Chrysler CEO Thanks Treasury Secretary, Prepares to Pay Off Loans

by Jeff Gilbert
WWJ AutoBeat Reporter

DETROIT (WWJ) - Chrysler is ready to pay back its government loans, with money borrowed from the private sector.

"I think it's time to close the loop on what has been an incredibly necessary intervention, said Chrysler CEO Sergio Marchionne, after he took U.S. Treasury Secretary Timothy Geithner on a tour of Chrysler's Jefferson North Plant.

Marchionne said he thanked Geithner for ensuring Chrysler's survival as it went through bankruptcy two years ago, but the Chrysler had reached the point where commercial banks were ready to lend the company money, making the government loans "redundant and unnecessary."

Shortly after his plant tour, Geithner told the Detroit Economic Club that the adminstration is committed to getting both Ford and General Motors out of government ownership as soon as possible. He said while the government wants to recoup as much of the taxpayer investment as possible, the main goal of assisting the car companies was to save jobs.

Chrysler owes $7.5 billion dollars to the governments of the United States, Canada and the province of Ontario. The company is paying interest rates in the double digits, far higher than commercial banks charge.

"I think it's going to make a material difference to our profit and loss statement," said Marchionne about the change in interest rates.

The high interest rates on the government loans had kept Chrysler from posting a profit, when both of their competitors had returned to the black. But many analysts think Chrysler will announce positive earnings for the first quarter. Those numbers come out Monday morning.

"We've seen improvements coming from Chrysler sales, Chrysler products," said Aaron Bragman, an analyst with IHS Automotive.

Once the government is paid off, Chrysler's parent firm Fiat can increase its stake to 46 per cent. There's only one more milestone Chrysler needs to meet—a 40 mile per gallon car—before Fiat can take majority ownership.

The long term goal, Marchionne says, is to merge Fiat and Chrysler into one global company. He wouldn't give a timetable on that, or an initial public offering of stock, which is needed for the government to sell of its 8.6 per cent stake in Chrysler.

In May, the goverment will be able to begin selling off its remaining stake in General Motors. The Treasury Secretary did not give a timetable on that. But, there have been reports that the administration would like to sell off its holdings in both companies before the 2012 presidential election.

While Chrysler hasn't carried the "Government Motors" mantle some have placed on GM, Marchionne says that's raised issues in some buyer's minds.
"There's not a single doubt in my mind that once we manage to repay the U.S. and Canadian governments, the perception of our brands... is going to improve," Marchionne said.

While they announced the plan to repay the loans today, Marchionne said it could take several more weeks to finalize the loan agreements with several banks. He hinted that he would like to present a check to the U.S. government some time before early June, which would be the second anniversary of Chrysler's emergence from bankruptcy.

"I think it will be a great accomplishment if we can get it all done within two years after we get out of bankruptcy."

Follow Jeff Gilbert on Twitter @jefferygilbert