Chrysler Financial Value Jumped 33% After Treasury's Exit

It’s a Christmas Miracle for Chrysler!

From Bloomberg.com:

Cerberus Capital Management LP’s sale of Chrysler Financial Corp. values the lender at least 33 percent more than when the U.S. Treasury Department sold its holding to the buyout firm seven months ago.

In a deal that valued the auto lender at $4.75 billion, the Treasury got $1.9 billion from Cerberus in May to pay off Chrysler Financial’s bailout debt. Yesterday’s purchase by Toronto-Dominion Bank values it at $6.3 billion. After the Treasury’s exit, Cerberus injected about $500 million into Chrysler Financial, and plans to keep about $900 million of the lender’s assets, people briefed on the deal said. Without those moves, the firm’s value would be 41 percent higher than in May.

The Treasury’s $700 billion Troubled Asset Relief Program is likely to suffer the “bulk” of its losses from aiding the auto industry, American International Group Inc. and homebuyers, the Congressional Oversight Panel said in a September report. The Treasury, which last week called TARP “one of the most effective crisis-response programs ever,” has said the main focus was to stabilize the financial system.

“We’re not a private-equity fund,” said Tim Massad, the Treasury’s acting assistant secretary for financial stability, about the agency’s management of TARP in an interview last month. “We believe that promoting financial stability means we should exit as soon as we can.”

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Senate set to Advance $1.1T Spending Bill

While the country focuses on the Tiger Woods scandal and the upcoming holidays, the United States senate is set to pass a filibuster proof end-of-year $1.1 trillion spending that will reward most federal agencies with a generous budget increase. It also includes a loan guarantee program for steel companies, and an improved arbitration process to challenge General Motors' and Chrysler's decisions to close more than 2,000 dealerships.

The $1.1 trillion measure combines much of the year's unfinished budget work - only a $626 billion Pentagon spending measure would remain - into a 1,000-plus-page catchall spending bill that would give Cabinet departments such as Education, Health and Human Services and State increases far exceeding inflation.

After a 60-36 test vote on Friday in which Democrats and a handful of Republicans helped the measure clear another GOP obstacle, the bill was expected to win on Saturday the 60 Senate votes necessary to guarantee passage. A final vote is expected Sunday.

The measure provides spending increases averaging about 10 percent to programs under immediate control of Congress, blending increases for veterans' programs, NASA and the FBI with a pay raise for federal workers and help for car dealers.

It bundles six of the 12 annual spending bills, capping a dysfunctional appropriations process in which House leaders blocked Republicans from debating key issues while Senate Republicans dragged out debates.

Just the $626 billion defense bill would remain. That's being held back to serve as a vehicle to advance must-pass legislation such as the debt increase.

Continued at ApNews.MyWay.com…

Chrysler To Use Tax Money For Buyouts

From Freep.com:

Chrysler will use taxpayer money to sweeten buyout deals for UAW workers who could lose their jobs at six plants likely to be closed if no buyer can be found.

The autoworkers are now being offered up to $115,000 plus a $25,000 vehicle voucher to leave Chrysler voluntarily.

The larger lump-sum payment, which was increased from $75,000 in earlier buyouts, is available to workers under 50 years old who have 10 or more years of seniority.

Workers 50 or older who qualify for some pension benefits won't receive that type of onetime payment. But those with 30 years, or whose age and years together exceed 85, will receive $50,000 plus the $25,000 voucher for a new Chrysler vehicle.

The new offer, which eligible workers have until May 26 to accept, provides a cushion for several thousand workers who could lose their jobs anyway. It also could take some pressure off the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care fund because younger workers who take the buyout may find health care through spouses or new jobs.

The buyouts are funded through Chrysler's taxpayer-backed "debtor-in-possession" financing.

By contrast, the company reserved funds prior to the bankruptcy filing to cover similar buyouts previously offered to UAW members. It is trying to pare its UAW workforce by 3,500 from about 26,000 when the first offer was made in January.

Plants covered by the latest offer are Sterling Heights assembly, Conner Avenue assembly, St. Louis North and South assembly, Kenosha (Wis.) engine and Twinsburg (Ohio) stamping. The offer doesn't apply to workers at plants in Newark, Del., which has closed, or Detroit Axle because some of those workers will be transferred to a new Marysville axle plant that is to open in 2010."This is simply Chrysler's way of reducing the number of employees about whom it will have to worry," said Richard Block, Michigan State University professor of industrial and labor relations.

Chrysler's creditors aren't likely to object because the plants could be more marketable with fewer workers, said Sheldon Stone, a managing director of Amherst Partners.

Chrysler Owes U.S. Tax Payers 350,000 Cars---That You'll Never Drive

In filing for bankruptcy, Chrysler will be able to avoid paying back a $7 billion bailout debt owed to US taxpayers. You can read a segment of an Examiner.com article examining the topic below, or read the full post here.

You know when the sentence begins with the words, "This revelation was buried within Chrysler's bankruptcy filings," it can't be good news.

And it certainly is not good news for the Obama administration or for Chrysler.

CNN is reporting that, "Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing."

The story goes on to detail how Chrysler recent bankruptcy was structured, and I fear you can probably guess the rest.

The rest being that a deal that was struck in some back rooms in Washington leaving the U.S. tax payer with pretty much nothing to show for the $7 billion bailout given to Chrysler so far.

"The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process," said the official, who added that the 8% equity stake that Treasury will be receiving as part of the company's reorganization is meant to compensate taxpayers for the lost money," CNN goes on to report.

If you do the math, and as a journalist I must confess that I'm really bad at math, you'll eventually arrive at the number 350,000.

That's the number of Chrysler cars the Federal government could have purchased with $7 billion dollars---if you consider that each car costs $20,000.

It is hard not to wonder what 350,000 more car sales would have meant to Chrysler's business had the Fed decided to use the money to buy cars instead of underwrite questionable---no make that---bad loans.

It might have meant that Chrysler would not be in bankruptcy as 350,000 car sales would have represented a serious boost to its bottom line.

It probably would have have meant that President Obama would now be answering fun questions about that brand new orange Challenger sitting in the White House garage, instead of hard questions about why exactly his task force struck a backroom deal that lost tax payers billions, and why the details of that deal were, "buried within Chrysler's bankruptcy filings" and not discussed openly and publicly.

Bankruptcy for Chrysler Likely Averted as Banks Cave on Debt

It seems Chrysler may be able to avoid filing bankruptcy as was suspected earlier in the week, according to BusinessWeek.com. You can find a snippet of their post below, but the full story can be found here.

Chrysler LLC and the U.S. Treasury Dept. have reached an agreement with banks and private equity firms holding $6.9 billion of the automaker’s debt. Those firms have agreed to take $2 billion and a small equity stake in the company, paving the way, it seems, for Chrysler to avoid bankruptcy and with Italian automaker Fiat.

The deal, first reported by Washingtonpost.com, was confirmed by a Treasury official who said: “The agreement from Chrysler’s principal banks is an exceptional accomplishment in line with the President’s firm commitment that all stakeholders sacrifice to make this deal succeed.”

Details of the deal may come officially from Chrysler or Treasury officials later today.

Banks, including J.P Morgan, Citi, Morgan Stanley and Goldman Sachs, had been holding up the deal for weeks, insisting on more cash and equity. But a deal struck with the United Auto Workers Sunday night, said one executive familiar with the negotiations, put additional pressure on the debt holders to strike a deal.

Those banks are holding secured debt. And one of the issues confronting them is that Chrysler’s assets—Jeep, minivans, factories, Dodge Ram pickup and real estate—all have limited value in the recession, and few potential buyers [see Chrysler’s Looming Tag Sale].

The possibility of a Chapter 11 filing is not completely off the table for Chrysler. But it is far less likely.

Chrysler was to have filed a new restructuring plan to the White House auto industry task force by April 30, so that the Obama Administration could determine if Chrysler has restructured its business extensively enough to merit an additional $6 billion in loans on top of $4.5 billion it has already received.

A deal with Fiat is now expected to go forward, with the Italian automaker owning 35% of Chrysler, while the United Auto Workers will own up to 55%, and the Federal government up to 10%.

The Obama Administration has already said that Chrysler’s only viable future was one involving a merger with a stronger company. Its commitment to the further loans has been contingent on the Fiat deal. And the Fiat deal was contingent on big concessions from the union and bondholders.

Pay Rule Led Chrysler to Spurn Loan, Agency Says

According to a Federal watchdog agency, Chrysler supposedly turned down government loans in order to avoid executive pay restrictions that would have been enforced by the government. Check out the following article on the topic courtesy of the Washington Post.

Top officials at Chrysler Financial turned away a government loan because executives didn't want to abide by new federal limits on pay, according to new findings by a federal watchdog agency.

The government had offered a $750 million loan earlier this month as part of its efforts to prop up the ailing auto industry, including Chrysler, which is racing to avoid bankruptcy. Chrysler Financial is a major lender to Chrysler dealerships and customers.

In forgoing the loan, Chrysler Financial opted to use more expensive financing from private banks, adding to the burden on the already fragile automaker and its financing company.

Chrysler Financial officials denied in a statement that the company's executives had refused to accept new limits on their pay, adding that the firm turned down the loan because it no longer needed it. But their account conflicts with a report set to be released today by the Treasury's special inspector general for the federal bailout, saying the executives' refusal led Treasury to withdraw the loan offer.

"It was certainly a deal-breaker from Treasury's perspective," said Neil M. Barofsky, the special inspector general, who spoke to the bailout program's chief compliance officer about the situation last week.

The incident is the latest controversy to illustrate the hazards confronting the Obama administration as it sets out to assist private firms.

The uproar over the federal financial rescue, much of it focused on executive pay at bailed-out firms, has made companies skittish about taking government aid. Several big banks, such as J.P. Morgan Chase and Goldman Sachs, have said the bailout money now carries a stigma and have taken steps to pay it back. A program to aid small-business lenders has been stymied by the firms' reluctance to accept pay limits and other requirements of bailout loans.

Government officials have said that unless financial firms have enough resources to lend liberally to consumers, the economy cannot be revived.

The Treasury Department previously lent Chrysler Financial $1.5 billion, when less stringent requirements on executive compensation were in place for recipients of federal bailout money. But since that first loan was announced on Jan. 16, the Obama administration and Congress have toughened the rules.

During March, when it seemed that the first loan would run out, the Obama administration began working on a deal to lend the company an additional $750 million.

It did not take long for most of the agreement to fall in place. But on April 7, the Treasury asked Chrysler Financial to have its top 25 executives sign waivers regarding their compensation, according to the special inspector general's report.

Those waivers would have barred the executives from suing the Treasury or Chrysler Financial over new pay restrictions. As part of the economic stimulus package, Congress approved compensation limits, and the Treasury is working on clarifying what the firms must do to comply with the rules.

The Pros and Cons of an Auto Industry Bailout

With the economy what it is and our country in the middle of a presidential transition, another huge bailout request is a lot for the average American to take in. It is hard to decipher fact from fiction at a time like this, let alone make an objectionable opinion from all the bias political statements being made. For this reason, I decided to do some research of my own and compile a list of the pro’s and con’s of an auto industry bailout.

Pro 1: Eco Cars

If the bailout money works the way it is supposed to and pulls the big three out of the hole, good things could potentially come of it. One proposal is that after being saved the automakers could be pushed to manufacture and sell cars that are both good for the environment and economy. As Jeffrey D. Sachs of the Washington Post states, "Washington should seize the opportunity to begin a new era of U.S. technological leadership in the global auto industry, starting with an immediate loan. This is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon".

Con 1: Taxpayer Cash

Perhaps the most obvious con, it is no secret that we will all be helping bail these companies out. Although it is still unknown where the money may or may not come from, taxpayer cash will be included for sure. Bloggers, business leaders, and experts are expressing their frustration about this all over the Internet. Mark J. Perry, an economics professor at the University of Michigan, questions, “should U.S. taxpayers really be providing billions of dollars to bailout companies that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?” However, many still concede to the bailout because they feel it is the only feasible option, and claim that the effects of a bankrupt auto industry would cost more to taxpayers then a bailout would.

Pro 2: Recession Woes

While most are already feeling the effects of a recession on their wallets and gas tanks, it could be a lot worse if something else “big” happens. Some experts feel not bailing out the big three could result in a much deeper and more severe recession then we are already in. With thousands of jobs connected to the auto companies and stocks across the board, their downfall could have a large effect on our economy.

Con 2: Bankruptcy

One of the only other options for GM and the rest of the big three is to file bankruptcy under chapter 11. It is true that we have already assisted these companies financially this year and it helped them for few months. For this reason, some economists feel another bailout would just be like bailing out a sinking ship that is going to sink no matter what we do. Bankruptcy however, could be their only salvation, and many experts claim that it could be their best option. Michael Levine of the Wall Street Journal claims, “the cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.”

Pro 3: Chrysler Bailout

As history tends to repeat itself, I think it important to consider the Chrysler bailout of 1979. In the mid 70's while our country was going through a gas crisis, Chrysler refused to stop making their biggest most gas guzzling luxury cars. This mistake led them to requesting a bailout in late ‘79. However, to the surprise of the watching country, Chrysler came out with the "K-car" that sold like hot cakes and pulled the company out of a financial crisis. Chrysler then paid off their debt to the government 7 years early, and the government made over $660 million in profit from the bailout when all was said and done. Many people claim that if given another bailout, the auto companies could pull themselves out from near bankruptcy, and the federal government could generate revenue as well.

Con 3: Private Jet-setting

Unfortunately, when the CEO's of the big three traveled to Washington D.C. to request billions from taxpayers early this week, all three CEO's took private jets with round trip travel costs totaling of over $40,000 per CEO. This ostentatious show of wealth was considered highly disrespectful to the taxpayers about to consider bailing them out and created tons of bad publicity for the potential bailout. If companies are going to get taxpayer’s money, then we need to know that they are being frugal with it.

Chrysler Releases Sketches Of ecoVoyager Concept

Yesterday Chrysler released sketches of their next concept car, which is expected to be unveiled at the January 2008 Detroit auto show. Check out the sketch below, thanks to Auto Green Blog.

Chrysler Seeks Diesel Tax Breaks

According to CarAndDriver.com, Mark Chernoby, Vice President of DaimlerChrysler, delivered a testimony calling on Congress to broaden tax credits to include all diesel vehicles. He spoke during a hearing in the U.S. Senate Finance's subcommittee on Energy, Natural Resources and Infrastructure where congress is looking into use tax incentives to speed introduction of more fuel-efficient vehicles. "The credit has been pivotal in establishing consumer acceptance of hybrid passenger cars and we believe it will be helpful in the future in encouraging more hybrid light trucks," Chernoby claimed. "Introduction of diesel passenger vehicles and light trucks would establish an altogether new market for biodiesel and renewable diesel."