Ally Financial Inc.’s revenue from the sale of extended service contracts dropped slightly in the second quarter, partly as a result of increasing lease volume, according to the company.
Ally’s insurance operations took in $266 million in revenues in the second quarter, down from $271 million, or about 2 percent, from the year-earlier period.
Lease customers usually don’t buy service contracts or guaranteed asset protection policies because they don’t keep their cars beyond the manufacturer’s warranty and because most leases come with GAP included in the price. GAP pays the difference between what a customer owes on his or her car and the insurance settlement if the car is totaled or stolen.
Revenue down, payouts up
Ally’s revenue from new-vehicle service contracts in the second quarter was $110 million, down from $116 million in the year-earlier period. For used vehicles, revenue from service contracts was $131 million, down from $133 million in the 2013 quarter.
Ally also paid out $39 million in reinsurance to dealerships in the second quarter, up from $34 million in the year-earlier period.
Reinsurance programs enable dealerships to contribute a portion of the reserves used to pay claims, and then share in the money left after fees, insurance and claims have been paid. Retailers also participate in any investment income.
Ally said the increase in money paid out to dealerships was “in line with the market.”
Besides service contracts and GAP, Ally offers F&I products that are lease friendly, including prepaid maintenance and coverage for excess wear-and-tear.
Leases accounted for about $3.2 billion, or 29 percent, of Ally Financial’s lending volume in the second quarter, up from $2.8 billion, or about 28 percent, of lending volume in the 2013 period.
Said Jeffrey Brown, CEO of Ally’s dealer financial services unit: “Obviously, we are a big player in lease product.”
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