It’s official, historic and will be controversial – forever. Once again Chrysler has escaped a near death experience, courtesy of taxpayers, and once again Chrysler has paid them back at least most of the money.
There’s a Chrysler history here that recalls another Italian besides current Chrysler CEO Sergio Marchionne. This would be one Lido Anthony Iacocca, who got Chrysler through another rough time decades ago and paid off government backed loans in full, with interest.
History almost repeated itself today as the U.S. Treasury Department announced that the nascent Chrysler Group LLC repaid outstanding $5.9 billion in Troubled Asset Relief Program (TARP) loans six years before they were due in 2017. Chrysler also terminated its ability to draw a remaining $2.1 billion from Treasury.
In total, Treasury has now received $1.5 billion in interest and fees from Chrysler since its 2009 forced bankruptcy, including $865 million associated with today’s transaction. However, Treasury also admitted – and did previously – that it is unlikely to recover its remaining outstanding investment of $1.9 billion in Chrysler as it continues to hold a 6.6% common equity stake in the privately held Michigan automaker. The debate inside Treasury about the Chrysler bailout is portrayed by then Car Czar Steven Rattner in his must read book Overhaul. (See Ex Car Czar Rattner Settles Bribery Charges for $10 Million and Ex Car Czar Settles with SEC; Sued for Bribery by New York)
It is primarily the interest on government loans – $1.23 billion – that prevented Chrysler from earning a profit during 2010 and resulted in an overall loss for the year of $652 million.
Chrysler Group said the completion of new financing transactions consisting of a term loan totaling $3.0 billion, debt securities totaling $3.2 billion and a revolving credit facility of $1.3 billion. The new financing will save Chrysler Group an estimated $350 million a year in interest expenses.
So decreasing interest rates from private as opposed to taxpayer money that Chrysler used today to pay of its government loads should improve earnings This is a necessary precursor for the public offering of Chrysler stock later this year or early next.
Fiat also put $1.27 billion of cash into Chrysler and will now increase its stake to 46% from 30% under the terms of the bankruptcy bailout.
Chrysler today also returned $1.7 billion to Export Development Canada (EDC is the holding company for Canadian federal and Ontario provincial governments) to retire those loans granted when Chrysler Group began operations in June 2009. Canadian governments will have 1.7% ownership, down from 2.2%. The UAW’s Retiree Medical Trust will hold, gulp, 45.7%.
The historic bailout differs this time around in what’s left and more importantly who owns it – along with the familiar, nagging question, can Chrysler make it? The new Chrysler Group is now firmly, irrevocably in the hands of Fiat, an Italian multinational firm, which has a global fight in front if it as it too competes to survive in an automobile business dominated by much stronger competitors.
However, today is a good day – and for the record here are the bailout facts once again:
- For the first time since 2004, all three U.S. automakers have posted an operating profit in Q1.
- Since Chrysler and General Motors have emerged from taxpayer financed bankruptcies in June or July of 2009, the auto industry has added more than 115,000 jobs – the strongest period of job growth in more than a decade.
“Because President Obama made the tough decision to stand behind and restructure the auto industry, America’s automakers are growing stronger, making new investments, and creating new jobs today throughout our nation’s industrial heartland,” said Treasury Secretary Tim Geithner.
“The loans gave us a rare second chance to demonstrate what the people of this Company can deliver and we owe a debt of gratitude to those whose intervention allowed Chrysler Group to re-establish itself as a strong and viable carmaker,” said Marchionne.
(See also Chrysler to Pay off $7.5 Billion in U.S., Canadian Bailout Loans, Chrysler Posts First Profit Since 2009 Taxpayer Bailout, Treasury Secretary Defends $80 Billion Auto Bailout, Says 90,000 Jobs Added in Strongest Growth Period in Decade, GM to Invest $2 Billion in U.S. Plants, Depending on Tax Breaks, CAR on U.S. Economy Impact of GM’s Plant Investments, General Motors Posts 2011 Q1 Profit of $3.2 Billion. Results Almost Doubled by One Time Sales of Ally and Delphi Preferred)