A row of Fiat Chrysler Automobiles (FCA) 2017 Dodge Ram trucks are displayed for sale at a car dealership in Moline, Illinois, U.S., on Saturday, July 1, 2017. Ward's Automotive Group released U.S. monthly total and domestic auto sales figures on July 3. Photographer: Daniel Acker/Bloomberg
Last year Chrysler vehicles accounted for 33 per cent of Santander Consumer’s total loan originations © Bloomberg

Shares in Santander Consumer, the top subprime car-loans lender in the US, plunged on Wednesday following a report that one of its biggest customers, Fiat Chrysler, was preparing to launch its own financing arm.

The non-exclusive relationship with Fiat Chrysler has been critical ballast for Santander Consumer in recent years, as the New York-listed subsidiary of the Madrid-based bank has suffered a series of scrapes with state and federal regulators, including investigations into its accounting, car lending and securitisation practices. 

Last year, Chrysler vehicles accounted for 33 per cent of Santander Consumer’s total loan originations, and 30 per cent of its leases. In an interview last summer with American Banker magazine, Scott Powell, chief executive, who also runs Santander’s US holding company, said he wanted to expand the relationship with Chrysler Capital, the joint venture between the two companies.

But on Wednesday Bloomberg reported that Fiat Chrysler would unveil plans to launch its own financing unit in the US, at a presentation to investors and analysts in Turin this coming Friday. Such a move could be part of a series of strategic reshuffles by Sergio Marchionne, its 65-year-old chief executive, who is set to retire next year. 

Shares in Santander Consumer fell 6.5 per cent on Wednesday to $17.85, on heavy volume. The shares had fallen by as much as 11 per cent during the day.

A Fiat Chrysler spokesperson declined to comment on the company’s plans. 

Santander Consumer said: “We can’t speculate on FCA’s (Fiat Chrysler Automobiles’) strategy for its US operations. Santander is the preferred provider for FCA’s consumer loans and leases and dealer loans via Chrysler Capital and we continue to operate under the existing agreement, which began in 2013.” 

Kevin Barker, analyst at Piper Jaffray in Philadelphia, noted that it would take Chrysler several years to develop a captive finance business, drawing a parallel to the experience of General Motors, which bought AmeriCredit in 2010. But in the meantime, he said, it could increase the chances of the Madrid-based bank buying out its subsidiary, as the Chrysler loans run off and generate capital. The parent currently owns 68 per cent of the outstanding shares. 

Mark Palmer, an analyst at BTIG, took a similarly rosy view, saying that the 10-year arrangement with Chrysler — struck in February 2013 — had been “disappointing” to Santander Consumer, in terms of its impact on the company’s operating performance, and also to Fiat Chrysler.

He noted that as of the end of April, the arrangement had a targeted penetration rate of 65 per cent of Chrysler Capital’s total originations — well above Santander’s actual penetration rate of 28 per cent in the first quarter. Rival suppliers were pricing more competitively than Santander, Mr Palmer said.

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