Ally fights lenders for floorplan share
Competition could be big win for dealers
Dan Berce: Lofty goals
Ally Financial Inc. has a target on its back. Competitors are lining up to take a shot at its overwhelming share of floorplan and commercial loans for General Motors and Chrysler Group dealers.
Ally Financial is the former GMAC Financial Services, GM's old captive finance arm.
GM's new captive, GM Financial, is Ally's foremost challenger. GM Financial is launching a new commercial lending unit in April, to offer floorplan financing; capital, real estate and construction loans; floorplan insurance; and cash management programs for GM dealers in the United States and Canada.
Big banks are after more dealer business, too, in a segment that traditionally has been dominated by captive finance companies.
The rising competition could bring more favorable terms for auto retailers, although dealers say they don't change floorplan lenders lightly.
Commercial lending is as yet a minor business for GM Financial. The former AmeriCredit Corp. was a specialist in subprime auto loans before GM bought it and started turning it into a full-service captive.
Dan Berce, CEO of GM Financial, said in a conference call this month that his goal is to have 20 to 25 percent of GM dealers' commercial lending business in the next two to three years.
"That's a sizable number. That's a $5 billion-type number," Berce said. "To have the sort of scale and the sort of service level we feel we need to have, we need to have that type of share."
There's only one place that large a share could come from: Ally. Ally is the preferred lender in the United States for GM and Chrysler brands, plus Fiat, Suzuki and Maserati.
The floorplan segment is increasingly competitive. Consumer demand for autos is up. Delinquencies and defaults are down in all segments of auto lending, including retail and floorplan. In contrast, the housing market continues to lag. Those factors make floorplan lending attractive to lenders looking for growing but safe borrowers.
As lenders compete with lower floorplan rates, dealers are shopping around. At the Automotive News World Congress in January, Group 1 Automotive Inc. CEO Earl Hesterberg said that over the past two years, the dealership group's lending syndicate had offered floorplan interest rates as low as "about 1.15 percent," while the rate offered by captive finance companies during that time was 4 to 5 percent.
"Would our shareholders really want us to finance our inventory at an interest rate three times higher" than necessary, he asked. The overall drop in interest rates, plus the benefits of tapping lower-rate lenders, has saved Group 1 "over $20 million in flooring expense comparing 2011 to 2007," he said.
Ally has already lost some of its share in floorplan loans to GM and Chrysler dealers in the United States. For example, its share of Chrysler dealers' floorplan loans slid to 63 percent in the fourth quarter from 72 percent a year earlier.
By comparison, Ford Motor Credit Co. said it had an 80 percent share of Ford Motor Co.'s U.S. dealer wholesale business in the fourth quarter, down slightly from 81 percent a year earlier.
In separate interviews at the National Automobile Dealers Association convention in Las Vegas, two big banks' auto lending units -- Chase Auto Finance and Wells Fargo Dealer Services -- said they expect to add market share in dealer wholesale accounts in 2012. Neither bank singled out Ally Financial by name.
"There has been a lot of growth on the commercial side, probably the most I've seen in the five years I've been in this job. The market is very open to change," said Marc Sheinbaum, CEO of Chase Auto Finance. "We like our chances."
Wells Fargo Dealer Services saw its commercial lending business with dealers decline when business fell in 2008 and 2009, but it's starting to come back, said Jerry Bowen, executive vice president in the Raleigh, N.C., office of the San Francisco bank. "We are looking to grow it" in 2012, he said.
Ally says it is confident it can compete.
"Our success is driven by strong dealer relationships and more than 90 years of industry experience in serving dealer needs. We compete in the marketplace every day with banks and other finance companies, and Ally is still a leader in the industry," said Ally spokeswoman Sue Mallino. "We have demonstrated that Ally is committed to the auto industry for the long haul, through diverse market cycles."
Ally also notes that its total floorplan loans outstanding have continued to grow, to $24.9 billion at the end of 2011 from $24.1 billion a year earlier. But that growth has largely come from dealers with franchises other than GM or Chrysler brands.
Some GM dealers said they plan to stick with Ally.
"In the last three years, you have really found out who your friends are," said Chris Haydocy, owner of Haydocy Buick-GMC in Columbus, Ohio. "A dealer would really have to have an upside, some concrete benefits, to switch to someone that they don't have a record of business with -- somebody you don't know what they're like when it's 'live fire' out there."
You can reach Jim Henry at email@example.com.