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Fiat Chrysler to Establish Captive Finance Company

The automaker's chief executive told investors today that the company will establish its own captive finance company by 2022. One option being considered is the purchase of Chrysler Capital from Santander Consumer USA, which is five years into the 10-year preferred financing agreement it signed with FCA in 2013.

by Paul Clinton
June 1, 2018
Fiat Chrysler to Establish Captive Finance Company

 

2 min to read


BALOCCO, Italy — Fiat Chrysler Automobiles will establish its own captive finance company by 2022, FCA CEO Sergio Marchionne said Friday, June 1, during an investor meeting in which he presented the automaker's five-year plan.

One option being considered is purchasing Chrysler Capital from Santander Consumer USA Inc. The automaker also is considering establishing its own captive finance company from scratch.

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Purchasing Chrysler Capital would require that FCA exercise a special clause contained in an equity option agreement included in the automaker’s 2013 private label financing agreement with Santander to operate Chrysler Capital as a separate division.

When the original 10-year deal was forged, Santander paid $150 million to operate as a “hybrid captive” for FCA.

FCA and Santander Consumer have been in exploratory talks regarding the potential sale of Chrysler Capital, according to a statement released by the Dallas-based bank. Santander Consumer "is committed to pursuing an outcome for Chrysler Capital that is in the best interests of the company, its shareholders, and other key stakeholders," the statement reads. "There are a number of possibilities for the next phase of our relationship with FCA."

Talks are currently focused on determining the value of Chrysler Capital, Santander Consumer executives told investors and media representatives today during a conference call.

FCA sold 2.1 million new vehicles in the U.S. in 2017. In the first quarter, Santander Consumer reported a 28% penetration rate for Chrysler Capital loans, which was up from 23% in the prior-year period but well short of the 65% target the two companies set for April in the original preferred financing agreement.

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Ally Financial also serves as a preferred finance source for FCA. In the first quarter, Ally originated $9.5 billion in auto loans, 26% of which involved Chrysler retail sales.

In October, Santander Consumer named Rich Morrin president of Chrysler Capital and auto relationships to build loan product offerings for dealers and strengthen relationships with them.

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