Big Auto Lenders Boost Profits

Strong earnings reports flowed from major prime and subprime automotive lenders. Two companies that had reported losses — Ford Credit and AmeriCredit — came up with substantial earnings and optimistic forecasts for this summer.

Ford Credit boosted its net earnings 72% from a year ago to $442 million in the first quarter after sharply reducing its portfolio. It also paid its parent company, the financially-strained Ford Motor Company, a dividend of $1 billion in March.

Ford Credit Chairman and CEO Greg Smith says its U.S. loan and lease contract volume in the first quarter was cut 28% to about 472,000. Ford Credit closed its Fairlane Credit subprime subsidiary last year and cut back on financing of non-Ford vehicles sold by Ford and Lincoln Mercury dealers.

The once subprime kingpin, AmeriCredit, Inc., followed up its decision to slash loan originations to a quarterly $750 million with a $14.5 million net profit in the January-March period.

AmeriCredit's new president, former CFO Daniel Berce, who replaced company founder Michael Barrington, promises to strengthen dealer relations as new loan acceptances fall from quarterly levels that exceeded $1.3 billion last year. AmeriCredit had dropped more than 400 “under-performing” dealers and laid off about 1,000 workers.

GMAC earned $699 million in the first quarter, up nearly 60% from a year earlier, of which finance operations contributed a jump of 18% to $302 million. GM Chairman G. Richard Wagoner, Jr., says that reflects higher asset levels as well as lower credit loss provisions.

Two independent subprime lenders — Westcorp, of Irvine, CA, and Credit Acceptance Corp of Southfield, MI — enjoyed increased earnings and revenues in the first quarter.

Westcorp's net profit rose 40% to a record $23.5 million as auto contract purchases grew 7% to $1.4 billion. The Westcorp portfolio was aided by pullbacks of Ford Credit and AmeriCredit from subprime financing, say analysts.

Credit Acceptance announced net income of $8.8 million, up from $6.3 million a year ago. Loan originations rose 20.8% to $232.0 million due to a rise in the number of loans per active-dealer partner.