History repeated as Chrysler makes a big comeback

Article by Christian A., on May 29, 2011

Chrysler’s repayment of $7.6 billion in loans to the governments of the United States and Canada gives an extra boost to the administration of US President Barack Obama who lists the bailouts as a successful domestic policy.

Using private money, Chrysler was able to fully repay the loan six years before they were due. This isn’t the first time that Chrysler was able to pull off such a feat. In 1983, Chrysler was recovering from having entered a virtual bankruptcy three years earlier.

But on that year, it repaid $1.2 billion in government-guaranteed loans seven years before they were due. It is uncertain whether taxpayers in the U.S. and Canada would be able to recover their full investment since it can’t be predicted what the value of their stock in Chrysler would be.

If the Obama administration had not insisted on bailing out the automakers, the situation would have been much worse. In addition, the auto bailout may serve as a template for handling the budget deficit and entitlement reform.

It should be noted though that with the government’s decision to rescue Chrysler and GM, the sacrifices were shared by the employees, managers, dealers, bondholders, shareholders, and taxpayers. It was not completely voluntary but apparently, it was an effective plan. Now, the question is if what took place in 1983 will be repeated.

Several months after the loans were repaid in 1983, Chrysler launched its innovative new minivan, which was such an amazing vehicle that even Car and Driver magazine made a recommendation to purchase the carmaker’s stock.

On March 30, 2009, US President Barack Obama issued a US Government guarantee of the carmaker warranty liabilities. He also publicly stated the US Government would back the warranties on Chrysler vehicles if the carmaker goes out of business.

On April 30, 2009, Chrysler filed for bankruptcy protection under the Chapter 11 of the United States Bankruptcy Code. The Chapter 11 bankruptcy protection allowed the carmaker to operate as a going concern. It also allowed Chrysler to renegotiate its debt structure and other obligations.

On May 31, 2009, a bankruptcy judge green-lighted a proposed government restructuring plan and sale of Chrysler's assets. As part of the plan, a new company would purchase most of the assets of Chrysler LLC. The new company –Chrysler Group LLC -- completed the purchase of these assets on June 10, 2009, allowing Chrysler to emerge from bankruptcy.

Fiat initially owned 20 percent of the US carmaker, with a large chunk held by retiree medical benefits trust of the United Automobile Workers (UAW) union, known as the Voluntary Employee Beneficiary Association (VEBA). The US and Canadian governments initially held minority stakes of 8 percent and 2 percent, respectively, of the new Chrysler.

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