GM Financial Reports Downdraft in Used Car Values
GM Financial reported $202 million in net income in the first quarter of 2017, a 23% increase over the same time last year, despite pressure on used-car values, the company has announced.
Used-car values have declined 7% in recent months, and that trend should continue through the rest of 2017, further pressuring the wholesale market, said Charles Stevens, the company's executive vice president and CFO.
“Obviously, used-car pricing impacts us in many ways, including pressuring our residual values, increasing the cost of leases for our customers, and reducing off-rental pricing,” Stevens said during the company’s first quarter earnings call. “This is why we have put such an emphasis on strengthening our brands and reducing our reliance on rental car sales.”
General Motors has been working closely with its financing branch to optimize its incentive spending in order to inhibit the growth of leasing and move customers toward traditional loans. One example of this is how the company is allocating more incentive money toward down payment assistance for traditional financing instead of special leasing offers.
And, according to first quarter data from GM Financial, this strategy to allocate more incentive money toward traditional financing has been working. Compared to March 2016, retail loan originations have been trending upward, while lease originations have been trending downward.
The amount of GM customers opting for GM Financial for their vehicle financing has also grown. Through the first quarter of 2017, approximately 50% of customers financed their vehicles through GM Financial, compared to 37.5% in the same time last year, meaning that a larger percent of people are taking advantage of the incentives being offered by GM.
Further evidence of more buyers taking advantage of GM’s incentives is the fact that more prime credit — those more likely to qualify — and fewer near-prime and sub-prime credit customers are buying from GM.
First quarter results show that 74.5% of GM’s buyers had prime credit scores, compared to 68.3% a year ago. Meanwhile, 11.2% of buyers had near-prime credit scores and 14.3% had sub-prime credit scores, compared to 13.3% and 18.4%, respectively in 2016.