Chrysler Caught in Catch-22

Chrysler has to refinance $30 billion of its lending arm's working capital by Friday.  However, the automaker has to offer financing to sell its vehicles, but has been losing money on leased cars as resale values have plummeted on SUV's.  What do you do when you need to offer financing to your customers to sell cars but you depend on your lenders to stay in business and they're not happy that you're losing money?  Chrysler has chosen to stop offering auto leases through Chrysler Financial beginning in August.  This drastic move is more than likely meant to placate Chrysler's lenders as it attempts to renegotiate its credit facility.  Not surprisingly, the terms on the new credit facility will be much less friendly to the automaker, in the neighborhood of roughly 2% over Libor (about three times higher than last year when it was originally negotiated.)  In summary, a combination of reduced sales from its inability to offer leases and significantly higher borrowing costs seem likely to torpedo the company in the very near future.  Not good news for Cerberus Capital, the private-equity firm that is attempting to bring the US automaker back from the brink, or its investors.  Nor is this positive for consumers who liked the idea of leasing so they could trade in cars every couple of years.  This may be even worse news for investors in Chrysler's debt as it does not bode well for the company's ability to generate revenues to cover its debt service.  Maybe if Cerberus wants to keep Chrysler afloat it should just start buying its vehicles in bulk.  That seems to be the only way out of this pickle.