According to Steve Rattner, Chrysler was such a sick puppy in the immediate pre-bailout period that it would have only generated about $1b had it been liquidated in bankruptcy. Thanks to around $14b in government assistance, however, Chrysler is now worth a whopping $4.8b according to a Reuters analysis of its filings. But wait, you say, how does Chrysler have a valuation if it hasn’t yet launched an IPO?
Chrysler arrived at the valuation to set pay for its top executives, including Marchionne. Senior executives are paid partly through so-called deferred phantom shares, which will convert to shares in the company at a later date.
In June 2009, each share was worth $1.66, according to the filing. By the end of 2010, the value of each share was $7.95.
But does this valuation actually mean anything?
In the February 25 filing, Chrysler said it arrived at the $7.95 figure through an “income approach.” Chrysler spokeswoman Eileen Wunderlich declined to expand beyond the filing.
So, technically Chrysler still hasn’t actually made nearly $10b go up in a puff of turnaround (and who’s counting the wealth destroyed in bankruptcy?). But since Fiat will probably buy up a controlling stake in Chrysler before an IPO, synergies could help the market bump Chrysler’s value up to a less galling figure. One analyst projects a $7b-$8b valuation, saying it could go even higher “if the market for cars takes off.” Unfortunately, given that gas prices are more likely to go up than are car sales and that Chrysler has the worst fleet fuel economy of any automaker, hoping for more than a $5b Chrysler valuation could be overly optimistic as well. In any case, Chrysler is not likely to be worth the amount of money the US put into it, a feat that, with a $51b current market valuation, GM has basically achieved (if only for the moment).
Remind me again why our children will be paying this money back someday?
Boycott useless tax spending. Stop paying your taxes.
Seriously though, who’s pulling the strings on tis stuff?
Actually, your children’s great, great grandchildren will be paying this money back (if America still exists 200 years from now).
And to answer your question, your children will be paying it back because some corporate scumbags decided to create ricky loans and investments so they could get their money up front and ended up tearing down the global FIAT money system.
Your offspring will be paying this back because some corporate scum decided to outsource American jobs and money to China. While they build their military, middle class and maglev trains, America’s streets crumble.
To make a long story short, your children’s futures have been undermined by corporate scum. My solution: DON’T HAVE ANY CHILDREN.
As their new products finally land on our shores, Fiat/Chrysler will repay what was LOANED to them. What’s done is done.
Be pissed about the Wall Street giveaway, DAMN that did nothing to improve employment figures.
The loans to the American auto industry helped keep the US out of a depression. The recession that we are still in would be much worse without those loans.
“FNMA/FHLMC scumbags decided to create ricky loans and investments”
Fixed that for ya.
So pre-bailout, it was:
$1B Chrysler
$14B cash
Not we have:
$0 Cash
$4B Chrysler
If the US Government was going to flush $10 BILLION down the toilet, they’d have done better to simply pull the plug on Chryco and give Ford and GM $5B each, gratis.
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The goal was to flush money down the toilet. Just very specific, well connected (UAW) toilets. As time passes others are learning to get money flushed their way too (investment bankers doing IPO’s for GM and Chrysler, bankruptcy attorneys).
…and we get to pay for it.
IMO, most of this is not news.
Even private companies need to determine their valuation (market cap), for tax and accounting purposes, especially if they are planning an IPO! The compensation of many company execs includes deferred stock options. As was pointed-out in the article, the pricing of options is based on the company’s valuation at the time the options are granted.
It’s not hard to imagine that the metrics used to determine the valuation of a private company will often result in a lower figure than the company’s market cap if their stocks were floated on the market. This may inadvertently result in a windfall for optionholders when the company later goes public.
That is not to say that the government’s “investment” in Chrysler was a wise financial decision.
and how many does Chrysler employ? how many of them pay taxes instead of collect welfare?
The anger is understandable, but instead of directing it at the government that was served the crap sandwich, I choose to direct it at the B-school graduates without a lick of automotive acumen that ran the company into the ground. Everyone is so willing to go after the government before blaming the root cause.
It’s entirely possible that those Cry-sler workers would have found other employment, they certainly had enough heads up the end was coming and very generous severance packages to boot. Divide 14 billion dollars by the number of taxpaying workers and you’ll see we would have been better off paying the workers to move on.
In any event, we the taxpayers should not be on the hook for a company no matter how many workers they have. The too big to fail mentality applies here. letting them go down would have sent a message that there are consequences, not bailouts, for failure.
Have you ever lost your job to outsourcing? Have you ever taken a 30% pay cut? What would that do to your lifestyle? Think about 10,000 families dealing with that situation.
Think about 50 million families losing their standard of living because idiots vote for Santa Claus and reality is that you can’t give away what you don’t produce.
There’s a train of thought that it’s possible these folks would get other jobs. Yes it’s possible. Probable is something entirely different. I lived through the destruction of the domestic steel industry, and when the whole industry evaporates, what happens next? In our case, the best and brightest people leave town and take their wealth with them, and the area goes to hell. No capital to invest in other jobs. No capital to do anything with. Lots and lots of people on welfare, and yeah, that doesn’t cost the taxpayer anything…
Possible? Sure. Probable? You tell me. I lived through it. I wouldn’t wish it on my worst enemy.
From a political stand point. Could the government have bailed out GM, and not Chrysler?
From a political standpoint? Likely not. Now I haven’t read the books about the bailout myself but apparently at one point in the process Obama and his advisors considered combining the two companies but decided against it.
Honestly I’m not convinced that wouldn’t have been the better option. Save the Chrysler LX platform, save the Chrysler minivans, and toss the rest. (Well I don’t know about the two truck lines, perhaps they could have been saved, but only if GMC was killed.) How bout Chrysler (RWD only – 300 n Challenger), Buick, Dodge Truck dealers and Chevrolet/Cadillac dealers?
Hey I’m just brainstorming here, YMMV.
I am bit biased, as I actually live in SE Michigan. Friends and family work for Chrysler. It’s loss would have been devestating for this area.
But, there is no logical reason for Chrysler. None. They could have given every employee a million dollars, and liquidated. Someone would have bought Jeep, Ram, and the Mini-Vans. It would have been cheaper.
And with oil prices surging once again, it will be summer 2008 all over. The demand for Jeeps and Rams will collapse. Again. If oil prices stay high all summer, they may not make til September. And the American people will not tolerate another bailout. And the Italian government must be getting tired of propping up Fiat too.
“They could have given every employee a million dollars”
Your income tax is several orders of magnitude smaller and they won’t let you keep that…
@ Educator {of teachers} Dan…..A GM Chrysler merge was tossed around, before President Bush wrote the first check.
Thanks for a short lesson gentlemen. (Mikey above and Zachman bellow.)
Credit to GM Management for passing on that “offer”…
As I recall, in late 2008, GM wanted Chrysler only for the 12 billion-or-so in cash on hand they possessed as they circled the drain together. If GM got Chrysler, only Jeep would still be around, I’m sure. I think Chrysler may be on the way out, anyway – the entire industry is moving toward badge-engineered platforms due to the fact that auto development from the ground up is just too expensive. It will be like the 1975 movie “Rollerball” where maybe a handful of companies are responsible for all material goods as well as providing the energy to use them.
(EDIT): Man, I am getting old – first Educator Dan beats me to the punch all the time, now mikey is ganging up on me too! Oh, well, I accept my fate!
i would imagine there would be $10bn+ in associated social, retail and legal costs to closing down Chrysler… and then what?
you’re left with zero
at least with the Italians there’s some hope
Where’s Lee Iacocca when you need him? At least MoPar paid back that first govt. bailout back in 1983.
What does that valuation make Muammar Gaddafi’s shares worth?
http://www.nytimes.com/2011/03/05/world/europe/05italy.html
Something is off with that picture….It seems as though Chrysler is making people and not cars.
Now I actually read Rattners book. Whatever money was invested in Chrysler was less than the estimated price tag on a full scale liquidation. Shutting down a car manufacturer isn’t as easy as taking your dead Tercel to the junkyard – Every debtor is going to sue the “estate” for what’s owed, the state unemployment funds are going to start running out real quick when you have massive layoffs like that, then the ripple effect will spread to the suppliers which sell products to all the manufacturers.
The Treasury task force did consider merging GM and Chrysler in order to give GM a better chance of survival. Chrysler seems to be doing allright, Sergio really went to work on their issues and started implementing improvements while saving money at the same time. Sales figures haven’t been stellar for them, but that probably has more to do with their new position of not shoveling piles of cash on the hood and staying away from excessive fleet sales.
Hey, it’s a “Free market” economy. The big guys F it all up and you pay for it. It worked for wall street. I know, Lets deregulate everything !