Fiat Chrysler Automobiles Group will likely move fast to acquire Santander Consumer USA’s Chrysler Capital portfolio because it will provide an instant revenue stream for the OEM and the ability to retain customer brand loyalty, said Jack Micenko, auto finance analyst at Susquehanna Financial Group.
Micenko estimates the portfolio is worth a conservative $1.2 billion, even though Santander Consumer holds $40 billion in outstandings, about $15 billion of which is related to Chrysler, he told Auto Finance News.
“It’s the least risky part of the portfolio that FCA would acquire under the umbrella of what is Chrysler Capital, but it’s also lower yield, because higher risk is higher yields,” he said. “SC will retain all the subprime business if this deal were to go through, and we’ve heard FCA say, ‘We don’t want to do subprime in the future,’ so presumably some sort of relationship for the subprime assets would continue.”
Because more than two-thirds of the Chrysler Capital portfolio is comprised of leases, Micenko believes FCA will purchase it to “have a better ability to control the collateral, control used residual values into their brands, and retain customers into new leases.”
Of course, the final sale could wind up being higher than the $1.2 billion figure. Micenko assumed a multiple of six times Santander’s earnings to arrive at that number, but several nonbank lenders have fetched eight or nine times earnings.
“Presumably, FCA wants to get something moving pretty quickly,” he said. “At the same time, you don’t want to disrupt the financing of your current flow, particularly the new model year for Wrangler, for example.”