Santander Consumer in talks to sell its share of partnership with Fiat

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Santander Consumer USA Holdings may sell its stake in its auto-financing partnership with Fiat Chrysler, as the Italian-U.S. automaker plans to form its own captive-finance unit.

Santander Consumer, based in Dallas, said in a news release Friday that it is holding talks with Fiat Chrysler about selling its share in Chrysler Capital.

Fiat Chrysler said separately that it has an option to buy out Santander Consumer and is in talks to do so. If the deal happens, Fiat Chrysler could add between $500 million and $800 million in incremental pretax earnings within four years, the automaker said.

Those comments came as Fiat Chrysler confirmed a news report from earlier in the week that it plans to form its own captive-finance division in the U.S. as rival automakers have done. The move is one element of a five-year strategic plan that Fiat Chrysler unveiled on Friday.

Word of Fiat Chrysler's intentions had been seen as a potential blow to Santander Consumer and has affected its stock for a few days. Santander Consumer shares fell as much as 9.6% in trading Wednesday on the potential loss of business. However, the shares stayed steady on Thursday and had climbed 5.1% to $18.83 at midday Friday.

Santander Consumer has fallen short of sales targets that it set for Fiat Chrysler, financing only 28% of the automaker’s total loans, short of its 65% goal, Bloomberg News reported. However, Santander Consumer said that it could still maintain a relationship with Fiat Chrysler even if it sells its portion of Chrysler Capital.

“There are a number of possibilities for the next phase of our relationship with" Fiat Chrysler, Santander Consumer said in its release.

“Santander Consumer’s underlying business remains strong and our future growth potential and capabilities extend far beyond our relationship with" Fiat Chrysler, the release said.

Santander Consumer scheduled a conference call for noon Eastern time on Friday to discuss its talks with Fiat Chrysler.

By forming its own captive-finance unit, Fiat Chrysler would be able to “participate more fully in capturing value from emerging platforms,” such as securitizing vehicle fleets and offering access to service providers on a per-mile basis, the company said Friday, according to Bloomberg.

Chrysler Capital is a brand that operates under a private-label financing agreement between Santander Consumer and Fiat Chrysler. The agreement is in the sixth year of a 10-year contract.

Santander Consumer is a unit of Spain’s Banco Santander.

Investors had also worried that Fiat Chrysler’s plan for a captive-finance unit would hurt the $143 billion-asset Ally Financial in Detroit, whose shares fell as much as 3% on Wednesday on the news. Ally originated $2.44 billion of loans and leases for Fiat Chrysler in 2017, according to Bloomberg.

However, Ally CEO Jeffrey Brown on Friday dismissed those concerns.

“I’ve been sort of surprised by the market reaction and Ally getting dragged into some of this,” Brown said at the Bernstein Strategic Decisions conference in New York.

Ally does not have a contractual relationship with Fiat Chrysler, “so there is probably a bigger risk for their other contractual partner than there is for Ally,” Brown said. “We’ll continue to take care of the Chrysler dealer customers. … I’m not expecting any change in balance sheet flows, origination levels or anything like that.”

Ally shares rose 1.3% to $25.98 in Friday trading.

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