DBRS: GMF 3Q Results Higher YoY; Retail Volume Growth and Solid Progress on Strategic Initiatives

Summary:
• GMF reported 3Q15 net income of $179 million, 13% higher than the comparable period a year ago on growing retail volumes and controlled operating expenses.
• Strong new and used vehicle sales and improving penetration of GM sales supported growth in retail loan and lease volumes in the U.S., while International origination volumes were lower largely due to the impact of foreign currency movement.
• DBRS rates General Motors Financial Company, Inc.’s Issuer and Senior Unsecured Debt at BBB (low) with a Positive trend.

DBRS, Inc. (DBRS) considers General Motors Financial Company, Inc.’s (GMF or the Company) 3Q15 results as solid and providing further evidence that GMF is successfully executing on its strategic initiatives, including increasing its penetration of General Motors Company (GM) sales, improving operating efficiency and transforming its funding profile to a more balanced mix. Importantly, DBRS notes that GMF is making progress on these initiatives while maintaining stable credit performance.

The quarter’s results benefited from a substantial year-on-year (YoY) increase in retail loan and lease volumes to a record $10.9 billion in 3Q15. Growth was predominately in leasing with volumes up significantly reflecting the benefits of GMF’s lease exclusivity on GM-related vehicles. Strong GM sales, expansion of prime lending, and higher penetration of GM sales was the driver of a 61% YoY increase in North American retail loan originations. While International retail loan contracts were higher in the quarter, volumes were lower due to the impact of the strengthening dollar. As expected, GMF’s balance sheet is becoming more North American-oriented with 69% of average earning assets in North America at September 30, 2015, compared to 53% a year ago.

The higher retail loan and lease volumes drove revenues 35% higher YoY to $1.7 billion, while the mix of revenues continues to reflect the impact of the shifting volume mix. The aforementioned increase in lease volumes resulted in a substantial increase in lease revenues, which currently comprise 47% of total revenues compared to 24% a year ago. Meanwhile, finance income was 5% lower YoY as higher finance income in North America due to receivable growth was more than offset by the impact of the strengthening dollar.

GMF continues to invest in the franchise to support and complete the build-out of its full captive strategy in North America. As a result, operating expenses were approximately 8% higher YoY at $320 million. However, GMF’s efficiency ratio (operating expenses as a percentage of average earning assets) was 2.5%, a 60 basis point improvement from 3Q14, indicating that GMF is capturing the benefits of its increasing scale.

GMF’s balance sheet remains solid with asset quality metrics at or better than the prior year period. Importantly for credit in upcoming periods, the Company’s origination mix is becoming more prime-oriented. In 3Q15, prime and near prime customers accounted for 81.0% of North American loan and lease originations compared to 55.9% a year ago.

GMF continues its march towards a more balanced funding mix with unsecured funding accounting for 41% of total funding at September 30, 2015, compared to 32% a year ago. Liquidity remains ample at $11.6 billion at September 30, 2015.

DBRS rates GMF’s Issuer and Senior Unsecured Debt at BBB (low) with a Positive trend.

Note:
All figures are in U.S. dollars unless otherwise noted.