Chrysler Financial explores return to lending
Chrysler Financial aims to start with loans to buyers with near-prime credit, said the person, who asked not to be identified because the plans are private. It is also looking to raise capital and considering a name change, the person said. The company has also asked dealers about financing their inventory, said retailers who have been contacted.
The shift in strategy shows how the lender that President Barack Obama said wasn't viable a year ago is benefiting from the rebound in used-car prices, which have soared from the lowest in more than 13 years in December 2008 to the highest on record in May. Now that its collateral is more valuable, it may be able to raise money and accelerate lending.
“There's always a place for another lender,” said Maryann Keller, president of Maryann Keller & Associates in Stamford, Connecticut. “Chrysler Financial has to come up with a business plan that identifies who its dealer partners are and how the company will raise capital.”
The company used to operate as a captive finance unit of Chrysler LLC, providing loans to dealers to buy inventory as well as financing sales and leases to consumers. When the automaker went bankrupt last year, Chrysler Financial was replaced by GMAC as the primary lender for Chrysler dealers. Since then it has mostly collected payments on outstanding loans.
Chrysler Financial, which has a loan portfolio of $26 billion, issued less than $100 million in loans this year, said the person familiar with the company's plans.
Chrysler Financial has already contacted dealers to do market research and gauge interest, said Dan Frost, who co-owns five dealerships in Michigan. He said he was contacted by Chrysler Financial Chief Executive Officer Tom Gilman in May.
A Chrysler Financial spokesman, Kelly Mankin, declined to comment on specifics of the plan.
“Chrysler Financial remains focused on successful collections from its legacy portfolio of auto loans and continues to evaluate new business opportunities, including but not limited to originating new receivables,” he said in an e- mail.
Cerberus agreed to acquire Chrysler and its lending operations in May 2007 from Germany's Daimler AG for $7.4 billion and renamed it Chrysler LLC. The Auburn Hills, Michigan- based automaker got into financial trouble when sales plummeted industrywide last year and ended up in bankruptcy. Its best assets were sold to the new Chrysler Group LLC, which is controlled by managers from Fiat SpA.
Cerberus kept Chrysler Financial. The private-equity giant holds a 20 percent stake and controls the company, while a syndicate of investors holds the remaining 80 percent.
When Chrysler filed for bankruptcy-court protection April 30, 2009, Obama said that its captive lender could survive only with a “large stream of money,” which he refused to provide.
At the time, used-car values were down, reducing the value of the collateral that backed up the loans in Chrysler Financial's portfolio. As a result, automotive lenders had trouble raising capital, Keller said.
Obama's Automotive Task Force decided to make former General Motors Corp. subsidiary GMAC Inc., now called Ally Financial Inc., the dedicated lender for Chrysler Group dealers. Cerberus has collected on its loans and used some of the cash to pay off Chrysler Financial's debt, including a payment in June of $1.5 billion to the Treasury Department.
Since April of last year, used-car prices have risen 13 percent, according to the Manheim Used-Vehicle Value Index, a monthly report compiled by Manheim Consulting, an Atlanta-based research firm.
Chrysler Financial wants to make retail auto loans, the person said. The company could do that to build relationships with dealers and eventually loan them money to buy inventory from carmakers, called floor-plan lending, said Frost, who was contacted in May by Gilman.
“I think he has $1 billion in funds he can put on the street,” said Frost. “The way to get to a dealer is to finance retails deals. Then we might come back for floor-plan.”
Chrysler Financial, based in Farmington Hills, Michigan, will focus on borrowers who are just above sub-prime credit ratings, said the person familiar with its plans. While those car buyers have spotty credit, many also have a good history of paying their car loans.
The company has always been deft at lending to those customers, said Sid DeBoer, CEO of Lithia Motors Inc., a Medford, Oregon-based dealer chain.
“Chrysler Financial knows how to do that kind of lending,” DeBoer said. “There's a good niche there.”
The company still has relationships with Chrysler dealers and has contacted some of them to see if they are interested in working together, said Chuck Eddy, co-owner of Bob & Chuck Eddy Chrysler Jeep Dodge in Austintown, Ohio. Eddy said it would be tough for him to get his floor-plan loans from a lender other than Ally, which he still calls GMAC.
“We had contact from Chrysler Financial a little while back to see if we wanted to do business with them,” Eddy said in an interview. “It was mostly about floor plan. I doubt I'd do it because I have built such a good relationship with GMAC.”
Ally finances 42 percent of Chrysler retail auto sales and 76 percent of the floor plan for its dealers, according to its financial statements. Ally is 14.9 percent owned by Cerberus.