Chrysler Group LLC, the automaker controlled by Fiat SpA (F), will let its operating agreement with Ally Financial Inc. (ALLY) expire in April 2013 as the company negotiates with other banks for vehicle financing.
Chrysler notified Detroit-based Ally yesterday that it won’t renew the agreement, according to regulatory filings from both companies. The pact required Auburn Hills, Michigan-based Chrysler to allow Ally to finance a minimum percentage of vehicles sold with subvented loans, which are made to consumers at below-market rates. Automakers pay lenders to make up the difference.
Chief Executive Officer Sergio Marchionne said Feb. 28 that Chrysler is negotiating with several banks about the third-largest U.S. automaker’s financing needs. Chrysler generates more than $25 billion in auto loans annually, people familiar with the matter said in February.
Ally’s agreement with Chrysler extends through April 2013 and has automatic one-year renewals, according to its annual report filed Feb. 28. Chrysler needed to notify Ally of nonrenewal before the end of this month, the filings show.
Subvented loans with Chrysler accounted for about 5 percent of Ally’s total U.S. consumer originations in the first quarter, according to Ally’s filing yesterday. The agreement does not cover other business Ally does with Chrysler dealers, such as wholesale financing, so-called standard rate financing for consumers and leasing, according to the filing.
“Chrysler and Ally continue to have constructive discussions about the future relationship,” the Ally filing said. “Ally expects to continue to play a significant role with Chrysler dealers in the future as the dealer is Ally’s direct customer for the majority of business that is conducted.”
Ally Chief Executive Officer Michael Carpenter is trying to repay U.S. bailouts exceeding $17 billion that left the Treasury Department with a 74 percent stake. Carpenter has backtracked on a prediction in August 2010 that Ally could stage an initial public offering valuing it at as much as $30 billion, saying Feb. 2 that a sale won’t happen until the company resolves issues tied to faulty loans at its home-mortgage business Residential Capital LLC.
ResCap didn’t make a scheduled interest payment on about $473 million of debt on April 17, Ally said in an April 17 regulatory filing. Ally said ResCap had 30 days after the missed payment of about $20 million before a default occurs, and people familiar with the matter have said the company is considering bankruptcy for the unit.
Wells Fargo & Co. (WFC), Santander Holdings USA Inc., General Electric Capital Corp., U.S. Bancorp and JPMorgan Chase & Co. (JPM) are among banks that have negotiated with Chrysler about its auto-financing needs, three people familiar with the talks said in February.
Chrysler has 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 the people, who declined to be identified because the talks were private. Turin, Italy-based Fiat has a financing joint venture with Credit Agricole SA (ACA) in Europe.
Ally originated 2.3 million auto loans and leases worldwide last year totaling about $53.3 billion, according to its annual report. The lender provided financing for 29 percent of Chrysler’s North American retail sales and 65 percent of its dealer inventory in North America.
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