Of late you may have noticed television ads, slogan buttons and more than a few news broadcasts celebrating Chrysler for paying back the loans from the TARP. The announcement was widely covered
But the news coverage, announcements and advertisements fail to provide the complete picture. In fact, just like with GM, the whole truth doesn’t match up to the happy faces and promotion.
The WHOLE truth is slightly off kilter for Chrysler. They did in fact pay off loans from the Government, that were tied to the “new” corporation and the TARP. But the “old” Chysler had loans with the Government, paid for out of the pockets of taxpayers. That “old” debt came to a total of $2 billion – not including interest. That money was wiped clean in the bankruptcy – poof, as if it never existed.
Of course compared to GM, the forgotten debt of “old” Chrysler is small change. GM has stood tall and shouted to the mountaintop that it paid back all the TARP loans. Which is true. Except most of the money going to GM was in the form of stock ownership. Stocks that the Government still owns, and a lot of it.
We have discussed extensively, over 6 months now, how well the investment in GM has done. The 26% stock ownership of the Government (China owns 5%, foreign investors another 9%, not to mention union ownership) has a breakeven price of $53/share. In November the IPO for the “new” GM stock was priced at $33/share. Talk of the repayment of TARP and rosey glasses predicitions stated the return could swell far beyond just breakeven. But we didn’t think so.
Today, right now, GM is at $30.76. That’s a 6.8% loss from the IPO price. It is fully 42% below the breakeven price. Even with the benefit of Japan’s auto industry being devestated by the earthquake and tsunami, the outlook is not encouraging.
GM is continuing to push the VOLT, the electric car chosen by the Government to be pushed onto consumers. A car that is built on the chasis of a $16,000 car and costs $47,000. A bit pricey considering the marketplace does not want it.
Which says nothing of the unions. Both GM and Chrysler are still beholden to the auto unions. Both are still paying enough out to unions to cause the price of every car they make to have an average increase in ticket price of approx. $1000. That’s factoring in the recession, which most unions have been protected from, at least better than the average American.
So should we praise GM and Chrysler for repaying the TARP, at least as much as they have? Yes, but let’s not get carried away. The problems in the auto industry continue to exist. The cost of cars made by these companies continues to be higher than it could be. Efforts to push Government approved vehicles is as effective as any other boost to the economy that the Obama Administration has provided so far – in other words a failure.
Most of all, don’t think that ANY of the funds repaid will affect the taxes that the average American is paying. The money is NOT going to pay off the increased national debt, instead being used as a slush fund to facilitate even more entitlement programs.
So hooray for Chrysler and GM. It’s just more of the same. In 5 – 7 years when they come back for yet another bailout, maybe this time we could make sure the compaines have a plan to fix the problems before we lend them money?
** For those that were wondering, our pick of Alcoa (AA) has handily beat the performance of GM stock. As of today Alcoa is UP at $16.23/share. Thats a profit of 25.4% over more than 6 months. We are willing to bet that given a year, or even 3, we will remain in a profit or at very least have a better return comparitively with Alcoa than GM. So much for Obama investment strategies.**