How a Former Captive Became the Nation’s Largest Lender

As it continues to grow from General Motors’ former captive auto finance unit into an independent lender, Ally Financial says its business model has “evolved but it really hasn’t changed.”

How did this former captive exapand its auto business to become a dominant player in this increasingly competitive space? And what can other lenders learn from the company that has grown to be the nation’s top lender according to the latest Auto Finance News Big Wheels report.

Ally Financial, which secured a bank charter in 2008 so that it could get federal funds, now competes for business across all brands of cars, not just GM.

Ally not only works with around 16,000 dealers in the U.S. and approximately 4 million of their retail customers, the bank has grown to around 784,000 customers and more than $43 billion in retail deposits.

Tom Kolski, Ally’s regional vice president of auto finance in Chicago, says that when the company was GM’s captive – known then as General Motors Acceptance Corp. – and also provided financing for Chrysler, 80% of its loan volume was incentivized business, meaning its main function was to move metal. Today, he says, that percentage has dropped to the “low teens,” and the company’s potential client base is any franchised dealership in the country, including those of GM’s competitors.

“Today we have to go out and earn the business, versus having the business handed to us,” Kolski says, noting that 20% of Ally’s volume now comes from non-GM affiliated dealers, up from zero in 2009, when the company was born out of the GM bankruptcy and federal rescue. Ally has relationships with more than 16,000 dealerships of all makes.

Growing the Sales Force
One of the big reasons for its success in pushing itself into former competitors’ showrooms is that it has basically the same sales force it’s had for years, plus it has added 89 new reps over the past few years, most of whom were hired away from competing banks who had relationships with those dealers. So the Ally representative who shows up in many non-GM dealerships is a familiar face.

“We have maintained all the staff we had to service GM and Chrysler dealers, even though we are no longer the quote unquote captive lender,” Kolski says. “And we’ve gone out and hired additional staff away from our competitors to service what we call this new opportunity.”

One of those former GM clients is George “Chip” Waikem, chairman of Waikem Auto Group in Massillon, Ohio, which owns seven non-GM dealerships in the Akron area, including Honda, Nissan, Ford, Hyundai, Mitsubishi, Subaru and Kia.

Waikem, which previously sold Buicks and GMC trucks, had its GM franchises terminated after the company’s restructuring. GM didn’t want it selling imports on the same auto campus, Waikem says. But he hasn’t stopped doing business with Ally, with whom his company has had a relationship dating back more than 30 years.

“The people that were with GMAC and are now with Ally as a bank know the car business,” Waikem says. “I commend them for keeping those people on and not just hiring people that just got out of college. They know the issues we face on a daily basis. Being familiar with us all these years makes it a hell of a lot easier. We’ve been solicited many times by many different banks but we know the people we’re working with and that gives us a lot of confidence.”

“I think the great thing about them is that they’ve known us through good times and bad times, back to the 1980s,” he adds. “They are confident that we are sound enough to ride through the rough times, whereas I think if a bank walked in cold turkey they would have to start all over again.”

While Ally can’t compete with Toyota Motor Credit, say, to finance the purchase of new Toyota vehicles, it does look to capture a lot of the volume at those dealers that fall outside the captive business. That includes used car loans, insurance products, floorplan financing and financing for Ally’s SmartAuction wholesale vehicles sales program. It also offers loans for near-prime borrowers and those with lower FICO scores.

“We will go in and lead with retail financing and over time we will look at providing other services,” Kolski says. “So when we walk into a Toyota store for the first time they’re willing to sit down and talk to us. They are going to have their loyalties to Toyota Motor Credit, but we are there to help them deliver a few more vehicles that they might not otherwise deliver.”

Ally also provides dealer training and customer relationship and retention management.

“That’s something our bank competitors just don’t offer that differentiates us,” Kolski says. “I know there’s no other bank out there that can offer the breadth and depth of services and products that we have.”

Waikem’s dealerships in Ohio usually have $5 million to $7 million of outstandings at any given time with Ally, including construction loans, loans for real estate purchases, leases and floorplan loans. It also buys vehicles from SmartAuction and uses Ally’s cash management program.

They are partners with us in a big, big way,” Waikem says. “It’s been a financial resource that we have used for decades.”

Ally’s separation from GM has another benefit.

“We have great liquidity and access to capital from our bank, which makes us unique” compared to captive finance companies, Kolski notes. “So if we get back into another stressed capital market scenario we will have our deposits to fund our car dealers, whereas if the capital markets seize up and your liquidity dries up, you’re pretty much out of business. So we will be well positioned into the future if there is another disruption in the capital markets.”