Chrysler Financial, once the exclusive lending arm of the storied automaker, will liquidate and go out of business by Dec. 31, 2011, according to a letter from the U.S. Treasury Department.
The long-anticipated move will cost the battered Detroit area thousands of jobs as it struggles with an auto industry downturn and the bankruptcies and government-run restructurings of Chrysler Group and General Motors.
Last summer, Chrysler Financial employed 3,900 people, many at its headquarters in the Detroit suburb of Farmington Hills, although it has been reducing its work force. In September, Michigan had the highest unemployment rate in the nation at 15.3 percent.
Chrysler Financial is in the process of shifting much of its loan business to GMAC under orders from the government, with GMAC becoming the preferred lender for both GM and Chrysler.
The Treasury Department said in the letter to Chrysler Financial dated Thursday that the lender will liquidate its business and repay lenders and investors.
New Chrysler loans are going to GMAC, but Chrysler Financial continues to service loans that it made previously on Chrysler vehicles. Chrysler Financial's portfolio has dropped from $45 billion last summer to the current $26 billion.
The Treasury letter says Chrysler is following a Treasury directive to liquidate, and is "pursuing a successful wind down of its operations by Dec. 31, 2011."
The letter was among documents released as the Treasury Department on Thursday ordered Chrysler Financial and six other companies that received billions of dollars in government bailouts to halve total compensation for their top executives.
Chrysler Financial, though, was allowed exceptions to some pay limits in order to keep top executives and other employees while it winds down. The lender is not paying its employees any stock compensation because it is in the process of liquidating.
Messages were left for Chrysler Financial spokeswoman Amber Gowen. A spokesman for Chrysler Financial owner Cerberus Capital Management would not comment.