New Ally Financial Inc. CEO Jeffrey Brown must hit the ground running.
Along with a sizable to-do list, he must deal with a shrinking share of business supported by incentives from former parent General Motors.
The decline in GM business is a long-term trend and an obvious priority for Brown. But the automaker's recent move to direct all brand lease incentives to GM Financial, instead of sharing them among GM Financial, Ally and U.S. Bank, was unexpected and has forced the issue front and center for Ally.
The stakes are high. In 2014 GM-subvented leases accounted for $9.3 billion, or about 23 percent, of Ally's $41 billion in total originations. Including $4 billion in GM-subvented loans, subvented loans and leases from GM accounted for 33 percent of Ally's originations for the year, down from 35 percent in 2013. Including subvented loans and leases, plus standard-rate new- and used-vehicle loans, GM accounted for 63 percent of Ally originations in 2014, down from 65 percent in 2013.
"If we are unable to successfully offset these declines in our business, these actions could have a material adverse effect on our business and results of operations over time," Ally said last month in its annual filing with the Securities and Exchange Commission. It also said GM has not indicated any plans to shift its subvented loan business.
Some analysts worry whether Ally can replace the GM lease business. Chris Donat, managing director of equity research at Sandler O'Neill + Partners in New York, said perhaps Ally shouldn't even try. As some analysts have noted, the potential upside of fewer leases would be less exposure to residual value risk for Ally.
"I think it might be more appropriate to downsize and concentrate more on the smaller U.S. market than they have done historically," Donat told Automotive News, referring to Ally's sale of its former overseas operations, mostly to GM Financial. The sale was completed in January.