The possibility of a recession seems less likely this year, GM Financial CEO Dan Berce said, adding he is “quite optimistic” industrywide sales volumes will stay strong to finish out 2023.
One potential headwind for the remainder of the year would be a downward trend in used-vehicle prices, Berce said, which have fallen steadily after rising this spring but slowed a bit in late July.
Berce told Automotive News that GM Financial is “set up pretty well” for the second half of the year.
“Everybody was predicting a recession sometime in ’23. I think that’s been pushed back to a soft landing,” Berce said. “That bodes well for consumer performance in the second half of the year.”
General Motors’ captive lender has seen prices of 3-year-old GM vehicles coming off lease fall almost every week since late April, Berce said. GM Financial noted a steady decline in used-vehicle prices from June to late July.
“That being said, we experienced a really nice increase in pricing through late April. So sitting here today in early August, we’re only slightly, marginally, below where we were on that age of used-car pricing,” Berce said. “We’re only slightly below where we were at the beginning of the year.”
For the second quarter, GM Financial reported net income of $571 million, down from $829 million in the same period a year ago. Earnings before taxes for the quarter that ended June 30 were $766 million, down from $1.1 billion a year earlier.
GM’s captive lender said its earnings were affected by higher interest rates , even as loan and lease originations increased in the second quarter compared with the same quarter in 2022. GM Financial reported $9.1 billion in second-quarter retail loan originations, a slight uptick from roughly $9 billion in the year-ago quarter. The captive originated $4.6 billion in leases, more than the $3.9 billion in lease originations from the second quarter last year.
Incentives remain historically low, Berce said. He added that GM Financial, as well as other captives, has seen a shift in consumer incentives away from cash on the hood in favor of subvented interest rates. The Fed has increased interest rates to control inflation, which has contributed to rising monthly vehicle payments.
“Rate subvention has become an attractive play to get the consumer in new loans,” he said.
GM Financial expects leasing to increase this year, though not to pre-pandemic levels while incentive spending remains low, Berce has said. The percentage of GM’s sales that were leases dropped slightly in the second quarter from the first quarter of this year — 16.3 percent compared with 16.5 percent — but is higher than 15.8 percent in the second quarter of 2022.