Ally Financial’s auto insurance business swung to a loss in the second quarter on higher weather losses and lower investment gains, even as the lender carved out gains with a new flagship product: Ally Premier Protection.
Three-quarters of the extended service contracts Ally Financial sold in June were Ally Premier Protection. The product, which was launched a year ago, has been “very positively received” by dealers and car buyers, CEO Jeffrey Brown told Automotive News. “We are happy with where things are at. We are happy with conversion rates,” he said.
Service contracts written through what Ally calls its growth channel -- non-GM and non-Chrysler franchised dealership clients -- increased 34 percent in the second quarter.
‘Making nice strides’
Overall, Ally’s auto insurance business posted a pretax loss of $18 million in the second quarter, compared to a profit of $15 million in the year-earlier quarter.
Ally’s insurance offerings focus on dealer-centric products such as extended service contracts and dealer inventory insurance.
“We keep working with the insurance team. They are making nice strides, but premiums are a little softer than where [CFO Chris Halmy] and I would want to see things,” Brown said.
In the past few years, Ally has increased insurance prices to offset weather losses. The insurance industry is “going through an evolution,” Brown said. But he is confident that Doug Timmerman, president of Ally Insurance, “has the right mentality to grow it.”
Written premiums fell 10 percent to $237 million in the second quarter in part because of increased dealer reinsurance participation. Insurance weather losses, including hail storms, increased 43 percent to $96 million year over year.
Originations decline, income surges
Ally’s auto loan and lease originations also fell in the second quarter, dipping 13 percent to $9.4 billion as the lender focused on profitability over quantity, executives said Tuesday.
Despite the drop in originations, overall net income nearly doubled to $360 million and net financing revenue grew 7.4 percent to $984 million.
Ally’s auto finance business posted a pretax income of $426 million, up 14 percent.
The improved results came as Ally lost some of its superprime, lower yielding business, Halmy told Automotive News. “But we feel good about the profitability of loans we have put on the books,” he said.
Among the major auto lenders, origination levels fluctuate quarter to quarter. “Some of that is a dynamic on pricing. We are being pretty disciplined on getting the right profitability on loans,” Halmy said.
If a competitor becomes more aggressive on pricing, Ally won’t chase that, he said. But if other lenders pull back, Ally may be willing to take on more loans. Ally is “not concentrating on quarter or annual volume as much as the profitability that we are getting,” Halmy said. “We want to make sure we are getting prices the right way.”
Ally had record application volume of 2.9 million, up 6 percent, though its approval rate was roughly flat at 35 percent, Brown said.
The lender’s total dealership base has surpassed 18,000, which Brown says allows Ally to cast a wider net and look at more applications coming through the market.
Ally’s prime business, representing borrowers with credit scores of 660 to 739, grew slightly in the second quarter, to 37 percent of the portfolio vs. 34 percent a year earlier. On the opposite end of the spectrum, nonprime business, representing borrowers with scores below 620, fell to 11 percent from 15 percent a year earlier.
Chrysler’s share of Ally’s portfolio grew to 28 percent from 24 percent a year earlier. The share of Ally’s portfolio representing non-GM and non-Chrysler franchised dealership clients also rose, to 37 percent from 32 percent.
Last year, GM Financial, General Motors’ captive finance company, took over exclusive leasing for all GM brands, taking that business away from Ally, which previously offered subvented leases to GM customers. In the second quarter, Ally’s GM business fell to 35 percent, down from 45 percent a year earlier.
New retail standard loans made up 46 percent of originations in the second quarter, down 2 percentage points, and leases made up 9 percent, unchanged.
Consistent with the first quarter, Ally’s used-vehicle business jumped from the year earlier, reaching 43 percent of originations vs. 37 percent in the second quarter of 2015.
“We like used,” Brown said. “You’re not subject to any one manufacturer. You can book a lot of loans on every different nameplate. Hovering in the 40 to 45 percent range makes strategic sense, but a lot of [the increase] is dealer-driven as well.”