Chrysler Loans Netted Taxpayers a Profit
By Luci Morland
It's not often that a company can turn a negative into a positive, but that is exactly what Chrysler did this week.
Wednesday, the world-class carmaker announced it had paid back the U.S. and Canadian governments the balance of their loans a full six years ahead of schedule. The loans, which had an outstanding balance of $7.6 million yesterday, were a lifeline for the company.
Paying them off early represented an opportunity for Chrysler to not only showed the strength of Chrysler as a company, but also highlights the automaker's future viability. The loans were repaid early after Chrysler received corporate financing on the private market, allowing it to repay U.S. and Canadian taxpayers — with interest — for their assistance.
Overall, taxpayers made a profit of $1.8 billion dollars on the loans, silencing some of the early critics of the bailout program.
Eileen Wunderlich, Manager of Corporate Communications for Chrysler, explained the win/win outcome of paying back the loans early. “The payback improves Chrysler Group's financial bottom line by allowing the Company to save more than $300 million in interest payments each year,” Wunderlich said in an email with benzinga. This is money that can immediately be reinvested in new products, she said.
“The improved financial state of the company in the past year, made possible by the steady sales of our 16 all-new and significantly refreshed new vehicles in dealerships, has already led to the ability to invest more than $3 billion in facility upgrades and increased employment with the hiring of 6,000 Chrysler employees,” Wunderlich said.
The good news hasn't stopped the 24-hour internet trolls from seeing conspiracy and controversy around every corner. The Truth About Cars website wrote an op-ed last month, calling the then-potential loan payoffs a shell game.
“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,” Edward Niedermeyer of The Truth About Cars wrote in a New York Times op-ed.
Oops. Not only did Chrysler pay back their loans, they did so ahead of schedule and at a profit to taxpayers. The U.S. and Canadian governments still own small, but significant, stakes in the automaker. Investment in the company from private banks and other lines of private equity have made it easier, not harder, for Chrysler to grow and recoup those share-price expenses for taxpayers.
Other rumors, including those that the Department of Energy had loaned Chrysler the money that it used to repay the TARP loans are almost laughably false. Chrysler, like other car companies, has applied for Department of Energy funding to develop even more fuel-efficient vehicles. Contrary to conspiracy theorists assertions, the payback this week was done completely with private money. No government money was used to repay the government loans.
“Chrysler Group's improved sales and financial results of the past year were the basis for the financial community's willingness to invest in the Company,” Wunderlich said. The financial community's interest in the company shows that Chrysler has turned the corner and is making believers out of nearly everyone.
Even the employees at Chrysler are excited about the turn of events and the future prospects of Chrysler.
“Employees are very proud of the accomplishments the Company has achieved in the past two years that enabled us to pay back the loans in full, six years early, and with a total of $1.8 billion of interest paid,” Wunderlich said.
CEO Sergio Marchionne said this week that the loan payback was only one marker in a line of successes that the company sees in the next few years.
“Paying back the loans, along with the financial community's investment in our refinancing packages, marks another step in the Company returning as a competitive force in the global automotive industry… however, we know there is more work to be done and we remain focused on fulfilling the goals outline in our 2010-14 business plan,” he said.