Bail Out Assistance for Chrysler Delayed
June 11th, 2009 | by admin |
Matthew C. Keegan asked:
Just before Christmas, the federal government announced that a $13.4 billion bail out package for the U.S. Auto industry had been approved. That package would allow General Motors and Chrysler to receive federal funding, monies which would keep the two automakers in business for at least the next few months.
Almost immediately, the federal government provided money for General Motors while also letting the feds purchase $5 billion worth of GMAC preferred stock, funds which in effect made the U.S. Government part owner of the automaker’s financing arm. Curiously, Chrysler hasn’t received a single penny yet, making some people wonder if the automaker would, indeed, receive money.
In a bid to quell rumors surrounding the lack of funding from the federal government, Chrysler LLC issued a statement recently to explain what was happening:
“We recognize the magnitude of the effort by the Treasury Department to complete these multiple financial arrangements quickly and sequentially. The discussions relating to Chrysler LLC have been positive and productive, and we look forward to finalizing the details of our financial assistance in the immediate future.”
Perhaps one of the sticking points with the Chrysler money is just how the automaker would cede shares to the federal government given that Daimler AG, which owns 19.9% of Chrysler to Cerberus Capital Management LP’s 80.1% stake. Last summer, Daimler wrote down its value in Chrysler to zero, suggesting that the automaker was worthless. Therefore, if the federal government is offering to lend Chrysler $4 billion, then exactly how much preferred stock would Chrysler be forced to provide?
Clearly, any sort of transaction could make the federal government the majority owner, given the depressed value of the automaker.
More than likely some funds will be made available in the next week or so as Chrysler teeters on the verge of insolvency. Yet, it is interesting to see that valuating Chrysler could be the sticking point in the loan as federal bureaucrats attempt to figure out some sort of value for the trouble car company.
Julia
Just before Christmas, the federal government announced that a $13.4 billion bail out package for the U.S. Auto industry had been approved. That package would allow General Motors and Chrysler to receive federal funding, monies which would keep the two automakers in business for at least the next few months.
Almost immediately, the federal government provided money for General Motors while also letting the feds purchase $5 billion worth of GMAC preferred stock, funds which in effect made the U.S. Government part owner of the automaker’s financing arm. Curiously, Chrysler hasn’t received a single penny yet, making some people wonder if the automaker would, indeed, receive money.
In a bid to quell rumors surrounding the lack of funding from the federal government, Chrysler LLC issued a statement recently to explain what was happening:
“We recognize the magnitude of the effort by the Treasury Department to complete these multiple financial arrangements quickly and sequentially. The discussions relating to Chrysler LLC have been positive and productive, and we look forward to finalizing the details of our financial assistance in the immediate future.”
Perhaps one of the sticking points with the Chrysler money is just how the automaker would cede shares to the federal government given that Daimler AG, which owns 19.9% of Chrysler to Cerberus Capital Management LP’s 80.1% stake. Last summer, Daimler wrote down its value in Chrysler to zero, suggesting that the automaker was worthless. Therefore, if the federal government is offering to lend Chrysler $4 billion, then exactly how much preferred stock would Chrysler be forced to provide?
Clearly, any sort of transaction could make the federal government the majority owner, given the depressed value of the automaker.
More than likely some funds will be made available in the next week or so as Chrysler teeters on the verge of insolvency. Yet, it is interesting to see that valuating Chrysler could be the sticking point in the loan as federal bureaucrats attempt to figure out some sort of value for the trouble car company.
Julia
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