Ally Financial Inc., the U.S.-owned lender preparing for an initial public offering, is bolstering ties to General Motors Co. dealers amid signs the automaker may become a rival in vehicle financing, Bloomberg News reported.
CEO Michael Carpenter held dealer meetings in several cities and broke custom by scheduling a first-ever event at the National Automobile Dealers Association (NADA) in San Francisco this month that didn’t include executives of GM, the biggest U.S. car manufacturer, or Chrysler Group LLC, said Gina Proia, an Ally spokeswoman.
Ally, the biggest U.S. new-car lender, started as a GM unit and still gets most of its business through GM and Chrysler dealers. With an IPO in the works, Detroit-based Ally wants to assure investors those dealers will remain customers for years to come, said Maryann Keller, an auto industry analyst. GM is expanding its own finance operations, marked by last year’s $3.3 billion purchase of AmeriCredit Corp.
“The number one question Ally will have to answer on the roadshow is how they can go public if their number one customer is moving away from them,” said Keller, principal of a self- named consulting firm in Stamford, Conn. “They’re going to have to tell a story about what their business model is going to be.”
At stake for Ally is almost $23 billion in U.S. retail contracts as of last year on 803,000 new vehicles. Carpenter, 63, also faces encroachment from traditional lenders like Capital One Financial Corp., which caters mainly to retail customers, and JPMorgan Chase & Co., which is targeting dealers. That’s home turf for Ally, formerly known as GMAC Inc., the largest source of funds for GM dealers and customers such as Thor Industries Inc.
GM acquired AmeriCredit to help the automaker offer credit to more consumers, Dan Ammann, GM’s vice president of finance, said last year. Renamed General Motors Financial Co., the unit has expanded since the takeover and may increase loans to borrowers with lower credit scores.
GM Financial started a trial leasing program in Ohio late last year and expanded to seven states in the Northeast in January. GM may also challenge Ally’s hold on dealers by lending them cash to purchase inventory, said Duane Paddock, chairman of GM’s National Dealer Council. Ally dominates that business, providing “floor-plan” funds to 82% of GM dealers and 76% of Chrysler dealers, according to the lender.
“We have assumed that GM Financial would become a floor- plan source,” said Paddock, who owns a Chevrolet dealership in Kenmore, New York, and is co-chairman of the national dealer council’s finance committee. “GM said never say never, but certainly not today. It’s not going to happen any time soon.”
The automaker’s management also has debated buying all or part of Ally, a discussion that began before the AmeriCredit purchase, three people with knowledge of the discussions said in May. CFO Chris Liddell said in June that it doesn’t make sense to carry billions of dollars in lending assets on the automaker’s books.
There are no current talks about a sale between GM and the U.S. Treasury Department, which owns 73.8% of Ally after a series of bailouts totaling $17.2 billion, said two people with knowledge of the company’s plans. They declined to be identified because acquisitions are confidential. GM sold 51% of GMAC in 2006 for $7.4 billion to a group of investors led by Cerberus Capital Management. The bailouts have since diluted that stake to 7.8%. GM still controls about 9.9%.
Renee Rashid-Merem, GM’s spokeswoman, declined to comment, while Ally’s Proia said the relationship with GM “is an important and mutually beneficial strategic alliance.” Mark Paustenbach, a Treasury spokesman, said he couldn’t comment.
Other lenders are also making a push to expand their dealer business. JPMorgan has become more aggressive in lending for dealer inventory, said James Wood, who attended a meeting with Ally executives on Feb. 17 in Dallas and owns dealerships in Decatur and Denton, Texas. Capital One CEO Richard Fairbank said in a January earnings call that the McLean, Virginia-based lender has increased auto lending by “deepening dealer relationships.”
Mary Kay Bean, a spokeswoman for New York-based JPMorgan, declined to comment on whether the lender is increasing the financing or products it provides to GM and Chrysler dealers.
GM also offers leasing programs through U.S. Bancorp and in May 2010, Chrysler partnered with Santander Consumer USA, a division of Spain’s biggest bank, to offer loans to less creditworthy borrowers.
Laurie Kight, a spokeswoman for Santander Consumer USA, confirmed the company’s agreement with Chrysler and said the lender didn’t have similar agreements with other manufacturers.
The meeting at NADA, billed as the “automotive industry event of the year,” and the U.S. tour may mark Ally’s response to heightened competition, said Adam Steer, an analyst at New York-based CreditSights Inc. In the past year, Ally has also moved away from an almost total reliance on GM and Chrysler, expanding to serve Saab Automobile AB and Thor Industries Inc.
The shift at the San Francisco convention was having “our own meeting” to give everyone an update on the company as it sharpens its focus on auto lending, Proia said. In past years, Ally would have met with dealers in events hosted by automakers or other companies rather than hold its own, she said.
“The main motivation for doing this is to provide dealers specific information about Ally and what we are doing to support their business and show our commitment,” Proia said.
Ally made more new-car loans than any other lender last year, according to Experian Automotive, a Costa Mesa, Calif.-based firm that tracks auto-lending data. The company controlled about 38.2% of GM consumer loans and 45.4% for Chrysler at the end of 2010, according to a statement.
On the tour to meet dealers, Carpenter made the case that Ally’s status as a bank holding company will mean it can borrow money more cheaply than non-bank finance companies and finance the purchase of dealer inventory at lower rates, said Jim Hardick, co-owner of Moritz Chevrolet in Fort Worth, Texas, who attended the Dallas meeting.
The lender can finance dealer inventory at about 2.25%, said Tom Durant, owner of Classic Chevrolet in Grapevine, Texas. Before Ally became a bank holding company, GMAC loaned his dealership wholesale financing at 3.75%, Durant said.
“They’re trying to get the dealers on their side,” Durant said. “This has more to do with their IPO than it does with dealers.”
Ally Financial Inc. wrote almost half of the loan and lease contracts on new General Motors Co. vehicles sold in the United States in the fourth quarter of 2010, Automotive News reported.
The 49.7% penetration for GM vehicles was up from 34.2% in the third quarter of last year and up from 30.3% year-over-year.
The jump in GM penetration took place as Ally’s global auto finance and insurance business more than doubled its fourth-quarter income year-over-year to $765 million, from $283 million. The company, in a statement today, attributed the growth to lower loan losses, a rise in retail loan volume and a stable wholesale finance business.
The North American auto finance business reported pretax income of $589 million for the quarter, up from $343 million year-over-year.
Ally is the reorganized and renamed banking entity that was GM’s longtime captive lender, GMAC Financial Services. GM and its trust fund still control about 9.9% of Ally’s common stock. The U.S. Treasury Department controls 73.8% of the stock.
No finance incentives
The increase in penetration was significant because it was achieved primarily without the finance incentives Ally offers through an exclusive preferred lender contract with GM. The contract is to expire in 2013.
“Today we are not dependent on it for our success in the marketplace,” CEO Michael Carpenter told analysts in Ally’s fourth-quarter conference call this morning. “It will be a complete nonissue.”
Carpenter, 63, said he knew of no plans for GM-owned GM Financial to compete with Ally for the inventory finance business. The two compete for retail leasing and nonprime lending.
Ally’s penetration of the wholesale finance business remains more than 82% on GM stock and 76% for Chrysler stock.
Its retail penetration for new Chryslers was 36.3% for the quarter, down from 49.4% in the third quarter of last year, but up year-over-year from 25.5%.
Overall retail volume in the United States rose 72% from the year-ago fourth quarter to $9.3 billion from $5.9 billion, including new and used, loans and leases. That includes steady increases in its new-vehicle retail loan volume outside the GM and Chrysler dealer networks — to $300 million from $100 million year-over-year.
The company says the boost is linked to rising auto sales, expansion of its dealer network and dealer rewards program and greater focus on lease and nonprime credit business.
Carpenter also said the bank holding company model has lowered Ally’s cost of funds so it can compete effectively for dealers’ business with banks and even captive finance companies. It is more competitive than when it was GMAC, and its cost of money is about a half-percentage point lower than Ford Motor Credit Co.’s, he said.
The savings will continue as Ally builds its bank deposit base and buys out the U.S. Treasury’s stake in the company, he said.
The bigger picture
For its entire business, Ally said fourth-quarter earnings were $79 million, compared with a loss of $4.95 billion in the same period a year earlier. Annual profit was $1.1 billion versus a $10.3 billion loss in 2009.
Carpenter is preparing the company for an initial public offering that may take place this year. Last week, Ally interviewed investment banks to manage the IPO while the U.S. Treasury Department named Perella Weinberg Partners LP to assist with the disposal of its stake.
Ally reduced risk in its mortgage business, which “significantly strengthened the company and will enable repayment of the U.S. Treasury’s investment over time,” Carpenter said in the statement.
“These results are very important for their IPO,” Mirko Mikelic, a senior money manager at Fifth Third Asset Management in Grand Rapids, Mich., said before the announcement. “It obviously helps with the pricing, and if they continue to post good results there will be strong demand.”
The mortgage business posted a $172 million pretax profit from continuing operations, compared with a loss of $180 million in the last three months of 2009.
Ally said today it hasn’t found “any evidence of inappropriate foreclosures in its review process,” amid concern some lenders have taken improper shortcuts to speed the process of taking homes.
National wholesale and retail lender Ally Financial Inc. made its presence known at the 48th Annual National RV Trade Show, Nov. 30-Dec. 2 in Louisville, Ky., with stand-alone booths and desks within the displays of Thor Industries Inc. with whom Ally established a “preferred lender” relationship earlier this year.
“We wanted to be in Louisville to support the industry. If you are going to be a major participant in it, there are obligations to support the industry event,” stated Tim Russi, Ally’s executive vice president for North American Operations, who was joined at the show by more than 20 associates from the Detroit-based lender.
“With the announcement that we are getting into wholesale financing — and knowing the season that we are about ready to get involved in from an RV perspective — we want to make sure the dealers have us on their minds,” said Russi.
Indeed, Ally has its sights set on becoming a major factor – a national-scale RV industry lender – along with GE Capital and Bank of America. And that’s pretty big news, considering Ally Financial extended $22.3 billion in U.S. auto consumer financing for the first nine months of 2010, making it likely the No. 1 ranked provider of new car financing in the U.S. in 2010.
“We want to be part of the upswing of this industry,” Russi, a former Bank of America executive who oversees Ally’s automotive and RV lending services in the U.S. and Canada, told RVBUSINESS.com. “Some lenders have left the market while others in it are potentially retracting, and there are not many providers in the industry. So, we think the time is right to enter the market.”
In a way, Russi points out, Ally has been in automotive financing as GMAC for a long time. Formerly the captive finance company of 90-year-old General Motors Corp., Ally became an independent financial services company in 2006 and a bank holding company in 2008, launching Ally Bank in May of 2009. Ally’s parent company changed from GMAC Inc. to Ally Financial Inc. in May, followed by the rebranding of its automotive finance business in July.
In 2009, meanwhile, President Obama named Ally Financial as preferred financial provider for Chrysler Group LLC. “We have preferred provider relationships with GM, Chrysler, Saab, Fiat, Suzuki and Thor,” said Russi. “And we’re looking to expand our relationship with other OEMS as well, which is an important concept as we diversify our book of business from what was historically almost 100% GM. As a bank, what you’d like to see is a diversified business.”
Ally Financial offers a variety of auto-financing products, indirect retail financing for new and used vehicles and RVs, auto leasing as well as wholesale financing and remarketing services.
Leading the RV industry lending team are some familiar faces, including the bulk of the former Thor Credit staff. Industry veteran Ed Arienti runs the retail sales force for the RV sector as director of recreational finance sales and teams with Rich Morrin, commercial operators leader, for RV dealer wholesale financing.
Also key is Mark Manzo, who, as vice president of alliance sales, manages OEM relationships, including that between Ally and Thor.
Ally’s RV industry entry started with an April announcement by then-GMAC Financial Services that it would provide RV consumer financing, working with Thor Industries Inc. as a preferred retail lending provider.
Then, on Nov. 23, right before the Louisville Show, Ally announced that it would diversify into wholesale financing, focusing from the outset on Thor’s dealer network.
“We benchmarked current options and needs in the industry and will offer a very competitive wholesale financing product for RV dealers,” Russi stated. “Our program is tailored to the recreation vehicle business with attractive terms and flexible credit lines that will accommodate the seasonal fluctuations in RV inventory. We view our retail and wholesale financing, along with remarketing tools, as a full-service offering for dealers.”
Qualified dealers may obtain wholesale financing from Ally Financial for all or a portion of their inventory, reported Ally, which currently extends retail financing through dealers in about 40 states and plans to expand its RV retail financing nationwide by the end of the year.
“The way we like to create a relationship is a full spectrum relationship credit offering through the dealer,” Russi emphasizes. “Everything centers around the dealer. The more we do with them, the better our value proposition is.”
So, is the Thor relationship exclusive to Thor dealers?
“We are not exclusively Thor,” said Russi, “but because of our relationship with them we obviously are going to focus on their dealer network needs first. That’s our entry point into the industry. Keep in mind that Thor dealers — and I think they number 1,200 — represent about 75% of the RV space. We think by focusing there, we are going to build relationships with the majority of the industry.”
When a Thor dealer has multiple brands and sells non-Thor brands, he noted, Ally will still provide retail or wholesale financing for the products of those other branded companies.
Is Ally in it for the long haul?
“We wouldn’t have entered it to exit it,” added Russi. “We’ve got plenty of auto business. We are not going to run out of capacity. We’d like it (the RV segment) to be substantial. We’d like to systematically grow our book.”
The fact that Ally has a dedicated RV sales staff based in Orange County, Calif., is also a testament to Ally’s commitment, adds Russi. “But we also intend to leverage our entire structure into the space,” adds Russi. “If we don’t have someone conveniently located from an RV sales perspective, we will leverage the existing sales force, which is a national sales force of about 200.”
As automobile financing gets its strength back, Ally Financial Inc. posted its second consecutive quarterly profit. The lender, which is formerly known as GMAC Inc., reported a net income of $565 million in the second quarter, compared with a $3.9 billion loss in the same period a year earlier.
In a statement, Ally said that all of its operating segments were profitable. After receiving over $17 billion in bailouts, Ally is 56%-owned by the U.S. It also doesn’t have publicly traded shares. Kirk Ludtke, senior vice president for CRT Capital Group LLC in Stamford, Conn., said that on the auto finance aspect, the trends have been “very positive,” marioso.net reported.
He added that the auto portfolio “held up nicely through the recession.” CEO Michael Carpenter aims to refashion Ally into a lender that serves more companies than just General Motors Co., its former parent. GM plans to purchase AmeriCredit Inc. to help finance car sales.
Last May, Ally adopted its new name from its banking unit. Since then, it has expanded its client list to include Saab Automobile AB and Thor Industries Inc., the largest maker of recreational vehicles.
Kathleen Shanley, a senior bond analyst at independent debt-research firm Gimme Credit LLC in Chicago, said that Ally’s strategy is to become a more diversified bank. The company also now has a media campaign to build its online bank.
Ally Financial Inc. (Ally) today (July 13) announced that it will rebrand its GMAC consumer and dealer-related auto and RV finance operations in the U.S., Canada and Mexico and begin using the Ally name.
This follows the transition of the corporate entity from GMAC Inc. to Ally Financial Inc. in May. The rebranding of the auto finance operations in these markets will take effect during the month of August.
The Ally brand will be used for auto financing activities in the three North American markets, including activities to support the following manufacturers: General Motors, Chrysler, Saab, Thor Industries Inc. and FIAT Mexico.
“The move to the Ally name allows us to invest in a brand that we own and can build upon for the long term,” said Ally President Bill Muir. “An ally is someone you rely on to support you, and our new brand embodies our 90-year heritage as a trusted finance source for the automotive industry.”
In connection with the rebranding, Ally will be making a series of enhancements to the customer experience beginning with:
- Simplifying and streamlining consumer materials and online services to offer a more straightforward approach to auto financing.
- Investing in enhancements to the customer service process.
- Offering financial tools to simplify the payment calculation process.
- Providing opportunities to co-brand and customize certain consumer materials with information from the manufacturer and the dealer.
“While our name has changed, our primary focus and core business continues to be automotive financial services,” said Muir. “Our dealer customers and auto partners can count on our ongoing commitment to their success.”
As one of the largest automotive finance companies in the world, Ally extended more than $16 billion of credit to retail customers in the first half of 2010 in the U.S., Canada and Mexico, which represents an increase in originations of more than 120% from the first half of 2009. For the first six months of 2010, the company extended an average of approximately $2 billion of credit per month to consumers in the U.S.
Chris Liddell, CFO of General Motors, commented: “As we enter an exciting new chapter in GM’s history, Ally remains an important partner and auto financing provider for GM customers. We look forward to continuing that relationship.”
Richard Palmer, CFO of Chrysler Group LLC, commented: “In taking over the financing of so many Chrysler dealers in such a short time Ally has shown itself to be a strong partner for Chrysler and our dealership network. Ally has proven to be a trusted and reliable source of financing with an in-depth knowledge of the auto industry.”
The company’s U.S.-based auto finance products and services will transition from GMAC to Ally Financial on Aug. 23. The auto finance operations in Mexico and Canada will adopt the name Ally Credit on Aug. 16 and Aug. 23, respectively. There will be no change to current customer accounts or billing cycles. Ally’s auto financing operations outside of North America will continue to operate under the GMAC brand as options for further use of the brand are evaluated.
About Ally Financial Inc.
Ally Financial Inc. (formerly GMAC Inc.) is one of the world’s largest automotive financial services companies. As the official preferred source of financing for General Motors, Chrysler, Saab, Suzuki and Thor Industries Inc. vehicles, Ally offers a full suite of automotive financing products and services in key markets around the world. Ally’s other business units include mortgage operations and commercial finance, and the company’s subsidiary, Ally Bank, offers online retail banking products. With more than $179 billion in assets as of March 31, 2010, Ally operates as a bank holding company. For more information, visit the Ally media site at http://media.ally.com.