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Document Type

Case Study

Abstract

In the fall of 2008, due to the confluence of the Global Financial Crisis and years of structural decline in the auto industry, Chrysler was nearing bankruptcy. Chrysler’s related finance company, Chrysler Financial, was also in dire straits. On December 19, 2008, President Bush announced the Automotive Industry Financing Program and that the US Treasury would extend Chrysler a $4 billion Bridge Loan to give the company time to prepare a viable restructuring plan. Two weeks later, the Treasury arranged $1.5 billion in low-interest financing for Chrysler Financial to fund the securitization of new consumer car loans and the facility subjected Chrysler Financial to several management restrictions, most of which related to executive compensation. Chrysler Financial drew down the entire $1.5 billion between January 16 and April 9, 2009. When Chrysler entered bankruptcy on April 30, GMAC, General Motors’ related auto finance company, took over most of Chrysler Financial’s business. Chrysler Financial continued to do business at a much smaller scale and Treasury expected Chrysler Financial to wind down its business. Although the loan bore a five-year term, Chrysler Financial paid off the loan in July after accessing another government program, the Term Asset-Backed Securities Loan Facility (TALF) and continued to operate. In December 2010, TD Bank bought Chrysler Financial from Cerberus, its major shareholder, for $6.3 billion. Commentators do not have much to say on the impact of the government’s aid for Chrysler Financial, although the $1.5 billion facility coincided with several months of increased sales.

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