Wednesday, May 25, 2011

The Chrysler loan payback shell game.

Chrysler proudly announced that it was going to pay back the $7.6 billion loaned to it by the federal government. but don't buy into that fake story line. Edward Niedermeyer of the site, The Truth About Cars, explains the shell game behind the Chrysler payback. Actually, what has happened is that Fiat is going to buy up to 16% of Chrysler's stock at a reduced price. Since Fiat couldn't get private banks to lend them money for the stock purchase. Fiat needed to reduce its debt from the bailout before it can buy more of Chrysler. So the Obama administration has stepped up to help Fiat out by loaning Fiat the money it needs.
Which means Fiat needs at least $3.5b of its $7.4b debt to be refinanced by a private bank. Pay attention because here’s where it gets interesting: according to the Detroit Free Press, there’s one major issue that apparently affects Chrysler’s ability to refinance its government debt: whether or not it gets more government debt.
Fiat, which effectively took control of Chrysler in 2009 and now has a 30% stake in the company, is in discussions with major banks and the government for the refinancing.

Fiat and Chrysler CEO Sergio Marchionne has said that the Department of Energy loan is a crucial part of those discussions.
The Freep story goes on to explain that the DOE loan program, which GM recently dropped out of and the GAO recently lambasted, had its budget reduced but that Chrysler’s pending loan request will not be affected. It also reveals that Chrysler recently reduced its loan request in light of the program’s funding issues, from $8.55b to… you guessed it, $3.5b. That’s right, the exact same amount of money that it needs to pay back to the US and Canadian governments in order for Fiat to up its stake to 46%.(links in original)
Conn Carroll at the Washington Examiner summarizes what has happened.
So, to recap, the Obama Energy Department is loaning a foreign car company $3.5 billion so that it can pay the Treasury Department $7.6 billion even though American taxpayers spent $13 billion to save an American car company that is currently only worth $5 billion.
Now that is accounting that only the Obama Democrats could appreciate. After all, this was similar to what they did to get the headline that G.M. was coming out of bankruptcy. But it all doesn't matter, because all that is important is getting the headline and the applause line for Democratic politicians to say that Chrysler paid back its bailout loan. Few people will know what went on behind the scenes to create that illusion.