DaimlerChrysler Financial Services last week killed its small Texas-based Debis Affinity Services Division, another sign of troubled times in retail auto lending.
The division stopped accepting credit applications Thursday, Dec. 7, cutting off about 1,500 dealers outside the DaimlerChrysler group of brands.
The dealers sold loans to Affinity Services, the same way they would to any other independent lender. Dealers still have plenty of alternatives, but several big banks have cut back on auto lending in recent months, and GE Capital Auto Financial Services quit accepting credit applications Dec. 1.
The shakeout leaves an increasingly clear field for the major automakers' captive finance companies, which are aided by factory incentives.
Debis will honor contracts with 'private label' customers for another 90 days. For private-label customers, Debis is the lender behind the scenes, acting under the customer's brand name. Those customers include the Infiniti Division of Nissan North America Inc., Daewoo Motor America, and exotic brands such as Lotus, Lamborghini and Panoz.
Private labels account for about 25 percent of Affinity's business.
Answer to Primus
Affinity Services was launched in 1997 as part of Mercedes-Benz Credit Corp. It was supposed to be DaimlerChrysler's answer to Primus, the Ford Motor Credit Co. subsidiary that performs captive finance company functions for dealers other than Ford or Lincoln Mercury dealers.
Like other auto lenders, captives buy loans and leases and provide loans for floorplanning and capital improvements.
The crucial difference is that they belong to the automakers.
Primus handles nameplates both outside and inside the Ford family of brands.
Insiders such as Jaguar get incentives that come ultimately from Ford Motor Co. Affinity Services Division did not share that huge competitive advantage - except, probably, for its private-label business.
The business Debis dropped Dec. 7 was with non-Chrysler group and non-Mercedes dealers. It would not make sense for DaimlerChrysler to subsidize those deals, unless a private label customer paid for it.
Even though it belonged to DaimlerChrysler, Affinity Services was in the same boat as banks and truly independent auto lenders, trying to compete with factory incentives.
'They were trying to do nonsubvented business, and it's harder and harder to find nonsubvented business,' said DaimlerChrysler spokeswoman Melinda Wilson.
Tom McAlear, COO of DaimlerChrysler Financial Services, said the division has just under $2 billion worth of receivables.
That portfolio will be serviced elsewhere within the company. He said the parent will offer jobs to all 64 employees of the division, which is in Roanoke, Texas.
McAlear said the Affinity Services business was profitable, but redundant to the captive's other business. 'We handle a lot of non-Chrysler business already through Chrysler Financial. We were duplicating a lot of our core competencies.'
DaimlerChrysler's North American operations are in the midst of an intense cost-cutting campaign under new president Dieter Zetsche.
In September, DaimlerChrysler sold a controlling interest in online auto lender giggo.com, which was a separate business unit of the Affinity Services Division. The buyer was San Diego-based PeopleFirst.com. DaimlerChrysler kept 23 percent of the combined company, which continues to market loans under both brand names.
Predictably, the Debis announcement on Wednesday, Dec. 6, dismayed dealers.
'I was very surprised,' said Jeff Gurney, the Phoenix-based national lender relations director for V.T. Inc., the fourth-largest U.S. dealer group.
V.T., which is based in Shawnee Mission, Kan., has 41 dealerships with 58 franchises.
Revenue was $3.3 billion in 1999. Debis was one of the chain's leading lenders.
Gurney said his impression was that the Debis subsidiary was successful and profitable.
'They were doing very well, their delinquencies were low, their business relationships were some of the best.'