Santander Eyes Subprime Expansion Amid Lower 3Q Originations

Santander Consumer USA indicated that it’s ready to shift back to a strategy of gaining marketshare in the subprime space after tightening underwriting standards late last year, according to the company’s third-quarter earnings call on Friday.

Under the leadership of former Chief Executive Jason Kulas, the company pulled back in the deep- subprime space and improved the credit quality it was underwriting, which resulted in several quarters of double-digit origination declines but better yields, AFN previously reported. However, Kulas departed the company earlier this year and was replaced by Scott Powell, who has put in a new leadership team and a different outlook for the future of the company.  

“Looking ahead, our goal is to increase nonprime volume, while ensuring the appropriate risk-return profile, and to increase prime volume through the Santander flow agreement,” newly appointed Chief Financial Officer Juan Carlos Alvarez said on the earnings call.

Previously, the company had indicated that other players pulling back from the subprime space in the second quarter allowed Santander to acquire more volume without changing its underwriting policies. However, Powell said its efforts to expand in the subprime space in the future will involve changes to underwriting standards.

“In our core nonprime market, we do feel like we have an opportunity to grow there just by optimizing our credit underwriting and pricing models,” Powell elaborated. “We feel like there’s opportunity there for us. It continues to be competitive, but we think we have the ability to grow.”

Total originations were down 3% in the third quarter to $4.9 billion. Prime Chrysler Capital originations have been a focus for the lender all year, and while that segment was down 10% year over year, it was up 9% sequentially as the flow agreement with parent Banco Santander is starting to kick in.

Delinquencies continued to increase for the subprime lender, however, it was mostly driven by a lower portfolio balance. Delinquencies 30 to 60 days past due were flat year over year but late-stage delinquencies 61 days or more past due made up 5.1% of the portfolio, up from 4.6% during the same period the year prior.  

On the other hand, net charge-offs were lower for the quarter at 9.1% of the portfolio compared with 9.3% in 3Q16.