GM Financial Double Crosses Their Ally

Derek Kreindler
by Derek Kreindler
gm financial double crosses their ally

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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  • Corntrollio Corntrollio on May 13, 2013

    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%.

    • Ranwhenparked Ranwhenparked on May 15, 2013

      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.

  • Agent534 Agent534 on May 13, 2013

    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).[

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    • Highdesertcat Highdesertcat on May 14, 2013

      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!"

  • TheEndlessEnigma That's right GM, just keep adding to that list of reasons why I will never buy your products. This, I think, becomes reason number 69, right after OnStar-Cannot-Be-Disabled-And-It-Comes-Standard-Whether-Or-Not-You-Want-It and Screw-You-American-Car-Buyer-We-Only-Make-Trucks-And-SUVs.
  • 3SpeedAutomatic Does this not sound and feel like the dawn of ICE automobiles in the early 20th century, but at double or triple speed speed!!There were a bunch of independent car markers by the late 1910’s. By the mid 20’s, we were dropping down to 10 or 15 producers as Henry was slashing the price of the Model T. The Great Depression hit, and we are down to the big three and several independents. For EVs, Tesla bolted out of the gate, the small three are in a mad dash to keep up. Europe was caught flat footed due to the VW scandal. Lucid, Lordstown, & Rivian are scrambling to up production to generate cash. Now the EV leader has taken a page from the Model T and is slashing prices putting the rest of the EV market in a tail spin. Deja vu……
  • Michael Eck With those mods, I wonder if it's tuned...
  • Mike-NB2 I'm not a Jeep guy, but I really, really like the 1978 Jeep Cherokee 4xe concept.
  • William I'm a big fan of 70s Lincolns. I really liked the 1980s Mark Vl. I thought it was very classy, and I never thought of it as a restyled Town Car. I did own a 1990 LSC, it was black over black leather interior. I loved the LSC as soon as they were introduced. I loved the sound of the duel exhaust, I thought it fit the car perfectly. I never had any problems with it. The 5.0 is a great engine, and never had any issues with the air suspension system. It had the the analog dash and I made good use of the message center. I highly recommend this Mark. The black paint and interior fit the car and me perfectly.