When a negative number nets a windfall
|Jim Henry is a special correspondent for Automotive News.|
Corporations don't like to see negative numbers in their financial results, but this one may be an exception.
Ally Financial Inc. paid out 17 percent more in reinsurance to dealers in the second quarter than in the same period a year ago, according to Ally's quarterly report to the Securities and Exchange Commission.
It shows up in Ally's insurance operations results as a minus $34 million in revenue from extended service contracts, a bigger negative than minus $29 million a year ago.
All told, Ally's revenue from extended service contracts for new and used vehicles combined increased about 2 percent to $215 million.
The negative numbers represent money paid out to dealers who join Ally's reinsurance program. Dealers in the program share in the underwriting profit from extended service contracts -- the amount left over after claims and other costs are paid.
Incidentally, the 2 percent increase in revenues from the latest quarter is based on originations in that quarter. The 17 percent increase in payout is based on service contracts that were originated over a much longer period. The two numbers don't move in sync.
Under the circumstances, I'll bet Ally doesn't mind a bigger number in the minus column -- and its dealers likely don't either.
You can reach Jim Henry at email@example.com.