By on May 24, 2011

Chrysler’s bailout “thank you” event today was long on praise for the redemptive power of its government bailout and short on talk of remaining challenges, but at least one important fact was acknowledged: this highly-touted “payback” was only for 85% of the money loaned to Chrysler during the bailout period. Although, to be perfectly accurate, it wasn’t exactly Chrysler who acknowledged the outstanding obligation [the firm avoids any such nuance in its release], as CEO Sergio Marchionne simply stated that

We received confirmation this morning at 10.13 am from Citigroup that Chrysler Group repaid, with interest, by wire transfer to the United States Treasury and by bank transfer to the Canadian government, every penny that had been loaned less than two years ago. [Emphasis added]

That last bit was the important part… as in, the part that was most often repeated in Chrysler’s presentation and in subsequent media reports. But it’s not the whole story…

It was ultimately up to Ron Bloom, the White House’s defacto “car czar” to admit that Chrysler’s “payback” amounted to only 85% of the “total money loaned to Chrysler.” That math works out to the conclusion that Chrysler failed to pay back about $2b… which is as technically true as Marchionne’s “every penny that had been loaned less than two years ago” line. It does, however, fail to account (again) for the $1.9b Debtor-in-Posession “loan” which financed Chrysler during bankruptcy and was conveniently left to die with the remains of “Old Chrysler.” Nor does it account for the $1.5b loaned to Chrysler’s suppliers to keep them afloat amidst the bailout chaos. Meanwhile, the $1.9b Chrysler that Bloom admits Chrysler still “owes” the taxpayers is covered by a 6.6% stake in Chrysler’s equity, which isn’t likely to cover that loss when Chrysler eventually launches an IPO… and the DIP loan and supplier aid are irrevocably lost. According to the Treasury’s release:

Treasury committed a total of $12.5 billion to Chrysler under TARP’s Automotive Industry Financing Program (AIFP). With today’s transaction, Chrysler has returned more than $10.6 billion of that amount to taxpayers through principal repayments, interest, and cancelled commitments.  Treasury continues to hold a 6.6 percent common equity stake in Chrysler. As previously stated, however, Treasury is unlikely to fully recover its remaining outstanding investment of $1.9 billion in Chrysler.

Add up the outstanding “bridge loan” loss of $1.9b, the “Old Chrysler” DIP loan loss of $1.9b and the supplier aid loss of $1.5b, and the taxpayer’s loss on Chrysler looks to be closer to $5.3b. Add $3.4b of that into the $12.5b bailout bill that Treasury acknowledges, and the total return on the Chrysler bailout appears to be more like 66%, not 85%. Which is pretty damn far from “every penny” no matter how you cut it.

No matter, though, since nobody else in the media seems to want to dig back through the financial confusion of 2008-09, and is dutifully reporting the “full payback” line. And the message is playing out in a predictably partisan manner as well, with Democrats taking credit for, and goading bailout opponents with the “full payback” not-quite-truth. The only media mitigation of the celebratory atmosphere at this point appears to be a piece at the DetN’s themichiganview.com site, which argues

But there is one inconvenient truth you won’t hear at the Sterling Heights, Mich. ceremony: Chrysler wouldn’t be here had it not defied its green White House masters. Chrysler’s return to profitability is a direct result of the fabulous success of its SUVs.

Otherwise, it’s all celebration all the time. Which is understandable: many (myself included) really didn’t think Chrysler would make it through the last year. So Chrysler and its fans and political bedfellows can be forgiven for a little cheering… it’s just that taxpayers still deserve a full and transparent accounting of “every penny” (to borrow a phrase) that actually went into Chrysler, not just “loans made in the last two years” or “loans made by the Obama Administration” or other weasel-wordings employed to make the bailout seem more successful than it is. Though bailout supporters will doubtless argue that “it doesn’t matter” because Chrysler is alive today and “that’s what matters,” this doesn’t justify a lack of transparency. In fact, if the bailout was successful because GM and Chrysler survived, that’s all the more reason to not fear the truth about what the bailout actually cost.

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21 Comments on “Chrysler Celebrates “Payback,” Acknowledges Outstanding Obligations (Sort Of)...”


  • avatar
    mikey

    I guess that a good portion of the B&B will be dining on crow tonight.

    • 0 avatar
      MikeAR

      Why is that?

      • 0 avatar
        mikey

        @ MikeAR….For the most part I respect, and to some degree,agree with your thoughts and opinions here.

        However we can’t get away from the fact, that the auto bailouts were far more sucessful than many here ever predicted.

        The U.S and Canadian taxpayer have recovered a massive amount of the funds,that were wrote off by many.

      • 0 avatar
        highdesertcat

        Do we know who the lenders were, and can we be sure that these new lenders were not incentivized with US-government subsidies, directly or indirectly, to lend Chrysler the money? Aside from that, it is the most fervent hope of most tax payers to see both GM and Chrysler pay back all the money that was given them in bail outs, with interest. Now all Fiatsler has to worry about is finding enough people to buy their vehicles for them to remain open for business. And wasn’t that the core of their problem in the first place? Not enough people were buying their products when they were an American company, then a German company. Will it be any different now that they are an Italian company?

      • 0 avatar
        Wheeljack

        Plenty of people were buying Chrysler products before Daimler became involved…that’s why they bought them after all.

      • 0 avatar
        MikeAR

        Mikey, thanks for the coompliment and back at you. I’ve never criticized Chrysler because mostly it’s just too easy. They have been dealt a bad hand for years and truthfully I hope they succeed. Besides, I like the Grand Cherokee and the rear drive cars and would hate to see them gone.

        But the taxpayers are still going to lose money and worst of all is the assault on property rights and the rule of law during the bailout. Moral hazard is important. There is no stigma or cost of failure now and that will hurt us even more in the future.

    • 0 avatar
      Detroit-Iron

      Don’t forget about all those evil “speculators” like the Indiana police and teachers pension funds that lost millions. You can keep your crow.

    • 0 avatar
      GS650G

      I think the UAW is dining on more than crow at our expense.

  • avatar
    Tommy Boy

    Gee, just in time for the commencement of the 2012 election, a faux “payback in full.”

    Who would have seen that coming?

    Can’t wait for the same (false) shtick from GM prior to Fall 2012 (I know, I know, they already ran one set of false TV commercials along these lines, but there’ll be more once the Treasury fire sales the rest of its stock so that it’s gone before election time and they can lie about it no longer being “Government Motors”).

    Taking campaign issues off the table for the benefit of incumbents doesn’t come cheap!

  • avatar
    Tommy Boy

    How timely — Reason magazine weighs-in regarding the bath that taxpayers are taking on GM:

    http://reason.com/archives/2011/05/24/general-motors-will-never-repa

    • 0 avatar
      Steven02

      Only problem I have with the article is the debt carrying forward part of it. It acts like this is uncommon. Actually, it is quite common but it depends on how the change of ownership takes place. In some cases, no you cannot claim it. But in the case of GM, they can.

      • 0 avatar
        Lorenzo

        I don’t have a problem with the criticism of the debt carry forward provision in the article. Yes, it is often preserved in a bankruptcy reorganization, but in those proceedings, the original management remains intact and often entered the process due to cash flow problems, but still had a viable business plan. In those cases, the creditors are cooperating with management and sometimes pool additional assets to serve as DIP capital. Those creditors expect to be made whole, eventually.

        With GM, it was a government-dictated pre-packaged bankruptcy with the government acting as debtor in possession. The government became majority stockholder, because there was no private party big enough to serve as DIP, and in fact, the company would have been forced into chapter 9 liquidation. The creditors would have gotten pennies on the dollar, but instead were wiped out. Despite not getting all its money back, the government got more than the creditors would have in Ch. 9.

      • 0 avatar
        Steven02

        Lorenzo,
        There are provisions in the tax law for carry forwards under new ownership. I am not a tax expert to know if those are met, but since the new corporation will likely be in business for more than 2 years from the data of the transfer, I think the answer would be yes, it does apply.

        http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000382—-000-.html

        I also assume you mean chapter 7 liquidation. GM’s secured debt was made whole and much of the unsecured debt was negotiated to a lower level. Most creditors were NOT wiped out in fact. Stock holders were. But, to my knowledge, they were the only people who didn’t receive anything.

  • avatar
    Denton Bree

    Here is why there are no American electric cars that anyone can afford. DOE staff, along a with a few elected and appointed officials, engaged in a criminal endeavor to control policy, market share and profits on behalf of a few companies and investors, whom they had side deals with (including after-service consulting jobs), by falsely directing public tax dollars to their own interests via falsification of reviews, favoritised acceleration of some and delays of others. The corruption was institutionalized from the lowest to the highest levels.

    At the lower levels, some staff were induced into corruption by the provision of escorts, trips, drugs, expensive dinners and encouragement of the acquisition of cars and expensive homes, all of which would put them in a cash flow situation which would require them to rely on their handlers for current and future income. They would need to count on the private sector jobs offered by their handlers after they left public service in order to afford the luxuries they had become accustomed or addicted to.

    At the level above that, other staff entered the Federal offices in order to have access to people and power that would allow them to control or acquire those lower level staff. Elected officials were at this level including staff from Pelosi’s office, Feinstein’s office and at least three Michigan officials

    At the top were a small group of investors and board members who pulled all the strings. They were from Chrysler, GM, Ford, (Who operate as one entity on policy control) some Wall Street banks and some Silicon Valley VC firms. There are plenty of articles and TV shows about who bribed who, what VC’s bought favors, Who left DOE in a hurry, what car czar got charged with crimes, etc. All the evidence is there. Chu just lied to Congress at the Energy & Water Development Subcommittee for the President’s FY2012 energy budget per the Fuel Cell and Hydrogen Energy Association. Find out what the “United States Council for Automotive Research” actually is and what they try to control! Order your law enforcement groups to bring these crooks down

  • avatar
    Robert.Walter

    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.

  • avatar
    Lorenzo

    My memory may be faulty, but I recall a Treasury payment to the UAW VEBA account as well. I believe it was just a partial payment, with the VEBA getting a stake in the company for the rest of some amount previously agreed to by Cerberus. The VEBA nominally owned 65% of the company, so it must be getting some kind of compensation for turning it over to Fiat. If the Treasury is on the hook for that too, there may be much more than $12.5 billion of taxpayer money invested in Chrysler.

  • avatar
    PenguinBoy

    I haven’t seen an analysis of the costs of an uncontrolled bankruptcy of Chrysler. It would be interesting to see if this cost ws more or less than the cost of the bailout.

  • avatar
    windswords

    Well it took about a week after the announcement for TTAC to find a gray lining in the silver cloud. They paid it back (with real, not loaned) money. Deal with it. And for the 1.5 billion supplier loan, are you kidding me? Are the suppliers owned by Chrysler? Shouldn’t they be the ones paying it back? I don’t want to held responsible for a loan made to a family member or friend, unless I co-signed for it.

  • avatar
    jimboy

    You cannot subscribe supplier loans to Chrysler, so that reduces your argument by 1.5 billion right there. Shares in the company are also not eligible for company payback as they will be dealt with when the IPO is launched. Chrysler has no responsibility for the the disposition of its shares, that would be up to the owners. (U.S. and Canadian govts.) I can’t speak to the 1.9 billion bridge loan, not having much knowledge of bankruptcy, but it would seem to me that Chrysler has done far better in its repayment of govt. money than GM did. So, if you remove 3.4 billion from your argument, that takes us to 9.1 billion, leaving a balance of 1.6 billion to be made up in the sale of stock. For a company everyone wished would just give up, I think they have done an amazing job, far better than most expected. Well Done Chrysler!

  • avatar
    pgcooldad

    Isn’t Daimler and Cerberus accountable for any of this? They owned the company. Oh yes, it went belly up. What emerged was this new company that is managed by Fiat, and it just paid back loans made to it.
    Aid given to suppliers? Gosh, I wish we could recoup 1/1000 of aid given to foreign countries. Why is this even being thrown into your calculations?

  • avatar
    Disaster

    What irks me is, besides the money we all lost, through gov’t “loans”, there is the money a crapload of people lost when the original stock went to zero. Any plans on paying back those shareholders? I don’t think bragging should happen after a company (or person) went bankrupt and shafted people that financed them earlier.


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