Chrysler Beats GM To Non-Prime Loan Deal
As non-executive vice-chairman of the Swiss bank UBS, Chrysler CEO Sergio Marchionne has deep connections with the European banking community. Now, under threat of losing its primary lender Ally Financial to GM’s dreams of a return to in-house, subprime lending, Marchionne has leveraged that experience into a non-prime lending deal with a US division of Spain’s Banco Santander. Automotive News [sub] reports that Santander and Chrysler have reached a deal to provide loans to Chrysler customers with sub-650 credit scores that ChryCo reckons could result in an additional 2,000 sales each month.
Chrysler and Santander already enjoy close ties, as about half of all Chrysler dealers use the Spanish bank for used-car financing. And that’s not all: Fiat-owned Scuderia Ferrari recently closed a deal in which Santander would become a major sponsor of its Formula One team. Under the just-closed Chrysler subprime deal, Santander will save non-prime customers 30 percent on their car loan costs, which works out to about $3,000 in savings over the life of the loan. According to Chrysler, some 22 percent of its customers fall into the credit-score range addressed by the new program.
But the Chrysler-Santander deal isn’t being done on the strength of close ties alone. AN [sub] reports that Chrysler is subsidizing these subprime loans, although officials are refusing to disclose the size or nature of this investment. The only thing that Chrysler spokesfolks will say is that:
Santander specializes in this credit market. They know how to finance it. They don’t do prime lending. They have plenty of money. There is not a liquidity issue.
Your move, GM.
It's not Chrysler's job or the dealer's job to enforce anyone's version of what a customer should do with their money. If someone wants to make a bad financial decision, it should be their choice. That's part of living in a free country. I see customers all the time that make 6 figure incomes with credit in the 600s and even lower because they are just bad with money. I am not going to turn down their business if a bank is willing to take on the risk. In a perfect world everyone would pay cash at MSRP.
There are two recurring major misconceptions repeated in the responses on both this thread and the GM subprime one. 1) the subprime auto financing model has existed for decades sucessfully so it is not as though Chryco or GM are entering a risky new venture in financing. In fact they're not even entering into something new. 2) the subprime mortgage meltdown has absolutely nothing to do with subprime auto financing, there isn't even a remote resemblance in the two. All either are doing is regaining the financing ability they have had for decades. A manufacturer without a captive finance arm is at a distinct competitive disadvantage. Lack of the availability of subprime financing costs marketshare as does the inability to subsidize leases through the captive finance arm. Historically captive finance arms have always been profitable, often times when the manufacturing arm wasn't.
I think we need to remind ourselves that lending to subprime borrowers is not what caused the problem. Bozos like Angelo Mozilo and his goons at Countrywide (Just as an example) were putting people in expensive $400,000 homes even if they worked as a janitor. They started them off low to entice them in, then since the mortgage was "adjustable rate", jacked the price up considerably, and when the poor janitor couldn't afford the payment, Angelo's goons siezed the house and resold it. As for the automakers, they took a bath not on lending but LEASING. I don't think Chrysler is putting itself in a risky position by doing this. People just hear "subprime" and go nuclear, it seems.
Is there a difference between non-prime and sub-prime? The article clearly sates non-prime. What is the credit score cutoff? Based on Wikipedia: "620 being the dividing line between good and bad, 640 or above being "pretty good", 650 as average general credit-use behavior; 723 being the median FICO score of Americans." Also, why is everyone up at arms over a deal with a foreign (Spanish) bank? "Marchionne has leveraged that experience into a non-prime lending deal with a US division of Spain’s Banco Santander"