Chrysler Financial announced Tuesday that it has repaid its government loans in full, six years early. Chrysler Financial is the former financial arm of automaker Chrysler LLC. The company owed $1.5 billion to the U.S. government.
Loan granted when Chrysler filed Chapter 11
Michigan-based Chrysler Financial received a loan from the government’s Troubled Assets Relief Program when the automaker filed Chapter 11 bankruptcy in January. TARP is a government program that purchases assets and equity from financial institutions in order to keep the financial sector strong. It was signed into law by President George W. Bush on Oct. 3, 2008.
Money used to fund auto loans
The company said it used the TARP money to fund more than 85,000 consumer loans for Chrysler vehicles. By generating auto sales, the government’s hope was that Chrysler would be able to avoid bankruptcy. Under the government restructuring, Chrysler Financial closed its doors in January and was replaced by GMAC Financial Services.
Chrysler explains its actions
Chrysler’s final payments Tuesday included $500 million to the U.S. Treasury Department for 98,461 shares of company stock. Sixty million was also paid to the United Auto Workers VEBA retirement trust fund. Chrysler justifies the preamture payoff as a money-saving measure. It says that certain provisions in the TARP loan agreement will increase costs over time, so paying early saves money in the long run.
Administration claims a victory
U.S. Assistant Secretary for Financial Stability Tim Massad characterized the early payoff as evidence that the administration’s bailouts to the auto industry were justified:
“With today’s closing, the U.S. government has exited its investment in Chrysler at least six years earlier than expected. This is a major accomplishment and further evidence of the success of the administration’s actions to assist the U.S. auto industry.”
Out from under the administration’s thumb
Sergio Marchionne, CEO of Chrysler and its parent company Fiat, has been outspoken in his desire to get the loan paid off. Marchionne called it a “shyster loan” because of its large interest rate. He has apoliogized for the remark, which some found offensive, but remained adamant to get out from under the U.S. administration’s thumb.