Chrysler sale rumors arise after refinancing falls short.
The Financial Times (8/5, Bullock, Reed) reported that Chrysler "revealed it had only been able to refinance $24 billion of a $30 billion one-year credit facility that was expiring" because "some banks declined to extend additional credit to the vehicle maker. Chrysler also took a reduced amount...to account for its decision to pull out of the lease business." The automaker cited "plunging residual values of off-lease vehicles and the more difficult climate in the securitization markets" as its reasons for pulling out of the business. According to Tom Gilman, of Chrysler Financial, about "90 percent of all banks that were part of the original conduit participated in the renewal." The ones that did not "demanded higher interest rates than those Chrysler had paid in the original $30 billion facility."
Chrysler Financial spokesman Bill Porter told Bloomberg (8/5, Ramsey, Koenig) that "Chrysler Financial has a $70 billion portfolio..., so the renewed bank lines represent only a portion of the capital it can access to make loans." Chrysler said that "it had earned $1.1 billion through June, excluding interest, taxes, depreciation and amortization," and "had $11.7 billion in cash at the end of that period, of which $2.3 billion was restricted." Earlier this year, Chrysler CEO Robert Nardelli said that the company "wouldn't have a net profit in 2008."
The AP (8/6, Krisher, Durbin) adds that since Cerberus Capital Management took Chrysler private, "little has gone right." The "weak economy" has "limit[ed] Chrysler's ability to borrow." And, "troubles are mounting. Chrysler's sales are down 23 percent so far this year, the worst drop of any major automaker, and it has stopped offering leases through its financial arm." This coupled with its inability to renew the full $30 billion in its credit lines have led Fitch Ratings to "downgrad[e] Chrysler further into junk territory." Fitch "expects the company's finances to fall to the minimum levels required to fund its operations as early as next year." Still, the company maintains "a positive spin on the headlines." Chrysler "says it's performing ahead of its own expectations," pointing to its cash on hand and its earnings. The company attributes its performance to "significant job cuts and asset sales." Some analysts speculate that the company is trying to make itself look "more attractive to buyers." If the company is not sold, some analysts say, "Chrysler has so few products in its pipeline that it's hard to see a turnaround plan."
The Detroit Free-Press (8/5, Higgins) quoted Aaron Bragman, "an industry analyst with Global Insight," as saying that Chrysler has "been getting a lot of criticism in many circles about just how are they actually doing. We keep hearing [Chrysler president and vice chairman] Jim Press stating: 'We're ahead of plan. We're ahead of plan. Everything looks great.' But their sales are down by a quarter for the year and 30 percent over the last two months. Those two statements don't mash up."
