Chrysler Financial Facing Higher Borrowing Costs

by Edward Niedermeyer

July 21st, 2008 6:33 PM

chrysler financial facing higher borrowing costs

With the "energy crisis" as the calamity of the moment, it's easy to forget that the credit crunch is still a long ways from resolution. Luckily, Chrysler is around to remind us. The Wall Street Journal reports ChryCo Financial has a $30b credit facility due for renewal next month, with its borrowing rates set to rise. The usual unnamed sources say the renewal deal is still being "worked out." And while the exact increases are not yet known, analysts are placing the spread at more than one point over LIBOR, currently 2.8 percent. JPMorganChase is said to be "pushing hard to persuade more than 20 banks to renew the facility — backed by car loans, leases and loans to dealers — that was issued by the auto-finance company last year when it was carved-out of the former DaimlerChrysler AG." Uh-oh. Investors have been running away from this exact sort of complex, structured debt since the credit crunch first hit. In contrast, Ford and GM typically use such "conduits" in one or two-month increments, keeping their borrowing costs below 0.5 percent above LIBOR. And the more expensive the borrowing, the less Chrysler can offer in financing terms to move its metal. Which is barely moving anyway. Not good.

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Motownr on Jul 21, 2008

Given the weakness in CFC's current loan portfolio, it's certainly not the best time to be trying to renegotiate credit facilities. However, trouble at CFC is not necessarily the same as trouble at CLLC....despite some of the worst public relation skills ever seen in corporate America, CLLC is probably on far firmer ground than many on this site are presuming.

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Morbo on Jul 21, 2008

People pay money for Dodges? I just assumed they were make work projects for underskilled overpaid union day laborers; you know Home Depot for Michigan and Ohio. And Let the Flaming Commence!

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Geotpf on Jul 21, 2008
motownr Says: July 21st, 2008 at 6:47 pm However, trouble at CFC is not necessarily the same as trouble at CLLC….despite some of the worst public relation skills ever seen in corporate America, CLLC is probably on far firmer ground than many on this site are presuming. Um...how? If you hardly sell any vehicles, and the ones you do sell you have to heavily discount to move them off the lot, how the hell can you make any money? The answer is, you don't. Chrysler is easily the worst off of the Detroit 3, for a number of obvious reasons: 1. They are smaller than Ford or GM, which means that they are less able to weather a downturn. 2. They have almost no overseas presence to balance out the huge drops in sales domestically, unlike Ford and GM. 3. They are more heavily weighted in trucks and SUVs than Ford or GM. 4. Their overall product line is weaker than either Ford's or GM's. 5. All of the above means they have had higher drops in sales than either Ford or GM. 6. In turn, #5 means that, they are (probably) losing more money than Ford or GM currently are (per vehicle sold). (I say probably since their finances are secret now that they are privately owned.)

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Motownr on Jul 21, 2008

@Geotpf: Fair and good points. However, CLLC has sufficient access to capital beyond what has been reported to weather these issues as they transform the business model to more of a contract manufacturing/outsourcing model than their larger competitors. What CLLC lacks in scale it has the potential to balance in terms of speed of action. The owners have already made it patently clear that they lack the sentimental ties to Detroit and even the US that moderate the actions of Ford and GM. GMAC/CFC may well turn out to be poor investments; IMO, it's far too early to write off CLLC.

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