Chrysler repays $7.6 billion U.S., Canada loans
STERLING HEIGHTS, Michigan
STERLING HEIGHTS, Michigan (Reuters) - Chrysler Group LLC on Tuesday paid back $7.6 billion in U.S. and Canadian government loans from its 2009 bailout, a move that allows the U.S. automaker to distance itself from an unpopular bailout and deepen its ties with Italian automaker Fiat SpA.
At a suburban Detroit assembly plant where Chrysler builds the Chrysler 200 and Dodge Avenger cars, hundreds of Chrysler workers marked the event by sporting red, white and blue buttons that read: "Paid. May 24, 2011."
Sergio Marchionne, the chief executive of both Chrysler and Fiat, told the crowd: "We received confirmation this morning at 10:13 a.m. from Citigroup that Chrysler Group repaid, with interest ... every penny that had been loaned less than two years ago.
"We are changing both the image and substance of our group and are regaining the faith of the public at large," he added.
Chrysler said it transferred $5.9 billion to the U.S. Treasury and $1.7 billion to the governments of Canada and Ontario to repay loans it received in June 2009.
In London on Tuesday, President Barack Obama called the payback a "significant milestone" and a sign the U.S. auto industry was recovering.
The repayment puts Chrysler on firmer financial ground and draws it closer to Fiat, two goals that investors and bankers have said would make Chrysler more attractive in an initial public offering that could come this year or next.
The automaker said it repaid the original loans in full, more than six years ahead of schedule. Under the original terms, Chrysler had until 2017 to repay the debt.
To repay the loans, Chrysler swapped out government debt with cheaper debt from institutional investors. The move does not leave the company with any less debt on its books, but Chrysler said the refinancing would save it an estimated $350 million a year in interest expenses.
The automaker paid more than $1.2 billion in interest on its debts in 2010. Marchionne's frustration with the terms of the government loans seemed to bubble over earlier this year when he denounced them as "shyster loans.
Chrysler has not completely ended its government involvement.
The U.S. Treasury still holds a 6.6 percent common equity stake in Chrysler that Ron Bloom, the Obama administration's point man for auto restructuring, said the government wants to dispose of "as soon as practical." He also said the government did not expect to fully recover its remaining outstanding investment of $1.9 billion in the automaker.
Bloom said Chrysler's early payoff qualified it for "comeback of the year" and was also a feather in Obama's cap as he gears up for the 2012 presidential race.
"The intervention of the guy who sits in the Oval Office made a difference to a million lives two years ago, and I don't think it's unreasonable to remind people," he said of the U.S. government's bailout of Chrysler.
The Canadian government still owns a 1.7 percent stake.
WALL STREET'S FAITH
Chrysler's ability to pull off a deal at all is a sign of Wall Street's renewed faith in the company, which was nearly left for dead two years ago at the height of the financial crisis.
"When we did this deal back in 2009, we couldn't have borrowed a buck from a 7-Eleven store -- the banking system was shut," Marchionne said earlier this year.
A sharp drop in auto sales pushed the Auburn Hills, Michigan-based company to the brink of collapse in 2009 before its federal bailout.
U.S. Treasury officials were initially divided on saving the company, but ultimately decided to prop it up to preserve jobs. Chrysler emerged from bankruptcy nearly two years ago under Fiat's management.
Marchionne was a central figure in laying the groundwork for the Chrysler deal in 2009. He refused to have Fiat put up any cash for Chrysler.
Instead, the U.S. Treasury devised a series of tests that allowed Fiat to raise its stake. Over time, Fiat can increase its stake to 76 percent, according to a recent regulatory filing.
Marchionne reiterated that before Chrysler makes an IPO, discussions need to take place with the healthcare trust affiliated with the United Auto Workers union, which wants to cash out of its 45.7 percent stake in Chrysler.
Chrysler, along with General Motors Co and Ford Motor Co, will negotiate new labor deals with the UAW this summer.
General Holiefield, the UAW vice president in charge of the union's Chrysler department, declined to discuss whether concessions will be necessary to allow the U.S. automakers to better compete with new rivals like Volkswagen AG, which on Tuesday officially opened a plant in Tennessee staffed by less-expensive nonunion workers.
"It's a day we've long been looking forward to," he said of the Chrysler loan repayments. He said later that he was not concerned about the lower-cost VW plant.
As a result of the loan repayments, Fiat's stake in Chrysler has risen to 46 percent, making Fiat the largest single shareholder and putting it within striking distance of its 51 percent goal in 2011. Once Chrysler develops a vehicle that gets 40 miles per gallon on a Fiat platform -- a development Marchionne said Chrysler will meet in the fourth quarter -- Fiat can go to 51 percent.
Marchionne can also bolster Fiat's earnings by moving quickly to integrate its operations with Chrysler's, analysts said. He reiterated that Chrysler will show a net profit for the year.
Marchionne, who received standing ovations from plant workers, said the companies are moving quickly to accelerate the pace of integration. Chrysler's financial results, while still reported separately, will be consolidated with Fiat's starting June 1. He also said the companies need to look at a more intertwined management structure.
"There's no question about integrating parts and strategies, basic technologies," he said.