Chrysler Financial to Halt Operations by 2011

On Thursday, the Treasury Department announced that Chrysler’s former financing arm, Chrysler Financial, will liquidate and shut down by December 31, 2011. Chrysler Financial used to provide auto loans and leases to Chrysler carbuyers and financing to dealerships.

“Chrysler Financial is currently following Treasury’s directive to liquidate its business in an orderly fashion,” commented Kenneth Feinberg, the Treasury Department’s Special Master who supervises the pay of top executives at the seven companies that accepted bailouts from the federal government. “Chrysler Financial is currently pursuing a successful wind down of its operations by Dec. 31, 2011.”

According to Treasury Spokesperson Meg Reilly, Chrysler Financial will continue its business until the 2011 liquidation.

“Chrysler Financial will continue to service its obligations to its existing lenders as required by its outstanding loan agreements,” said Reilly.

When Chrysler filed for Chapter 11 bankruptcy protection on April 30, 2009, Chrysler Financial stopped providing loans and leases altogether. Instead, GMAC, the financing arm of General Motors, took over loans and leases for customers who wish to finance a Dodge, Jeep, or Chrysler vehicle through a manufacturer. GMAC also currently provides Chrysler dealerships with the financing of floor plans. GMAC will continue to handle these services in the future.

Borrowers who currently have an auto lease or loan through Chrysler Financial must continue making their payments as planned. Chrysler Financial’s existing leases and loans will probably be transferred over to GMAC before the liquidation takes place.

Despite the Treasury’s announcement, the company that owns Chrysler, Cerberus Capital Management, said it had no knowledge of any orders to liquidate and insisted that shutting down Chrysler Financial was not part of their business strategy. Cerberus claims that it has all of the cash it needs to fulfill its obligations and plans to remain in business.

An American private equity firm, Cerberus purchased an 80.1 percent share of the Chrysler Group from DaimlerChrysler in 2007. On April 27, 2009, Cerberus bought out Daimler AG’s remaining 19.9 percent stake in the company.

The Treasury Department’s announcement also came with sobering news about its plans for bailout firm’s executive pay. At GMAC, executives will experience a cash compensation reduction of $10.4 million, or 50 percent, and a total compensation reduction of $413 million, or 86 percent. Chrysler Financial will suffer similar cutbacks, with the Treasury planning to slash cash compensation by $4.3 million, or 30 percent, and total compensation by $8.1 million, or 56 percent.