Chrysler Cuts Interest Rate – Introduces Program for “Credit Challenged Customers”
The more things change at Chrysler, the more they stay the same.
"Our credit-challenged customers are always trying to find a car. They’re on the doorstep every day wanting to buy a vehicle and trying like heck. So we’re trying like heck to get them bought." That’s from Steven Landry, Chrysler executive vice president for North American sales. "In the marketplace today, monthly payment is the most critical part for the customer that comes into the showroom. Their monthly payment is what’s going to drive their purchase. A lot of times we’re working internally at providing tools with Chrysler Financial to make the risk portfolio of customers be better and make that customer viable."
To accomplish that, Chrysler has lowered their interest rate on new car loans to people with poorer credit ratings. So-called “B Tier” credit customers will now get rates at 6.9%, rather than the previous 12%. That ranking equates to a credit score of 620 to 680.
(more after jump)
The move is an effort, of course, to move the metal. Chrysler sales this year are down over 15% from the year before.
But, the move also harkens to Chrysler’s past, one in which manipulation was used to produce numbers, at the long-term cost of the corporation’s financial health.
The major problem arises because the extra sales Chrysler racks up today are being financed through Chrysler Financial. Like Chrysler itself, Chrysler Financial is owned by Cerberus. Cerberus also owns the majority interest in GMAC, which it bought from General Motors shortly before the mortgage meltdown. Cerberus had heavily invested in the subprime mortgage market, as had GMAC.
In effect, Chrysler is using Chrysler Financial to buy itself sales. In the meantime, Chrysler Financial is carrying the loans made to finance those new cars on its books as assets – even though the probability that those loans will be repaid may be less than stellar, especially if the economy continues to degrade or Chrysler itself doesn’t make it as a manufacturer. Then, too, with the average term of a new car loan today exceeding six years, the ultimate bet made by Chrysler Financial is that today’s buyer will be able to refinance to buy a new car well before the current loan term ends. That’s ultimately a bet on the continuation of “easy money” policies by the government and Federal Reserve, a bet which is very likely a poor one. Both Democratic presidential candidates have promised to raise taxes, which is likely to further stunt the economy.
But, companies short of cash don’t have much choice. They have to worry about tomorrow, because there’s nothing else worth worrying about if they don’t make it through tomorrow.
That seems to be Chrysler’s situation.
The omens are not good.