GM Financial Doubles 3Q Net Income
FORT WORTH, Texas — With hopes of still increasing its U.S. lease volume, nearly every element of General Motors Financial's balance sheet improved during the third quarter, resulting in a net income total that doubled from the same quarter a year earlier.
The company revealed earlier this week that its third-quarter net income came in at $109 million, a sharp jump from the year-ago figure of $51 million.
Through the first nine months of 2011, GM Financial generated $282 million in net income. During the same span a year earlier, the company posted $200 million.
The company said its third-quarter loan originations edged higher both quarter-over-quarter and year-over-year. During the third quarter, originations totaled $1.4 billion after coming in at $1.3 billion in the second quarter and $959 million in the third quarter of last year.
President and chief executive officer Dan Berce highlighted the percentage of third-quarter loans for new GM vehicles increased to 31 percent of total loan originations from 30 percent in the second quarter and 16 percent from a year ago.
"GM's current subprime loan penetration of 6.6 percent has increased from 4.8 percent a year ago and is substantially higher than the industry average of 5.1 percent," Berce pointed out.
Similar to last quarter, Berce noted new vehicles made up 48 percent of total loans originated during the third quarter. He added average APRs were 14.4 percent for loans originated during the quarter, down slightly from 14.6 percent in the second quarter.
"As a reminder, substantially all of our GM new vehicle originations are subvented," Berce stressed.
"Upfront cash subvention payments from GM offset the lower interest rates we charge consumers on subvented loans and provide us appropriate targeted loan level returns considering the underlying risk profile of the customer," he continued.
Looking at loan originations for the first nine months of this year, GM Financial posted $3.8 billion, up from $2.5 billion a year earlier.
GM Financial indicated finance receivables totaled $9.4 billion as of Sept. 30.
Update on Leasing Performance
Moving next to a discussion about leasing, the company determined lease originations of GM vehicles totaled $189 million during the third quarter, higher than the second-quarter amount that was $173 million.
Berce highlighted GM Financial's third-quarter U.S. lease origination volume came in at $32 million.
"Although we fully expect U.S. lease volume to fluctuate from period to period based on competitive factors and the level of manufacturer incentives, our recent lease volume is below what we consider optimal levels," Berce acknowledged.
"Looking ahead, we will continue to work with GM to develop more attractive lease offerings to generate sustainably higher volumes," he continued.
"Our Canadian lease program continues to gain broader acceptance among GM dealers and customers," Berce interjected.
GM Financial reported its third-quarter Canadian lease originations totaled $157 million, up from $107 million during the second quarter.
Berce pointed out the company's Canadian lease penetration is up to 9.4 percent from 3.9 percent prior to GM Financial's entry into the Canadian market in April.
"Over this same time period, industry lease penetration in Canada actually declined," Berce emphasized.
"Prospectively, we anticipate that we will continue to see steady growth in Canada as GM's lease penetration migrates toward industry levels which are in the 15 to 20 percent range," he projected.
Altogether for the first nine months of this year, the company said lease originations of GM vehicles totaled $672 million. A year earlier, the level stood at $564 million
Company Delinquencies and Charge-offs
GM Financial calculated finance receivables 31-to-60 days delinquent were 4.7 percent of the portfolio at the end of the third quarter, down from 6.2 percent a year earlier.
The company added accounts more than 60 days delinquent were 1.7 percent of the portfolio at the close of the third quarter, compared to 2.5 percent a year ago.
Meanwhile, executives indicated their annualized net charge-offs were 3.0 percent of average finance receivables for the quarter that ended Sept. 30, compared to 5.4 percent a year earlier.
For the nine-month span of 2011, the company's annualized net charge-offs settled at 3.1 percent, lower than last year's level of 5.8 percent.
"Credit performance for the September quarter, while reflecting typical seasonal trends, remains historically strong," Berce stressed.
"Annualized net credit losses for our loan portfolio were 3.0 percent, up from 2.4 percent in the June quarter and down from 5.4 percent a year ago," he reiterated. "Delinquency within our loan portfolio also followed typical seasonal patterns, increasing from June 30, but improving significantly from a year ago. Credit performance on new GM vehicle loans is largely in line with overall loan portfolio performance and expected performance by custom score.
"Our lease portfolio continues to perform consistent with the prime quality of our lease customer base with just 4 basis points of lease accounts that were greater than 30 days delinquent," Berce went on to share.
For the third quarter, Berce noted recovery rates on repossessed vehicles averaged 55 percent.
"Used-vehicle values remain strong, largely based on the relatively tight supply of vehicles being sent to the wholesale market. The Manheim Used Vehicle Index has declined over the past few months, possibly indicating a peak and leveling of recovery rates," Berce surmised.
"Overall, we believe the exceptional credit trends we have seen have likely troughed and performance may gradually normalize to historical levels, particularly given the cyclical expansion of industry-wide credit risk appetite over the past few years since the credit tightening of 2008 and 2009," he went on to say.
Liquidity and Outlook Update
In another element of its balance sheet, GM Financial indicated it had total available liquidity of $1.5 billion as of Sept. 30, consisting of $307 million of unrestricted cash, approximately $860 million of borrowing capacity on unpledged eligible assets and $300 million on a line of credit from GM.
"At Sept. 30, leverage remained unchanged at 3.7 times managed assets to tangible equity, well below our target leverage range of six to eight times," explained GM Financial chief financial officer Chris Choate.
"As our portfolio grows and we access the unsecured debt markets more frequently to support that growth, we will move towards our target range over time," Choate added.
As previously reported by SubPrime Auto Finance News, Berce reiterated as GM Financial shared its third-quarter financial performance that the company is on track to launch its suite of commercial lending products for GM dealers in April.
"We have selected partners to assist us in developing the commercial lending platform and are building out the details of our product offerings and infrastructure in anticipation of the product launch," Berce stated.
"We are seeking to develop broad-based commercial lending capability and sufficient scale to provide GM dealers with a viable financing alternative," he continued.
"Again we are not seeking to be and do not need to be the dominate provider for GM dealers to achieve this goal," he added.
Berce wrapped up his commentary on the third-quarter by giving a broad overview of the company's performance and objectives.
"In one short year as General Motors' new finance arm, we have made significant progress in our efforts to provide GM dealers and consumers with more financing options — we have expanded the availability of our subprime loan products to more GM dealers in the U.S. and launched our lease programs in both the U.S. and Canada," Berce emphasized.
"Our efforts have helped increase GM's market penetration in each of these financing markets," he continued. "We will keep building on these strong results to generate growth and profitability in the future. We have a tremendous team of people, the support of a strong parent company and a business model that works extremely well.
"We are confident in our ability to execute the fundamentals and maintain focus on delivering competitive financing programs to both GM and non-GM dealer partners — while at the same time exploring new opportunities that will generate solid returns in future years," he concluded.