GM Financial is the latest auto lender to finish the year on a high note, despite a global pandemic that was expected to depress origination volume and deteriorate credit performance.
Fourth-quarter originations clocked in at $13.6 billion, a 24.9% increase year over year, bringing the captive’s full year origination volume to $49.8 billion a 4.8% YoY increase. Total originations increased primarily due to U.S. retail loan growth, Chief Executive Dan Berce said during the company’s earnings call this week. In fact, GM Financial generated over 2 million leads to General Motors dealers during the year, contributing to more than 435,000 vehicle sales, 73% of which were financed by GM Financial, Berce stated.
However, despite an increase in U.S. lease originations in the fourth quarter, the captive’s period-end lease portfolio fell to $38.8 billion from $42.1 billion last year.
Commercial floorplan outstandings clawed back to $8.3 billion, up from second-quarter lows of $7.1 billion, but were still down from last year’s $10.7 billion figure. GM Financial now provides floorplan lines of credit to 1,434 U.S. dealers, giving the captive a 32.9% penetration rate, the No. 1 share of GM dealers in the country, Berce said.
Ending earning assets, which include commercial and consumer loans, amounted to $100.2 billion, a 3.9% YoY increase.
Credit performance, too, continues to remain strong, with 31-60 day delinquencies in the fourth quarter down 111 basis points YoY to 2.1%, but remaining flat from last quarter. Delinquencies of 61-plus days also remained flat at 1.3% when compared with last quarter, and were down 30 bps YoY.
Net charge-offs came in at 0.9% in the fourth quarter, half of what they were in the same reporting period last year.
“Delinquencies and charge-offs were positively impacted by government-support programs, as well as changes in consumer spending behavior,” Berce said. “We’ve seen payment rates across all FICO tiers in the fourth quarter being higher than a year ago, including those accounts we deferred earlier in the year.
“Another tailwind to net charge-offs was that recovery rates on repossessed vehicles improved compared to a year ago because of strong used-vehicle prices. We do expect delinquencies and net charge-offs to normalize starting in the second half of 2021, due to the expiration of government-support programs,” Berce said, noting that the company has not included additional stimulus into its forecast.
In line with the captive’s forecast, allowance for credit losses in the fourth quarter clocked in at $1.9 billion, or 3.7% of the portfolio, down sequentially and from second-quarter peaks of $2 billion, or 4.4% of the portfolio.
In all, the captive had a record $2.7 billion in earnings before taxes last year, up from $2.1 billion in 2019, Chief Financial Officer Susan Sheffield said, with earnings driven by strong used-vehicle values, better-than-expected credit performance, and lower interest costs. The captive also increased its annual dividend to GM to $800 million, and accelerated its digital initiatives and investments to improve customer service as the workforce continues to work remotely.
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