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Chrysler puts Ally on notice; exec spurns captive finance

Keywords: Tags  Chrysler, Fiat, Ally Financial, Sergio Marchionne, corinna petry

CHICAGO — Chrysler Group LLC has told Ally Financial Inc. that when its lending agreement ends in 12 months, the automaker will shop around for its consumer financial-services needs.

Unlike other automakers, Chrysler did not have Detroit-based Ally as a captive finance arm of the company. Chairman and chief executive officer Sergio Marchionne spoke in strong terms against such arrangements, blaming easy credit for the recession that struck automakers so severely.

"I never believed it was a requirement that we own captive finance to support our manufacturing and distribution," said Marchionne, noting that outside banks have readily supported parent Fiat SpA’s commercial operations.

Contracting with Ally was the only way Chrysler could support its sales in the U.S. and Canada after the company emerged from bankruptcy in 2009. But Marchionne said that "a lot has changed in three years," and described the brand as "sufficiently strong to support the naming of a finance organization that reflects the corporate existence and the viability of Chrysler as a carmaker."

"Our primary objective in life is to manufacture and sell cars," he said. "The financing (business) has, in a lot of ways, been at the heart of a lot of the ills in the U.S. market. They built up unrealistic volumes because of the ease of access to capital."

An additional risk of having a captive credit division is that a company then commingles its industrial decisions with its financial decisions, Marchionne said. As a consequence, "you end up driving the industrial machine in the wrong direction because you get a cheap answer on the financing side. That will never happen to Chrysler. It can’t."

"As long as I outsource the credit position, I’m forced to be disciplined," he said. "Do I make as much money as the guy who has captive finance? Undoubtedly I’ll make less, but at least the industrial machine cannot get polluted."

Keeping the two businesses separate allows a company to avoid temptation, he said. "If you want to stop drinking, don’t hang around the bar."

Ally Financial said Chrysler’s decision not to extend its lending agreement was expected. During the bank’s earnings conference call last week, chief executive officer Michael A. Carpenter said that Chrysler’s retail loans comprise 3 percent of Ally’s earnings assets. "We expect to continue to play a significant role with the Chrysler dealer network," he added.

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