The refinancing would allow Chrysler to repay $5 billion that it still owes the U.S. government and $1.6 billion that is owed to Canada, money the governments loaned the automaker to keep it alive and get it through a 2009 bankruptcy filing. Chrysler has been trying for months to refinance the loans, which have high interest rates and cost the company $1.2 billion in interest payments last year.
Marchionne, who also runs Italy's Fiat SpA, said last week that Fiat will spend $1.3 billion to raise its ownership stake in Auburn Hills, Mich.-based Chrysler. But to do that, the company must first repay the government loans.
The U.S. government owns 8.6 percent of the company, a United Auto Workers health care trust fund owns 59 percent and the Canadian government holds 2 percent. The governments got their stakes after handing Chrysler a total of $9.4 billion in bailout loans. All owners could get more money back when the stock is sold.
Chrysler lost $652 million in 2010, but that represented a huge improvement over its staggering $8 billion loss the year before. Marchionne said he expects to report net income of $200 million to $500 million this year.
This sort of deal not only wreakes of political agenda but also shows the ineptness of government officials to appropriately allocate capital. While the government will say something to the effect of "well, we made money, and saved the economy in doing so." I say "Bullshit!"
If the federal government had thrown darts at common stocks around the time that they invested in Chrysler, they would have made more money. Additionally, due to how our bankruptcy laws are (as are highlighted in this book), the economy would not have crumbled in the event of an implosion of a few defunct car companies.