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Ally Financial in Detroit announced its second big management change in less than two months.
March 19 -
Jeffrey Brown, suddenly elevated to CEO of Ally Financial, will have to accelerate the auto lender's diversification plan started by his predecessor, Michael Carpenter. Brown will need to explore new sources of originations, funding and investments.
February 3 -
Ally Financial faced tough questions Thursday about its strategy in the wake of the Detroit automaker's decision to use its own in-house financing arm for its entire subsidized lease business.
January 29
Ally Financial needs both a short-term plan and a long-term growth strategy to cope with its divorce from General Motors.
On the first score, the bank has seen positive results from its more aggressive push into subprime automobile lending under its new chief executive, Jeffrey Brown. That expansion is buying time for Brown, who's charged with diversifying the business after taking over for Michael Carpenter in February. Shares in Ally, which are down 12% over the last year, rose by 4.5% in midday trading Tuesday.
His long-run challenge will be to turn Ally into something that more closely resembles a full-service retail banking company, rather than an auto-lending business attached to an online bank.
Brown made clear in earnings call Tuesday that his goal is develop deeper relationships with customers, and to cross-sell more products to them, but he provided few details about how the company will accomplish those goals.
"We have over 950,000 deposit customers and growing rapidly. We do a great job of providing these folks with attractive deposit products and providing great customer service, but we don't offer them any additional products or services that could drive revenue growth," Brown said during the company's earnings call.
"We have 4.4 million individual auto customers," Brown added. "We service these loans, we send them monthly statements, but that's really about all. We don't currently offer them any more products or services. Great banks find ways to get more out of these customer relationships."
One key player in Ally's effort to sell more products to its customers will be Diane Morais, who was named president of Ally Bank on March 24. Morais, a onetime executive at Bank of America and Citigroup, took over from Barbara Yastine, who
In a news release announcing Morais' promotion, Brown said: "Her expertise in deepening customer relationships and banking product development will be critical in the next stage of Ally's evolution."
But Ally faces some challenges as it tries to cross-sell more products, according to Christopher Donat, an analyst at Sandler O'Neill. Because its bank operates mostly online, Ally has fewer chances than its brick-and-mortar competitors to make face-to-face sales pitches, he noted.
Moreover, automobile buyers who get an Ally loan through their car dealers never interact in person with an Ally employee. That wasn't a problem when Ally, formerly known as GMAC, was the financing arm of GM. GMAC was spun off as a separate company in 2006, and renamed Ally Financial in 2010.
But particular after GM ended Ally's role in its subsidized car-leasing business GM decided in January to bring the business back in-house Ally's distance from its customers has become a bigger issue.
"They don't have the same kind of relationships that branch-based lenders have," Donat said.
Ally's more immediate problem is replacing the $5.2 billion in GM leases that it made last year, accounting for about 13% of its total originations. In the first quarter, Ally booked $1.1 billion in GM leases, but that number is expected to drop to zero later this year.
Used-car loans are one place where Ally is looking to fill the hole. In the first quarter, used-vehicle loans rose to 36% of the company's total originations, up from 30% in the same period a year ago.
Subprime auto lending is another area where the company is trying to take market share. In the first quarter, 12% of the company's loan originations were to nonprime borrowers, up from 9% a year earlier, according to Brown.
"We are concentrating on the near-prime sector, and we're staying out of deep subprime lending," he said. "As long as we can price appropriate for the risk, we will continue to be booking loans."
New relationships with other automakers may also help replace lost GM business. On Monday, Ally announced a new partnership with the North American arm of the Japanese automaker Mitsubishi, and Brown said Tuesday that another smaller deal with a car manufacturer is in the works.
For the quarter, Ally reported net income of $576 million, up from $227 million in the same period in 2014. The firm's earnings were boosted substantially by a $400 million gain from the sale of a joint venture in China.
Ally's net interest margin fell from 4.49% in the fourth quarter of 2014 to 4.21% in the first quarter of this year, and its retail auto net chargeoff rate rose by 8 basis points to 0.93%.
Still, analysts were impressed that Ally managed to increase its loan originations by 6.5% compared with a year earlier. And the company earned 52 cents a share, which beat the 41-cent consensus estimate of analysts surveyed by Bloomberg.
"Ally reported a good quarter with operating trends that were fairly solid," analysts at Keefe, Bruyette & Woods wrote in a research note.
