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Chrysler repays $7.6B in loans from government
ASSOCIATED PRESS
Photo
Chrysler Group CEO Sergio Marchionne smiles after a ceremony at the Sterling Heights Assembly Plant in Sterling Heights, Mich., Tuesday, May 24, 2011. Marchionne acknowledged and expressed gratitude for the financial support from the U.S. and Canadian governments.
Associated Press
STERLING HEIGHTS, Mich.
With a few computer keystrokes in an office at its headquarters, Chrysler Group LLC sent $7.6 billion to the U.S. and Canadian governments Tuesday, paying off most of the bailout money that saved the company from financial disaster just two years ago.
The repayment — expected for weeks — is a huge step in the automaker’s unlikely comeback. Chrysler went from a company that almost ran out of cash and survived a 2009 bankruptcy to one that is revamping its aging lineup and last quarter posted its first net profit in five years.
It removes the stigma of being a government ward. But it also means the company must stand on its own and continue to overhaul a lineup that still depends on old Chrysler designs and larger vehicles that have fallen out of favor due to high gasoline prices.
Chrysler took $10.5 billion from the U.S. government to survive two years ago, and earlier had repaid some of the money. On Tuesday, it retired a $5.9 billion balance on the U.S. loans and $1.7 billion to the governments of Canada and Ontario.
“Chrysler’s repayment of its outstanding loans to the U.S. Treasury and American taxpayers marks a significant milestone for the turnaround of Chrysler and the countless communities and families who rely on the American auto industry,” President Barack Obama said in a statement.
To pay off the governments, Chrysler raised $3.2 billion through a bond sale and took out $3 billion in lower-interest bank loans. It also will use a $1.3 billion investment from Fiat.
But government ownership doesn’t end with the loan repayment. The U.S. Treasury still owns 8.6 percent of Chrysler, which it got in exchange for the bailout. About $2 billion of the government aid went to parts of Chrysler that were left behind in bankruptcy. That money hasn’t been repaid. Some of it could be recouped when the government sells its Chrysler stock in an initial public offering. But the government concedes it’s unlikely to get all the money back.
Chrysler was eager to pay back its loans in part because of the governments’ high interest rates of around 12 percent, which cost the company $1.2 billion last year. The interest rates on the new loans and bonds are 6 percent to 8 percent, saving Chrysler $300 million in payments per year. It also wants to shed its government ownership because some customers object to the bailout.
The loan repayment happened Tuesday morning. It went from the banks and Fiat to Chrysler’s accounts and was transferred to the governments electronically, a Chrysler spokeswoman said.
It lifted the morale of Chrysler workers and dealers who just two years ago came close to losing everything.
The announcement of the repayment took place at a factory in Sterling Heights, Mich., where Chrysler shut down the assembly line so that 1,100 workers could watch.