Topic: Chrysler pays back government loans - 6 years ahead of schedule

[Erik]

Oddly, this was missed around these parts...


Chrysler pays back bailout loans, looks ahead
CEO says payoff removes 'taint' of federal involvement
Alisa Priddle and Christina Rogers/ The Detroit News
Now that its government loans are repaid, Chrysler Group LLC hopes consumers will measure it — and make it solidly profitable — by buying its cars and trucks.
As expected Tuesday, Auburn Hills-based Chrysler repaid $7.6 billion in outstanding loans, interest and fees. That wipes its slate clean with the U.S. and Canadian governments less than two years after government bailouts kept Chrysler and General Motors Co. in business.
Analyst Jack Nerad of online data firm Kelley Blue Book in Irvine, Calif., said the loan payoff may help Chrysler put to rest any residual animosity from Americans opposed to the bailout.
"From a consumer's perspective, there were some people who were pretty angry about the bailout," he said. "Paying that off and not being a burden to the taxpayers is a good counter argument."
Dealers expect to benefit.
"For a while during bankruptcy, I think Chrysler and GM were being overlooked," said David Shepherd, owner of Shepherd Auto Team Plaza in Fort Scott, Kan.
"Who wants to buy a vehicle from a company that has gone broke?" said Shepherd, who sells GM, Chrysler, Toyota and Ford products.
The U.S. government also has recouped almost half the $49.5 billion it spent to save GM, which went bankrupt, like Chrysler, and emerged as a new company. GM, which has repaid $23.1 billion through stock sale and loan repayment, also has had to repair its reputation with new products.
Shepherd noted that GM's sales have been on the uptick since the initial public stock offering and stronger earnings. He hopes Chrysler gets a similar bounce as news of the loan repayment spreads and consumers recognize the company is here for the long term.
It's a hope shared by Chrysler CEO Sergio Marchionne, who celebrated the government loan repayment Tuesday with 1,100 workers at the automaker's Sterling Heights plant.
"It's not going to be a make-or-break event, but it will certainly remove any taint that we may have had," said Marchionne, wearing a button that said "Paid" on his trademark black sweater.
"We dared to dream big, and we delivered on that dream," he said. "All of us remember that until just a short time ago, in the eyes of most, Chrysler had been condemned to death."
Marchionne hopes consumers will visit Chrysler showrooms to see the improved lineup of cars and trucks. More are to come with the help of partner Fiat SpA, whose little 500 already is on the U.S. market.
Move eases interest burden
Chrysler repaid the Treasury by refinancing its high-interest government loans — reselling the debt in the capital market. The move, similar to refinancing a home mortgage at a better rate, will save more than $300 million in interest annually that can be invested in future products.
The U.S. Treasury received wire transfers of more than $5.9 billion; Canadian governments received $1.7 billion to retire their loans to the automaker.
Also Tuesday, Fiat paid Chrysler $1.27 billion to increase its stake in the American automaker from 30 percent to 46 percent.
Now that Fiat has a controlling stake, Marchionne said Fiat earnings, starting with June's second-quarter results, will include Chrysler's earnings as well. Chrysler also will continue to release its results separately.
Chrysler workers see all these financial moves as building job security.
"I'm glad we got to this point," said Bill Parker, president of United Auto Workers union Local 1700 at the Sterling Heights plant.
"It's gotta be a positive sign."
Repaying the loans "sets the right posture for both sides" for contract talks to replace the current contract that expires in September, UAW Vice President General Holiefield said.
Obama commends move
In a statement issued Tuesday, President Barack Obama said "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."
For Marchionne and his team, repayment was a matter of pride, and a personal objective since the June 2009 bailout.
But even he didn't think it could be done so quickly. "I didn't know if the financial markets would be there."
The Treasury gave $12.5 billion to Chrysler and $10.6 billion in loans were recovered. The government may get some of that outstanding $1.9 billion investment when Chrysler has an IPO as early as this year. The Treasury still holds a 6.6 percent equity stake in Chrysler.
Loan repayment came more than six years ahead of deadlines established in 2009.
Ron Bloom, Obama's assistant for manufacturing policy, said the event qualifies as "the comeback of the year."


From The Detroit News: http://detnews.com/article/20110525/AUTO01/105250354/Chrysler-pays-back-bailout-loans--looks-ahead#ixzz1NL5DJFVn

[Shnak]

How? Really, how is that possible when only their minivan is selling well? Or do they have vehicles that sell well that I'm not aware of? Which vehicles are saving Chrysler's butt, these days?

[Mike]

How? Really, how is that possible when only their minivan is selling well? Or do they have vehicles that sell well that I'm not aware of? Which vehicles are saving Chrysler's butt, these days?

You are right on the minivans.  The Journey is also a huge seller.  I believe the Charger/300 are decent sellers in their segments.  I think the money from Fiat helps.

[Erik]

And the 200 is moving at 8000 units a month. Thought the trucks were doing well too. Heard the Durango and the new Grand Cherokee are doing well too.

[Shnak]

And the 200 is moving at 8000 units a month. Thought the trucks were doing well too. Heard the Durango and the new Grand Cherokee are doing well too.

The Durango and Grand Cherokee sales are nice and everything, but these aren't volume sellers. The 200 is, or should be. How does 8000 units a month compare with the Accord, Camry, Altima, etc.? The minivans (includes Journey) and trucks are doing well for Dodge. I'm not sure if they have any other volume sellers doing well, though. Where's the compact car that rival with Civic and Corolla in sales? That's a huge gap in their lineup.

[tenpenny]

I was wondering if this was a real repayment, or shuffling and fudging the technicalities like GM did a few months ago.

I also laughed at Marchionne's 'second chance' comment - since this is Chrysler we're talking about, it shoud be 'third chance', shouldn't it?

[quadzilla]

Sounds like they used Peter to pay Paul.

Chrysler was able to secure new means of financing, which allows the automaker to pay off its government obligations a full six years ahead of the original payment schedule. While this new financing still involves debts, it saves Chrysler an estimated $350 million USD per year in interest. This move also allows Chrysler to remain liquid, with more than $10 billion USD in assets ready to roll.

http://ca.autoblog.com/2011/05/24/chrysler-repays-the-rest-of-its-canadian-and-us-federal-loans/

[Erik]

Yup. They refinanced, and are no longer paying the brutal interest rates the government was charging. Thought I saw the savings were $300 million a years.

The point of course is that so many people thought the government was pissing away their money (OUR money) in saving Chrysler. The governments got all of our money back now, and the small percentage of shares they own (6.6%) should be sold ok once the IPO happens.

[Jaeger]

Okay - so they shifted their debt.... yay Chrysler.

Jaeger

[Careener]

How? Really, how is that possible when only their minivan is selling well? Or do they have vehicles that sell well that I'm not aware of? Which vehicles are saving Chrysler's butt, these days?

You are right on the minivans.  The Journey is also a huge seller.  I believe the Charger/300 are decent sellers in their segments.  I think the money from Fiat helps.

What Fiat money?

[Mike]

How? Really, how is that possible when only their minivan is selling well? Or do they have vehicles that sell well that I'm not aware of? Which vehicles are saving Chrysler's butt, these days?

You are right on the minivans.  The Journey is also a huge seller.  I believe the Charger/300 are decent sellers in their segments.  I think the money from Fiat helps.

What Fiat money?

Fiat boosted it's ownership percentage from 30% to 46%.  Money used to repay the Government was a combo of the refinancing mentioned above and the Fiat 16% ownership injection.

Chrysler retired the loans by issuing new debt and using money Turin, Italy-based Fiat paid to increase its stake. The repayment comes almost two years after Chrysler emerged from U.S. government-backed bankruptcy reorganization that gave control of the automaker to Fiat.

Link -> Chrysler Repays U.S., Canadian Governments as Fiat Increases Stake to 46%

[tpl]

Good joke there.   


From Wikipaedia:      "Fiat money is money that has value only because of government regulation or law."

"The term fiat money has been defined variously as:

    any money declared by a government to be legal tender.[3]
    state-issued money which is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard.[4]
    money without intrinsic value.[5]
"

[Erik]

And the 200 is moving at 8000 units a month. Thought the trucks were doing well too. Heard the Durango and the new Grand Cherokee are doing well too.

The Durango and Grand Cherokee sales are nice and everything, but these aren't volume sellers. The 200 is, or should be. How does 8000 units a month compare with the Accord, Camry, Altima, etc.? The minivans (includes Journey) and trucks are doing well for Dodge. I'm not sure if they have any other volume sellers doing well, though. Where's the compact car that rival with Civic and Corolla in sales? That's a huge gap in their lineup.

Doesn't matter how the 200 compares to the Accord, Camry, etc. Was never intended to be the market leader. From what I understand, Chrysler has no where near the capacity on those lines to hit Camry or Accord type numbers anyhow. The point of this car was to get Chrysler back from way behind the pack (Sebring), to at least mid pack again. And from all the reviews I have read, it is working as such. The replacement 200 in a year and half will be aiming a lot higher. And judging how well every new vehicle has been received since they emerged from bankruptcy, the new 200 should be very competitive.

The low end is being addressed as we speak. The Fiat 500 is the first salvo. The replacement for the dreadful Caliber is a year away.

Only can do so much in the time they have had. And judging by what they have done in the last 18 months, the turnaround has been amazing.

[life in the slow lane]

And the 200 is moving at 8000 units a month. Thought the trucks were doing well too. Heard the Durango and the new Grand Cherokee are doing well too.

The Durango and Grand Cherokee sales are nice and everything, but these aren't volume sellers. The 200 is, or should be. How does 8000 units a month compare with the Accord, Camry, Altima, etc.? The minivans (includes Journey) and trucks are doing well for Dodge. I'm not sure if they have any other volume sellers doing well, though. Where's the compact car that rival with Civic and Corolla in sales? That's a huge gap in their lineup.

Doesn't matter how the 200 compares to the Accord, Camry, etc. Was never intended to be the market leader. From what I understand, Chrysler has no where near the capacity on those lines to hit Camry or Accord type numbers anyhow. The point of this car was to get Chrysler back from way behind the pack (Sebring), to at least mid pack again. And from all the reviews I have read, it is working as such. The replacement 200 in a year and half will be aiming a lot higher. And judging how well every new vehicle has been received since they emerged from bankruptcy, the new 200 should be very competitive.

The low end is being addressed as we speak. The Fiat 500 is the first salvo. The replacement for the dreadful Caliber is a year away.

Only can do so much in the time they have had. And judging by what they have done in the last 18 months, the turnaround has been amazing.

Well said Erik. And unlike owners of other manufacturers vehicles (who think the manufacturer of the vehicle they drive is perfect), you aren't afraid to admit that Chrysler has made some mistakes. eg the Caliber.

I agree with you, the turnaround is not going to happen overnight. It's taken Ford some time and they are on a roll. The early Hyundais, were crap, but now they are on a roll also. GM is getting close, for all their woes, some of their vehicles look very appealing, just a question of quality.

[mmret]

Okay - so they shifted their debt.... yay Chrysler.

Jaeger

Its still legit. Firstly its a financial savings to them (I guess these govvie loans had a call feature), and the government got what they contracted for. Secondly, from a moral hazard perspective, it takes the US Treasury out as their largest (??) creditor, which is good for PR and good for American Capitalism.

The only complaint you could have I guess is whether the government received fair terms at the time of the emergency loan. And who can say what was fair? The markets weren't really functioning at the time so you have very few points of reference.

Now I do have to wonder if GMAC is still eating at the Fed discount window trough (uber cheap money usually afforded only to the largest commercial banks like JP Morgan etc.), which you could view as gov't subsidizing the US auto leasing industry which surely is a huge boon to Chryco.

[Jaeger]

Okay - so they shifted their debt.... yay Chrysler.

Jaeger

Its still legit. Firstly its a financial savings to them (I guess these govvie loans had a call feature), and the government got what they contracted for. Secondly, from a moral hazard perspective, it takes the US Treasury out as their largest (??) creditor, which is good for PR and good for American Capitalism.

The only complaint you could have I guess is whether the government received fair terms at the time of the emergency loan. And who can say what was fair? The markets weren't really functioning at the time so you have very few points of reference.

Now I do have to wonder if GMAC is still eating at the Fed discount window trough (uber cheap money usually afforded only to the largest commercial banks like JP Morgan etc.), which you could view as gov't subsidizing the US auto leasing industry which surely is a huge boon to Chryco.

Where did I say it wasn't legit or that I was making a complaint?  But if I announce "I have paid off my mortgage 10 years ahead of schedule!" it might sound like something of an accomplishment.  But if I just refinanced at a lower rate with a different bank.....

Jaeger

[articsteve]

And the 200 is moving at 8000 units a month

Into rental fleets.     Still a short termer sh*t box. 

[mmret]

Okay - so they shifted their debt.... yay Chrysler.

Jaeger

Its still legit. Firstly its a financial savings to them (I guess these govvie loans had a call feature), and the government got what they contracted for. Secondly, from a moral hazard perspective, it takes the US Treasury out as their largest (??) creditor, which is good for PR and good for American Capitalism.

The only complaint you could have I guess is whether the government received fair terms at the time of the emergency loan. And who can say what was fair? The markets weren't really functioning at the time so you have very few points of reference.

Now I do have to wonder if GMAC is still eating at the Fed discount window trough (uber cheap money usually afforded only to the largest commercial banks like JP Morgan etc.), which you could view as gov't subsidizing the US auto leasing industry which surely is a huge boon to Chryco.

Where did I say it wasn't legit or that I was making a complaint?  But if I announce "I have paid off my mortgage 10 years ahead of schedule!" it might sound like something of an accomplishment.  But if I just refinanced at a lower rate with a different bank.....

Jaeger

Your initial sarcasm implies that you don't believe this was much of a "win" for Chrysler. And I disagree. I am not using "legit" in the technical sense (legitimate), or I would have written it in full form rather than slang. I wrote it in slang because I only wish to imply that I feel that Chrysler Corp. did take a good, important step here. I'm not talking about anything that is technically legitimate or technically illegitimate, unless you are referring to whether or not this is an "legitimate accomplishment" (a term which in this case I don't believe has a solid technical definition, hence "legit" over "legitimate").

EDIT: as for the "you" part, I wasn't referring to you specifically. I was using a general "you". To be honest I had no idea who I was quoting in the reply.

So, if you (meaning you) would feel better, I will rephrase:

Its still an accomplishment. Firstly its a financial savings to them (I guess these govvie loans had a call feature), and the government got what they contracted for. Secondly, from a moral hazard perspective, it takes the US Treasury out as their largest (??) creditor, which is good for PR and good for American Capitalism.

The only complaint one could have I guess is whether the government received fair terms at the time of the emergency loan. And who can say what was fair? The markets weren't really functioning at the time so you have very few points of reference.

Now I do have to wonder if GMAC is still eating at the Fed discount window trough (uber cheap money usually afforded only to the largest commercial banks like JP Morgan etc.), which you could view as gov't subsidizing the US auto leasing industry which surely is a huge boon to Chryco.

[ajay]

I feel like saying congradulations Eric ! lol  That's surprising they paid off their debt 6 years ahead of time
A real boon to the brand .
Keep up the good fight .

[Erik]

My understanding is that the interest rates on the government loans were not cheap. Chrysler had no choice but to take them then, as their literally was no other choice.

The cause for celebration is the repayment of the loans, of course. So many, here and in other places, stated loudly and repeatedly that the taxpayers would lose every last dime of the bailouts. Chrysler just proved them wrong, and it now operates like any other auto maker.