Chrysler Financial Gets $1.5 Billion U.S. Treasury Loan

When Chrysler Financial got a hard-won loan from the U.S. Treasury Department late last week, it reacted the same way GMAC Financial Services did last month – together with parent Chrysler, Chrysler Financial ran straight out into the market with zero-percent financing offers, to try and stimulate sales.

On the one hand that’s understandable, given how desperate the car companies are for sales. Meanwhile, banks are getting criticized for accepting bailout money, without turning around and making more loans.

After all, the whole idea of government bailout money was to jump-start credit and get markets moving again. Unlike the banks, nobody can accuse the auto lenders of sitting on the money.

On the other hand it’s sort of a shame, in my opinion, that the instant Chrysler Financial and GMAC got renewed access to funds, in effect the money went straight into zero-percent financing, since that’s one of the tactics that got the auto industry into such dire economic straits in the first place.

Chrysler Financial on Jan. 16 announced it secured a $1.5 billion Treasury loan, with conditions echoing a $6 billion package GMAC received last month. Treasury bought $5 billion in preferred shares of GMAC and loaned former parent company GM an additional $1 billion to be invested in GMAC. Both auto finance companies agreed to strict limits on executive compensation.

“We appreciate the Treasury Department’s support and their commitment to increase the availability of financing for consumers,” said Thomas F. Gilman, vice chairman and CEO of Chrysler Financial.

“This funding will provide us with increased capacity to help Chrysler LLC and our dealers make new loans available to qualified consumers and sell more cars and trucks,” Gilman said in a written statement.

Both Chrysler Financial and GMAC and their respective car companies wasted no time in announcing a new round of incentives, including zero-percent financing. Chrysler calls its incentive program “Driving America.”

In the long run, it is to be hoped that a smaller Detroit Big 3 can make a profit at smaller volumes. That would allow them to offer cars at trucks at realistic prices, instead of having to resort to constant discounting.

In the short run, that’s not going to happen. In today’s depressed market, Ford, GM and Chrysler aren’t the only ones offering big discounts. Honda, Toyota and Nissan are, too. The worst of both worlds is that the car companies are offering big discounts, and sales are still depressed.

So in the short run, even though everyone recognizes the corrosive effect of big discounts, all of the big automakers will keep pouring them on.