Chrysler 2012 Annual Report Download - page 203

Notes
202 Consolidated
Financial
Statements
at 31 December
2012
32. Guarantees granted, commitments and contingent liabilities
Guarantees granted
At 31 December 2012 the Group had pledged guarantees on the debt or commitments of third parties totalling €50 million (€40 million at 31 December
2011), as well as guarantees of €25 million on related party debt (€30 million at 31 December 2011).
With reference to Chrysler, in accordance with the terms of the Ally Auto Finance Operating Agreement (“Ally Agreement”), Ally provides wholesale and
retail financing to Chrysler’s dealers and retail customers in the U.S. and Canada in accordance with its usual and customary lending standards. Chrysler’s
agreement with Ally is not exclusive. Ally provides consumer and dealer financing to other manufacturers. Chrysler’s dealers and retail customers also obtain
financing from other financing sources.
From time to time, Chrysler works with Ally and certain other lenders to subsidize interest rates or cash at the inception of a financing arrangement to
incentivize customers to purchase Chrysler vehicles, a practice known as “subvention.” Under the Ally agreement, Chrysler must first offer all subvention
programs to Ally, and is required to ensure that Ally finances a specified minimum percentage of the vehicles Chrysler sells in North America under rate
subvention programs in which it elects to participate. Chrysler may, from time to time, offer lease products to retail customers through Ally, but Ally is not
obligated to offer lease products.
Under the Ally Agreement, Chrysler is required to repurchase Ally-financed dealer inventory, upon certain triggering events and with certain exceptions, in
the event of an actual or constructive termination of a dealer’s franchise agreement, including in certain circumstances when Ally forecloses on all assets
of a dealer securing financing provided by Ally. These obligations exclude vehicles that have been damaged or altered, that are missing equipment or that
have excessive mileage or an original invoice date that is more than one year prior to the repurchase date.
As of 31 December 2012, the maximum potential amount of future payments required to be made to Ally under this guarantee was approximately €6.2
billion and was based on the aggregate repurchase value of eligible vehicles financed by Ally in Chrysler’s U.S. and Canadian dealer stock. If vehicles are
required to be repurchased under this arrangement, the total exposure would be reduced to the extent the vehicles can be resold to another dealer. The
fair value of the guarantee was less than €0.1 million at 31 December 2012, which considers both the likelihood that the triggering events will occur and
the estimated payment that would be made net of the estimated value of inventory that would be reacquired upon the occurrence of such events. The
estimates are based on historical experience.
The Ally Agreement is effective through 30 April 2013, with automatic one-year renewals unless either party elects not to renew. Chrysler has notified Ally of
its election not to renew the Ally Agreement for an additional term. On 6 February 2013, Chrysler signed a 10-year private-label agreement, subject to early
termination in certain circumstances, with Santander Consumer USA Inc. to provide a full range of wholesale and retail financing services to Chrysler and
Fiat customers and dealers which will be provided under the Chrysler Capital brand name. The new financing service is scheduled to launch 1 May 2013.
Under the agreement, Santander Consumer USA Inc. has also provided Chrysler with consideration in the form of a non-refundable upfront payment which
is payable prior to the launch of the new financing service, as well as on-going revenue sharing opportunities and commitments with respect to available
funding, approval and penetration rates, price competitiveness and certain exclusivity rights. Santander Consumer USA Inc. will bear the risk of loss on
loans contemplated by the agreement and the parties will share in any residual gains and losses in respect of consumer leases, subject to specific provisions
including caps on Chrysler’s participation in gain and losses contained in the Master Agreement. Ally Financial Inc. will continue to provide financial services
to Chrysler and Fiat customers and dealers until 30 April 2013.
Other Repurchase Obligations
In accordance with the terms of other wholesale financing arrangements in Mexico, Chrysler is required to repurchase dealer inventory financed under
these arrangements, upon certain triggering events and with certain exceptions, including in the event of an actual or constructive termination of a dealer’s
franchise agreement. These obligations exclude certain vehicles including, but not limited to, vehicles that have been damaged or altered, that are missing
equipment or that have excessive mileage.
As of 31 December 2012, the maximum potential amount of future payments required to be made in accordance with these other wholesale financing
arrangements was approximately €246 million and was based on the aggregate repurchase value of eligible vehicles financed through such arrangements
in the respective dealer’s stock. If vehicles are required to be repurchased through such arrangements, the total exposure would be reduced to the extent
the vehicles can be resold to another dealer. The fair value of the guarantee was less than €0.1 million at 31 December 2012, which considers both
the likelihood that the triggering events will occur and the estimated payment that would be made net of the estimated value of inventory that would be
reacquired upon the occurrence of such events. The estimates are based on historical experience.