The Truth About Post-Bailout Pay Restrictions: They Are A Lie

What’s 10 million these days – give the man a raise!

Up until the mid-1800s, debtor’s prison did await those who could not pay their debts. To this day, more than a third of U.S. states allow debtors to be jailed for non-payment. If you run a company called GM, Ally, or AIG, not only do you keep your freedom, you will be bailed out by the government, and given a $10 million salary. Waitaminute, you say, aren’t executive salaries of bailed-out companies limited to a still very generous $500,000? This is exactly the question the special inspector general for the Troubled Assets Relief Program asked. The answer, provided in a report to Treasury Tim Geithner, and the public, is scathing: The Treasury Department ignored its own rules and approved “excessive pay packages” for the leaders of bailed-out companies.

Read more
Bailed-Out GM Wants To Help Bailed-Out Ally With Some Of Its Bail-Out Money. Investors Not Amused

Bailed-out GM might sink $2 to $4 billion into likewise bailed-out Ally Financial to buy some of the lender’s international operations. Ally “ironically wants to use the proceeds to help repay its own federal bailout aid,” says Reuters. That plan does not sit too well with some observers. Says the wire: “Analysts and investors disagree on whether that would be the best use of cash, with some preferring a stock buyback or dividend payment.”

Read more
Obama Snubs Foreign OEMs At D.C. Auto Show

Foreign OEMs put on a dog and pony show at the Washington D.C. auto show in anticipation of President Obama’s visit, but were ultimately snubbed when the President decided to check out some American iron instead.

Read more
Watch Chrysler's Bailout "Thank You" Event Here Live At 2:15 PM Eastern

Check out this video feed any time now, to witness an event that Chrysler Communications describes on Facebook as a “Loan Appreciation Event.” Chrysler’s communication describes the shindig thus:

Chrysler Group LLC CEO Sergio Marchionne, Assistant to President Obama for Manufacturing Policy Ron A. Bloom, and Deputy Director of the National Economic Council Brian Deese will join government officials, UAW representatives and employees at the Sterling Heights Assembly Plant to formally acknowledge and express gratitude for the financial support from the U.S. and Canadian governments.

Novelty-sized check, anyone?

Read more
GAO: $34b Left On Bailout Bill

Some taxpayer-funded turnarounds just have a little more turnaround than others, according to the GAO’s recent report on the auto bailout [ PDF here], which tracks the progress of the Detroit patients and considers their futures. Sure, GM received quite a bit more government money than Chrysler, but the improvements in GM’s financial performance compared to Chrysler’s are clear. But the GAO still has a number of concerns about the “more than $34 billion” of taxpayer value that’s still floating around, unrecouped, in the rescued automakers. Feel free to peruse the GAO’s full 59-page report, or you can hit the jump for the highlights.

Read more
Quote Of The Day: Parsing Chrysler's Payback Edition

Now, our strategy continues to be to exit these investments, and just today Chrysler announced that it intends to raise the money it needs to repay the government. Two years ago, no one would have expected us to be in this position today, and it shows the success of the strategy the President implemented and the skill and dedication of Chrysler’s employees. We are looking forward to the full repayment of our loan to the company.

Treasury Secretary Tim Geithner, speaking in Detroit, makes strategic use of the singular tense in order to use the phrase “full repayment” without actually revealing the losses taxpayers have already taken. After all, the $1.9b Debtor-in-Posession loan made to “Old Chrysler” in May 2009 isn’t the loan Geithner is referring to (that one was “extinguished” in liquidation). Nor is the $4b “bridge loan” from January 2009 the loan Geithner is referring to, as a mere $2.1b repayment was counted as “satisfaction in full of the remaining debt obligations associated with the original loan.” Geithner may be “looking forward to full repayment” of the one loan he considers “ours” (as are we), but that’s not the whole story. Once again, a slickly-phrased “payback” claim trumps any sense of responsibility at Treasury to be transparent with taxpayers. And a quick survey of the media indicates that Geithner’s use of the singular has worked quite effectively.

Read more
Fiat To Pay $1.5b For 16% Chrysler Call Option

That’s right folks, for the first (and likely only) time, Fiat will be putting cash on the table for Chrysler’s equity, as Reuters reports that Fiat’s new credit facility will include $1.5b with which to exercise the 16% call option in its agreement with the US Treasury. At that rate, Chrysler’s market value would be under $10b, considerably less than the nearly $13b spent on Chrysler’s rescue (not counting assistance to Chrysler Financial). But what is Chrysler actually worth? Hit the jump for a look at what Chrysler’s Shareholder Agreement says about valuation in a Fiat Call Option scenario.

Read more
Chrysler Bailout ReFi Coming Together

With Fiat flying towards taking a majority stake in its Chrysler subsidiary, Reuters reports that the necessary private loans are very close to being arranged.

Goldman Sachs Group Inc, Morgan Stanley, Citigroup Inc and Bank of America Corp are in advanced discussions with Chrysler to finalize a deal that will replace all of its roughly $7 billion government loans with term loans and bonds, these people said on Thursday.

In addition, the banks will also arrange a revolving credit facility for the automaker’s future liquidity purposes that will remain undrawn, these people said. The revolver will not be used for paying down government loans.

Look for Chrysler to wrap up a deal sometime after it reveals its Q1 financial performance next month.

Read more
GM Dumps Ally Shares, Announces Dividend

Automotive News [sub] reports that GM has sold $1b worth of preferred stock in Ally Financial, the bank holding company that emerged from the wreckage of GM’s former in-house lender GMAC. GM will book $300m on the deal, which will take its ownership stake in the lender to 9.9 percent. GM will likely continue to reduce its exposure to Ally, which is 74% owned by the US Treasury, as its new CFO seeks to rebuild its in-house lending capabilities. GM’s move away from Ally has intensified competition between the financial firm and GM’s new financing arm, which has been built on the acquisition of subprime lender AmeriCredit. This mounting competition has been criticized by the TARP Congressional Oversight Panel, which rapped GM for failing to find a win-win solution for its own financing needs and the viability of the taxpayer-owned Ally. Amman’s strategy for avoiding further conflict: sticking with subprime and floorplan lending, leaving prime auto lending to Ally. But, argues analyst Maryann Keller

Floor-plan lending is about building an individual relationship with a lender. To get them to switch, you need to get people on the ground and get out and talk to dealers and build those relationships.

Meanwhile, with its stock struggling to achieve the value projected for it by several analysts, GM has approved a second quarterly dividend of $0.594 per share on its Series B mandatory convertible junior preferred stock. More cash and a new dividend seem likely to pump up GM’s stock price a little, but it is unlikely to reach the $55-ish price needed to pay back the government’s equity investment in the short term.

Read more
Final COP Bailout Report: The Lessons Of The Auto Bailout

The Senate’s Congressional Oversight Panel, which has been charged with monitoring the TARP program, has released its final report [ PDF] before it disbands next month. Given TARP’s importance in this country’s historical sweep, we’d recommend that everyone at least glance through the document. But, if nothing else, TTAC’s readers should at least check out the section on the Auto Bailout, which not only summarizes the government’s actions, but also points out problems that arose during the bailout as well as problems that could still emerge as a result of the bailout. The “Lessons Learned” portion of the Auto Bailout section is of special interest, and so we are republishing it below the fold. For all of the hot air and ink that’s been spilled over the bailout, the reality is that it was simultaneously a success and a failure. As a purely short-term, cost-no-object effort, it very clearly prevented what could have been a messy collapse in the auto sector. But because the true costs and long-term effects of the bailout aren’t yet known, it’s still impossible to say if that short-term rescue was worth the costs or will even prevent another industry meltdown in the future.

Read more
Chrysler Turns $14b Into $4.8b

According to Steve Rattner, Chrysler was such a sick puppy in the immediate pre-bailout period that it would have only generated about $1b had it been liquidated in bankruptcy. Thanks to around $14b in government assistance, however, Chrysler is now worth a whopping $4.8b according to a Reuters analysis of its filings. But wait, you say, how does Chrysler have a valuation if it hasn’t yet launched an IPO?

Chrysler arrived at the valuation to set pay for its top executives, including Marchionne. Senior executives are paid partly through so-called deferred phantom shares, which will convert to shares in the company at a later date.

In June 2009, each share was worth $1.66, according to the filing. By the end of 2010, the value of each share was $7.95.

Read more
GM Profit Projections: Over $5b On The Year, But "Pinched" Q4

Analysts are reporting that GM could announce full-year 2010 profits of over $5b tomorrow, although Q4 profits may have dipped to $1.06b. That would make its full-year results the best since a $6b profit in 1999, but Q4 results could be the second-worst since emerging from bankruptcy. Why the slowdown? Analysts give Bloomberg a number of possible explanations, including

  • GM’s spending on cars including the Chevrolet Volt plug-in hybrid and future products may lead to higher costs similar to those that restrained profits at Ford and Daimler AG.
  • Automakers are paying more for materials such as steel and are struggling to pass the costs to consumers amid a “somewhat weak” economy
  • Restructuring unprofitable European operations

Of all these dynamics, however, CEO Dan Akerson’s rush to revamp GM’s lineup and expand the applications of the Volt’s drivetrain could end up driving the most cost. Though GM is making a healthy profit again (and not paying taxes on it), an overly-ambitious speed-up in product cadence could combine with rising costs to slow The General back down (as they have already done to some extent at Ford). In any case, we will certainly have a better picture of GM’s financial performance tomorrow, when the firm’s results are announced.

Read more
  • Joe This is called a man in the middle attack and has been around for years. You can fall for this in a Starbucks as easily as when you’re charging your car. Nothing new here…
  • AZFelix Hilux technical, preferably with a swivel mount.
  • ToolGuy This is the kind of thing you get when you give people faster internet.
  • ToolGuy North America is already the greatest country on the planet, and I have learned to be careful about what I wish for in terms of making changes. I mean, if Greenland wants to buy JDM vehicles, isn't that for the Danes to decide?
  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)