GM Dealers Secure More Leases

Dealers using General Motors’ captive finance company, GM Financial, are seeing a gradual rise in new leases driven in part by factory incentives.

Meanwhile, GM Financial-affiliated dealers can expect fewer lease returns in the second half of 2024. That reflects another industry trend: an echo from three years ago, when new-vehicle inventory was in critically short supply, and automakers across the board cut lease incentives. Fewer lease originations then mean fewer lease returns now.

“We obviously had a strong first half at GMF, earning $1.6 billion,” says Dan Berce, president and CEO of GM Financial, Fort Worth, TX, in a recent earnings conference call for parent General Motors.

“The couple of factors that would be headwinds in the second half are that we’re going to have less lease terminations in the second half, along with expectations for mildly lower used-car pricing,” Berce says.

Fewer lease terminations are a headwind because off-lease vehicles are a popular source of certified pre-owned (CPO) used cars. Dealers recondition CPO units to factory requirements, then sell them at a premium vs. non-certified. Besides reconditioning, CPO vehicles come with a factory-backed warranty and whatever remains of the original owner’s new-car warranty.

GM Financial’s pretax income was $1.6 billion for first-half 2024, an increase of 1.4% vs. a year ago. For the second quarter, pretax income was $822 million, up 7.3% vs. a year ago.

Higher interest rates accounted for much of the increase in second-quarter pretax income, but rates cut both ways — a  positive in terms of GM Financial’s finance-charge income, but partly offset by increased cost on debt GM owes.

Total GM Financial originations, including loans and leases combined, were $13.6 billion in the second quarter. That’s down less than 1% from a year ago. In the first half, GM Financial’s total originations were $26.2 billion, down 1.8%.

Within the total, lease share increased at GM Financial to 36.5% of originations by value in the second quarter, up from 33.5% a year ago. Lease share in the first half increased to 35.4%, up from 31.9%.

That’s much higher than parent GM’s lease penetration, which was about 17% for the quarter. The lease share is magnified at GM Financial because GM Financial finances virtually all of GM leases but only a portion of GM retail volume. It doesn’t include any of GM’s cash buyers, so GM Financial’s lease share is a large numerator on a relatively small denominator.

GM Financial reports its share of GM’s U.S. retail volume in the second quarter was 37.5%, down from 41.4% a year ago. For the first half of 2024, U.S. retail penetration was 38.6%, down from 43.5%.

As a general rule, captive finance company shares fluctuate with factory incentives, and that’s especially true of leasing. Since leasing is up at GM Financial, that implies higher lease incentives.

Meanwhile, without singling out lease incentives, Mary Barra, GM chairman and CEO, says GM’s incentives as a percentage of average transaction price have been more than 1% lower than the industry average for four quarters in a row — hinting that the automaker hasn’t gone overboard on incentives.

Barra also says in the call that GM’s U.S. EV deliveries were up 40% in the second quarter vs. a year ago, compared with U.S. industry growth of 11%. In context, that’s a big increase for GM but still a relatively small volume. GM reports that EVs accounted for 21,930 units, or 3.2% of total deliveries, in the second quarter. Another trend at GM Financial is that the captive is increasing its share of prime-risk borrowers and lowering its share of riskier borrowers with subprime credit.

Berce says that in the second quarter, GM Financial’s portfolio was 75%-plus prime. A year ago, GM Financial’s portfolio was 74.3% prime, defined by GM Financial as having credit scores of 680 and above. In the second quarter of 2022, it was 70.5%.