Wells Fargo & Co. (WFC) and Santander Holdings USA Inc. have joined banks vying to oust Ally Financial Corp. as Chrysler Group LLC’s preferred auto lender, according to three people with knowledge of the bidding.
General Electric Capital Corp., U.S. Bancorp, JPMorgan Chase & Co. (JPM) and Ally also are negotiating with Chrysler, which generates more than $25 billion in auto loans annually, said the people, who declined to be identified because the process is private. Chrysler may use a multi-bank approach where two or three lenders take pieces of the financing work from Ally, one of these people said.
“We’re talking to a variety of providers of funding,” Sergio Marchionne, Chrysler’s chief executive officer, said in an interview in Brussels, declining to name any banks. “We haven’t made a final determination as to who’s going to be with us and whether effectively it’s going to be more than one party. We have received a number of expressions of interest from financial institutions.”
At stake for Ally, the bailed-out bank controlled by the U.S. government, is a direct tie to Chrysler’s dealers and customers that expires in April 2013. Losing the contract could set back efforts to salvage the government’s $17.2 billion investment in Ally, which took public bailout money during the credit crisis as losses mounted on subprime home loans.
Chrysler, the third-largest U.S. automaker, told banks they can submit two bids: one to form a joint venture that covers “captive” finance business such as dealer financing, and the second for Chrysler-branded auto loans, said one of the people.
Some banks want to handle just leasing or corporate fleet sales while others are more interested in financing for dealers that helps them buy vehicles for their lots, one person said. U.S. Bancorp (USB) is willing to offer Chrysler-branded loans, said a person familiar with the talks. GE Capital is interested in working with Chrysler on commercial leasing and fleet financing, one person familiar with its negotiations said.
Banks expect to begin hearing back from Chrysler in the next few days, said one of the people. The company is based in Auburn Hills, Michigan, and also received U.S. financial assistance.
Chrysler is looking to form a joint venture with a lender that would be similar to the arrangement its majority owner Fiat SpA (F) has with Credit Agricole SA (ACA) in Europe. The automaker wants a partner with loan-servicing operations and presence in retail banking, and will consider candidates based in part on their credit rating and ability to cheaply raise capital, according to two people.
Fiat Joint Venture
Ally is rated below investment grade and people with knowledge of the matter have said the firm is debating bankruptcy for its Residential Capital mortgage unit.
Fiat, which owns 58.5 percent of Chrysler, has an arrangement with France’s Credit Agricole dating from 2006. A so-called captive-finance business can set credit policies that help dealers get funding to buy vehicles for inventory and provide more attractive rates for consumers.
Chrysler has one year to notify Detroit-based Ally if the carmaker doesn’t wish to continue their contract, which otherwise renews automatically for one-year terms, according to regulatory filings. The preferred-lender arrangement guarantees minimum thresholds for subvented loans, which are made to consumers at below-market rates. Carmakers pay lenders to make up the difference.
Gualberto Ranieri, a spokesman for Chrysler, said he couldn’t comment, as did Ally’s Gina Proia, New York-based JPMorgan’s Steve O’Halloran, Caren Roberson at San Francisco-based Wells Fargo, Minneapolis-based U.S. Bancorp’s Tom Joyce and Russell Wilkerson at GE Capital.
Laurie Kight, a spokeswoman for Santander, declined to comment on any talks with Chrysler. Kight said the bank has helped Chrysler and its dealers with subprime financing since 2010. “This has been a successful arrangement that we look forward to continuing,” she said via e-mail.
Ally has enlisted Cerberus Capital Management LP’s Lenard Tessler to help oversee turnaround efforts and salvage the government’s investment, four people with knowledge of the matter said this month. The U.S. rescued the lender, formerly known as GMAC, with bailouts starting in 2008 to help stabilize the auto industry. Ally is counting on an initial public offering to repay the government, which owns a 74 percent stake.
Tessler’s assignment follows a U.S. suggestion this month that the lender name someone to help restructure money-losing ResCap and get Ally’s stock offering back on course, according to the people, who asked for anonymity because the discussions were private.
Ally CEO Michael Carpenter, who once predicted that an IPO could value the company at $30 billion, said this month the sale won’t happen until there’s progress on the mortgage unit. Once ranked among the largest originators of subprime and Alt-A mortgages, ResCap reported more than $14.5 billion in losses from the start of 2007 to the end of 2009.
Chrysler has set up lending arrangements in recent years with lenders other than Ally. JPMorgan’s Chase Auto Finance began providing retail subvention financing to some Chrysler, Jeep, Dodge and Ram dealers for prime and near-prime customers in August, according to a statement. The bank, ranked No. 1 by assets in the U.S., added Fiat dealers the following month, according to a separate statement.
Wells Fargo, the nation’s biggest home lender, was the top U.S. used-car lender through the third quarter of 2011, according to a Dec. 6 investor presentation given by CEO John Stumpf. While total auto loan originations in its core portfolio rose 11 percent in 2011, they fell 6 percent between the third and fourth quarters, according to a fourth-quarter earnings presentation. The company held about $44.6 billion in auto loans at the end of 2011.
U.S. Bancorp, ranked sixth by deposits, and Chrysler said in September 2010 that they reached an agreement to offer leases, giving the automaker an option in addition to Ally.
Chrysler is a more attractive partner for lenders after a government-backed restructuring led by Sergio Marchionne, CEO of both Chrysler and Fiat. Chrysler last year had net income of $183 million, its first annual profit since its 2009 bankruptcy.
The automaker’s U.S. sales increased 26 percent last year to 1.37 million, according to Woodcliff Lake, New Jersey-based researcher Autodata Corp. Chrysler’s U.S. sales rose 44 percent in January.