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General Motors Co.'s deal to buy a subprime car lender says as much about the state of consumer finance as it does about the auto industry.
July 22
Ally Financial Inc.'s chief executive said he "loves" General Motors Corp.'s plan to buy another auto lender and argued it would take a long time to displace his company as the main financier for GM car buyers.
The automaker's deal to buy AmeriCredit Corp. for $3.5 billion "values our automotive segment alone at $25 billion," Ally CEO Michael Carpenter said Tuesday on a conference call to discuss second-quarter results.
"And, therefore, I don't have any doubt about our ability to repay the U.S. Treasury." (The $177 billion-asset Ally, formerly called GMAC, has received about $17 billion of aid from the government, which owns 56% of the finance company; former parent GM's stake in Ally has dwindled to about 7%.)
"I love the AmeriCredit deal," Carpenter said.
When it announced the deal last month, GM said it would use AmeriCredit to finance more car sales with subprime loans and with leases.
The manufacturer stressed that Ally remained a key partner in lending to prime-quality buyers and dealers. But analysts said that in the long term AmeriCredit, as a captive arm of GM, could expand its operations in those loan segments.
On Tuesday's call, an analyst asked whether there is a risk that, as GM's credit rating improves, it could begin making wholesale loans to "basically force GM dealers toward AmeriCredit."
Carpenter replied that the dealers are "independent business people. You can't force them to do anything. … I don't care whether you're a captive or whether you're a JPMorgan [Chase & Co.] or whether you're us — you win in the marketplace, you don't win by the dictates" of the manufacturer.
To transform the $9 billion-asset AmeriCredit into "a fully-fledged captive … would take a long time and would be very expensive," he said. "You would have to have $100 billion on your balance sheet, as a manufacturer. You would have to have 1,000 people. And you would have a cost of funds disadvantage relative to anybody with a bank license, even if you're investment-grade, that will go from here to eternity." (Ally is a bank holding company.) "If I were the CEO of GM, that's not a direction I would be wanting to go in."
Ally reported a $565 million second-quarter profit, its second straight quarter in the black, as credit quality improved and retail car loan originations grew. A year earlier it had lost $3.9 billion.
Carpenter said an initial public offering by Ally "is very clearly within our sight. I see it as a 2011 event."
The lender would use the proceeds to repay bailout funds.
Deposits at Ally's banking subsidiaries in the U.S. and Canada grew 7% from the first quarter, and 30% from a year earlier, to $34.3 billion. Half the quarter-to-quarter growth came from retail deposits at Ally Bank, the company's Midvale, Utah, online bank. The company retained 82% of its certificate-of-deposit balances that came up for renewal — a rate 13 basis points better than in the first quarter — even as the company's average retail deposit rate declined 18 basis points, to 1.82%.
This shows "we actually have no price advantage in the marketplace, demonstrating the validity of the business model of Ally Bank," Carpenter said. Last year bankers complained that Ally was recklessly offering above-market rates on deposits, and the Federal Deposit Insurance Corp. made Ally cut its deposit rates as a condition of issuing government-guaranteed debt.
