Lease origination volumes at Santander Consumer USA are clawing back after aggressive, extended-term OEM incentives pushed consumers toward retail in an already depressed leasing market.
Overall prime and subprime origination volume for the Dallas-based subprime lender ratcheted up to pre-pandemic levels of $8.4 billion, flat year over year and a 7% increase from last quarter. Last quarter, originations improved on a quarter-over-quarter basis but still came in 7 points below prior year figures.
Leasing, however, came in at $1.9 billion, trailing last year’s volume by 17%, but logging a vast improvement from last quarter with an 88% increase, Chief Financial Officer Fahmi Karam said during the company’s earnings call this morning. This was largely due to the extended term retail loan offers pushing some consumers away from leases and increased competition in the market, he said Karam added that he is also seeing more aggressive pricing in the market from banks and credit unions as deposits have grown during the course of the pandemic, allowing more flexibility on margin.
“Leasing volume was the most impacted during the pandemic, with the slowest recovery,” Karam said, noting that September and October leasing volumes began to normalize once FCA began to pull back on extended term financing incentives exclusive to Chrysler Capital.
Chrysler Capital origination volume grew by 6% YoY to $3.8 billion, but the captive’s penetration rate dropped 3 points YoY to 32.5%. FCA sold 507,351 units last quarter, according to the automaker. Still, the year-to-date penetration rate is outpacing last year’s rate at 35.8%, compared with 34.5% in 2019.
Aggressive incentives from FCA pushed nonprime Chrysler Capital originations down as well, Karam said, but were offset by a normalization in its prime book.
“Our Chrysler nonprime originations, relative to our core channel, have a higher mix of new vehicles,” Karam explained. “Typically, consumers during a recession choose the more affordable option of used vehicles, and in the current environment, new-vehicle demand is still driven by OEM incentives, which are generally available for prime credit.”
Gross loan and lease outstandings in the third quarter clocked in at $50.6 billion, a 7.9% increase from the same reporting period last year.
Shares of SCUSA [NYSE: SC] were trading at $20.94 at market close, nearly flat since market open. Santander has a market capitalization of $6.61 billion.