GM Financial reported first-quarter net income of $878 million, a surge from the pandemic-impacted first quarter of 2020, driven in part by used-vehicle prices that continue to climb during the global semiconductor shortage.
“GM Financial has provided a significant offset to some of the semiconductor headwinds. Strong used-vehicle prices combined with consumer credit strength helped to drive” first-quarter profit, General Motors CFO Paul Jacobson told analysts last week. “The used-vehicle prices that GM Financial is clearly benefiting from [are] likely to stay in place as long as new-car inventories remain low. That’s an example of … a variable that’s sort of hedged directly against the challenges of the semiconductor.”
Since Jan. 1, GM Financial’s used-vehicle prices have climbed about 30 percent, Dan Berce, CEO at GM Financial, told Automotive News. Used-vehicle values rose 11 percent from the first quarter of 2020.
The share of vehicles returned to GM Financial at lease end fell to 55 percent, compared with 79 percent a year earlier.
“To the extent that the vehicles are returned to us for remarketing, we’re able to capture that entire upside through auction proceeds,” Berce said. “To the extent that customers keep the vehicle, they’re paying us the contract residual, which typically is in excess of the origination residual that we set at the inception of the lease. Either way, we’re doing well, whether the customer keeps the car and whether we end up getting the car for remarketing.”
The GM captive expects used-vehicle prices to continue to increase throughout the year, Berce said.
GM Financial also paid a $600 million dividend to GM in the quarter and expects to pay at least $1.2 billion for the full year, said Berce.
The captive’s net income of $878 million compares with $167 million a year earlier, when the pandemic began forcing dealerships and plants to close. GM Financial’s revenue declined 4 percent from a year earlier to $3.4 billion.
Loan originations climbed 27 percent to $8.2 billion, and lease originations increased 14 percent to $5.8 billion.
Consumer delinquency rates reached a record low in the quarter. The 31- to 60-day delinquency rate fell to 1.4 percent, compared with 2.7 percent a year earlier.
“That’s been driven by all the government stimulus money in the market, changes in consumer spending patterns,” Berce said. “Consumers just haven’t been spending like they did pre-pandemic. That is really driving earnings for us. We don’t expect things to begin to normalize from a credit standpoint until at least later in the year, maybe into 2022.”
Despite upside from high used-car values and improving credit metrics, GM Financial took a hit because of reduced floorplan profit during the quarter as dealers quickly turn their limited new-vehicle stock.
Commercial finance receivables, mostly made up of dealerships’ floorplan loans, fell to $7 billion in the quarter, compared with $12.3 billion a year earlier.
“Because the wholesale business is a less-risky business compared to either retail or lease, the margins we get on wholesale are less, but they are still meaningful to our overall financial results,” Berce said. “When we have a runoff of any of our assets, it hurts our earnings power.”