TranceAddict Forums (www.tranceaddict.com/forums)
- Political Discussion / Debate
-- Chrysler will not repay its "loans" even if it exits bankruptcy

Chrysler will not repay its "loans" even if it exits bankruptcy

http://money.cnn.com/2009/05/05/new...sion=2009050519

quote:

NEW YORK (CNNMoney.com) -- 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. This revelation was buried within Chrysler's bankruptcy filings last week and confirmed by the Obama administration Tuesday. The filings included a list of business assumptions from one of the company's key financial advisors in the bankruptcy case. Some of the main assumptions listed by Robert Manzo of Capstone Advisory Group were that the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy. An Obama administration official confirmed Tuesday that Chrysler won't be repaying the loans, though a portion of the bridge loan may be recovered by Treasury from the assets of Chrysler Financial, the former credit arm of the automaker which is essentially going out of business as part of the reorganization. "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. "While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated," said the official. ...more...

I knew this was going to happen...what a fantastic idea, pissing away billions of taxpayer dollars in a company we know is going to be bankrupt in a few months anyway. GREAT idea gubbermint! And an 8% equity stake in a bankrupt company is frakkin worthless and they know it. Way to completely screw America again. Looks like our government's "investments" that they hoped to make money on aren't doing too well at the moment. I can't wait to see what GM does with their $21 billion in "loans".

Buy foreign folks.

That's bankruptcy for ya!

The senior credits had their claims reduced more than half.

You are wrong, however, to say that the 8% stake isn't worth anything because Chrysler is in bankruptcy. The 8% stake is a post bankruptcy stake, which means the company has significantly less debt (which obviously increases the value of the company). The government has taken a pretty big write off on its claim though. Assuming the 8% is an equal trade for its 7B claim (which it isn't), that would mean the company has a valuation of around 87.5B. The UAW, on the other hand, received in exchange for their 10B unfunded pension claim a 55% post-bankruptcy state, which puts their valuation at 18.2B. If the UAW's valuation is more accurate (which is likely), the 8% government stake is only worth 1.45B, a 5.55B loss for the government. Canada took a similar loss on their CAD 2.2B loan to the company. Fiat is the real winner in this deal. They are receiving a 20% upfront stake for promises to update manufacturing plants and licensing power train use to the company. Using the UAW valuation of 18.2B, Fiat's services and licensing would be worth 3.63B, which seems a little on the high side considering an entire car company, i.e., volvo, was being valued by market players at around $3B.

Jesus, you could buy Volvo for $3b and you can't even get shitty Chrysler for that?

Why would anyone look at Chrysler given the options?

I have a sinking feeling that Fiat is spreading themselves too thin by going after Chrysler and Open/Vauxhall. One or the other, sure. But I'm skeptical they can pull both off.

Sadly, I'm not too surprised either that this has come to light. I can't really seeing the whole thing last and either Canadian or US government be able to recover their "investment" (and I use that term loosely...it's looking more like money down the hole)

quote:

Originally posted by pmoisse Jesus, you could buy Volvo for $3b and you can't even get shitty Chrysler for that? Why would anyone look at Chrysler given the options?

Chrysler's assets must still have significant value. Using a DCF valuation I doubt the company is worth much (unless they have an overly optimistic forecast), but the asset valued must be pretty significant. Also, the company likely has some valuable Net operating losses that could be used to offset future income tax liability. Depending on whether there is a limitation on the use of those losses, they would be worth 35% of prior year losses (i.e., 10B in losses from prior years is worth 3.5B in offsets against future tax liability). Since they are in bankruptcy, those losses generally are not limited.

^ so what you're saying is, is that by continuing to prop up this failed company, the US Gov't is depriving itself of future tax revenues because of Chrysler's previous operating losses?

I think the dealer network is the big prize for Fiat. I can't see them using too many Chrysler designs for too long until they get the Fiat based cars certified and rolling off the assembly lines. I can see them closing a few of the more useless plants as well.

I wish Fiat all the best. They make some fantastic small cars over here that aren't just little rusty shitboxes. Their whole lineup is great.

On a different but related note, looks like the bailouts aren't over yet. I'm sure the fed will step in and print a few more green paper rectangles to help their buddies in the banking industry..

Bank of America & Citigroup need billions more as stress tests loom

quote:

WASHINGTON/NEW YORK (Reuters) - Regulators have told Bank of America Corp it needs $34 billion of capital to withstand a deep economic downturn, an industry source familiar with results of a government stress test said late on Tuesday. Citigroup Inc may need as much as $10 billion, a person familiar with the matter said this week. About 10 of the 19 big U.S. banks being stress-tested may need more capital, a person familiar with the official talks has said. The sources were not authorized to speak because the stress test results have not yet been made public. Results are due late Thursday. Early results of the tests may unnerve investors who had hoped they might show the industry was in less dire condition than feared. Bank of America's test results are also certain to increase pressure on Chief Executive Kenneth Lewis, who was ousted as chairman last week in a shareholder vote. That ouster could also lay the groundwork for his departure from the company he has served for 40 years, including the last eight as CEO. Analysts believe other banks that may need capital include Wells Fargo & Co, Fifth Third Bancorp, GMAC LLC, KeyCorp, PNC Financial Services Group Inc Regions Financial Corp and SunTrust Banks Inc. BANK OF AMERICA SURPRISE The government has spent three months conducting stress tests on the 19 largest U.S. banks to determine their capital needs should economic conditions worsen more than many economists now expect. It is unclear how Bank of America might raise capital, whether by selling assets, issuing more common stock or other steps. The largest U.S. bank has already received $45 billion of government help.

quote:

Originally posted by pmoisse ^ so what you're saying is, is that by continuing to prop up this failed company, the US Gov't is depriving itself of future tax revenues because of Chrysler's previous operating losses?

that's not the intent, but it is the result. But, that is only the case for future profits of the chrysler company. Also, if Chrysler goes out of business, it wouldn't collect anything from the company anyway. If 30K employees lose their jobs the government would also loss a huge amount of personal income tax revenue. Personal income tax revenue is a much larger contribution to the tax pool than corporate income taxes. In addition, each job create more jobs to service those employees (at a diminishing pace).

quote:

Originally posted by jerZ07002 If 30K employees lose their jobs the government would also loss a huge amount of personal income tax revenue. Personal income tax revenue is a much larger contribution to the tax pool than corporate income taxes. In addition, each job create more jobs to service those employees (at a diminishing pace).

Lets do some math. $7 billion bailout ($7,000,000,000.00) / 30,000 employees = $233,333 per employee.

I highly doubt the missing tax revenue from those lost jobs will ever approach this amount.

The odds say that a fair portion of those people will be out of work and relying on social security anyways so it looks even more like a lose/lose for the government

quote:

Originally posted by pmoisse The odds say that a fair portion of those people will be out of work and relying on social security anyways so it looks even more like a lose/lose for the taxpayer

fixed

quote:

Originally posted by Capitalizt Lets do some math. $7 billion bailout ($7,000,000,000.00) / 30,000 employees = $233,333 per employee. I highly doubt the missing tax revenue from those lost jobs will ever approach this amount.

Let's revise your math and make it a little more developed:

Government loan written off: 7B bailout - 1.45B equity stake = 5.55B lost

Rough estimate of wages: 30K employees @ 50K a year = 1.5B
Rough Estaimte of yearly tax revenue on wages: 1.5B * 20% (very low guess of fed ETR on wages) = 300M.

aggregate after tax income: 1.5B - 300M = 1.2B
estimate of wages used in consumption: 1.2B * 90% (1 - 10% generous savings rate) = 1.08B
estimate of profit margin on consumption: 1.08B * 15% (estimated profits made by 3rd parties on consumption) = 162M
estimate of taxes on profits: 162M * 35% = 57M

estimate of wages component of consumption costs: 1.08B * 30% = 324M
estimate of taxes on those wages: 324M * 20% (same estimate from above) = 65M

sum of estimate of taxes resulting from one year: 300M + 57M + 65M = 422M.

Take the 422M and divide it by a 6% discount rate results in a value of the income stream at 7.033B dollars. Add to that the 1.4M equity stake, and the result is 8.433B. Additionally, the costs incurred by chrysler would also be profits for another company that would be subject to tax as well as pay wages to employees who would pay taxes.

Obviously, I use some pretty unreliable guesses, but the point should be obvious.

quote:

Originally posted by Capitalizt fixed

Thanks! More accurate anyways since taxpayers can't just print more money lol

quote:

Originally posted by jerZ07002 Let's revise your math and make it a little more realistic: Government loan written off: 7B bailout - 1.45B equity stake = 5.55B lost Rough estimate of wages: 30K employees @ 50K a year = 1.5B Rough Estaimte of yearly tax revenue on wages: 1.5B * 20% (very low guess of fed ETR on wages) = 300M. aggregate after tax income: 1.5B - 300M = 1.2B estimate of wages used in consumption: 1.2B * 90% (1 - 10% generous savings rate) = 1.08B estimate of profit margin on consumption: 1.08B * 15% (estimated profits made by 3rd parties on consumption) = 162M estimate of taxes on profits: 162M * 35% = 57M estimate of wages component of consumption costs: 1.08B * 30% = 324M estimate of taxes on those wages: 324M * 20% (same estimate from above) = 65M sum of estimate of taxes resulting from one year: 300M + 57M + 65M = 422M. Take the 422M and divide it by a 6% discount rate results in a value of the income stream at 7.033B dollars. Add to that the 1.4M equity stake, and the result is 8.433B. Additionally, the costs incurred by chrysler would also be profits for another company that would be subject to tax as well as pay wages to employees who would pay taxes. Obviously, I use some pretty unreliable guesses, but the point should be obvious.

k.

I have no idea what you did there..lol. But regardless of the secondary benefits and partial recoupment the government may get by keeping them zombified, Chrysler is still basically saying "FU" to taxpayers by refusing to pay back the $7+ billion. We are taking it up the @$$ and the government is letting it happen. I think a large portion of the "loans" made to banks and other bailout companies won't be paid back either. It's annoying but not surprising.

quote:

Originally posted by Capitalizt k. I have no idea what you did there..lol.

yeah you do (you even say mention secondary benefits in your next line). i just showed some the general concept of the secondary benefits with some really really rough guesses.

quote:

Originally posted by Capitalizt But regardless of the secondary benefits and partial recoupment the government may get by keeping them zombified, Chrysler is still basically saying "FU" to taxpayers by refusing to pay back the $7+ billion. We are taking it up the @$$ and the government is letting it happen. I think a large portion of the "loans" made to banks and other bailout companies won't be paid back either. It's annoying but not surprising.

the 'loan' was not given to chrysler with the intent for it to be paid back. if you remember, the 'loan' was only to be paid back if the company couldn't agree to restructuring terms within a specified period, which they couldn't (thus, bankruptcy).

quote:

Originally posted by jerZ07002 the 'loan' was not given to chrysler with the intent for it to be paid back. if you remember, the 'loan' was only to be paid back if the company couldn't agree to restructuring terms within a specified period, which they couldn't (thus, bankruptcy).

So either way, it should have been called a "gift" right from the start since there was never any intention to repay, bankruptcy or not

I wonder now - just for how long are they going to be giving out billions and billions in loans like they've been doing for the past few months. I dont see the end in sight. Plus, obviously the money is going down the shitter anyway. America is getting closer to bankruptcy - not just the faltering corporations.

quote:

Originally posted by Magnetonium I wonder now - just for how long are they going to be giving out billions and billions in loans like they've been doing for the past few months. I dont see the end in sight. Plus, obviously the money is going down the shitter anyway. America is getting closer to bankruptcy - not just the faltering corporations.

how close do you suppose Japan is to bankruptcy? how about Belgium, Italy, Germany, of France? Japan has a much larger national debt as a percentage of GDP (smaller percentage external), and German and France both have a national debt that is comparable with the US when evaluated as a percentage of GDP. Nevertheless, no one says that germany is going bankrupt anytime soon. Multiply Germany's population by 3.5 and their national debt would likely be 11 trillion dollars also.

BTW - the chances of a country going bankrupt when it can print currency and issues debt denominated in its own currency are so remote it's nearly impossible. A country goes bankrupt when it can't pay its debt. Well, it should be obvious that regardless of how much debt the US issues it will always be able to pay its debt, as long as it is denominated in USD, because the government can print as much money as it wants (that obviously has adverse consequences, e.g., inflation, higher interest rates, investors may eventually require the debt to be issued in another currency). So, to be more precise, when debt gets to an unmanageable level, what actually happens is the value of the currency will depreciate against other currencies and the interest rate on the debt required by investors will increase.

quote:

Originally posted by Capitalizt Lets do some math. $7 billion bailout ($7,000,000,000.00) / 30,000 employees = $233,333 per employee. I highly doubt the missing tax revenue from those lost jobs will ever approach this amount.

I think you're ignoring all of the impact that this has on non-Chrysler companies that support Chrysler (i.e. parts companies that are in jeopardy).

quote:

Originally posted by pmoisse So either way, it should have been called a "gift" right from the start since there was never any intention to repay, bankruptcy or not

Ford never got bailout money

quote:

Originally posted by Groundhog Boy Ford never got bailout money

not yet, but it's only a matter of time before more companies start groveling before the government.. We've got plenty of paper to waste, after all..

quote:

Originally posted by Groundhog Boy Ford never got bailout money

I know. I first saw this chop well before any of the bailout money was first handed out to any of the auto makers and thought it was pretty funny.

The hammer is coming down on the Canadian side...

quote:

UPDATE 2-CAW says Canada issued ultimatum on new GM pact Thu May 7, 2009 10:14pm BST * CAW says May 15 is deadline for new GM deal * Says GM bankruptcy protection likely in Canada, U.S. * Warns GM Canada plants could be liquidated if no deal (In U.S. dollars unless noted) TORONTO, May 7 (Reuters) - Canada has warned the Canadian Auto Workers that General Motors (GM.N: Quote, Profile, Research) would get no government aid and would likely liquidate its operations in the country if the union fails to make more contract concessions, the head of the CAW said on Thursday. GM, which earlier in the day reported a net loss of $6 billion in the first quarter, faces a May 15 deadline to reach a new deal with the union, CAW President Ken Lewenza said at a press conference. Senior union members met with representatives of GM and the governments of Canada and the province of Ontario on Wednesday and were told that GM Canada's costs had to come down to the same level as Toyota Canada's (7203.T: Quote, Profile, Research). "If we don't get a deal, and here's the ultimatum, the governments will provide no financial support, and GM Canada will be liquidated," Lewenza said. If an agreement is reached, GM may qualify for billions of dollars in long-term loans. Lewenza said government officials also assured the union that the company's Canadian operations would be protected if GM filed for bankruptcy protection in the United States and Canada. He said a bankruptcy filing seemed likely no matter what happened. "It was very clear that General Motors is in serious trouble," Lewenza said. Industry Minister Tony Clement was asked in Parliament on Thursday why he was putting heavy pressure on the GM workers. "What will not work is if the union heads do not want to be part of the solution," he responded. "Then the choice of the workers is to have a job that's cost-competitive or to have no job at all." GM and the CAW reached a new collective agreement in March that the automaker said would wipe nearly C$1 billion ($855 million) related to retirement costs off its books. The Canadian government later said the GM-CAW cost savings plan did not go far enough. Jim Stanford, the CAW's economist, said that the labor costs of GM Canada's active workers were already very close to the costs of Toyota Canada's active workers. But GM, which has been in operation in Canada for nearly a century, has about five retirees for every worker, while Toyota Canada, which set up shop in 1987, has almost no retirees. That means so-called "legacy costs" are far higher at GM than at Toyota, which otherwise has similar worker compensation. "It is impossible to imagine that the 5,000 or 6,000 or 7,000 GM (Canada) employees that are left at the end of this process could somehow pay -- they'd be working for free and then some -- they'd have to take money out of their own pockets to pay back to GM." GM Canada currently employs about 10,300 hourly workers but has said that number will fall substantially as planned plant closures take effect. After the GM-CAW agreement in March the union moved on to Chrysler and reached a deal near the end of April to cut costs by about C$240 million annually, or C$19 an hour, based on the number of hours Chrysler Canada employees worked last year. That helped Chrysler qualify for long-term funding in Canada and the United States, but the company was still forced to seek U.S. bankruptcy protection in order to get all of its costs in line. The governments said they would provide Chrysler with so-called debtor-in-possession financing to help it emerge from Chapter 11 protection. Chrysler has about 1.5 retirees for every active worker. Chrysler Canada spokeswoman Mary Gauthier said on Thursday the company had recently received the final C$250,000 installment of its C$1 billion in Canadian short-term loans. GM Canada also recently received some short-term funding in Canada, accepting a C$500 million of a possible C$3 billion in loans, to help it restructure in time to qualify for longer-term aid. A GM Canada spokesman could not immediately be reached for comment.

>>Source<<

Powered by: vBulletin
Copyright © 2000-2021, Jelsoft Enterprises Ltd.