Jan. 16 (Bloomberg) -- Chrysler Financial, the credit arm of Chrysler LLC, received a $1.5 billion, five-year loan from the U.S. Treasury, prompting the automaker to offer no-interest financing to buyers of some of its vehicles.

As a condition of the aid, part of the $700 billion Troubled Asset Relief Program passed last year, Chrysler Financial agreed to limits on corporate governance and executive compensation. The loan will be secured by a pool of new consumer auto loans, the Treasury said today in a statement released in Washington.

The aid from the bank-bailout program lets the finance company help boost sales at Chrysler, which was rescued from collapse by $4 billion in U.S. assistance. Chrysler U.S. sales plunged 30 percent last year, the most among major automakers. Industry deliveries slid at least 27 percent in each of 2008’s final four months, in part because of a credit crunch.

“Chrysler’s sales were down 53 percent in December,” said Tracy Handler, an analyst in Troy, Michigan, for economic forecasting company IHS Global Insight Inc. “With more money to lend, sales probably would have been down 30 percent.”

The Auburn Hills, Michigan-based automaker said in a statement today that it will offer no-interest financing for as long as five years on 11 models.

Chrysler plans more “aggressive” incentives starting as soon as this weekend, Steve Landry, its executive vice president of North America sales, said on a conference call.

‘Sell More Cars and Trucks’

Chrysler Financial Chief Executive Officer Thomas Gilman said the Treasury loan “will provide us with increased capacity to help Chrysler LLC and our dealers make new loans available to qualified consumers and sell more cars and trucks.”

Chrysler Financial has had discussion with the Treasury about getting more capital, said James Press, president of the automaker. The company expects the $1.5 billion to provide money for loans through March 31, he said.

Ford Motor Co.’s consumer credit unit is in discussions with the Treasury Department, the agency said today on a conference call about the aid to Chrysler Financial. The department declined to characterize what the Ford Motor Credit unit is seeking.

Ford Motor Credit is talks with the department and the Federal Reserve about ways to unfreeze the credit markets, said Margaret Mellott, a spokeswoman for the unit.

“Our discussions with Treasury and the Federal Reserve have been ongoing and concern a number of programs and ideas,” Mellott said. She wouldn’t say whether the company is asking for TARP funds.

Ford is the only U.S. automaker that hasn’t tapped federal funding in the government bailout of the industry.

Support for GMAC

Chrysler Financial in recent weeks stepped up its appeals to the Treasury, asserting that sales of Jeep, Dodge and Chrysler vehicles were hurt by the lack of credit. GMAC LLC, the lender affiliated with General Motors Corp., became a bank holding company and received $6 billion in support last month under TARP.

GM also increased customer incentives after the government announced the aid to GMAC.

The loan for Auburn Hills-based Chrysler Financial will be to a “special purpose entity” created by the credit arm. That entity will issue warrants to the Treasury in the form of notes equal to 5 percent of the loan total, which would be $75 million.

The interest rate for the first year will be 1 percent above the benchmark London interbank offered rate, and 1.5 percent more than Libor for the remaining years.

The Chrysler Financial aid comes as industry forecasts for 2009 sales of cars and light trucks have turned increasingly gloomy. GM yesterday lowered its estimate to 10.5 million vehicles, a total that would be the lowest in 27 years.

Plant Shutdowns

Because of declining sales, Chrysler in December idled all 30 of its North American plants until at least Jan. 19. The automaker has extended that shutdown by one week at plants in Illinois, Michigan and Mexico.

The third-largest U.S. automaker’s financial viability faces a further threat because of financial weakness among many of the 1,600 North American parts suppliers.

Chrysler is scheduled to make a progress report to the U.S. on Feb. 17 and an outline of its plan to repay government loans by March 31.

Landry said on Jan. 12 that “we are the only company that really doesn’t have an active captive finance company able to finance wholesale and retail. Our dealers in the months of November and December were really not doing much business with Chrysler Financial at all.”

Chrysler and Chrysler Financial are controlled by Cerberus Capital Management LP.

To contact the reporter on this story: Doron Levin in Southfield, Michigan, at dlevin5@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net

Last Updated: January 16, 2009 17:40 EST