Modified: February 06, 2013 4:46 PM
Chrysler reaches deal making Santander preferred lender in U.S.
Chrysler Capital to launch May 1
DETROIT (Bloomberg) -- Chrysler Group agreed to make a U.S. unit of Banco Santander SA its preferred provider for auto loans, replacing Ally Financial Inc.
Chrysler and Santander Consumer USA Inc. will form Chrysler Capital to provide customers with financing to purchase and lease vehicles, the company said today in a statement.
Chrysler Capital, which will begin operating May 1, will also provide dealers with wholesale loans that allow them to buy vehicles from the manufacturer.
Sergio Marchionne, CEO of Chrysler and Fiat, has been seeking a new lending partner in the United States after Chrysler said in April 2012 that it would let an agreement with Ally expire this April.
Chrysler, the No. 3 U.S. automaker, generates more than $25 billion in auto loans annually, people familiar with the matter said in February 2012.
"We expect Chrysler Capital to help Chrysler Group continue its sales growth by offering consumers the most competitive and innovative retail purchase and lease financing," Peter Grady, Chrysler Group's vice president of network development and fleet, said in the statement.
Chrysler said it expects to continue to work with Ally beyond the end of April, as well as with other financial institutions.
Santander, Spain's biggest bank, sold a stake in its U.S. auto-loans unit to a partnership of private-equity firms Warburg Pincus LLC, KKR & Co. and Centerbridge Capital Partners LLC in 2011's fourth quarter.
Sponsor Auto Finance Holding Series, an auto-finance company owned by funds affiliated with the firms, bought a 25 percent stake for $1 billion, data compiled by Bloomberg show.
Chrysler said its agreement with Santander is for 10 years.
Santander will create a separate business unit as part of the deal that also will provide financing for dealership construction, real estate, working capital and revolving lines of credit.
Santander will provide Chrysler with a nonrefundable upfront payment and a quarterly share of revenues, according to the statement, which did not provide specifics.
Ally, 74 percent owned by the United States, reported $1.45 billion net income for the fourth quarter, compared with a loss of $206 million a year earlier.
The Detroit-based company said Tuesday that income at its automotive finance unit rose to $371 million from $285 million a year earlier, aided by a 60 percent rise in lease originations.
Subsidized-rate, or subvented, loans from GM and Chrysler dealers were 20 percent of Ally's originations last year, down from 58 percent in 2009, according to a slideshow presentation.
The company is diversifying by expanding its used and leasing business, which totaled 46 percent of originations last year, up from 14 percent in 2009.
"We've known the subvented loan contracts with the manufacturers were set to expire and we've successfully positioned the company to thrive whether we have a contract or not," Jeffrey Brown, Ally's senior executive vice president for finance and corporate planning, said on a conference call.