DETROIT -- Chrysler Group expects more consumer auto leases this month when the newly formed Chrysler Capital begins operations as the automaker's preferred lender in the United States.
Chrysler Capital's first job: Leasing
But for dealers, Chrysler Capital is likely to supplement, rather than replace, existing lenders, at least initially.
The lender begins operations today, May 1. It is financed by Santander Consumer USA, a subsidiary of Spanish bank Banco Santander, under a joint venture with Chrysler.
"Effective May 1, we'll be able to grow the leasing book for Chrysler," said Tom Dundon, CEO of Santander Consumer USA. "We, in essence, put all of our best people on lease, and we've ended up with a product that is superior to what the Chrysler dealers had available to them."
Chrysler executives say they are looking for incremental gains on consumer leasing at its dealerships.
"We're just trying to get to a by-segment and industry average" on leasing, said Peter Grady, Chrysler's vice president of network development and fleet.
Grady said the Santander deal could help the automaker raise its share of leased vehicles from about 10 percent of sales to about 18 percent of monthly sales. But he said Chrysler Capital will push subvented leasing only to keep up with other automakers.
"If the other guys go heavy into leasing, we want to be able to be competitive in that space. If nobody's going heavy into leasing, we don't need to worry about it," Grady said.
Santander Consumer USA, which is primarily a subprime lender, and Chrysler formed Chrysler Capital in February under an agreement that uses Santander's balance sheet and Chrysler's name. Chrysler Capital will operate as a kind of captive finance arm for the automaker but without exposing Chrysler's books to added risk from loans. Chrysler will receive royalties from Santander for the use of its name.
Dundon said that, despite Chrysler Capital's nontraditional organization, it is "100 percent" Chrysler's captive finance arm. That means it will operate in similar ways to captives from other automakers.
Jessica Caldwell, an analyst with Edmunds, said the loans written at Chrysler dealerships so far this year already stand out in the industry, even before Chrysler Capital begins operation.
"They have already pushed the boat out in terms of financing," she said. "They definitely have been extending credit to people who have been denied loans."
In March, the average length for consumer loans at Chrysler dealerships was 70 months, compared with 65 months for the rest of the industry, Caldwell said. Also, the average annual percentage rate on consumer loans at Chrysler dealerships was 6.2 percent, compared with 4.4 percent in the industry, indicating a heavier number of riskier, higher-interest loans for Chrysler dealers.
Dealers who have already signed up with Chrysler Capital say the fledgling financial firm is more attracted to subprime borrowers than competitors Ally Financial or Chase Auto Finance. A 2011 agreement between Chrysler and Chase that provided retail subvented loans through Chase expires Tuesday, April 30.
Beginning May 1, all subvention from Chrysler will be through Chrysler Capital, a spokesman for the automaker said. Grady said he expected that almost all Chrysler dealers would be signed up to write loans with Chrysler Capital by that time.
"Probably the biggest concern is for dealers who are already doing quite a bit of leasing through Ally right now," said Gary Brown, chairman of the Chrysler National Dealer Council and a dealer on Long Island in New York. Brown said the question for dealers is whether Chrysler Capital will be fully ready to go when it opens this week.
"They've hired hundreds of people. It's really miraculous how fast they're trying to get this up and running," said Brown, whose dealership has been piloting Chrysler Capital operations under the Santander Consumer USA name for about the past month with few problems.
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.