Chrysler's financing arm is not in danger of losing the ability to offer consumers low-interest loans, Chrysler LLC Chairman and CEO Bob Nardelli told the automaker's employees Monday.
Nardelli was responding to a Wall Street Journal report which suggested that Chrysler Financial's bankers are scrambling to avoid higher borrowing costs when the unit rolls over about $30 billion of short-term, car-loan-backed debt next month. If Chrysler pays more for its money, the Auburn Hills automaker may not be able to offer special rates on auto loans to entice customers to buy in a slow market, analysts say.
The credit review process under way is nothing out of the ordinary, Nardelli assured staff.
“As is customary for many auto finance companies, this renewal process takes place every year,” he wrote in an e-mail sent to employees and obtained by The Detroit News. “We will continue to offer competitive financing and lease options for our customers and dealers.”
Nardelli pointed out that the automaker is offering zero-percent financing for 72 months on Dodge Rams, among other offers.
Chrysler expects to complete the renewal process in early August, said Chrysler Financial spokeswoman Amber Gowen.
Automakers' lending arms, including Chrysler Financial, may have to pay higher interest rates for funding as credit markets have tightened and banks are shying away from debt backed by car loans and leases, as defaults rise.
For several months Chrysler Financial has tightenedstandards and refused to write loans to those with marginal credit, said Alan Helfman, owner of Rivers Oaks Chrysler Jeep in Houston.
“We knew something was going on with Chrysler Financial, but we didn't know what,” he said. “It's a big-time concern, because there is a copious amount of deals that I can't get done today that last year I could make a phone call and they'd be willing to work with us.”
Pressures on the ability of automakers to access credit, and pass it on to their customers, are likely to affect automakers industrywide, not just Chrysler, said George Magliano, automotive analyst with Global Insight Inc.
“This adds to Chrysler woes, but they have bigger headaches to deal with,” he said.
Chrysler's larger problem is that that automaker's lineup, which is slanted toward trucks and SUVs, is struggling to capture customers who now are flocking toward fuel-efficient cars.
“If the demand for your products is there, you don't have to worry as much about offering a great deal,” Magliano said.
But Chrysler vehicles are languishing on dealer lots. On average, Chrysler-brand vehicles take 93 days to sell, compared with an industry average of 62 days, according to Power Information Network, a unit of J.D. Power and Associates in Troy.
If credit woes mean Chrysler can't offer competitive financing rates, the company could have even more difficulty selling vehicles, said Tom Libby, senior director of industry analysis at the Power Information Network.
“Interest rates are important because that determines monthly payments,” he said, “and the monthly payment is often a difference maker for car buyers.”
