FORT WORTH, Texas —General Motors (GM) Financial reported continued progress in its transition from subprime finance source to captive lender, with the composition of its earnings assets at the end of the second quarter revealing its continued shift toward a more prime-like credit profile.
GM Financial’s subprime loan portfolio accounted for 16% of its $68.7 billion in ending earning assets, which were up from $48 billion in the year-ago period. The drivers of that increase, officials said, were the company’s lease and U.S. prime originations — the latter increasing from $900 million in the year-ago period to $1.1 billion.
“Our origination mix continues to gravitate toward a more prime product,” said Dan Berce, president and CEO of the captive finance company. “In fact, the percentage of our prime originations — defined as FICO score 680 or greater — reached 69% in the June 2016 quarter, up from 62.6% a year ago.
“I want to point out that the absolute level of subprime originations — defined as FICO scores less than 620 — was similar year over year,” Berce added. “So despite the competitive environment, GM Financial did maintain credit and pricing discipline.”
Originations during the quarter totaled $10.7 billion, up from $9.9 billion in the year-ago period. Retail loan originations totaled $4.2 billion, down from $4.3 billion in the year-ago quarter. Lease originations in North America totaled $6.4 billion, up from $5.5 billion in the year-ago period.
The company’s penetration of GM retail sales in the U.S. market also grew, increasing from 30.2% in the year-ago quarter to 34%. On a quarter-over-quarter basis, however, penetration was down from 34.6% at the end of the March quarter. Berce, however, pointed out that penetration is largely dependent on the level of GM support for subvented products in the market.
“So for the June 2016 quarter, we had an impact from lower GM lease and subvented mix compared to the March 2016 quarter,” Berce said.
The company also reported expanded penetration of GM retail sales in both Europe and Latin America on a year-over-year basis. On a global basis, GM new originations accounted for 87.5% of total originations, up from 83.6% in the year-ago quarter.
For the quarter, GM Financial reported net income of $189 million, up from $186 million in the year-ago period. On a pretax basis, the company earned $266 million, up from $255 million in the year-ago quarter.
The firm’s outstanding balance of retail finance receivables was $30 million as of June 30.
As for retail loan credit performance, overall net chargeoffs were 2.3%, an improvement from the 2.4% reported in the year-ago quarter. Delinquencies showed a similar trend, with retail finance receivables 31-60 days delinquent accounting for 3.4% of outstanding balances, down from 3.6% in the year-ago period. Accounts more than 60 days delinquent accounted for 1.5% of GM Financial’s portfolio, down from 1.6% in the year-ago quarter.
“The credit performance we’re seeing does reflect the portfolio mix shift to prime,” Berce noted. “In fact, the subprime portion of our portfolio … is now 55% of the North America portfolio, compared to 71% a year ago.”
The company also continues to show a steady ramp up in its commercial business, which reached $4.8 billion in outstandings with 721 dealers as of June 30, 2016. “Floorplan financing does represent 87% of the portfolio, and we expect to show that steady increase in growth, especially now that we’ve rolled out all of our product suite,” Berce said.
“Our level of originations for the June 2016 quarter, whether it be GM new-car originations, GM used vehicles, or our legacy AmeriCredit business, the levels were fairly constant both year over year and quarter over quarter compared to March 2016,” Berce added. “Our penetration of GM new for subprime was 36% in the June 2016 quarter, and our penetration of GM new car prime was 10%. Our weighted average FICO score in the June quarter continues to trend positively compared to prior periods.”