What to make of the reports on government allegations that Chrysler Financial turned away from low-cost TARP funding because of management resistance to federally imposed salary restraints?
At least so far, news accounts leave key questions unanswered about what is going on inside the lender responsible for making loans key to the revitalization of Detroit's third-largest carmaker.
A
quarterly report released Tuesday by the special inspector general for the Troubled Asset Relief Program quotes Treasury officials as saying Chrysler Financial in early April withdrew a request for $750 million in new funding (on top of the $1.5 billion it had already received) after the company was unable to obtain waivers from its top 25 executives pledging to abide by federal limits on pay.
The Washington Post, which first broke the story,
said that by forgoing the loan the auto finance unit would be forced to use more expensive financing from private banks, adding to the burden on both the financing company and the revenue-starved automaker it provides loans for.
Chrysler Financial has denied the claims, saying it "determined that it has adequate capital" and didn't need the new funding. But an unnamed person familiar with the talks
admitted to Bloomberg that stipulations on the loan were too onerous, without detailing whether pay limits were part of those onerous stipulations.
It is hard to miss that Chrysler Financial has not come out with a statement saying the Treasury's claims are incorrect or that proposed compensation caps were not a factor. Yet it also seems unlikely that Cerberus Capital Management LP, owner of both Chrysler Financial and its sister automaker, would allow both companies to be placed at risk to protect the paychecks of a group of relatively unknown Chrysler Financial execs.
The main beneficiary of any protection is presumably Chrysler Financial CEO Thomas F. Gilman, a longtime veteran of Chrysler Corp. who left the automaker after helping with its post-merger integration with Daimler-Benz and then returned when Cerberus bought the automaker from Daimler and split off its financing arm.
So what is really going on? Is it possible that Treasury tried to apply compensation caps or some other regulations to Cerberus officials, a private equity firm that is legendary for its lack of transparency? Maybe sales have slowed so dramatically at Chrysler that the financial unit could afford to take a stand against perceived government meddling.
Whatever the case, Chrysler Financial could soon have much bigger problems to deal with. The Treasury has warned Chrysler auto that if it is unable to secure concessions from unions and bondholders and finalize a partnership with Fiat SpA by the end of the month, it will be cut off from government loans currently being used to fund operations. If that happens and Chrysler, as many predict, goes into liquidation, Chrysler Financial's already diminished loan pipeline would seemingly disappear along with it. -
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I hope Cerberus spurned Treasury's restrictions. It is time this administration stop trying to help private industry for the sake of "America" when private industry has zero concern for the welfare of the country. People are selfish, and the taxpayer should not try to modify that behavior.