Chrysler Financial gets $1.5B

Fed loan helps carmaker roll out new incentives

David Shepardson and Alisa Priddle / The Detroit News

Chrysler LLC's financial arm won a $1.5 billion loan from the U.S. Treasury Department Friday, money that should help the automaker boost sales by making it easier for consumers to finance new cars and trucks.

Chrysler Financial LLC got the first $100 million on Friday and became the latest automotive company to receive money from the $700 billion Wall Street rescue fund.

Chrysler responded by unveiling a new incentive program to get customers into showrooms. The offer, effective immediately, includes zero-percent financing for up to 60 months on many 2008 and 2009 models when financed through Chrysler Financial. Chrysler officials said the automaker would unveil another complementary incentive program in the next few days.

Chrysler Financial will receive the remaining $1.4 billion over an extended period, and will get additional funds next week, a senior government official told reporters Friday. Chrysler Vice Chairman Jim Press said the company might get more money beyond the $1.5 billion and could see a faster distribution if demand warrants.

Chrysler officials had complained that it had been at a competitive disadvantage since the Treasury gave GMAC LLC, the lending unit affiliated with General Motors Corp., a $6 billion cash infusion late last month, allowing GM to offer low-interest loans and expand lending.

The Treasury said the Chrysler Financial loans were "part of a broader program to assist the domestic automotive industry in becoming financially viable."

Chrysler Chief Financial Officer Ron Kolka told The Detroit News this week that some potential Chrysler buyers went to GM when they couldn't get financing. He said that Chrysler Financial had underwritten just 3,800 car loans in December, compared with 50,000 vehicles financed in the same month a year earlier.

Chrysler sales and marketing chief Steve Landry said Friday the automaker could see sales jump 20 percent or more with the aid for its financing arm. Chrysler has said its sales were off 20 percent to 25 percent because of a lack of credit. Chrysler's U.S. sales plunged 53 percent in December -- and dropped 30 percent for all of 2008 -- the biggest declines of any major automaker.

"We're back in (the) game," Landry said Friday. The company is "alive and well."

To date, the Treasury Department has committed $24.9 billion to auto industry firms, including $13.4 billion in emergency loans for GM and $4 billion for Chrysler to keep the struggling automakers out of bankruptcy.

"Now our customers, including those with (credit) scores in the 620 range, will be able to apply for affordable loans and our dealers will be more competitive in the marketplace," said vice chairman Jim Press.

GMAC lowered its credit score requirement to 620 from 700 after the government stepped in with a cash infusion. The lender had raised the required score to 700 in October because of the tight credit market.

The new Chrysler incentives are available on 11 models, many of them high-volume vehicles including Dodge Ram pickups, Chrysler Town & Country and Dodge Grand Caravan minivans, the Chrysler 300 and 300C, Dodge Charger, Challenger and Magnum rear-drive cars and the Jeep Grand Cherokee, Commander and Wrangler SUVs.

Smaller and more fuel-efficient vehicles are excluded. Many, such as the Dodge Caliber and Journey and the Jeep Compass and Patriot, use four-cylinder engines made at a plant in Dundee, where a month-long shutdown has been extended an extra week. The vehicles also are not in production.

Chrysler closed all of its 30 North American plants for a month on Dec. 19 and 11 of them remain shuttered.

The five-year loan for Chrysler Financial will be backed by a senior secured interest in a pool of newly originated consumer automotive loans, and Chrysler Holding LLC, which comprises the automaker and the finance company, will serve as a guarantor for certain covenants of Chrysler Financial.

"This funding will provide us with increased capacity to help Chrysler LLC and our dealers make new loans available to qualified consumers and sell more cars and trucks," said Chrysler Financial CEO Thomas F. Gilman.

The government official who briefed reporters refused to comment on whether Treasury would loan Chrysler the other $3 billion it sought last month. Chrysler CEO Robert Nardelli said this week the automaker was still expecting to receive those funds.

The official said that Treasury has been in discussions with Ford Motor Co. about auto lending, but declined to say whether the agency was planning to offer the Dearborn automaker assistance. Ford, unlike its domestic rivals, hasn't sought emergency federal loans.

Farmington Hills-based Chrysler Financial -- like other entities that have received Treasury funds -- must strictly limit executive compensation. It must reduce its bonus payments to senior executives 40 percent.

Separately, GM confirmed Friday that Treasury provided it with an $884 million loan to invest in GMAC, as outlined in the terms of GMAC's federal aid. GM also expects to meet all of the requirements for the second payment of its $13.4 billion loan and to receive the funds within days of the Martin Luther King holiday on Monday.

You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com.