Following in the footsteps of Spanish bank Santander, GM Financial announced that it would enter the prime lending market in 2014.
General Motors Financial Co Inc officials said on a May 2 conference call that the company plans to launch a prime retail product in North America on a limited basis with an initial focus on General Motors dealers with which the captive finance company maintains a commercial lending relationship.
GM Financial, formerly AmeriCredit, was acquired by GM in 2010 to provide leasing and subprime financing options, alongside Ally Financial, which absorbed the former GMAC. While GM Financial claims that they don’t want to become the ”predominant” prime lender for GM dealers or “supplant the banks and other providers in this market,” CEO Daniel Berce said the move would help achieve “strong growth in our earning asset base over time.”
Given GM Financial’s portfolio, it’s not hard to see why Berce is eager to transition to prime lending and see some growth in its earning asset base. In 2012, 85 percent of GM Financial’s portfolio was subprime, while delinquencies grew by $200 million, to $933 million according to its latest SEC filing. Meanwhile, GM Financial’s prime customers are said to have default rates in line with the industry average. Small wonder that the firm is looking to capture more of these lenders and eliminate some risk from its subprime-heavy portfolio.
Subprime aside, the move into prime lending will help GM Financial transition into a full-fledged captive financing arm. In addition to offering lending services to consumers, GM Financial also offers commercial lending products for its dealers. SNL reports significant expansion in these areas for GM Financial
GM Financial’s lease originations for GM vehicles of $620 million in the first quarter marked a sharp increase from $384 million in the year-ago period; the captive is a full-spectrum lease provider for its parent company. GM Financial also reported $882.7 million of commercial finance receivables as of March 31, up from $560 million on Dec. 31, 2012. The company rolled out the commercial loan products in mid-April 2012.
With Chrysler forming their own captive arm with Santander and GM Financial’s expansion, Ally stands to be the biggest loser. According to SNL, their commercial floorplan financing business saw a 3 percent decline in Q1 2013 versus the same period last year, and both Santander and GM Financial will undoubtedly take a good bite out of Ally’s consumer lending business, which previously targeted Chrysler and GM buyers. Ally’s President, William Muir, was rather blunt in his assessment of the Chrysler situation, stating ”pure subvented business from Chrysler should go to zero pretty quick”.