Chrysler stung by $6B federal help for GMAC

WASHINGTON -- Chrysler LLC officials said Monday the government's decision to provide GMAC LLC with a $6 billion cash infusion has put the Auburn Hills automaker at a competitive disadvantage.

Chrysler Chief Financial Officer Ron Kolka said the company is optimistic that the U.S. Treasury Department will provide Chrysler Financial LLC with a cash boost to help loosen credit and increase sales.

"We're crossing our fingers and hoping that they'll come through and we'll get our financial company some money," Kolka said Monday.

Chrysler Financial and GMAC are the financial arms affiliated with Chrysler and General Motors Corp.; they finance vehicle purchases.

After GMAC received federal funds last month, it dropped its credit score requirements from 700 to 621, and GM rolled out zero percent financing to help draw shoppers into showrooms. GMAC had upped its credit requirements in October, shutting out 40 percent of GM customers.

Chrysler Financial financed just 3,800 vehicles last month, down from 50,000 a year earlier. The decline was partly because the company stopped financing vehicle leases in August.

But Kolka said the government cash for GMAC also helped drive up the number of sales Chrysler is losing due to a lack of credit, already at 20 percent to 25 percent.

"In the last three weeks, it's probably increased," Kolka said.

One Chrysler dealer made 30 sales on Saturday but couldn't get 10 financed, he said. Additionally, some Chrysler customers have been going to GM, and some dealers have stopped using Chrysler Financial. "You've got to get credit flowing to the consumer," Kolka said. "That is the key."

Some Chrysler dealers that also own GM outlets have shifted customers to GM when they couldn't get financing, Kolka said.

Chrysler's U.S. sales declined 53 percent in December, the most of any automaker, and were off 30 percent for all of 2008. Industry sales fell 35.5 percent last month and 18 percent for the year.

Chrysler Financial spokeswoman Amber Gowan said tight credit markets are still hampering the lending company's ability to make loans.

Gowan declined to elaborate on discussions between the Treasury Department and Chrysler Financial to receive funds from the $700 billion Wall Street rescue fund, known as the Troubled Asset Recovery Program, also the source of GMAC's financial aid.

"Our application for relief under TARP is still pending, but we are optimistic we will receive the necessary support from the Treasury, which will free up liquidity and increase the availability of credit to dealers and consumers," she said.

Cerberus Capital Management LP owns 51 percent of GMAC and 80.1 percent of Chrysler. As a result, GMAC can't lend to Chrysler under lending regulations, Kolka said.

Chrysler Chairman and CEO Robert Nardelli said he hoped a deal could be reached this week with Treasury. The two parties have been in advanced talks to try and reach a deal before President George W. Bush leaves office next week.

Treasury spokeswoman Brookly McLaughlin declined to discuss the status of the talks.

GM Chairman and CEO Rick Wagoner on Sunday called the government aid for GMAC "a strategic advantage."

The money became available after the Federal Reserve granted GMAC's application to become a bank holding company, giving it access to federal funding sources. The arrangement requires GM and Cerberus to divest part of their stakes in GMAC.

Chrysler Financial has sought an industrial loan charter, which could increase its access to bailout funds.

Separately, Chrysler remains optimistic the Treasury will lend it another $3 billion. In December, Chrysler sought $7 billion in loans to avoid bankruptcy, but Bush agreed to just $4 billion. Chrysler received that loan Jan. 2.

GM also got $4 billion and is set to receive $5.4 billion more Friday and another $4 billion Feb. 17 if Congress approves a request to open the remaining $350 billion in the TARP program from Bush and President-elect Barack Obama.

GM President Fritz Henderson said the automaker had spent the initial $4 billion, which it received Dec. 31.

"We've used the funds to meet our obligations and to run our business," Henderson said. He said the Detroit automaker would use the second loan "to meet our plan and fund ourselves while we get our plan ready for viability."