GM Financial’s loan originations plunged 35 percent in the fourth quarter as a new incentive program offered by General Motors got off to a slower start than anticipated. Despite the decline, lease originations and net income rose, and revenue inched up slightly.
In the fourth quarter, loan originations at GM’s captive finance company fell to $5.5 billion, while lease originations rose 3 percent to $5.4 billion, the company said in a statement last week.
The rollout of the new GM incentive program drove much of the dip in loan originations, GM Financial CEO Dan Berce said. The traditional incentive offerings, such as down payment assistance, were successful in the first half of the year.
But the automaker launched new incentive programs in the fourth quarter: promotional rate programs designed to retain GM customers and drive business to the captive. The programs lagged as the company worked on dealer training and customer acceptance, but it has gained momentum in the first quarter, Berce said.
GM’s mix of incentive programs in the third quarter also drove down the captive’s originations.
Fourth-quarter net income increased 19 percent to $377 million and revenue rose 1 percent to $3.6 billion.
Full-year loan originations fell 4 percent to $25.2 billion while lease originations dipped 1 percent to $22.4 billion.
Net income was flat at $1.6 billion and revenue rose 3.8 percent to $14.6 billion.
GM Financial paid a $400 million annual dividend to GM in October after paying a $375 million dividend to its parent for the first time a year earlier. It will continue to return a cash dividend to GM annually until it consistently holds 50 percent of GM retail sales penetration in the U.S. and doesn’t need to retain capital to support growth. GM Financial financed 43.1 percent of GM’s U.S. vehicle sales last year.
GM CFO Dhivya Suryadevara expects GM Financial to begin transferring all net profits back to GM between 2023 and 2025.
“If you think about the tailwinds and headwinds [GM has] had from a cash-flow standpoint, the biggest tailwind we expect beyond 2020 has been GM Financial dividends, the rest of their earnings to the parent,” she said.
In 2019, GM dealerships received more than 2 million sales leads through GM Financial, she added. More than 78 percent of lease customers come back to GM when their lease expires, she said.
“Conquests are much more expensive than retaining a customer, so this allows us to strengthen the vehicle sales and help with demand there as well,” Suryadevara said.
In 2019, GM sold 2.9 million light vehicles in the U.S., down 2.3 percent from the year earlier.
Industrywide, U.S. light-vehicle sales declined 1.2 percent to 17.1 million in 2019.
Berce expects stable credit trends for GM Financial and the auto finance industry in 2020. GM Financial’s 31-60 day delinquency rate improved slightly to 3.2 percent in the fourth quarter, and credit metrics are stable across the spectrum, from prime to subprime, Berce said.