Chrysler Group has hired Chase Auto Finance Corp., already the nation's biggest bank in auto lending, to act almost as a second captive finance company, according to published reports.

Starting Aug. 1, Chrysler began paying Chase the cost of matching factory incentives. Prior to this arrangement only Chrysler Financial Co. had been subsidized by the factory. Factory incentives include such promotions as low interest rates to consumers, and have become increasingly important to automakers in the tightening auto market.

Chase gains a big advantage over other noncaptive lenders under the two-year deal. Banks generally can't match the incentives offered by the auto companies' captive finance companies, because those incentives are backed by the "deep pockets" of the factories themselves.

Banks and captives are something like cats and dogs, but the unusual partnership between Chrysler and Chase was brought about by two factors, according to industry analysts. One is Chrysler's deepending financial crisis; the other is the wholesale exit of many banks and independent finance companies from the auto finance business. This trend, which has accelerated since last fall, means more business for the captive finance companies.

While under normal conditions Chrysler Financial would simply borrow -- and lend -- more money, and hire more people, since DaimlerChrysler's U.S. subsidiary lost $3.9 billiion in the first quarter, the company is scaling back. According to Chrysler, the company is cutting 19,300 jobs from its payroll.

Adding to Chrysler's troubles is the fact that rating agencies such as Moody's and Standard & Poors have downgrated the company's long-term debt, which of course raises its cost of funds.

According to DaimlerChrysler Services officials, the company doesn't have the capital or the infrastructure in place to handle the influx of business created by the exit of banks and independent finance companies from the auto finance field.

According to DaimlerChrysler, incentive spending may go up, but so should retail volume, since Chrysler will be offering incentives through an additional channel.

Chase has a $27.4 billion portfolio of auto loans and leases, including $4.3 billion of new loans and leases in the first quarter -- a 65.4 percent increase when compared with the first quarter of 2000, and a company record.

Chrysler Financial is the smallest of the Big 3 captives, with a loan and lease portfolio of about $87.5 billion. It finances about half of the Chrysler Group's retail volume.

Many dealers are happy with the new deal, since they like to have a variety of finance options for their customers.