Chrysler May Soon See More Federal Aid

Chrysler Group is still struggling to return to profitability after last year's government-backed bankruptcy. On Tuesday, however, the automaker -- along with rivals Ford Motor (F) and General Motors -- got a big financial boost in the form of tax breaks from state economic development officials in Michigan.

During the next 20 years, Chrysler will receive tax credits worth more than $1.3 billion to upgrade plants in the state. Among its plans, the Auburn Hills automaker will spend $150 million to expand capacity to build a Fiat-designed four-cylinder engine at its Dundee engine plant.

In addition to state aid -- and the billions of dollars already loaned it by U.S. taxpayers in the form of last year's bailout -- Chrysler may soon get approval for billions more in loans. The company, which is 10% owned by Treasury and run by Italy's Fiat, has applied for about $10 billion in loans from the Department of Energy, Reuters reported, citing unnamed sources for the information.

It isn't clear how much credit will be granted, but the financing would help Chrysler boost cash flow and accelerate payment of some $7 billion in pricey government loans it received as part of its bankruptcy. The loans are expensive because Treasury is the lender of last resort.

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According to its August financial update, Chrysler is paying interest rates of 7.2% to 14.3% on the $5.7 billion it still owes Treasury. The cost of servicing the debt was a key reason why Chrysler reported a net loss in its second quarter, Reuters noted.

Chrysler declined to discuss any time frame for approving its bid with the Energy Department.

"Our application covers a wide variety of technologies including electric vehicles, (gasoline/electric) hybrids and advanced gasoline engine technology," a Chrysler spokeswoman told Reuters.

The agency may approve all or part of the request by Chrysler, but it isn't the only company seeking the funds. Loans have already been made to other companies and pending loan requests from carmakers and suppliers exceed the estimated $17 billion in available funds, Reuters said.

Still, it's likely Chrysler would receive approval ahead of GM, which is pursuing an initial public offering targeted for mid-November. If GM were to accept a government award now, it would only complicate the IPO.