DETROIT -- General Motors expects to pad its bottom line in coming years from substantial growth in its captive finance arm and its parts and accessories business, executives say.
GM expects pretax operating profit from its GM Financial unit to more than double by 2018, to as much as $2 billion annually, GM President Dan Ammann said during a presentation at GM’s annual investor conference on Oct. 1.
That figure does not include the benefit of improved customer loyalty rates from buyers who finance their vehicles through the captive. Ammann said loyalty rates among buyers who use the captive to finance their vehicles are far higher than those who don’t, leading to additional profits through additional vehicle sales and service.
GM has been rebuilding its captive arm over the past five years since parting ways with its former finance unit, GMAC, now Ally Financial. GM in October 2010 acquired subprime lender AmeriCredit and has since built up prime, floorplan and other services.
“This has been an absolute home run,” Ammann said.
GM this year began using GM Financial as its exclusive provider of subsidized leases, taking business away from Ally and U.S. Bank. Ammann said the move allows GM to better manage the buying cycles of customers -- getting them into another lease before their current one is up, for example.
Ammann called GM’s aftersales business, mostly sales of parts and accessories, “a huge profit driver,” one that is ripe for significant growth. He didn’t quantify the size of the business, but said its “profit contribution ... is measured in billions of dollars” a year, with margins ranging from 30 to 40 percent.
China represents an untapped opportunity to increase parts and accessory sales as that country’s new-vehicle sales growth begins to moderate, Ammann said.
GM has taken steps in recent years to boost its U.S. parts and accessory sales. Later this year it’s expected to roll out a real-time pricing system for original-equipment GM collision parts, for example, an effort to take market share from aftermarket parts makers.
The initiatives are part of a broader plan by GM to find growth in areas beyond new-vehicle sales, such as a car-sharing program that the company recently began in midtown Manhattan. It has partnered with the owner of a luxury apartment building to offer temporary use of Chevrolet Trax and Equinox crossovers, with the cost rolled into the tenant’s rent.
“We are operating in a slower-growth world,” Ammann said. “We must therefore be focused on growing sources of profitability that are more independent of the traditional earnings cycle.”