A captive lending arm can be a major source of profit for automakers. After all, keeping that paper in-house instead of farming it out to a third party permits some of that sweet interest-driven revenue rolling on a monthly recurring basis. Why else did most of us, for many years during GMAC’s heyday, refer to General Motors as a finance company which just happened to sell cars?
Following several years of shacking up with Santander in order to offer financing for their customers, Stellantis has bought F1 Holdings Corp., an outfit that is the parent of Texas-based First Investors Financial Services Group. Now they’ve spent $285 million in this all-cash transaction, Stellantis is no longer the only major automaker in America without a captive finance arm.
For those of you who fell asleep in economics, we’ll supply a bit of background. A captive finance company is a wholly-owned subsidiary that finances retail purchases from the parent company. These outfits can range from mid-sized entities to giant firms (GMAC would have been the latter when it was operating like gangbusters).
“With the acquisition of First Investors, we will quickly develop a captive financial arm in the United States, offering a complete range of products, for the benefit of our customers, our dealers, our brands and our shareholders,” said Philippe De Rovira, Chief Affiliates Officer for Sales Finance, Used Cars, Parts and Service and Retail Network (and likely the owner of the world’s longest business card if that job title is any indication).
Until this deal, customers choosing to sign a note in the business office of a Stellantis dealer would have been agreeing to make payments to Chrysler Capital. That arrangement was a financial services operation set up by Santander Consumer USA Holdings Inc. and Chrysler Group LLC nearly a decade ago prior to the American automaker completing its merger with Fiat in 2014.
Captive financing is a weird and wonderful part of the car business. Using GMAC as an example, these types of companies can spread their tentacles into parts of finance where one may not expect. For example, while it made a lick of sense for GMAC to get into the insurance game 20 years after its founding in 1919 (why not insure the cars they sell?), the 1985 decision to jump into the mortgage market was fraught with potential pitfalls despite the allure of massive profits. As we all know, the house of cards folded dramatically during bankruptcy in 2009, and GMAC morphed into Ally Financial the next calendar year. It’s worth noting Ally got back into bed with mortgages about five years ago.
No such plans were announced for the new Stellantis endeavor, though one must think it’s certainly not out of the question should the right opportunity arise. After all, the net income at Ally was over $1.7 billion in 2019.
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