The seasonally adjusted sales rate for September, which will be released Oct. 3, is projected to be close to 13 million and higher than the 12.1 million rate in August, Shanks said. Some of the increased volume is attributable to an increased supply of cars from Japanese automakers who suffered in the wake of the earthquake in March.

Shank said the segmentation shift back to larger trucks continues, helped by incentive programs by some of the domestic automakers.

But the controller said he does not think the Japanese automakers will pile on incentives and disrupt the marketplace when they have full inventories again.

“There were fears the Japanese would come in hard and heavy,” Shanks said, “but it is not happening.”

As for Ford, the goal remains a return to investment-grade status and restoring dividends, which could be as soon as this year.

Last week, Chief Financial Officer Lewis Booth said if Ford’s cash continues to grow, the automaker would look at “further shareholder actions.”

While he did not elaborate, Ford has said its dividends will return when investment-grade status, lost in 2006, is regained.

Ford knows reducing debt and securing a new labor agreement with the United Auto Workers are conditions.

At the end of June, total debt was $14 billion. But last week Ford tapped its $22 billion in cash reserves to retire the final $1.8 billion of a $7 billion long-term loan secured in 2006 that was to mature at the end of 2013.

Moody’s Investors Service has Ford two notches below investment grade.

On Monday, Moody’s downgraded Fiat SpA one step to Ba2 – the same level as Ford — with a negative outlook. Fiat is now the majority shareholder of Chrysler Group LLC and Moody’s expressed concerns that the automaker would be saddled with Chrysler debt.

Moody’s said it fears the integration of the carmakers “could result in the two companies having to support each other in the event of financial difficulty.” Fiat has about $11.3 billion in debt.

Wednesday, J.P. Morgan said it was upgrading its Chrysler credit recommendation from Underweight to Neutral and Chrysler’s senior notes from Sell to Hold, according to a report from Eric Selle executive director of credit research.

Selle said he saw Chrysler as more of a risk a few months ago. While some concerns remain, “we have become more constructive on the outlook for the business given solid quarterly earnings, strong monthly sales performance, and conversations with management. We have been impressed by the progress made by the combined Chrysler/Fiat entity. In the near term, we expect Chrysler to successfully negotiate a UAW contract without an increase in fixed costs or its breakeven volume level. We also expect the company to post solid third-quarter results.”

“In addition, Chrysler’s U.S. sales have massively outpaced its peers and expectations,” Selle said, in the note that advises investors to trade, not invest, in Chrysler’s bonds.

Meanwhile, Ford continues to negotiate a new labor contract to replace the four-year contract that expired Sept. 14. Ford and the UAW extended the agreement indefinitely, but can be revoked by either side with three days notice.

The UAW has reached a tentative agreement with General Motors Co. which must now be ratified. Union members will vote on the contract that includes a $5,000 signing bonus, profit sharing and other payouts that total $12,500, over the next week.

The UAW and Chrysler extended their contract deadline past Sept. 14 but that extension ends at 11:59 p.m.Wednesday.

Alisa Priddle/ The Detroit News

Statistics were taken and measured from the latest Harris Poll on twenty-two of the United States’ largest industries, including the automotive industry. The changes recorded were extremely positive in the way the public believes that the automobile industry has improved in their efforts to do a good job of serving their consumers.

Other industries that people shared that they believed did a great job with customer service according to the Harris Poll were for supermarkets (plus 80), online search engines (plus 74), hospitals (plus 66), computer hardware companies (plus 61) and computer software companies (plus 55).

To the contrary, the industries that got poor feedback on the Harris Poll for serving customers well were first and foremost, the airline industry. Other industries that did not do well on the list were oil companies (minus 31), tobacco companies (minus 21), managed care companies (minus 13), health insurance companies (minus 9) and investment and brokerage firms (plus 3).

This year, the Harris Poll surveyed 1,956 adults, aged 18 and over by telephone solicitation and online solicitation between August 8 and 15, 2011. They were done by Harris Interactive. The Harris Poll has been surveying people on their perceptions of major industries every year for the past fourteen years and attitudes and opinions of the different industries have been very different each year.

What seems to effect the changes in how people perceive companies and their customer service varies year to year. Such things as events companies hold, services the companies provide and media coverage can have a huge results on customer perceptions. As of late, public attitudes towards the auto industry, as well as pharmaceutical, health insurance, telephone, banking, financial services and oil industries have been all over the board. Again, many factors influence attitudes.

When asked how they feel about how the auto industry treats customers, here are how some consumers responded:

Arthur M. from Raleigh, North Carolina stated, “I just recently purchased a new car and was very happy with the service I received. I thought that I would be pushed into buying the car, but the salesperson was very kind and considerate of this huge decision that I was making. That meant a lot to me.”

Jill W. from Los Angeles, California stated, “I never expected that I would be treated kindly or fairly as a woman going in to buy a car. Especially in Los Angeles. (She laughs) However, they really gave me a lot of time and patience and I appreciated that very much. I’d definitely go back there again and recommend this dealership to others.”

Submitted by KC Kelly

Nothing distinguishes them from the other workers at the Jefferson North plant, except their paychecks.

The newest Chrysler workers earn about $14 an hour, compared with double that amount for longtime employees on the same shift. With the economy slumping and job creation once again a pressing issue in the White House and Congress, the advent of a two-tier wage system in Detroit is spiking employment for one of the country’s most important manufacturing industries.

The new jobs, which are seen as long term, are being watched closely by economists, executives in other industries and Washington policymakers eager to increase employment in manufacturing and other areas.

For many, the opportunity for steady employment is welcome, even at a lower wage.

“Everybody is appreciative of a job and glad to be working,” said Derrick Chatman, who makes $14.65 an hour putting tires on Jeeps after being laid off at Home Depot, working odd construction jobs and collecting unemployment.

What was once seen as a desperate move to prop up the struggling auto industry is now considered an integral part of its future. The demand for $14-an-hour manufacturing jobs is providing Detroit’s Big Three automakers with a ready pool of eager new employees. Last year, Chrysler was flooded with inquiries about the jobs, and it froze the list after receiving 10,000 applications.

The companies say the two-tier wages are paying off. Despite the disparity, there is no appreciable difference in the Grand Cherokees produced on the shift dominated since last fall by the lower-paid workers, the plant manager said. At General Motors, the savings from its two-tier workers are crucial to production that began last month of a subcompact car, the Chevrolet Sonic, in suburban Detroit.

“This is not going away,” said Kristin Dziczek, a labor analyst at the Center for Automotive Research in Ann Arbor, Mich. “It has allowed the Big Three to reduce labor costs without cutting the pay of incumbent workers. Is it good for the health and competitiveness of the companies? Yes. And is that good for job security? Yes.”

Four years ago, the United Auto Workers agreed to allow Chrysler, GM and Ford to pay lower wages to new hires to help close the cost gap with foreign carmakers. The two-tier system is part of a tentative agreement reached Friday night between the UAW and GM.

The agreement increases entry-level pay by $2 to $3 an hour. It moves GM’s entry-level workers close to the average U.S. manufacturing wage, which was $18.90 an hour in August, said Harley Shaiken, a labor professor at the University of California, Berkeley.

The union typically uses the first accord to set a pattern for pay and benefits for the two other U.S. automakers.

GM has about 2,400 entry-level workers. Under the previous contract, they made $14 to $16 an hour, about half of what a longtime UAW worker averages.

Jeep worker Chatman, who is 44 and single, said the security of the job, which includes the union’s traditional medical benefits, is paramount to him. But he does not hide the fact that he expects one day to make as much money as his top-wage counterparts.

“I think they should get rid of the two tiers,” he said. “I hope it’s not here to stay. I hope it was just a steppingstone to get things back going again at Chrysler.”

There is no hard timetable for the lower-paid workers to move up to full-wage status, but it could take years. As part of the government’s bailout of GM and Chrysler, the union agreed that no second-tier worker can move up until 2015 at the earliest.

GM received a $49.5 billion government bailout two years ago and is still part-owned by the U.S. Treasury. GM made a profit of $4.7 billion last year, its first profit since 2004.

Experts on two-tier arrangements say that advancement opportunities are critical to the system’s success.

“If you know you’re going to get to the top wage eventually, the system can work,” said Peter Cappelli, a professor at the Wharton School at the University of Pennsylvania. “The big problem is when you think you’ll never get there.”

This report includes material from Bloomberg News and the Associated Press.

Wholesale orders for Toyota brand cars and trucks are back to normal this month, and vehicle inventory is rising, Bob Carter, group vice president for U.S. sales, said in an interview. Toyota’s last U.S. sales gain was in April. The company’s U.S. market share through August fell to 12.7 percent from 15.2 percent.

“You’ll start seeing us show year-over-year retail increases starting in October,” Carter said in Richmond, California, on Sept. 16. The company’s focus is getting cars to individual buyers, rather than business and rental fleets, he said. “We’ve virtually shut down the fleet business,” he said.

Toyota last week restored full production at all North American auto-assembly plants and said most would add overtime shifts. The company temporarily halted all production after the March 11 earthquake and tsunami and then slowed output due to parts and power shortages triggered by the natural disaster.

The quake also cut supplies of Japan-built Prius hybrids and luxury Lexus models, causing the Toyota City, Japan-based company’s U.S. sales to drop 7.8 percent this year through August while industrywide deliveries grew 10.5 percent.

Carter didn’t estimate Toyota’s September sales.

Gains in the final quarter of 2011 will come from Camry, increased supplies of Prius and the new Prius v wagon, a refreshed Tacoma pickup and new Scion iQ, Carter said. Toyota’s incentives will be “competitive,” and won’t rise dramatically, he said.

“We’d rather price them at a good value, as we did with Camry,” Carter said. “We want to advertise them, not incentivize them.”

Toyota’s U.S. sales unit is based in Torrance, California.

By Alan Ohnsman

Chrysler Group LLC said on Thursday its sales leaped 31% in August, while General Motors Co. and Nissan Motor Co. each reported increases of just under 20%. Ford Motor Co. posted an 11% gain.

In total, August sales rose 7.5% to 1,072,283 cars and light trucks, according to researcher Autodata Corp. The industry’s gain was held back by Toyota Motor Corp. and Honda Motor Co., which suffered declines of 13% and 24%, respectively, as continuing shortages of cars and trucks damped their sales.

Most important for the industry and U.S. economy, Chrysler and GM said their sales were driven by purchases by individuals rather than fleet sales—a sign that consumer demand is holding firm. Chrysler’s sales to individual customers at dealerships rose 42%. GM’s retail sales grew by 22%.

“Consumers are being cautious, but they are not retrenching,” Don Johnson, GM vice president for U.S. sales operations, said in a conference call.

The annualize pace of sales in August was 12.12 million vehicles, Autodata said, down from July’s 12.23 million but up from the year-ago figure of 11.47 million.

Ford economist Jennifer Lin said she expects the sales rate to improve in the remaining months of the year. “We do see that the sales pace will continue to increase from this point on because although the economy is slowing, it is not contracting,” she said.

In the first quarter, auto sales were on a pace to exceed 13 million cars and trucks for the full year. But Japan’s March earthquake disrupted the supply of Japanese-brand vehicles and the sales pace fell below 12 million vehicles. In recent weeks, American consumers have been buffeted by worries about declines in the stock market, the fight over the U.S. debt ceiling, and the European debt crisis.

In August Chrysler sold 130,119 vehicles. Bill Golling, owner of a Chrysler dealership in Birmingham, Mich., said he is more optimistic about sales through the rest of the year. “Going into September, I think it’s going to be a little better than August,” he said.

While the future course of stock market and the overall U.S. economy remain uncertain, the industry is helped because many consumers are now driving older cars and simply have to buy replacements. “I really feel pretty good going into the third and fourth quarters,” Mr. Golling said.

GM sold 218,479 cars and trucks in August, up 18% from a year ago. GM said strong sales of its recently launched Chevrolet Cruze compact car helped drive the increase.

Toyota went in the other direction. Its sales fell to 129,483 vehicles, pulling its market share down 2.8 percentage points to 12.1%. Honda sold 82,321 vehicles, leaving its market share at 7.7%, more than three points below its year-ago level.

Ford sold 174,800 cars and light trucks, an 11% rise. It was boosted by a 25% increase in sales of by its upscale Lincoln brand.

Nissan said its August sales surged 19% to 91,541 compared to a year earlier. “I’m very encouraged by August. Had we not had [Hurricane] Irene, it would have been a fantastic month. I think September will be very strong,” said Al Castignetti, vice president of Nissan North America. Mr. Castignetti said the storm likely reduced sales by about 3,000 for the month.

Hyundai Motor Co. said its U.S. sales rose 9% to 58,505 vehicles. Volkswagen AG’s rose 10% to 25,232 cars and trucks.

GM’s Mr. Johnson said a slow recovery of the auto market appears on track and he reiterated a full-year seasonally adjusted annual rate of sales at the “low end” of a range of between 13 million and 13.5 million vehicles.

The increases signaled the industry shook off a weak July, when overall U.S. sales rose just 0.9% from a year ago.

Car-shopping website Edmunds.com last week predicted overall U.S. new-vehicle sales would jump 9% in August from the prior year. Edmunds said while stronger buying conditions are pushing customers to purchase new vehicles, a weak economic landscape is a looming concern.

The past month had 26 selling days, one more than August of last year.

GM shares were off 4.2%, or $1 apiece, at $23.03, and Ford declined 2.4%, or 27 cents, to $10.85, both in 4 p.m. New York Stock Exchange trading.

By SHARON TERLEP And MIKE RAMSEY

And for Labor Day, President Barack Obama was in Detroit to celebrate.

But Obama’s speech this afternoon before a crowd of tens of thousands at Detroit’s Labor Day parade and rally wasn’t just about automakers. Building up to his call for a national jobs program scheduled for Thursday, Obama came to the city viewed by many as the epicenter of the recession to rally enthusiasm for revived government intervention to spur economic growth—in all sectors.

“America can’t have a strong growing economy without a strong middle class and a strong labor movement,” said Obama in Monday’s speech.

But the car-centric story is, here, still the dominant one. And Obama knows it. His speech (not coincidentally, held in the GM parking lot in front of the Renaissance Center on Detroit’s riverfront) boasted of the turnaround in the American car industry under his tenure.

“We stood by the auto industry and made some tough choices and now the Big Three are turning a profit and hiring new workers,” the president said. “Right here in Detroit, right here in the Midwest, right here in the United States of America.”

Indeed, the numbers look good. GM’s sales in August were 18 percent higher than in August 2010. Chrysler—the company most often dismissed as doomed during the crisis—just completed its seventeenth consecutive month of year-over-year increases in sales, with August showing a 30.6 percent increase from a year before. (The numbers are tempered by accounting for increased incentives for buyers in August, and for the ongoing struggle of Japanese automakers with an inventory reduced by the earthquake and tsunami earlier this year.) The $81 billion bailouts, initiated by George W. Bush, are expected to lose about $14 billion in taxpayer funds through lowered stock values, but this is down from the $48 billion loss estimated two years ago.

Obama touted the labor history in his speech, lauding the automakers for elevating their workers’ economic status and noting that the US economy is stronger when good workers get good benefits. “This is the city that built the greatest middle class the world has ever known,” he said.

Indeed, the trend lines look promising—for the auto companies, at least. But for workers, the story is more complicated. While the bailouts supported and even created jobs—not just at the car companies but in the countless small businesses that make up the enormous American auto supply chain—the crisis facing the automakers was only one of the many financial hits that workers have taken. The mortgage crisis, too, has been a brutal punch. When Obama announced the Home Affordable Modification Program in the early months of his presidency, he said it would help 3-4 million people to modify their mortgages. But fewer than a million have found relief through the program so far. In Michigan, foreclosure rates are falling; the state saw a 42 percent decline in foreclosures in July. Even so, Michigan is still in the top ten for foreclosure filings. Obama is expected to announce a reworked mortgage relief plan this month, which he may mention in Thursday’s speech.

For Jean Irwin, a former employee at the Michigan Department of Transportation, the connection between the foreclosure and unemployment crises is concrete. Two years after losing her job, she lost her house. “After years of working to keep people from becoming homeless, now I’m here myself,” she says. Irwin was campaigning Monday for a foreclosure moratorium; she supports a government program in salvaging and rehabilitating derelict homes. “It’s a need everywhere, it can help people find a decent place to live, and it can also give us jobs,” she explains. “We have a right to jobs.”

Detroit, if it’s learned anything from the car crisis, knows that it cannot continue to rely on one dominant industry for job growth. The auto companies are posting robust numbers, but Detroit’s unemployment hit 15 percent in July. Michigan’s unemployment rate today is lower than when Obama was inaugurated, but still higher than the national average. The Labor Day parade in Detroit may have been dominated by autoworkers, but other workers also made their presence known: office professionals and actors, carpenters and letter-carriers, workers in red Michigan Nurses Association T-shirts and musicians from the Detroit Symphony Orchestra in their tuxes and tails. Collectively, their presence underscored a call for economic intervention that impacts diverse sectors.

Though Obama has not yet laid out specifics for his jobs plan, it is expected to include a plan for creating jobs through infrastructure improvements on bridges and roads, tax relief for working people and support for the long-term unemployed.

Vernita Stanton, a UAW member, is especially interested in the president’s strategies for bolstering unemployment assistance. After being laid off as a lineworker for Ford, she spent eighteen months without work, and only recently returned in another (lower-paid) job with the automaker. During her unemployment, “we went to the food banks. We went to state healthcare for our flu shots,” Stanton said. “We need to keep those open for people. People need to eat.”

Stanton added that it isn’t only Obama’s responsibility to create jobs; she thinks businesses need to step up. “If I had a corporation, if I was big-time, I’d begin to hire people—maybe at lower wages, but not too much lower—even just to sweep the floor or clean the bathrooms,” Stanton said. “They can feed their family and you can build your company because you’re looking clean and neat.”

Deno Felix, another UAW member who works with Ford, said that he needs to hear from Obama that he backs the unions and will do all he can to help them. “We set the standard for the middle class,” he said.

Whether or not it takes shape as Felix hopes, Obama said Monday that “as long as I’m in the White House, I’m going to stand up for collective bargaining”—one of the lines in his speech that earned him the most rousing cheers. In fact, Chrysler and UAW are negotiating seven days a week right now on a national four-year contract—the first post-bailout contract. GM and Ford workers are also at the bargaining table, discussing entry-level wages, among other things, in advance of their contract’s expiration on September 14. Local Ford unions across the country have been holding strike authorization votes for their 41,000 hourly workers.

As part of the bailout package, GM and Chrysler workers gave up the right to strike—though thousands of them were out marching for the holiday and wishing each other well. “Happy Labor Day,” said one employee to another on a Woodward Avenue street corner today. “Keep working.”

By Anna Clark

DETROIT (AP) — Volkswagen opened a plant in Tennessee last month with 2,000 workers. Honda is hiring 1,000 in Indiana to meet demand for its best-selling Civic. General Motors is looking for 2,500 in Detroit to build the Chevy Volt.

Two years after the end of the Great Recession, the auto industry is hiring again — and much faster than the rest of the economy. As an employer, it’s growing faster than airplane manufacturers, shipbuilders, health care providers and the federal government.

The hiring spree is even more remarkable because memories of the U.S. auto industry’s near-death experience are fresh. In 2009, General Motors and Chrysler both got government bailouts and entered bankruptcy, and auto sales hit a 30-year low.

In June of that year, about 623,000 people were employed by the auto industry in the United States, the fewest since the early 1980s. Now the figure is almost 700,000, a 12 percent increase.

Sales are back up, too, and automakers are hiring by the thousands to meet increased demand.

“The buzz is incredible around here about what opportunity we’re going to get if we can build a great product,” says Ben Edwards, who went to work for Volkswagen in Chattanooga, Tenn., last year and is now a team leader on an assembly line that installs tires and seats.

Edwards was working as a general contractor until the housing market dried up. He says the pay at Volkswagen, which starts at $14.50 an hour, is fair and the benefits are generous.

Besides hiring 2,000 people itself, Volkswagen figures the plant, where it will make its new Passat, will create 9,000 spin-off jobs in the region, including 500 at auto-supplier plants that are springing up nearby.

Automakers are hiring again because car sales are rising. Americans bought 10.4 million cars and trucks in 2009 and 11.6 million in 2010. This year, they’re on track to buy 13 million or more, and auto companies are adding shifts to meet the demand.

“Everybody got so lean and mean during the downturn that they’re trying to rebuild staff,” says Charles Chesbrough, a senior economist with IHS Automotive.

The auto industry’s 12 percent increase in jobs compares with a 0.2 percent gain for the economy as a whole, excluding farming and adjusted for seasonal variation, since June 2009. The Labor Department reports Friday on jobs gained or lost last month.

In a normal economic recovery, improvement in the housing market leads the way by creating construction jobs. But home prices haven’t stopped falling, and the construction industry has shed 8 percent of its workers since June 2009 — 474,000 jobs in all.

The gains in the auto industry have been small by comparison. But they do create positive ripple effects for the economy. The Center for Automotive Research estimates that every new auto manufacturing job leads to nine other jobs — from parts makers to restaurants that feed autoworkers.

The auto gains have been widespread, with the Midwest the biggest beneficiary. In Ohio alone, auto manufacturing jobs have risen 31 percent the past two years, while parts makers in Michigan have added nearly 20,000 jobs.

Parts jobs are also up 15 percent in Alabama, where workers make parts for Mercedes SUVs and Honda minivans, and in Kentucky, where the Chevrolet Corvette and Toyota Camry are made.

Before the turnaround, new auto jobs were scarce. Detroit’s auto companies had too many factories, high wages and bloated bureaucratic management. Jobs began disappearing in 2006 and 2007 as U.S. automakers tried desperately to restructure. Dozens of auto suppliers were pushed into bankruptcy.

Then came 2008, when gas prices spiked and the financial crisis struck. The industry lost almost one in every four of its jobs. By the time GM and Chrysler got out of bankruptcy, in June 2009, the industry employed about half as many people as it did in 2000.

Sales and profits have risen ever since, and payrolls have followed.

GM, Ford and Chrysler are all making money for the first time since the mid-2000s and adding workers to build popular models like the revamped Ford Explorer. Foreign companies, stung by the high cost of exporting cars to the U.S. when the dollar is weak, are racing to build more products here.

Automakers are doing it with cheaper labor. Four years ago, the United Auto Workers agreed to a contract that allowed Detroit’s carmakers to hire some new workers at $14 per hour, or half the starting pay of workers at that time. While the UAW doesn’t represent workers at foreign-owned plants, those companies — like Volkswagen — generally match UAW pay.

At a recent GM event in Toledo, Ohio — where GM was announcing that it plans to hire or retain 4,000 workers over the next 18 months — UAW Vice President Joe Ashton was unapologetic about the wage cuts and said the union would consider allowing more $14-per-hour jobs in the future.

“We’re willing to discuss anything that creates jobs,” he said.

Auto companies are racing to hire white-collar workers, too. Monster.com has more than 100 postings for auto engineers, including a handful for Hyundai and Subaru. Electric batteries, touch-screen dashboards and other technology are becoming more common, so automakers need engineers with expertise.

Randy Floreska was recruited by GM at a competition for college students to design and build hybrid cars. He says he and other young recruits view the 103-year-old automaker as a trendsetter.

“Here in the battery lab, there’s so much youth and so much opportunity for growth,” he says.

U.S. auto employment may never reach its previous heights. The industry last topped 1 million workers in 2007, and most analysts don’t expect it to reach that level again. The Center for Automotive Research predicts total industry employment of about 877,000 in 2025.

The Detroit carmakers have shed nine brands — including Pontiac, Mercury and Hummer — and closed 25 plants since 2005. Mexico, China and other countries with cheap labor are competing for jobs, which will limit U.S. growth. And automation lets every company do more work with fewer people.

In a struggling U.S. economy, though, it’s significant, since growing auto sales indicate growing consumer confidence. And considering what the auto industry has been through, it’s a bonanza.

“I really do believe that we are seeing a renaissance in the American automobile industry,” says James Brock, a professor of economics at Farmer School of Business at Miami University.

AP Auto Writer Tom Krisher in Detroit and AP Economics Writers Christopher S. Rugaber and Paul Wiseman in Washington contributed to this report.

“Because President Obama made the tough decision to stand behind and restructure the auto industry, America’s auto makers are growing stronger, making new investments, and creating new jobs today throughout our nation’s industrial heartland,” Treasury Secretary Tim Geithner said.

Chrysler Chief Executive Sergio Marchionne joined Ron Bloom, the White House’s point man for the auto industry, at the Sterling Heights assembly line in Michigan along with other government officials and union representatives to acknowledge the deal.

The Treasury said Chrysler has repaid $5.1 billion in TARP loans and has also terminated its ability to draw a remaining $2.1 billion in more loans.

The repayment is expected to save Chrysler $300 million a year in interest payments. The Treasury said the company has already paid $1.5 billion in interest and fees.

The government, however, isn’t completely out of the car business just yet. The Treasury, which admits it’s unlikely to fully recover its remaining $1.9 billion investment in Chrysler, still holds 6.6% of the company’s equity.

“I said if Chrysler and all its stakeholders were willing to take the difficult steps necessary to become more competitive, America would stand by them, and we did,” President Barack Obama said.

“While there is more work to be done, we are starting to see stronger sales, additional shifts at plants and signs of strength in the auto industry and our economy, a true testament to the resolve and determination of American workers across the nation,” he added in a statement. The president is visiting three European countries this week.

Chrysler was able to make the repayment thanks to a loan and bond deal with private banks last week. The agreement will bring Fiat’s stake in Chrysler up to 46%, with another 5% expected by the end of the year to give Fiat a majority position.

“The loans gave us a rare second chance to demonstrate what the people of this company can deliver and we owe a debt of gratitude to those whose intervention allowed Chrysler Group to re-establish itself as a strong and viable car maker,” Marchionne said.

Earlier this month, Chrysler’s string of losses that dated back to 2006 came to an end with a $116 million profit reported for the first quarter.

The relatively strong results provided more evidence that the bailouts of Chrysler and rival General Motors Co. two years ago have worked to bring the U.S. auto industry back from the brink.

“At the time of the loan, few believed that Chrysler would survive,” Edmunds.com CEO Jeremy Anwyl said. ”Chrysler’s ability to rebound and repay the loans renders the ‘bailout’ a remarkable achievement.”

The Treasury, in defense of its controversial lifeline, pointed out that all three American auto makers — GM, Chrysler and Ford Motor Co. have notched an operating profit for the first time since 2004 and that the industry has experienced its strongest stretch of job growth in more than a decade.

Shawn Langlois – MarketWatch in San Francisco.

But Blanchard said he never thought the automaker would require a second federal rescue after he helped save it from extinction in 1979.

Then-U.S. Rep. Blanchard, at age 37, was credited with orchestrating a $1.5 billion congressional bailout of Chrysler, a feat that catapulted him to become governor.

“I always believed we could save them, or that Chrysler could save itself if we helped them,” Blanchard said. “I never believed in a million years that they would sell to the Germans. Congress would have never passed it if they’d said that,” a reference to the ill-fated merger with Daimler Benz in 1998.

“And I never thought they’d be back in trouble, along with General Motors. I feel like I’ve seen it all, from 1979 until now.”

Blanchard, former U.S. ambassador to Canada, spoke to reporters while attending a conference on Canadian studies at Michigan State University.

He praised President Barack Obama for approving the loan bailout in 2009, as well as former President George W. Bush for approving an initial infusion of cash to Chrysler in late 2008, just before Bush left office.

Blanchard said the 1979 bailout was more difficult because it was done with full approval of Congress, and faced the same resistance from Republicans that the 2009 rescue faced. The 2009 bailout was not approved by the U.S. Senate.

Blanchard said he was fearful that a bankruptcy – even a managed bankruptcy – would create a negative public perception that Chrysler might not overcome.

“I feel a special pride, as the only Michigan director on the board, that we are doing well,” Blanchard said. “We’re making a profit, we’re hiring people, we have really good products. Ultimately, you have to have good, high quality products.”

BY CHRIS CHRISTOFF
DETROIT FREE PRESS LANSING BUREAU

DETROIT — Chrysler paid back $7.6 billion in loans from the US and Canadian governments yesterday, paving the way for its Italian partner, Fiat, to increase its control over the Detroit carmaker.

The repayment of loans and interest owed to the US Treasury and Export Development Canada is a significant milestone in Chrysler’s methodical comeback from bankruptcy in 2009.

Now the company’s revival will enter a new phase that depends heavily on its alliance with Fiat, which yesterday increased its stake in Chrysler to 46 percent, from 30 percent.

Fiat will most likely increase its ownership to 51 percent by the end of the year. Terms of Chrysler’s federal bailout allow the Italian company to gain an additional 5 percent interest when a prototype of a new fuel-efficient compact car is ready for production in the United States.

Sergio Marchionne, who is chief executive of both auto companies, said the new car should be completed by December and would be produced beginning next year at a Chrysler plant in Illinois.

“It’s my intention for us to have the car ready by the fourth quarter,’’ Marchionne said at a ceremony marking the loan repayments.

Marchionne was joined at the event by Ron A. Bloom and Brian Deese, two members of the auto task force that was assembled by President Obama to shepherd Chrysler and General Motors through bankruptcy reorganization with taxpayer aid.

Many people in the auto industry were skeptical that Chrysler could survive even after its financial bailout.

But at the ceremony held at a Chrysler plant outside Detroit, Marchionne said the company had defied the odds by turning out new, improved products that are being sold at a profit.

“We have collectively found the strength to fight against this death sentence placed on our company from the very beginning,’’ Marchionne said to the cheers of hundreds of workers at the plant in Sterling Heights, Mich.

Marchionne made his remarks in front of a red, white, and blue sign that said “PAID’’ in huge letters. Retiring its government loans will not only save Chrysler an estimated $350 million a year in interest payments, but should also bolster its image in the eyes of US consumers.

“The loans are no longer a negative in the marketplace,’’ said Rebecca Lindland, an analyst with the research firm HIS Automotive. “It also frees up more cash for them to build a better product.’’

Chrysler was able to repay the loans because it had negotiated new financing with a consortium of investment banks that includes a term loan of $3 billion, debt securities totaling $3.2 billion and a revolving credit facility of $1.3 billion.

The loan repayment was also helped by funds from Fiat, which paid Chrysler $1.3 billion to increase its stake to 46 percent.

Chrysler was not obligated to pay back its US loans until 2017. In a statement, Obama said the early repayment was further proof that government intervention in Detroit’s troubles was a prudent decision.

“While there is more work to be done, we are starting to see stronger sales, additional shifts at plants and signs of strength in the auto industry and our economy,’’ the president said.

Bloom, who is now the president’s special assistant on manufacturing policy, said Chrysler’s comeback has happened “more quickly than we had hoped.’’