GM Financial Set to Launch Commercial Lending for Dealers
SCOTTSDALE, Ariz. — General Motors Financial president and chief executive officer Dan Berce put a specific date on when GM dealers can use the company for their commercial needs, not just to finance subprime buyers.
Berce told an investor gathering last week that GM Financial's goal is to launch a fully capable commercial services platform on or about April 1.
"We've recently hired a number of experienced executives and staff from other captive finance companies. By full service, I mean we'll be able to do inventory finance, floor plan lending, real estate lending for facility upgrades and we'll make capital loans to dealers," Berce said during the Deutsche Bank Securities Leveraged Finance Conference.
SubPrime Auto Finance News first learned back in June that GM Financial was looking to get into the business of giving franchised dealers a choice for floor planning and more, besides Ally Financial.
"Ally Financial has served that market very well for GM dealers, but they do have 80 percent of GM dealer business," Berce acknowledged last week. "That's a situation where GM felt uncomfortable from a concentration standpoint, their concentration of risk. They felt they needed a solution there."
"The goal here again is not to supplant Ally since they have 80 percent market share," he went on to say. "But it is to have a platform of scale that's going to give dealers optionality and a choice, really create a competitive environment."
In July of last year, GM first announced it was acquiring AmeriCredit, which eventually became GM Financial. At the time of the all-cash, $3.5-billion transaction, the automaker saw the move as a way to drive more sales and meet consumer demand for leasing and non-prime financing.
The OEM officially completed the deal on Oct. 1.
Then this past March, GM Financial agreed to acquire FinanciaLinx Corp., one of the largest independent leasing companies in Canada.
GM Financial used the deal re-enter the country with lease offerings. While this deal was designed to support GM Financial's mission of serving GM and its dealers, the company also stressed that FinanciaLinx will continue its relationships with independent dealers as well.
FinanciaLinx was founded in 1999 and is based in Toronto.
"When General Motors was looking to find a solution for its auto finance needs having lost their captive capability, they really had two objectives," Berce recapped at the investor conference. "They wanted to make sure there was certainty of availability of credit throughout every economic cycle and across the various sectors of auto finance.
"The acquisition has been very successful in meeting some of GM's auto finance objectives," he added.
Along with leasing, Berce believes the automaker had an especially soft spot in terms of reaching subprime consumers until acquiring AmeriCredit.
"GM felt they were missing sales and that was an important part of their auto finance acquisition strategy," Berce stressed.
Berce continued his investor presentation by recapping GM Financial's most recent quarterly performance. The company watched both loan originations and net income rise and delinquent receivables fall during the second quarter.
Berce reiterated the company's second-quarter net income came in at $95.8 million, up from the year-ago figure of $85.5 million.
Looking at net income over a six-month span, the company generated $173.0 million. Through the first six months of last year, GM Financial posted $148.7 million in net income.
GM Financial determined its loan originations were $1.3 billion for the quarter that ended June 30, compared to $1.1 billion for the quarter that wrapped up March 31. During the second quarter of 2010, the company said its loan originations totaled $906 million.
While Berce conceded much of this growth stemmed from activity by GM franchised dealers, he added "the old AmeriCredit had a large used and new subprime business away from GM dealers. We've maintained that. One of the goals was to preserve that non-GM business. The growth is really going to come from the GM dealer side, but this aspect of business is very important to our bottom-line profitability."
The GM Financial boss then stressed the company is tasked with managing "our own profitability and credit," apart from the automaker.
"GM has drawn a pretty bright line between what they're making on motor company sales and what we're doing on the finance side," Berce shared. "I can tell you in the course of a year we've not had one request or suggestion to buy deeper or charge less. It's a complete arm's length's arrangement. If GM does want us to charge less, they have to pay us through subvention dollars just like they would any other third party."
Berce wrapped up his presentation by touching on some broad industry trends, looking specifically at the subprime market.
"In the payment hierarchy, the auto payment is by far the most important, supplanting mortgage or rent," Berce surmised. "I think consumers are valuing the fact they have to have transportation today whereas on the housing side they can move in with family, rent or downsize. They have a lot of choices there, but they don't have a lot of choices in terms of transportation needs. That's driven some good behavior.
"Consumers especially on the subprime side, there is a lot of deleveraging going on," he continued. "It's much more pronounced in our sector than even the prime and super-prime. As you go down the credit score, that consumer is behaving better in terms of managing their debt and they're valuing their credit like we've never seen happen in our 20-year history.
"A good indicator of that is when we do have a default, and we repossess the car, we're having a record number of consumers come up with the money to get that car back," Berce shared. "With tighter credit, they couldn't go out and get the same car they could four years ago."