Chrysler Financial Accused Of Turning Down Government Loan To Avoid Executive Bonus Restrictions
The Washington Post has just published a story accusing executives at Chrysler Financial of turning down a $750 million government loan because they "didn't want to abide by new federal limits on pay," and instead opted for more expensive private sector financing, "adding to the burdens of the already fragile automaker and its financing company." Chrysler Financial denies the charge.
Update: Just to clarify a couple of points: Chrysler Financial and Chrysler are different companies, although both are primarily owned by the same private equity firm. Also, Chrysler Financial accepted a $1.5 billion loan earlier this year, making it a bit harder to explain away the most recent refusal as taking a principled stand against bailout money.
The Treasury Department previously had loaned Chrysler Financial $1.5 billion, when less stringent requirements on executive compensation were in place for recipients of federal bailout money. Since that first loan was announced on January 16, the Obama administration and Congress have toughened the rules.
[...]
During March, when it seemed that the first loan would run out, the Obama administration began working on a deal to lend the company another $750 million.
Quickly, most of the agreement fell into place. But on April 7, Treasury asked Chrysler Financial to have its top 25 executives sign waivers regarding their compensation, sources said.
Those waivers would have barred the executives from suing the Treasury or Chrysler Financial over new pay restrictions. As part of the economic stimulus package, Congress approved new executive compensation limits, and the Treasury is currently working on clarifying what the firms must do to comply with these rules.
Within a week, the company responded that some of the executives had refused to give their approval. By last week, Treasury had rescinded the loan offer, the sources said.
"Sources: Chrysler Financial Refused Government Loan Over Limits on Executive Pay" [Washington Post]
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Comments:
Accused? Chrysler denies the charge?
"Take the money and play by our rules or you will be maligned by the populist press in an accusatory tone!"
Pretty ridiculous that they are being vilified for turning down a loan riddled with restrictions, including some that make it hard to pay back until the government wants it back. I agree that they have every right to get money from wherever they want, even if it's more expensive. Chrysler is a private company, so they have no shareholders to answer to. More power to them for telling the government and their arbitrary pay limits to go to hell.
I'm fairly liberal, and I don't see why this is a problem. They don't have to take money from the government.
I wouldn't want to be subject to the bait and switch whims of the current government either.
@Canino: "Take the money and play by our rules* or you will be maligned by the populist press in an accusatory tone!"
* - "Rules that are currently undefined and will be determined and enforced at a later date as our political needs dictate".
If a company is free to argue that they are 'too big to fail', then popular opinion is free to judge and comment on their professional actions. The auto industry started this conversation, the US public is mearly participating. It's a two way street.
I personally can't wait to see the primitively-structured and run US Automotive companies go the way of the dinosaur. If current signs don't point to a major restructure in the industry (and I'm not suggesting minor nips and tucks, but rather major amputations) then I don't know what signs would send a clearer signal.
No matter what the haters on the left say, what we are seeing is true fascism from our government.
Fascists reject the individualism and self-interest of laissez-faire capitalism. Many fascist leaders have claimed to support a "Third Way" in economic policy, which they believed superior to both the rampant individualism of unrestrained capitalism and the severe control of state communism. This was to be achieved by a form of government control over business and labor (called "the corporate state" by Mussolini). Some call this corporatism while some others do not use the term corporatism to describe the fascist economic arrangement.
I don't have a problem with this either, but when they do implode I hope the government has the balls to just stand by and let them with a hearty "tough luck, you had your chance".
@cmdrsass: If you don't detect rampant bait and switch activity everywhere you look throughout the American Business Model, I suggest you haven't been paying attention. The US government is just the last one to show up to the party.
@zegota: I agree, but if I was a Chrysler stockholder, I'd probably be pretty pissed that they took a more expensive financing route in order to keep executive pay artificially propped up after, you know, running the company into the ground to begin with.
But hey, private companies are perfectly free to make crappy decisions ... as long as they privatize the losses too. (I just object to privatized profits and socialized losses. That ain't capitalism, Wall Street! And it ain't cricket, either.)
@jstonemo: Fascists reject the individualism and self-interest of laissez-faire capitalism.
Check your logic, bud. That doesn't mean that anyone who rejects laissez-faire capitalism (as opposed to capitalism in general) is a fascist. Socrates is a man, but not all men are Socrates.
I believe the story here is that the executives are choosing more expensive loans in order to keep their large pay packages at the expense of the long-term viability of the company.
It appears to be another case of the short-sighted nature of business executives. As long as they are handily rewarded in the short-term they don't give a flying arse about the company's future and could care even less if their decisions lead to more layoffs and other cost-cutting measures.
@zegota: Also, you're cherrypicking from a Wikipedia article
Fascism is a radical, authoritarian, corporatist[1] and nationalist political ideology.[2][3][4][5] Fascists advocate the creation of a single-party state.[6] Fascists believe that nations and races are in perpetual conflict whereby only the strong can survive by being healthy, vital, and by asserting themselves in combat against the weak.
None of that describes the Obama administration. In fact, it's probably closer to the Bush administration.
@Eyebrows McGee (on Twitter: LPetelle):
Chrysler isn't public. They are owned by a Private Equity firm called Cerberus Capital.
I would not intentionally do the politics thing on Consumerist. I am not part of the Red Team or the blue team at Present.
Refusing bailout/Tarp/My Kids' money doesn't seem like a bad thing to me. In fact based on articles like this one (if True) sounds like a very prudent thing to do: [online.wsj.com]
It would take no convincing for me to think Chrysler's refusal of (additional) Tax Payer funds in not altogether altruistic. With that being said I wouldn't want a penny if it came with some pretty invasive strings, like, oh I don't know certain Presidents hiring/firing CEOs (a right typically reserved for us pesky shareholders.)
No one smells good on these deals; Government, Companies, no one. Props to Chrysler for taking a somewhat of a stand and refusing to smell worse than they already do.
@jstonemo: I suggest that many people lately use fascism, communism, and socialism to indicate many varying shades of grey. It's concerning to note how easy politicians, CEOs, and news writers drop soundbites using the word 'socialism' to try to convince and control public opinion. Australia has socialized medicine. It works beautifully. Would you immediately identify Australia as a socialist country? Labels can be dangerous.
I think the point is...they are a sinking ship, and rather than limit executive pay (which needs some serious revamping), they would rather have the company go down the tubes. Sorry, just being a CEO of a company doesn't entitle you to 10 million dollars a year...especially when your company should have been bankrupt last year.
good for them, if you don't want the government running your business for you, you SHOULDN'T take their money....BTW, YEA Mark Sanford!
The government was going to hold their hand and they didn't want it. Pat them on the head and tell them don't fuck up. There is no story here.
@Saboth: Agreed with the 10 million part, but if they want to not take the money then I do not understand what the problem is. This will help us out with 1 billion or so extra money for something that actually needs it. In my opinion, let them not take the money. Sink or swim time.
@zegota: I believe or school, libraries, police and fire department are all socialized as well...must be Obama's doing.
@LegoMan322: I agree on the sink or swim part but the problem is that when the executives make this choice to bolster their wages they are endangering the jobs of all the workers who had no say in this decision, but they don't care because the execs have plenty of money and a couple other jobs lined up already.
@BigFoot_Pete: I agree. After all, most companies don't even HAVE the option of getting a Federal "loan", and private sector financing is the norm.
This may actually be one of the smartest decisions for the possibly future of the company. It might still go under, but at least it will do so honestly.
@Esquire99: Given your opinion, I assume that you are also supportive of allowing Chrysler to fail should they be unable to meet their financial responsibilities?
@SacraBos: Are you implying that accepting a $750 million government loan is dishonest? Based on what? Is it the government restrictions that make the transaction dishonest?
I agree...my only concern is the average worker. The executives are refusing to take the money so that their OWN packages aren't tampered with. On the other hand, they have no problem cutting benefits of their employees. Now when the company goes belly-up, these guys will retain all their millions in bonuses, and the average joe will be out of a job. And if you have seen Chrysler's sad plans for restructuring, you realize it is only a matter of time for them to be out of business.
@jscott73: Yep, they'll let the company tank, getting as much money as possible and then get hired as a higher-up in another corp, to do the same thing.
@jscott73: Interesting how you never here the use of the word 'socialised' in news stories about US Schools, Libraries, Police, and Fire departments. I guess 'public' is the politically correct adjective...'Just a spoonful of sugar helps the medicine go down...'
I agree, if they didn't take the money from the american goverment we have no right to complain at them at all. That means they secured their own funding.
If we invest nothing, we have no reason to complain.
I was under the impression they did though.
This is news in the sense that if you're going to buy a car in the next couple months, you should know that Chrysler's packing on tons of new debt at a higher interest rate than what's available. Thus, Chrysler's long-term sustainability can be put into question by consumers.
This is not fascism in the sense that this is the definition of fascism
an authoritarian and nationalistic right-wing system of government and social organization.
• (in general use) extreme right-wing, authoritarian, or intolerant views or practice.
and if I remember correctly, Obama was voted in by a majority vote of the people, and would hardly call regulation/intervention in 2 sectors of the economy "authoritarian" or "nationalism." Please stop with the hyperbole people.
I think what the article is trying to say is rather than take cheap cash with pretty much the only restriction is executive compensation, people in charge at Chrysler would rather take more expensive financing options.
It's pretty clear that the heads of Chrysler are more interested in their own benefits rather than the long term viability of the company.
Okay, here's the thing.
Chrysler damn well better forswear ever getting any bailout bucks. Period.
Because of they're skipping this quarter's needs to lard up execs' bonuses via shoveling mountains of further debt on the balance sheets, only to revisit the issue next quarter, demanding taxpayers foot the bill for cleaning up the mess, I'm demanding public decapitations in the National Mall.
I'm fine with them going it w/o bailouts. Bravo, even. But they damn well better not be planning to return hat-in-hand after their executives have lined their nests in ways damaging to the company they're supposed to be running in a responsible fashion.
I'm... Deeply skeptical.
@BigFoot_Pete: Wouldn't be a non-story if you were a shareholder. The execs are costing the company more money so that they can continue to raid the corporate coffers.
@SMSDHubbard: While it may cost them a bit more money they keep control of their company out of government hands. I don't know about you but if I owned a company I would do EVERYTHING in my power to make sure the government doesn't interfere with my business, especially when they don't have to. I mean if my company can't survive in the private sector I don't have much of a right to keep running my company right?
And everyone is assuming that the ONLY reason they refused the government loan is executive pay. As the banks have learned, Government loans may have the rules changed at any time, including when you can pay it off and be rid of the elephant on your back.
If I were an executive I'd welcome Government money about as much as a live hand grenade sans pin.
@SMSDHubbard: If you're a shareholder and you don't like where they're taking the company, then you should divest.
If Chrysler thinks they can navigate their way out of the mess their in with private funding and their fat salaries, then they can go ahead and try that. If they succeed, and can pay back their private investors with interest, then they've earned their bloated salaries and bonuses.
This is bad how?
@rpm773: * - "Rules that are currently undefined and will be determined and enforced at a later date as our political needs dictate".
One more reason the scariest thing you can hear after a knock on your front door is "we're from the government, and we're here to help".
@Saboth: Actually, if they're on a sinking ship and the current captain's action has kept them afloat months longer than they should have or would have been otherwise, then whatever salary and bonuses he receives (as determined by the board and shareholders and whatnot) is entirely deserved and well-earned.
@ecwis: Actually, nevermind. But their private shareholders are likely execs also, and not the typical shareholder.
@Esquire99: Ya, I guess you learn something new everyday, Chrysler LLC, they aren't publicly traded.
@watchout5:
>One more reason the scariest thing
>you can hear after a knock on your
>front door is "we're from the government,
>and we're here to help".
I'm sure the Katrina victims are right there with you.
@Ben Koskinen: ithe definition of fascism an authoritarian and nationalistic right-wing system of government and social organization
Right-wing? Really?
Jonah Goldberg would like a word with you.
Good for Chrysler!
Why is this a problem?
Chrysler has every right to choose where they get their financing--especially if certain types or sources of capital come with less restrictions (no matter what types of restrictions). This seems like a non-story.