Chrysler Beats GM To Non-Prime Loan Deal

Edward Niedermeyer
by Edward Niedermeyer
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.

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12 of 25 comments
  • Dwford Dwford on May 18, 2010

    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.

    • See 1 previous
    • Cdotson Cdotson on May 18, 2010

      Rusted Source: There are some problems with your argument, but the crux of the matter is that it *IS* the lender's responsibility to manage their own risk. Auto loans that I'm aware of are generally fixed-rate regularly scheduled payment deals, not fancy interest-only or adjustable-rate long-term loans dependent on collateral appreciation for future refinancing. Accepting such a product on a home reflects poorly on the home buyer's decision to manage their own risk. Offering such products with 100% or more loan-to-value ratio in sums exceeding Jumbo threshold with minimal documentation of the borrower's ability to repay reflects poorly on the lender's ability to manage their own risk. In other words (adjusting magnitude of $ downward to reflect proportionately wider scope than an individual basis), when you owe a bank thousands of dollars you have a problem; when you owe a bank hundreds of thousands of dollars the bank has a problem.

  • Mtymsi Mtymsi on May 18, 2010

    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.

    • See 3 previous
    • NulloModo NulloModo on May 18, 2010

      dwford has it right on. Just because Santander is going to offer loans doesn't mean that people walking in with a 600 credit score are going to be getting 0% loans on $30,000 vehicles with no money down. Banks that finance the credit challenged generally set caps on the amount of the loan, set a cap for the maximum amount financed (85% seems to be common here, making the buyer take stake in the vehicle by putting some real cold hard cash down), and almost always require documentation that the person can actually pay in the form of tax returns, paystubs, employment history, and references. Giving the credit challanged a legitimate way to purchase a vehicle is good both for them and for the dealership. The alternatives aren't pretty. On one hand you have secondary banks which often charge bank fees, sometimes $2,000 or above, just to buy the loan, which makes the dealership unhappy as they have to cut the gross to make up for it and the customer unhappy as they have to come up with even more money down, and at the same time hit with obscene interest rates, where 15% and above aren't uncommon. The true last resort is the 'buy here pay here' lot, home to the sleaziest of sleazeballs in the industry where someone will loan-shark equivalent interest rates on a beaten up broken down piece of trash car and often get no positive credit out of it as many of those lots don't even report unless it's negative.

  • Runfromcheney Runfromcheney on May 18, 2010

    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.

    • FleetofWheel FleetofWheel on May 18, 2010

      I don't share your dim view of janitors. Such folks usually have a realist view of the world due to years of living on limited funds. Prior generations of Americans had humble means and yet a clear financial sense of what they could afford. I do agree that banks that made these loans were irresponsible to the shareholders. Likewise, the rating agencies and subsequent buyers of tainted bundled sub-prime securitized mortgages were equally failing in their duties.

  • Pgcooldad Pgcooldad on May 18, 2010

    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"

    • NulloModo NulloModo on May 18, 2010

      The line isn't entirely cut and dry. 800+ is golden, the score pretty much speaks for itself, you can go to any bank and get the best rates. 700+ is pretty much the same situation, but the banks pay more attention to the number of open auto loans, debt to income, amount owned on credit cards and other revolving lines, and other factors. It's possible to have a good income and a 740 beacon and still get denied a loan if you already have more than one car loan in your name or you owe a ton of money to people already. When you get into the upper 600s range, chances are you are still going to get financed through a primary bank, and you might even qualify for special interest rates like 0% financing, but money down becomes more of an issue, loan to value becomes a very big issue, it gets much harder to roll negative equity into a loan, etc. Mid to lower 600s it's possible to get done, and generally still possible to get done at an interest rate that isn't awful, but it isn't going to be a great rate like 5% or below. Money down becomes very important, as most banks aren't going to front the full 100% of the value of the vehicle. This is, of course, all relative. The reason for the lower credit score can be more important than the score itself. It's almost impossible to get a car loan if you have an open foreclosure or bankruptcy for example. Past repossessions also hurt a lot, and can disqualify you for many years from a particular lender. The lower the score the more important it is to be able to prove your income as well. Waitresses, bartenders, 'dancers', self employed persons, consultants, and anyone else who make a large portion of their income in tips or who self-report to the IRS and who haven't been entirely honest about past income face a tough wall when it looks like their expenses are a bigger draw on their income than they really may be.