GMF has $3.7B for potential residual value declines

GM Financial is gearing up for potential losses on off-lease residual values as the extent of the COVID-19 economic crisis' impact on the auto industry becomes apparent. As the coronavirus pandemic puts near-term pressure on used-vehicle values, GM Financial has a $3.7 billion economic cushion to absorb a potential depreciation in its off-lease vehicles, the captive reported in its first-quarter earnings results today. While GMF had not seen any impairment in residual values as of March 31, the industry is forecasting a 7%-10% decline in used-vehicle prices this year compared with 2019. The $3.7 billion cushion is equal to 12.5% of GMF’s residual value estimates at quarter end, giving the captive additional cushion if vehicle values drop further than expected. Residual value estimates are the prices at which the captive expects to sell its off-lease vehicles at auction. In fact, GMF has 22% of its outstanding leases set to terminate this year, representing $9.1 billion of its total $41.3 billion lease portfolio at quarter end, according to the earnings presentation. In the coming years, 32% of its lease portfolio terminates in 2021, and 34% in 2022, with the 12% remaining portfolio expiring in 2023 or beyond. The captive has also set aside an additional $228 million for credit losses on its retail loan book due to COVID-19. On top of that, GMF added $801 million following Day 1 CECL implementation. GMF’s available liquidity stands at $24.9 billion, slightly higher than previous reports . Like most lenders, GMF saw a spike in retail loan deferrals in April, which rose to 3.5% of its finance receivables. By comparison, deferrals were 1.6% of the portfolio in March and 0.9% in February, the captive noted. As for GMF’s total loan and lease portfolio, originations dropped to $11.5 billion, a decrease from $12.4 billion in the same prior-year period, largely due to the impact of COVID-19 on larger lease markets. Outstandings also fell to $83.8 billion, compared with $84.9 billion in the first quarter of last year. Early-stage delinquencies — defined as 31-60 days past due — as a percentage of the total portfolio were slightly higher year over year at 2.7%, while late-stage delinquencies remained relatively flat YoY at 1.1%. Meanwhile, net charge-offs increased 10 basis point to 1.7%. Looking forward, the captive noted that it does anticipate second quarter charge-offs to increase as a result of a weak economy, with suspended repossession activity and accounts more than 120 days past due to be charged off in full. GMF noted annual net charge-offs are expected to range from 2.0% to 2.5% in 2020.

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F&I revenues climb at Group 1, fall off at Asbury

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