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Chrysler Says Santander Unit to Speed Financing Approvals

February 11, 2013

Chrysler Says Santander Unit to Hasten Auto-Financing Approvals

Chrysler decided against purchasing a stake in its venture with Santander because the automaker’s credit rating would have increased Chrysler Capital’s borrowing costs. Photographer: Dado Galdieri/Bloomberg

Chrysler Group LLC, the U.S. carmaker forming an auto-financing venture with Banco Santander SA, said the unit wants to cut the almost four-hour industry average time it takes to approve a vehicle purchase.

Chrysler Capital, the service that Santander Consumer USA Inc. will create to finance car and light-truck purchases and leases, may set up a full online approval process for customers to use before they visit a dealership, Peter Grady, Chrysler Group’s vice president of dealer network development and fleet operations, said in an interview.

“That’s a big dissatisfier for a consumer,” Grady said of the financing approval process in an interview at the National Automobile Dealers Association convention Feb. 9 in Orlando, Florida. “It’s all explainable, but it’s got to change.” Chrysler may seek to cut the time in half, he said. “You’ve got to have those crazy, audacious goals.”

Chrysler, controlled by Fiat SpA, this month completed an almost yearlong search for a new lending partner in the U.S. after telling Ally Financial Inc. (ALLY:US) that it would let their agreement expire at the end of this April. Chrysler Capital, which will begin operating May 1, will also provide dealers with wholesale loans for buying vehicles from the manufacturer.

Owners of the U.S. automotive unit of Santander, Spain’s biggest bank, include private-equity firms Warburg Pincus LLC, KKR & Co. and Centerbridge Capital Partners LLC, which together purchased a 25 percent stake in 2011’s fourth quarter. Sponsor Auto Finance Holding Series, a company owned by funds affiliated with the firms, paid $1 billion, data compiled by Bloomberg show.

‘Highest Priority’

“Stability of funding for our dealers has been the highest priority” for Chrysler, which left bankruptcy in 2009, Grady said. “We were looking for a bank with some significant heft” that could “provide the financial backstop that would be needed in a downturn if another capital market disruption occurred.”

Chrysler decided against purchasing a stake in its venture with Santander because the automaker’s credit rating would have increased Chrysler Capital’s borrowing costs, Grady said.

Moody’s Investors Service on Feb. 1 upgraded its rating on Chrysler this month to B1, four levels below investment grade. Standard & Poor’s rates Chrysler B+, also four levels into junk.

Chrysler selected Santander in part because of its expertise with so-called automated decisioning, which uses data modeling to speed the assessment of loan applications and set appropriate terms for the borrower, Grady said.

“Santander Consumer USA does that today, in the subprime space,” Grady said Feb. 9. “There are certain things that they know that make them take a little bit more risk and approve more deals because they mine the data.”

Santander Deal

Chrysler said last week that its agreement with Santander is for 10 years. Santander will create a separate business unit as part of the deal that also will finance dealership construction, real estate, working capital and revolving lines of credit. Santander will provide Chrysler with a nonrefundable upfront payment and a quarterly share of revenue, according to a statement, which doesn’t give specifics.

Santander will get the right to specified minimum percentages of Chrysler’s subsidized-rate financing programs, the automaker said in a Feb. 6 regulatory filing. In return, the lender will commit to certain approval and penetration rates.

Santander will shoulder the risk of losses on loans covered by the agreement and the two parties will share in any residual gains or losses from consumer leases, according to Chrysler’s filing.

To contact the reporter on this story: Craig Trudell in Orlando, Florida, at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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