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GM Financial Pilots Prime Product

May 01, 2014

FORT WORTH, Texas — GM Financial’s Dan Berce noted during the captive’s quarterly investor call last week that while competition remains intense, there were signs during the opening quarter of 2014 that competitive conditions are beginning to stabilize after intensifying for most of 2012 and 2013.

The company’s president and CEO also revealed that the finance source began piloting a prime lending program in the first quarter, as well as expansion of the captive’s near-prime subvention program in anticipation of a full prime launch this summer. Berce also noted that the company’s credit metrics remain at historic lows in all of the company’s major markets.

“We at GM Financial … have maintained credit and pricing discipline,” Berce said. “We haven’t made any changes to our credit policy of any meaningful way in the subprime area.”

The captive reported earnings of $145 million for the quarter ending March 31, 2014. On a pretax basis, earnings were up $50 million from a year ago to $222 million.

Consumer loan and lease originations totaled $4.2 billion, while annualized net credit losses accounted for 1.85% of average consumer finance receivables. The company also reported earning assets of $35 million.

Consumer loan originations in North America totaled $1.365 billion during the quarter, marginally higher than the year-ago period. Outstanding balance of consumer finance receivables totaled $24.1 billion. Credit losses for the quarter were 1.8% of average consumer receivables for the quarter, compared to 2.6% one year ago.

Annualized credit losses for North America as a percent of average consumer finance receivables were 3.1%. Consumer receivables 31-to-61 days delinquent accounted for 3.1% of the captive’s portfolio during the quarter, compared to 4.3% one year ago. Accounts more than 60 days delinquent were 1.4% of the portfolio (down from 1.5%), while accounts 31-to-60 and more than 60 days delinquent for North America were 5% and 1.8%, respectively.

Berce reported that the captive’s share of GM subprime in the U.S. market was 31.8%, slightly down from a year ago. “In today's low rate interest environment, we do see bank rates at the upper end of subprime being competitive with our subprime rates, so that did account for some of our erosion in market share,” he explained, noting that GM’s sales penetration in that segment was 7.9% for the quarter. “Nevertheless, because GM's subprime share is still at industry-leading levels, we feel we've accomplished our mandate by creating a competitive product in subprime.”

GM Financial’s share of U.S. leasing was 17%, which Berce said was nearing the firm’s goal of 20% share of the U.S. leasing market. “This is a bright spot for us,” he said. “Our lease portfolio has now reached $3.7 billion in North America.

“We particularly had a good quarter in Canada this quarter, originating a little more than $250 million of new leases,” he added, noting that lease penetration in that market exceeded the industry average of 22.9%. “That was primarily because of outstanding lease support from GM in Canada and our introduction of a biweekly pay option, which has been received by the market quite well.”

Lease volumes in the U.S. market were flat year over year at $519 million, compared to $535 million a year ago. “Credit performance in this portfolio remains exceptional, primarily due to the prime nature of this portfolio.”

Berce said the captive’s commercial lending segment in North America continues to see steady progress. It currently counts 336 dealers in the U.S. and Canadian markets, with outstanding totaling slightly less than $2.2 billion. “We do believe, with the rollout of our prime product this summer, that will help our progress here,” Berce noted. “Dealers continually tell us that they would like to have a single source for all of their needs … And with prime, we will, for the first time, have a complete product suite, and, therefore, we think we will get more adoption of all our products toward the end of 2014 and 2015.”

Total available liquidity during the quarter was $3.8 billion, consisting of $1.2 billion of unrestricted cash, $1.4 billion of borrowing capacity on unpledged assets, $583 million of borrowing capacity on unsecured lines of credit, and $600 million of borrowing capacity on a line of credit from GM.

Berce said the company does intend to access the unsecured markets in 2014, possibly in the summer to early fall months in the United States. He added that the captive does plan to develop a securitization platform for the company’s floorplan assets and said the firm will access the ABS market later this year with an inaugural issuance.

“We’re off to a good start in 2014 with solid earnings in the March quarter, led by volume growth and favorable credit quality,” Berce said. “Our business has lots of momentum in all of our key markets. In north America, we will be expanding our share of leasing and commercial lending over the course of 2014, and we are in the process of rounding out our product line with the launch of prime lending in the U.S. [market].”

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