Chrysler Capital, the private-label arrangement between Santander Consumer USA and Chrysler Group, began operating in the United States May 1 as the preferred lender for Chrysler Group. Chrysler Capital will offer prime and subprime retail loans and leasing through Chrysler dealers, as well as floorplanning and construction loans to dealers. Chrysler said the arrangement will allow the automaker to be more competitive, especially in terms of leasing, without placing added risk on Chrysler's balance sheet.
Tom Dundon, 41, CEO of Santander Consumer USA, spoke with Staff Reporter Larry P. Vellequette.
Q. As Chrysler Capital starts up, are there any remaining issues that need to be ironed out?
A. A couple of little things, like getting leasing properly programmed in all the desking tools. There are about 16 different desking tools that the dealers use, and we needed to go in and make sure they all had our program properly loaded in their process.
We've been funding deals for a little while now and have most of the dealers turned on and worked out all the bugs, so we don't think there are any issues now. We're very competitive now on both price and depth of buying, and that took a little while.
How many people now are dedicated to Chrysler Capital?
All in all now, it will be probably about 380 people just for origination and then many more than that when it's time to collect the loans as the book grows. But about 300 people that are serving the dealers.
What does this deal mean for Santander Consumer USA in terms of your book of business?
We think we had built good processes, and it gives us the ability, in partnering with the manufacturer, to have a closer relationship with the dealers and use some of what we've learned over the years to hopefully be a little more precise in buying the prime and near-prime customer that the captives usually see. That's business that, unless you're a captive, you wouldn't have the opportunity to buy. With that opportunity, we think there's the ability to generate a good experience in the Chrysler dealer for the customer and hopefully generate some incremental sales.
What were your numbers last year in terms of the auto loans Santander Consumer USA wrote?
It was like $8.6 billion or so. Our total service portfolio was $20.8 billion.
Will the creation of Chrysler Capital have any impact on Santander's relationships with non-Chrysler dealers?
It will have really no impact because it's a whole separate entity within the organization.
What challenges have you overcome to get Chrysler Capital up and running in under three months?
We had started working behind the scenes in anticipation of this deal. We took a little risk that, if the deal hadn't happened, that we would have put some systems and processes together that maybe we would not have been able to utilize as effectively if we were not a captive. But we had been working on this for six months to a year prior to Feb. 6 or 7, when we actually signed. The challenge was hiring the sales staff, which is 125 or 130 people all over the country. We wanted to have a very high standard and have people who primarily had captive experience. We looked to dealers for referrals to make sure we had people that the dealers were comfortable with.
Santander Consumer USA did not have a leasing background before this arrangement. What has it been like trying to learn that business in such a short time?
That was definitely the hardest. That was our No. 1 focus throughout this process, and it was the process that we completed with the least amount of time left. We finally got it right, and we feel really good about lease now. We're putting some enhancements into the lease program that will make it easier for dealers.
By having to do this, we were able to look at it from a fresh perspective. We found that leasing can be confusing and difficult, and we tried to simplify it and take some of the dealer's risk out of the leases by automating the rates and the incentives and the residuals, and giving a more simplified program.
We think we've turned something that we were not experienced in, and we, in essence, put all of our best people on lease, and we think we've ended up with a product and a process that is superior to what the Chrysler dealers had available.
How do you look at leasing risk?
The way we look at [leasing] risk is that this is a long-term agreement with Chrysler. There will be some good years and bad years with leasing. It's just like our history in the finance business, in that we've got to be there for the dealer. They've got to sell cars every day, and we think there will be some years where the residuals are high and some years where the residuals are low, but you won't know that for years in the future. As long as you stay in the business and support your dealers and your customers, we're willing to take that residual risk.
Will dealers look at Chrysler Capital for leasing mostly or traditional financing?
What we're seeing with the dealers who were [piloted under the Santander Consumer USA name prior to May 1] is that we're seeing all of their apps, everybody who shows up at their store. We've been competitive on prime and near prime. As the captive, we expect to give the dealer and work with the dealer on rehashes to make sure they can sell a car. It's obvious that the dealer has more choices in retail than in lease. Although we'll do a lot more retail than we will lease, I agree that the percentage of leases that we'll do will be very high, but it looks like we're doing a pretty strong percentage of their straight retail paper because we have pretty low rates and we're pretty flexible. I would anticipate that we'll get almost all of the leases and the majority of the retail from most dealers.
When a captive has competitive rates, there's a real benefit for the dealer in terms of retention for the dealer when they do the loan with the captive. Chrysler, Jeep and Dodge spend a lot of money on their branding, on their marketing. So when a customer gets a loan and each month they're paying their money to that company that has that brand, it keeps that brand in front of them every month. We will work with the customers who have financed with us to drive them back to the dealer for additional sales and service. Most dealers understand the benefit of a branded captive and our ability to hopefully get a second or third unit in that household, hopefully get them back in for service, and definitely make offers to the portfolio to bring them back in to trade that vehicle in on a new one.
Will Chrysler Capital operate just like a captive finance arm of Chrysler?
Yes. 100 percent.