Spellchek

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Chrysler pays off its government bailout loan – it’s all good, right?

Posted by 5etester on May 24, 2011

Three cheers for the bailed out automakers! Today Chrysler joined GM in repaying its government loans early by paying off its $7.6 billion dollar debt. GM has already paid back its $8.1 billion dollar debt. This would seem to be validation that Obama and Congress did the right thing by bailing out the automakers who are now operating on much more stable ground. This would also seem to be another feather in Obama’s cap he can use during the upcoming 2012 election against the Republicans who doubted the wisdom of the move. Finally, big government has done something right everyone can get behind, right? WRONG!

Per usual, this is just smoke and mirrors from the administration, GM and Chrysler. In fact, the only reason these moves were made by the automakers was to get out from underneath the onerous hand of government control that appears to be so beneficial. They can’t get back to business as usual with the Feds monitoring their every move from with-in.

In the case of GM, they simply used an equity line from the TARP program to pay off their bailout. That’s just a shift from one government bailout program to another, however the latter doesn’t contain the strings the specified automaker bailout did. Then there is the separate case of the $50 billion dollar bridge loan based upon stock valuations as well yet to come.

Chrysler didn’t use TARP money, rather they simply swapped out the government loan with private investor equity lines with far preferable terms. They still owe the same amount, only with much less interest in the future.

In short, nobody has paid off anything. It’s merely been shuffling of debt and accounting sleight of hand in order to generate favorable publicity and remove the government from its oversight role. I have no complaint with the latter at all. Government shouldn’t be in this business whatsoever anyway, I just disagree with the sales pitch.

Let’s remember these are failed corporations. They went bankrupt. With capitalism, you always have winners and losers. They lost and should have went away accordingly. Instead, government stepped in with the taxpayers wallet and not their permission and screwed with this process. Arbitrarily deciding who wins and loses is never a good thing. To those who make the claim I originally pointed out that these bailouts were a success, I would ask how so? Does evaporating the wealth of the shareholders and bondholders count as success? How quickly we forget that many people lost their shirts through the Obama brokered bankruptcy deal not to mention all of the dealers forced to close.

The misconception then as it is now was that the industry would have simply went away and we would all be driving foreign-made cars now. That is patently false. It’s never happened before with any other industry. Companies come and go, but the industry as a whole doesn’t just go away due to individual companies failing. GM and Chrysler would have ceased to exist any longer. They would have been reincarnated into new entities utilizing much of the same infrastructure already in place. The difference is where the chips fell and who rose from the ashes.

The report card cannot be written on this entire process until many years down the road. Clearly, we can see who paid the price for this government intervention on the surface. Just ask the investors and dealers and they’ll tell you. What remains to be seen is how the benefactors prevail. The unions were the big winner with the bailouts. Will this translate into new corporate discipline and eliminate the shoddy business practices that led to the bankruptcies to begin with?

Don’t forget the matter of the bailout money itself. I never see this discussed anywhere. Our government is broke. It never had the money to use to bail out the automakers. They had to borrow it and compile more national debt to do so. Did the interest payments from the automakers go to repay the interest accumulated from borrowing the money to establish the bailout funds? The hype is that the taxpayer is being repaid in full on these loans. We’ll just have to wait and see if that is ultimately true or not.

Was this entire process preferable? Should we have let the automakers sell out to a new entity with less of a loss than a bankruptcy write off? Make no mistake, someone would have bought those companies, granted at fire sale prices. Is that better than trashing the investors, the dealers, the suppliers and the yet to be determined taxpayer burden? Will GM and Chrysler make the same mistakes down the road and have to face this scenario again in the future?

Like I said, I think it’s still too early to compile a final report card on the ultimate cost of the bailouts vs. simply letting capitalism take its course. Based upon what has transpired so far, I don’t see how the good has outweighed the bad. That’s without even going into some of the side issues such as the Obama administration sidestepping the rule of law and rewriting the bankruptcy code. It also sets a dangerous precedent for the future. Would you trust your government to do the right thing if it were your industry we were talking about? Would Obama have your back or perhaps the back of his cronies? Thanks, but no thanks.

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16 Responses to “Chrysler pays off its government bailout loan – it’s all good, right?”

  1. Excellent! I’m glad to see someone who can talk about the Auto-company bailouts sensibly. The bailouts should never have happened; not for GM and Chrysler, not for AIG and, not for the banksters. GM and Chrysler were smart to get the government off their backs as soon as possible; but I have to believe that Geithner will use this money immediately to postpone the debt ceiling crisis for a few more days.

  2. 5etester said

    And use the money they will as there is zero chance they will return it to the treasury for debt reduction.

  3. Matt said

    Well done. You laid this out nicely. Sadly, too many people with think that this scheme worked.

  4. 5etester said

    Not to mention Fiat is taking a 51% ownership stake in Chrysler with plans for 70%. Gee, I wonder if it bothers anyone that our taxpayer bailout money went toward resurrecting a foreign automaker?

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  8. ReganRight said

    I am not the type that supports this bailout crap, but being a Michigander, I have a different perspective than most. Little do most people realize, 80% of the jobs/careers individuals have in the south-eastern Michigan area are directly affiliated with the automotive companies. Despite all the stupid decisions made, a collapse in this system would have been catastrophic for the already struggling suburban areas around Detroit. I live in a middle class neighborhood, and most of my neighbors, including myself work for companies that do extensive business with the big three. Loss of any of these contracts would easily cost me my job. The way the economy tanked, we couldn’t have had any other way to stay in business.

  9. 5etester said

    I am a Michigander as well with a family full of autoworkers, so I understand exactly where you are coming from. I still hold the same position for several reasons. I would contend that any company or industry receiving a bailout would have communities making the same argument in other areas of the country. For example, Boeing in Seattle. So we shouldn’t have the government deciding who wins or loses. We must also keep in mind that bailout money is all either printed, foreign or bought by the Fed. If and when the bailout funds are repaid, where does the money go? Is it repaid to the taxpayer? Of course not. In the case of the automakers, the taxpayer had to eat $23.6 billion in outright losses and the remainder of the $85 billion total automaker bailout was repaid but it won’t ever make it back into the taxpayers wallet. I also don’t believe that the auto industry would have simply died with all of the market share going overseas. As in any bankruptcy, someone would have come in and bought up either pieces or whole automakers and reformed new companies. Is it unreasonable to think that they would have rehired the already trained and qualified workers? We already have the two-tiered pay structure in place absent any foreign intervention. The usual argument is that foreign automakers would have swooped in and taken over. What do we have now? Fiat taking over Chrysler. The end result is we had the Obama administration rewriting bankruptcy law to repay the unions with the shareholders and bondholders getting shafted. Add in the taxpayer loss, which I consider the entire $85 billion since we’ll never see it back. Finally, you have the culture of failure now in that the automakers don’t need to take any lessons for fiscal responsibility away from this because they now they always have the taxpayer bailout option just waiting in the future. Add it all up and I think the answer is clear.

  10. Anonymous said

    i guess if you want foreigners to come in and buy up failing bankrupt companies, then ok, then you can’t complain about more aliens in the country because they are the ones buying up our failing companies. The real problem is companies outsourcing..everything to save a buck is outsourced to countries who are willing to work for nothing..yeah let the foreign countries buy up our failing companies, don’t help them out..let companies go under, lose more jobs, more dealerships..I am glad we did the bailout..the government like a parent telling their kids, you screw up, don’t do it right, we make the decisions..and it worked. Look at Europe now going under financially and it is because the governments won’t bail out or change their currency..we have GM and Chrysler going strong..yes the autoworkers are still working and the economy is starting to grow. Now if people bought more Made in USA products and stop outsourcing creating jobs here, we would grow more..

  11. Anonymous said

    Ford never took any thing in either bail out don’t forget the depression we bail out chrysler and GM then as well, maybe they should take lessons from Ford. Maybe Ford should run the government

  12. Sue said

    maybe they should take lessons from Ford who never took the bail ut not this time nor in the great depression. Maybe they should run the country

  13. Sue said

    they meaning ford sorry it wasn’t clear :)

  14. Adam said

    Well written and I totally agree!

  15. Anonymous said

    The real problem is that if they were not bailed out, our country would have lost over 140 thousand US jobs and the vendors for Ford would also be in trouble. Democrat or Repbulican, any politician in charge would have made the same decision. We need to buy and make more American products or this country will decline.

  16. Paul Lemire said

    The problem is, this bailout didn’t save anything long term. Manufacturing of Jeep and Cadillac is moving to China – so the short term saves will be permanent layoffs. Don’t think for one second these care companies are dedicated to the American people or American manufacturing – they will go where labor is cheapest because the bottom line is always the bottom line.

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