WASHINGTON — In one final taxpayer bailout of industry before the Bush administration leaves office, the Treasury Department on Friday announced a $1.5 billion, five-year loan to a special company that Chrysler Financial is creating.
The struggling automaker will create a special entity that will receive the government money in several payments. It will use the money to purchase car loans made to consumers in a bid to spark more lending for car sales, a sector that's virtually gone dormant.
"We've Got $1.5 Billion to Finance Vehicles," a banner headline on Chrysler Financial's Web site said Friday afternoon. Chrysler officials said the company immediately would offer 0 percent financing on select 2008 and 2009 vehicles.
"We have customers who want to buy our vehicles, dealers who want to order vehicles and employees who want to build cars. Now with enhanced financing available in the system we can help our customers," Jim Press, the vice chairman of Chrysler LLC, said in a statement.
The latest bailout follows Treasury's pre-Christmas move to provide $4 billion to Chrysler in emergency funding to help stave off bankruptcy. It came less than 24 hours after Treasury officials announced in the wee hours $20 billion in additional Wall Street bailout money for Bank of America.
The new sum that's going to help Chrysler is less important than what it represents. Like mortgages, car loans usually don't stay on lenders' books but instead are pooled with others as securities, which are then sold into a secondary market, where investors buy them. This process is called securitization. It fueled the massive expansion of consumer finance over the past 15 years.
However, the secondary market for mortgages, car loans, student loans and even credit card debt is as frozen as a Minnesota lake in winter. The new loan to Chrysler is another government step to replace these frozen markets temporarily to spark a measure of economic activity.
"This ultimately has a bottom-line impact on consumers in making financing available for consumers," said Bill Porter, a spokesman for Chrysler Financial. "This is a loan . . . that's specially geared toward the consumer market."
The loan carries a higher interest rate in its second year, an incentive for Chrysler to place future loans into a new securitization program that the Federal Reserve is readying. In the next several months, it will begin purchasing pools of top-rated auto loans, mortgages and student loans, a move that effectively will have the government play the role that usually reserved for private markets.
Chrysler isn't a publicly traded company as General Motors is, and thus couldn't turn its finance arm into a bank holding company that would be eligible for government bailout aid. The Federal Reserve gave GMAC, the finance arm of GM, that special status on Christmas Eve, later giving it $6 billion in federal bailout money.
The private equity firm Cerberus, run by former Bush Treasury Secretary John Snow, owns Chrysler. Because Cerberus isn't publicly traded, the Treasury Department couldn't get stock warrants to protect the taxpayers' money. Chrysler instead offered special promissory notes equal to 5 percent of the loan.
The loan doesn't ban bonus compensation for top executives of Chrysler Financial, as most bank bailout terms have stipulated. Instead, any bonus this year for top Chrysler execs must be at least 40 percent less than any bonus received in 2007, before the nation's financial crisis hit.
After government loans to GM and Chrysler, Ford Motor Co. seems the odd man out. It said last month that it didn't need bailout money. Congress denied the automakers a bailout anyway, and the Bush administration stepped in. Today, Ford appears weaker for not having government support to backstop car loans.
A U.S. government official who's involved in Chrysler's bailout, demanding anonymity in order to speak more freely, confirmed that there have been talks with Ford about aid and that the door remains open.
"Since the end of congressional action on the subject we have been working with all of the domestic players to understand their needs," he said. "They will each make their own decisions about whether to participate."
CHRYSLER CARS ELIGIBLE FOR 0 PERCENT FINANCING:
Chrysler: Town & Country, 300 and 300C.
Jeep: Grand Cherokee, Commander, Wrangler.
Dodge: Grand Caravan, Charger, Magnum, Challenger, Ram pickup, Ram Heavy Duty.
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