GM Financial Discusses Acquisitions, New Prime Finance Product
GM Financial officials discuss the company’s recent acquisitions of Ally Financial’s European and Latin American business entities, as well as its entry into the prime market in 2014.
FORT WORTH, Texas — During its quarterly investor call today, General Motors Financial Co. talked about its April 1 purchase of Ally Financial’s financial services business in Europe and Latin America. The captive also announced it will be rolling out a prime retail financing product in 2014.
The transaction, priced at approximately $2.4 billion, did not include Ally’s France and Portugal operations, as well as its business in Brazil. But GM Financial expects to acquire those entities in the second quarter.
GM Financial officials, who hosted the conference call to report the company’s performance for the quarter ending March 31, also talked about their interest in the prime marketplace. Dan Berce, president and CEO, said General Motors’ purchase of AmeriCredit back in 2010 is what’s fueling its interest in the prime market
“We’ve obviously been a subprime specialist for 20 years-plus. I can tell you that business is much harder to execute than prime in a lot of respects. Subprime is a high-touch business, prime is a no-touch business,” he said, explaining the differences between the two markets.
“We, until recently with GM’s acquisition, haven’t had a consumer brand to protect and build loyalty,” he continued. “On subprime, that wasn’t as important.”
As for its quarterly performance, company officials announced earnings of $106 million for the quarter, compared to $112 million for the year-ago quarter.
Consumer loan originations were $1.4 billion for the quarter vs. $1.2 billion one year ago. The outstanding balance of consumer finance receivables totaled $11.2 billion.
Lease originations of GM vehicles were $620 million for the quarter, up from $265 million for the prior quarter and$384 million for the year-ago period. Lease vehicles, net, totaled $2.1 billion. Berce added that GM’s lease penetration sits around 21 percent.
Berce also reported an uptick in delinquencies, with consumer finance receivable 31-to-60 days delinquent rising from 3.2 percent in the year-ago quarter to 4.3 percent of the company’s portfolio during the quarter ending March 31. Accounts more than 60 days delinquent were 1.5 percent of the portfolio for the quarter vs. 1.2 percent from a year ago.
Liquidity for the quarter totaled $3.3 billion, consisting of $2.9 billion of unrestricted cash, approximately $108 million of borrowing capacity and unpledged eligible assets, and $300 million on a line of credit from GM.
Berce said consumer behavior has been extraordinary on the auto side, but noted that behavior in terms of spending is beginning to normalize as people get more equity in their home. From a historical perspective, he said performance remains exceptional.
The company’s chief executive also noted that competition is heating on the used-car finance side of the business, driven mainly by new entrants into the market through startups and capital formations.
“That’s mainly at the bottom end of subprime, maybe not in the sweet spot,” he said of the competitive environment. “Nevertheless, I think that trend will get more intense over the next 18 months.
“We’re a captive,” he said, adding that the company’s main mission is to support GM vehicle sales. “If we end up losing some share on the used side, so be it.”
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