April 20, 2024

Chrysler Pays Back Rescue Loan

The repayment of loans and interest owed to the United States Treasury and Export Development Canada is a significant milestone in Chrysler’s methodical comeback from bankruptcy in 2009.

Now the company’s revival will enter a new phase that depends heavily on its alliance with Fiat, which on Tuesday increased its stake in Chrysler to 46 percent, from 30 percent.

Fiat will most likely increase its ownership to 51 percent by the end of the year. Terms of Chrysler’s federal bailout allow the Italian company to gain an additional 5 percent interest when a prototype of a new fuel-efficient compact car is ready for production in the United States.

Sergio Marchionne, who is chief executive of both auto companies, said the new car should be completed by December and would be produced beginning next year at a Chrysler plant in Illinois.

“It’s my intention for us to have the car ready by the fourth quarter,” Mr. Marchionne said at a ceremony marking the loan repayments.

Mr. Marchionne was joined at the event by Ron A. Bloom and Brian Deese, two members of the auto task force that was assembled by President Obama to shepherd Chrysler and General Motors through bankruptcy reorganization with taxpayer aid.

Many people in the auto industry were skeptical that Chrysler could survive even after its financial bailout.

But at the ceremony held at a Chrysler plant outside Detroit, Mr. Marchionne said the company had defied the odds by turning out new, improved products that are being sold at a profit.

“We have collectively found the strength to fight against this death sentence placed on our company from the very beginning,” Mr. Marchionne said to the cheers of hundreds of workers at the plant in Sterling Heights, Mich.

Mr. Marchionne made his remarks in front of a red, white and blue sign that said “PAID” in huge letters. Retiring its government loans will not only save Chrysler an estimated $350 million a year in interest payments, but it should also bolster its image in the eyes of American consumers.

“The loans are no longer a negative in the marketplace,” said Rebecca Lindland, an analyst with the research firm IHS Automotive. “It also frees up more cash for them to build a better product.”

Chrysler was able to repay the loans because it had negotiated new financing with a consortium of investment banks that includes a term loan of $3 billion, debt securities totaling $3.2 billion and a revolving credit facility of $1.3 billion.

The loan repayment was also helped by funds from Fiat, which paid Chrysler $1.3 billion to increase its stake to 46 percent.

Chrysler was not obligated to pay back its United States loans until 2017. In a statement, President Obama said that the early repayment was further proof that government intervention in Detroit’s troubles was a prudent decision.

“While there is more work to be done, we are starting to see stronger sales, additional shifts at plants and signs of strength in the auto industry and our economy,” the president said.

Mr. Bloom, who is now the president’s special assistant on manufacturing policy, said Chrysler’s comeback had happened “more quickly than we had hoped.”

The Treasury Department still holds a 6.6 percent stake in Chrysler, which it could begin selling when Chrysler holds a public stock offering.

Mr. Marchionne said he was committed to the stock offering, but had not yet set a timetable.

Mr. Bloom said the government would be “opportunistic” in divesting itself of its shares but declined to predict a time frame.

With the loan repayments behind it, Chrysler can now concentrate on maintaining its slow but steady resurgence in the marketplace.

Sales at Chrysler rose 22.5 percent through the first four months of this year, compared with a 19.6 percent increase for the overall American market. Much of the gains have resulted from new models like revamped versions of the Jeep Grand Cherokee sport utility vehicle and Chrysler 300 sedan.

But for the longer term, Chrysler needs more competitive small and midsize cars based on Fiat technology to broaden its product mix.

“Chrysler’s alliance with Fiat is crucial to its survival,” said Bruce Clark, a senior vice president at Moody’s Investors Service. “The union is vital to rebuilding Chrysler’s product portfolio and sustaining its business model.”

One worker at Tuesday’s ceremony said Chrysler’s Italian partner was so far doing a much better job integrating with the company than one of its previous owners, the German carmaker Daimler.

“There’s just a whole different feeling to it,” said Russell Bell, an electrician who has worked for Chrysler since 1973. “Fiat coming in was probably the lifeline that we needed.”

Article source: http://feeds.nytimes.com/click.phdo?i=5583e9824c86b9791d4f0bddc2c977d2

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