Back in October 2010, General Motors bought AmeriCredit — an independent lender specializing in subprime loans — for $3.5 billion. Soon after, The General began to turn the recently-acquired firm into a full-fledged captive finance arm, renaming it GM Financial in the process. Four years later, the stage is set, with GM Financial finally offering a full range of financial products to General Motors dealers. Thanks to all this, the subsidiary’s CEO is forecasting a “tremendous amount of growth” in 2015.
“Over the last four years, we’ve been building our capabilities in areas like loan, lease and dealer-lending products like floorplanning,” GM Financial CEO Dan Berce told Automotive News. “Now that we have all our capabilities built up, we will be able to grow our finance penetration at a better rate going forward.”
The growth opportunity for GM Financial is unmistakable. Berce said that in Q4 2014, GM Financial financed roughly 10 percent of all GM’s new-vehicle loans and leases in the United States. By comparison, a typical captive automotive finance arm has a penetration rate of over 50 percent, he said.
Berce says that GM Financial has spent the last four years developing its product capability. After being acquired by GM, the first thing GM Financial did was to offer a lease, an entirely new product category for the sub-prime-focused AmeriCredit. In fact, it was able to roll out a lease product within 90 days after being acquired by GM.
By July 2011, GM Financial was offering a range of lease products covering every consumer demographic. In 2012, it introduced a floorplanning product for dealers to purchase inventory. The floorplanning product brought with it supplementary products for dealers, such as real estate loans and lines of credit.
It took GM Financial a little longer to begin offering financing for customers with prime credit, as it only rolled out its first lease program for business customers in September and a prime loan offering on November 1st, 2014 to all GM dealers. Though it’s still early for both programs, both are “going well”, according to Berce. Meanwhile, a lease program for municipal fleets will become available early next year.
GM Financial is also expanding internationally, having recently taken over the automotive lending operations of GMAC/Ally in Latin America and Europe.
And as GM expects an uptick in automotive sales across the industry in 2015 over 2014, the growth opportunity for GM Financial is two-fold:
- From the anticipated growth rate of vehicle sales overall, and
- By increasing its finance penetration in GM sales channels
Berce is patient about increasing the firm’s business loan and leasing business, saying “We don’t expect the penetration to get from that 10 percent number to 50 percent overnight”.
As with other kinds of business, GM Financial’s growth rate will hinge on competition and the ways in which other lenders, such as former GM captive arm Ally (previously GMAC), serve The General’s dealer network.
The pace of GM Financial’s growth will depend on competition and how other lenders are serving GM, as well as the level of incentives that GM offers at any given time for loans or leases. And the upgrade to investment grade by Standard & Poor’s in September definitely can’t hurt. In fact, Berce looks at it as a catalyst for growth.
“If you look at GM Financial today, we have a full suite of products that any other captive would have — meaning loans from subprime to prime, a full spectrum of leasing and all the dealer finance products,” he said. “It took us literally four years to get to this point because we had to build out a lot of infrastructure, do a lot of systems work, hire a lot of people and expertise.”