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Chrysler repays $7.6 billion in government loans

DETROIT (AP) - With a few computer keystrokes in an office at
its headquarters, Chrysler Group LLC sent $7.6 billion to the U.S.
and Canadian governments on Tuesday, paying off most of the bailout
money that saved the company from financial disaster just two years
ago.
The repayment - expected for weeks - is a huge step in the
automaker's unlikely comeback. Chrysler went from a company that
almost ran out of cash and survived a 2009 bankruptcy to one that
is revamping its aging lineup and last quarter posted its first net
profit in five years, a modest $116 million.
"I think this is going to close a painful and necessary chapter
in our history," Chrysler CEO Sergio Marchionne said Monday at the
opening celebration of a dealership in Detroit.
For Marchionne and Chrysler workers, the payoff marks partial
freedom from government ownership. But it also means the company
must stand on its own and continue to overhaul a lineup that's
still depends on old Chrysler designs and larger vehicles that have
fallen out of favor due to high gasoline prices.
"We celebrate and then we move on," said Marchionne, who is
also CEO of Fiat SpA, the Italian automaker which was given control
of Chrysler by the U.S. government. "We've got a long way to go."
Chrysler took $10.5 billion from the U.S. government to survive
two years ago, and earlier had repaid some of the money. On
Tuesday, it retired a $5.9 billion balance on the U.S. loans and
$1.7 billion to the governments of Canada and Ontario.
"Chrysler's repayment of its outstanding loans to the U.S.
Treasury and American taxpayers marks a significant milestone for
the turnaround of Chrysler and the countless communities and
families who rely on the American auto industry," President Barack
Obama said in a statement.
To pay off the governments, Chrysler raised $3.2 billion through
a bond sale and took out $3 billion in lower-interest bank loans.
It also will use a $1.3 billion investment from Fiat.
But government ownership doesn't end with the loan repayment.
The U.S. Treasury still owns 8.6 percent of Chrysler, which it got
in exchange for the bailout. About $2 billion of the government aid
went to parts of Chrysler that were left behind in bankruptcy. That
money hasn't been repaid. Some of it could be recouped when the
government sells its Chrysler stock in an initial public offering.
But the government concedes it's unlikely to get all of the money
back.
Chrysler was eager to pay back its loans in part because of the
governments' high interest rates of around 12 percent, which cost
the company $1.2 billion last year. The interest rates on the new
loans and bonds are 6 to 8 percent, saving Chrysler $300 million in
payments per year. It also wants to shed its government ownership
because some customers object to the bailout.
The loan repayment happened Tuesday morning. It went from the
banks and Fiat to Chrysler's accounts and was transferred to the
governments electronically, a Chrysler spokeswoman said.
It lifted the morale of Chrysler workers and dealers who just
two years ago came close to losing everything.
Carl Galeana, who runs Chrysler and Fiat dealerships in Michigan
and Florida, said Marchionne has done everything he promised to
save the company. Vehicles such as the Jeep Grand Cherokee SUV,
which was overhauled by Chrysler, have helped the company return to
profitability.
But Galeana and others know the company's future success depends
on models from Fiat, especially in small and midsize segments where
Chrysler remains unproven.
"What we have to prove to the public is we have damn fine
products," he said. "That's the kind of stuff that's coming
through the pipeline."
Chrysler's action is the latest in the comeback of the Detroit
auto industry after the recession put its future in doubt. General
Motors Co. also went through bankruptcy and got a $49.5 billion
U.S. bailout in exchange for giving the government a 61 percent
equity stake. The Treasury Department now owns 26.5 percent of GM
after selling part of the stake in November.
The third Detroit automaker, Ford Motor Co., didn't seek a
bailout.
It's not the first time Chrysler had to be rescued by the U.S.
government. In the early 1980s the company led by legendary
pitchman Lee Iacocca, paid off $1 billion in government guaranteed
loans in three years.

(Copyright 2011 by The Associated Press. All Rights Reserved.)


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