Nothing like donating bonuses using taxpayer funds for continued failures.

Another leach on society - VHF

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After bailout and loss, Chrysler pays bonuses

Greg Keenan - Auto Industry Reporter

January 31, 2011

Chrysler Group LLC lost $652-million (U.S.) last year, but the company will hand out performance bonuses for 2010 to almost all its employees before repaying taxpayer loans of $7.6-billion (U.S.) that kept the company alive during the auto crisis.

The auto maker, however, forecast a profit for the current year and said its turnaround is so far advanced that the company can afford to share its improving fortunes with workers.

“It was absolutely owed that we treat our people properly,” Chrysler chief executive officer Sergio Marchionne said Monday during a conference call on the company’s year-end results. “The obligation to our people was much greater than trying to improve our bottom-line profitability.”

The bonus payments come as Mr. Marchionne and Chrysler executives express growing confidence that the auto maker’s recovery from Chapter 11 bankruptcy protection in 2009 is ahead of schedule. Along with the expected profit, Chrysler plans a refinancing of government debt bearing interest rates of about 11 per cent, and an initial public offering of shares.

Chrysler expects to earn between $200- and $500-million this year compared with a $652-million loss in 2010. The company’s confidence about expected profits is based on reaching sales of two million vehicles worldwide this year, up from about 1.6 million last year.

“We can make $2-billion in operating profit if we sell two million cars,” he said.

A Chrysler spokesman said the performance bonuses will not affect the company’s ability to repay loans to the Canadian, Ontario and U.S. governments ahead of schedule. Chrysler had aimed to pay back its government loans by 2014.

The bonuses are to reward the employees for what Mr. Marchionne described as the “sausage factory” at Chrysler that involved overhauling 75 per cent of the auto maker’s product lineup by producing 16 new or redesigned vehicles last year.

“The objective of revamping the product portfolio of Chrysler was absolutely crucial,” Mr. Marchionne said.

He urged investors and analysts to give the company time for what he called a “fully competitive lineup” to perform in the market.

The bonuses, he added in a memo to employees, “recognize your continuous support and tireless efforts.” About 46,000 employees are eligible for the bonus, which will be about $750 for unionized workers.

Chrysler has loans with a face value of $1.7-billion from the Canadian and Ontario governments and $5.9-billion with the U.S. government.

The auto maker would have reported a final profit in 2010 if not for interest payments of about $1.3-billion on the loans, Mr. Marchionne said. Chrysler is in discussions with investors and financial institutions about refinancing the loans at lower rates.

The reaction of taxpayers to the bonuses will likely depend on the size of the payments, said Bernie Wolf, a professor of economics at York University in Toronto.

“I’m not so sure the public will be keen on this, but on the other hand it may make some sense in motivating [employees] and increasing productivity,” Prof. Wolf said.

Canadian Auto Workers president Ken Lewenza, whose employees gave up vacations, cost of living increases and other benefits to help save Chrysler, said he was pleasantly surprised that the company will offer bonuses.

“Obviously it’s a priority for Chrysler to repay the loans, but I do think that any company that wants to build on its momentum for future success, it’s not all that bad to recognize the workers who were part of that success,” Mr. Lewenza said.

The CAW wants the federal and Ontario governments to hang on to at least part of their 2.3-per-cent stake in Chrysler.

Mr. Marchionne, who also heads Fiat, which owns 25 per cent of Chrysler and exercises management control, said his preference is for no government ownership.