Car manufacturer negotiates $30bn refinancing deal

Chrysler said its finance arm had successfully negotiated the framework for a refinancing of $30 billion (Dh110bn) in working capital as the automaker posted operating cash flow that put it "well ahead of plan".

The company, which has released limited financial data since Cerberus Capital Management bought it from Daimler AG a year ago, said it ended June with $11.7bn in cash and had earnings before interest, tax, depreciation and amortization of $1.1bn in the first half of the year.

Chief Financial Officer Ron Kolka disclosed the two cash-based financial measures in a surprise statement after the automaker reported a 29 per cent sales drop in July sales.

Chrysler said it considered its performance to be strong, given the pressure on the industry.

"False speculation is rumbling around about our company and instead of letting other people define us...(we) decided to release some data," vice chairman and sales chief Jim Press told reporters.

"And as you could see, it's pretty damm good." Chief Executive Bob Nardelli, in a memo to employees, said Chrysler was able to generate cash more easily as a private company through sale of non-earning assets.

"This enhances our ongoing operational improvement efforts, enabling us to continue to invest in new products as we work to reduce our fixed costs, inventory and working capital," he said in the memo, which was released to the media.

Nardelli also said the automaker was looking to boost its car line-up through internal development and partnerships.

Chrysler is in talks with India's Tata Motors and Italy's Fiat as it seeks to raise cash and open doors to faster-growing markets outside the United States, sources have told Reuters.

Kolka said Chrysler Financial, the automaker's financing affiliate, was nearing completion of a deal to refinance about $30bn in debt backed by auto loans and leases. A decision by Chrysler Financial to suspend lease financing, a risky form of vehicle financing that has saddled Chrysler's US rivals with large losses, was a positive move in negotiations with bank creditors, Kolka said.

"The general credit crunch and the sensitivity of the credit markets made banks very sceptical of buying lease portfolios," he told reporters. "We could have done it if we had wanted it but we would have paid a high price."

"At the end of the day, the cost of funds will be going up in the conduit (financing) renewal because of the current environment," he added. "Anyone issuing new debt today, the cost of funds is going to go up."

Like its larger competitors General Motors and Ford Motor, Chrysler has faced scrutiny over its cash position and its ability to ride out a downturn in US auto sales that many analysts expect to stretch through 2009.

Chrysler said it has $11.7bn in cash holdings as of the end of June included $2.3bn in restricted cash.