Corporate Welfare at its worst

[Merry]

http://www.theglobeandmail.com/report-o ... le2039762/
Auto bailouts won’t be repaid in full
GREG KEENAN — AUTO INDUSTRY REPORTER
From Tuesday's Globe and Mail
Taxpayers will be left on the hook for some of the $13.3-billion they provided to help bail out Chrysler Group LLC and General Motors Co. (GM-N31.290.010.03%), Finance Minister Jim Flaherty says.
“At the end of the day, there’s not going to be full recovery of the taxpayers’ investments that were made back in 2008-2009 – in the sense of cash recovery,” Mr. Flaherty said Monday.
“But what is the value of preserving an industry? What is the value of preserving 52,000 jobs in our country? You have to put a value on those, which are pretty substantial values in my view.”
He made his comments at Chrysler’s Etobicoke Casting Plant in Toronto, where a ceremony to mark the repayment by the auto maker of $1.7-billion plus interest also gave Chrysler chief executive officer Sergio Marchionne the opportunity to thank the federal and Ontario governments publicly.
The governments provided $2.9-billion in loans to Chrysler, which has now repaid $1.7-billion. Chrysler paid $238-million in interest, while the remnants of its bankrupt predecessor company paid $6-million (U.S.) in interest.
That leaves $1.2-billion (Canadian) in loans outstanding, some of which could be recouped through the sale of the governments’ 1.7-per-cent stake in the equity of the company. Analysts estimate that stake is worth about $110-million.
Discussions between the governments and Chrysler have begun on the auto maker buying out that equity.
“We will be quite willing to consider purchasing Canada’s interest,” Mr. Marchionne said, adding that there have been no talks yet about how much the holding might be worth.
“I can’t pay [Ottawa] more than I’m paying the Americans,” he said as he toured the plant, alluding to negotiations to purchase the 6 per cent of Chrysler held by the U.S. government.
The Chrysler CEO and company officials sported buttons bearing the word “Paid.”
When Mr. Flaherty noted that he would have to get one of the buttons, Canadian Auto Workers union president Ken Lewenza walked up and pinned one on his lapel.
GM received $10.8-billion. The auto maker repaid $1.5-billion of that plus $83-million in interest. The governments exchanged some of the loans for 11.7 per cent of GM”s common shares and $400-million worth of preferred shares.
Ottawa and Ontario sold about $1-billion worth of common shares in GM's initial public offering and now hold about $4.4-billion worth of common shares.
Both Mr. Flaherty and Mr. Marchionne acknowledged Monday that the decision to bail out the industry was difficult and brought heavy criticism.
“They gave us a second chance,” Mr. Marchionne said, “something that happens very rarely in life and they gave us not only the hope for our survival, but also the great opportunity to build the future.”
Doug Porter, deputy chief economist of BMO Nesbitt Burns Inc., said he supported the bailouts in 2009 and has been pleasantly surprised at how quickly the auto industry has turned around and how much of the money has been repaid.
“I believed that we were dealing with such an extreme set of circumstances in the global economy that the bailout was warranted in this specific case,” Mr. Porter said.
Replacing the government loans with new debt raised on the capital markets will cut Chrysler’s $1.2-billion (U.S.) annual interest bill by $300-million, Mr. Marchionne said.
Earlier this month, Chrysler posted its first profit since emerging from bankruptcy protection.

[Merry]

Why has the government been so quick to forgive such a large portion of these loans? Why not simply make them interest free and extend the amortization period?

How can they claim these companies are back to making a profit when so much taxpayer money is still outstanding? Simply writing the outstanding amount off is just smoke and mirrors in my opinion, designed to create the illusion of a successful business venture.

The truth is that these companies are NOT financially viable in today's world in their present form, and the government was wrong to prop them up the way they did. The money would have been better spent studying ways to make the Canadian Auto Industry more financially viable. By propping up a failing industry, the government is doomed to have to throw even more money at these companies further down the road, until they finally realize that propping up unprofitable businesses is just a big money pit.

The really frustrating part is that the managers of these companies have been picking up big fat salaries all through this process, and continue to do so.

I thought the Conservatives stood for free enterprise and the belief that government should allow the markets to decide which businesses should prosper and which should fail. But obviously that is all smoke and mirrors too.

Forgiving such a large remaining balance on these loans so quickly after the loans were made, and with no public input into the decision, is nothing short of criminal. As I said above, if the debt is too great for the companies to repay in the original time frame, they should do what us lesser individuals have to do and renegotiate the loan to make it more affordable and therefore more manageable. Why would the Government not require them to do that, instead of "throwing out the baby with the bath water" and telling them they can just keep the money?

For a Government that was elected on a platform of "fiscal responsibility" this is an outrageous example of just the opposite.

[CJT84]

If jobs are the most important thing, lets just put 30% of the work force in the army and bring back rationing. Zero unemployment, nothing to eat, mission accomplished.

[grammafreddy]

You'll get no argument from me, Merry. I did not support any bailout and I still don't.

IMO, if those companies cannot repay what they owe the taxpayers, the government should sell their shares and recoup the money (plus the cost of debt servicing) that way. It is not sound financial management to write off any debt to anyone, but then it wasn't an intelligent move to bail them out in the first place.

It's not just about the original bailout amount. The country did not have the money to give them - it had to borrow it. There are debt-servicing costs to the taxpayers for that. So it is all original debt plus interest they are now writing off. The taxpayers still have to pay off that debt plus interest the government got us into - nobody is forgiving it for us.

[grumpydigger]

In the eyes of the government these businesses are just too big to fail And must be kept afloat at any cost.

In a true capitalist system these companies would disappear, And others That offered More viable products would reappear.

It's the same as if In the early 1900s the government stepped in To keep the buggy whip companies afloat Because their product was no longer Needed because people switched over to the automobile.

The Management that get this money live like kings and give themselves huge bonuses to reward themselves ....meanwhile the people with disabilities and mental illness are forgotten about and forced to live on the streets

[Captain Awesome]

I don't get it.

If they haven't repaid the loans and interest fully, why are they all wearing "Paid!" buttons?

[grammafreddy]

[sooperphreek]

looks like the guy beside our brilliant finance minister is pondering why the badge says paid as well. LOL