TORONTO — Chrysler Group has paid off most of the government bailout money it owed to the Canadian, Ontario and U.S. governments after they rescued the struggling automaker from the brink of financial ruin two years ago.
Chrysler returned $7.6 billion, including $1.8 billion in high-cost interest, to the governments Tuesday in a move that marked a major step forward for the auto giant that filed for bankruptcy during the height of the recession.
Chrysler said it has retired its original loans six years ahead of schedule. The loan repayment came after the company sold bonds last week and took out a bank loan at a lower interest rate.
It repaid $1.7 billion Tuesday to Export Development Canada, the holding group for the governments of Canada and Ontario that lent it about $3.8 billion.
As part of the deal, 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, Windsor and Brampton as well as dealerships.
News that the automaker 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.
The company also repaid an additional $5.9 billion to the U.S. government after an earlier payment last year on its $10.5 billion U.S. loan.
In total, Chrysler has paid the U.S. $6.5 billion and the EDC $2 billion. Another $2.6 billion from the original loans was not drawn and has been cancelled.
However, the high interest required on the loans has added up and the company still owes the governments billions and all three governments continue to hold an equity stake in the automaker.
The Canadian government still owns 1.5 per cent of the company, while the Ontario government has a 0.7 per cent equity stake. The U.S. government still owns 8.6 per cent of Chrysler, which it got in exchange for the bailout.
All three governments could get more cash in an anticipated public stock sale.
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.
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.
The Canadian portion of the rescue package for Chrysler and GM totalled about $15 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.