Chrysler in talks to form financing JV, sources say
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DETROIT -- Chrysler Group LLC is in talks with banks to create a financing joint venture that would help the automaker build on its recent sales momentum, two people familiar with the matter said on Wednesday.
The joint-venture partnership would be similar to the arrangement Chrysler's majority owner Fiat SpA has with Credit Agricole SA, according to two people familiar with the matter.
Chrysler aims to form a partnership by the first half of 2012, one year before its preferred-lender arrangement with Ally Financial Inc. is set to expire, said the people, who declined to be identified because the negotiations are private.
Ally and JPMorgan Chase & Co. are among the banks Chrysler is talking with, The Wall Street Journal reported Wednesday, citing unidentified people familiar with the matter.
Of the three Detroit automakers, Chrysler is the only one without a dedicated financing arm. Chrysler was forced to give up its struggling finance unit as part of its 2009 bankruptcy. In the run-up to its initial public offering in 2010, General Motors decided to buy AmeriCredit Corp. for $3.5 billion cash. The move was intended to resolve a major investor concern and satisfy GM dealers who complained that a lack of financing options cost them sales. Chrysler's agreement with Ally extends through April 20, 2013, with automatic one year renewals unless either party elects not to renew by a renewal deadline that is twelve months prior to the expiration date of the contract. The Journal said Chrysler's arrangement with Ally hasn't allowed the automaker to pursue some potential loan customers, particularly in leasing. Ally also hasn't been able to extend "floor plan" loans to some dealers to acquire inventory, the paper said.
Fiat, which owns 58.5 percent of Chrysler, has an arrangement with Credit Agricole dating back to 2006. The Paris-based bank funds the venture, while Fiat handles relations with the dealers.
Ralph Kisiel, a spokesman for Chrysler, declined to comment. Gina Proia, a spokeswoman for Ally, declined to comment.
A so-called captive-finance business can set credit policies that help dealers get funding to purchase vehicles for inventory and provide attractive rates for car buyers.
Banks are boosting lending in the automotive industry after U.S. light-vehicle sales rose by at least 10 percent for two straight years for the first time since 1984, according to researcher Autodata Corp.
That momentum has carried into early this year, with automakers selling cars and trucks in January at the fastest pace since the U.S. government's "cash for clunkers" program in August 2009, according to Autodata.
Healthier Chrysler
Chrysler may be more attractive for lenders to partner with after a government-backed restructuring led by Sergio Marchionne, CEO of both Chrysler and Fiat. Chrysler last year earned $183 million of net income, its first annual profit since its 2009 bankruptcy.
The automaker increased U.S. sales by 26 percent last year to 1.37 million, according to Autodata. Chrysler's U.S. sales rose 44 percent in January, led by deliveries of Ram pickups and the 200 sedan.
Ally's operating agreement with Chrysler governs subvented loans, which are made to consumers at below-market rates. The automaker pays the lender to make up the difference.
Subvented loans with Chrysler accounted for 6 percent of the $9.2 billion originations Ally had in the fourth quarter, according to a Feb. 2 slideshow presentation. Standard loans to Chrysler, which aren't covered by the operating agreement, were 18 percent of Ally's originations during the period.
Bloomberg and Reuters contributed to this report
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