Ridiculous...

Chrysler finance unit rejects aid

Detroit -- Chrysler Financial executives rejected a new $750 million loan from the Treasury Department after the company was unable to obtain waivers from top executives agreeing to strict pay limits, according to a government report to be released today.

The report from the Treasury Department's Special Inspector General overseeing the $700 billion Troubled Asset Relief Program, known as TARP, also confirms the government plans to give General Motors Corp. up to $5 billion in short-term assistance and $500 million to Chrysler LLC.

And it reveals that Treasury plans to offer as much as $1.25 billion to underwrite Chrysler and GM vehicle warranties if either automaker files for bankruptcy.

According to the 250-page report, the government on April 7 asked Chrysler Financial, as a condition of getting an additional $750 million, "to obtain waivers from the top 25 Chrysler Financial executives that would have waived legal claims against Treasury and Chrysler Financial resulting from the recent changes in executive compensation requirements for TARP recipients."

But the government claimed Chrysler Financial's management "informed Treasury that it was unable to obtain waivers from all 25 executives, therefore the request for additional funding was denied."

Chrysler Financial, however, said Monday that negotiations with the government never got to the point that executives were asked to sign compensation waivers.

"Chrysler Financial has determined that it has adequate private capital funding to cover the short-term needs of our dealers and customers and as such, no additional TARP funding is necessary at this time," it said Monday in a statement to The Detroit News.

"As such, executives have not been presented with any new demands with regard to executive compensation."

Although they are separate companies, Cerberus Capital Management, a New York private equity firm, controls both the automaker and Chrysler Financial.

The rejection of government money could increase Chrysler Financial's borrowing costs and hamper its ability to make loans for Chrysler vehicles. Chrysler's sales were off 46 percent in the first three months of this year.

After Chrysler LLC complained that lending fell dramatically in December without federal support, Chrysler Financial received a $1.5 billion loan in January. That allowed Chrysler Financial to relax credit standards and increase incentives. The government report disclosed Chrysler Financial had used $1.125 billion of that loan by March 31.

June 1 deadline looms
A government official said the White House task force may authorize this week $2 billion of the $5 billion in additional aid that today's Treasury report says will be coming to GM. CEO Fritz Henderson said Friday GM needs $5 billion to get through June.

GM faces a June 1 deadline, set by the government, to complete a tougher restructuring and cut the amount of its unsecured debt by at least two-thirds.

On March 30, deciding that GM's initial restructuring was inadequate, the Obama administration rejected the company's request for $16.6 billion in additional aid and forced out CEO Rick Wagoner.

GM is likely to unveil its bond exchange offer to the holders of its $28 billion in bonds next week. It is said to be preparing a tough offer that could be as little as 20 percent equity in a new company.

Chrysler, according to the Treasury report, will get $500 million while it attempts to "complete its restructuring plan." The Obama administration has agreed to provide up to $6 billion to a joint venture with Fiat SpA, if Chrysler can win concessions from its first-lien debtholders and the United Auto Workers and convince the government that it has a viable business plan.

The government says Chrysler isn't viable as a standalone company and vows not to provide it with any more aid after April 30 if it doesn't complete the tie-up with Fiat.

Counteroffer expected
Chrysler has offered the holders of its $6.8 billion in secured debt 15 cents on the dollar. The banks are expected to make a counteroffer this week.

The Obama auto task force on Monday met with Chrysler, UAW and Fiat officials as the deadline looms.

The task force "is continuing to work with all of the stakeholders involved to find a solution we hope that continues the Chrysler brand and strengthens the auto industry," White House spokesman Robert Gibbs said Monday. "We believe that was possible 20 days ago, and we certainly believe that is possible ... with about 10 days to go in this process."

If GM or Chrysler can't complete restructuring in the coming weeks, they could be forced into bankruptcy. The Obama task force has said that may be the "best option" to quickly seek court protection to restructure.

Other items in the Treasury report:

• Auto suppliers taking part in a $5 billion TARP program -- the Supplier Support Program -- to provide them with credit insurance or immediate payments for parts already shipped are not bound by the TARP compensation limits.

• The Treasury Department has used up $24.8 billion of the initial $25 billion set aside for its auto industry support program, including $13.4 billion in loans for GM and $4 billion for Chrysler LLC.

The auto programs account for 3.5 percent of the $700 billion allocated for TARP, the report said.

• The Government Accountability Office is investigating the loans made to automakers, asking, "What mechanisms did Treasury establish to protect the taxpayers' interests in providing federal assistance to the automakers?"