LAS VEGAS — As a relatively young captive finance company, at least compared with its peers, GM Financial is "still growing into its captive shoes," said CEO Dan Berce.
In 2010, General Motors bought subprime lender AmeriCredit Corp., of Fort Worth, Texas, and turned it into GM Financial. In 2017, the captive financed 41 percent of GM's retail sales. Mainline captives are closer to 60 percent, Berce, 64, said.
"That would be one of our goals: to get penetration levels up to where other mainline captives are," Berce said. "Leases are going to be a fairly stable piece of the sales mix, so we really have to drive up our share in loan."
This year GM Financial will also focus on increasing floorplan penetration and improving the customer experience, he said.
Berce spoke with Finance and Insurance Editor Hannah Lutz at the American Financial Services Association's Vehicle Finance Conference in March.
Q: What is GM Financial's strategy for growing loan share?
A: There's subvented loans and there's standard. We do all of the subvented. The prospect is that the sales mix might only grow in a small way in '18, so it really might only be standard loan that we have to focus on, where it's competitive with credit unions and big banks directly looking for that type of business.
We are working with GM to have more GMF-centric incentive programs. [The programs wouldn't] necessarily be subvention, but things like down payment assistance, where if you finance through GMF you get a certain amount of down payment. And if you go through a third-party finance company, you don't get the cash up front.
From our seat, we have a program called Dealer Dividends, which if dealers — whether they are floorplanned or not — meet certain penetration goals with GMF, then they would get a monthly pool of funds that they could use to help sell cars through down payment assistance or collateral reduction on a lease. Or, it could be just buying accessories or insurance products.
What is GM Financial's floorplan penetration goal?
We ended 2017 at about 20 percent share of GM dealers. That business for us is only a little more than five years old, and when we started the business, we had articulated a 20 percent goal. We hit it in about the right time frame. By the end of 2020, we would like to get to a one-third share from where we are today. That quite possibly could put us in a position where we would have the highest share of GM dealers out of any other floorplan lender.
[More floorplan share] adds to our asset base, but we also get higher retail penetration from floorplan dealers than nonfloorplan, just because it's a more fulsome relationship. They tend to give us more of their business because the relationship is deeper. The second aspect of that is floorplan dealers can earn more dividends than nonfloorplan, so what we've seen is that floorplan dealers' rate of sales year over year was better than nonfloorplan dealers simply because they had this dividend pull they could use to help sell cars.
How is GM Financial working to improve the customer experience?
Loyalty is a huge part of the value proposition of a captive. In other words, if you finance through GMF, or if anyone finances through another captive, managing that customer relationship and getting them into a same brand vehicle or same OEM vehicle the second time around is big. We ended 2017 with industry-leading captive finance company loyalty levels for both loans and lease, and that's something we want to sustain.
Which auto finance levers is GM Financial watching this year?
There are obviously many. From our particular vantage point, we have got a very large lease portfolio. It's roughly half of our U.S. earning assets with the other half being loans or commercial/floorplan business. That's a large exposure to residual values and so we watch used-car values and remarketing activities very closely.
In early '17, [used-vehicle values] were down 7 percent [year over year]. And we were expecting prices to decline a good 5 or 6 percent in '18. The market so far has outperformed our expectations by being stable. We have even seen some of the used-car valuation forecasts by the likes of J.D. Power and ALG actually firm up a bit compared to where they were a year ago. That doesn't mean by any means we are out of risk because there is still an increasing amount of cars coming off of lease as we go off of '18 and into '19 before things stabilize.
A handful of lenders have pulled back or left the subprime market. Have GM Financial's lending criteria changed?
About three quarters of our lending [excluding leases] is prime. We still do a pretty large component of either nonprime or subprime and in none of those areas have we changed our standards, loosened or tightened, over the last year.
We have raised rates. Not as much as the Fed has increased, but we've captured a good part of it. We fund ourselves in the wholesale markets through bank lines, securitization and senior notes. With the short end of the curve going up because of Fed rate increases, our cost of funds has gone up, so we have sought to pass through those increases where we could.