Treasury surprises Chrysler Financial owner with news of closing

David Shepardson and Alisa Priddle / The Detroit News

Washington -- The Treasury Department said Thursday that Chrysler Financial will close its doors by the end of 2011 -- a move that could cost hundreds of jobs in Metro Detroit.

"Chrysler Financial is currently following Treasury's directive to liquidate its business in an orderly fashion," said Kenneth Feinberg, the Treasury Department's special master overseeing pay for top executives at the seven firms that received government bailout money including automakers and Farmington Hills-based Chrysler Financial. "Accordingly, Chrysler Financial is currently pursuing a successful wind down of its operations by Dec. 31, 2011."

Late Thursday, the Treasury didn't back away from its statement that Chrysler Financial would liquidate within 26 months.

Treasury spokeswoman Meg Reilly said "Treasury recognizes that Chrysler Financial is continuing to operate in the normal course of business while acknowledging that the origination of new retail and wholesale lending for Chrysler Group LLC is being handled primarily by GMAC. Treasury also notes that Chrysler Financial will continue to service its obligations to its existing lenders as required by its outstanding loan agreements."

Cerberus Capital Management LP officials said they were unaware of any liquidation orders and that closing isn't part of their business plan.

A Treasury official said on the condition of anonymity that Chrysler Financial "is in the process of liquidating and wants to be fully wound down by 2011. We state it as the current aspiration, not a plan that is set in stone, and we drew that conclusion from the company's submissions and our discussions."

Chrysler Financial spokeswoman Amber Gowen did not have an immediate comment.

Chrysler spokeswoman Shawn Morgan said the automaker had no comment.

Chrysler Financial is paying proportionally more to executives than other financial institutions, Feinberg said.

Its emphasis is "to wind down, rather than to grow, its operations," he said.

Feinberg said that Chrysler Financial "contends that the risk of employee departures must be minimized because Chrysler Financial has stated it intends to wind down its operations and will have difficulty attracting new employees."

Feinberg said Chrysler Financial's cash compensation will decrease 30 percent over 2008 levels for the top 25 executives -- compared with 50 percent at most other firms. Overall compensation will fall 56 percent at Chrysler Financial -- compared to 90 percent on average.

Chrysler Financial will pay its top executive $1.5 million and $1.35 million for a second executive. Two others will receive $800,000 and $600,000. The remaining top 21 will make no more than $500,000.

Chrysler Financial provided funding to many of the 3,200 dealers that Chrysler LLC had before filing for bankruptcy April 30, after which 789 dealers were let go. When the U.S. government mandated that the automaker file for bankruptcy, the Treasury said restructuring included a change in finance companies. The new Chrysler that was formed in partnership with Fiat SpA entered into an agreement with GMAC Financial Services to provide dealer and consumer financing in the future.

Chrysler Financial could no longer provide dealers with a line of credit known as floor plan financing used to buy vehicles from the automaker. The captive finance company was asked to transition its business to GMAC, but still holds real estate and capital loans of Chrysler dealers.

GMAC was seen by the government to be a more viable financial institution and was granted bank holding company status earlier this year, allowing an expansion of its retail banking business.

Chrysler Financial applied for similar status in 2005 but withdrew its application earlier this year after consulting with Treasury.

Cerberus divested itself of Chrysler when the automaker filed for bankruptcy but retained the finance company.

Dealers for months have been of the opinion that Chrysler Financial was trying to collect on all its outstanding loans in preparation for liquidation of its $26 billion portfolio, down from $60 billion at the start of the year.

The finance company's global work force has shrunk from 4,000 in January to less than 2,700.

A week ago, when asked about possible liquidation, Gowen released a statement saying the company "has no plans for bankruptcy" and has enough capital to meet its obligations.