Chrysler: No Product Changes For Loans

Does that headline seem ripped from the pages of TTAC’s 2008-2009 headlines, or what? But really, who’s shocked? Chrysler spent early 2009 trying to convince the government that it was worth a (second) taxpayer-funded second chance, and now that it’s looking for a private-sector bailout in order to escape the terms of its publicly-funded bailout, Chrysler’s still got some ‘splaining to do. The DetN reports:

Chrysler Group LLC does not intend to speed up plans for new cars despite media reports that investors see a high degree of risk in an automaker that has been so dependent on truck sales…

“Nothing has changed from the five-year plan,” [Chrysler Group VP of Design and Dodge boss Ralph Gilles] said.

New small and midsize cars for Chrysler, engineered by Fiat, “are coming strong and heavy,” Gilles told reporters following a speech. “There is no need to speed up.”

Now, nobody would suggest that Chrysler should mess with its product timing simply to please some bankers. If it’s even remotely possible to hurry new products to launch without cutting serious corners, Chrysler should/would be doing it anyway ( ask Sergio). Still, Gilles’ “nothing has changed” sound bite isn’t exactly true.

Less than a month ago, it was reported that the Chrysler brand would not be getting new Compact or Subcompact vehicles… a fairly clear break from the Five Year Plan. At the time the move was justified as a way to prevent overlap with the Fiat 500 and forthcoming Dodge C-Segment sedan, but that’s only a problem if you don’t spend any money differentiating your products. Fiat sells the Lancia Ypsilon next to the Fiat 500 in Europe… with gas prices going up and CAFE looming, why not try a similar strategy stateside? Perhaps Wall Street would have more confidence in Chrysler’s ability to fix its sub-standard fuel economy if it hadn’t just cut small cars out of an entire brand.

But, then, Chrysler doesn’t need to push for better loan terms. Not when the bond market is hopping. The WSJ reports that Chrysler has flip-flopped its bond-loan mix, and is now seeking only $2.5b in loans and $3.5b in bonds. Guy LeBas, chief fixed income strategist at Janney Montgomery Scott explains that

The relative resizing of the bond and loan issue is very instructive about the two markets. The corporate bond market remains wide open for issuance while the loan market is a little more cautious to lend. Banks cost of capital and, therefore, a loan’s cost have been on the rise and that’s because loan purchasing tends to be done by investment committees whereas bond buying is more decentralized

On the other hand, you have to wonder if the bond market has paid much attention to Chrysler’s recent past, specifically the experiences of its erstwhile bondholders in bankruptcy. It really wasn’t all that long ago (although our “legal team” advises me to clarify that Old Chrysler is in no way the same company as “Chrysler Group LLC). Either way, more bonds equals more interest… around eight percent, according to the WSJ. The FT adds that Chrysler has bumped its loan interest rate to 475 basis points over three-month Libor (from 400-425).

Meanwhile, help may be coming from another corner… the government. Reuters reports that Energy Secretary Steven Chu confirmed that Chrysler’s ATVM “Retooling Loan” request is still pending the refinance deal. Chu said he was “hopeful” that Chrysler would qualify for the loans, which require proof of “viability,” but that a decision before the re-fi would be premature. Chrysler’s $3.5b ATVM loan application has been pending since before the bailout, and CEO Sergio Marchionne says it will be used to improve truck fleet efficiency. And luckily those loans are the kind of low-interest loans that only the government can provide.