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Chrysler Pays $1.9 billion on Federal Debt

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On: Fri, May 21, 2010 at 2:08PM | By: Sherry Christiansen


Chrysler Pays $1.9 billion on Federal Debt

In 2009, the Chrysler Corporation got in line for federal funding that would serve to bail the company out financially after the recession hit the auto industry, which resulted in tremendous losses to automakers. A loan was offered to Chrysler for $4 billion, but the company went into default shortly before filing bankruptcy.

Recently Chrysler paid back another $1.9 billion to the United States Department of Treasury toward the debt that was incurred to support Chrysler’s financial services arm of the corporation. The United States Treasury reports that of the $14.3 billion in loans to Chrysler, it has received $3.9 billion in re-payment.

The federal government currently holds a 9.9% equity stake, as well as $7.1 billion in loans, in the new Chrysler Company, the corporation formed after bankruptcy.

Chief Executive Officer Sergio Marchionne reported that the U.S. automaker will, worst case scenario, break even, or could earn as much as $200 million on an operating basis this year. Earlier this month General Motors reported its first quarterly profit in three years, while Ford Motor Company (the only automaker of the Detroit three not bailed out by taxpayers) reported that they realized a $2 billion profit last month.

After emerging from bankruptcy in 2009, Chrysler said it lost $3.8 billion on revenue of $17.7 billion. The bankruptcy enabled the company to re-structure their finances; Fiat obtained a 20 percent stake in Chrysler with $15 billion in government support. Just as with General Motors, a public offering remains a primary focus and, according to Sergio Marchionne, could come much sooner than expected. "We'll do it at the right time," Marchionne reported in a conference call to financial analysts in which he discussed the course of the company’s financial recovery.

Many analysts believe that Chrysler’s aging product lines may seriously hurt the company’s future revenues and subsequently its ability to pay back its debt, and recover financially from the recession and bankruptcy. The Jeep Grand Cherokee crossover is the only new Chrysler model so far for 2010. The new Grand Cherokee crossover will be available next month. But according to Marchionne, the company will launch as many as 500 new small cars in the U.S. The Italian company Fiat plans to share their technology and management systems with Chrysler in exchange for their initial stake in the Penta-Star brand, which Fiat exchanged nothing in initial cash to acquire.




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