The New York Times - Chrysler paid back $7.6 billion in loans from the US and Canadian governments yesterday, paving the way for its Italian partner, Fiat, to increase its control over the Detroit carmaker.
The repayment of loans and interest owed to the US 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 yesterday 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,'' Marchionne said at a ceremony marking the loan repayments.
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, 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,'' Marchionne said to the cheers of hundreds of workers at the plant in Sterling Heights, Mich.
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 should also bolster its image in the eyes of US consumers.
"The loans are no longer a negative in the marketplace,'' said Rebecca Lindland, an analyst with the research firm HIS 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 US loans until 2017. In a statement, Obama said 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.
Bloom, who is now the president's special assistant on manufacturing policy, said Chrysler's comeback has happened "more quickly than we had hoped.''
