Chrysler Pulls U.S. Loan Application After Strong Financials

Chrysler Group on Thursday withdrew its application for a $3.5 billion U.S. Energy Department loan to help it develop more fuel-efficient vehicles after the company's financial outlook improved and the government tightened lending standards.

The government's Section 136 program aims to promote the production of fuel-efficient vehicles. But after reporting strong earnings for 2011, the company's fiscal outlook jumped -- and the need for the DOE's Advanced Technology Vehicles Manufacturing loan diminshed.

The Company remains confident in its strategy to bring competitive, fuel-efficient vehicles and technologies to market on schedule, the Auburn Hills, Mich.-based manufacturer said in a statement. This decision will not impact Chrysler's ability to achieve its previously announced business plan targets.

The need for government money also declined after the DOE tightened its lending standards in the wake of the bankruptcy of Fremont, Calif.-based Solyndra, a solar panel maker that also had taken an Advanced Technology Vehicles Manufacturing loan. Sergio Marchionne, the company's Chief Executive, at the recent North American International Auto Show hinted that the terms of a loan from the U.S. would limit the company's ability to refinance itself.

Sergio lost patience, Richard Hilgert, a Chicago-based analyst for Morningstar Equity Research, told Bloomberg. The company is now on solid financial ground and really no longer needs to have the DOE loans. They would have been at very attractive rates, but the market has very low interest rates right now and they could probably borrow at very attractive rates without these loans.

Chrysler predicted on Feb. 1 that its earnings will double this year. Italy's Fiat (FIATY) owns 58.5 percent of the once-bankrupt auto giant, and its fortunes have turned around since emerging from bankruptcy in 2009.

The company swung to a profit last year, with $183 million left over after paying off debt plus interest owed to the U.S. and Canadian governments in the second quarter, biting $551 million out of the company's revenue.

Chrysler expects profit growth to increase to about $1.5 billion in 2012, with notable additions to its fleet such as the Dodge Dart.