More delinquencies loom, GM Financial boss says

Dan Berce, CEO of GM Financial, said the period of record-low delinquencies and credit losses for bad loans for the industry is just about over. "It's clear this trend has peaked," he said.

For example, Berce said his company expects a rise in delinquencies in 2013 for itself and probably for the auto finance industry in general. But he said the predicted increase was not a cause for concern.

"You have to put everything in historical perspective," he said in a Feb. 14 conference call with investors. The delinquency rate in "2012 was extraordinarily low," he said. "If they're higher in 2013, they will still be extraordinarily low."

Record earnings

For now, business conditions are good, he said. GM Financial had record net income for the full year of $463 million, up 20 percent from 2011. For the fourth quarter, net income fell 13 percent from the fourth quarter of 2011.

The company said the drop in fourth-quarter earnings was more than explained by expenses related to GM Financial's purchase of Ally Financial Inc.'s international operations.

GM Financial said earnings were also down in the fourth quarter because the lender increased its reserves against future loan losses, reflecting what the company called "normalizing credit trends."

Berce: "We view an increase in losses in 2013 to be normal and consistent with the mix in our portfolio."

Assuming more risk

Berce said sharper competition in auto lending -- especially in subprime -- means lenders in general are taking on more risk to stay competitive. Specifically, he said GM Financial increased its purchases of higher-risk loans a few years ago when it was still AmeriCredit; inevitably that led to somewhat higher delinquencies.

Berce said another factor is "lower recoveries" from repossessions because used-car values are also past their peak.

"We view an increase in losses in 2013 to be normal and consistent with the mix in our portfolio," he said.

As of Dec. 31, GM Financial said accounts more than 60 days delinquent -- those most likely to be charged off as a loss -- were 2.1 percent of its portfolio, up from 1.9 percent a year earlier.

Credit losses for the fourth quarter were flat compared with a year earlier, at 3.3 percent of total loans. For the full year, credit losses were 2.5 percent, down from 3.2 percent in 2011.

GM bought subprime lender AmeriCredit in 2010 and renamed it GM Financial. Since then it has increased the portion of new-vehicle financing in its portfolio mix and launched programs offering consumer leasing as well as commercial lending for GM dealers.