Chrysler finance arm would buoy expanding sales
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DETROIT -- Chrysler Group is the only one of the three Detroit automakers without a dedicated financing arm. Now, sources say, it's looking to change that, in a move designed to bolster already strong sales by providing attractive financing rates for car and truck buyers.
Chrysler is in talks with banks to create a financing joint venture, two people familiar with the matter said last week . The proposed joint-venture partnership would be similar to the arrangement Chrysler's majority owner, Fiat S.p.A., has with Credit Agricole SA, the two sources said.
Chrysler aims to form a partnership by April 20, 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, Feb. 8, citing unidentified people familiar with the matter.
Ally terms
Chrysler was forced to give up its struggling finance unit as part of its 2009 bankruptcy.
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 floorplan loans to some dealers to acquire inventory, the paper said.
Ralph Kisiel, a spokesman for Chrysler, declined to comment. Gina Proia, a spokeswoman for Ally, declined to comment.
Fiat, which owns 58.5 percent of Chrysler, has an arrangement with Credit Agricole dating back to 2006. The Parisian bank funds the venture, while Fiat handles relations with the dealers.
GM's example
In the run-up to General Motors' initial public offering in 2010, GM decided to buy AmeriCredit Corp. for $3.5 billion cash. That move was intended to resolve a major investor concern and satisfy GM dealers who complained that a lack of financing options cost them sales.
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 the Automotive News Data Center.
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.
Back in the black
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. 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
