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Chrysler Financial gets $1.5 billion federal loan

Fri, 16 Jan 2009

The U.S. Treasury Department said today it will lend $1.5 billion to a new arm of Chrysler Financial Services LLC so that it can increase lending to vehicle buyers.

The five-year loan carries a flexible interest rate. The money will come from the $700 billion Congress approved last October for rescue of the nation's financial institutions.

The money also has been used for emergency loans to General Motors and Chrysler LLC and to shore up GMAC Financial Services.

The Treasury called today's aid for Chrysler Financial "part of a broader program to assist the domestic automotive industry in becoming financially viable."

There are limits on Chrysler Financial executive pay and taxpayers collateral.



Trouble for dealers

On Jan. 2, Chrysler received $4 billion in Troubled Asset Recovery Program money and pledged to use the money for ongoing automotive operations.

Chrysler Financial backed out of the leasing business almost overnight in August, costing Chrysler more than 20 percent of sales.

Many dealers have turned to other banks for consumer loans. Some dealers, concerned about the liquidity of the captive, have withdrawn money from their cash management accounts. That prompted Thomas Gilman, Chrysler Financial CEO, to send a memo to dealers last month urging them not to withdraw their management account money because such withdrawals hurt the captive's ability to make wholesale loans.

Chrysler sales fell 30 percent in 2008, the largest drop among major automakers.




By Bradford Wernle and and Harry Stoffer-Automotive News