Treasury Department Statement on Chrysler Dealer Consolidation

WASHINGTON - Earlier today, Chrysler announced the specifics of its planned dealer consolidation. This announcement, which has been part of Chrysler's plan for some time, is one of several steps the Company is taking to restructure to achieve financial viability.

A month ago, Chrysler faced the real prospect of liquidation, which would have eliminated all 3,200 of the company's dealers. As a result of the successful Chrysler-Fiat partnership and the backing of the President's Auto Task Force, Chrysler is now positioned to move forward with a plan that retains 75% of its dealers – representing 87% of Chrysler sales. Consistent with the Task Force's role in the restructuring process, it was not involved in the specific design or implementation of Chrysler's dealer consolidation plan. The Task Force played no role in deciding which dealers, or how many dealers, were part of Chrysler's announcement today.

We understand that this rationalization will be difficult on the dealers that will no longer be selling Chrysler cars and on the communities in which they operate. However, the sacrifices by the dealer community – alongside those of auto workers, suppliers, creditors, and other Chrysler stakeholders – are necessary for this company and the industry to succeed. And a stronger Chrysler, supported by an efficient and effective dealer network, will provide more stability for current employees and the prospect for future employment growth.

In addition, the Administration is committed to continuing its significant efforts to help ensure that financing is available to creditworthy dealers and pursuing efforts to help boost domestic demand for cars. These steps will help auto dealers, the auto industry, and the American economy. 

Using the proceeds of the repayments we expect to receive from some of the largest banks, we plan to re-open the application window for banks with total assets under $500 million under the Capital Purchase Program, and raise from 3% of risk-weighted assets to 5% the amount for which qualifying institutions can apply. This applies to all term sheets – public and private corporations, Subchapter S corporations, and mutual institutions. Current CPP participants will be allowed to reapply, and will have an expedited approval process.

In addition, we will extend the deadline for small banks to form a holding company for the purposes of CPP. Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months.

–Protect consumers from arbitrary interest rate, fee and finance charge increases and prohibit universal default on existing balances
–Prohibit interest charges on paid-off balances from previous billing cycle (also known as a double-cycle billing ban)
–Require payments to be applied first to the credit card balance with the highest interest rate
–Protect students and other young consumers from aggressive credit card solicitations
–Ensure that payments are fairly allocated to the account with the highest interest rate first
–Require greater disclosure of rates, terms and billing details by credit card companies
–Establish tougher penalties for companies that violate the law

Meeting Participants:

Insurers

George Halvorson, Chairman and CEO of Kaiser Foundation Health Plan
Karen Ignagni, President and CEO of America’s Health Insurance Plans (AHIP)
Jay Gellert, President and CEO of Health Net Inc.

Hospitals

Thomas Priselac–President & CEO, Cedars-Sinai Health System
Rich Umbdenstock– President & CEO, American Hospital Association (AHA)
Ken Raske–President,Greater New York Hospital Association

Physicians

J. James Rohack, M.D.– President-Elect, American Medical Association (AMA)
Rebecca Patchin, M.D.– Chair-Elect of the AMA
Rich Deem– Senior Vice President of the AMA

Medical Device Companies

Michael Mussallem–Chairman & CEO, Edwards Lifesciences
Steve Ubl– President & CEO, AdvaMed
David Nexon– Senior Executive Vice President, AdvaMed

Pharmaceutical Companies

Richard Clark–Chairman, President & CEO, Merck
Billy Tauzin—President & CEO, PhRMA
Rick Smith–Senior Vice President, PhRMA

Labor

Andy Stern, SEIU
Dennis Rivera, SEIU Health

Administration Officials:

Nancy-Ann DeParle, Director of the Office of Health Reform
Peter Orszag, Director of the Office of Management and Budget
Larry Summers, Director of the National Economic Council
Kathleen Sebelius, HHS Secretary

After the meeting, the following stakeholders joined President Obama for his remarks:

• George Halverson, Chairman and CEO of Kaiser Foundation Health Plan
• J. James Rohack, M.D., President-Elect, American Medical Association
• Richard Clark, Chairman, President & CEO, Merck
• Michael Mussallem, Chairman & CEO, Edwards Lifesciences
• Dennis Rivera, SEIU
• Tom Priselac, President and CEO of Cedars- Sinai Health System

We have now learned through this process that, if the economy were to track the more adverse scenario, additional losses at the 19 firms during 2009 and 2010 could total about $600 billion. After taking account of potential resources to absorb those losses, including expected revenues, reserves, and existing capital cushions, we determined that 10 of the 19 institutions will require, collectively, common or contingent common equity of $185 billion to ensure adequate capital cushions. Of this amount, the equivalent of $110 billion has already been raised or is contractually committed to be in place, or to a lesser degree reflects first-quarter pre-provision earnings above those assumed in the initial supervisory estimates. Consequently, the remaining common equity buffer that must be raised is $75 billion. The firms that are determined to need an additional capital buffer will have 30 days to develop a capital plan to be approved by their supervisors and six months to implement that plan. We have strongly encouraged institutions requiring additional capital to obtain it through private means, including, for example, new equity issues, conversions, exchange offers, or sales of businesses or other assets. To ensure that all of these firms can build the needed capital cushions, however, the Treasury has made a firm commitment to provide contingent common equity, in the form of mandatory convertible preferred stock, as a bridge to obtaining private capital in the future. Banking organizations will also have the option to exchange their existing preferred stock, issued under Treasury's earlier Capital Purchase Program, for the new contingent common equity. The Treasury has indicated that it expects that any such exchange will be either accompanied or preceded by new capital raises or the conversion of private capital securities into common equity.

One senior official said the proposal, developed by the Obama campaign in the weeks leading up the general election, will not be part of the President’s 2010 budget, adding “there has been a lot of crystallization of tax proposals and tax relief proposals since then.”

Under current tax law, taxpayers under the age of 59 who withdraw funds from an Individual Retirement Account (IRA) or 401(k) plan must pay a 10% penalty, in addition to regular taxes.

At the height of the campaign, Obama promised to temporarily suspend the penalty on early withdrawals, up to a $10,000 limit. “This will help families get through this crisis without being forced to make painful choices like selling their homes or not sending their kids to college,” he told an audience in Toledo, Ohio where he released his “Rescue Plan for the Middle Class,” a seven-page document that included the proposal.

Under the heading “Penalty-free hardship withdrawals from IRAs and 401(k)s in 2008 and 2009” the document reads: “Obama is calling for legislation that would allow withdrawals of 15% up to $10,000 from retirement accounts without penalty (although subject to the normal taxes). This would apply to withdrawals in 2008 (including retroactively) and 2009.”

He also emphasized the proposal as one of four specific action items for the middle class during a debate with Republican nominee Sen. John McCain.

“Let's allow them to access their IRA accounts without penalty if they're experiencing a crisis,” he said during the third presidential debate.

Senior Treasury officials downplayed the campaign pledge, saying there has been little interest in the proposal since the election. They also disputed the notion that many taxpayers relied on the pledge in deciding whether to take an early withdrawal from their retirement account.

“That was something suggested before the election as a potential measure,” said the senior Treasury official. “It’s not been something that’s gotten a whole lot of discussion since then.”

Another senior official said on Monday that the administration would consider “taking another look at the idea” if there was interest on Capitol Hill.

The change in the deficit estimates reflects upward technical revisions in light of new information regarding the collection of receipts, financial stabilization efforts, and other federal programs. (Technical revisions reflect additional data on, or expected changes in, government receipts or expenditures, other than because of changed assumptions about major macroeconomic variables such as the size of the economy, the rate of inflation, or the unemployment rate. The latter are called economic revisions.) Treasury now estimates that overall federal revenue will be less than was projected in February by between $30 billion and $50 billion in each of this year and next. We also have more information about the severity of the financial crisis facing the nation, and this is reflected in new, higher estimates for the cost of financial stabilization efforts undertaken through TARP and by the FDIC.