the new company says, we paid back every penny we borrowed, that is 100 percent correct,” said Ron Bloom, special assistant to President Obama, in an interview with WJR, Detroit radio personality Paul W. Smith.

What the other elements of the “fruit salad” owe is completely separate and irrelevant to our company.

In the words of Chrysler Group LLC CEO, Sergio Marchionne speaking to Smith, “The funds that we’re talking about, this excess, are funds that Chrysler never saw. They funded things prior to bankruptcy, including operating losses that go back to 2008. I mean they were even given under the previous administration – they were not on President Obama’s watch, so I – these are things that this group doesn’t know.”

Chrysler’s triumphal payback ceremony was a fascinating blend of the political and business worlds, but Marchionne’s distinction between loans made by the Bush and Obama administrations is fairly irrelevant given the fact that Chrysler’s noble decision to pay back its loans with Wall Street money was possible only because of Bush’s precipitous bridge loan. The least Marchionne could have done would be to acknowledge that taxpayer sacrifice, along with the sacrifices of the liability awardees, bondholders and laid-off workers who also made the new Chrysler Group LLC possible. Crafting sentences to vaguely acknowledge “loans” while implying (and strongly messaging) that taxpaying consumers should understand Chrysler as having squared up “every penny” of “the loans made to us,” is to beg for a clarification of the actual costs of Chrysler’s rescue.

And since we’re in clarification mode and Chrysler Group LLC is in “distancing itself from Old Carco” mode, let’s follow Mr Marchionne’s logic one step further: perhaps it would be less confusing for all Americans if we properly emphasized the discontinuity of the bailout by no longer referring to Chrysler as a “Group LLC” but, rather, a division of Fiat S.p.A. After all, Fiat owns 46% of the company and will have majority control prior to any IPO. Because then, Americans curious to understand the truth about the cost of Chrysler’s “rescue” could simply calculate what it cost taxpayers to sell an American automaker to an Italian company, instead of having to try to understand how the disposal of Old Carco was somehow not a cost of Chrysler’s rescue. But somehow I think Ranieri and Marchionne don’t want quite that much emphasis on the newness of Chrysler Group LLC.

Ultimately, Americans were only concerned about the price of their metaphorical fruit salad… and now, Mr Ranieri is going to have them wondering about the ingredients.

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20 Comments on “Ask The Best And Brightest: Are You Buying Fiat’s “Old Carco” Kiss-Off?...”


  • avatar
    moparhead

    I would argue that all the loans were paid in full by the taxes paid by fully employed Chrysler workers and those workers that supply it. How much in the hole would we be if Chrysler were let to fail.

  • avatar
    Xeranar

    Or they’re not going to give a damn one way or the other because the average American citizen has no clue about high finance and only froths at the mouth like a pavlovian dog when they talk about taxes, bailouts, and other non-sense terms dreamt up to keep the Media busy while letting corporations run free.

    I agree with your analysis that they didn’t really pay back the loans that all of the Chryslers took out & that they were effectively sold to FIAT S.p.A. thus cutting American car companies to two. But to gripe about spilled milk in the form of those loans is silly for the simple reason that ultimately Chrysler jobs saved here generate economic gains. We’re spending 600 billion a year on two wars in foreign lands. We receive none of that money back except in the form of payments to soldiers & for supplies while the collective payment to Chrysler if they survive for a few years and turn a profit will have paid back the loans effectively by boosting the economy.

    • 0 avatar
      windswords

      “they were effectively sold to FIAT S.p.A. thus cutting American car companies to two.”
      Xeranar

      “Chrysler is now Fiatsler, a foreign company doing business on American soil…”
      HighdesertCat

      I find it amusing how often I read Chrysler “isn’t and American company anymore it’s Italian…” etc. Funny I never read much of the same sentiment when Daimler took over in 1998. Oh there were a few of us of course but the general media intelligentsia and what little there was of internet “conventional wisdom” at that time thought this was just fine.

      It makes you wonder when a German company uses subterfuge and outright lies to get control of an American icon and not much is said of it in the official media, but when an Italian company comes along and slowly over time takes control of the same company while being totally open about their intentions (and treating their American counterparts with much more respect in the process than the German company did), and in as much saves the American company from extinction (something that it was not in danger of when the Germans came knocking with their “merger of equals” lies), and the two controlling entities are treated much differently in the media and blogasphere that maybe, just maybe there is some bias against the latter nationality. It’s ok for a German company to rape and pillage Chrysler because those Germans are so smart and make really great cars (just look at the C&D 10 best list and every 3 series review!), but for an Italian company to revive, partner, and help Chrysler, well we can’t have that! That just won’t do! Better for the company to take a dirt nap than become eeww – part Italian.

      I am not saying this is the position taken in Xeranar’s or HighdesertCat’s posts, it just reminded me of how often I’ve seen this sentiment repeated concerning FIAT when almost nothing of the same was said of Daimler.

      • 0 avatar
        M 1

        “I find it amusing how often I read Chrysler “isn’t and American company anymore it’s Italian…” etc.”

        Often uttered by the same people who imagine that Toyota assembly in the Carolinas somehow turns Toyotas into an American cars…

      • 0 avatar
        Xeranar

        I actually really love FIAT and have little respect for Mercedes Benz and their parent company, DaimlerBenz. I was merely reinforcing my point by aiming carefully in acknowledging his premise but not giving him any ground. If anything I think since Daimler sold out to Cerberus most people put that era behind them though to be honest currently FIAT owns less than Daimler did. The principle idea is that FIAT is going to use Chrysler as a spring board into America hopefully introducing more euro-based cars here soon. All Daimler really did was push Chrysler down the ladder from being near-luxury cars to a higher-priced dodge.

        Really Chrysler was put in this situation by Daimler and I feel for them. Killing Plymouth instead of Dodge was a bad move, accepting MB as the sole luxury make was a bad move, not refreshing the products faster as MB continued to speed along was a bad move. I reflect back now and wonder who the hell was at the helm when Daimler decided it was a good move to buy Chrysler.

  • avatar
    PenguinBoy

    I’m fine with it, and glad to see we are getting back as much money as we did. I’m pleased with how Sergio has handled Chrysler so far, good for him for scoring a deal on something nobody else wanted and doing something useful with it.

    There’s no sense comparing to some hypothetical ideal, we can only compare with the next most reasonable alternative, which in this case would have been the liquidation of Chrysler.

    How much of the $1.9B bridge loan would have been paid back had Chrysler gone into liquidation? I would guess not very much. When the indirect costs are added up there is no doubt in my mind that the rescue of Chrysler was the cheapest option.

    The supplier loans should be taken up with the suppliers, not Chrysler. According to Bertel’s earlier post, the Japanese suppliers are rattling the begging bowl in front of the taxpayers in Japan now, so supplier bailouts are hardly unique to North America.

    Old topic, and water under the bridge at this point. Agree that we should keep an eye on how things progress from time to time. All the best to Sergio and his team, hopefully the Chrysler turn around is a lasting success.

  • avatar
    lilpoindexter

    When FIAT keeps all the “good” parts of chrysler for themselves, and scraps the rest…we’ll see just how many jobs were saved.

    • 0 avatar
      Brad2971

      Other than two potentially dead brands (Dodge and Chrysler), would you be willing to enlighten us on what parts of the Chrysler division of FIAT S.p.A would still be considered “bad?” All things considered, FIAT got an excellent deal for Chrysler’s car plants (especially the Canadian and Mexican ones), and the fact that the Dodge Journey is being sold as a FIAT is proof positive Sergio is willing to leverage those car plants to the best of his abilities.

  • avatar
    Hildy Johnson

    The premise of this post is moot. The whole point of bankruptcy is to wipe out previous debt. The bankruptcy was unavoidable, those previous loans are gone, and no one is responsible for them anymore. Ranieri is unquestionably right about that.

    Also note that the bridge loans were not “necessary to make the bailout possible”. Bush could have started the bailout himself, or he could have forced liquidation. He simply didn’t have the courage for either, and so he made the bridge loans to wash his hands of it all.

    If you want the loans back, ask GW, not Chrysler.

  • avatar
    highdesertcat

    We got back what we got back. Chrysler is now Fiatsler, a foreign company doing business on American soil, just like Toyota, Honda, Nissan, Hyundai, Subaru, Mercedes and BMW, et al. The fact that we got back a little of the money the tax payers gave them to keep them going is pretty amazing in itself. I never expected it, getting back any money, that is. This is pretty much all we’re going to get back from Chrysler. Chrysler is no longer our concern. GM is, because we, the people, are still part owners in that defunct company.

  • avatar
    George B

    Xeranar, you are wrong. First, we took a mix of taxpayer money from around the country plus borrowed money and basically paid Fiat to take Chrysler. There is an opportunity cost in that this money would have been spent differently without government intervention. Our federal government bought us a new Jeep Grand Cherokee, a Sebring sans ridges, a Fiat girly car, and updates to many models. However, the auto industry still has more capacity than customers and some plants somewhere inevitably will quit building cars.

    Besides disagreement about The Forgotten Man opportunity costs of the bailout, you are flat out wrong about the cost of the wars in Afghanistan and Iraq. The total military budget is a little more than $700 billion a year, but the marginal extra cost of using our military in those two wars vs. not using the huge military is much smaller. I’m sure there is a lot of room for cost reduction, but killing people and breaking things in Afghanistan and Iraq is a fairly small part of the total military cost.

    http://en.wikipedia.org/wiki/Military_budget_of_the_United_States

    • 0 avatar
      Xeranar

      A.) The military budget is independent of the budget on financing wars as shown in my accompanying document. My numbers skew a bit high on the overall expense yearly, I miscounted the cost. Still in three months in afghanistan we could have paid for Chrysler’s bail out. In fact, every year we pay Chrysler’s bailout FOUR TIMES.

      http://www.fas.org/sgp/crs/natsec/RL33110.pdf

      B.) Opportunity cost? You’re arguing we would have found a magic new opportunity to spend money on that would have generated a greater return for the dollar? Last I checked they paid the loan back with interest, the lost money could have been spent elsewhere, your argument requires an unsubstantiated jump. I’m declaring it false on it’s face for that.

      C.) Inevitably plants will close? Most assuredly, will as many close had there been no bail out? Most assuredly, no. The argument is largely that our government spent money foolishly and that they paid for model updates. Well since we’ve found cars sell better when redeveloped and updated the “foolish money” went to the right place. When you’re a top-paid market analyst and can explain to everybody here why a new Jeep Grand Cherokee, Fiat 500, and an actually decent Chrysler 200 is bad, please do. Otherwise I have to stamp your entire argument as poorly developed.

    • 0 avatar
      Brad2971

      Be careful about “Opportunity Cost” accounting. The promoters of such an “opportunity cost theory” always assume other opportunities will take place of the decision that was already made. Real life says quite the opposite.

      I’ve often noticed that those same people often disparage the “Broken Windows” theory along the same grounds. Shall we ask the property assessor in Jasper County, Missouri (home of tornado-shredded Joplin), say, two years from now how much property values have gone up after all that new stuff is built?

  • avatar
    musiccitymafia

    Think of all the taxpayers in America as a $12.5B very cherry fruit salad. The cherries got their money back. The apples, oranges and bananas got nothing … well they got the satisfaction of knowing that their fellow fruit the cherries got something. And that darn-it anyway should be good enough. I mean, as taxpayers apples, oranges, and bananas aren’t very good and probably won’t buy our cars anyway. Good riddance. Victory to the Cherries!!

  • avatar
    Robert.Walter

    To Ed’s earlier article I asked (no replies as yet):

    “Ed, is the 1.5b for suppliers some kind of special loan, or is it the program that offered an optional insurance/guarantee on supplier receivables?

    If the latter, please be aware that this was financed by a 5-10% reduction in the supplier’s piece price.

    In the case of my company, I reviewed the program, didn’t like it, recommended to the board that we not participate, and they agreed.”

    If there were loans, separate from, but in addition to what I described above, then the question asked by some others is equally appropriate (paraphrased): “Since the supply-base is not part of Chrysler, but is rather a collection of independent firms, why is the performance of any government loans they took being laid at Chrysler’s feet?”

    Chrysler could potentially score a PR-coup, if it did decide to “voluntarily” contribute the unrecovered loan amount which died with Old Carco.

    • 0 avatar
      JJ

      Interesting.

      So that would be another thing ‘bailout free’ Ford would have profited from as well would it not?

      I wonder how that plays out in the future, I’d imagine a 5-10% reduction in piece price wouldn’t be helpful to the bottom line of any of these suppliers, so they’ll probably slowly but steadily crank up the prices again. If that’s the case it basically provided the current big 2.54 a window where they had (another) competitive cost advantage in their time of need that will slowly start to disappear.

  • avatar

    you certainly are a treat Edward.

  • avatar
    Robbie

    I do not understand the dismissive reactions here; Edward has such an important point. Edward pointed out that Chrysler’s claim to have “paid back every penny” is highly misleading, and formulated with the intention to deceive. In the value system I was raised in (formulations intending to deceive are the same as lying), that means that Chrysler was enjoying a PR victory based on a lie. The media ought to have reported this as “Chrysler congratulates itself on paying back more taxpayer money, yet taxpayers lost 3.4 billion”. It is amazing how the mainstream media have been too lazy to do anything but edit-paste Chrysler’s statement.

  • avatar
    panzerfaust

    The key sentence is “what the other elements of the “fruit salad” owe is completely separate and irrelevant to our company.” It is not irrelevant for those to whom the debt is owed. It is important because Carco is not a profitable organisation, just the opposite, it cannot pay off any of its debt unless it sells assets, which are now under Chrysler group LLC. What the new Chrysler wants is to be seen as the old Chrysler paying off its old debt, when it actuality it is the new Chrysler paying off some of its debt.

  • avatar
    Type57SC

    They need to make a black and white distinction. You’re absolutely right factually, but Chrysler needs Joe Sixpack to believe their free of Government ownership, and it doesn’t hurt Obama either. What would you expect them to say?


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