Ally Increases Used, Nonprime Originations With Loss of GM Lease Business
Ally’s second quarter originations were flat from a year ago despite the loss of General Motors’ lease business, with the company shifting its origination mix toward used and nonprime.
CHARLOTTE, N.C. — In its full first quarter since losing General Motors lease business, Ally’s auto originations remained relatively flat from a year ago at $10.8 billion. Excluding GM subvented business, originations were up 36%, driven by the firm’s standard rate business, used-vehicle financing and nonprime originations.
Company officials noted that Ally booked more than $20 billion in originations during the first half of 2015, with officials confident the former captive will deliver originations in the high $30 billion range for the full year.
“The auto finance franchise is a formidable competitor …,” said Ally CEO Jeff Brown. “Results this quarter are another demonstration of it.”
Brown noted that the strong start in originations will allow the finance source to be more selective in terms of what it puts on its balance sheet over the remaining five to six months of the year. “The business continues to be more diversified, including from a channel, mix and product perspective,” Brown said, “and we believe this is a better mix of assets given our macroeconomic outlook and auto-specific supply trend."
Auto balances were up more than $2.6 billion year over year and $3.3 billion on a quarter-over-quarter basis, with CFO Chris Halmy noting the trend will continue as the company’s origination mix shifts to more loan vs. lease and its auto loan portfolio grows.
GM-related loans accounted for less than half of the bank’s second-quarter originations, while Chrysler-related originations showed gains. Used-vehicle originations were up 29%, while 14% of Ally’s second quarter originations were nonprime — up about 9% from a year ago.
“This is consistent with our recent focus on capturing more profitable loans in this segment, and we continue to be very comfortable at these levels,” Halmy said. “Year to date, our $20.6 billion of originations is up 3% year over year and puts us well on track to achieve our target of high $30 billion of auto originations in 2015.”
Ally posted net income of $182 million, down from $323 million in the second quarter. Officials attributed the decrease to a $155 million charge related to debt repurchases. Core pre-tax income was $435 million for the quarter, up from $417 million in the year-ago period. Net financing revenue was $927 million, up 8% from the prior quarter.
Auto finance reported pre-tax income of $401 million during the quarter, down from $461 million in the year-ago quarter. Officials said the decline was primarily driven by lower net financing revenue related to the expected lower net lease revenue. Provision expense increased — primarily as a result of growth in retail originations — while Ally’s consumer auto coverage rate for loan losses remained relatively flat year over year.
Executives also reported solid credit performance during the quarter. Consolidated charge-offs declined seasonally to 39 basis points, primarily driven by retail auto charge-offs. Retail auto losses declined 65 basis points, with Halmy noting that the decline should be a seasonal low point for the year.
The finance source’s 30-day delinquency rate was within seasonal expectations, according to officials, increasing to 2.29% of open automotive loans. “The first quarter is typically the low point for the year, so you should expect delinquencies to continue to increase throughout the year,” Halmy noted.
The company’s insurance business unit reported pre-tax income from continuing operations of $15 million during the quarter, compared to a pre-tax loss of $23 million in the year-ago period. Officials said the increase was driven by underwriting income resulting from improved weather losses which were in line with historical trends. This was also the quarter in which the bank rolled out its flagship service contract, Ally Premiere Protection. It launched nationally in June, with the product’s rollout expected to continue through 2016.
Ally also forged a new captive relationship with Aston Martin in May. Through the agreement, Ally made available its services and product offerings, including retail and lease financing to Aston Martin U.S. dealer network. The company is also offering its wholesale financing and remarketing services to the OEM’s U.S. dealers.
Ally’s Brown said that while the company lost some GM floorplan accounts to GM Financial, it was able to pick about 275 new accounts in the past year. “So we’re making progress on that front,” he said.
Asked why GM dealers would stick with Ally, Brown said, “I think it’s the comments that we tried to make about the experience of this associate bases, and the adaptability of the associate base. We’ve also talked in the past about Ally dealer rewards being a key way to get dealers to kind of keep their business with us … and we’ve worked with dealers to make sure we can get a better look or better mix or originations.
“So while lease, for example, is now completely gone away, what we have seen is an uptick in the amount of the standard rate business, the used business, the nonprime business that our GM dealers have given us,” he added. “I’m not going to deny that we’ve lost some accounts to [GM Financial], but I feel very good. And obviously, GMF continues to still build out. They’re hiring folks and so, through time, we’ll see what it’ll lead to. But the GM dealer relationships we’ve had are exceptionally sold.”
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