The next time someone moans and groans about how awful “bailouts” are, remember that at least one of them saved thousands of American jobs and won’t cost taxpayers a dime. Chrysler just paid back all its loans way ahead of schedule. President Obama just released this statement:
Chrysler’s repayment of its outstanding loans to the U.S. Treasury and American taxpayers marks a significant milestone for the turnaround of Chrysler and the countless communities and families who rely on the American auto industry. This announcement comes six years ahead of schedule and just two years after emerging from bankruptcy, allowing Chrysler to build on its progress and continue to grow as the economy recovers. Supporting the American auto industry required making some tough decisions, but I was not willing to walk away from the workers at Chrysler and the communities that rely on this iconic American company. I said if Chrysler and all its stakeholders were willing to take the difficult steps necessary to become more competitive, America would stand by them, and we did. While there is more work to be done, we are starting to see stronger sales, additional shifts at plants and signs of strength in the auto industry and our economy, a true testament to the resolve and determination of American workers across the nation.
I hope Obama runs hard on the auto bailout. Because it worked. It’s an excellent example of how, every now and again, aggressive government intervention in the private sector can be a really good thing.
Al says
aren’t they just refinancing their debt? I thought I heard this morning, that they are replacing the government loans with private loans that are now available at a lower interest rate. Of course, just the fact that that avenue is available to Chrysler, is an improvement from a couple of years ago, and the federal government will recoup the money they laid out to rescue Chrysler, which is good. Just think of all the jobs saved by undertaking the rescue.
David says
The point is that Chrysler was able to keep operating because the government stepped in, and now, by whatever means it chooses, it has repaid every dime the government lent it. Result: no cost to taxpayers; thousands of jobs saved.
dcsohl says
In a way, that’s precisely the point. As you say, this avenue was not available a few years ago. We were in a credit crunch—credit was not available. So the government stepped in and made it available. Now credit is available, and cheaper too, so of course they’re refinancing. Nobody’s pretending Chrysler is debt-free. But the bailout saved their collective asses, and that’s a good thing.
Al says
That’s the point I was trying to make, but failing to mention that a good part of the repayment was accomplished by refinancing the debt at a better rate, is only telling part of the story, and slanting it to make the story a better picture for the government bailout. It’s still a great success story, even with a fully formed explanation.
petr says
… it’s not a “bailout”…
stomv says
They paid it back with a really high interest rate — something like 10 or 12 percent IIRC. The USA made money on the Chrysler bailout loans.
centralmassdad says
This is propaganda that wouldn’t even rise to Fox News standards.
In December 2008, the government made a loan to Chrysler LLC that amounted, it seems, to about $4.5 billion. Chrysler LLC filed its bankruptcy case in April 2009.
In the bankruptcy, the company’s assets were sold to a new company, Chrysler Group, LLC, which borrowed $6 billion and change from the government to pay the purchase price, and, as a condition of getting that loan, assumed a bunch of the old company’s liabilities to pensioners.
The purchase price was used to satisfy the claims of creditors, including the government, at fractional value.
So, of all the money the government put into Chrysler, the government has now recovered $5.5 billion, plus the termination of the company’s option to borrow around two more billion. The rest was either written off outright, or converted to equity in the new company. So in order to be something other than a loss, the equity has to increase in value, by a lot.
So, in shorthand, Old Chrysler had a lot of debt and couldn’t pay, so it borrowed $100 from the government, which it used to make a few monthly payments to its creditors. But after a few months, the $100 was used up, so the company went into bankruptcy; the government gave $200 more. The $200 was used, among other things, to pay back $28 of the first hundred; the remaining $72 was written off (actually, more like $4 billion). So the government lent Chrysler $100 and didn’t get paid, and then lent another $200, which was used to pay a pittance to all creditors, and so it got a few bucks back on its first hundred. Of the second hundred, the borrower couldn’t pay it all back, so so the government agreed that they would only pay back $120, and the government got stock in return for the other $80. So now, a few years in, the government has $300 in, and got paid $148 of that, and has to hope that it makes the rest back as a capital gain. Not “profitable.”
So, sure, they paid back their $5.5 billion loan, and with interest! But the taxpayer took a substantial hammering on these bailouts, and to pretend that these transactions have been profitable is not true. And that doesn’t even count the various tax subsidies given Chrysler.
I can’t link to the documents here, because they require a subscription, but I found the wikipedia to be useful.
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bostonshepherd says
Take your heads out of the sand, BMGers. “The government previously held as much as 61% of GM after its $50 billion bailout in 2009. Officials have made it clear that they are in it to save jobs and benefit the broader industry, not to turn a profit.” (WSJ, “MarketWatch,” May 12, 2011)
The market concurs. No “profit” expected, loan repayments and interest included. Breakeven on GM stock is $53 per share. GM is currently trading at around $31. Their IPO was at $33, ran up to $40 in January. So what the interest and principal were paid on the TARP loans. Potential lossed on the stock totally overshadows that.
And there’s still a challenge ahead for getting all the taxpayers’ money back on Chrysler, too. From WSJ Marketwatch yesterday:
“The government, however, isn’t completely out of the car business just yet. The Treasury, which admits it’s unlikely to fully recover its remaining $1.9 billion investment in Chrysler, still holds 6.6% of the company’s equity. ”
There are 2 things going on here: (1) a public policy debate, and (2) gauging overall investment performance. No one minds debating the policy, but don’t fabricate the second in order to defend the former.
You can win the policy debate and still lose money on the investment…they aren’t mutually exclusive concepts.
If you guys still think investing in GM and Chrysler were excellent financial deals, may I borrow money from you?