Stellantis to buy First Investors Financial Services to create lending arm

On Wednesday, Stellantis announced that it would be purchasing First Investors Financial Services Group for $285 million. The deal, expected to close by the end of 2021, will establish a captive lender for the global brand and was financed by an investor group led by Gallatin Point Capital LLC.

The deal allows Stellantis’ North American brands including Chrysler, Dodge, Jeep, Ram, Fiat, and Alfa Romeo to offer financing that stays in-house. It’s a particularly important tool to have in the bag for customer retention as well as back-end earnings. It also gives Stellantis better control of dealership operations with the ability to finance floor planning within the organization.

CEO of Stellantis, Carlos Tavares, said in the press release, “This transaction marks a significant milestone in Stellantis’ sales finance strategy in the critical U.S. market. First Investors has an outstanding financial and operational platform, underpinned by a strong management team, with vast experience in the auto finance space. Direct ownership of a finance company in the US is a white-space opportunity that will allow Stellantis to provide our customers and dealers a complete range of financing options, including retail loans, leases, and floorplan financing in the near-to-medium term.”

It’s a deal that should prove profitable for Stellantis, and stable for First Investors. The Houston, Texas-based lender has been in the auto financing business for 32 years, but being married to a major carmaker establishes a firm foothold for them.

President and CEO of First Investors, Tommy Moore, Jr., commented, “We are excited to join the Stellantis team. Becoming part of Stellantis provides long-term stability for our company and employees. We believe that there are significant untapped growth opportunities for First Investors under Stellantis ownership as we expand our product suite to support the auto sales growth of Stellantis. The First Investors management team is fully committed to ensuring a smooth and rapid integration into Stellantis. Meanwhile, we remain committed to continuing to offer our loans and services to our existing network of dealers and current business partners.”

Captive lending a boom for profitability

Until now, Stellantis was the only North American carmaker that did not have a captive lending arm. During the economic recession in 2008-09, the former Chrysler LLC filed for Chapter 11 bankruptcy on April 30, 2009, and was forced to abandon their financing arm, Chrysler Financial. It’s been without captive lending since then.

It’s no surprise that lending is a massive source of income for carmakers, which is precisely what Stellantis wants to capitalize on. As an example, GM Financial reported a net income of $878 million for the quarter ending March 31, 2021, and Ford Credit’s earnings before interest and taxes (EBIT) in the same quarter was a cool $1.0 billion.

For dealerships, the news of a true captive lender is good news. It should provide added stability in the F&I department that potentially makes approvals faster and easier for new and used car buyers. Chrysler Capital, operating under Santander Consumer USA has been connected with the highest occurrences of sub-prime rate loans, and that reputation can be a negative to the Chrysler image for some buyers.

Santander has an agreement with Stellantis through 2023, and the company says they will have “ongoing conversations with Stellantis about long-term mutually beneficial opportunities beyond 2023.” However, dealers should expect lending options to look different in the new year, once the First Investors deal is complete.

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