February 27, 2014 at 9:46 am

GM to beef up its financing arm

General Motors Co.’s captive finance company, known primarily for issuing auto loans to borrowers with less-than-stellar credit, has big growth plans this year — including offering car loans to U.S. customers with prime credit beginning this summer.

General Motors Financial Company Inc., established in fall 2010 when GM acquired AmeriCredit Co., is broadening its services.

“Obviously the core of the business when we acquired it was subprime,” GM President Dan Ammann, who oversees GM Financial, told reporters last month. “We now have a full-scale leasing capability, full-scale floor plan and dealer financing capability, the overall wholesale financing side of the business. So what’s left obviously is the prime retail loan piece, and we expect to move into that market through the course of this year.”

GM Financial President and CEO Dan Berce said auto loans for the most credit-worthy buyers will roll out in mid-summer, following requests from dealers who wanted to work with a single lender. About 300 GM dealers in the U.S. finance vehicle inventories through GM Financial. Those dealers will be the first to be able to offer GM Financial prime loans to customers, Berce said.

“We would expect to see pretty meaningful growth, at least in absolute dollar terms, over the next few years,” Berce said in an interview.

GM Financial also plans this summer to introduce loans and leases for small businesses who want to buy a small fleet of vehicles, Berce said.

Some analysts say that GM’s lack of a full captive finance company hurts its sales and earnings. Morgan Stanley analyst Adam Jonas, in a research note this month, said the automaker may have given up as much as 2 percentage points of U.S. market share because it doesn’t have a “mature” finance company. GM’s U.S. market share last year was 17.9 percent, flat from the year before.

Before GM’s 2009 bankruptcy, the automaker offered auto loans and leases to customers and dealer financing primarily through GMAC, once its in-house captive finance company; the Detroit automaker sold 51 percent of its stake in GMAC in 2006. In 2009, the federal government invested in GMAC — which later was renamed Ally Financial Inc. — and it served as preferred lender for GM and Chrysler Group LLC. GM sold its final 8.5 percent share of Ally in December.

The bulk of GM dealers use Ally to finance vehicle inventories. Many use Ally to offer loans and leases to GM customers, though GM also works with other banks. In fourth-quarter 2013, nearly 65 percent of GM dealers in the U.S. financed their inventories through Ally, down from more than 69 percent at the end of 2012.

Jonas said growing GM Financial to capabilities it had under GMAC would take one or two automotive cycles, or as long as 15 years. “An organic solution must accept continued share losses to peers who can offer a full suite of captive finance products,” Jonas wrote.

“GM argues it doesn’t need a full-line (finance company), a sentiment that strongly conflicts with the opinions of competitors with large captives,” Jonas wrote. “Try asking Ford what life would be like without Ford Motor Credit.”

Ford Motor Credit had pre-tax income of $1.8 billion in 2013, up from $1.7 billion in 2012. Net income was $1.5 billion in 2013, up from $1.2 billion in 2012.

Berce said GM Financial has goals to boost its market share of GM dealers who finance floor plans through GM Financial from the upper single digits to 20 percent within a few years. GM Financial also holds about 20 percent market share for GM’s U.S. leases.

“Our prime goal would be similar, to get to that type of penetration,” Berce said.

Ally Financial spokeswoman Gloria Proia said the auto finance sector is competitive and Ally continues to diversify its business. “We value the relationship we have with GM and its dealers and will continue to offer them products and services to support the sale of GM vehicles, alongside GM Financial and other finance providers,” she said in an email.

GM Financial serves about 830,000 customers and provides auto finance services to more than 13,000 dealers.

Last year, GM Financial added auto lending and services in several European and South American countries. GM Financial acquired those operations from Ally. GM expects to spend about $700 million this year to acquire Ally’s joint venture interest in China, GM’s largest sales market.

GM said the Ally acquisitions will give the company financing capability to serve customers and dealers in markets comprising about 80 percent of GM’s global sales.

GM Financial earned $566 million last year, up from $463 million in 2012. Before taxes, GM Financial earned a record $898million in 2013.

Analysts expect GM Financial earnings will be flat this year, despite growth from the international side. GM Chief Financial Officer Chuck Stevens told analysts this month that costs to build its U.S. business and integration expenses with the international units will keep profits down this year.

“With the launch of prime (auto loans), we’ll have the optionality to get more share and become a more meaningful piece of GM’s business going forward,” Berce said.

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