Ally, the former GMAC, filed suit in federal court against Chrysler Group LLC and a Spanish bank.
Ally Financial Inc., the former General Motors Acceptance Corp., has filed a lawsuit against a Spanish bank and Chrysler Group LLC in a dispute that has its roots in the 2009 auto bailout.
The federal suit alleges copyright infringement and misappropriation of trade secrets by Chrysler Capital, a partnership between Chrysler Group and Santander, a Spanish bank. In the suit, Ally asked a federal judge to Chrysler Capital, from “imitating, copying or making use of” the copyrighted forms.
Ally became the finance arm of Chrysler Group during the bailout. A task force established by the Obama White House to organize a rescue of the distressed domestic auto industry decided to prop up GMAC, which had been crippled by the recession and by GM’s ill-advised foray into the home mortgage business, which turned into an outright disaster when the U.S. real estate bubble burst in 2008.
While in the midst of its final plunge towards bankruptcy, GM sold a controlling interest in GMAC to Cerberus, the ambitious New York investment firm, only months before GM asked for government assistance in November 2008.
In December 2008, the U.S. Treasury Department stepped to keep GMAC afloat after GM executives argued its collapse might cripple GM’s chances for recovery. The government bailout of GMAC left the U.S. Treasury Department as the financial services company’s largest shareholder.
As it organized the Chrysler and GM bailout, the auto task force decided to concentrate both automaker’s dealer and consumer financing with GMAC, which by then had changed its name to Ally. Chrysler Financial was sidelined and ultimately absorbed by Toronto Dominion, Canada’s largest bank in 2011, which hoped to build an alliance with rejuvenated Chrysler Group.
Meanwhile, Chrysler chief executive officer Sergio Marchionne apparently dissatisfied with the alliance with Ally went looking for another partner, settling on Santander, a Spanish Bank that barely survived the European financial crisis.
Chrysler and Santander created a new venture, Chrysler Capital, which began operation May 1. Ally, which still owes the federal government more than $17 billion dollars, stopped working for Chrysler April 30.
Ally, which sold key assets and last year pushed its real estate subsidiary into bankruptcy, sued Santander’s Dallas-based auto lending subsidiary in U.S. District Court in Detroit. Santander “elected to take a shortcut rather than do the hard work that was required to develop the comprehensive, foundational auto finance platform needed to service the Chrysler dealerships and consumers on the scale contemplated by, and contracted with, Chrysler,” according to the complaint field in federal court.
Ally also claimed that a former employee hired by Santander “took several proprietary documents when he left Ally,” including the company’s “Retail Procedures Manual.”
Neither Chrysler nor Santander, which is considered “too big to fail” in its home country have commented yet on the lawsuit. The Treasury Department has also been silent.
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Spain’s banking sector was bailed out last year by the European Central Bank, which acted to protect the value of the euro. Banco Santander managed to avoid the kind of direct EU bailout required by its correspondent banks all across Spain because profits from their international operations have buffered their losses in Spain. But Fitch also said they could be affected by any downturn that affects operations outside Spain, particularly in Latin America.
“Growth prospects for emerging markets in which Santander subsidiaries operate have been revised down and they are not entirely immune to global economic trends but earnings from these markets will continue to contribute significantly to group earnings,” Fitch said in a statement.
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Spain, where unemployment soared to nearly 25% during the recession, was particularly hard hit when the property bubble collapsed.
Faced with the grim news at home, where like Ally it got involved in a whole series of ill-advised property loans that went sour when real estate values tumbled, Santander has pushed to become a major presence in automotive lending in the U.S. during the past couple of years.