Subprime Lending Still On The Rise As GM Financial Grows Prime Lending Operations

Derek Kreindler
by Derek Kreindler
subprime lending still on the rise as gm financial grows prime lending operations

Subprime auto financing continues to grow, and while one analyst at Moody’s says that banks are largely staying out of the subprime space, overall lending continued to rise, with retail banks seeing some of the strongest growth. This expansion in lending, particularly subprime, was attributed as a key driver in auto sales. SNL cited forecasts for a SAAR of between 16 and 16.7 million in 2014, up from 15.5 million in 2013.

SNL Financial, a finance industry trade publication, directly attributed strong auto sales to the increase in subprime financing, drawing a connection between the increased SAAR and an increase the portfolios of subprime lenders. Consumer Portfolio Services Inc saw a 37 percent growth in receivables year-over-year, with over $1.2 billion in receivables for Q4 2014.

The increase in subprime lending along with looser underwriting standards has led ratings agencies to view the sector in a negative light. Fitch, which has issued a negative outlook in the sector as a whole, told SNL that overall, losses were at “historical lows” and that the increase in lenders will make the segment more competitive.

SNL also reports that Moody’s has cast an eye on underwriting standards, with Moody’s VP Mark Wasden stating that longer loan terms (due to higher prices, more durable cars and increased ownership periods) is a major factor.

While Wasden noted that banks were remaining “relatively conservative” regarding subprime lending, savings banks saw the biggest growth in overall lending among depository institutions, growing 16.06 percent year over year (compared to 11.24 percent for credit unions and 10.04 percent for commercial banks). Even so, commercial banks remained the dominant force, issuing $331.92 billion in loans, with savings banks accounting for just $21.49 billion.

Another notable development is the increasing reliance of GM Financial on General Motors – while this sounds redundant, General Motors vehicle financing now accounts from 70 percent of GM Financial’s business, and receivables have more than doubled to $33 billion in Q4 2013 from just $13 billion a few years ago. GM Financial, once known as AmeriCredit Corp, was largely a subprime focused business when GM bought it in 2010, but plans are underway to transition GM Financial to prime lending. While GM Financial is now stepping into the role that the legendary GMAC once occupied, Ally (GMAC’s successor), is shrinking from the auto lending market, suggesting a reversal of roles for GM’s two finance arms .

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  • Jjster6 Jjster6 on Mar 25, 2014

    I've unbanned myself. Some time ago I was banned for suggesting the German editor-in-chief had sand in his lady parts. I understand TTAC has changed their stance on banning people and I followed the email instructions to have myself unbanned. Several times. No response in over a month. Therefore I created a new account using a new email address. If necessary, feel free to re-ban me Baruth. However I don't think you even have lady parts so please welcome me back.

    • See 1 previous
    • Jack Baruth Jack Baruth on Mar 26, 2014

      I apologize for the lack of unbanning. We went through and unbanned everyone, even people who didn't ask. It's possible your account was just borked. Anyway, welcome back.

  • CapVandal CapVandal on Mar 26, 2014

    For everyone worried about 'here we go again' ..... " Fitch, which has issued a negative outlook in the sector as a whole, told SNL that overall, losses were at “historical lows” and that the increase in lenders will make the segment more competitive. SNL also reports that Moody’s has cast an eye on underwriting standards" The credit rating agencies had their 'come to Jesus' moment and are now aggressively suspicious. The buyers are no longer so naive. Anyone that loses a penny on credit with the label 'subprime' will be both fired and ridiculed. Where did the risk go? To the borrowers in the form of double digit interest rates.

    • Sunridge place Sunridge place on Mar 26, 2014

      'Where did the risk go? To the borrowers in the form of double digit interest rates' Ding, ding, ding...we have a winner! You can make a ton of $$ at 10%-18% APR(still below BHPH rates) with people considered subprime in the 550-650 credit score range with other criteria somewhat stable. Those customers are also among the most loyal in the business to a lender and a brand. Especially if you're able to service them as they step back up into near prime to prime.

  • Probert Sorry to disappoint: any list. of articles with a 1 second google search. It's a tough world out there - but you can do it!!!!!!
  • ToolGuy "We're marking the anniversary of the time Robert Farago started the GM death watch and called for the company to die."• No, we aren't. Robert Farago wrote that in April 2005. It was reposted in 2009 on the eve of the actual bankruptcy filing.The byline dates are sometimes strange/off with the site revisions (and the 'this is a repost' note got lost), but the date string in the link is correct (...2005/04...). Posting about GM bankruptcy in 2005 was a slightly more difficult call than doing it in 2009.-- The Truth About Calendars
  • Kat Laneaux Agree with Michael500, we wasted all that money just to bail out GM and they are developing these cars in China and other countries. What the heck. I understand the cheap labor but that is just another foothold the government has on their citizens and they already treat them like crap. That is pretty disgusting to go forward to put other peoples health and mental stability on a crazy crazed, control freak, leader, who is in bed with Russia. Thought about getting a buick but that just shot that one out of the park. All of this for the greed. They get what they lay in bed with. Disgusting.
  • Michael500 Good thing Obama used $50 billion of taxpayer money to bail them out and give unions a big stake. GM is headed to BK again with their Hail Mary hope of EVs. Hopefully a Republican in office will let them go BK the next time, and it's coming. The US economy is not related/dependent on GM and their Chinese made Buicks.
  • MaintenanceCosts "Rural areas hardly noticed COVID at all."I very much doubt that is true in places like the Navajo Nation or the Kenai Peninsula in Alaska, some of which lost 2% or more of their population to COVID.No city had a death rate in the same order of magnitude.Low-density living is a very modern invention. Before cars, people, even in agricultural areas, needed to live densely to survive.