Chrysler 2011 Annual Report Download - page 51

Report on
Operations
50
The Group’s Financial Services activities are also subject to the risk of insolvency of dealers and end
customers, as well as unfavorable economic conditions in markets where these activities are carried out,
which the Group seeks to mitigate through the credit approval policies applied to dealers and end customers.
Risks associated with the availability of adequate financing for Chrysler’s dealers and retail
customers
In the United States and Canada, Chrysler’s dealers enter into wholesale financing arrangements to purchase
vehicles from Chrysler and retail customers use a variety of finance and lease programs to acquire vehicles.
Insufficient availability of financing to dealers and retail customers contributed to sharp declines in Chrysler’s
vehicle sales during 2008, and was one of the key factors leading to Chrysler’s bankruptcy filing.
Chrysler’s lack of a captive finance company may increase the risk that dealers and retail customers will not
have access to sufficient financing on acceptable terms and may adversely affect vehicle sales in the future.
Furthermore, most of Chrysler’s competitors operate and control their own captive finance companies: as
a result, they may be better able to implement financing programs designed principally to maximize vehicle
sales in a manner that optimizes profitability for them and their captive finance companies on an aggregate
basis. Since Chrysler’s ability to compete also depend on access to appropriate sources of financing for
dealers and retail customers, its lack of a captive finance company could adversely affect its results of
operations. In addition, unless financing arrangements other than for retail purchase continue to be developed
and offered by banks to retail customers in Canada, Chrysler’s lack of a captive finance company could
present a competitive disadvantage in Canada, since banks are restricted by law from providing retail lease
financing in Canada.
In connection with the 2009 restructuring of the U.S. automotive industry, and with the assistance of the
U.S. Treasury, Chrysler entered into an auto finance relationship with Ally Financial Inc. (hereafter “Ally”); the
agreement with Ally extends through April 20, 2013, with automatic one year renewals unless either party
elects not to renew. Ally historically was the captive finance company of General Motors Company, one of
Chrysler’s main competitors.
Pursuant to this agreement, Ally is neither obligated to provide financing to dealers, nor is Ally required to
fund a certain number of vehicle sales or leases for customers. On the other hand, Chrysler must offer all
subvention programs to Ally, and it is required to ensure that Ally finances a specified minimum percentage of
the units sold by Chrysler in North America under rate subvention programs in which it elects to participate.
Chrysler expects Ally to provide services comparable to those Ally provides to its other strategic business
partners, including General Motors. Nevertheless, Chrysler’s ability to fully realize the value of their relationship
with Ally may be adversely affected by a number of factors, including General Motors’ historic and ongoing
relationship with Ally, and General Motors’ current equity ownership in Ally.
To the extent that Ally is unable or unwilling to provide sufficient financing at competitive rates to Chrysler’s
dealers and retail customers, and dealers and retail customers do not otherwise have sufficient access to
such financing. As a result, Chrysler’s vehicle sales and market share may suffer, which would adversely affect
its and Fiat’s financial condition and/or results of operations.
Main Risks and
Uncertainties to
which Fiat S.p.A.
and its Subsidiaries
are Exposed