Fiat Chrysler to Establish Captive Finance Company

Fiat Chrysler Automobiles will establish its own captive finance company by 2022 in a move that could involve the purchase of Chrysler Capital from Santander Consumer USA, Inc., the companies have confirmed.

FCA's chief executive Sergio Marchionne outlined the plan during an investors meeting in Balocco, Italy on June 1. The company could also create a captive finance company from scratch.

To purchase Chrysler Capital, FCA would need to exercise a special clause known as an equity option agreement that was included in the 2013 agreement with Santander to operate the unit as a division of the bank. At the time, Santander paid $150 million in a 10-year deal.

FCA and Santander Consumer have been in exploratory talks for the possible sale of Chrysler Capital to FCA for fair value, according to a statement from the Dallas-based bank. Santander Consumer "is committed to pursuing an outcome for Chrysler Capital that is in the best interests of the Company, its shareholders and other key stakeholders," according to the statement. "There are a number of possibilities for the next phase of our relationship with FCA."

The talks are now focused on determining the value of Chrysler Capital, Santander Consumer executives said on a conference call. FCA sold 2.1 million new vehicles in the U.S. in 2017.

For the first quarter, Santander Consumer reported a 28% penetration rate for Chrysler Capital loans, which was up from 23% from the prior year and 65% below the April target of 65% set by the original agreement. Ally Financial also originates loans for FCA, which made up 26% of its portfolio.

In October, Santander Consumer named Rich Morrin president of Chrysler Capital and auto relationships to build loan product offerings for dealers and strengthen relationships with them.

Related: Fiat Chrysler to Electrify 30 Models by 2022