GM Financial Preps for Lease Slowdown Amid Declining Values

General Motors Financial Co.’s lease penetration is on a “downward trajectory” as depreciating used-vehicle prices pressure residual values, the company said during its second-quarter earnings call.

“We’re probably at the top end of where we want to be from a leasing perspective,” Charles Stevens, executive vice president and chief financial officer for General Motors Co., said on the call. “We’ll work to bring that down, especially as rates increase — subvented financing has a tendency to pick up, as well.”

GM’s lease penetration was at 31% for the quarter, which is roughly in line with the record-high lease rates industrywide. Although GMF’s lease originations reached $6.7 billion in 2Q — up 4.3% compared with the same period the year prior — lease penetration fell to 29% in June.

Lease penetration is expected to come down more and hover around the 25% to 30% level, Stevens said. Declining used-vehicle prices are one of the main drivers of the shift.

“We do expect the decline in used-car pricing to continue to put pressure on GM Financial’s residual values through the second half of 2017,” Stevens said. “We’re still guiding around a 7% reduction [in used-vehicle prices] on a year-over-year basis in 2017 versus 2016, and further moderation in 2018.”