By on April 14, 2011

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…

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30 Comments on “The Chrysler Coincidence: Bailout Loan-Shuffle To Help Fund Fiat Takeover...”

  • avatar

    Hmm. My recollection of the GM “shuffle” is a little different. GM repaid the loan using a capltal equity facility that was set up to provide operating cash, if needed, to GM; its terms required any excess to be liquidated in that way. Equity for debt swaps are hardly unknown on Wall Street. What was the government’s stake in GM then? What is it now? Are you suggesting that this is what’s going on at Chrysler, and if not, why this example?

    • 0 avatar

      Different mechanics, similar outcome. In both cases, the deals were structured to have a “payback event” that would be good PR for all involved but meaningless from the taxpayer perspective. In GM’s case, the government simply gave GM an escrow account in bankruptcy that far exceeded the loan amounts. In Chrysler’s case, the secretive, mis-managed DOE ATVM Loan program is being kept alive to help push Chrysler below $4b in debt, at which point Fiat gets to 46% with the call option. Once this happens, Fiat’s fulfillment of its “Irrevocable Ecological Commitment” (building a 30MPG EPA Adjusted Combined vehicle in the US) will give it a 51% stake.
      Rather than making a direct comparison between the specifics of the two cases, I’m pointing out that the government has already looked the other way when a bailed-out automaker played the “we paid you back” card prematurely. In this case it seems the government is using the ATVM (that GM has mysteriously backed away from) to help generate a similar moment, and I hope Chrysler doesn’t play it the way GM did.

  • avatar

    GM paid back the loans with the money they got from selling 60% of the company to the Government.
    Why is something that simple so confusing to people?  It’s like if I sell a car.  The money I get from selling that product is mine to do what I please with.  GM decided to pay back loans avoiding a tremendous amount of interest.
    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.
    Hmmmmm…I bet the same doesn’t hold true for the $5.9 billion in taxpayer dollars Ford took…

    • 0 avatar

      “GM paid back the loans”
      from the Government
      “with the money they got from selling 60% of the company to the Government.
      There now it’s fixed

    • 0 avatar

      Posting pretty early today tiger…  High School half day?  Cannot let the Ford hating go huh?  Despite your mindless banter(s) at the end of the day GM and Chrysler are only in business today because of American/Canadian Taxpayers.  Pathetic, no matter how YOU attempt to paint it.  I do not own a Ford, nor do I want a Ford.  I, like most others on this site-just want you to give your rant(s) a final rest. 

    • 0 avatar

      GM paid back the loans with the money they got from selling 60% of the company to the Government.
      Yes, at a valuation it still isn’t anywhere near reaching.

      Ford, Nissan, Tesla and Fisker got ATVM loans quickly, for reasons that you’re welcome to guess at. GM and Chrysler got caught up in the program’s requirement of “viability,” as they were really struggling with that issue at the time the loan program came out. In fact, the congress very nearly repurposed ATVM into an all-purpose “bridge loan” for GM and Chrysler, before Bush stepped in and used TARP. Since then, ATM’s money has run low, the little guys have given up, and even GM has bowed out so Chrysler can refinance its “shyster loans.” This is a fairly unique case.

    • 0 avatar
      doctor olds

      Nissan used the same program to get $5B or $6B and I would not be surprised if there are others, too.  I don’t blame any of them for taking the loans. The new vehicles required to meet the CAFE roll out will require very large investments.

      GM declined their preapproved $14B.

      One of the biggest concerns about GM filing for bankruptcy was fear that it would initiate a rapid death spiral. No one would want to buy from a bankrupt company. Volumes would sink and losses would mount. The car business can burn thru cash at a mind boggling rate and requires substantial volume just to break even due to high fixed costs. World leader, Toyota actually lost more than GM in Q1 2009 just due to the U.S. market weakness. Southern senators and many others swore GM would not only fail to repay the $6.5B loan, but would be back to the trough in no time. The Ad was intended to refute these negatives, IMO.

      Whitacre was trying to make a splash to give the market confidence that GM was going to make it. As Z71_Silvy  wrote, GM repaid the loan with proceeds of the sale of 61% of the company. That is the simplest explanation I have seen.

      The fact they did it proved they did not need the money and was a very good sign. The notion that they just took government money from one pocket and put it in the other ignores reality of the company ownership change. Many still do not seem to grasp that fact. GM did repay all loans 5 years early and that was worth crowing about. They have been generating good cash flow and profit since then and have taken no more from government than the funds used to buy ownership of the business.

  • avatar

    Which is why Sergio referred to the government loans as “shyster” loans.

    He know a shyster when he sees one.  After all, he sees one in the mirror every morning.

  • avatar

    By that logic, we bailed out Nissan and Ford too.  Man the pitchforks!

  • avatar

    Money is fungible, my friends.  What is received in one hand can be shuffled around behind the back and handed out with the other hand…
    Good write, Ed!

    Oh, and yes, we bailed out Ford (and any one else that received money for retooling, or special write offs for accounting purposes. Only they know what that money was used for)

  • avatar

    Where’s the GM haters that wouldn’t think of buying domestic now that their money is leaving the country?

    You know we have to relect a union backed Democrat where campaigning has already started. Sorry guys, but there will be four more years of handouts on your dime if Obummer gets his way. GW didn’t want it to start this way.

    • 0 avatar

      I think you should save the politics for or something similar. This is a car site. One fact though the “bailouts” were started under Bush.
      Ed says GM will have cost the taxpayer tens of billions. I thought the loss, if there is one, was less than 10 billion now the IPO is out of the way and was a success (over subscribed). Also there would have been a cost if there was no bailout – unemployment insurance, loss of tax revenue etc. So you have to look at the net difference rather than just comparing any bailout loss against zero.

      • 0 avatar
        doctor olds

        @mike978- I have read that the remaining Government stake will have to sell for $53/share to achieve breakeven and that a loss of around $9B would be realized if all the stock was sold at the IPO prices of $33/share. Stock analysts who are in the business of assessing a company’s prospects are setting target prices of $45 to $50 in the next year. My farmer’s math suggests taxpayers would lose around $3.5B @$45 and $1.3B @$50. On one hand, It would be good to recover all the money, on the other, it would be great to get the government completely out of the picture. GM is suffering now from an inability to pay executives competitively under the Obama administration’s oversight. They are not big supporters of competitive exec compensation, thinking no one is worth much over $500k/year. Unfortunately, other employers, with no such constraints, are poaching GM’s talent .

        The stock is down now, along with all auto industry stocks. I’ll bet the bottom line in the end will be a relatively small loss, more than offset by GM’s contributions, directly through employee and supplier taxes as the $45B carry forward allowance is used up, and then through corporate income taxes. Meanwhile, GM invested $3B in capital improvements in America last year, with more investment planned for the future. This “bailout” is a good thing for America.  

      • 0 avatar

        Doc, I saw on Zero Hedge an article that added up the total losses, including the tax loss carry-forwards that no other bankrupt company has gotten at up to $84 billion in the worst case. The best case was somewhat better but still well over your generally quoted numbers. Yours are the most common cited but don’t include every liability.

        To address another point of yours, Whitaker lied, he mislead the people who saw that ad. Not all the money was paid back and the source was more government money. Can you understand the anger at him and GM because of that? There are lots of ways that could have been said that would not have been a lie that insulted the intelligence of potential GM customers. We see the same old GM except worse in all that stuff and it is particularly insulting around tax time when we all see how much we paid in that is wasted.

    • 0 avatar
      doctor olds

      @MikeAR- I respect you right to your own opinions and would like to re-iterate a few points.

      GM got the carryforward, not as a gift, but in exchange for continued funding of retirement plans to save taxpayers the cost of bailing out the PBGC.

      It is quite a distortion to list the carryforward allowances as a loss of doing the bailout. If GM had been liquidated, there would NEVER be any income to offset. GM will be paying taxes again before long. The costs of inaction would have dwarfed even the most extreme worst case costs of the action.

      Whitacre told the truth! GM has repaid every dime that is due from company operations, period. It was also true that it was done 5 years ahead of schedule. It was a very good sign the business would survive despite the politically motivated spin around the ad. 

      Your dislike of the debt for equity swap does not change the facts. All remaining return to the treasury will come from sale of that equity. Read Z71_Silvy’s post again. Blame the Obama team for how it was structured, not GM. They had no other choice but liquidation. 

      I do understand the emotions underlying your attitude and also perceive an incomplete understanding of what actually happened, both the causes of the collapse and the events in the aftermath. I subscribe to the belief that reasonable men will come to a reasonable conclusion if they agree on the facts. Often, we do not get past that first step!

      • 0 avatar

        Doc, read this link:

        It was not paid out of operations. Unfortunately for you I do have a much more complete understanding of what has and is happening. I understand a lot more than you because i am paying for it. You see your self-interest as trumping the interests of millions of taxpayers. It did once but next time you won’t be so lucky and there will be a next time for GM.

        Also using Silvy as a source drives home the weakness if your arguement. He is a one-note GM fanboy who contributes nothing than a little unintentional humor in his posts. In short some of the GM defenders here have been peeing on our legs and telling us that it’s raining. It’s not working, we know the difference.

      • 0 avatar

        Like so many GM boosters, doctor olds ignores opportunity cost.
        All the money that was spent on resuscitating GM could have been invested in a myriad of other more worthy opportunities as deemed by the market and not govt.
        It’s a false dichotomy to compare bailing out GM vs doing nothing with those funds.
        But since GM is a large entity and all those other forgone investment choices are dispersed, its hard to see what might have been.
        So doctors olds points to the capital expenditures of GM and pretends that similar aggregate spending would not have occurred had the bailout money been directed to other commercial businesses.

        And yes, every business has synergies, suppliers and related add-on effects.

      • 0 avatar
        doctor olds

        Mikar- remember your favorite show, cribs? “You think you know, but you have no idea!”
        The link you site is pure and utter BS. Whitacre said the loans were repaid in full which was absolutely accurate.
        Stupid blog trick- Create the lie, “Whitacre said the “bailout” was repaid in full!” Then decry the mythical statement as a lie. Factually inaccurate, yet compelling to the weak minded blinded by politics.

        Spare me your unfounded presumption and self-righteousness. The fact is that neither you nor any other taxpayer has had one iota of increase in your taxes for this, and in the end, the total direct cost will be less than a couple of days interest on the existing federal debt. I’ll put the taxes I pay up against those you pay any day of the week.

        I used Silvy as a source because I thought they were simple enough for you to understand. Evidently not.

      • 0 avatar
        doctor olds


        Figure whatever opportunity cost you like. You talk casually about millions of Americans being put out of work and whole regions being devastated for decades. You bet it scared the hell out of me and many, many more as well. I am open and don’t need to hide from such as you. That does not make me wrong. Bring facts, opinons are like assholes, everbody has one. 

        It is the height of ignorance to write that government could have stimulated the economy enough with $50B to offset those negative effects. It would be well worth $50B if NONE of that money was ever repaid, but the truth is all but $23B of it already has been. 

        Call the president and tell him to sell the rest today, lose a whopping $10B plus your important opportunity cost. Whatever it will end up costing is absolutely trivial in the proportion to government spending. 

        On the other hand to trivializing GM’s $3B investment is utter foolishness. That money was generated by the enterprise, not a handout from government and is a very big deal for all the jobs it created.   

        Those immense funds the $50B you whine about represent a few weeks interest on our debt and you have not paid one dime for any of it. I have really got a hard time stomaching the hatred you guys express for your fellow Americans. It would not be quite so bad if you were not so damned ignorant on top of it all.

      • 0 avatar

        Look self-appointed doctor, you may have been a good engineer at one time but you know very litttle of politics and economics. You were a corporate lifer who appearently learned early on how to keep your mouth shut and not make waves inside GM. 

        If one of you blind GM defenders would just admit that the entire reason for the Obama portion of the bailout was to repay the UAW for their support in the election, then I will shut up. Admit that any other consequence of the bailout was unintentional and a by-product os saving the UAW as a piggy bank for the Democratic Party. You know in your hearts it is true so admit it. Do not say that it didn’t cost money either. You know it did but you get to keep your precious pension so that’s ok if it bankrupts the country.

        Don’t dismiss everything you don’t agree with out of hand. And as far as “my favorite show, Cribs”, what are you talking about? Am i supposed to be mad, insulted or what? Is it some sort of racial slur? Explain to me what that meant.

      • 0 avatar
        doctor olds

        @MikeAR- I made a bad assumption you might be young enough to know of a popular show a few years ago about the homes of rock stars, “Cribs”.  My college age son watched it. I just wanted to give credit to the show when using their line. “You think you know, but you have no idea!”

        It delights me to write: Barack Obama bailed out GM and Chrysler because he is beholden to big labor for campaign funds. He assured most favorable treatment of their issues and ignored their role in the downfall. Unions support Democrats in the interest of increasing their influence and power.

        With that said, I also have to write that Ron Gettlefinger recognized the unsustainability of labor costs and agreed to a contract in 2007 that is the real basis for Ford and GM’s current profitability.

        Now, with the politics out of the way, there is a lot more to the story.
        Simply because Obama was beholden to unions, does not make saving 2/3 of the domestic car industry a bad thing. GW Bush recognized that, too.

        Government invested around $52B to finance GM through the collapse of ’08 and the bankruptcy. No more money has been invested in GM since then. 

        Anyone paying attention knows they repaid $6.5B with interest, $7.4B, when Whitacre was CEO. Government recovered another $2B in preferred stock and another $17B with the IPO. That means they still have about $26.5B to go. This is “farmer’s math”, but  reasonable.

        Treasury still owns 500,000,000 shares which would have to sell for $53/share to recover everything with no interest. If they sold out today, the whole thing will have cost $11.3B.
        Stock analysts project stock price of $45-$50 within a year. At $50, cost would fall to $1.5B.  

        doctor olds is just a nickname i had in college and is not intended to “appoint” me but to make a fanciful connection to my years with Oldsmobile. that is why i do not capitalize it.

      • 0 avatar

        I had heard of Cribs, but what gives you the idea that I am brain dead enough to watch it? You math is fairly good, I’ll give you that, it tells part of the story, but it’s what you leave out that tells the horror stry. The $53/share breakeven is wonderful for as far as it goes but where is the stock trading today? What has been the trend since the IPO? What is the high since the IPO? All these things must be a part of your math for it to be true. Plus, even though you don’t see anything wrong with it the tax loss carry-forward is a cost to the government and taxpayers too. It is harder to quantify but it can’t be ignored. Remember that has never been done before for any bankrupt company. Why do you think GM is so arrogant now? They got a permanent get out of jail free card and they and their lackies can’t resist rubbing our noses in it.

        As far as your view of the politics of the bailout, well that explains everything. A sense os entitlement is a terrible thing. You don’t care that you are breaking the country and pitting the favored against the unfavored, you’re going to get yours. Think for once about the milloins of taxpayers who paid and will continue to pay for the bailout. Do you not care that we are hurt by tha national debt and high taxes? Don’t you even have the shame to pretend that you are at least a little grateful that you and yours got saved?

      • 0 avatar
        doctor olds

        @MikeAR- I was agreeing with your politics for God’s sake! You asked me to agree and that is what I was doing. &btw- I am not Barack Obama!

        The bailout is likely to cost $1.5-$3.5B if stock analysts are correct. Plus the “opportunity cost” of your choosing.
        I’d love to see it be $0 or better yet, a money maker. I hope new products end up being hot enough to drive it there and don’t think it is out of the question.

        Facts show that the GM bailout would cost $11B if the stock was dumped right now. That’s $10B for the top 10% of income earners who pay 90% of the taxes, leaving $1B divided up among around 102Million typical American taxpayers. That is about $9.80 apiece. Sorry if that breaks your bank. The actual cost will be more like $1.00 or less.  I have a hard time feeling your pain for less than a buck or even $10 bucks.   

        The most that could possibly be lost is $26.5B if GM goes completely bust before the stock is sold, an extremely unlikely prospect with their profit generating capability and low debt.

        The auto bailouts are a tiny slice of TARP, a good share if not all of the money for the GM bailout will be repaid, and if you don’t like the way our president shepherded this, blame him, not other people just like you trying to get by. Is it just GM, or do you hate all American business?

  • avatar

    Mr. Bush only authorized the use of TARP only after Mr. Obama asked him to, after consultations between the two of them before Obama took office. He did what Mr. Obama asked him to do.
    Don’t blame Mr. Bush for TARP, though he has enough blame to carry around already, and he was wrong to put his name on it and get blamed for the embarrassment TARP turned out to be.

    • 0 avatar

      I didn’t say anything about Bush in this thread, I think anyway. But I do blame Bush for the initial bailouts. Just because someone asks you to do something wrong, it doesn’t mean you have to do it. And you shouldn’t get a free pass for doing it.

  • avatar

    Say what you want about the whole loan mess…our government regularly gives away billions of dollars to foreign interests, whether it be weapons for Libyan rebels or flying rescue operations off the coast of Japan (yeah that stuff ain’t free.)

    If GM and/or Chrysler went down, you’re talking about hundreds of thousands of people and thousands of businesses no longer contributing to the tax base. I still think Fiat, not Chrysler, is getting the shaft in the deal by taking control of an automaker that has shuffled hands a buncha times in the last three decades. Chrysler it seems is toxic, and anybody who wants to get involved in the Pentastar is taking a huge risk (just ask Cerberus, or Daimler, or Renault.)  

    Finally, there is the simple fact that these are loans. With interest rates. That GM and Chrysler/Fiat are obligated to pay back. The stronger GM and Chrysler/Fiat can get, the more likely taxpayers are to get most (if not all) of their money back. Since Chrysler hasn’t really been an all-American company since the early 1980’s, I’m not too bothered seeing the Italians take over. I’d really like to get me some of those CNG vehicles.

  • avatar
    doctor olds

    @Chris DeMorro- well put! I am pleased to write that Chrysler is hopping! They need more space for the engineers they are hiring. I love seeing the camo development cars on the roads around Auburn Hills and the sweet looking Fiat 500’s, too. We need those white and gold collar jobs. There are houses for sale out here in Oakland County!

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