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Bloomberg
Fiat Chrysler Automobiles NV plans to form its own financing business in the US and has started discussions with partner Santander Consumer USA Holdings Inc., which it has an option to buy out.
That would allow Fiat Chrysler to “participate more fully in capturing value from emerging platforms,†Chief Financial Officer Richard Palmer said in a presentation near Turin, Italy, confirming a Bloomberg report earlier in the week that the automaker was considering such a plan.
Buying out Dallas-based Santander Consumer could add $500 million to $800 million in incremental pretax earnings within four years, Palmer said. Fiat could also start its own business, in which case the automaker envisions about $100 million in incremental profit, he said.
Fiat Chrysler shares fell as much as 4.1 percent to $22.27 in New York, while Santander Consumer gained 2.5 percent, after tumbling as much as
9.6 percent following the Bloomberg report.
Fiat Chrysler exiting its deal “would require some payment above book value†to Santander Consumer, Kevin Barker, a Piper Jaffray & Co. analyst, said in a note. Given the cost, a full buyout “is a low probability,†he said, adding “we would be buyers†of Santander based on the news.
Sergio Marchionne, the automaker’s chief executive officer, told investors he’ll institute a dividend for the first time since Fiat and Chrysler merged in 2014. The firm said it aims to double profit over the next five years, generating about 30 billion euros ($35 billion) in industrial free cash flow in that span. Fiat Chrysler has no plans to spin off its Alfa Romeo and Maserati brands, Marchionne said.
Santander has struggled to reach market share targets that it set along with Fiat Chrysler as part of the 10-year financing agreement the two companies signed in 2013. The lender financed 28 percent of Fiat Chrysler’s total loans and leases as of the end of December, well short of a goal to reach 65 percent by the end of April, according to a regulatory filing.
Last August, Santander’s new CEO, Scott Powell, met with Fiat Chrysler executives during his first day on the job to find ways to capture more business.