Santander Consumer USA has a long way to go to hit the Chrysler Capital sales penetration targets called for in its contract with Chrysler Group.
In fact, it could be an impossibly long way, unless Chrysler Group boosts its spending on finance incentives, said Tom Dundon, CEO of Santander Consumer USA.
Santander said on Tuesday that for the third quarter of 2014, it financed just 29 percent of Chrysler Group’s total volume during the period. That was down from 31 percent in the second quarter and 38 percent in the first quarter.
Santander Consumer USA, of Dallas, began providing private-label financing to Chrysler Group dealerships via the Chrysler Capital channel on May 1, 2013.
Chrysler Capital’s share target for the first year of the 10-year agreement was 31 percent of Chrysler Group’s total volume, which was achieved, Santander said. But the target rises to 44 percent in year No. 2, and increases in steps to 65 percent in year No. 5.
Dundon said repeatedly during a conference call on Tuesday that the targets were set based on the assumption that Chrysler Group would provide incentive money for finance offers comparable to what other automakers provide their captive finance companies. However, Chrysler isn’t doing that, he said.
Dundon seemed to suggest Chrysler Group wouldn’t enforce the penetration rates called for in the contract.
“It’s pretty clear that our penetration rates were targeted to other captives and that the relationship between Chrysler and us would have to be reflective of the relationship between OEMs and captives, even though we’re technically not a captive,” Dundon said.
“And I think at this moment the amount of subvention that we’re, that we have access to, is not very similar to some of the other OEM captives, and therefore these penetration rates per the contract would not be something we would be held to.”
The right offer
As an example, Dundon said that like other manufacturers, Chrysler Group offers consumers a choice of either a cash rebate or 0 percent financing for up to 72 months. But relative to other automakers, he said, Chrysler Group’s cash rebates are bigger and therefore harder to turn down.
“Consumers are rational,” Dundon said. “When they do their analysis in buying a car, they tend to take the right offer. And we don’t always have a subvented offer as competitive as what some others have, and that changes the penetration rates quite a bit.”
A Chrysler Group spokesman declined comment.
Dundon acknowledged that “Chrysler has to do what’s best for them.” Still, he said, with more incentive money, Santander Consumer USA is confident it could hit its Chrysler Capital targets.
Chrysler Group has been a great partner, Dundon said.
“Their cars are improving. Their market share’s improving,” he said. “And we’re just trying to support them where it’s helpful. And then over time we think, you know, they’ll continue to see the value in what we do and maybe increase the amount of subvention, which will get our capture rates up, our penetration up.”