Since 1919, when General Motors launched General Motors Acceptance Corp., the captive in auto finance has had one goal: move metal.
Today, the relationship between captive and original equipment manufacturer or retailer has evolved as they work synergistically to:
- Support dealers and consumers through economic cycles;
- Promote and retain customer loyalty;
- Distribute profits to the parent; and
- Sell cars — of course.
These four tenets have served as a beacon for GM Financial President and Chief Executive Dan Berce since General Motors acquired subprime lender AmeriCredit in 2010 following the 2008 credit crisis. The crisis ended with a government bailout of the Detroit-based automaker and divestiture of its former captive, General Motors Acceptance Corp. (GMAC). GMAC would become Ally Financial in 2010.
“GMAC had gone their own way and, through financial transactions and a government bailout, GM’s ownership of GMAC fell below 10%,” Berce told Auto Finance News. “They really didn’t have that commonality of interest anymore. It almost became a third-party relationship, not a captive relationship.”
Reforging and then building upon a symbiotic captive-OEM relationship has been Berce’s charge over the past 13 years and continues to be the driving force behind the company’s lending strategy.
“We didn’t build [GM Financial] in rapid form. This was an evolution that took a decade to go from subprime platform to being a full-fledged captive. It was a journey,” Dan Berce, President & CEO, GM Financial
And the journey isn’t over.
Staying the course on the four tenets of the captive value proposition was key to GM Financial’s growth this year — along with a rockstar team of more than 9,000 employees, close collaboration with GM and a “fortress balance sheet,” Berce said.
The Fort Worth, Texas-based financier posted year-over-year gains in origination volume over the last three quarters in stark contrast to an industry that has been defined this year by pullback — or outright exit — from auto lending.
Originations in 2023 increased
The gains pushed GM Financial’s total managed portfolio up 5.2% to $115 billion as of Sept. 31 from yearend 2022, according to an AFN analysis of the financier’s SEC filings.
GM Financial and GM develop their strategy, including retail penetration targets, through monthly meetings spearheaded by GM Financial President of North America Operations Kyle Birch, GM Financial Chief Operating Officer Jonas Hollandsworth and others, Berce said.
As a member of GM’s senior leadership team, Berce reports directly to GM Chair and Chief Executive Mary Barra in enterprise strategy meetings twice a month.
“We are very well connected with GM on go-to-market strategy,” Berce said. “What’s the best strategy, incentive-wise and finance company-wise, to help drive sales?”
Incentives play a key role in driving GM Financial’s penetration rate. Retail penetration in Q3 2023 fell to 40.8% on 674,336 vehicle sales, down from 42.9% on 555,580 vehicle sales in the corresponding reporting period in 2022, largely due to “lower loan share associated with types of incentive programs offered,” according to the lender’s earnings presentation.
Driving sales goes hand in hand with the second tenet of GM Financial’s captive value proposition: enhance loyalty and retention for GM. Yet, the captive does not solely rely on subvention to help build loyalty and retention, Berce said.
“We have for a long while now used artificial intelligence in the customer experience area. We have a chatbot that is fed both hard data and unstructured data,” Berce said. “The goal there is to provide great customer experience.
“Customer experience is a great playground for the use of AI, whether it is figuring out the best time to call, the best effectiveness of a call, or even simplifying the customer agent’s life by generating notes of the call,” Berce said.
GM Financial also in May 2022 stood up Cadillac Financial, a premium, white-glove service “geared toward getting the customer back in a GM vehicle,” Berce said. “We’re proud that for seven years running we’ve been the top captive in terms of loyalty.”
GM Financial also offers additional incentives to dealers for providing retail installment contracts through its Dealer Dividends program, which offers cash incentives to GM dealers who finance their inventory with the captive.
Dealer floorplan penetration rate has risen this year, to 1,901, or 45% of U.S.-based GM dealers, up from 1,830, or 42.7% at the end of Q3 2022, according to the earnings presentation.
“Floorplan dealers have both new and used penetration targets that if they hit and exceed, they can earn cash dividends,” Berce said. “The higher the penetration, the more meaningful those dividends can be. It has proven to be a really successful program because dealers are motivated to provide GMF a more than fair share of the retail business.”
Just as GM Financial’s retail strategy has inspired loyalty among its customers, one of Berce’s greatest qualities as a leader has been to inspire loyalty among his team members through compassion and trust, his colleagues said.
Approachable. Authentic. Competitive. Down to Earth.
These are just a few ways GM Financial Chief Financial Officer Susan Sheffield describes Berce. Sheffield has worked with Berce for nearly 23 years.
“He’s very much about giving back to the community and he’s done it in various ways,” Sheffield told AFN. “He’s been the chair of the Chamber of Commerce here in Fort Worth. He’s a well-respected business leader in the community and has been for years.” Berce has also served as head of the Board of Trustees at Cook Children’s hospital and as a board member of United Way of Tarrant Country.
“I consider him to be a mentor, but also a great sponsor for me,” Sheffield said. “This company over the span that he and I have both been here has been through ups and downs. And I can tell you, as long as he was in a leadership role, we would follow him anywhere because we know he’s smart and he’s a caring person. He’s very balanced. It comes from a place of him wanting you to perform better.”
“As long as he was in a leadership role, we would follow him anywhere,” Susan Sheffield, GM Financial.
Birch, the president of North American operations, has worked with Berce for more than 25 years. The two have been “joined at the hip” for the better part of 16 years, he said. He praised Berce as “always being a consummate professional,” as well as a lifelong friend.
“He’s been not only my boss and a leader but a mentor and a friend,” Birch said. “I had a pretty dramatic moment in my own life that happened in 2012. I didn’t know if I was going to stay with the company. He was very calming [for me], and talked me into staying plugged in and engaged, and I decided to do that. He helped me through all that, [and] I came out a better person on the other side of it.”
Berce’s competitive spirit also helps motivate his team, his colleagues said.
“He’s very competitive. I play golf with him, and if on a rare occasion I could beat him, he doesn’t take that lightly,” Birch said. “He actually broke my nose in a pickup basketball game when we were at AmeriCredit,” he laughingly added.
But despite this hard-driving attitude, Berce is “not an intimidating person,” Sheffield said. “He’s very approachable.”
At the end of the day, Berce’s leadership goes beyond inspiring personal loyalty, Birch said. “His finance background [and] accounting background coupled with his acute business sense has been the driving force of making us successful. He’s the kind of person I want to work for. Someone that number one, they have a plan. They drive results and you achieve results.”
“I think everyone here from an executive standpoint on down knows that he’s kind of the rock of the company,” Kyle Birch, GM Financial.
Supporting dealers and enterprise profitability
The third tenet of GM Financial’s value proposition is to provide support through economic cycles; this proved essential to the captive’s origination growth this year, Berce said.
“A non-captive lender — especially in subprime — would typically go into the market strong, back out, change their underwriting,” Berce said. “As a captive, you really need to be consistent and make sure you’re there for good times and bad.”
GM Financial refines its underwriting frequently, “looking for opportunities and risks,” but hasn’t made any meaningful changes to its lending parameters, Berce said. “They’re just nip-and-tuck tweaks that we would continually do” regardless of the economic cycle.
“We built a fortress balance sheet of liquidity and balance sheet strength that we believe we can be there for our dealer’s month in and month out,” he said.
In fact, credit performance at the captive outperformed the wider industry in Q3, with 30-day delinquencies landing at 2%, according to the lender’s earnings presentation. For comparison, the industry average of 2.33%, according to Experian. Similarly, 60-day delinquencies landed at 0.7% in Q3, compared with an industry average of 0.91%.
The fourth and final value proposition is to contribute to enterprise profitability, Berce said.
“We want to pay significant dividends to GM, which we’ve been able to accomplish. We’ve had a great run of profitability and dividends,” Berce said.
GM Financial paid $450 million in dividends to GM in Q3, and $1.4 billion year to date, up from $1.1 billion in the corresponding period in 2022, according to the lender’s earnings presentation.
Building new businesses
Looking to 2024, GM Financial plans to expand the new product launches it has taken responsibility for, including its telematics-based insurance, OnStar Insurance, its GM Protections suite of ancillary products, and a “whole new line of fleet solutions,” Berce said.
“A fleet customer can do a loan or lease through GM Financial, then add on services like fuel card or prepaid maintenance — and eventually telematics — that are all bundled into one bill,” he said.
The captive is also looking to new areas where it can deploy AI, he said. “Coding, IT is another area we think there’s a lot of uses cases. We’ve been cautious about really expanding our use of AI in underwriting.”
As far as the future of the economy is concerned, Berce predicts a continued slowdown in 2024 but isn’t worried, saying, “I don’t think we’re going to have a full-fledged, hard recession.”
GM Financial’s portfolio over the years has migrated toward 80% prime, he said. “We’ve got a really good base and strong customers, so I think any economic stress will have limited impact on us. We’re certainly prepared for it and looking for it, but its not as big of a dynamic of our model today as it was even a short five years ago.”
Since becoming chief executive of AmeriCredit in 2005, Berce has led the lender through an acquisition, stood up what would eventually become an exclusive lease program, expanded GM Financial into Canada, launched a floorplan lending program, and created a subvented finance platform, and he humbly takes no credit for any of these accomplishments.
“It is really important to surround yourself with good people, that’s critical to the success of any leader. And fortunately, I’ve been able to build a really strong loyal team,” Berce said.
“Everybody’s just rowing in the same direction. And that’s just a pleasure.”