In Chrysler Bailout, Taxpayers Likely To Lose Up To $1.3 Billion: Treasury

DETROIT (Deepa Seetharaman) - The U.S. and Canadian governments exited their investments in Chrysler Group LLC on Thursday, allowing Italy's Fiat SpA (FIA.MI) to become the automaker's majority stakeholder.

Fiat now owns 53.5 percent of Chrysler on a fully diluted basis, the Auburn Hills, Michigan-based company said in a regulatory filing on Thursday. Fiat is on track to hold 58.5 percent of Chrysler by the end of the year.

Fiat also now has the right to appoint a majority of the company's board, Chrysler said in the filing.

A health care trust affiliated with the United Auto Workers and known as the VEBA holds the remaining shares of Chrysler. The company and the union plan to begin negotiations on a new four-year contract on Monday.

Fiat said in early June that it would buy the U.S. and Canadian governments' stakes in Chrysler. [ID:nN02276819] [ID:nLDE753033]

The United States and Canada took equity positions in Chrysler during the U.S. automaker's bankruptcy restructuring in 2009. Fiat received a 20 percent stake and many options to increase it.

"With today's closing, the U.S. government has exited its investment in Chrysler at least six years earlier than expected," Assistant Secretary for Financial Stability Tim Massad said in a statement.

Fiat paid the U.S. Treasury $500 million and the Canadian government $125 million for their respective stakes.

The company also paid $75 million for the Treasury's option to buy shares held by the UAW retiree trust. Treasury got $60 million of those proceeds, while Canada got $15 million as part of a separate deal between the two countries.

Canada said it would remit one-third of its proceeds from the deal to the Ontario government.

FINAL TEST FOR CHRYSLER

As part of the 2009 bankruptcy deal, Fiat received the option to boost its stake in 5 percent tranches each time Chrysler met a performance target.

Chrysler is expected to meet the final test by the end of 2011, which will allow Fiat's stake to go up by 5 percent. The final test is the development of a Fiat-based car that can get 40 miles per gallon.

During the financial crisis, the U.S. Treasury loaned Chrysler $12.5 billion. In its bankruptcy, the company was split into two entities: the "old Chrysler" and the "new Chrysler," which is led by Fiat Chief Executive Officer Sergio Marchionne.

In May, the new Chrysler fully repaid its bailout loans.

But the United States is likely to lose $1.3 billion that it had lent to the old Chrysler, Treasury said in a statement on Thursday.

(Additional reporting by Rachelle Younglai in Washington and Randall Palmer in Ottawa, Editing by Robert MacMillan and Lisa Von Ahn)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Roberrtmiii]

08:35 PM on 08/09/2011

As a consumer of both Ford and Chrysler over the many years I want to say, buy the new (2011) Limited Grand Cherokee-awesome vehicle that beats the Explorer any day when comparing upper level models option for option...plus I got a $1000 rebate. Best value for the dollar and the money spent keeps an American working and paying taxes.

Chrysler has increased sales this year over last at a higher rate than any in the American market, Japan manufacturers are dropping like clay pigeons. Remember, the big three manufacture and assemble in the USA; Japan only assembles.

The Chrysler bailout is an example of what a progressive government can do, spending creates jobs! Many in Detroit are working because our government had faith in our American industry.

Go buy a new Jeep, simply awesome!

[mamacat]

08:12 AM on 07/25/2011

$4 billion per year annual subsidy to Big Oil, the most profitable companies in history, or a one-time $1.3 billion subsidy to Chrysler that actually saves hundreds of thousands of jobs?

[rdk70816]

09:25 PM on 07/24/2011

Well, the unions got a good deal. So everybody is happy. Fiat did okay, also. Those nasty bond holders got their comeuppance.

[JustinP213]

12:53 PM on 07/24/2011

Obviously, this shouldn't be allowed.

[madcityy]

12:43 PM on 07/24/2011

THANKS MR PRES.............ANOTHER MESS U RULED OVER...............PLEASE JUST QUIT..............BE SMART LIKE LLLLLLLLLLLLBBBBBBBJJJJJJJJJJJJJJ,,,,,,,,,,,,,,,,,,,,

ABO ANYBODY BUT OBAMA

[dwangelo]

11:58 AM on 07/24/2011

ONLY 1.3 billion??

[SoylentGreenIsPeople]

05:27 AM on 07/24/2011

Altogether­­, the post-2008 crash saw some $13 trillion in such obligation­­s transferre­­d onto the government­­’s balance sheet from high finance, euphemized as “the private sector” as if it were the core economy itself, rather than its calcifying shell.
I f there was a silver lining to all this, it has been to demonstrat­­e that if the Treasury and Federal Reserve can create $13 trillion of public obligation­­s – money – electronic­­ally on computer keyboards, there really is no Social Security problem at all, no Medicare shortfall, no inability of the American government to rebuild the nation’s infrastruc­­ture.
http://michael-hudson.com/2011/06/how-a-13-trillion-cover-story-was-written/

[rotorhead1871]

01:00 AM on 07/24/2011

only a B!!! ha......its our gift to the UAW....and all the rich private investors who now are beholden to the fiat tribe......another failed OB policy...

[ruffdeezy]

12:55 AM on 07/24/2011

Bailout was a suck up to ceo's and wall street. The company could have restructured and made it work. It's not like they would cease to exist. I guess borders books isn't paying off Obama or they'd still be here

[wm58523]

08:00 PM on 07/23/2011

So, if I understand this correctly we (the American taxpayer) lent money to Chrysler Corp. and removed the real leadership and handed it over to union “bosses” who did not know how to run a car company and now those same union members have sold that corporation over to a car company in another country (and they complain what so-called "American" companies sending jobs overseas?). WHAT A JOKE! Once again “O-abysmal” has sold out the American workers, with their union buddies help, and has made a fool out of everyone again (while the media sits there with their collective thumbs rotating from their mouths to their backsides) and I am sure some clown(s) is/are going to say that this is all a good thing when they try to spin this STUPIDITY.

[MichaelMcKLA]

01:26 AM on 07/24/2011

Anger management therapist. Now.

[wm58523]

07:42 AM on 07/24/2011

Do you need one?

[jesthefaxman]

09:42 AM on 07/24/2011

And you wonder why bondholder's wouldn't stake the company, and chose Fiat as it's partner? Some of the largest and longest trade union conflicts have occurred at Fiat

[StevenWSchwartz]

02:30 PM on 07/23/2011

Wow, did any of you Obama bashers read the whole article, research the subject, get more involved and try to see the big picture.
Obviously not
ps the bailout is credited with saving at least 400,000 jobs, that's US taxpaying jobs, that alone saved BILLIONS in unemployme­nt comp alone in the last 2 tears

[Warren Jr]

02:30 PM on 09/04/2011

Steve, Since I'm from Missouri.. The Show me State... A state that has lost two Chrysler Plants, one to Canada, the other to Mexico and a Ford Plant to Kentucky... SHOW ME PROOF of what your claiming. Have you ever worked as an outside vendor to an Automotive Assembly Plant, Have you ever spent even one single day in an Automotive Assembly Plant..? I think not. I'm quite sure that you've never been subject to the wrath of any Chrysler management, being told that your useless to them. Even after beginning your workday at 5:30am , and not leaving until 8:30pm for weeks at a time. Working early on a Saturday to assist paint shop personnel preparing vehicles for the initial launch of a given model year... All the while waiting four, five or even SIX months for the parent company, Daimler Chrysler at the time, to PAY YOUR COMPANIES INVOICES THAT WERE ACTUALLY DUE ON A NET 30 BASIS...! For you to even begin to believe that this poor excuse to fix the American Automotive Industry is laughable and that you believe it came anywhere close to saving 400,000 jobs. SHOW ME WERE THESE 400,000 PEOPLE ARE WORKING.... You haven't a clue. You have not one single clue.

[tatashady]

01:43 PM on 07/23/2011

They should give out 100,000 cars valued at $13,000 each. Maybe 10,000 cars per year for the next 10 years.

[Marc Kivel]

01:21 PM on 07/23/2011

Why didn't Treasury simply give them a log term promissory note requiring the $1.3 billion be repaid in installments over so many years with interest at 6% plus inflation with no penalties for early repayment? Poorly handled

[jimtodd]

11:51 AM on 07/23/2011

What a totally useless article. The headline refers only to the last sentence, and there is no explanation whatsoever as to what it is referring. Is it talking about previous loans in the Iaccoca era?

[martin2]

08:27 AM on 07/25/2011

Exactly my thoughts.
It makes no sense not to expand on why we lost the money.

[AZreb]

09:17 AM on 07/23/2011

Exiting the Chrysler deal 6 years early and $1.3 billion poorer. What a great deal for the taxpayers, right?

[Marc Kivel]

01:22 PM on 07/23/2011

As someone from the Left I completely agree with you! Bloody idjits

[msbeal]

12:24 PM on 07/24/2011

How much money was taken in to the government in payroll taxes and not paid out in unemployment compensation through this deal?

It doesn't make sense to stop the analysis at an arbitrary negative point simply to bulwark some false ideological story line now does it?