Chrysler Corp., crippled by record losses, yesterday received a promise of up to $230 million from one of its chief competitors, the General Motors Corp.
In an unusual business arrangements, GM's financing arm -- the General Motors Acceptance Corp. -- agreed to provide Chrysler's financing arm -- the Chrysler Financial Corp. -- with cash to help finance dealers' purchase of Chrysler cars and trucks. In return, GMAC will assume the right to collect on some of Chrysler Financial's outstanding debt.
It was the second time in the last week that the nation's struggling No. 3 automaker has gone outside traditional channels for short-term funds.
In a similar deal, Household Finance Corp., has agreed to give Chrysler Financial $500 million to finance retail purchases of cars and trucks by customers in exchange for $600 million worth of short term notes.
Altogether, Chrysler Financial extends about $3.8 billion in wholesale and retail credit to dealers. Normally, the company would sell securities in the commercial paper market to raise the funds to cover these loans.
But investors have shunned Chrysler securities since the company reported a $207.1 million second quarter loss and investment rating services pinned a low grade on the firm.
Though Chrysler Financial could have turned to its banks for additional short-term credit, a Chrysler spokesman said yesterday that the company decided to look for alternate sources of financing instead.
Under the terms of yesterday's arrangement, GMAC will buy Chrysler Financial's receivables monthly through January in transactions that will net Chrysler Financial $230 million. Both sides were sparing on details of the deal beyond this, declining to reveal what the face amount of the receivables would be or how much GMAC is expected to earn from the arrangement.
As a yardstick, Chrysler Financial's arrangement with Household has been reported to cost the automaker between 14 and 15 percent on the short term money obtained. But that is to help finance retail purchases, whereas the GMAC deal will help finance wholesale purchases, and so can be expected to cost Chrysler somewhat less.
The deal is not the first for GMAC. In 1970, it assumed wholesale financing for some American Motors Corp. deals when their lenders withdrew. That arrangement lasted four years and was limited to no more than 53 dealers and $15 million at any one time.
Nor is this the first instance of GM helping Chrysler. GM engineers are already aiding Chrysler in work on emissions and other auto systems.
Chrysler has petitioned the federal government for $1 billion in bail out assistance. But GM Chairman Thomas Murphy has stated his opposition to federal aid to Chrysler to preserve the free-enterprise system.
Both GMAC and Chrysler Financial are wholly owned subsidiaries of their parents. GMAC, headquartered in New York, is the nation's largest finance company with $3.68 billion in capital funds. Chrysler Financial, based in Troy, Mich., is the nation's ninth largest finance company with capital of $902 million.
In a related development yesterday in the Chrysler story, the automaker resumed contract bargaining with the United Auto Workers. The UAW had rejected a Chrysler proposal for a two-year wage freeze.