January 17, 2009

DETROIT: The Treasury Department said Friday that it would lend $1.5 billion to Chrysler's finance unit to finance loans for consumers who want to buy vehicles from the struggling automaker.

The loan package to Chrysler Financial is the latest aid from Washington to Chrysler and General Motors to help stabilize their faltering businesses.

The $1.5-billion, five-year loan will come from money already in the Troubled Asset Relief Program created last year to provide emergency aid to financial institutions.

Government officials said that the $1.5 billion loan would be parceled out to Chrysler Financial, beginning with a $100 million installment on Friday.

The government loan is going to a new corporate entity created by Chrysler Financial, which is owned by the private equity firm Cerberus Capital Management. Cerberus also owns an 80 percent stake in Chrysler's automotive operations.

The loan will be secured by warrants issued to the Treasury in the form of notes equal to $75 million, or 5 percent of the total loan, government officials said.

Last month, the Treasury committed $6 billion to supporting GMAC, the financing arm of General Motors that recently reorganized as a bank holding company.

Unlike the Chrysler loan, the GMAC package was primarily a capital infusion that gives the government an equity stake in the GM lending unit.

The U.S. government aid is expected to immediately improve Chrysler's ability to lend to prospective car buyers.

Chrysler's sales in the United States dropped 30 percent last year, the worst performance of any major automaker. In December, the company's sales plunged 53 percent, partly because of the lack of available credit for consumers.

James Press, a Chrysler vice chairman, told reporters this week at the Detroit auto show that about 25 percent of the company's prospective customers could not meet tightened standards for loans.

"We appreciate the Treasury Department's support and their commitment to increase the availability of financing for consumers," said Thomas Gilman, chief executive of Chrysler Financial.

Shortly after the loans were announced by the Treasury, Chrysler said it would relax its credit standards for new vehicle customers, and begin offering zero-percent, 60-month financing deals on 11 vehicles, including the Dodge Ram pickup and Chrysler Town & County minivan.

"This will provide a great economic stimulus for car buyers across the country," Press said.

Government officials said discussions had occurred with the finance unit of the Ford Motor Company about possible U.S. government aid to spur new vehicle purchases, but declined to say more.

Ford said Friday that its automotive operations were not seeking financial aid from the U.S. government. GM and Chrysler have received commitments for a combined $17.4 billion in loans to keep their auto businesses solvent.

But Ford said its finance unit, Ford Credit, was "maintaining an ongoing dialogue" with the Treasury Department to get financing under its asset-backed securities loan program. Ford Credit is also seeking government approval to establish an industrial loan corporation.

All three Detroit automakers, and their foreign competitors, anticipate continued deterioration of demand for new cars in the United States.

Last year, industry sales fell 18 percent, to 13.2 million. On Thursday, GM predicted that 2009 sales could fall as low as 10.5 million vehicles, which would be the lowest level in more than 25 years.

Source: http://www.iht.com