California Autos Examiner

Sunday, August 03, 2008

Most Banks Re-Up With Chrysler, Ceasing Leasing Helped

RPT-UPDATE 2-Chrysler says near $30 bln refinancing deal Markets US Reuters

Update: Well as the headline said "most banks" renewed with Chrysler. The WSJ is reporting that six banks did not re-up, leaving Chrysler $6 billion short. Ouch. The WSJ estimates that Chrysler paid a range of 1.1 to 2.25 percentage points above LIBOR to renew the 24 billion, that premium is well up from last year's .3 to .5 percentage points above LIBOR. That means that 0 percent loans just got a lot most expensive for Chrysler.

Original Post:

Chrysler got a break on the rate it had to pay for $30 billion worth of securities backed by auto loans and leases. Certainly Chrysler had to pay a premium over LIBOR (how much is unknown) but by dropping leases activities, Chrysler was able to save considerable cash. "The general credit crunch and the sensitivity of the credit markets made banks very skeptical of buying lease portfolios," Chrysler Chief Financial Officer Ron Kolka told reporters. "We could have done it if we had wanted it but we would have paid a high price."

Chrysler will lose some volume due to the cessation of leasing. Also, some dealers will be smarting for some time over the one week notice that Chrysler gave them. Looking at the situation that the company is in, I think it made the right call with the lack of dealer involvement being the only real misstep.

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