Ally Financial, the former GMAC, reports net profit for second straight quarter
Automotive News | August 3, 2010 – 10:25 am EST
UPDATED: 8/3/10 12:40 p.m. ET
|Ally Financial Inc., formerly GMAC Inc., has strengthened its balance sheet with its second straight quarter of net profits and has an initial public offering within its sights for 2011.
CEO Michael Carpenter told analysts today that Ally’s future remains bright despite General Motors Co.’s planned acquisition of AmeriCredit Corp. GM intends to build a captive finance company on the AmeriCredit platform, and that could mean a slow withdrawal of business from Ally.
But Ally is reducing its dependency on GM, along with its use of incentivized loan and lease programs, the company said. Carpenter said the company has improved its liquidity substantially, raising $25 billion in secured and unsecured transactions year-to-date.
He also said its cost of funds has declined more than 100 basis points since it became a bank holding company in December 2008.
“Dealers are independent businesspeople — and I would underline independent,” said Carpenter. “Our strategy is built around creating a compelling value to the dealer, and we will compete with anybody — captive or noncaptive, foreign or domestic.”
Auto finance operations helped keep Ally in the black during the second quarter. The company reported net income of $565 million for the second quarter, compared with a net loss of $3.9 billion in the second quarter of last year.
Autos stay profitable
The company also posted its sixth consecutive profitable quarter for its automotive business. Second-quarter profits for its global automotive services — including North American auto finance and insurance services for dealers — rose 46 percent year over year to $843 million, from $583 million. North American auto finance profits rose 40 percent year-over-year to $630 million, from $451 million.
Even the mortgage business, a ball and chain to Ally over the last few years, had pretax profits this quarter. And Ally reduced expenses by $124 million year-over-year, more than $100 million ahead of its plan.
Ally’s U.S. retail loan and lease originations rose to $8 billion in the second quarter of 2010, up from $6 billion in the first quarter of this year and from $4.4 billion in the second quarter of last year. Overall lease originations rose slightly to $800 million, from $700 million in the first quarter of this year.
The company had healthy increases in retail originations for both GM and Chrysler in the United States. Ally’s GM originations rose to $4.9 billion, up 20 percent from $4.1 billion in the first quarter of this year. Its Chrysler originations jumped 69 percent to $2.7 billion, from $1.6 billion in the first quarter of this year.
The insurance business rose 9 percent to $108 million from $99 million year-over-year.
In the United States, Ally is steadily attracting business outside the GM and Chrysler dealer networks. It announced a partnership with DealerTrack, an automated credit approval network, this year allowing it to offer loans and leases through dealerships of all makes.
That business is just 5 percent of Ally’s retail originations. But second-quarter volume was up 33 percent from the first quarter of 2010 and quadrupled year-over-year. Ally wrote $400 million in retail finance and lease contracts with dealers outside the two core dealer networks, compared with $300 million in the first quarter of this year and $100 million in the second quarter of last year.
Ally also is reducing its dependence on promotional loans and leases that rely on marketing funds provided by auto manufacturers. This used to be at least 90 percent of the old GMAC’s U.S. business, the company said. But in the current quarter 48.5 percent of overall retail originations were subvented, compared with 69.5 percent a year ago. And 41.7 percent of its GM retail volume was propped up by factory incentives, down from 72.7 percent a year ago.
Ally financed or leased 34.4 percent of the GM vehicles sold in the United States during the second quarter of this year, up from 33.5 percent in the first quarter of 2010 and 30.6 percent in the second quarter of 2009.
It financed or leased 52.5 percent of the Chrysler vehicles sold nationally, up from 42.1 percent in the first quarter of this year and 4.0 percent in the second quarter of 2009.
Ally’s U.S. wholesale penetration was down slightly for Chrysler and GM in the second quarter of 2010. Ally provided inventory financing for 84.4 percent of GM vehicles, compared with 87.7 percent in the first quarter of 2010 and 83 percent in the second quarter of 2009. It financed 74.9 percent of the Chrysler vehicle inventory, compared with 76.4 percent in the first quarter of this year and 10.9 percent in the second quarter of last year.
The company said the drop was seasonal, because of large dealership groups clearing the lots of older models to prepare for the new-model year.