Exclusive: Ally assumes it will lose entire GM leasing business - CEO

Thu Feb 19, 2015 4:45pm EST
 
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By Peter Rudegeair

NEW YORK (Reuters) - Ally Financial Inc (ALLY.N: Quote) is taking steps to replace its remaining exclusive leasing deals with General Motors Co (GM.N: Quote), betting that the largest U.S. carmaker will eventually finish taking that business in-house, the auto lender's chief executive said in an interview.

GM has already said that its financing arm, GM Financial, would replace Ally as the exclusive lessor for Buick, GMC and Cadillac vehicles. Ally expects GM Financial to eventually take over leasing for Chevrolet as well, Ally Chief Executive Jeffrey Brown told Reuters on Thursday.

"That is a planning assumption we've got today," Brown told Reuters.

GM's pullback from Ally threatens to cut off about one-quarter of the bank's retail lending business, though the company expects the changes will have a minimal financial impact in 2015. Brown said Ally is redeploying capital to other types of business, like lending for used cars and to dealers not associated with GM and Chrysler.

Last year, Ally's used car lending volume was up 18 percent from 2013, and its loans to those kinds of dealers increased by 45 percent. Despite that growth, 23 percent of its $41 billion in auto loans and leases last year came from the type of leasing relationships that GM is pulling away from.

GM's decision was a shock to Ally investors, who sent the auto lender's stock down 5.5 percent on Jan. 12, the day after the automaker announced it was replacing Ally with its own lender.

Ally and GM have a longstanding relationship, beginning in 1919 when GM launched its first in-house financing arm, known as GMAC. The automaker sold a majority stake in GMAC to private-equity firm Cerberus Capital Management in 2006, but maintained the business relationship.

Both GM and GMAC were bailed out by the U.S. government at the height of the financial crisis, and in 2013 GM sold the last of its ownership stake in Ally, as GMAC renamed itself in 2009.   Continued...

 
Traders work at the Post that trades Ally Financial Inc. following the IPO on the floor of the New York Stock Exchange April 10, 2014. REUTERS/Brendan McDermid