Banco Santander SA plans to tack on another 9.7% to its existing 59% stake in Santander Consumer USA — it was reported last week — and could help the subprime auto lender better compete for prime loans.
Through greater cooperation and access to Banco Santander’s capital, SC can lower its cost of funds — the interest rate financial institutions pay — in order to lower APR and stay competitive in prime loans, Chief Executive Jason Kulas told Auto Finance News in June.
“If we’re not competitive in cost of funds for prime loans, then we have to charge our yield, and that’s not competitive with the rest of the market,” Kulas said. “We can capture more of that business because all the numbers fall in line better when we’re leveraging the bank.”
In March, SC inked a $750 million flow agreement with Banco Santander, which increased dealer floorplanning 44%, according to first-quarter earnings.
The flow agreement is key because SC is market-funded, not deposit funded like other U.S. banking institutions, Kulas said.
Prime loans are particularly important for capturing more volume from Chrysler Capital, where Santander saw retail loan originations with Fico scores of 640 or higher drop 42% year over year, according to 1Q earnings.
“Particularly for Chrysler dealers, there is a close connection between floorplan and the retail business that the dealer does, Kulas said. “We expect that area of the business to grow, and it’s a big area of focus that will drive the vehicle finance business for us.”
