As part Chrysler LLC's bankruptcy reorganization deal, the independent banking company GMAC has agreed to provide financing for Chrysler dealers and customers going forward, but has declined to acquire Chrysler Financial, a separate corporation, or its existing loan portfolios. Although Chrysler Financial has not joined the automaker in seeking bankruptcy protection, its future as an active lender is very much in question.
"With events surrounding Chrysler LLC's filing for bankruptcy protection, Chrysler Financial, an independent company, will be assessing the effect of this decision on its lenders, investors, dealers and employees. … the ultimate impact on our constituents will be assessed over the next few days," the financing company said in a statement.
In announcing the Chrysler bankruptcy plans yesterday, President Barrack Obama said: "It's now clear that Chrysler Financial ... would on its own require an unacceptably large stream of taxpayer money to remain viable, and that's something I refuse to provide." Instead, the government would provide GMAC with funds to take over financing for Chrysler dealers and consumers, he indicated.
Shortly after the presidential announcement, GMAC released basic details of a four-year agreement to provide that financing. In a press statement, the company also made it clear that it "has not acquired the existing assets or liabilities of Chrysler Financial."
It's estimated that Chrysler Financial currently services about 3 million loans it originated. Once those loans are paid off, those servicing fees would end.
Chrysler Financial is wholly owned by Cerberus Capital Management LP, which spun the company off when it acquired controlling interest in Chrysler in 2007. Cerberus also owns 51% of GMAC, which it purchased from General Motors Corp. GMC still continues to own the remaining interest in what was once its captive financing arm.
Now officially reorganized as an independent bank, GMAC has received $5 billion from the federal government's Troubled Asset Relief Program. It's not yet known how much it will receive in additional federal funds under the new Chrysler agreement.