October 23rd, 2009 by Bill Cawthon
Chrysler Group’s deputy CEO, Jim Press, may have already received his last Chrysler paycheck. According to Kenneth Feinberg, the U.S. Treasury’s special master for executive compensation, payments already made to a senior Chrysler executive exceed the allowable maximum for companies that have received government bailouts.
Feinberg did not name specific executives, simply saying that three senior executives were leaving Chrysler before the end of the year. He also ordered the payroll stop for just one of the outgoing execs, saying the other two are still under the new limit. However, Press is one of three top executives leaving the company and he has the largest cash compensation package at $2.6 million.
Other Chrysler Group top brass will see their paychecks cut about 25 percent. Feinberg says maximum cash compensation should not exceed $500,00 a year and has placed strict conditions on the awarding of options and grants.
Chrysler CEO Sergio Marchionne will not see a cut in his compensation since he took no money from Chrysler and his salary as CEO of Fiat SpA is not subject to U.S. government review.
October 21st, 2009 by Bill Cawthon
Top executives at Chrysler Group will soon see a major cut in their paychecks. As soon as today, the U.S. Treasury plans to announce new limitations on executive pay packages at companies that received the most government assistance under the Troubled Asset Relief Program (TARP). In addition to Chrysler, affected companies include General Motors, American International Group (AIG), Bank of America and Citigroup.
Kenneth Feinberg, special master at the Treasury, has been studying executive pay at the companies and, according to sources, plans to cut pay for the top 25 executives at each firm by about 50 percent. One insider told the Associated Press that no executive at AIG will receive more than $200,000.
It is unclear at this time whether Chrysler CEO Sergio Marchionne and some of the executives he brought from Fiat will be affected by the new measures. Marchionne is currently being paid by Fiat SpA which is not part of the government program.
September 13th, 2009 by Bill Cawthon
Chrysler Group will be publicly unveiling its new luxury expense policy later today. The plan was approved in July and was posted on an internal company website. It has also been turned over to the Treasury Department.
In June, the Treasury Department imposed new restrictions on firms that received government loans under the $700 billion Troubled Asset Relief Program. The requirement came after Congress demanded that companies that had been recipients of the federal bailout “must adopt and disclose a written policy addressing four categories of “excessive or luxury expenditures.” The four categories are entertainment or other events, office and facility renovations, aviation or other transportation services and other similar items, activities or events.
While much of the public uproar over actual perceived wasteful spending on perks came during the early days of the Obama administration when the CEOs of the Detroit automakers admitted they had flown to Washington on corporate jets to ask for money, the real excesses began during the Bush Administration when banks and Wall Street firms received billions in taxpayer loans with virtually no strings attached. The financial firms continued to spend lavishly on perks and bonuses and, in spite of the opprobrium heaped on auto companies, Citigroup was still planning to take delivery of a $50 million corporate jet until public criticism influenced the company to change its plans.
According to spokesman Max Gates, Chrysler, which has received about $15 billion in taxpayer loans, “has complied with the expense policy requirements outlined by U.S. Treasury.”
July 28th, 2009 by Bill Cawthon
Yesterday, Jan Bertsch, Chrysler Group’s Senior Vice President and Treasurer, made the following statement before the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) Field Hearing on the Automotive Industry Financing Program:
Members of the Panel, thank you for giving me the opportunity to discuss with you the financial assistance provided to the domestic auto industry, specifically to Chrysler LLC and to Chrysler Group LLC, under the Automotive Industry Finance Program (AIFP) component of the Troubled Asset Relief Program (TARP). My name is Jan Bertsch, and I am Senior Vice President and Treasurer of Chrysler Group LLC, a new company that purchased the principal operating assets of Chrysler LLC on June 10, 2009 in a sale authorized by the United States Bankruptcy Court of the Southern District of New York.
I would like to place my comments in context for the Panel by describing the series of events that culminated in the United States Department of the Treasury providing a secured loan to Chrysler Group LLC of approximately $7 billion on June 10, 2009 in connection with the closing of that sale.
Chrysler LLC (now, Old Carco LLC)
In the fall of 2008, the global credit crisis hit the domestic auto industry with full force. In effect, the credit markets stopped functioning normally and the availability of loans to both dealers and consumers became severely restricted. On December 2, 2008, Chrysler LLC (now known as “Old Carco LLC”) submitted a viability plan to Congress as part of its request for a $7 billion working capital bridge loan from the U.S. government. At that time, Old Carco indicated in its Congressional testimony that the availability of credit to automotive consumers and dealers was the single most important element of its viability.
On January 2, 2009, Old Carco received a $4 billion bridge loan from the United States Department of the Treasury. The terms of the loan required the company to submit a restructuring plan to achieve and sustain long-term viability, international competitiveness and energy efficiency. Old Carco submitted its restructuring plan on February 17, 2009 in the midst of continued credit market turmoil that had resulted in rejection of consumer loan applications and lost sales to dealers, which in turn led to reduced wholesale orders for vehicles and further vehicle production cuts. This chain of events had created a rapidly declining seasonally adjusted annual selling rate (SAAR) trend which directly and immediately reduced cash inflow in a manner that could not be addressed adequately through even the most aggressive restructuring actions. These market conditions led directly to a dramatic industry-wide decline in automotive sales.
Old Carco noted in its restructuring plan that although it believed that it could achieve viability on a standalone basis, it had signed a non-binding letter of intent for a strategic alliance with Fiat S.p.A. in January 2009, which alliance would greatly improve its long-term viability. The alliance was conditioned upon Old Carco meeting all restructuring targets set forth in its U.S. Treasury loan agreement, including achieving concessions from its key constituents (unions, lenders, dealers, suppliers and owners). The restructuring plan also noted that the alternative to either a standalone plan or a strategic alliance was liquidation, which at a minimum would result in tens of thousands of jobs lost at the company and its dealers across the country. The entire domestic auto industry was also at risk of collapsing, due to the already weak economy and the dependence of OEMs on common suppliers, which collapse would have burdened the country with enormous social and economic costs.
The President’s Auto Task Force (the “Task Force”), which was formed on February 20, 2009, participated in discussions with Old Carco, its advisors and key stakeholders – in particular with the UAW, the agent banks for the secured lenders, its majority owner, Cerberus, as well as with Fiat. Those discussions focused on achieving the concessions necessary for the long term viability of the company, consistent with the restructuring targets set forth in the UST loan agreement. On March 30, 2009, the Task Force concluded that Old Carco’s plan would not likely lead to viability on a standalone basis and that it needed a partner to be successful in the global automotive industry. It noted, however, that an alliance with Fiat could be the basis of a path to viability in that Fiat was prepared to transfer valuable technology to Old Carco and, after extensive consultation with the Obama Administration, had committed to building new fuel efficient cars and engines in U.S. factories. The Administration indicated that it would provide Old Carco with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of stakeholders, and, if successful, would provide a secured loan to fund the restructuring plan in order to help the alliance succeed as outlined in a revised term sheet between Old Carco and Fiat dated as of March 29, 2009.
Over the next 30 days the parties continued to work around the clock to avoid bankruptcy by securing stakeholder concessions and reaching agreement on the terms of a strategic alliance that would enable the company to preserve U.S. jobs , develop more fuel efficient vehicles and expand its sales in international markets. Since concessions by all key stakeholders could not be assured, the Task Force, Old Carco, the UAW, the VEBA, Cerberus and Fiat, and their respective legal and financial advisors also considered a bankruptcy alternative, what the lawyers refer to as a “363 sale” under the Bankruptcy Code.
Unfortunately, Old Carco’s secured lenders under its First Lien Credit Agreement did not agree to provide the requested concessions and Old Carco filed for bankruptcy on April 30, 2009. Fortunately, however, concessions were achieved with other key stakeholders that enabled Old Carco, Fiat, and Chrysler Group LLC (a newly formed subsidiary of Fiat) to enter into a Master Transaction Agreement dated as of April 30, 2009 (the “MTA”). The MTA called for Old Carco to transfer substantially all of its operating assets to Chrysler Group, for Chrysler Group to assume certain liabilities and pay Old Carco $2 billion in cash, and for Fiat to contribute to Chrysler Group access to competitive fuel-efficient vehicle platforms, certain technology, distribution capabilities in key growth markets and substantial cost saving opportunities. The MTA was conditioned upon, among other things, Bankruptcy Court approval, the U.S. Treasury providing a $7 billion credit facility, and GMAC providing financing to dealers and consumers. Those conditions were ultimately satisfied and the transaction closed on June 10, 2009.
The Panel has asked about the role of the U.S. Treasury and the Task Force in the process leading to the successful closing of the sale transaction. Throughout this process, members of the Task Force and personnel from U.S. Treasury and their external legal and financial advisors played a key role in facilitating negotiations between all parties, primarily, Old Carco, Fiat, the UAW, the CAW, and the VEBA, Cerberus and Daimler AG (as owners and second lien lenders), and the first lien lenders. It is my view that U.S. Treasury and the Task Force’s limited and targeted expenditure of taxpayer dollars in connection with Old Carco and Chrysler Group avoided a significant, and potentially more costly, disruption to the U.S. automotive industry and the U.S. economy. This limited and targeted approach is reflected not only in the structure and size of the bridge loan to Old Carco and the so-called “exit financing” provided to Chrysler Group, but also in the programs sponsored by U.S. Treasury for the benefit of automotive suppliers (receivables factoring program) and for the benefit of consumers (warranty protection program) earlier this year.
Chrysler Group LLC (formerly, New CarCo Acquisition LLC)
The Panel has also asked about the role of the U.S. Government as shareholder (or “Member” in limited liability company jargon) in Chrysler Group LLC. That role is established by the corporate governance provisions of Chrysler Group LLC’s Limited Liability Company Operating Agreement. The LLC Operating Agreement provides the Members with certain rights, including the right to designate individuals to serve on a nine member Board of Directors. A majority of the Board must be “independent” under NYSE rules. Fiat designates three Directors (one of whom must be independent), Canada designates one independent Director, VEBA designates one Director, and the U.S. Treasury designates three Directors (at least two of whom must be independent) who then designate a fourth independent Director. The Chairman is elected by the Board. The members of the Board have been designated and, as a matter of fact, are meeting this week in an extended session.
Each Director is entitled to one vote with respect to matters brought before the Board. Major Decisions require a majority vote of the Board, including at least one Fiat Director. Major Decisions include, among other things: a Chrysler Group IPO; a merger, business combination, consolidation, reorganization or transaction constituting a change of control; a sale, transfer or other disposition of a substantial portion of the assets of Chrysler Chrysler Group and its subsidiaries, taken as a whole; the opening or reopening of a major production facility; and a capital expenditure, investment or commitment in excess of $250 million.
In addition, certain actions require the affirmative vote of a majority of outstanding Membership Interests, such as repurchasing any Membership Interest from a Member; authorizing any new class of Membership Interests; increasing the size of any Class of Membership Interests or issuing any new Membership Interests, other than as authorized under the LLC Operating Agreement; and changing Chrysler’s independent auditors or materially change Chrysler’s accounting policies.
Further, Chrysler Group is subject to extensive financial information reporting obligations to its Members, which will allow the U.S. Treasury to monitor the development, implementation, and modification of the company’s business plan, its monthly performance against annual budget and financial projections for the remainder of the year, and its overall results of operations and financial condition on a quarterly and annual basis.
Finally, it is worth noting that both the company’s LLC Operating Agreement and its First Lien Credit Agreement with the U.S. Treasury are geared toward measurable performance that will benefit the U.S. economy and therefore the U.S. taxpayer. For example, under the LLC Operating Agreement, Fiat can increase its ownership interest from 20% to 35% (by 5% increments for an aggregate increase of 15%) by achieving specified performance goals relating to technology, ecology and distribution designed to promote improved fuel efficiency, revenue growth from foreign sales, and U.S. based production. In addition, the First Lien Credit Agreement with U.S. Treasury requires that at least 40% of the company’s sales volumes each year be manufactured in the United States and that the production volume of its U.S. manufacturing plants each year be equal to at least 90% of the production volume of Old Carco’s plants in 2008.
With a significantly reduced cost structure and improved access to fuel efficient technology and international distribution channels, Chrysler Group will be in position to make good on the public’s investment as the economy begins to recover and financing becomes available to dealers and consumers.
Thank you for the invitation to appear before you today. I look forward to your questions.
Source: The Scoop.
July 6th, 2009 by DaveAdmin
Tennessee politicians, led by Senators Lamar Alexander and Bob Corker have complained that General Motors used inappropriate measures to locate an existing factory in Orion, Michigan, to build a new small car, rather than using Spring Hill, Tennessee.
Bob Corker became well known in automotive circles when he repeatedly criticized General Motors, Chrysler, and Ford, insisting they made cars nobody wanted (GM’s market share was around 20% in 2008), and could not run factories well (except, Corker later amended, for the Tennessee factory). Corker opposed any Federal loans or other aid to the domestic automakers, which provide competition to the Japanese and European automakers who produce cars largely in the Southeastern United States.
The Orion plant is close to GM’s headquarters, and to many UAW employees whose home factories are closing, providing GM with a large reserve of experienced labor. GM cited community impact and carbon footprint as being part of the reason for choosing Orion.
The Republicans complained that neither issue was appropriate for a business decision.
Orion has a 12% unemployment rate, similar to that of Janesville, Wisconsin, another candidate. Spring Hill, while it has a newer paint shop (which might not be appropriate for the new cars), did not have the same ready access to experienced workers.
GM said politics had no place in the decision. Salaries would be the same in each plant, and Michigan offered $779 million in tax credits over 20 years; $130 million in federal funds and $102 million in local incentives were also provided, sweetening the deal. Management of the plant will be less costly with executives being able to reach it by car rather than by plane.
GM had originally intended to import compact cars from China, but Congress and the White House demanded that GM build them within North America. GM sought and received over $50 billion in loans and assistance.
The Orion plant should be producing new cars in calendar-year 2011, using 1,400 workers with base pay of $14-$16 per hour. GM has assumed that gas prices would rise as the economy gets back into gear.
July 6th, 2009 by Bill Cawthon
Saying it would “prevent the death of the patient on the operating table,” Judge Robert Gerber of the U.S bankruptcy court in Manhattan approved the 363 sale of key General Motors assets to NGMCO, Inc., allowing a new, smaller, and government-owned GM to exit Chapter 11, just days ahead of an Administration-imposed deadline. Gerber also issued a four-day stay of the order approving the sale to allow for appeals. While such actions are common, a ten day stay is more typical, but that would have pushed the effective date beyond the July 10 funding cutoff date. Under Gerber’s timeline, the sale could close as early as Thursday.
Reuters reported that Judge Gerber overruled objections from creditors, consumer groups and terminated GM dealers, saying the timely sale was the only alternative to liquidation. In his 95-page opinion, Gerber wrote, “If GM liquidates, there will not only be nothing for stockholders; there will be nothing for unsecured creditors.”
The “New GM” will exit bankruptcy with $60 billion in financing and just four brands: Buick, Cadillac, Chevrolet and GMC. Hummer, Saab and Saturn, which will likely be sold, and Pontiac, which will simply disappear, the new General Motors will also leave behind billions of dollars in debt along with unwanted facilities and assets that will be auctioned off in the Chapter 11 proceedings to satisfy the claims of bondholders and creditors. In keep with its station, the “Old GM” will change its name to “Motors Liquidation Company.”
The new General Motors will also leave behind decades as the world’s largest automaker and the No. 1 automaker in the United States. Industry experts expect the new, slimmed-down GM will jockey for position with Ford and Toyota.
June 26th, 2009 by Bill Cawthon
As many as 90 Chrysler dealers who survived the recent purge are now confronting another challenge: GMAC is cutting off their financing.
GMAC, which replaced Chrysler Financial as dealers’ primary source of funding, has received applications from roughly 60 percent of the remaining Chrysler dealers and has rejected about six percent of them. The rejected dealers have 30 days to appeal.
The lender said tightened credit standards are the result of government concerns about past lending decisions in the mortgage market. When all the deals are done, the U.S. Treasury will own 35.4 percent of GMAC. Cerberus Capital Management, which once owned a majority of GMAC, now owns 22 percent.
Just in time for these dealers and others having difficulty obtaining financing, the Small Business Administration has relaxed its size limits for loans and is offering a Dealer Floorplan Program (DFP). Under the DFP, the SBA will offer dealers guarantees for lines of credit up to $2 million through its 7(a) loan program. The DFP pilot program will begin July 1 and will run through September 30, 2010, when the SBA will make a decision on extending the program.
For more information about the Dealer Floorplan Program, visit the Small Business Administration website.
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