Chrysler Group LLC is in talks with banks about forming a joint-venture captive-finance arm similar to the one majority owner Fiat SpA (F) has with Credit Agricole SA (ACA), according to two people familiar with the matter.
Chrysler aims to form a partnership by the first half of 2012, one year before its preferred-lender arrangement with Ally Financial Inc. (ALLY) is set to expire, said the people, who declined to be identified because the negotiations are private. Ally is among the banks Chrysler is talking with about the possible venture, one of the people said.
Fiat, which owns 58.5 percent of Auburn Hills, Michigan-based Chrysler, has an arrangement with Credit Agricole dating back to 2006. A so-called captive-finance business can set credit policies that help dealers get funding to buy vehicles for inventory and provide attractive rates for consumers.
“All auto companies want to have some control over their ability to incentivize their customers to help them buy cars and ensure that, at all times, their dealers have a source of financing with which to buy cars from them,” Maryann Keller, principal of a self-named consulting firm in Stamford, Connecticut, said yesterday in a phone interview. “It’s a second revenue stream beyond simply the sale of the car.”
Ralph Kisiel, a spokesman for Chrysler, declined to comment. Gina Proia, a spokeswoman for Detroit-based Ally, declined to comment.
Banks are boosting lending in the automotive industry after U.S. light-vehicle sales rose at least 10 percent for two straight years for the first time since 1984, according to researcher Autodata Corp. That momentum has carried into early this year, with automakers selling cars and trucks in January at the fastest pace since the U.S. government’s “cash for clunkers” program in August 2009, according to Autodata.
Chrysler may be more attractive for lenders to form a partnership with after a government-backed restructuring led by Sergio Marchionne, chief executive officer of both Chrysler and Fiat. Chrysler last year had net income of $183 million, its first annual profit since its 2009 bankruptcy.
The automaker increased deliveries 26 percent last year to 1.37 million, according to Woodcliff Lake, New Jersey-based Autodata. Chrysler’s U.S. sales rose 44 percent in January, led by deliveries of Ram pickups and the 200 sedan.
Chrysler has a higher share of sales to buyers with subprime credit scores than some competitors. Those customers are considered a higher-than-normal credit risk and are disproportionately affected when lenders tighten standards.
Of Chrysler’s new-vehicle sales that were financed last year through November, 27 percent were to buyers with subprime credit scores, according to Experian Automotive, an industry data provider. Ford Motor Co. (F) and General Motors Co. (GM) each had about 21 percent.
Owning a captive finance company or having a partnership with a lender “helps drive sales across a wide variety of credit scores and credit ranges,” said Melinda Zabritski, a Costa Mesa, California-based analyst for Experian Automotive.
Chrysler also has a smaller share of its financed transactions going to lease customers, with 10 percent in the fourth quarter, compared with 18 percent for Ford and 12 percent for GM, according to Experian.
In addition to speaking with Ally, Chrysler is talking with JPMorgan Chase & Co. (JPM) about setting up a joint venture, the Wall Street Journal reported yesterday, citing unidentified people familiar with the matter.
Ally’s operating agreement with Chrysler governs subvented loans, which are made to consumers at below-market rates. The automaker pays the lender to make up the difference.
Subvented loans with Chrysler accounted for 6 percent of the $9.2 billion originations Ally had in the fourth quarter, according to a Feb. 2 slideshow presentation. Standard loans to Chrysler, which aren’t covered by the operating agreement, were 18 percent of Ally’s originations during the period.
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