For the second quarter in a row, net income fell slightly for GM Financial despite sharply higher loan and lease originations.
The captive finance company today reported net income of $158 million in the third quarter of 2014, down 1.9 percent from the same quarter last year. Pretax earnings were down 13 percent to $208 million.
Meanwhile, consumer loan and lease originations combined were up 80.8 percent to $5.8 billion worldwide. A big factor was the addition of international operations that formerly belonged to Ally Financial. Loan and lease originations also gained 85.2 percent to $3.7 billion in the United States and Canada.
CEO Dan Berce said today operating costs are up in the short term as GM Financial adds volume and business lines -- including prime-risk lending in the United States, which was introduced this year -- but he said the bottom line should start improving over time.
“The situation here at GM Financial is we’re building infrastructure and making a lot of investments in our platforms. We may see near term year-over-year [comparisons] come down, but we’re putting on a lot of asset growth,” Berce said in a conference call for analysts, investors and journalists.
He said adding loan volume and personnel creates costs upfront that don’t start getting repaid until the new loans start getting repaid. GM Financial expects credit quality to improve as its mix increases for prime-quality loans and leases.
The third quarter was the first full quarter since GM Financial started offering prime-risk loans, the company said.
GM Financial originated $162 million in prime-risk loans in the third quarter, via about 1,600 GM dealers. Berce said the captive finance company expects to start its nationwide rollout of prime-risk loans Nov. 1. GM had 4,300 U.S. dealerships as of Jan. 1, according to the Automotive News Data Center.
Credit losses were 2 percent of the average total outstanding consumer loans and leases for the quarter, up from 1.9 percent a year ago, the company said. The provision for loan losses was $160 million for the quarter, up from $117 million a year ago.
Lease volume in the U.S. market and Canada more than doubled to $1.7 billion in the quarter, from $727 million a year ago, GM Financial said. Leases accounted for 47.1 percent of GM Financial consumer originations for those markets, up from 36.4 percent a year ago.
U.S. lease originations were $1.4 billion for the quarter, up from $577 million a year ago.
Parent company General Motors reported separately today that including all lenders, not just GM Financial, its U.S. lease penetration in the third quarter was 22.3 percent, up from 21.3 percent a year ago.
For the rest of the industry not counting GM, U.S. lease penetration for the quarter was 22.1 percent, up from 19.2 percent in the third quarter of 2013.