TD bank to acquire Chrysler financial and officially end the era of captive auto financing

What is the most significant about this transaction is that it is the death of captive auto finaning companies.  GM used to own GMAC, now they do not.  They did buy AmeriCredit, but it is not the largest provider of auto financing.  TD, was already financing auto loans in Canada through their auto financing wing. 

Now they are entering into the US market through Chrysler Financial.   TD will be using this new auto company not only to finance Chrysler auto loans.  They will also be using their newfound status to finance loans for GM and other auto companies. 

The separation of automobiles from auto finance also has the additional benefit that it will force auto companies to be honest in recoginizing revenues.  GM and other auto companies would use the financing wings to smooth out revenues or manage their income statement and tax liabilities.  Now, they must get back to the business of making cars that people want to buy.  Via Forbes:
Toronto-Dominion Bank ( TD - news - people ) expects to become one of the North America's five-largest auto lenders as it grows its consumer loan portfolio. The purchase price of Chrysler Financial, the automaker's former financial arm, includes $5.9 billion in assets, with the rest of the value in goodwill, the bank said.

Ed Clark, group president and CEO of TD, said that "Chrysler Financial is a well-run business with the capacity for significantly higher returns over the next several years. This acquisition will allow us to leverage our lending expertise and financial strength to expand our presence in a large North American market with tremendous potential upside."
Via Det News:
About 70 percent of Chrysler Financial's loan portfolio is for people with prime credit scores - for buyers with the highest credit - and the company plans to focus on those buyers. It also expects to primarily lend to buyers - and expects leasing to account for less than 10 percent of its business going forward.

Under the terms of the agreement, the Toronto-based U.S. arm TD Bank will acquire Chrysler Financial in the United States and TD will acquire Chrysler Financial in Canada. The acquisition will give TD all of Chrysler Financial's processes and technology as well as its existing portfolio of retail assets on both sides of the border. Following this transaction, the business will be a Top 5 bank-owned auto lender in North America.

"This transaction represents a unique opportunity to purchase a great organic growth platform at an attractive price," TD Bank Group president and CEO Ed Clark said. "Chrysler Financial is a well-run business with the capacity for significantly higher returns over the next several years. This acquisition will allow us to leverage our lending expertise and financial strength to expand our presence in a large North American market with tremendous potential upside."

The deal also ends Cerberus' plan to create a massive auto lending arm. The firm had acquired Chrysler in a $7.4 billion deal in 2007 along with 51 percent of Detroit-based GMAC - which has since been renamed Ally Financial. The firm now owns just 14.9 percent of Ally.

Under the deal, Cerberus will retain about $1 billion of the loans on Chrysler Financial's books.

The acquisition will give TD a platform for asset generation in the North American automotive lending market, saying the deal will allow it to significantly grow its consumer loan portfolio. In addition to the existing dealer relationships that TD has in Canada and the United States, Chrysler Financial's dealer clients serve approximately 1 million customers. TD expects that the business could generate a return on invested capital of approximately 20 percent in three to four years, once it is operating at a steady run rate for target originations.

With about 1,850 employees in Canada and in the United States, Chrysler Financial has more than 45 years of operating experience in the consumer and commercial auto financing market. It is one of the largest auto financing firms in North America. In the United States, the automotive finance industry is the second largest non-mortgage consumer asset class after credit cards. It comprises about $650-$700 billion in outstanding receivables and $350-$400 billion in annual originations on a normalized basis.

Comments

Popular posts from this blog

October retail sales come in strong, especially auto sales

Tea Party Buffalo Pictures

How to spot a fake Tea Partier