Chrysler gets government aid, but not much help

Posted by: David Welch on January 16, 2009

Here’s the good news for Chrysler. The Treasury Department gave the company’s finance arm, which is owned by Cerberus Capital Management, a cheap loan of $1.5 billion to help it write more car loans. That helps because the company has more cash to lend to car buyers, of course. With banks tight fisting the credit these days, some of the few buyers actually going to showrooms can’t get financed.

But don’t expect it to help much. That $1.5 billion, loaned out to buy cars at an average price of $25,000 each, adds up to additional sales of 60,000 new cars. That’s not much for a company whose sales fell more than 600,000 vehicles last year. Since Chrysler Financial is struggling with the same tight credit markets as everyone else, getting capital for new loans will be tough. Sure, the 60,000 cars that Chrysler can sell will be nice. But unless the lender can find new sources of capital, it’s not much of a windfall. Chrysler Financial CEO Thomas Gilman said in a statement that the government loan will help until new sources of capital open up in the open markets. That’s going to have to happen soon to help Chrysler in any meaningful way.

Reader Comments

Paul (Vw)

January 17, 2009 2:20 PM

>>> some of the few buyers actually going to showrooms can’t get financed.

Can you provide figures on that?

What would be useful to know is what % of all Chrysler sales are financed by the company's finance arm.

You state Chrysler's sales fell by approximately 600,000. And by your calculus the aid would only provide capital to finance 60,000 cars (10% of last years shortfall).

What percentage of Chrysler financed sales are for the full sale amount?

Does Chrysler's finance arm finance the majority of Chrysler sales? What percentage of Chrysler sales does it finance?

And of last years 600,000 shortfall, what % of that was due to Chrysler having insufficient capital to finance that subset of the sales.

What % of the shortfall was due to people choosing not to spend the money right now (as opposed to those who could not get approved for financing)? Of those who could not get financing, how many opted for a less expensive new car which allowed them to get financing?

It could be that the $1.5 billion loan is pretty much all that Chrysler finance can utilize at this point. (Then again, maybe not...but it's tough to tell with only the information provided).

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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