‘We truly feel like a captive’: GM Financial Canada

It’s been a busy two years for the team at GM Financial Canada. National rollouts of many products have meant expansion and development in an increasingly crowded market.

Howard Cobham, senior V-P of dealer services, recently caught up with Canadian AutoWorld to review where the captive has been and where it is headed.

Canadian AutoWorld: GM Financial Canada acquired FinancialLinx in April 2011 and since then has introduced a national leasing program, a retail non-prime option and full-scale commercial lending this past March. How is business?

Howard Cobham: It’s been a crazy two years. All three of those are significant initiatives, especially when you are taking them out to a national dealer network like General Motors. But I think the culmination of the three products have helped position us as a true captive in Canada for General Motors.

When GMF Canada started, dealers recognized us as FinancialLinx. Now dealers proudly view us as GM Financial.

And you can add to that the new remarketing program
GMF Canada in April assumed the remarketing responsibilities for GM Canada's daily rental and company vehicles. This responsibility was previously held by Ally through Smart Auction. Coupled with our end of lease remarketing initiatives, GMF will be working closely with GM Canada and the Canadian dealer network to facilitate the purchase of the majority of used GM product in Canada.

Early in 2014, we will be introducing GMF Dealer source, which will give GM dealers a one-stop shop for the purchase of the majority of used GM product in Canada.

GMF Canada’s push into commercial lending came at a time when the market started heating up
We launched in March of this year. Later in the spring we saw the sale of Ally to RBC. As part of that sale, there was an opportunity For GMF to work with a subset of Ally’s stores. We were successful in securing 30 stores that helped get us off to a really good start in the commercial lending space and to initiate our flooring in Canada.

Like all the other lenders, we are now out presenting our value proposition in the hopes of earning our fair share of dealers’ inventory finance business, support their image financing needs and more. We’re not just offering leasing or retail anymore. We are providing full commercial lending services to any GM dealer in Canada.

The space got very overheated very quickly. When were launching that part of our product suite the market got hot and we saw banks aggressively pursue the dealers at the time. The tide shifted favourably towards dealers from a pricing perspective and dealers really had some tough decisions to make.

How has the growth been?
We now have 33 stores now with three more about to close.

How do you ensure your offerings stand out in a crowded market?
We’re only focused on GM dealers, though we will support GM dealers who have non-GM franchises.
The key is to be competitive and offer all the other suites like inventory finance insurance, image program capital and other forms of financial facilities dealers need. When you look at it as a full package, the dealer can know GMF Canada will intimately know its business.

And we just expanded our commercial offering for lease. In the first two years of our offering, we capped leasing to any one business at five units. There was clearly a demand from a segment that was underserviced and we can now support up to 15 vehicles for any one customer.

How is the lease portfolio shaping up?
We are probably just below 10 per cent lease share currently. We have a desire to see that number range closer to the 15 to 20 per cent mark. GMF Canada feels that is a good average for the market as some players sit at much higher rates while others are far lower.

Our products are available for 24-, 36-, 48-, and 60-month terms. Subvention support from GM Canada is available on the majority of vehicles.

What has constrained us has been the significant push towards extended term financing in the Canadian space over the last 12 to 18 months. Almost since GMF Canada has been in the market, the zero-per cent rates with extended lengths have taken over the advertising landscape as consumers are coming in looking for the best possible payment situation.

We are encouraged because GM is building phenomenal cars that are earning major awards like the ATS and Impala (2013 Cadillac ATS was named North American Car of the Year while the 2014 Chevrolet Impala took top honours for sedans according to Consumer Reports) that are helping drive up residual values to levels that GM has never really seen naturally in its portfolio.

By building some of the best cars in the world, it is starting to work well with respective to supporting lease.

What are your best performing nameplates when it comes to leasing?
Cadillac and Buick products are on par with what you could call the top- tier lessors in Canada. The ATS is probably the marquee. SRX is doing well and the Buick Verano, Enclave and Lacrosse have leased out well, too. We are at or above market levels on those products.

With the new 2014 trucks, we’ve seen a considerable lift in residuals and our lease penetration increase about 300 per cent on that vehicle.

What are your thoughts on long-term financing?
I don’t think there is anybody who will say there they like to see extended term financing in the automotive space. The longer you extend the term, the longer the customer stays out of the market and you make it hard for them to upgrade to a newer vehicle three or four years out, which is probably a more natural timeframe for vehicle ownership.
The institutions that are doing those extended term financing are doing it because they feel they have to be competitive and in the mix.

Our max term on our leasing product is 60 months. We would obviously prefer to do short terms like 36 and 48 because cars are still within warranty and that is typically around the time a manufacturer would introduce a new model. That’s the benefit of leasing.

When do you expect to see these long-term deals fade from the market?
With improved residuals and more market awareness around the downsides of extended term financing, lease share numbers should increase.

The 96-month terms may go away. Ottawa has been vocal that it is not happy with the banks doing these very long auto finance terms. There is an inference in the market that they may have banks back off.
From where we sit, that would be the responsible thing to do. We all have a responsibility to provide a fair, customer-centric product. If the longest of the terms do retreat, naturally lease penetrations will continue to grow.