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Chrysler, one of the three largest auto manufacturers in the United States, filed for bankruptcy in 2009. Similar to one of its largest rivals, General Motors, the company succumbed to insurmountable debt and was forced to restructure its company with the help of a government bailout.
Since Chrysler went bankrupt, however, the automaker has taken strides to rebuild its business by taking part in a number of lucrative ventures, one of which being an attempt to become an in-house auto lender. Will it be successful in growing profits for the company? How will Chrysler auto lending impact car buyers?
Chrysler Auto Lending Venture a Push for Financial Growth
In early February, people close to Chrysler Group LLC announced that the automaker was in discussions with banks about establishing an in-house lending arm to better compete in the U.S. auto market.
In its current arrangement with Ally Financial, the automaker isn?t allowed to pursue certain potential loan customers other automakers are able to enjoy. With a lack of competition, the company hasn?t been able to reduce its rates as others have.
Under a Chrysler auto loan program, the automaker hopes that it can begin to compete with major automakers like Ford, General Motors and Toyota, which all have in-house lending arms that are able to provide more affordable financing to both dealers and consumers.
Experts say the inability to offer loans to a wide-range of consumers amid the 2008 financial crisis contributed, at least in part, to the bankruptcies of both Chrysler and General Motors.
Chrysler is especially looking for a boost in leasing options since it only leased 9 percent of the vehicles it sold in January ? significantly lower than the 20 percent industry average.
Lenders Eager to Become Chrysler Auto Loan Program Partners
Since its 2009 bankruptcy, the company has been using government-owned Ally Financial Inc. as its preferred lender for customer loans, leasing options and the loans that dealers use to finance vehicles purchased from the manufacturer.
Prior to its government bailout, the automaker financed auto loans under Chrysler Financial. However, the Obama administration determined that the lender could only survive with a major cash infusion, something it refused to offer.
Chrysler Financial continued operating as a third-party auto lender and insurance provider under the ownership of Cerberus Capital Management LP. The private equity firm agreed to sell the lender to Toronto-Dominion Bank at the end of 2010.
After the bailout, Ally Financial (formerly GMAC Financial Services), which was General Motors? finance arm for 87 years before it sold its controlling interest to private-equity firms in 2006, took over financing operations for Chrysler.
But the contract with Ally is scheduled to end on April 30, 2013 and Chrysler is talking with several major financial institutions to create a new lender that would function in-house. Among those on the list are Wells Fargo, Santander Holdings USA Inc., General Electric Capital Corp., U.S. Bancorp, JPMorgan Chase and the current lender, Ally Financial.
Individuals close to the matter say that Chrysler might consider a multi-bank approach where two or three lenders take pieces of the financing work from Ally. It is also rumored that banks have been asked to submit two bids: One to form a joint venture that covers ?captive? finance business such as dealership financing and another for Chrysler-branded auto loans.
Under the terms of the Chrysler auto lending venture, the automaker would take an ownership stake, but not completely own, its lending unit and banks would provide all of the financing.
Possible Chrysler Auto Loan Incentives
Fiat, the company that currently owns 58.5 percent of Chrysler, has created an arrangement with France?s Credit Agricole that dates back to 2006. Some think the arrangement could bring about good Chrysler auto loan incentives.
In what?s known as a captive-finance business, credit policies can be set that will help dealers get funding to buy vehicles for inventory and provide more attractive financing options for consumers.
Other details of the possibilities that might arise from the business options presented to Chrysler have yet to be shared, but from the aspect of competition alone, many expect that Chrysler auto loan rates will drop if competition from the in-house lending venture increases.
We can expect to hear more news of Chrysler?s decision in the coming months. Since it is required to alert Ally Financial of its choice to end or extend the contract a year ahead of its termination date, the automaker will have until April 30 to make its announcement.
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