History Repeats: Chrysler To Repay Loans Early As It Charts New Course
Italian Automaker Fiat will soon have majority control of Chrysler. CEO Marchionne follows Iacocca's footsteps.
Chrysler CEO Sergio Marchionne made the announcement, which the company talked about last week, a few hours ahead of a visit by U.S. Treasury Secretary Timothy Geithner to a Detroit assembly plant that turns out Jeep SUVs.
For history buffs, it is the second time in history that taxpayers have bailed out Chrysler. In 1979, the U.S. government backed bank loans that were made to the automaker to keep it in business. If Chrysler had defaulted, the U.S. government would have been on the hook. The company under CEO Lee Iacocca repaid the loans seven years early.
Chrysler will report earnings on May 3, and more details of the loan repayments and its financial future will be forthcoming.
Chrysler is managed through an alliance with Italian automaker Fiat, which was granted control of Chrysler in 2009 when the company went through bankruptcy reorganization. No bank would finance the company's bankruptcy, so the White House approved taxpayer loans to both Chrysler and General Motors to keep the companies and hundreds of auto parts companies in business.
Ford did not require a bailout as it had loaded up with borrowed money from banks and the bond market in 2006 to finance rough water and keep itself independent.
The other Detroit companies, though, were blowing through their cash reserves at a breakneck pace because of the meltdown of the financial markets, which resulted in auto sales falling off a cliff.
Fiat currently owns 30% of Chrysler, but it plans to raise that to above 50% by the end of the year. It is widely expected to do an initial-public-offering of stock to the public in 2012. A majority of Chrysler is owned by the United Auto Workers' health-care trust fund, which was given the stake in 2009 in exchange for what the automaker owed the union and its retirees in health-care payments.
The effect of Fiat's management has been positive for Chrysler. Sales are up 22% this year through March, slightly ahead of the overall auto industry. Since it took over Chysler in mid 2009 from previous owner Cerberus Capital Management LLC, a private equity firm, it has dramatically upgraded the quality and styling of cars like Dodge Charger, Chrysler 300, Jeep Grand Cherokee and Chrysler 200.
Starting next year, Chrysler will begin rolling out a new roster of vehicles it has developed from scratch with Fiat including several vehicles built off a Fiat engineering platform. These cars and SUVs are widely expected to be higher quality and more fuel efficient than vehicles developed under Cerberus and German automaker Daimler before that.
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