Taking a step into the subprime automobile lending market, Chase Manhattan Corp. on Thursday announced a strategic alliance with Americredit Corp., a consumer finance company in Fort Worth.

The deal calls for Americredit-one of the few subprime lenders to survive the 1997 meltdown in that sector-to provide its financing programs to auto dealers who do business with Chase.

Chase, which originated more than $12.5 billion of auto receivables in 1998, is the largest bank originator of auto loans and leases in the United States. It has more than $23 billion of outstandings in its portfolio.

Americredit bills itself as the largest independent subprime auto finance company. It managed a $3.1 billion auto loan portfolio at Dec. 31.

Analysts said the alliance would help Chase solidify its relationship with its vast network of auto dealers by offering them access to customers they currently do not reach. Americredit, meanwhile, is expected to get a substantial increase in transaction volume.

Lending to less creditworthy customers is seen as a potentially lucrative business because of the higher rates such customers pay. But it is also risky. Many subprime lenders failed in 1997 because of heavy chargeoffs and fraud.

In spite of the risk, banks have moved into the industry as competition among auto lenders has intensified. Some, such as KeyCorp of Cleveland, have bought subprime lenders outright.

"The pressure from auto dealers is pushing banks to stretch a little bit," said bank analyst Lawrence Cohn of Ryan, Beck & Co. in Livingston, N.J. "Everybody in the prime business said that they had to take some B credits (less creditworthy customers) just to maintain their business."

But many relationships between banks and subprime companies have not panned out, analysts said. KeyCorp's acquisition of Auto Finance Group in 1997 burdened the bank with soaring chargeoffs.

"At the time, that acquisition did not do well," said bank analyst Diana Yates of A.G. Edwards & Co., adding that the company is now performing better. "People were leasing at the time, as opposed to buying."

The Chase alliance, however, is seen as a better way for a bank to enter the nonprime industry.

"This is a way for them to handle subprime customers without taking on the credit risk," Mr. Cohn said. "Chase has never been comfortable in the subprime business."

Added George Bicher of BT Alex. Brown: "Chase is not looking to book credits. They want to skim an incremental fee off their existing dealer relations."

Chase's move, however, is not expected to start a trend of banks' allying with or acquiring nonprime auto finance companies, analysts said.

"People are pretty afraid of it," said Steven Eisman of CIBC Oppenheimer. "Not too many are going to get into auto finance. Americredit is one of the last and one of the best subprime auto companies around."

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