The ailing Detroit automaker, Chrysler said today that has received the $4 billion loan from the US government as agreed by the US Treasury last month in order to save it from an imminent collapse and the money will be used to pay its suppliers, wages and other operating expenses.

The Bush administration had offered to use an unused part of the first tranche of the financial sector bailout package to help GM and Chrysler stave off collapse due to credit problems and dismal sales after the US Senate vetoed bailing out the automakers.

Last month the Bush administration bailed out General Motors and Chrysler with  $17.4 billion in emergency loans of which $13.4 billion came from the unused portions of the nearly exhausted $335 billion of the first part of the $700-billion economy bailout package and the remaining to come from the second $350-billion, which has to be approved by the US Congress. (See: Bush offers $17.4 billion to bail out GM, Chrysler)

GM will get $13.4 billion and Chrysler the remaining $4 billion under the plan worked out by the carmakers and the treasury.

Chrysler chief executive Bob Nardelli said in a statement that the initial loan would "allow the company to continue an orderly restructuring, while pursuing our vision to build the fuel-efficient, high-quality cars and trucks people want to buy."

Chrysler, which is 81 per cent owned by private equity firm, Cerberus Capital Management and 19.9 per cent by Daimler, had only $2.5 billion in cash reserves and was putting off paying its parts suppliers and other vendors who were asking for cash payment.

Although GM received its $4 billion loan on 31 December 2008 (See: General Motors gets $4 billion US government loan, Chrysler still in talks), there were problems in Chrysler's loan application to hinder the speedy disbursement of the loan.

Last month the US Federal Reserve approved General Motors' severly cash-strapped finance arm, GMAC LLC's, proposal to convert itself into a bank holding company, paving the way for it to avail the $700-billion bailout fund under the Troubled Assets Relief Programme, saving it from filing for chapter 11 bankruptcy protection. (See: Lifeline given to GMAC with bank holding company status)

On 1 January 2009, the US treasury purchased $5 billion in preferred stock directly in GMAC Financial Services and disbursed $1 billion to General Motors Corp to buy GMAC equity after the car finance firm said bondholders representing $21.2 billion of its debt had agreed to the terms of a debt-for-equity swap. (See: GMAC raises $21.2 billion in debt swap, gets $6 billion government funds)

Both GM and Chrysler could avail of more low interest loans from the US government in March if they are able to show that they have restructured their operations and are able to become viable in the long run.

Chrysler, the fourth-largest automaker in sales in the US after GM, Toyota and Ford, with over 55,000 employees, has been battered more than GM and Ford because nearly 90 per cent of its sales are derived from North America, where the economic downturn has hit car manufacturers.
Chrysler sales plunged by 28 per cent in November compared to the same period last year.

Many analysts believe that, Chrysler which has been in the US since 1925 has outlived its worth to the US economy and should be allowed to file for Chapter 11 and let GM and Ford remain in the US.

Their rationale behind this thought is although GM being the leader in the US auto industry is still in a position to produce popular cars globally while Chrysler has stumbled since its resurgence in the 1980s.

GM has reinvented the mid-size Malibu, which was praised by critics last year, and is coming out the Cruze in 2010 to replace the Cobalt. Its-long awaited hybrid car, the Volt is also due to go in for production this year.

Ford, which is in better shape than GM and Chrysler is also dumping its gas-guzzling vehicles for more fuel-efficient cars. In 2006 it had bought out the mid-size Fusion and ploans to come out with a new version of the same car this year. It is also coming out with the reworked Taurus, based on the popular Mondeo, from its European subsidiary.

Chrysler, whose sales are confined mainly in the US, has been producing SUVs, pickups, and sedans with V-engines, which are all gas guzzlers and in 1979 it took a $1.5-billion loan from the US government and attempted to make fuel-efficient K-cars. However, the project had to be dumped in 1990 as there as no demand for these cars.

This time around when it is again seeking government handout to save itself from bankruptcy, it has no viable plans to make fuel-efficient cars to sustain itself, apart from planning to sell compact cars made by its Japanese rival, Nissan.