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Chrysler may not repay government loans: Flaherty
KEVIN CARMICHAEL
Globe and Mail Update

May 5, 2009 a

OTTAWA — Finance Minister Jim Flaherty conceded Tuesday that there's a chance the government's loans to Chrysler LLC will never be repaid, although he stressed that the company's planned merger with Italy's Fiat SpA stands a “reasonable” chance of success.

Mr. Flaherty, attending a news conference arranged to promote the government's tax-free savings accounts, was forced to respond to comments made by an adviser to Chrysler in a New York bankruptcy court Monday.

Robert Manzo, an executive director at Capstone Advisory Group, told the Manhattan courtroom that there is a “low likelihood” that Chrysler will repay the “debtor-in-possession” financing put up by governments in the United States and Canada because it is subordinate to almost $7-billion (U.S.) in Chrysler debt held by banks, hedge funds and other creditors.

The Canadian and Ontario governments combined for $1.45-billion in emergency loans for Chrysler.

Mr. Flaherty was asked at the news conference whether he had “every confidence” that the money would be repaid.

“Do I have every confidence? No,” Mr. Flaherty said, noting that Fiat's chief executive officer Sergio Marchionne's plan to return Chrysler to profitability has to be successful.

Still, Mr. Flaherty endorsed Mr. Marchionne's vision, saying Fiat's stable of smaller cars will make Chrysler competitive in markets where it currently has little or no presence.

“This augurs well for success in the longer term,” Mr. Flaherty said.