June 3 (Bloomberg) -- Chrysler LLC, seeking to shrink inventory while in bankruptcy, began offering five-year, no- interest loans on some models in its first effort to use new lender GMAC LLC for incentives.

The financing, which was announced today, runs through July 1 and is an alternative to rebates of as much as $6,000 for consumers who buy through certain credit unions and already own a Chrysler vehicle. The cash option was put in place last month.

Chrysler is trying to clear as many unsold vehicles as possible from dealer lots before restarting its plants, which have been shut since May 1. GMAC took over financing duties from Chrysler Financial as part of Chrysler’s government-backed bankruptcy filing on April 30.

“There’s no doubt, with the level of incentive activity going on, they were bound and determined to clear out as much inventory as they can because they have to,” said Michael Robinet, an auto analyst with CSM Worldwide Inc. in Northville, Michigan. “Now is the time to clear that inventory out and start as fresh as they can.”

Chrysler’s U.S. sales declined 47 percent in May, less than analysts had predicted, in its first month of results in bankruptcy. The automaker’s sales to consumers at dealerships, which exclude sales to rental car and government fleets, declined 30 percent, better than the industry, said Gary Dilts, senior vice president of research firm J.D. Power & Associates.

Chrysler’s unsold autos totaled 260,000 at the end of May, which equated to an 87-day supply at the current sales rate for Auburn Hills, Michigan-based company. The industry standard is 60 days.

‘Fine’ Through June

“When I look at what we have in inventory, we will be fine through the month of June,” Steven Landry, Chrysler’s sales chief, said in a call with reporters yesterday. Production isn’t set to resume until late June, he said.

Of the 260,000 unsold vehicles, only 3,000 remained at the 789 dealers being dropped under Chrysler’s plan to sell assets to a new company run by Fiat SpA. Those outlets must stop selling Chrysler brands by June 9.

Chrysler’s average incentive spending for May declined 10 percent, or $437, to $3,822, according to industry research firm Autodata Corp. in Woodcliff Lake, New Jersey.

All Chrysler dealers now have access to retail financing through Detroit-based GMAC, and 62 percent have lines of credit to buy wholesale inventory, Mike Keegan, the automaker’s vice president of volume planning, said on the call yesterday.

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: June 3, 2009 13:15 EDT