AUBURN HILLS, Mich., and NEW YORK -

The president of the Chrysler Group National Dealer Council believes the OEM’s announcement that it will not renew its current auto finance operating agreement with Ally Financial is part of the business process.

The automaker’s decision means that Ally will no longer be the preferred lender for consumer loans and leasing, as well as for dealer floor planning, as of April 30, 2013, the expiration date of their initial contract.

“The dealers have been made very comfortable with the idea that this is no more than a necessary contractual move,” council president David Kelleher told Auto Remarketing on Thursday. “It should be read no more than that because it’s business as usual during the current period.”

Chrysler indicated that it produced necessary notice to satisfy the agreement’s requirement that notice of nonrenewal be provided at least 12 months prior to the date of expiration.

“Under the agreement since April 30, 2009, Ally has provided wholesale financing to our dealer network and retail financing to our customers in the U.S. and Canada,” Chrysler reiterated in its Form 8-K to the Securities and Exchange Commission.

“We are required during the term of the agreement to ensure that Ally finances a specified minimum percentage of the vehicles sold under certain of our subvention programs, and to repurchase Ally-financed inventory from dealers upon certain triggering events,” the company continued.

“We are currently pursuing various ways to optimize the financial products and services available to meet the needs of our dealers and customers in the U.S. and Canada,” Chrysler officials went on to say. “We have already begun discussing these alternatives with a number of financial institutions, including Ally.”

Back in February, the Wall Street Journal reported that Chrysler already was talking to several major lenders including Ally and J.P. Morgan Chase & Co., to create a new lender. The newspaper also indicated banks approached Chrysler in the past year as its sales performance improved.

In reacting to Chrysler’s decision, Ally officials acknowledged when highlighting their first-quarter financial performance, “This notification was expected and is required in order to enable both companies to continue discussions on how to evolve the terms of the relationship.

“The existing agreement was put in place in April 2009 to support Chrysler’s emergence from bankruptcy and the company’s business plans through April 2013,” they continued. “Ally was pleased to broaden its network of automakers and dealers and fulfill its core mission of supporting the U.S. auto industry.” 

Ally said that the current agreement provides preferential treatment for the subvented retail financing business only.

“Ally competes in the marketplace for all other parts of the business with Chrysler dealers such as wholesale financing, standard rate consumer financing and leasing,” Ally officials emphasized.

“In the first quarter of 2012, the Chrysler subvented business accounted for 5 percent of Ally’s total U.S. consumer originations, while the standard rate business accounted for more than twice that amount at 11 percent,” they tabulated.

“Chrysler and Ally continue to have constructive discussions about the future relationship,” Ally officials went on to say. “Ally expects to continue to play a significant role with Chrysler dealers in the future as the dealer is Ally’s direct customer for the majority of business that is conducted.  Ally remains committed to offering all dealers the most comprehensive suite of products and services in the industry that drive value for these businesses.”

More Reaction from the Council President

At David Dodge Chrysler Jeep in Glen Mills, Pa., Kelleher remained upbeat about the position his store and fellow franchised dealers have — no matter if Chrysler and Ally eventually can craft a new financing agreement.

“Chrysler has been going out on their behalf as well as our behalf to keep us as competitive as we can. Ally is very much involved in that from my understanding. They’re not completely transparent with us, nor should they be,” Kelleher shared.

“I know (Chrysler) is working with a couple of different sources to determine what the best course of action is for our future. My understanding is that Ally is very much involved, however, they had a contractual obligation to tender a notification 12 months out of the current contract in order to keep flexibility,” he continued.

“They were very clear with us that this was no more than an indicator of them keeping their flexibility in agreement terms or else it would have automatically extended,” he went on to say.

Kelleher touched on how much different the situation is now as compared to when Chrysler and Ally first joined forces three years ago.

“The original agreement forged was obviously in a much different place in the economy at the time,” Kelleher emphasized. “Even if we were to stay with Ally — and I think that’s still a distinct possibility — it wouldn’t be under the same terms because we were a company just coming out of bankruptcy and reforming and changing. The liquid markets have changed quite a bit as well.”

Kelleher reiterated his belief that Chrysler is working toward a financing dealer that will benefit both the automaker and its dealer network.

“From my end and the council’s end, I’m very comforted that they’re as transparent as is prudent,” Keller stated. “I don’t think it makes a great deal of sense to get into the nuts and bolts because that wouldn’t be fair to everybody. To show us the security that the OEM is working on our behalf to get us the best terms available in the market is extremely comforting and they’ve been transparent to that end. 

“I have all the confidence that at the end of the day, the dealer body and Chrysler will be in a more competitive position whether it’s with our partners at Ally or whether they find the need to have to take it to another source,” he added.

Chrysler’s Q1 Performance

Not lost in all of the developments between the automaker and its financing partner, Chrysler reported its first-quarter financial statement on Thursday.

The OEM’s preliminary net income settled at $473 million for the first quarter, up more than 300 percent from $116 million a year ago, driven primarily by its 40-percent increase in U.S. retail sales.

“Another positive quarter — built on sales gains that have surpassed the industry average – is affirmation that the Chrysler team is maintaining its focus,” stated Sergio Marchionne, Chrysler’s chairman and chief executive officer.

“We continue to deliver on the targets in our five-year plan and are now focused on successfully launching the Dodge Dart, a car that is a true melding of Chrysler’s and Fiat’s engineering and styling strengths,” Marchionne added.

The OEM tabulated that its Q1 revenue came in at $16.4 billion, up 25 percent from $13.1 billion generated during the same quarter last year. Chrysler attributed the year-over-year jump to an increase in shipments and positive pricing.

“Chrysler incentives were down $685 per vehicle compared to the first quarter last year, edging its average transaction price per vehicle higher to $29,991,” Edmunds.com senior analyst Michelle Krebs explained.

“At the same time, Chrysler vehicles are selling faster than they were selling at this point last year. All of these factors have helped to boost Chrysler’s bottom line,” Krebs added.

Another industry analyst shared a positive assessment of Chrysler’s latest performance.

“Chrysler gained 2 full percentage points of U.S. market share compared to a year ago while increasing their transaction prices and lowering inventory turn times significantly — all resulting in a much improved bottom line,” surmised Jesse Toprak, vice president of industry trends and insights at TrueCar.com

“Although the year-over-year comparisons are favorable for the company, they should still get full credit for having the most desirable line up of vehicles that they have ever had in their showrooms,” Toprak went on to say. 

Chrysler also posted a modified operating profit of $740 million, or 4.5 percent of revenue, in the first quarter, up 55 percent from the $477 million reported in the prior year.

“The increase was attributable to strong volume and pricing, partially offset by unfavorable mix, higher industrial costs, including new-vehicle content enhancements and engineering, research and development for new models and continued marketing efforts,” Chrysler indicated.

The company’s performance and upbeat analyst assessment are leaving Kelleher with an even more positive outlook for Chrysler, his store and the rest of the franchised network.

“(Chrysler) is really far along the terms of the five-year plan announced in November of 2009, but at the time that seemed to be such a stretch. Now they meet every benchmark or exceed it. It’s very comforting to the dealer body in what we’ve been through to know that we have a partner that is so determined to accomplish their goals,” Kelleher noted.

“Our dealer body is in a very strong position,” he continued. “Our franchise values are climbing. Our through-put per dealer, our sales per dealer are climbing to record levels. We can feel confident in making capital improvements at the ground level. We can feel confident diving into the market and chasing the numbers we need to chase to support the OEM. 

“We work hard at it every day, and the collaboration rate right now is probably putting us in a better position than most of our competitors in the marketplace,” Kelleher concluded.

Editor’s Note: For more details about Ally’s first-quarter performance, including loan origination volume and more, look for Friday’s edition of SubPrime News Update. If you don’t already have a free subscription to the three-times-a-week newsletter, visit this site.