Chrysler Capital, the preferred lender for Chrysler Group, cut back on some near-prime and subprime originations to Chrysler Group customers in April and May because competition had driven margins unattractively low, Santander Consumer USA, the lender behind Chrysler Capital, said last week during a conference call for investors.
Then it had second thoughts.
Santander Consumer USA “tightened a little more than we should have” on lending standards when it pulled back in the first part of the second quarter, CEO Tom Dundon said.
As a result, Chrysler Capital’s penetration rate of Chrysler Group financing volume dropped to 31 percent in the second quarter from 38 percent in the first quarter.
Carries into July
However, Dundon said, Santander Consumer USA reacted quickly, sticking with cuts within some niches of near prime and subprime and re-entering others.
“In June, after implementing some changes to better identify good loan structures and high-return, lower-risk pockets, capture rates increased, leading to a strong finish for the quarter” and into July, Dundon said. He wouldn’t identify specific credit score ranges in which the lender either cut back or returned.
“There were some good return pockets that we should’ve kept,” he said. “But then there were clearly some areas that we needed to give up. They’re not sustainable, they don’t make money, and I don’t know if those loans are getting picked up in the market or if other people realize it, too.”
Total originations for Santander Consumer USA were about $6.7 billion in the second quarter, up from about $5.7 billion in the year-earlier period but down from about $7.3 billion in the first quarter of 2014.
Those totals included a drop in Chrysler Group-related volume from the first quarter to the second. Chrysler Group retail loans fell to $2.6 billion in the second quarter from $3.5 billion in the first quarter. Chrysler leases were flat from the first quarter to the second quarter at $1.2 billion.
In addition, Santander Consumer USA reported a total of $595 million in the second quarter in commercial loans for Chrysler Group dealers plus leases to consumers, up from $390 million in the first quarter. Those commercial loans and leases were originated on behalf of a separate affiliate, Santander Bank N.A. Although they are accounted for separately, they count toward Santander Consumer USA’s sales targets for the Chrysler Group, according to spokeswoman Laurie Kight.
All told, even counting the affiliated commercial loans and leases, the lender’s Chrysler Group volume was still down in the second quarter from the first quarter.
Chrysler Capital has provided services for Chrysler Group dealerships since May 1, 2013. Santander Consumer USA’s 10-year agreement with Chrysler Group has specific targets for Chrysler Capital’s penetration of Chrysler Group financing volume.
For the first year of the agreement, which ended April 30, Chrysler Capital’s target was 31 percent, according to Santander Consumer USA’s 2013 annual report. Chrysler Capital met that goal, Santander told Automotive News. Chrysler Capital’s target increases to 44 percent of Chrysler Group financing volume at the end of year two and 65 percent at the end of year five, the report says.
Santander Consumer USA said that despite the drop in sales penetration in the second quarter, Chrysler Capital still expects to achieve its target penetration rate of 44 percent for the second year of the relationship.
“Looking ahead we have a positive long-term outlook for originations,” Dundon said.
You can reach Jim Henry at firstname.lastname@example.org