Why is a captive finance arm such as GM Financial vital to a serious automaker? Just ask a Ford, BMW, or Toyota dealer or a dealer’s F&I manager — the person ultimately responsible for getting a car deal funded — and they’ll tell you. It all comes down to a matter of best interests: while independent banks are ultimately responsible for their own well-being and that of their shareholders, the primary mission and purpose of an automaker’s finance division is to support the brand/automaker.
Approving Tough Deals
The difference is most noticeable on uncertain or tough deals: whereas an independent might pass on approving the financing for a deal, a captive will likely make it work.
In other words, GM Financial can help GM sell more cars by taking on paper for tough deals.
Driving Customer Loyalty
Captives also carry another benefit in that they tend to be capable of driving customer loyalty. By having the majority of its leases in-house through GM Financial, GM will be able to have a greater degree of control of customer data.
The practical benefit here is simple: by controlling the data, GM will:
- Have the most up-to-date contact and residence information
- Know exactly how much the customer owes on their vehicle during a finance and lease term, and mine this data for equity positions, thereby having a better chance of keeping off-lease customers
Both of those can apply to used vehicles as well, allowing GM to potentially turn used GM vehicle owners into new car buyers at a particular point during their finance cycle.
Addressing A Competitive Disadvantage
The creation and full-scale utilization of GM Financial addresses a competitive weakness that has been tormenting the automaker since its separation from former captive GMAC, which later became Ally.
“We believe our strategy to leverage [GM Financial] will enable us to deliver significant benefits to you, your customers, and GM,” The General told dealers in a letter.
In fact, Morgan Stanley analyst Adam Jonas wrote in a research note to investors in 2014 that GM dealers “remain at a material disadvantage with the likes of Ford, Toyota and VW” because GM lacks a strong captive-finance unit. Jonas estimated that this costs GM about 2 percentage points of U.S. market share, which was 17.8 percent in 2014, down 0.1 percent from 2013.