Chrysler’s resurrection

On Sunday the New York Times business section featured James B. Stewart’s report on the miraculous resurrection of Chrysler courtesy of the bailout programs. The Times headlined the story “Salvation at Chrysler, in the form of Fiat.” Stewart’s attitude is along the familiar lines that in Barry all things are possible. Well, fiat lux, as they say: let there be light.

Here is the heart of Stewart’s account:

Chrysler repaid its outstanding government loans in May, six years ahead of schedule, and last week Fiat paid $500 million for the Treasury’s remaining 6 percent stake in the company. The American government has recouped $11.2 billion of its $12.5 billion investment in Chrysler, and would probably have made a profit had it held the debt to maturity. Meanwhile, Chrysler employs 56,000 people and has added 9,000 jobs since the bailout.

“This is an amazing success story,” the assistant secretary of the Treasury, Timothy Massad, told me this week. “We’ve fully exited Chrysler at a very small loss. When you look at the options we had, they were very stark: provide assistance or face the immediate liquidation of the company. That would have been disastrous in the context of the worst financial crisis since the Great Depression.”

Now the first thing we note is that Stewart takes the comments of the assistant secretary of the Treasury peddling a key Obama administration line at face value. Stewart is a Pulitzer Prize-winning reporter and author of Heart of a Soldier, among other books. Wouldn’t it behoove a serious reporter to offer a contrasting perspective or to dig a little deeper?

According to Stewart, the government lost only $1.3 billion of the money it loaned to Chrysler. What’s a billion dollars among friends?

When the Obama administration was out peddling the payback story in May, a few observers noted a funny coincidence. At the Washington Examiner, Conn Carroll noted:

The Obama administration’s bailout agreement with Fiat gave the Italian car company a “Incremental Call Option” that allows it to buy up to 16% of Chrysler stock at a reduced price. But in order to exercise the option, Fiat had to first pay back at least $3.5 billion of its loan to the Treasury Department. But Fiat was having trouble getting private banks to lend it the money. Enter Obama Energy Secretary Steven Chu who has signaled that he will approve a fuel-efficient vehicle loan to Chrysler for … wait for it … $3.5 billion.

Carroll quoted Edward Niedermeyer’s comments on “The Chrysler coincidence.” Niedermeyer noted:

Now, technically the DOE loan program is supposed to be used for specific, qualifying retooling projects, so Fiat can’t literally take the DOE money and use it to pay back the government loans. But freeing up $3.5b in capital that would otherwise be spent on retooling with low-cost loans will make it infinitely easier for Chrysler to secure the $3.5b in debt refinancing it needs. And, in light of the GAO’s pointed criticisms of the DOE loan program’s fairness and transparency, it’s hard to overlook the coincidental nature of Chrysler’s need for $3.5b and the government’s allocation of extra funds to apparently guarantee a low cost loan to Chrysler for precisely the same amount. After all, we’ve seen this movie before.

Back to Carroll:

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.

Oh, and Obama plans to make this “success” a centerpiece of his 2012 campaign.

Stewart’s article should go down as an in-kind contribution to the Obama reelection campaign.

On the Obama administration’s fun with numbers on the jobs created at GM and Chrysler, see John Berlau’s “Obama’s Chrysler Fiat — missing jobs under the hood.”

One last point. Robert Schoenberger’s article on the bailouts in the Cleveland Plain Dealer digs deeper and provides perspective that is lacking in Stewart’s glorified public relations puff piece.

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