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Chrysler Back in the Finance Game

Plan could improve sales, cut costs for dealers.

by on Feb.11, 2013

Chrysler hopes to move more sheet metal -- like this 2014 Jeep Grand Cherokee -- with the help of its new finance operation.

Chrysler will soon be back in the financial services business for the first time since its 2009 bankruptcy.

The maker will launch launch a new partnership with Santander Consumer USA Inc., of Dallas, this coming spring to offer “a full spectrum of auto financing services to Chrysler Group and FIAT customers and dealers under the name Chrysler Capital.”

The move, company officials hope, will make it easier to compete with the likes of Ford and Toyota which turn to their in-house financial services subsidiaries to help offer affordable credit to customers – and more competitive financing alternatives for dealers.

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“We expect Chrysler Capital to help Chrysler Group continue its sales growth by offering consumers the most competitive and innovative retail purchase and lease financing available in the marketplace,” said Peter Grady, Vice President of Network Development and Fleet for Chrysler Group, following a meeting with retailers at the National Auto Dealers Association’s annual meeting in Orlando, Fla.

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Chrysler Seeking New Finance Partner

But maker has no plans to start its own finance unit again.

by on May.01, 2012

Sergio Marchionne doesn't want to ally with Ally.

Chrysler Group is looking for ways to change another part of the bailout plan originally imposed by the Obama administration’s auto czar while the company was facing bankruptcy three year ago.

Chrysler has notified Ally Financial Inc. it will not renew its current operating agreement with the lender when it expires in April 2013.  It will seek to form a relationship with another source of financing for customers and dealers but Sergio Marchionne, Chrysler’s chief executive officer, said the maker has no plans to try and restart its own captive finance company.

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Chrysler actually may give up some profits produced by a captive finance company. But not having a captive finance company also removes the ever present temptation to use the subsidiary to produce short-term profits by taking unsustainable risks.

“It won’t pollute the industrial company,” noted Marchionne, who did not rule out signing a new agreement with Ally that includes modified terms.

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Cerberus Sells Chrysler Financial To TD Bank

Offsets some of equity firms losses on Chrysler bankruptcy.

by on Dec.21, 2010

Cerberus sells Chrysler Financial to TD Bank.

The TD Bank Group of Toronto has acquired Chrysler Financial from Cerberus Capital Management of New York City for $6.3 billion in cash.

The deal apparently reduces Cerberus losses on its ill-timed acquisition of Chrysler from Daimler AG back in 2007.  Cerberus paid $7.4 billion for Chrysler in August of 2007 and later got some additional consideration from Daimler for Chrysler assets in China but the investment in Chrysler’s automotive business was wiped out during the carmaker’s 2009 bankruptcy.

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“This transaction with TD is the right next step for the future of these businesses, their employees and customers,” said Mark Neporent, Senior Managing Director and Chief Operating Officer, Cerberus.  “It ensures that the acquired businesses will be part of a strong and well-capitalized financial institution, which will help create sustainable jobs,” he said.

Chrysler Financial nearly died two years ago when the auto industry was engulfed in the banking industry’s financial crisis in the winter of 2008 and 2009.

The deal gives Toronto Dominion all of Chrysler Financial’s processes and technology as well as its existing portfolio of retail assets on both sides of the border.

Following this transaction, the business, combined with TD’s current operations in Canada and the United States, will be positioned as a top 5 bank-owned auto lender in North America with substantial potential for growth, the firm projected.

“This transaction represents a unique opportunity to purchase a great organic growth platform at an attractive price,” said Ed Clark, Group President and CEO, TD.

“Chrysler Financial is a well-run business with the capacity for significantly higher returns over the next several years. This acquisition will allow us to leverage our lending expertise and financial strength to expand our presence in a large North American market with tremendous potential upside,” Clark said.

“Because we’re well-capitalized and a leading deposit franchise, we’ve been looking for opportunities to accelerate the growth of our loan book. This acquisition gives us that opportunity and also diversifies our lending portfolio.”

The acquisition will give TD a platform for asset generation in the North American automotive lending market, enabling it to significantly grow its consumer loan portfolio.

In addition to the existing dealer relationships that TD has in Canada and the U.S., Chrysler Financial’s dealer clients serve approximately 1 million customers. TD expects that the business could generate a return on invested capital of approximately 20% in three to four years, once it is operating at a steady run rate, Clark said.

The acquisition also sets up a competition with Ally Bank, formerly known as General Motors Acceptance Corp., which was left a substantial chunk of Chrysler Financial’s old business once GM and the re-organized Chrysler Group emerged from a structured bankruptcy.

GM Looking to Rebuild Its Role in Auto Financing

Maker could abandon partnership with Cerberus.

by on May.12, 2010

An Ally no more?

Four years after selling a controlling stake in its finance subsidiary, GMAC, General Motors is reportedly looking for a way to get back into the auto loan business.

That could lead it to buy out Cerberus Capital Managerment, its private equity partner in what is now known as Ally Financial, Inc., or the Detroit automaker could set up an entirely new “captive” finance subsidiary, according to well-placed sources.

A senior GM official dismissed the story as “speculation,” though numerous company officials admit the automaker has been increasingly frustrated with its old lending unit and the way it has been managed by Cerberus since the 2006 sale.

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Awash in debt run up by bad housing loans, the former GMAC has stayed afloat only with the assistance of $17.2 billion in loans from the U.S. Treasury, which now owns a 56.3% stake in the lender.

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Chrysler Financial Repays Government Loans

Lending arm pays back $1.5 billion received in January.

by on Jul.14, 2009

Could Capitol Hill Critics Sink the Fiat Alliance?

Last winter, lots of people predicted this day would never come. But mark this day down — one of the recipients of the government bailout money, Chrysler Financial, has repaid the U.S. Treasury, sending the $1.5 billion it received in January back to Washington.

Meanwhile while GMAC Financial Services Inc. said it will send the government a $271 million dividend check next month.

The repayment by Chrysler Financial and the special dividend from GMAC mark the first step toward repayment of the billions Detroit borrowed last winter when the U.S. auto industry and their finance companies were on the verge of collapse.

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Chrysler Financial said Tuesday it has repaid in full the $1.5 billion of Troubled Asset Relief Program or TARP loans, which Congress approved last year to bailout troubled banks and the Obama administration used to help Detroit’s struggling automakers when Chrysler and GM were sinking fast. So far, the Treasury Department hasn’t asked for an early payment penalty.

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GMAC Fails U.S. Treasury Stress Test and Could Fail if the Recession Continues

The source of credit for GM and Chrysler needs its own bailout?

by on May.08, 2009

GMAC logo

Color that logo red, as GMAC losses mount -- and it is named one of the weakest banks by the Feds.

Add another worry to the long list already attached to struggling automakers. GMAC, the storied company that supplies dealer and consumer financing for vehicles at General Motors since 1919, is in need of an additional $11.5 billion in capital, according to the U.S. Treasury Department. This amount doesn’t include the additional capital GMAC will need to take over Chrysler’s wholesale and retail financing needs when it emerges from bankruptcy.

Treasury, the agency that has been printing increasing amounts of money by issuing staggering amounts of debt in a desperate attempt to halt the Great Recession, released a list of financial institutions that failed its stress test yesterday afternoon.

GMAC was among the troubled institutions. In fact, GMAC had the biggest problem with liquidity of any bank for its size. That finding came just as the lender revealed that its first-quarter losses had jumped to $675 million, up from $599 million a year ago. The numbers actually would have been worse but for $631 million in after-tax gains from retiring some of its debt.

This means that GMAC now has until November 9, 2009, to increase common shareholder equity by $11.5 billion, of which $9.1 billion must be new capital. Ways to do this could include issuance of new common equity in a depressed market for such, or issuance of mandatory convertible preferred shares, or the conversion of existing equity into a form of “Tier 1″ common equity.    (more…)

U.S. Bankruptcy Judge Approves Chrysler’s First Day Motions in Federal Court

So far things are progressing smoothly, confounding critics.

by on May.04, 2009

T

Tom LaSorda, Vice Chairman and President, left, announced his immediate retirement on the first day of the bankruptcy court proceedings.

Last Friday Judge Arthur Gonzalez in the U.S. Bankruptcy Court in New York City immediately approved a series of court filings from Chrysler LLC known as “first-day motions.” The orders issued by the court allow Chrysler to continue to operate its business during the reorganization proceedings. The quick action was expected, since the court is used to dealing with large, albeit less publicized, bankruptcies.

The Court granted approval for the company’s request to continue payment of wages and health and welfare benefits to employees and contractors, and continue its customer warranty programs.

However, the true test of whether a swift bankruptcy can occur in 30 to 60 days, as the Treasury Department claims, remains at an unknown date in the future. Still to be heard from are Chrysler’s debtors who object to the proposed $2 billion settlement on $6.9 billion in secured Chrysler debt. Even though the four largest banks holding 70% of this debt have agreed to the settlement, it is unknown how Judge Gonzalez will treat the issue. Other impediments to swift reemergence from bankruptcy remain, as hundred of motions from interested parties are expected.  

Subscribe to TheDetroitBureau.comStill, day one went smoothly from Chrysler’s point of view. Only one day before, Chrysler announced a restructuring plan that was agreed to by many of its stakeholders including the Obama Administration, now its largest creditor. The Chrysler agreement in principle to establish a global strategic alliance with Fiat SpA is the cornerstone of a new company. (more…)

GMAC Financial Services Agrees to Provide Financing for Chrysler Dealers and Customers

Chrysler Financial will be phased out.

by on Apr.30, 2009

Alvaro deMolina, CEO GMAC

"GMAC is pleased to be part of the solution to restructure and stabilize the U.S. auto industry," said GMAC Chief Executive Officer Alvaro G. de Molina.

GMAC Financial Services has just announced that it has entered into an agreement with Chrysler LLC to provide automotive financing products and services to Chrysler dealers and customers. Chrysler Finance will continue to carry the existing book of business for dealer inventory, but would eventually be liquidated as those loans are paid off. Retail contracts going forward would be handled by GMAC.

GMAC is a bank holding company with operations in North America, South America, Europe and Asia-Pacific, and that gives it access to funding that Chrysler Finance does not have under the existing frozen credit markets. The company is owned by a Cerberus-led consortium, which holds 51%, and  former owner General Motors, which now holds 49%.  Cerberus, of course, is the soon to be former owner of Chrysler, which filed for bankruptcy earlier today. As of December 31, 2008, the company had $189 billion in assets and serviced 15 million customers around the world.

Under the tentative agreement, GMAC will be the preferred provider of new wholesale financing for new Chrysler dealer inventory and has a four-year agreement for “incentivized” retail financing with limited exclusivity.

President Obama had explained the rationale for the new financial arrangement earlier in the day. “It’s now clear that Chrysler Financial — the institution that finances Chrysler cars and dealers — would on its own require an unacceptably large stream of taxpayer money to remain viable — and that’s something I refuse to provide,” the President said. “And that is why, as part of this agreement, GMAC, an independent bank holding company that finances General Motors, has agreed to finance new Chrysler sales.”

The President went on to explain that the U.S. would be providing additional capital to GMAC to help unlock the frozen credit markets and free up lending so that consumers can get auto loans and dealers can finance their inventories. “Tomorrow, the Small Business Administration will be announcing it is expanding eligibility for some loans to include more suppliers and dealers, including RV dealers,” the President concluded. 

“GMAC is pleased to be part of the solution to restructure and stabilize the U.S. auto industry,” said GMAC Chief Executive Officer Alvaro G. de Molina. “Providing financing options to dealers and consumers is critical as we work through one of the most challenging periods in the global auto sector. We will leverage our strengths and capabilities as the leading automotive finance company to serve our new customers, while maintaining our commitment to current customers.

“Serving as the primary source of financing for Chrysler is consistent with our strategy to diversify our automotive business,” de Molina said. “We intend to work through the operational process quickly and effectively to ensure that the appropriate level of credit is available to support the sale of Chrysler vehicles.” (more…)