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U.S. Expands Aid To Auto Industry
"Ford has been trying to have its cake and eat it, too," said David Cole, chairman of the Center for Automotive Research.
The support for Chrysler Financial is structured differently than most other loans the Treasury has made from the TARP. Instead of investing money directly into Chrysler Financial, the company is creating a special entity that will receive the government loan. Chrysler Financial can then withdraw those funds to make new auto loans.
The interest rate on the $1.5 billion government loan is initially set to be a percentage point above the bank lending rate known as Libor, and is set to rise by half a percentage point after one year. At the current low rates for Libor, the government would see an interest rate of 1.36 percent.
As further compensation for making the loan, the new lending entity will also in effect commit to pay the government $75 million, in the form of notes.
In addition, Chrysler Financial agreed to reduce by 40 percent the pool of bonus money for its senior executives relative to the 2007 levels, among other limitations on what it can pay its top officials.
As a result of this aid, many car buyers will be able to get zero percent financing for up to five years on some 2008 and 2009 Chrysler cars, company officials said.
"This will provide a great economic stimulus for car buyers across the country," Jim Press, Chrysler vice chairman and president said in a statement.
Chrysler Financial applied for TARP funds in November. In December, Chrysler's sales slid 53 percent compared with the corresponding month a year before.
"This funding will better position us to withstand the current economic challenges until funding becomes available through more traditional commercial sources," said Thomas F. Gilman, vice chairman and chief executive of Chrysler Financial in a statement.
In addition to announcing the deals for Chrysler Financial and Bank of America, the Treasury said banks receiving federal aid must provide written certification that their five most highly compensated executives are complying with pay restrictions laid out in the TARP legislation. Some of these limits include banning payments that reward risky behavior, prohibiting some "golden parachute" payments when the officers leave, and limiting tax deductions in excess of $500,000 for each senior executive.
The Treasury also announced it would lower the amount of losses that it would insure for Citigroup to $301 billion from $306 billion.
The Treasury staff has showed little sign of slowing their pace since March, when Bear Stearns nearly collapsed.
Yesterday was supposed to be their last day of work, but many senior Treasury officials kept their government-issued BlackBerrys rather than turn them in. They were given Federal Express envelopes to ship their devices next week, in case they had to work over the weekend.