Chrysler pays back $7.6 billion to U.S., Canada

Most of bailout funds are returned early

5/25/2011

STERLING HEIGHTS, Mich. -- With a few computer keystrokes in an office at its headquarters, Chrysler Group LLC sent $7.6 billion to the U.S. and Canadian governments Tuesday, paying off most of the bailout money that saved the company from financial disaster just two years ago.

The repayment was expected for weeks and is another sign of the automaker's comeback. Chrysler went from a company that almost ran out of cash and endured bankruptcy in 2009 to one that is revamping its lineup and last quarter posted its first net profit in five years.

"A lot of us remember that until just a short time ago, in the eyes of most, Chrysler had been condemned to death," Chief Executive Officer Sergio Marchionne told workers gathered at a Chrysler assembly plant outside Detroit.

Chrysler also removed the stigma of being a government ward. But the repayment also means it must stand on its own and continue to overhaul a lineup that still depends on old Chrysler designs and larger vehicles that have fallen out of favor because of high gasoline prices.

President Obama, on a trip to Ireland and England, said the company paying back a final $5.1 billion in bailout funds given by the U.S. government was a sign that the U.S. auto industry is recovering.

"Chrysler's repayment of its outstanding loans to the U.S. Treasury and American taxpayers marks a significant milestone for the turnaround of Chrysler and the countless communities and families who rely on the American auto industry," he said.

Mr. Obama has drawn fire from some conservatives for bailing out portions of the U.S. auto industry two years ago. He said Chrysler's repayment was six years ahead of schedule.

"Supporting the American auto industry required making some tough decisions, but I was not willing to walk away from the workers at Chrysler and the communities that rely on this iconic American company," he said.

U.S. Rep. Marcy Kaptur (D., Toledo), who supported the auto bailout two years ago, said, "This is such a great day for those of us who care about making goods in America and rescuing our most important industry, the automotive industry. As we celebrate, we're reminded that this outcome wasn't always guaranteed. Two years ago, Chrysler was in danger of shutting its gates. That would have resulted in thousands of lost jobs."

Miss Kaptur said those who argued against the assistance for Chrysler and General Motors Co. were on the wrong side of history. "We want to say to Chrysler, thanks for keeping your end of the bargain, for paying back your loan, and with interest," she said.

Bruce Baumhower, president of United Auto Workers Local 12, which represents workers at Chrysler's Toledo Assembly Plant, which makes Jeep Wranglers, Libertys, and Dodge Nitros, said, "This is a huge deal to us. We're very grateful for the Democratic leadership that supported us, and we saw how fierce the opposition was to the [bailout]. But every worker sacrificed to save Chrysler. They lost about $10,000 on average."

He said the complex has about 75 employees still on layoff, but that future opportunities are possible there. Analysts expect a multimillion-dollar investment in the complex and the production of additional vehicles.

Chrysler took $10.5 billion from the U.S. government to survive two years ago, and earlier had repaid some of the money. Tuesday, it retired a $5.9 billion balance on the U.S. loans and $1.7 billion to the governments of Canada and Ontario.

To pay off the governments, Chrysler raised $3.2 billion through a bond sale and took out $3 billion in lower-interest bank loans. It also will use a $1.3 billion investment from Italian automaker Fiat, which kicked in the money to raise its Chrysler stake to 46 percent, making it the largest shareholder.

But government ownership doesn't end with the loan repayment. The U.S. Treasury still owns 6.6 percent of Chrysler, part of the original stake it got in exchange for the bailout.

About $2 billion of the government aid went to parts of Chrysler that were left behind in bankruptcy. That money hasn't been repaid, but some of it could be recouped when the government sells its stake either in a public stock offering or to Fiat, which has an option to buy it.

Ron Bloom, Mr. Obama's assistant for manufacturing policy, said Chrysler repaid the loans far more rapidly than anyone expected. "I don't think anybody two years ago would have said this day would happen," he told reporters after the ceremony at the Sterling Heights Assembly Plant.

The government, he said, will sell its stake as soon as practical, but he conceded the administration doesn't expect to get a "material portion" of the $2 billion back.

Chrysler was eager to pay back its loans in part because of the governments' interest rates of around 12 percent, which cost the company $1.2 billion last year. The interest rates on the new loans and bonds are 6 to 8 percent, saving Chrysler $300 million a year.

The company also wanted to shed its government ownership because some customers object to the bailout.

The repayment lifted the morale of Chrysler workers and dealers who just two years ago came close to losing everything.

James Fayson was laid off from his job in 2009 from the plant in Toledo that makes the Wrangler and returned to work in February.

"At one point, I didn't know if I was going to have a future because of the bankruptcy. If this had not had been an option, I probably would have had to relocate to another state," Mr. Fayson said. "Because things worked out, I was able to hang in there, weather the storm."