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Chrysler Loans Netted Taxpayers a Profit
By Luci Morland

05/26/2011



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.

 

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In hindsight, U.S. investment in auto industry was brilliant


Fri, May 27, 2011

Once again this week the nation saw an example of how right it was for President George W. Bush to launch and President Barack Obama to pursue efforts to save the domestic auto industry in late 2008 and 2009.

Chrysler Group LLC announced that it was repaying its government loans of $7.6 billion less than two years after emerging from an accelerated and modified bankruptcy.

Chrysler today is a dynamic competitor in the automotive market, as is General Motors Co., which has also repaid its loans and last year re-entered the stock market. Chrysler has yet to offer its stock for sale. The U.S. government still holds shares in both companies.

The third of the Detroit-based auto makers, Ford Motor Co., was in a stronger capital position when the recession hit and survived without government loans. But its ability to cope would have been hampered by the turmoil in the supply chain that would have followed a collapse of GM and Chrysler.

All three are registering strong sales, showing profits and working on future domestic and international products — ranging from their traditional trucks and SUVs to new smaller, more efficient and technologically innovative products.

There were those free marketers — aided by a cadre of self-serving senators from states hosting foreign manufacturing plants — who were willing to allow GM and Chrysler to fail spectacularly. Even President Bush said that at another time he would have been tempted to look the other way, but he knew that a seriously wounded economy could not have survived such a trauma.

Ripple effect

Hundreds of thousands of jobs in the basic auto industry would have been lost, and job losses among suppliers, and the suppliers to suppliers would have rippled outward into the millions. The ability of the U.S. companies to continue their offshore operations would have been damaged, and the resulting vacuum would have been filled by European and Asian companies.

It is impossible to estimate the long-term implications to the American auto industry, the American economy and American workers and families if the economic Darwinists had gotten their way.

We in Ohio can be especially thankful that it didn’t come to that. Surely Ohio would have been hurt as hard as any state except Michigan.

Instead, President Obama will be visiting a Chrysler plant in Toledo next week, where he will doubtless be greeted by workers happy to have good jobs in a recovering industry.

Meanwhile, General Motors recently announced it will invest $2 billion in 17 facilities in eight states, including Michigan, Ohio, Kentucky and Texas — a demonstration both red and blue states have reason to be thankful for the auto industry bailout. Since mid 2009, GM has added 9,000 U.S. jobs.

For a fraction of what the federal government provided for “too-big-to-fail” financial institutions, Washington saved an industry and kept a recession from turning into a depression. Now the investment is paying visible dividends.

 
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