FORT WORTH — As AmeriCredit continues to bolster auto loan originations, it accelerated its dealership relationships through the fiscal first quarter.

Overall, the company reported on Wednesday that it has either activated or re-activated about 3,000 dealer relationships.

Additionally, AmeriCredit president and chief executive officer Dan Berce said the company has ramped up its originations staff to increase its lending presence, along with growing marketing, underwriting and funding.

More specifically, on Wednesday, Berce said, "We have taken several key steps toward rebuilding our origination volume. During the quarter, we added a significant number of originations staff to increase our presence in lending markets and support additional marketing, underwriting and funding needs. We have also activated or re-activated approximately 3,000 dealers."

For the quarter, AmeriCredit originated $229 million of new loans, which is up from $175 million in the June period.

And Berce also mentioned the recent relationship his company has struck with General Motors to launch a subventioned program for franchised dealers, which SubPrime Auto Finance News reported on earlier this week.

"This program allows us to pass along cash incentives we receive from GM in the form of more favorable rates to customers, maintaining our return objectives and helping GM dealers sell more vehicles. We are increasing our penetration into active as well as previously inactive GM dealerships as a result of this new program," he pointed out.

Lending Environment

Describing the lending environment, Berce indicated that it is favorable when compared to a few years ago.

"That said, the remaining players maintain a strong, though rational, presence in the subprime space and we must still compete on price, loan structure and service levels," he explained.

"Depressed consumer demand for vehicle purchases also presents a challenge for us as we seek to grow loan originations. Used-car purchases have fallen over 10 percent year-over-year, and the pull-forward of demand from Cash for Clunkers to the month of August resulted in weak consumer demand in September and very low levels of new- and used-car inventory," he added.

September loan originations tended to carry an average APR or 19.1 percent, compared with 17.8 percent in the June quarter. And on a net basis, the company also averaged a 3.1 percent fee from dealers for the quarter, compared with 2.7 percent in the prior period.

Average terms and loan structure, however, tended to remain similar to those made in the June quarter, Berce highlighted.

"With tight credit and pricing execution, we expect the loans we originated in the September quarter to generate high loan-level returns. Going forward, we will seek to maintain these historically high returns as we balance the components driving our profitability — loan pricing and dealer fees, funding costs and expected losses," he pointed out.

"Specifically, we expect our funding costs to decline as the capital markets and bank lending environment improves and we may pass through the benefits in terms of lower loan pricing and dealer fees," Berce continued. "We are still targeting originations of at least $300 million for the December quarter and plan to further grow originations as we move through calendar 2010."

Helping to drive this growth, despite the typical season weakness in September and credit metrics remaining pressured by a declining portfolio balance, is the fact that the rate of deterioration in AmeriCredit's portfolio looks to be moderating, Berce said.

"While 31- to 60-day delinquencies increased to 7.6 percent at Sept. 30, 2009, the 20 basis points year-over-year increase was much less than the 190 basis points increase in the same metric from September 2007 to September 2008," he highlighted.

Furthermore, accounts greater than 60 days delinquent also grew by 20 basis points over last year to 3.8 percent; however, when comparing this figure to the prior year-over-year, it is an improvement from the 100 basis points climb from 2007 to 2008.

"Annualized net credit losses increased to 8.4 percent for the September quarter from 7.3 percent a year ago," Berce said in the company's conference call Wednesday. "The 110 basis points year-over-year increase in annualized net credit losses from September 2008 to September 2009 is roughly half of the increase — or deterioration — we experienced from September 2007 to September 2008."

Recovery Rate

Also helping to push up results is the average recovery rate on repossessed collateral.

"Our recovery rate was 42.7 percent for the September quarter, up from 42.1 percent for the June quarter and 41.6 percent a year ago," Berce explained. "While the Manheim Used Vehicle Index has increased to record levels over the last few months, the strength of our recovery rates has been more tempered because our vehicle mix differs from Manheim.

"The most significant improvement in used-vehicle pricing has been in the truck category. In contrast to the Manheim Index, our portfolio mix reflects a larger share of small and compact vehicles. Additionally, as our portfolio continues to run off, the average age of vehicles that we repossess and sell through the auctions increases. Generally, there is an inverse relationship between vehicle age and our auction recovery rates," he continued.

Financial Results

For the period, the company reported net income of $26 million, or $0.19 per share. It posted a net loss of $5 million, or $0.05 per share, for the same period a year earlier.

Officials noted that the net loss for the same quarter of last year was revised from a net loss of $2 million, or $0.01 per share, to reflect the retrospective adoption on July 1, 2009, of a new accounting standard that changes the accounting for convertible bonds.

Originations were $229 million for the quarter ended September 30, 2009, compared with $579 million for the same quarter last fiscal year. Finance receivables totaled $10 billion, compared with $14.1 billion.

Finance receivables 31-to-60 days delinquent were 7.6 percent of the portfolio, compared with 7.4 percent in 2008. Moreover, accounts more than 60 days delinquent were 3.8 percent of the portfolio, compared with 3.6 percent a year ago.

The allowance for loan losses as a percentage of finance receivables was 8.2 percent, compared with 8.2 percent at June 30, 2009 and 6.8 percent at September 30, 2008.

The company had total available liquidity of $704 million, consisting of $462 million of unrestricted cash and approximately $242 million of borrowing capacity on unpledged eligible receivables.

During the September quarter, AmeriCredit received a $113 million income tax refund. Subsequent to Sept. 30, the company received an additional income tax refund of $85 million, for a total refund of $198 million resulting from federal net loss carry-backs.

By about mid 2010, the management team expects to see sustained improvements in annual portfolio credit metrics as the company shifts past the peak loss periods for its more challenged 2006 and 2007 vintage originations.

"Our portfolio metrics will also increasingly benefit from the significantly better performance of our 2008 and 2009 vintages, which should ultimately prove to be among the best performing vintages in our history, even if economic conditions do not improve," Berce said on a positive note.

Chris Choate, chief financial officer, chimed in, saying that the company still anticipates breaching its performance triggers in most of its 2006 and 2007 insured securitization trusts and the rate of monthly cash distributions that the company receives will likely be reduced by about half of levels it would normally expect without the breaches. However, he indicated that AmeriCredit will continue to gain cash distributions from its senior-subordinated securitizations and insured securitizations that have not breached triggers, which is largely due to the avoidance of cross-collateralization of the securitizations.

He does not foresee the company needing to do another securitization before the end of calendar 2009, saying the capacity on AmeriCredit's master warehouse facility, combined with excess liquidity, is enough to support near-term origination objectives.

A Positive Outlook

Turning things back over to Berce, the CEO pointed out, "There continue to be significant positive signs of improvement in the auto asset-backed securitization market since we executed our securitization transaction in July. Each successive month since our transaction has seen better priced, better executed auto securitizations that have drawn a large number of traditional, non-TALF investors.

"We are increasingly confident that the auto ABS market will remain accessible even after TALF expires in March 2010," he continued.

Finally, Berce explained, "Our balance sheet is in the best shape it has been since the beginning of the recession with ample liquidity and sufficient warehouse capacity to support increased loan originations. With the steps we have taken to bolster our origination platform, we expect to continue to rebuild loan origination levels in the coming quarters despite relatively weak consumer demand for vehicles."