$1.5 billion succor to Chrysler Financial

Washington, January 17: Something to cheer about for the Chrysler group! The U.S Treasury Department has granted a five-year cheap loan of $1.5 billion to Chrysler Financial, the finance arm of the besieged automaker.

This will enable Chrysler to offer no-interest or minimal interest financing to potential consumers and thus boost its sagging sales.

As a part of the loan agreement, Chrysler will issue warrants to the tune of $75 million to the Treasury. That represents 5 percent of the loan total. For the initial year the rate of interest will be one percent above Libor. Subsequently, it will be 1.5 percent more than Libor.

Tracy Handler, an analyst with economic forecasting company IHS Global Insight Inc, was of the opinion that the aid will solve the auto giant’s problems, but only partially. He said, "Chrysler’s sales were down 53 percent in December. With more money to lend, sales probably would have been down 30 percent."

Chrysler Financial CEO, Thomas Gilman, admitted that the company will have to tap alternative sources of capital. He acknowledged the fact that this loan will be of enormous help to boost immediate sales.

He said that the Treasury loan "will provide us with increased capacity to help Chrysler LLC and our dealers make new loans available to qualified consumers and sell more cars and trucks."

The Auburn Hills, Michigan-based Chrysler was quick to pounce on the opportunity. In a statement released Friday, the automaker tendered to finance 11 of its models at zero percent rate of interest. The customers can avail these loans for a five year period. Additionally, the company intends to launch attractive incentives in the near future.

Chrysler and Chrysler Financial are controlled by Cerberus Capital Management LP. Both the entities are tottering due to the deepening economic crisis. The former has had a share of the bailout package also; however its pecuniary feasibility is still precariously placed due to the financial failings amongst it vendors and suppliers.