It’s been an up and down journey for General Motors’ auto finance arm, but the company is now back in its parents hands and enjoying renewed success and optimism, as Mike Cobb reports
General Motors’ financial arm GM Financial, better known as GMAC has been through some turbulent years. It has been spun off from General Motors (GM) and sold to a private equity firm, changed its name to Ally Financial and lost the exclusive relationship in Europe with many of its dealers. So bad had the financial situation become at one point that the US government ended up owning more than 70% of the company.
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But the company’s decision to shed its mortgage businesses during the bad times allowed the firm to focus once again on the core motor finance side of its business.
In April 2013 the recovery of both GM and the former GMAC allowed the former parent to readopt the child and Ally Financial once again became GMAC.
Alternative provider
In the interregnum, however, Vauxhall, the UK arm of GM began to use Santander as its dealer finance provider, and across Europe the use of GM Financial’s finance product began to wane across the Opel dealerships.
Erhard Paulat, chief operating officer of GMAC, believes this period did no lasting harm to the reputation of the financial operations. "I think following the acquisition on 1 April for the European businesses and then from the 4th quarter onwards being the exclusive provider on any manufacturer-subsidised product was welcomed by the vast majority of the network," he says.
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By GlobalData"If you ask a Vauxhall dealer today, speaking about the UK for a moment, I think generally the view among our dealer partners would be that they appreciate that we have remained focused on auto finance and serving their needs and the needs of their customers and worked with them through the turbulent times." Paulat continues.
Driving this has been a focus on creating a "win-win" relationship with the dealers explains Paulat. Where the dealers can see that with a strong captive finance provider in GM Financial they also help their own business to flourish.
Exclusive provider
In the first few months after GM purchased GMAC, Santander continued to provide the UK’s Vauxhall dealers with their finance needs alongside GM Financial. In the last quarter of 2013 GMAC was again given the exclusive rights to provide for the UK dealership – a situation, Paulat says, that has given them a "buoyant" business.
On the continent the situation has been slightly different. "The acquisition by GM last year made us a finance partner for additional dealers, so we have seen a pick-up in customer numbers," says Paulat. "For example, in Germany now we have 96% of the dealer network committed to doing business with us in 2014 through our dealer volume plan commitment." But if the past has been difficult, Paulat believes it should remain there. "I think we should leave the past behind, because the past is the past" he says. His focus instead is on the fact that during that time GMAC’s commitment to clients, and what they were told, was clear, which is something he is proud of.
This commitment, he says, has been recognised by the industry. "In 2012, even when times were not quite as easy as they are now, GMAC was named best auto finance company 2012 by the Institute of Transport Managers for our outstanding services provided to both the UK and European automotive sectors. And last year, in Germany, we won a most improved captive finance company award," he explains, "That’s showed that we have really sharpened up our act when it came to quality of customer service, quality of products, competitiveness of products and everything else. And that’s what we are absolutely committed to for the future so we know that we need to be, we want to be, the best.
"We don’t want our dealers to work with us only because they have to because we are part of the GM family. It’s all about being a market-driven competitive company that’s easy to deal with – and that’s the reason why I want dealers to do business with us – and that what we are working towards." Paulat adds that he hopes the improvements the company has made will help it with its dealer relationships.
The sharpening up of its act has also brought more than awards and plaudits from dealers to GMAC. Business performance has significantly improved since the reacquisition by GM.
Paulat outlines just how much the business had improved in the first nine months under GM’s ownership. "We increased our retail penetration of GM business since the acquisition and expect that trend to continue in 2014. So retail penetration in Europe went up 6.7% from June to December and is now 34.7%. And on the wholesale side we always had a dominant position, one where we have traditionally been strong. But even there we were able to grow a bit further and now support 98.4% of new car sales in Europe as of December 2013."
The success of the finance business comes at a time when the European manufacturing side of General Motors has begun to grow once again. December 2013 was a remarkable month for the brand, particularly in the UK, where it became the biggest-selling marquee under the Vauxhall name, taking 13.9% market share according to the Society of Motor Manufacturers and Traders.
Growth plans
In March Karl Thomas Neumann, chief executive of Vauxhall Opel announced plans to grow the business saying: "We aim to become the second-biggest brand in Europe."
This new plan is something Paulat believes the financial arm will be large part of. He says: "We will play an integral role as part of that growth strategy, as we are again fully integrated into the corporate value chain. Our objective as a company is to help Vauxhall Opel sell more cars and support the sales of our dealer partners.
"And, with the total amount of money invested by GM at the time, I think it also probably underlines the important role the company believes financial services will play in helping Opel Vauxhall."
One of the ways GMAC will help, says Paulat, is by thinking up new and innovative products for the finance and insurance managers to work with.
One of these innovations is focused on the German market. "Germany is a very leasing-heavy market and we were looking for ways in which we could better support the dealer business model," explains Paulat. "One of the ways that we can do that is by offering an operating lease where the dealer has the option basically to opt to hand the remarketing of the car and the residual value of the car to the manager, or in our case the captive.
"They can obviously buy the used car when it comes back, but all of that is optional for them and we believe it will provide them with another tool in the toolbox, so to speak, to penetrate the market better," he says.
Another of the objectives of this product is to enhance the relationships with the smaller dealers in Germany who may have previously been reluctant to offer leasing deals, thus enhancing penetration yet further.
Leasing is, therefore, for GMAC a better product to help with penetration and retention of the consumer market, says Paulat, and for this reason while Germany has a PCP-like product, Smart Buy, for GMAC a strong lease product is "quite vital" in the German market, especially for younger consumrs buying cars such as the new Vauxhall Adam.
The downside of this for GMAC will be that they could well take on the greater burden of the remarketing and residual risk from the dealerships.
It’s something that Paulat downplays, and instead focuses on the enhanced relationship lease products and PCP can give GM with customers over the life of the deal. "I think there are more frequent customer touch points during the customer life cycle. And it’s all about building a relationship with customers and retaining them, and even, potentially, during the term of the lease to provide them with financial offers for a newer or upgraded car that’s attractive to them."
Regulation
Customers are therefore at the very centre of the GM model, in finance and retail terms. Paulat describes it as a "big topic" for the company and because of this the incoming FCA regulations are not a worry for the GMAC business. "We obviously support the new regulation; it fully matches our ideas for putting the customer at the centre of our business model, which is clearly what we do and believe in," Paulat says.
"If the customer wins, we as a business win and I think that’s very much the ethos that we have subscribed to over the past couple of years," he says.
Regarding the way the regulations have been introduced he’s a little more guarded but no less positive, especially when it came to the amount the Financial Conduct Authority (FCA) listened to the concerns of the industry. "Having a transition period and having had the ability to provide comments during the consultation period was a really good thing," he says.
On the continent again things are "slightly different" says Paulat. In Germany, for example, finance companies are obliged to have banking licences and a strict regime has been in place for many years. The issue, Paulat says, in any jurisdiction is not
the harshness of a regime but when the regulations change.
"There’s a cost to regulation and implementing regulation in all its various aspects, and it’s the willingness and the understanding from a political viewpoint, and from a regulatory viewpoint to allow that transition to take place, because ultimately it’s about what the intent is," says Paulat. The FCA, he believes, has taken the right and positive approach in allowing a transition period, rather than taking a "penal approach" from the start of the new regime.
Bigger concern
A more worrying development for the industry he believes comes not from the CONC regulations but from another area that is concerning British regulators. "I think it’s the UK regulator’s perspective on add-on products which will be most interesting to the motor finance business overall. So I think that’s going to be the big, big topic for some time to come, because that could impact dealer business models particularly in the UK, so that’s going to be a big issue."
But any investigation that may happen is unlikely to impact the newly resurgent GMAC motor finance business in Europe. The business has the customer-focused approach that regulators in the UK and mainland Europe are looking for, and according to Paulat the customer will only become an increasing focus for their efforts.
This is also the approach that GMAC feels will help the Vauxhall Opel brand become the second-biggest in Europe, by providing the customer with what they want at the cheapest prices alongside the best service. If it succeeds, GMAC and GM can be sure that the last few turbulent years can be happily left in the past.
