By Chris Haak

Toronto-Dominion, the second-largest bank in Canada based on deposits, announced today that it has acquired Chrysler Financial.  Chrysler Financial has had a number of ups and downs over the past few years, but the entity is clearly ending its life on an “up” note.  Toronto-Dominion is better known in the US as TD Bank.

Previously the captive finance arm for Chrysler and its various brands, Cerberus purchased the lender along with Chrysler’s automotive operations in 2007.  Partially due to Chrysler’s struggles, and partially due to the financial crisis, Chrysler Financial was undergoing major struggles.  As Chrysler exited bankruptcy, Chrysler Financial lost its status as Chrysler’s captive-finance arm, with that role moving to GMAC instead under the government’s direction.  Chrysler Financial executives declined to accept TARP funds to shore up the company’s balance sheet, and it looked like the firm would be liquidated.  It was generating little new business and seemed to have dim prospects for the future.

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By Chris Haak

We reported several weeks ago that GM was interested in either buying a captive-finance arm or establishing a new one.  You see, since GM sold a majority interest in GMAC to Cerberus (a year prior to Cerberus’ star-crossed Chrysler acquisition), the one-time world’s largest automaker has found itself at a disadvantage relative to many of its rivals:  because it no longer owned (or even controlled) GMAC, it could not offer the same kinds of competitive new-vehicle finance deals that the likes of Ford, Toyota, and Honda were able to.

GMAC was burned, and burned badly, by the mortage meltdown.  Its ResCap mortgage arm, which sold a ton of mortgage to ill-qualified subprime borrowers that in turn could not make the required payments, may still end up in bankruptcy protection.  Attempts to shore up GMAC’s balance sheet meant that the lender had little interest in issuing auto loans to subprime borrowers.  Their executives were mumbling something about, “once bitten, twice shy.”  This proved unhelpful to GM – and Chrysler – as both automakers had been leaning on GMAC as a de-facto captive finance arm, albeit one with its own best interests at heart, and not those of a parent automaker.

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By Chris Haak

The Chrysler PT Cruiser, perhaps the best-selling and most-recognizable retro-styled car sold in the US market over its eleven-year production run, is about to end its production once and for all.  On July 6, the last new PT Cruiser will roll off the assembly line at Chrysler’s Toluca, Mexico assembly plant.

That the PT Cruiser has endured for as long as it has – selling some 1.2 million copies in the process, or an average of over 100,000 units annually over its production run – is a testament to the car’s fundamentally clean, quirky, fun-loving design.  Over the past decade, the PT Cruiser has changed only slightly.  All of the hard points are still the same as the original 2000 model, but the front bumper and grille were revised slightly for the 2006 model year, and the interior was changed for 2006 also.

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By Chris Haak

The Congressional Oversight Panel, created by Congress to oversee the Treasury’s spending of Troubled Asset Relief Program (TARP) money, said late last week that GMAC could have been required to undergo a quick-rinse bankruptcy similar to what GM and Chrysler did last year. Bankruptcy would have allowed GMAC to shed itself of the millstone of its troubled non-core ResCap division, which continues to lose considerable amounts of money thanks to bad mortgages that it assumed during the real estate boom years.

The panel, chaired by Elizabeth Warren – an attorney and Harvard law professor – also criticized Treasury for not requiring GMAC to have a viable business plan in place going forward, despite receiving its first bailout money more than a year ago. To date, GMAC has received more than $17 billion USD from the US government to prop up the company’s finances. Both Treasury and the company assert that it is now solvent and will not require any additional bailout funds, but the Office of Management of Budget estimates that the government will never recover $6.3 billion USD of the money given to GMAC.

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By Chris Haak

03.31.2009

Perhaps lost among yesterday’s flurry of GM- and Chrysler-related announcements and news releases from each company, the President’s Task Force on Automobiles, and President Obama himself, Chrysler has had to do some serious backtracking from statements that its PR department released.

As we reported earlier, the government announced on Monday that it considers neither Chrysler nor GM to be viable entities and that it was giving Chrysler 30 days to work out a deal with Italy’s Fiat, which might make the firm a viable going concern.  Mere hours later, Chrysler announced that it had agreed to the terms of a formal alliance with Fiat S.p.A. and its majority owner, Cerberus Capital Management.  Chrysler went on to say that the US Treasury Department supported the agreement.

Just thirty minutes later, Chrysler issued another news release that said that the deal with Fiat was actually just the “framework of an agreement.”  There’s a big difference between a framework agreement – which Chrysler, Cerberus, and Fiat have already had in place for several weeks – and a final agreement, which the parties have 30 days (now 29 days) to come to.  When I first saw the news that an agreement had been reached, I was surprised, because most observers expected it to take possibly more than the allotted 30 days for the parties to come to terms.  Further, the government had changed the terms under which an agreement would be acceptable; specifically, Fiat’s proposed 35% initial stake, and eventually up to 55%, would have to be much lower.  The government would also not allow Fiat to have a majority ownership of the company until the loans had been repaid. Continue Reading

By Chris Haak

01.29.2009

Industry publication Automotive News reported this week on the tentative plans that Chrysler and Fiat have for sharing products in the venture that the companies announced last week.  The automakers have a March 31, 2009 deadline for coming to a final agreement, and Fiat CEO Sergio Marchionne visited Chrysler headquarters in Auburn Hills, Michigan today to look over the company that Fiat has agreed to acquire 35% of.

Before the ink was even dry on the “non-binding term sheet” – in fact, when the alliance was reported as “likely” and not a sure thing, our own J.S. Smith walked through some of his ideas about how the Chrysler-Fiat partnership would work.  Now, some more concrete details – though still not officially confirmed by the two companies – are starting to emerge. Or to leak, as the case may be.

Overall, Chrysler will sell seven Fiat, Fiat family, or Fiat-engineered vehicles in the US at Chrysler dealerships; the seven vehicles will be built on four different platforms.  The likely candidates are mostly small cars; Chrysler has no entry in the B-segment (subcompacts) and only the Caliber, Compass, and Patriot in the larger C-segment (compacts), and needs to boost its CAFE number significantly in coming years, which will be difficult without efficient products in the lineup to offset the 15 mile per gallon Hemis.  Here are the plans as reported by Automotive News: Continue Reading

By Chris Haak

12.30.2008

The US Treasury announced yesterday that it had approved a $6 billion financial assistance package for GMAC, the heretofore 49% GM-owned/51% Cerberus-owned finance company.  The assistance is coming in the form of a $5 billion purchase of preferred GMAC shares and a $1 billion loan to GM so that it can buy additional shares in GMAC.  The preferred shares pay an 8% annual dividend.

Under the terms of the capital infusion, which is occurring under the TARP program originally intended to provide assistance to financial institutions (actually, it was originally intended to purchase troubled assets from banks, to get them off of the banks’ balance sheets, but TARP has evolved over the past few months), a new sub-program under TARP has been set up to aid auto finance companies.  Treasury also said that this just the first in a series of deals expected in the coming days and weeks to aid other auto-finance firms, hopefully making consumer lending and dealership inventory financing less expensive and more accessible.

Toward that end, today GMAC announced that it had immediately lowered its unfortunately-high bar of requiring a FICO score of 700 and above (in place for the past two months) for approval of any loans to a more reasonable 621 and above.  As our own Brendan Moore noted during a brief interview with NPR’s Marketplace radio show today, GMAC had just been out of the game as far as its ability to offer financing to a large swath of the buying public.  And, by the way, all of GMAC’s competitors – and therefore GM’s competitors who still have possession of their captive finance arms, like Toyota Financial Services, Ford Motor Credit, and others – were still able to make loans to individuals with FICO scores below 700.  According to GM, about 40% of buyers have a FICO score of 700 or greater, so they were shut out of a major slice of the market. Continue Reading

By Chris Haak

12.18.2008

The Wall Street Journal reported today that the merger talks between GM and Chrysler – which have been publicly acknowledged at least three times by my count – have again restarted.  Though neither company has yet commented on the development, the Journal cited the usual “people familiar with the matter” when reporting the story.

The closest the companies have probably come to merging was in October, when GM COO Fritz Henderson was leading a team to explore the purchase of Chrysler from Cerberus, only to disclose with the release of some ugly third quarter 2008 financials a few weeks later that the company was abandoning the pursuitto focus on near-term liquidity challenges.  During the automakers’ Congressional testimony, CEO Rick Wagoner of GM and Bob Nardelli of Chrysler agreed to reconsider the possibility of a merger, particularly if it was a condition of receiving government assistance. Continue Reading

It says no worries, guys. Why do you look so worried?

By David Surace

11.02.2008

On Friday, GM spokesman John McDonald confirmed to Automotive News (sub req’d) that the automaker will indeed end a special financing deal for their certified used car program earlier than originally planned, specifying the lack of funding for credit as the primary cause. Naturally the words lack of funding causes alarm among the people who make money off of these cars, but there’s some explaining to do.

The original plan was as follows: GM would offer 3.9% financing for 60 months on all certified used Chevy Impala and Pontiac G6 cars, and Chevy Silverado and GMC Sierra pickups, purchased between this October 1st and January 5th. The change in plans moves the end-date back to November 3rd, this Monday. What’s a possible reason? The financing program was being run exclusively through GMAC Financial Services, until recently a very heavy (perhaps TOO heavy) bargaining chip in the merger talks between GM and Chrysler. Continue Reading

By Chris Haak

09.25.2008

When Daimler (then called DaimlerChrysler) sold 81.1% of its stake in Chrysler to Cerberus Capital Management in mid-2007, it held onto the remaining 19.9% of Chrysler.  At the time, Daimler made all kinds of noise about how they believed in Chrysler and wanted to hold onto about a fifth of the company to reap the rewards of its success, and so forth.

Subsequently, Daimler was forced to belly up to two massive write-downs in its Chrysler stake based on the decline in the book value of its investment in Chrysler, according to international accounting rules.  The size of these write-downs, easily extrapolated (by multiplying them by five) led many industry analysts to speculate that Chrysler was losing huge amounts of money.  These rumors caused tight-lipped Cerberus, as well as Chrysler, to release public statements concerning its cash position, operating cash flow, and operating profits – in spite of there being no statutory requirement for doing so.  Even if the accounting rules that Daimler must abide by are different (more strict in this case) than US accounting rules, the fact remains that Chrysler is still an albatross on Daimler’s neck – albeit only 19.9% of an albatross relative to what it would otherwise have been).  (A brief editorial note:  I’m not here to say that Daimler didn’t have an awful lot – if not nearly everything – to do with the situation Chrysler finds itself in today.  After all, Daimler did own Chrysler for nine years, and oversaw the approval and development of every model in Chrysler’s current portfolio.) Continue Reading