Chrysler Financial gets $1.5B loan from bailout

[January 17, 2009]  WASHINGTON (AP) --

The Treasury Department said Friday it will provide a $1.5 billion loan to Chrysler LLC's financing arm, and the automaker announced it will immediately use the money to offer zero-percent financing on several models and expand lending to car buyers with less than ideal credit.

The Treasury said the new aid is in addition to the $17.4 billion in loans earmarked for Chrysler and General Motors Corp. last month in an effort to buy time for the two companies to reorganize and ultimately return the domestic auto industry to profitability.

"This funding will better position us to withstand the current economic challenges until funding becomes available through more traditional commercial sources," Thomas F. Gilman, Chrysler Financial's vice chairman and chief executive, said in a statement.

Chrysler Vice Chairman and President Jim Press said the loan will allow Chrysler Financial to provide more customers with affordable financing, including those with credit scores around 620.

"We have customers who want to buy our vehicles, dealers who want to order vehicles and employees who want to build cars," Press said in a statement. "Now with enhanced financing available in the system we can help our customers get the credit they deserve and help drive America forward."

Chrysler's zero-percent offer covers a variety of 2008 and 2009 models including the Chrysler Town & Country, 300 and 300C; Jeep Grand Cherokee, Commander and Wrangler; and Dodge Grand Caravan, Charger, Magnum, Challenger, Ram Pickup and Ram Heavy Duty.

The automaker said it plans to promote the offers through a media campaign set to kick off next week.

"This may be the most exciting news I've heard in six months," said Hayden Elder, owner of Elder Chrysler Dodge Jeep in Athens, Texas.

Elder said the credit crunch hit his business especially hard in the last three months, with many people in the rural area he serves having a tough time getting financing, or not even trying to get a loan because they think they won't qualify.

"They're not bad credit. They're not great credit," he said. "They're good, straight-up, hard-working people."

Elder said he thinks there is pent up demand, especially for trucks, and he expects Chrysler Financial's changes to fuel a big boost in sales.

"These are ranchers and farmers and agricultural people who have to have these trucks for a living," Elder said.

Battered Chrysler saw its sales plunge 53 percent last month, far worse than for GM or Ford Motor Co., and analysts have said it probably won't survive the year as an independent company - despite the $4 billion loan it received from the government. Chrysler had been counting on an additional $3 billion in aid for Chrysler Financial.

The government settled on $1.5 billion after consulting with Chrysler Financial in recent weeks and getting an assessment of the company's financial situation, said a government official who spoke on condition of anonymity because he wasn't authorized to speak publicly about the transaction.

Chrysler Financial will report to Treasury on its use of the money and other financial information, but government officials may block some of the details from public disclosure, the official said. Unlike GM and Ford, Chrysler is owned by a private equity firm, Cerberus Capital Management LP, and is not required to publicly release details of its finances.

GM's financing arm, GMAC LLC, which is also controlled by Cerberus, received $5 billion from the Treasury Department in late December. In addition, the Treasury said it would lend up to $1 billion to GM so that the automaker would be able to buy more equity from GMAC.

Chrysler's aid differs from the assistance to GMAC, which was an injection of capital into the new bank holding company GMAC transformed itself into so it would be eligible for federal money.

GMAC also loosened the lending standards it tightened during the credit crunch, by reducing its minimum credit score back to 621 from 700. The median FICO score is about 720 on a scale that ranges from 300 to 850, according to Fair Isaac Corp.

GM also announced a number of financing offers through GMAC including zero-percent financing on some models. It marked the first time that a financial institution said it will use money from the government's $700 billion bank bailout to offer more affordable credit to consumers.

Ford's financing arm, Ford Motor Credit, has been in discussions with Treasury officials in an effort to tap into funding from the government's Term Asset-Backed Securities Loan Facility, or TALF, spokeswoman Margaret Mellott said Friday.

Ford Motor Credit, like Chrysler, is awaiting a decision from the Federal Deposit Insurance Corp. on whether it can establish an industrial loan corporation. That would allow the government to guarantee its debt, making it more appealing to investors, whose cash it could use to make more car loans at better terms.

The terms of Treasury's loan to Chrysler Financial call for the company to pay interest at a rate 1 percentage point higher than the one-month London Interbank Offered Rate for the first year, increasing to 1.5 points above LIBOR for the remainder of the five-year term. At Friday's LIBOR, that's an initial rate of about 1.36 percent.

A special purpose entity created by Chrysler Financial will also issue warrants to Treasury as additional notes in an amount equal to 5 percent of the total size of the loan.

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AP Auto Writer Bree Fowler reported from New York. AP Economics Writer Martin Crutsinger in Washington contributed to this report.

[Associated Press; By MARCY GORDON and BREE FOWLER]

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