Chrysler ends bid for new U.S. loans

The amount of a possible loan has continued to shrink. Last year, Chrysler said it was in talks for a loan of about $3.5 billion. Since the beginning of this year, the Energy Department signaled it was considering offering Chrysler a much smaller loan — less than $2 billion.

The terms and requirements on the loan were to be more restrictive than previously discussed, and for a much shorter time period. In fact, some of the financial terms were worse than terms Chrysler received last year from commercial banks, officials familiar with the matter said.

The loan decision is still disappointing Chrysler CEO Sergio Marchionne and the company, which spent countless hours in talks that could have reduced Chrysler’s interest payments significantly. The government loans would have carried interest about 5 percentage points lower than what the company can borrow funds for on the open market.

Rep. John Dingell, D-Dearborn, said he was disappointed in the decision — and said the Obama administration must act on other pending loan requests.

“I regret that DOE and Chrysler were not able to come to an agreement that clearly would have benefited American workers and manufacturers,” he said. “DOE must start acting decisively so we can fulfill the president’s goal of out-competing the rest of the world.

In January 2011, General Motors Co. also withdrew its request for up to $14.4 billion in retooling loans after lengthy talks with Energy Department officials.

In late 2008, both Chrysler and GM sought to use the program as a lifeline, but ended up getting a $17.4 billion bailout from President George W. Bush from the $700 billion Troubled Asset Relief Program.

Energy Secretary Steven Chu met with Marchionne last month in Washington to discuss the loan. Earlier this month, he said he was “not willing to give up” on the government loans.

Chu told reporters in April 2010 that the department was working “as fast we can” to approve new loans, including to Chrysler.

But he signaled more caution at an appearance in Detroit last month. “We hope to move forward, but there are no promises as to what will happen,” Chu said.

The Obama administration has been reluctant to grant new loans in the face of the collapse of solar panel startup Solyndra LLC, which had received $528 million in government loans.

An independent review commissioned by the White House released last week said the Energy Department needs to improve its oversight of its green energy loans.

In the face of the November election, Obama administration officials have been concerned that a loan for Chrysler from the $25 billion program, which has provided loans to Ford Motor Co. and Nissan Motor Co., would be perceived as a new “bailout” for Chrysler and might tarnish the company’s turnaround and the administration’s handling of the auto industry.

Chrysler’s plan

When Chrysler underwent bankruptcy restructuring in 2009, its exit plan envisioned receiving $6 billion in Energy Department loans.

Chrysler spent nearly two years in talks to assure the Energy Department it was financially viable. It obtained a credit rating, paid back its outstanding U.S. and Canadian bailout loans, and boosted sales and market share.

Initially, Chrysler was to be able to draw on the loans for three years, and then repay them over the following eight years. But Energy Department officials had demanded a much shorter repayment period of about half that time frame, officials briefed on the matter said.

In 2011, Chrysler told members of Congress that its request would help protect 10,000 jobs in nine plants in four states, including Michigan.

The projects on which it is working “would save 520 million gallons of gasoline between 2011 and 2016,” Sen. Debbie Stabenow, D-Lansing, said in January 2011.

Projects in doubt

The program has suffered other setbacks. In July, the Energy Department announced it had awarded the Dearborn unit of Russian automaker Severstal OAO a $730 million loan to build high-strength auto steel. The administration refused to fund the loan after six months of talks, a move that put an additional expansion of the plant in doubt.

Earlier this month, another recipient of a loan, California startup Fisker Automotive Inc. said it had suspended work at its Delaware facility and laid off workers as it works to renegotiate the terms of its $529 million from the program.

House and Senate Democrats in September successfully fought efforts by House Republicans to cut $1.5 billion in funding from the program; they said about 10 loans were in the final stages of deliberations and were ready for approval. But no new loan has been approved since early last year — a $50 million loan to an Indiana company to build a wheelchair-accessible vehicle that can run on compressed natural gas.

One Michigan startup automaker, Bright Automotive, told the Energy Department it may move its production plans to China unless it receives a loan. In December, California-based Aptera Motors Inc. said it was going out of business after it failed to win a $150 million retooling loan.

In total, more than 100 companies applied for $42.7 billion in loans. But just $8 billion of the up to $25 billion in loans has been awarded. Many members of Congress wrote letters to the Energy Department, urging them to make decisions on languishing loan applications.

dshepardson@detnews.com

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