By on May 13, 2013

GM-Establishes-GM-Financial-1024x539. Photo courtesy GM Authority.

Following in the footsteps of Spanish bank Santander, GM Financial announced that it would enter the prime lending market in 2014.

SNL Financial, a subscription-only financial news service, reports that

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”.

 

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15 Comments on “GM Financial Double Crosses Their Ally...”


  • avatar

    Gosh don’t we all live in exciting times,my wife has had some dealings with Santander Bank of Spain, from there London England branch, she used to get cheques from this Bank just last year on her inheritance account, they have now stopped all together, must be the hook up with Chrysler (FIAT).

  • avatar

    the competition should be good for business, good for dealers and borrowers.

    • 0 avatar

      Purely anecdotal,I was talking to a frequent customer and we ended up talking about cars.
      He mentioned that while talking w/the bank he does real estate transactions his bank officer said that banks don’t do very many car leases anymore,that leasing is almost entirely done thru Automotive Manufacturer’s financial arms.

      Noticed a ton of ads in LA past couple of months about leases w/cheap rates.
      Wonder if we’re seeing a the beginning of a huge shift towards renting cars instead of buying them. Driven by manufacturers desperate to move product-if adequate care will keep your car going 8-10 yrs,that’s one new car you didn’t buy-or consumers unwilling/unable to commit long term-contradicted by the longer notes I know,but are the longer notes the last stand of the buying model of business?

      • 0 avatar
        dolorean

        Its been a long standing discussion on TTAC of the increasing pressance of leasing over buying. For a long while in the early-mid ‘Aughts (’01-’08), leasing out-paced buying for several models. The economic freefall of ’08 dashed those hopes, but leasing seriously seems to be making a strong come-back.

    • 0 avatar
      highdesertcat

      Buickman, I think so too. There’s no time like the present for GM to enter the lending market. GM can’t lose. They’re not gambling with their own money.

      If I could venture into all sorts of financial ventures and adventures with other people’s money, I certainly would. Especially if I knew before hand that I could not fail because the full faith and credit of the United States Treasury was behind me.

      This is going to be great success for GM. There will be people who may consider buying GM again simply because they will be gambling with other people’s money and GM will make it worth their while to gamble on their new products in the coming year(s).

  • avatar
    ellomdian

    GM getting involved in Prime financing is fine, even if it means they are in competition with Ally.

    My concern is that when you are already writing tons of Prime paper, it’s very easy to start writing sub-prime notes, and shuffle them into securities you are selling out of house without your buyers noticing. (Ahem, Santander..)

  • avatar
    corntrollio

    It just means Ally will become a general auto loan provider like other banks, no? Right now, I believe they are highly focused on GM and Chrysler only, and other than that are a deposit-taking bank.

    I don’t fully understand why people don’t come to the dealership more often with outside financing and ask the dealership to beat it. A lot of times, they won’t be able to beat it. Maybe that only works if you have better credit, on average.

  • avatar
    BrianL

    Can anyone say they are really surprised by this? Auto financing brings in huge profits for the captive arm. This will help GM going forward when it doesn’t need Ally anymore. That day is coming very soon.

    • 0 avatar
      highdesertcat

      You’re right, in all aspects. But GM and Ally are not the only sources of financing available to potential buyers who choose a GM or Chrysler product.

      The prudent buyer goes shopping with a pre-approved loan from a financial institution of his or her choice already in their pocket.

      Those fortunate enough to get pre-approved for a low APR loan through their Credit Union, bank or association, like AARP or USAA, clearly have the upper hand, if financing. Those paying cash have no such restraints.

  • avatar
    corntrollio

    By the way, has GM sold their stake in Ally? My impression was that Old GM’s stake + New GM’s stake added up to around 10%.

    • 0 avatar
      ranwhenparked

      I think you’re right – Motors Liquidation was left with something like 6% of Ally Financial, and I don’t believe they’ve sold it yet, even though that’s obviously the plan. General Motors still has a small piece too.

  • avatar
    agent534

    THE PEOPLE WILL BE THE BIGGEST LOSER!!!! Not Ally Financial.

    The US Treasury has more than $11 billion invested in Ally from the bailouts.
    Remember now, Cerberus owns a large part of Ally. The same Cerberus that bought Chrysler for Chrysler Financial. They separated the two companies, and were able to keep Chrysler Financial through the bankruptcy and even though Chrysler owed the $12 billion in tarp funds. Cerberus later sold Chrysler Financial for the $7billion it bought Chrysler for.
    Now they hold a large stake in Ally still, and once again the US Treasury is babysitting their investments for them, and will make sure they don’t lose any money.

    From the wiki:
    In 2006, General Motors Corporation sold a 51% interest in GMAC to Cerberus Capital Management, a private equity company. (The next year, Cerberus acquired Chrysler Corporation.) Also in 2006, GMAC divested a majority stake of GMAC Commercial Holdings, its real estate division, to a trio of investors — Goldman Sachs, KKR and Five Mile Capital Partners — thereby creating Capmark Financial Group Inc.[6] Capmark later filed for bankruptcy and was acquired in part jointly by Leucadia and Berkshire Hathaway.[7][8]

    On December 29, 2008, the United States Department of the Treasury invested $5 billion in GMAC from its $700 billion Troubled Asset Relief Program (TARP).

    On May 15, 2009, GMAC’s banking unit changed its name to Ally Bank.

    On May 21, 2009, the U.S. Treasury announced it would invest an additional $7.5 billion in GMAC LLC, which gave the U.S. government a majority stake in the company.[9]

    On December 30, 2009, the U.S. Treasury department said that they would invest another $3.8 billion in GMAC because the company had been unable to raise additional funds in the private sector. This raised the total government investment in GMAC to $16.3 billion.[10]

    On May 10, 2010, GMAC Inc. announced that it re-branded itself as Ally Financial Inc.[11]

    On December 30, 2010, the U.S. Treasury announced it would be converting $5.5 billion of interest-bearing preferred Ally stock into common equity.[12]

    On March 31, 2011, Ally Financial filed with the SEC for an initial public offering, although was not pursued due to stock market volatility of summer 2011.[13]

    On November 9, 2011, the bank announced it was considering filing for bankruptcy-protection for its ResCap mortgage unit, after the unit’s loan write-downs of around half a billion dollars brought it close to the legally required net asset value threshold of $250 million.[14][15]

    As of January, 2012, TARP had about $12 billion invested in Ally.[16] The government stake represented a 74% ownership interest in Ally. In March, 2012, Ally failed the Federal Reserve’s so-called financial “stress test” for capital adequacy. The company said in a statement that the Fed’s “analysis dramatically overstates potential contingent mortgage risk”. A possible outcome would be a requirement to raise additional capital.[17]

    On May 15, 2012, the company put its ResCap subsidiary into Chapter 11 bankruptcy after it failed to make an interest payment of $20 million on unsecured debt. ResCap had written off $22 billion in mortgages in 2009, 2010, and 2011 much of it subprime mortgages. The move was seen as attempt for the company to focus on its profitable core business of auto loans and direct banking (Ally showed a $2.72 billion profit in 2011 in its auto finance unit but had a $402 million loss at ResCap).[

    • 0 avatar
      ect

      The sale of a majority of GMAC to Cerberus was – however inadvertently – a great success story for GM. IIRC, GMAC had generally made an operating profit of around $3 billion per year. In the sale, GM was paid $7.4 billion by Cerberus, got a $2.7 billion distribution from GMAC and kept automotive lease and retail assets worth about $4 billion. So, $10.1 billion in immediate cash (which GM badly needed).

      Within a year, as the residential mortgage debacle unfolded, GMAC was experiencing losses – $2.3 billion in 2007 (ResCap lost over $4 billion), and more than $3 billion in the first half of 2008.

      The timing of the sale of 51% of GMAC to Cerberus was masterful. In hindsight, anyway.

    • 0 avatar
      highdesertcat

      agent534, it is because of the impropriety of the bailout and nationalization that GM can afford to make this move. GM has nothing to lose and everything to gain, without any risk to themselves. GM is gambling with “the people’s money”. Not their own.

      We, the people, will never get the money back that was wasted on GM and all the other failed ventures of this and the previous administrations.

      If someone gave me a pot of money I didn’t have to ever pay back, you bet I would try all sorts of ventures to make money too. GM is no different. GM can do this because they can’t fail. If GM fails again, we will bail them out again, ad nauseam.

      Within 12 months the financial papers will hail this move on GM’s part as genius and a life saver, in essence endorsing it with a line like “Smooth move, Exlax!”


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