Mitsubishi Motors Corp. was an outlier.
For years, it used an in-house finance arm, Mitsubishi Motors Credit of America Inc., to underwrite loans to dealers and customers as other small automakers relied on international banking giants to keep the capital flowing.
Now, by selling its captive lending arm to Ally Financial Inc., of Detroit, and naming Ally as its preferred U.S. lender, Mitsubishi has shed the hefty costs of banking to focus on its core business: making and selling cars.
“You’d think there’s no better time to try to run a captive right now because the cost of funds is unbelievably low,” Larry Dominique, executive vice president at car-pricing service TrueCar Inc., told Automotive News.
Yet small automakers still can’t get capital as cheaply as large automakers or banks, he noted, and maintaining a captive lending arm takes hundreds of employees and constant investments in technology. “Banks already have all that infrastructure set up,” Dominique said, “and that gives them a tremendous advantage.”
Large global automakers such as Ford, Toyota and Volkswagen still operate captive lenders in the U.S., but Mazda, Subaru and Jaguar Land Rover have inked deals with JPMorgan Chase and Co. to keep the capital flowing to dealers and customers, mirroring Mitsubishi’s new arrangement with Ally.
“We are pleased to have a financial partner like Ally that can support us with the products and services that our dealers need,” Don Swearingen, executive vice president of Mitsubishi’s U.S. sales division, said in a statement.
Ally and Mitsubishi did not disclose the terms of the deal. In an email, a Mitsubishi spokesman confirmed that it was a sale. He declined to disclose the price.
One of Ally’s main responsibilities will be to supply Mitsubishi’s roughly 380 U.S. dealers with floorplan loans to buy cars for showroom inventory and with capital loans to buy land for an expansion or to remodel a store.
May, June halts
Mitsubishi briefed about 30 dealers on the transaction last week. Dealers in attendance told Automotive News that Mitsubishi’s lending arm plans to stop issuing new-car loans at the end of May and transfer its wholesale business to Ally in June.
“I think Ally is going to provide Mitsubishi with some really good wholesale programs,” said Scott Grove, a Mitsubishi dealer with two stores near Chicago who attended the meeting. Such programs were “just OK” under Mitsubishi, he said, but “there’s a capacity and appetite with Ally.”
Dan Booth, the CFO of Mitsubishi Motors North America, had been interim president of the lending arm since the departure of President Jeff Young last fall. He will remain with Mitsubishi as CFO.
Paul James and Diane Cutillo, two senior executives at Mitsubishi’s finance company, will move to Mitsubishi Motors North America to manage the automaker’s relationship with Ally. Under the terms of the agreement, Ally will offer jobs to all other Mitsubishi Motors Credit employees supporting the auto business.
“To me, Ally has more strengths,” said Ryan Gremore, the chairman of Mitsubishi’s U.S. dealer council and general manager of a Mitsubishi dealership in Normal, Ill., the home of the automaker’s only U.S. assembly plant. “Mitsubishi is in the car business. Ally is in the lending business.”