Ally’s Healthy Income Performance Continues
NEW YORK — Ally Financial had plenty of positive financial news to share Tuesday as executives announced the company posted its second consecutive quarter of profitability and its sixth profitable quarter in a row for its core automotive business.
Ally reported net income of $565 million for the second quarter of this year. That figure compared to a net loss of $3.9 billion for the second quarter of last year.
The company's core pre-tax income — which management said reflects income from continuing operations before taxes and original issue discount (OID) amortization expense from bond exchanges — totaled $738 million in the second quarter. Again the turnaround was significant since Ally posted a core pre-tax loss of $1.3 billion in the prior-year period.
Executives contend core pre-tax income during the quarter was driven by higher net revenue, a lower loan loss provision and a lower noninterest expense compared to the second quarter of 2009.
Ally also thinks its results were also positively impacted by certain factors that may moderate over the coming quarters. Those factors could include gains on the sale of auto loans under forward flow agreements, lease portfolio remarketing gains resulting from high used-vehicle prices, legacy mortgage loan sale gains and gains from the insurance investment portfolio.
"Ally made substantial progress in the second quarter with all operating segments posting a profit," stated Ally's chief executive officer, Michael Carpenter.
"Ally is a fundamentally stronger organization today than it was a year ago, and we are proud of our central role in the recovery of the U.S. auto industry," Carpenter continued.
The CEO elaborated about how he believes his company has helped the industry's ongoing revival.
"As a result of Ally's quick action and the U.S. government's financial support, approximately 1,400 Chrysler dealers, employing an estimated 70,000 people, were able to keep their businesses open and contribute to the stability of their communities," Carpenter stressed.
"Over the past 12 months Ally has financed 82 percent of the vehicles sold to nearly 5,000 GM and Chrysler dealers in the U.S. In addition, the company financed 700,000 new vehicles for GM and Chrysler consumers within the last year," Carpenter went on to highlight.
"In the first half of 2010, Ally's new consumer auto originations in the U.S. more than doubled compared to the first two quarters of last year to about 400,000 units, reflecting about eight times that of any other lender and demonstrating the company's leadership as a full service auto finance provider," he added.
Ally's Global Automotive Services
Beyond the overall figures Carpenter detailed, the company shared a second quarter financial update on Global Automotive Services, which includes North American Automotive Finance as well as International Automotive Finance and Insurance
Management indicated Global Automotive Services reported second quarter 2010 pre-tax income from continuing operations of $843 million. During the same quarter a year ago, the division posted $583 million in pre-tax income.
Ally pointed out the growth represents the sixth consecutive profitable quarter from the core automotive business.
Executives from North American Automotive Finance, which includes results for the U.S. and Canada, reported pre-tax income from continuing operations of $630 million in the second quarter. The figure is up from $451 million in the prior year period.
They explained the results were driven by strong growth in originations supported by improved penetration for GM and Chrysler, and remarketing gains due to favorable used-vehicle prices.
Meanwhile, officials of International Automotive Finance indicated pre-tax income from continuing operations of $105 million during the second quarter. It marked a jump from $33 million in the same period last year. They think the recent quarterly performance was favorably affected by a lower noninterest expense and a lower loan loss provision due to improving asset quality.
"Ally has significantly streamlined its international presence in recent years to focus on strategic operations and improve financial performance," said company officials, noting their international auto finance footprint currently consists of 14 countries with a focus on five core international markets. These five countries include Germany, United Kingdom, Brazil, Mexico and China.
Finally, Ally mentioned its insurance business reported pre-tax income from continuing operations of $108 million in the second quarter of this year. Again the sum represented another area of greater performance since the income total was $99 million in the prior-year period.
Officials explained their insurance income edged higher because of improved underwriting income due to lower expenses, partially offset by lower earned premiums on the extended service contracts written in prior periods.
"In addition, investment income remained strong during the quarter," the company pointed out. "Ally remains focused on streamlining its insurance segment to focus primarily on dealer-centric products, such as extended service contracts and dealer inventory insurance."
Update on Automotive Originations and Penetration
Moving on to other parts of Ally's second quarter financial report, the company shared figures concerning its originations and market penetration.
Executives determined total consumer financing originations during the second quarter were $10.7 billion. The total included $8.4 billion of new originations, $1.4 billion of used originations and approximately $900 million of new leases.
Comparing data from the second quarter of last year, Ally noted consumer financing originations totaled $6.1 billion, which included $5.3 billion of new originations, approximately $600 million of used originations and approximately $200 million of new leases.
Ally asserted growth in consumer financing originations was sparked by several factors. These elements include improved conditions in the market, increased consumer penetration rates for GM and Chrysler, higher used-vehicle originations and continued improvement in leasing levels.
The company also broke down its quarterly origination analysis by global region.
Ally's North American consumer financing originations in the second quarter came in $9.1 billion, which included $8.0 billion in the U.S. The company noted consumer financing originations in North America were $4.6 billion in the year-ago quarter, a total that included approximately $4.4 billion in the U.S.
Meanwhile, international consumer originations, which include Ally's non-consolidated joint venture in China, were $1.7 billion during the second quarter. It's a total higher than the prior-year quarter, which was $1.5 billion.
Ally stressed that international consumer originations continue to be driven by its five key markets with strong growth in China and Brazil. Quarter-over-quarter increases totaled 95 percent in Brazil and 83 percent in China.
In other details, Ally found that its U.S. wholesale penetration for GM dealer stock was 84.4 percent as of June 30. That's compared to the level on March 31, which was 87.7 percent, and the mark on June 30, 2009, which was 83 percent.
Officials explained U.S. consumer penetration for GM was 34.4 percent during the second quarter of this year. They noted how it's higher than the prior quarter when the percentage stood at 33.5 percent as well as during year-ago period when it was 30.6 percent.
The company went on to note GM consumer penetration levels in the U.S. remained stable despite lower incentivized originations, which dropped to 41.7 percent of new units in the second quarter. In the prior quarter, this was 46 percent while during the second quarter of last year it came in at 72.7 percent.
Turning to Chrysler, Ally indicated its U.S. wholesale penetration for Chrysler dealer stock was 74.9 percent as of June 30. The figure dipped some from March 31 when the company noted it was 76.4 percent
Executives said their U.S. consumer penetration for Chrysler during the second quarter improved significantly to 52.5 percent. In the first quarter of this year, the penetration level was 42.1 percent.
Global Automotive Delinquencies and Credit Losses
Ally's delinquencies from continuing operations came in at 2.93 percent in the second quarter. That's compared to 2.87 percent in the first quarter and 3.27 percent in the year-ago period.
The company defines delinquencies as the dollar amount of accruing contracts greater than 30 days past due.
"Delinquency trends remained relatively stable in the second quarter," Ally highlighted.
"This reflects improved economic conditions, continued focus on collection efforts and higher quality credit in more recent vintages. Excluding the Nuvell subprime legacy portfolio, delinquencies continued to fall on a sequential quarter basis," the company went on to note.
Elsewhere, management shared its annualized credit losses from continuing operations declined in the second quarter. It dipped down to 1.05 percent of average managed retail contract assets versus 2.04 percent in the prior quarter and 2.29 percent in the second quarter of 2009.
"The decline from the prior quarter reflects significantly lower losses in both the core auto portfolio and the Nuvell portfolio due to a favorable used car market, lower loss frequency, consumer loss recoveries and stronger performance on more recent vintages," executives explained.
"The Nuvell portfolio continues to run off, as the balance of its consumer auto portfolio declined to $3.1 billion at quarter end," they added.
Strategic Direction
Ally's leadership believes the company continued to make significant progress on its strategic initiatives during the second quarter. The initiatives include strong auto origination levels, ongoing cost reduction efforts, growth in the deposit base at Ally Bank, and the continued minimization of risk associated with the legacy mortgage business.
"While certain drivers of earnings in the first half of the year may moderate in the coming quarters, Ally expects that successful execution of its six priorities will lead to sustained positive core income going forward and aid in the timely repayment of the U.S. Treasury investments," company executives emphasized.
They went on to reiterate those key priorities:
—Become the premier global auto finance provider for dealers and consumers.
—Improve cost structure and efficiency.
—Improve access to the capital markets, our debt ratings and cost of funds.
—Fully transition to a bank holding company model.
—Improve liquidity position by building deposits at Ally Bank.
—Continue to de-risk mortgage business and define a viable long-term strategy for mortgage origination and servicing business.