GMAC's Chrysler business gains momentum

UPDATED: 5/3/10 5:07 pm ET Editor's note: An earlier version of this story contained an incorrect reference to which company provides floorplans to Chrysler dealerships. GMAC provides this financing.

DETROIT -- Within the last month or two, GMAC Financial Services has significantly loosened its purse strings making it easier for Chrysler Group customers to get loans to buy cars, according to Chrysler dealers.

Easier approval for consumer loans is a welcome sign for many Chrysler dealers, who have been hobbled by tight credit since Chrysler's former captive finance company, Chrysler Financial, ceased consumer leasing in August 2008.

“GMAC is buying well for the first time since GMAC was designated the captive,” said the head of a large dealership group who declined to be identified. “They're actually buying Chrysler paper well and aggressively. That's a significant change.”

GMAC declined to provide specifics on its increased retail penetration but issued a statement: “We're committed to supporting dealers in their sales efforts, and have ramped up our volume of retail financing quarter-to-quarter.”

Earlier today, GMAC posted its first quarterly net profit since the fourth quarter of 2008 -- and announced it would change its name to Ally Financial to reflect the name of its banking unit.

GMAC said it earned $162 million in net income during the first quarter as U.S. auto sales strengthened.

Some Chrysler dealers initially felt GMAC treated them like second-class citizens after President Barack Obama announced April 30, 2009, that GMAC would succeed Chrysler Financial as the captive finance company for Chrysler Group dealers.

Buying deeper

Easing of tight credit will help Chrysler dealers as they struggle to get by while waiting for a new generation of vehicles to emerge from the alliance with Fiat Auto. Chrysler is launching the 2011 Jeep Grand Cherokee in June or July, but most of the Fiat-based products will not arrive until 2012-2013.

Thomas Vann, owner of Team Hillsdale Chrysler-Dodge-Jeep in Hillsdale, Mich., said a few months ago it was difficult getting GMAC to be flexible in discussing loans with some of his customers. But Vann said the relationship has improved considerably in recent months. GMAC is now extending loans to a broader array of customers of varying creditworthiness, Vann said.

“We find they will have conversations with people at 620, 600, 580” credit scores, Vann said. Previously, GMAC had drawn the line at a 650 credit score, he says.

“If you were 648, it wouldn't matter if you had the Rockefellers as your co-signers,” GMAC would not have approved the loan.

A key measure of consumer creditworthiness is a FICO score, named for the Fair Isaac Corp., the California company that developed the system. Scores range between 300 and 850. Most consumers fall between 600 and 800. Consumers with a credit score of 720 or above generally qualify for the lowest interest rates while a rating below 600 would be considered nonprime or subprime.

Access to new capital

GMAC has been able to offer more loans partially because Ally Bank, its retail subsidiary, recently got a $7 billion revolving credit line from a syndicate of lenders. The U.S. Department of Treasury has invested more than $16 billion in GMAC since December 2008 and held a 56 percent stake in the company as of last December.

GMAC also provides wholesale floorplan loans to about 1,500 of Chrysler's 2,332 dealers. Transitioning the floorplans of all those dealers from Chrysler Financial was a difficult process, but many Chrysler dealers have praised GMAC for getting the job done in under a year. A few scattered Chrysler dealers have been unable to get floorplans because they still owe large sums to Chrysler Financial.

Scott Hogle, a former manager in Chrysler's West Coast business center in Irvine, Calif., who now runs an online forum where dealers air their concerns, said: “Even though GMAC did not make a lot of friends when they did the flooring transition, the retail side of the house has been a far better job of buying retail consumer paper than Chrysler Financial was doing. They're buying deeper and looking at more deals.”

You can reach Bradford Wernle at