Stellantis decides to create its own loan unit
Stellantis is buying First Investors Financial Services Group, a Houston-based auto lender, to create its own financial arm in the United States, a move that should support sales and ultimately increase profits.
The only large traditional automaker in the United States without its own finance company has agreed to pay $ 285 million to a group of investors led by Gallatin Point Capital and Jacobs Asset Management, according to a statement. The transaction is expected to be finalized by the end of the year.
Stellantis was formed by the merger between Fiat Chrysler and the PSA group earlier this year. Carlos Tavares, the boss of PSA who became the CEO of the combined company, called the First Investors acquisition agreement a significant milestone that will increase profits and strengthen customer loyalty.
“Direct ownership of a finance company in the United States is a white space opportunity that will allow Stellantis to provide our customers and dealers with a full range of financing options,” Tavares said in the statement Wednesday.
Having an in-house finance company helped rivals General Motors Co. and Ford Motor Co. increase profits, especially during the global semiconductor shortage that limited production and reduced sales. GM bought venture lender AmeriCredit Corp. in 2010 and renamed it GM Financial. The transaction brought in first-half profit of $ 2.76 billion, or about a third of the company’s adjusted profit before interest and taxes.
Problem for Santander?
The acquisition of First Investors could cause trouble for Chrysler Capital, the operation that Santander Consumer USA Holdings Inc. and Chrysler created in 2013 before the American automaker finalized its merger with Fiat. In a statement, Santander Consumer said it is committed to supporting Stellantis for the duration of its existing deal and its transition.
Santander Consumer will also have “ongoing conversations with Stellantis on long-term mutually beneficial opportunities beyond 2023,” the company said, adding that its consumer business remained strong and had “generated strong results for our shareholders.” This, with the support of its parent company, will allow the lender to “seek additional opportunities as they arise”.
The lender’s U.S.-listed shares fell 1.5% in New York exchanges on Wednesday after Bloomberg announced that Stellantis was preparing to announce a new financial partner. Stellantis stock climbed to 1.3% in Paris on Thursday.
Fiat Chrysler tried several years ago to pursue a different financial services strategy.
Then-CEO Sergio Marchionne announced in June 2018 that the automaker intended to start a captive finance company either by acquiring Chrysler Capital or another company or by building one from scratch. The automaker abandoned that effort after Marchionne’s sudden death that year and chose to keep its deal with Santander.
Chrysler had a similar agreement with Ally Financial Inc. which expired eight years ago. The automaker lost its captive lender in bankruptcy from which it emerged in 2009.
In February of this year, a month after the PSA merger closed, Santander CEO Mahesh Aditya said the lender’s relationship should not change. During the last quarter ended in June, Chrysler Capital financed 33.8% of Stellantis vehicle sales. It is one of the largest providers of subprime auto loans in the United States
At the end of last month, the US unit of Banco Santander SA agreed to buy back the shares of Santander Consumer which it does not yet own. The offer values the outstanding 20% of the auto loan company that Santander Holdings USA Inc. does not already own at around $ 2.5 billion.
First Investors Financial Services Group is one of many small, non-bank auto lenders that have increasingly dominated the deep subprime auto loan market in the United States.
The lender was founded in the late 1980s and went public in 1995. It was closed in 2012 by a company controlled by private equity firm Aquiline Capital Partners in a $ 100 million deal. .