Treasury ends bailout of Chrysler; taxpayers likely to lose $1.3B

The Treasury Department on Thursday announced the government no longer has an investment in Chrysler, ending a federal bailout that is likely to cost taxpayers $1.3 billion — roughly 10 percent of the government's original investment.

The government has received $560 million from Italian auto company Fiat in exchange for the 6 percent stake it held in the company. Treasury expects the U.S. will ultimately lose $1.3 billion from the effort to save Chrysler.

Fiat, which is implementing plans to merge with Chrysler, in May agreed to buy the government's stake in the company. Thursday's transaction marks the end of Treasury's financial backing for the auto manufacturer, which was on the verge of collapse at the height of the financial crisis.   

While the government ultimately lost money in its efforts to save Chrysler, Treasury touted the end of the bailout as happening earlier than expected and said it saved American jobs. 

“With today's closing, the US government has exited its investment in Chrysler at least six years earlier than expected,” said the Treasury's assistant secretary for financial stability, Tim Massad. “This is a major accomplishment and further evidence of the success of the Administration’s actions to assist the US auto industry, which helped save a million jobs during the worst economic crisis since the Great Depression.”

Fiat agreed to pay the government $500 million for 98,461 shares of Chrysler. It also paid $60 million for the rights to an agreement with the United Auto Workers union's retirement trust, which also held shares in Chrysler.

All told, the Treasury pledged $12.5 billion to Chrysler as part of the auto bailout. Fiat's final payment means the government has recouped roughly $11.2 billion of that amount. The government does not expect to make substantially more as it transitions out of the auto company, meaning it is on the hook for a $1.3 billion loss. However, if the government had held on to the loans it made to Chrysler through the original maturity date of 2017, that loss would have turned into a profit, according to a source familiar with the arrangement.

The Obama administration has been eager to tout its efforts to save Chrysler and General Motors as it gears up for the 2012 campaign. The president has made several trips to auto plants in the Midwest, making the case that the move to step in and save the companies, while subject to political scrutiny, was the right one, because it helped keep economies in those regions afloat.

The Midwest, including perennial battleground Ohio, is home to much of the domestic auto industry, and is expected to be a key region in the 2012 presidential election.