Amid Focus on Prime Credit, Santander’s Losses Climb in 4Q

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Despite an increased focus on higher credit borrowers and leasing, Santander Consumer USA’s delinquencies and charge-offs continue to rise.

The subprime lender grew lease originations from its flow agreement with Chrysler Capital by 34% in the fourth quarter compared with the same period the year prior, the company reported in earnings today. Additionally, retail finance contracts to consumers with a credit score of 640 or higher grew by 4%.  

Yet, those efforts at courting a pool of higher credit borrowers have not stopped the march of increasing losses. Short- and long-term delinquencies were both up 30 basis points as a percentage of the overall portfolio, while net charge-offs are up above 10% of the portfolio — a 40 basis point increase year over year.

The increase in losses reflects Santander’s revised strategy to grow its portfolio following a period of pullback under the leadership of former chief executive Jason Kulas. In August, Scott Powell took over direction of the company and looked to pair prime loans from the Chrysler Capital book with an increase of subprime loans, which has long been the lender’s specialty.  

Auto retail and lease outstandings are up 1.7% year over year in the fourth quarter to $34.7 billion. A 27% decline in Santander’s core originations was offset by gains in leasing, however, total originations remained down by 5%.

In conjunction with today’s earnings, Santander announced a strategic partnership and investment in the car buying platform AutoFi, which aims to streamline the car-buying process by connecting dealers with lenders online. Santander Consumer is the latest to join AutoFi after Chase Auto Finance announced its participation earlier this month and Ford Motor Credit began rolling out the program at Ford dealerships across the country last year.

Rich Morrin, a long-time executive at Santander, became the company’s president of Chrysler Capital and auto relationships in October 2017 as a signal that the bank is upping its commitment to the relationship with Fiat Chrysler Automobiles, AFN previously reported. This partnership with AutoFi is another reminder of that commitment.

“Our customers get a faster, easier and more personal car-buying experience, and the technology facilitates a more streamlined process for our dealers,” Morrin said in a press release. “Santander Consumer USA’s digital strategy has always been about connecting consumers to cars they love and want to drive, with payments they can afford. AutoFi’s platform, along with SC’s digital platform, helps us do just that.”

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