Santander Consumer USA has paid $60 million to Fiat Chrysler Automobiles Group to amend a private label financing agreement whose future had been uncertain for the past year.
The modified pact between SCUSA and FCA adjusts specific performance metrics, exclusivity commitments and payment provisions under the agreement, according to the filing of an 8-K with the Securities and Exchange Commission. Santander’s contract with FCA, now in year seven, was signed for a 10-year period.
The original contract included a provision that enabled FCA to terminate the contract if SCUSA failed to meet penetration rate goals within the first five years. SCUSA did not meet these penetration rates, according to SEC filings.
As the halfway mark of the 10-year agreement approached last year, FCA began discussions to create its own captive by buying Santander’s Chrysler Capital portfolio. After almost a year of deliberation, FCA indicated in a first-quarter earnings call that it is no longer pursuing its own captive in the U.S.; instead, it is focused on the current contract with SCUSA.
The amendment “puts on paper that both companies are excited about having a successful relationship for the remaining years of the agreement,” SCUSA spokeswoman Laurie Kight told Auto Finance News. “The $60 million was paid to FCA on June 28 as an additional business consideration,” she said.
While the amendment does not extend the term of the Chrysler Agreement beyond 2023, it is a move to “enhance the business relationship between SCUSA and FCA in a way that establishes an operating framework for the remainder of the contract,” Kight added.
Loans originated by SCUSA subsidiary Chrysler Capital grew 23% year over year to $2.4 billion, according to the company’s first-quarter earnings. Chrysler Capital’s penetration rate grew to 31% in the quarter, from 28% in the prior-year period.
Santander Consumer USA’s stock was trading at $24.84 per share on the New York Stock Exchange at press time, up 3.6%. The company has a market capitalization of $8.24 billion.
