Though it's been more than eight years since General Motors jettisoned its financing arm, spun-off Ally Financial still depends on the business it gets from the Detroit automaker.
So earlier this month, shares in Ally plunged by about 15% after GM announced that it plans to use its new in-house lending arm, GM Financial, as its exclusive provider of subsidized leases. Last year Ally's subsidized leases for GM cars totaled $5.2 billion, or about 13% of the company's originations.
On Thursday, Ally Chief Executive Officer Michael Carpenter sought to persuade analysts that his company is well-positioned to survive the hit to its GM business.
He expressed surprise that GM shut out competitors, but added: "We remain confident in the franchise we've built, and we view this actually as another opportunity to prove to the market that our success is not driven or dependent on manufacturer support."
Investors did not appear to buy the argument, as Ally shares fell by an additional 2.5%, to $19.50, in late-day trading.
"I think it'll be challenging for Ally to execute on their strategy," said Christopher Donat, an analyst at Sandler O'Neill, though he noted that the effects of GM's decision will not be felt until next year.
Ally's strategy includes a continuing focus on used-car lending, where the company has grown its business substantially over the last half decade. Carpenter also discussed jumbo mortgages as another area where Ally could compensate for the lost GM business.
At the same time, Carpenter sounded peeved by GM's decision, questioning the automaker's strategy of substantially growing its own lending business.
"We will compete with anybody on a heads-up basis," he said. "What pisses us off is when we don't get a chance to compete on a heads-up basis."
One analyst who asked not to be identified said that Ally's executives appeared to be caught off guard by GM's announcement. "They gave the impression that they were unprepared," that analyst said.
U.S. Bancorp will also be hurt by GM's decision to use GM Financial for all of its subsidized leases, though the Minneapolis bank relies far less on the auto finance business than Ally does.
The GM leases are "probably 10%, maybe 15%, of our leasing business, which is a small fraction of our total lending business," U.S. Bancorp Chairman and CEO Richard Davis said during a conference call to discuss fourth-quarter results.
The challenges facing Ally reflect a larger trend in the auto lending industry. Banks that snagged market share after the financial crisis are now facing sharper competition from the automakers' finance arms. The market appears to be reverting to something closer to the historical norm, in which automakers lean more heavily on subsidized (or discounted) financing as a way to increase sales and leases of their vehicles.
Wells Fargo said earlier this month that it's been pulling back in the auto lending business as a result of stronger competition. On Wednesday, Brookline Bancorp, a $3.97 billion company based in Boston, announced that it stopped making loans through auto dealers in the fourth quarter.
As of the third quarter of last year, banks had 35.4% of the market share in U.S. auto finance, which was down from 38.2% a year earlier. The finance arms of auto manufacturers gained market share during the same period.
For Ally, the decision by GM to loosen longstanding ties marks a key point in the company's evolution. Another turning point came in December, when the U.S. Treasury announced that it had sold its remaining stake in the bailed-out auto finance company.
Carpenter said Thursday that the government's exit would ease the regulatory requirements the company faces. "We have been held to a different standard in many regards, in terms of capital ratios, in terms of control of our deposit pricing, in terms of the eligibility of certain assets going into the bank," he said.
Ally reported net income of $177 million in the fourth quarter, up from $104 million in the same period a year earlier, when the company paid a $98 million regulatory penalty. Earnings were in line with analysts' expectations.