Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Chrysler set to repay bailout loans

By Chris Isidore, senior writer


NEW YORK (CNNMoney) -- Chrysler Group said Thursday it plans to repay the high-interest loans it owes the U.S. and Canadian governments by borrowing money from the private sector.

The automaker said it will repay the $5.8 billion it owes in loans to U.S. taxpayers, and the $1.7 billion it owes to the Canadians at some point this quarter, once it finalizes financing from banks and institutional investors.

The terms of the new loans are not available, but Chrysler is now paying between 7% and 14% interest on the U.S. loans, and as high as 20% on some of its Canadian loans, so it could see some significant savings by turning to the private sector for alternative financing.

In February, Sergio Marchionne, the CEO of both Chrysler and Fiat, the Italian automaker that owns a controlling stake in Chrysler, said the company needed to repay "shyster loans" to the government.

He quickly apologized for the remark, admitting that, at the time Chrysler got the government help in 2009, the high rates were appropriate given the risks and lack of other options.

Chrysler is due to report first-quarter results Monday. The results could mark the company's first profitable quarter since breaking off from DaimlerChrysler back in 2006.

Repayment of the loans will still leave U.S. taxpayers about $2 billion short. Treasury might recoup some of that money when the automaker holds its initial public offering either later this year or early next year. Treasury currently owns 8.6% of Chrysler's privately held shares, while the Canadians own 2.2%.

But recouping all of that money in the IPO is unlikely, since it would require the company to be worth more than $23 billion in order for Treasury's stake be worth $2 billion.

For comparison, General Motors (GM), the nation's largest automaker, has a market value of $49.7 billion, while more profitable Ford Motor (F, Fortune 500) has a market value of $57.6 billion. Both are significantly larger than Chrysler.

GM still owes the government about $26 billion in bailout funds. Treasury still owns one third of GM's shares, valued at about $16.5 billion at today's stock price.

Thursday's announcement on the loan repayment came as U.S. Treasury Secretary Tim Geithner, who is in Detroit for a speech on the economy, was set to tour a Chrysler plant. To top of page

Search for Jobs

Index Last Change % Change
Dow 17,929.99 235.31 1.33%
Nasdaq 4,842.67 63.43 1.33%
S&P 500 2,098.86 28.09 1.36%
Treasuries 1.49 0.01 0.74%
Data as of 7:56am ET
Company Price Change % Change
Bank of America Corp... 13.27 0.08 0.61%
General Electric Co 31.48 0.93 3.04%
Micron Technology In... 13.76 0.57 4.32%
Ford Motor Co 12.57 0.02 0.16%
Apple Inc 95.60 1.20 1.27%
Data as of Jun 30
Sponsors

Sections

Investors are already sifting through the Brexit market rubble for opportunities. Morgan Stanley compiled a list of highly-rated stocks that have limited or no direct exposure to the situation in the U.K. More

WeWork launches in Shanghai on Friday, a move that comes on the heels of a lot of cultural research. More

The New Jersey Senate and Assembly disagree over which tax cuts should accompany a 23-cent-per-gallon hike in the state's gas tax. As a result the hike won't go into effect Friday. More