General Motors plans to start a pilot program this year for making loans to dealers to buy new vehicles from the company, expanding its finance business.
General Motors Financial has hired a person to oversee the floor-plan financing and is adding employees to begin making the loans, Dan Berce, the unit?s president and CEO, said in an interview Wednesday.
The move into what is known as wholesale lending is part of GM?s efforts to re-create a full-service captive finance company, Berce said. GM hasn?t had control of such a lender since selling a majority stake in its GMAC unit in 2006. Many of the automaker?s competitors own lending subsidiaries.
?We are going to develop all of the capabilities of a captive finance company: prime lending, subprime, leasing and wholesale,? Berce said. ?Availability of credit and competition will drive where we deploy our resources.?
GM aims to provide 10% to 20% of the floor plan loans to its dealers ?within a year or two,? he said. Most of that financing is now provided by the U.S. government-controlled Ally Financial, which handled about 82% of GM dealers? floor plan loans in 2010?s fourth quarter. Ally, based in Detroit, formerly was the automaker?s GMAC unit.
?Right now, GM?s dealers don?t have many choices,? Berce said. ?We just want to give some dealers a place to go. We?re not looking to displace Ally.?
Floor-plan lending is done at annual interest rates that often are lower than 3%. GM Financial raised $950 million by selling securities backed by vehicle loans in April at an average borrowing cost of 2.5%, providing a source of funds to start a dealer-loan program.
GM in October acquired Ft. Worth, Texas-based Americredit, which is now GM Financial, to provide the automaker?s dealers and retail vehicle buyers more options for leases and subprime loans that would help sell its cars and trucks.
Since that acquisition, GM Financial has moved toward more lending to buyers of new GM vehicles. Before the purchase, 70% of the loans Americredit made were for used vehicles, Berce said. Now, that rate is down to 60%.
The unit financed the sale or lease of new GM vehicles valued at $563 million in the first quarter, compared with $118 million in last year?s final quarter.
Adding the floor-plan loans will give GM more control over credit access for its dealers and retail customers, Berce said. It will also give the company a captive lender that in a disruption of credit can provide dealer financing like most of its competitors can.
?If Ally decided tomorrow that they didn?t want to finance 20% of our dealers or they wanted to charge them higher rates, the dealers would have nowhere to go,? Berce said.
GM also wants to get some of the financing profit that now goes to Ally or other lenders. In the first quarter, Ford?s Ford Credit unit reported $713 million in pretax earnings, compared with $130 million for GM Financial.
The GM unit is considering getting into the insurance business, with no specific plans yet to start offering insurance or extended-warranty products, he said. Berce called it ?a natural extension of the auto-finance business.?
GM Financial also may expand overseas, possibly through acquisitions, he said.
The unit has no plans to start making prime auto loans, which are to customers with higher credit scores, because there is too much capacity in that market, Berce said.
?There?s really no need,? even though GM Financial has the capability, he said. ?There is tons of capacity in prime lending.?
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Read More: http://www.freep.com/article/20110602/BUSINESS0101/106020503/GM-finance-unit-start-making-loans-dealers
Source: http://www.stockmarkettoday.tv/gm-finance-unit-to-start-making-loans-to-dealers/
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