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AmeriCredit Increases Originations and Dealers

April 27, 2010

Saying economic conditions have reached the optimal period for new loan originations, Dan Berce told investors and media outlets that AmeriCredit increased originations during the March quarter by $245 million. The company’s chief executive also said the finance company added 1,400 dealers since the December quarter.

AmeriCredit’s originations grew from $379 million in the December quarter to $624 million in the March quarter. And with credit performance continuing to improve, the company earned $63 million during the March quarter.

“The optimal period for new loan originations is at the inflection point where economic conditions begin to stabilize and improve,” Berce said during the company’s April 21 investor call. “We believe we are at that inflection point and, thus, have a unique opportunity to originate highly profitable loans that will generate solid returns in future years.”

Berce partly attributed the strong metrics to favorable seasonal trends and an improving economic environment, but said the company is also benefiting from steps it has taken since 2008 to improve overall economics of new loan originations.

AmeriCredit’s net losses for the period were 7.6 percent, down from 8.9 percent last quarter and 7.8 percent a year ago. Thirty-one to 60-day delinquencies declined to 5.3 percent from 7.7 percent last quarter and 6 percent a year ago. Additionally, accounts 60 days delinquent declined to 2.2 percent from 3.7 percent in the December quarter and 3 percent in the year-ago quarter.

Allowance for loan losses also decreased to 7.1 percent of ending receivables from 7.7 percent last quarter. Berce said he expects continued reductions in allowances for loan losses through the remainder of calendar year 2010 as the company’s portfolio increasingly shifts to a higher concentration of loans originated after the credit markets tightened.

“Our portfolio continues to shift away from the weaker 2006 and 2007 originations to an increasing concentration of more recent vintages,” said Berce. “Loans that we have originated since our credit tightening in the spring of 2008 are performing much better than our initial expectations, and may ultimately perform in line with or better than our 2003 production, which was the best in our history.”

Berce said the company is also benefitting from exceptionally strong used-vehicle pricing for repossessed vehicles, with the imbalance of supply-and-demand dynamics in the used-vehicle market continuing to push up pricing. Recovery rates on repossessed collateral, for instance, stood at 44.9 percent during the quarter compared to 42.2 percent last quarter and 39 percent a year ago.

“Consistent with the Manheim Index, which reached an all-time high reading in March, we saw extraordinary strong used-vehicle pricing for the month of March,” said Berce. “However, with an increase in manufacturer incentives on new cars, expected stabilization in the demand-supply dynamics, and the adverse effect of increasing age of vehicles we repossess and sell, we expect to see a moderation in recovery rates for the remained of the calendar year.”

As for its strong increase in originations, Berce said the company’s efforts to rebuild originations – including staffing increases, dealer additions and more competitive pricing – is beginning to pay off.

Aside from touting the success of its subprime subvention program with GM, which represented 10 percent of originations during the quarter, Berce said the company increased the number of producing dealers from 6,700 in the December quarter to 8,100 in the March quarter.

He added that the company selectively expanded its credit appetite in geographic regions where credit performance and economic conditions showed strength and stability. He added that the company will continue to monitor regional economic conditions to increase approval rates in specific geographic regions.

Declining costs of funds and favorable credit developments also helped to wet the finance company’s appetite, with annual percentage rates on new loan originations declining from 17.9 percent for the December quarter to 17.1 percent for the March quarter. Net acquisition fees also decreased from 1.6 percent to 1.0 percent.

“While pricing and fees have decreased, loan level returns have remained very attractive due to declining costs of funds and favorable credit development,” said Berce. “We are currently well-positioned with respect to loan pricing and terms, and, although we will continue to closely monitor market conditions, we do not anticipate making further notable changes to our loan programs in the new future.”

AmeriCredit ended the quarter with $748 million of available liquidity, consisting of $497 million of unrestricted cash and approximately $251 million of borrowing capacity on unpledged eligible receivables.

Berce said that the company did not have to borrow on its warehouse facility, which was renewed in February. The renewal increased the facility size to $1.3 billion, significantly lowered cost of funds and similar advance rate. If fully utilized, the facility could support $1.9 million of finance receivables, Berce said.

The company’s liquidity situation also benefited from a more favorable retail auto securitization environment, which allowed it to execute two subprime securitization transactions. The first, a $600 million transaction which closed in February, represented the first successful sale of a triple-B rated bond.

The second, a $200 million transaction that was insured by Assured Guaranty, represented the first insured securitization the company has executed since May 2008.  Berce said the relatively small transaction provided the company with insight into investor appetite for bond-insured transactions.

With the market improving, Berce said he expects to see a more moderate rate of origination growth in the June quarter, with origination levels for the remainder of 2010 expected to be slightly higher. Consumers, he added, will play a major role in the company’s origination strategy going forward.

“Competition remains rational and focused on the traditional competitive factors of pricing, loan structure and service levels,” said Berce, who expects the company’s portfolio to trough in the $8.5 billion range. “While consumer demand rose nicely during the month of March, demand remains constrained to historical levels and continues to be our primary near-term headwind as we seek to rebuild originations.”

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