After weeks of speculation, the inevitable happened: Fiat S.p.A. quietly became the majority owner of the Chrysler Group following the purchase of shares previously owned by both the U.S. and Canadian governments.
Fiat’s upper hand came after it purchased the stakes held by both the U.S. Treasury Department and the Canadian government. A $625 million payment not only secured the U.S.’ six-percent share, but also the 1.5-percent stake held by Canada. An additional $75 million payment ($15 million of which is paid to Canada) also gives Fiat the right to ultimately purchase the 41.5-percent stake held by the United Auto Workers’ VEBA retiree health trust. If it does so, it will own the automaker outright.
“With today’s closing, the U.S. government has exited its investment in Chrysler at least six years earlier than expected,” said Timothy Massad, the acting assistant secretary for financial stability, said in a prepared release.
The U.S. Government had loaned some $12.5 billion to both “Old Chrysler” and the current Chrysler Group. Roughly $11.2 billion has been returned thus far, although there’s still some $1.3 billion owed by the bankrupt Old Chrysler. According to a release issued by the U.S. Treasury department, the government is “unlikely to fully recover the difference.”
The government’s early exit from Chrysler — along with Fiat’s recent moves to shift financing to loans with more favorable interest terms — may help the automaker’s balance books, but some suggest it could have cost the government money. That $1.3 billion isn’t owed by Chrysler itself, but had Treasury continued to collect interest on its loans to the Chrysler Group over the next 72 months or so, that loss could have been partially mitigated.
Still, Treasury officials seem adamant the loss is the lesser of two evils. “This is a major accomplishment,” said Massad, “and further evidence of the success of the administration’s actions to assist the U.S. auto industry, which helped save a million jobs during the worst economic crisis since the Great Depression.”
Pundits will continue to argue, but CNN Money notes Treasury’s overall loss on the bailout loans to Chrysler and GM are falling far short of original expectations. In 2008, the red ink was expected to total $40 billion; that figure has since shrunk to an estimated $14 billion.