TORONTO - Chrysler Group has paid off all the money it borrowed at high interest rates from the Canadian, Ontario and U.S. governments when they rescued the struggling automaker from the brink of financial ruin two years ago.
The $7.6 billion paid by Chrysler to the three governments on Tuesday included $1.8 billion in high-cost interest. The Canadian federal and provincial governments received $1.7 billion, paying off all principle and interest.
Chrysler received $10.5 billion from the U.S. government to survive two years ago. On Tuesday, it retired the balance of $5.9 billion on the U.S. loans.
"It's a great day for Chrysler and our 9,000 employees throughout Canada to both repay both the Canadian federal and the Ontario government in full, with interest -- six years ahead of schedule," said Reid Bigland CEO of Chrysler Canada.
The loan repayments came after the company sold bonds last week and took out a bank loan at a lower interest rate, which Bigland said will save Chrysler more than $300 million a year in debt-related interest costs.
The governments stepped in as lenders of last resort during the 2008-2009 credit crisis, sparked by the collapse or near-collapse of several major U.S. financial firms -- making it difficult for companies to raise money in the private sector.
At the time, Canadian politicians said they felt compelled to support an important industry and hoped, but couldn't guarantee, that the money would be repaid after Chrysler recovered.
"It's turned out to be a real win-win," Bigland said.
"We received a second lease on life, we're extremely grateful for the support we received two years ago, and I'm particularly gratified it's worked out for the taxpayers as well."
However, the company is not completely free of government intervention. All three governments continue to hold an equity stake in the automaker.
The Canadian and Ontario governments own a 1.7 per cent equity stake in the company. The U.S. government still owns 8.6 per cent of Chrysler, which Washington got in exchange for the bailout.
Chrysler's biggest owner is a United Auto Workers health care trust fund, which holds a 59.2 per cent stake. It plans to sell the stock to pay retiree health care bills that were shifted to the trust by the company
Italian automaker Fiat SpA originally acquired 20 per cent of Chrysler in return for technology transfer and is aiming to increase that to 45 per cent through a combination of investment and performance achievements.
The governments could get more cash in an anticipated public stock sale, which Bigland said could happen in the latter part of this year or early months of 2012.
"When they convert that equity into cash at some point in the future, that will be more or less gravy, similar to the interest," Bigland said.
As part of the loan deal with the Canadian governments, Chrysler agreed to maintain about 20 per cent of its North American production in Ontario, where some 9,000 employees work at plants in Etobicoke, Brampton and Windsor, home to its largest assembly plant.
Two years later, more than that 20 per cent of Chrysler's production is centred in Canada, Bigland said.
The company has been making investments in Ontario plants, the latest being over $1 billion in the Brampton plant. Bigland said he anticipates employment levels to remain high as the company continues to gain market share and despite the impact of the strong loonie relative to the U.S. dollar.
Chrysler Canada has seen its sales rebound steadily in recent months.
It reported a 16 per cent surge in year-over-year sales last month --a feat that helped it push past General Motors as the number two selling automaker in the country last month, behind Ford Canada -- the only one of the big three Detroit automakers that did not require a government bailout.
News that Chrysler had made good on its loan Tuesday was celebrated by the provincial government and industry unions.
"I think it's fair to say Chrysler Fiat's on a roll as far as Ontario's concerned," said Sandra Pupatello, the province's minister of economic development and trade.
"They've had five new product launches in Ontario alone just in the last few months. Now, with this repayment, I think it's really put the wind under their sails in terms of viability and consumer confidence."
Wayne Fraser, Ontario director of the United Steelworkers' union, said the government made the right decision in making the loans, which have benefited employees and led to further investments in the Ontario auto sector.
"I just think it's an all around good story for the people of Ontario -- for the workers and their families and for all the retirees," he said.
Chrysler was eager to pay back its loans in part because of the governments' high interest rates of around 12 per cent, which cost it $1.2 billion last year. The company said will save $300 million in interest a year under its new agreement.
To pay back the loans, Chrysler is issuing $3.2 billion in bonds and taking out $4.3 billion in bank loans. It also will use a $1.3-billion investment from Italian automaker Fiat SpA. In exchange, Fiat will increase its ownership stake in Chrysler to 46 per cent.
Under a new loan package announced last week, the company's interest rates will fall to around six per cent. That will boost the bottom line at Chrysler.
The Canadian portion of the rescue package for Chrysler and GM totalled about $13 billion -- with the majority, $10.5 billion, going to GM.
The two companies provide more than 15,000 assembly jobs at plants in Ontario, but also provide indirect work to tens of thousands of people in spinoff parts industries across the country.
