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Chrysler, the once-bankrupt U.S. automaker that received billions in government aid last year, will soon get new federal loans to help retool factories to make more fuel efficient vehicles, according to sources familiar with the matter.
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The timing of the Energy Department award to Chrysler is fluid, but sources with knowledge of the financing and the industry say the automaker will likely receive approval for new credit before General Motors Co.
GM is in the midst of preparing a initial public offering for mid-November, and cannot take on the government awards without complicating its IPO.
Chrysler, which is nearly 10-percent owned by the U.S. Treasury and was placed under management control of Italy's Fiat SpA during its restructuring, has applied for roughly $10 billion in loans.
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It is unclear how much of that request will be granted.
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New loans would be welcomed by investors as a sign of government confidence in the U.S. auto industry and plans for capital investment in fuel efficient technologies.
For Chrysler specifically, Energy Department financing would improve cash flow and enable it to accelerate payment of some $7 billion in pricey government loans extended as part of bankruptcy.
Terms are steep for Treasury financing as lender of last resort. According to its August financial update, Chrysler still owes the Treasury $5.7 billion. The interest rates on that debt range from 7.22 percent to 14.33 percent.
The cost of servicing its debt was a chief reason why Chrysler reported a net loss in its second quarter.
Chrysler, planning for an IPO in late 2011, is in the process of revamping its lineup and introducing vehicles with Fiat-based technology. The automaker could be expected to use new government loans to overhaul assembly, engine and transmission plants.
Chrysler declined to discuss any time frame for approving its bid.
"Our application covers a wide variety of technologies including electric vehicles, (gasoline/electric) hybrids and advanced gasoline engine technology," a Chrysler spokeswoman said.
The Energy Department could approve some or all of Chrysler's requested financing, but several loans have already been made to other companies and pending loan requests from carmakers and suppliers exceed an estimated $17 billion in available funds.
The $25 billion auto loan program was created by Congress in 2007 to help U.S. companies overhaul assembly facilities to make more fuel efficient cars, including electric vehicles.
