Fiat Chrysler to Form U.S. Finance Arm; in Talks With Santander

(Bloomberg) -- Fiat Chrysler Automobiles NV plans to form its own financing business in the U.S. and has started discussions with partner Santander Consumer USA Holdings Inc., which it has an option to buy out.

That would allow Fiat Chrysler to “participate more fully in capturing value from emerging platforms,” Chief Financial Officer Richard Palmer said Friday in a presentation near Turin, Italy, confirming a Bloomberg report earlier in the week that the automaker was considering such a plan.

Buying out Dallas-based Santander Consumer could add $500 million to $800 million in incremental pretax earnings within four years, Palmer said. Fiat could also start its own business, in which case the automaker envisions about $100 million in incremental profit, he said.

Fiat Chrysler shares fell 4.1 percent to $22.27 at 10:07 a.m. in New York, while Santander Consumer gained 2.5 percent, after tumbling as much as 9.6 percent on Wednesday following the Bloomberg report.

Fiat Chrysler exiting its deal “would require some payment above book value” to Santander Consumer, Kevin Barker, a Piper Jaffray & Co. analyst, said in a note. Given the cost, a full buyout “is a low probability,” he said, adding “we would be buyers” of Santander based on the news.

Sergio Marchionne, the automaker’s chief executive officer, told investors Friday he’ll institute a dividend for the first time since Fiat and Chrysler merged in 2014. The firm said it aims to double profit over the next five years, generating about 30 billion euros ($35 billion) in industrial free cash flow in that span. Fiat Chrysler has no plans to spin off its Alfa Romeo and Maserati brands, Marchionne said.

Santander has struggled to reach market share targets that it set along with Fiat Chrysler as part of the 10-year financing agreement the two companies signed in 2013. The lender financed 28 percent of Fiat Chrysler’s total loans and leases as of the end of December, well short of a goal to reach 65 percent by the end of April, according to a regulatory filing.

Last August, Santander’s new CEO, Scott Powell, met with Fiat Chrysler executives during his first day on the job to find ways to capture more business.

“There are a number of possibilities for the next phase of our relationship,” Santander said in an emailed statement. “In the meantime, we remain focused on providing Chrysler dealers and customers with the same superior service they have come to expect.”

Santander Consumer will hold a conference call to discuss the matter at noon New York time, the company said in a separate statement.

The lender’s financing agreement with Fiat Chrysler can be terminated if Chrysler Capital fails to meet origination goals within the first five years, according to Santander filings, which note that this could have a “materially adverse impact” on its business.

In forming its own captive lender, Fiat Chrysler could also pose problems for Ally Financial Inc. The bank originated $2.44 billion of loans and leases for Fiat Chrysler dealers last year, which was more than a quarter of its consumer automotive business, according to a regulatory filing.

Ally shares slipped 2 cents to $25.63 in New York. The Detroit-based company said in an emailed statement that it’s created a strong business as an independent competitor and will continue to support Fiat Chrysler dealers.

©2018 Bloomberg L.P.

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