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.
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.”
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.
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?
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.
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.
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.
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.
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.
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.
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.
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- Bd2 Other way around.Giorgetto Giugiaro penned the Pony Coupe during the early 1970s and later used its wedge shape as the basis for the M1 and then the DMC-12.The 3G Supra was just one of many Japanese coupes to adopt the wedge shape (actually was one of the later ones).The Mitsubishi Starion, Nissan 300ZX, etc.
- Tassos I also want one of the idiots who support the ban to explain to me how it will work.Suppose sometime (2035 or later) you cannot buy a new ICE vehicle in the UK.Q1: Will this lead to a ICE fleet resembling that of CUBA, with 100 year old '56 Chevys eventually? (in that case, just calculate the horrible extra pollution due to keeping 100 year old cars on the road)Q2: Will people be able to buy PARTS for their old cars FOREVER?Q3: Will people be allowed to jump across the Channel and buy a nice ICE in France, Germany (who makes the best cars anyway), or any place else that still sells them, and then use it in the UK?
- Tassos Bans are ridiculous and undemocratic and smell of Middle Ages and the Inquisition. Even 2035 is hardly any better than 2030.The ALMIGHTY CONSUMER should decide, not... CARB, preferably WITHOUT the Government messing with the playing field.And if the usual clueless idiots read this and offer the tired "But Government subsidizes the oil industry too", will they EVER learn that those MINISCULE (compared to the TRILLIONS of $ size of this industry) subsidies were designed to help the SMALL Oil producers defend themselves against the "Big Oil" multinationals. Ask ANY major Oil co CEO and he will gladly tell you that you can take those tiny subsidies and shove them.
- Dusterdude The suppliers can ask for concessions, but I wouldn’t hold my breath . With the UAW they are ultimately bound to negotiate with them. However, with suppliers , they could always find another supplier ( which in some cases would be difficult, but not impossible)
- AMcA Phoenix. Awful. The roads are huge and wide, with dedicated lanes for turning, always. Requires no attention to what you're doing. The roads are idiot proofed, so all the idiots drive - they have no choice, because everything is so spread out.