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.
Find Reviews by Make:
Read all comments
You know, I have a Chrysler dealer near my home, and everytime I drive past there I see nothing but Rams, R/T & SRT-8 Chargers, Calibers, etc. Most of them are tarted up with 20″+ rims, other gawdy mods (AutoZone hood scoops), and so on.
If anyone needs to throw in the towel, it is this company. The writing was on the wall when Cerebus took over. If you have any stock of theirs, I’d bail on it before it gets any worse!
Already done John; Cerebus took the company private.
Before the dcj dealership i sold for closed down we never used chrysler financial for credit to customers.. they just didn’t offer competive rates. Credit unions were giving out 4.0 to good credit people.. chrysler is in trouble! (if you didn’t know)
At first blush this sounds like a great rate – a 2.8 (floating rate) +1% to be used in support of an opaque credit instrument. I could only dream of that credit card rate!
The real catch here might not be so much the interest rate, rather the amount of collateral now being required to secure the loan. What that means is a $30 Billion (the B is always capitalized in my Billions)loan used to require require say, $35 Billion in assets to back it up (Accountants, anyone, am I in the ballpark…?).
Now, the real sticking point could be a demand for a significantly higher asset levels – the same $30B loan now needs $50B in assets to back it up.
I could easily see a scenario in which they simply run out of assets that they can use as collateral for additional loans, leaving Chrysler Financial short on cash to make sweetheart deals to move cars.
Already done John; Cerebus took the company private.
Oh yeah… They have haven’t they!?
John the Accountant said “I have a Chrysler dealer near my home, and everytime I drive past there I see nothing but Rams, R/T & SRT-8 Chargers, Calibers, etc. Most of them are tarted up with 20″+ rims, other gawdy mods (AutoZone hood scoops), and so on.”
Yeah, that’s the problem. When will Chrysler learn that half-way measures won’t work? The rooflines are too tall, the beltlines too low, there’s not enough bling, styling is too bland, and they don’t do enough to earn the business of young urban coke-peddlers who have no credit history. C’mon, Chrysler, let’s have twice as much of the same!
MikeInCanada: The real catch here, to borrow your phrase, is that Chrysler is dependent on sweetheart deals to move cars. And besides waiting on Peter Arnell to turn shit into gold there’s not a lot to look forward to product-wise.
And screw the private ownership. If Chrysler goes down, I’ll sure be glad I wasn’t paying taxes in the late 70’s and early 80’s.
Unless, of course, bailing out Chrysler is becoming a generational right of passage…
Edward: I’ll sure be glad I wasn’t paying taxes in the late 70’s and early 80’s.
The Chrysler “bail out” was a federal loan gurantee: thanks to the profit from K-car and mini-vans, the loans were repaid quickly, and the fed. guarantees were essentially cancelled. It didn’t cost the taxpayer a dime.
That was then…
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.
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!
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.)
@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.