We will be live-blogging the GM-AmeriCredit conference call regarding the carmaker’s proposed acquisition of the finance company at 10 a.m. ET. We invite AutoFinanceNews.net members to post comments here about the call and live-blog.
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10:00 AM ET: Call starts on time. GM IR director introduction/disclaimers. Ed Whitacre, Dan Berce Chris Laddel will will offer comments.
Mark Royce and Dan Hammond(sp?) are also on the call.
10:04: Whitacre saying we will “fix” GM’s problem of operating without a captive. GM CEO emphasizes the “move the metal” aspect of the deal. He stresses that GM will continue working with Ally.
“Customers, dealers, and employees” — but not the federal government — expect: that GM moved decisively to acquire ACF.
10:05: Berce is on. He is stressing ACF’s underwriting proficiency. We have also originated prime and near-prime loans, and done leasing, Berce says. He is also stressing ACF’s capital market’s abilities. Berce says the new relationship with GM will expand AmeriCredit’s business, including the adding of leasing. GM loans are now 15% of ACF business — that since the arrangement with GM started last October.
10:09: Liddell, GM’s CFO, offering comments. He says ACF acquisition will expand financing choice for GM customers and will increase GM sales. ACF will also be the “core” of GM’s “captive financing strategy.” Find the presentation here. CFO is stressing that ACF is “scalable.” He says ACF has been strong at managing during “the good times and the bad times.” He says that is a key, because it is important that dealers know that GM will be there for them with solid financing options.
10:13: Capital markets and securitization operations will remain as is at ACF. Ally is an “incredibly important partnership, in our view.” He doesn’t see opportunity to put prime assets on balance sheet. “The acquisition has good economic value.” He says ACF profits will be “shielded” by GM tax losses. (This point was mentioned quickly, so I may not have this point right.)
10:17: Questions start.
JPM Q: Do you have a view on where GM’s penetration in subprime and leasing can get to after this acquisition?
A: We don’t have a view. 4% to 6% are good numbers. Modest in terms of percentages, but a big number. Leasing beyond 7%, but not to 21%. An extra percentage here and there make a big difference from a sales perspective and from an AmeriCredit perspective?
Q: Will non-GM business be hurt from this? Will ACF have guidelines on where they compete?
A: Second question, we think there are tremendous opportunities in the areas ACF is already in. Certainly, opportunities geographically, i.e. in Canada. Non-GM Customers: We are sensitive to it, and we are reaching out to our clients to tell them that.
Q: Issues related to the GM ownership by the government?
A: No. All regulatory issues “will be procedurals.”
Q: AmeriCredit, why now?
A: Can’t answer that. Refers to the proxy statement.
Q: Growth of balance sheet, how will ACF fund that? What kind of capital commitment will be required?
A: This will depend on the securitization market. If securitization goes back to more normal levels, ACF can expand. If the business is going well and needs more capital, that is fine, we will look at that. It is a good problem to have.
Q: What rate of growth?
A: Steady, but not exponential growth.
Q: Barclays Capital: How are you looking at the all-in funding costs? Ford is still funding in the unsecured market? Would you do that?
A: No, ACF has a strong track record in the securitization market, so we don’t see changing the funding model at all. We don’t see any need to change that.
Q: What do you expect will be the impact on ACF’s credit rating?
A: We are currently rate at low single B.
Q: Do you have to get the rating up to grow the balance sheet?
A: We are talking about a $9 billion balance sheet. Ford’s balance sheet is $100 billion. We are talking about a much more manageable balance sheet.
Q: The increased subvention cost? How will that effect profitability?
A: Won’t change subvention. Will remain constant.
Q: Ally?
A: They are a very important partner. It is important that they are successful, it is important that they are strong.
Q: Is this going to funded with cash?
A: Yes.
Q: Timing of the deal? Why bring ACF in house?
A: On a commercial level, they have been running programs for us for a couple of years. Started talking to them about a month ago. It was relatively quickly, but it came together very quickly because we know them very well. It is part of the culture at GM now.
10:30: Call concludes. We had a bunch of questions we wanted to ask, but weren’t allowed. Only three media questions were fielded. Specifically, we wonder how ACF is going to bone up its leasing business essentially from de novo. We also wonder just how far up the credit spectrum ACF will go, considering its last foray above nonprime — with the acquisition of Bay View Acceptance Corp. in 2005 — didn’t end well.
Although I haven’t seen any studies that address the issue, it’s logical to me that as collections actions and repossessions increase, consumers who are trying to avoid their creditors’ efforts will more frequently turn to lawyers to protect them, and that this will lead to an increase in counterclaims against creditors. Most lawyers will tell you that collection lawsuits frequently lead to counterclaims, and that those claims, for the most part, are the types of claims that would never have been brought absent the collection actions.
I am wondering how this happened given the taxpayer’s investment in both GM and GMAC/Ally.
There many questions to be answered about who’s residuals will be used and whether the residuals will be insured.
I don’t think the taxpayers understood they were contributing to a GM acquision fund.
I wonder why they didn’t buy GMAC/Ally back? It seems they dumped GMAC’s bad mortgages onto the taxpayers and just moved on.
I haven’t heard floor plan mentioned. Will GMAC/Ally compete with Americredit? Ally was granted “bank status” to be able to receive federal money. I’m not sure if Americredit has that same status. Does anyone know?
This deal is aimed at the two segments where GM is at a greatest competitive disadvantage: lease and subprime (500-700, half homeowners with $60K-65K gross incomes, not “buy-here-pay-here” customers). It’s not clear from ACF’s current business how they will handle leases, but GM does not claim they will expand rapidly.
For that matter, ACF already handles a large share of GM’s subprime business (no details provided, but the numbers suggest that). Now ACF intends to gradually grow their business (17% of their portfolio is from the past 2 years, 37% from CY2007 at lower spreads and higher default rates). The GM tie is clearly intended to facilitate their originations. I don’t now GM’s credit rating — if I read the documents correctly, ACF is “B” and so does not have low funding costs without access to the ABS market. Does the acquisition let ACF knock down the cost of its warehouse line of credit? But the current ABS market gives ACF a 6.4% pretax return and the loan loss rate on their recent originations is very low (the cohort analysis shows the best performance in the 10 years covered).
One key question is whether the financial regulation overhaul that prevents listing ratings in prospectuses of ABS will kill that market. That appears not to be the intent of the legislation, and may be reversed fairly quickly. However, ACF has a $1.3 bil warehouse line of credit that they have not touched (as of their last financial statements), which they state is sufficient for 6 months of operations. It’s not (yet) time to lose sleep over that issue, at least for ACF.
Now in the background is the late GMAC, now Ally Bank. Given their huge problems as a bank (a lot of human capital in doing subprime mortgages), they are currently relying on the government. I’ve talked a staffer of the TARP Congressional Oversight Panel, and I don’t see that they have a strategy other than to “hang in there.” Depending on what’s happened, Ally may have maintained the humanware to do “prime” car loans and floorplan but they have to build up other business more or less from scratch if they’re to be viable. There are a lot of established banks out there for a new wholesale bank to make a go of it. The pressure will be to expand many lines of business where they have little experience. My own belief is that they should be shut down, perhaps with the auto business sold off to someone else.
So to me GM is doing something sensible, getting a well-run loan origination operation that has an overhang of bubble-era loans but has preserved their core capabilities and is expanding in a measured manner. That will provide a supplement in the 40% of the market that is the potential ACF client base.
However, ACF is not suited to floorplan and has no particular strengths in prime where the cost of funding (credit rating) is key. And Ally is not likely to be reliable for that. Are other banks picking up those businesses? My sense is that dealers still worry about funding, but I’m not close enough to the market to know whether the banks that remained in that market are expanding. And as banks worry about their capitalization, access to the ABS market is important to maintain volume. But that’s even more true for Ally.
GMAC went back to the 1920s, and was a key component of GM’s overtaking of Ford (Henry didn’t believe people should borrow … though he showed no compunction about asking his dealers for cash up front). They helped develop the car loan business. But it’s a mature business now, at least at the “prime” end of things. Ally isn’t a particularly reliable partner for GM right now, and in my opinion that is unlikely to improve.
So the ACF acquisition will address a gap left by Ally’s difficulties in financing any but the best loans. It would be nice to hear what GM is doing about floorplan and prime. But my guess is that days when a captive finance operation was needed for that business are past. Leases? — we’ll see, but the projection from GM is of incremental growth, they’re at 4% now (industry average 21%) and are aiming at 7% or so.