Jeff Brown, newly promoted to CEO of Ally Financial, got more specific about Ally’s plans to increase its mix of below-prime loans.
“Where we have underachieved, holistically, is we probably didn’t take enough credit risk the last two or three years,” he said in a conference call Thursday.
That’s good news for dealerships trying to get customers with less-than-perfect credit approved. Instead of the mix for nonprime loans of about 8.5 to 9 percent in the fourth quarter, “I’d like to see closer to 12 to 15 percent through time,” Brown said.
Since last summer, Ally has been saying in more general terms that it could cost-effectively approve more subprime loans once it shed government ownership -- a step Ally and the U.S. Treasury finalized in December.
Ally said the government didn’t allow Ally Dealer Financial Services to use Ally Bank deposits to fund riskier loans, defined as loans for customers with FICO credit scores between 620 and 660. Ally Dealer Services still made those loans but used more expensive funding from parent company Ally Financial.
Brown said those funds cost about 190 basis points, or 1.9 percent, vs. 105 basis points for bank deposits. He emphasized the cheaper cost of funds isn’t the only reason Ally can pursue more nonprime loans. For instance, he said Ally is getting more efficient at processing its credit applications and screening for nonprime applications it can approve.
‘A natural time’
Today’s conference call also served as Brown’s official introduction to analysts and to the press as CEO. “We are delighted to have such a talented and capable leader from within the company,” Chairman Fritz Hobbs said.
Ally announced on Monday that then-CEO Michael Carpenter, 67, would retire and Brown would replace him, effective immediately. Brown, 41, was president and CEO of Ally Dealer Financial Services.
The timing seemed abrupt, but Hobbs praised Carpenter and said repeatedly that Carpenter and the Ally board of directors were discussing succession plans for more than a year. Meanwhile, Ally announced its fourth-quarter and full-year 2014 earnings on Jan. 29.
“We’re past the point of turning the company around. ... It was a natural time to appoint a new leader,” Hobbs said. “We just felt particularly when we finished with ’14 earnings, this was an appropriate time to move on. That’s just about the extent of it.”