GM Plans to Seek Banking Charter to Grow Auto-Lending Business
November 27 2020 - 1:48PM
Dow Jones News
By Orla McCaffrey and Mike Colias
General Motors Co. is looking to get back in the banking
business.
The auto maker's lending arm is drawing up plans to apply for a
banking charter, a move that would allow it to accept deposits and
expand its auto-finance business, according to people familiar with
the matter.
General Motors Financial Company Inc. has been talking to
federal and state banking regulators for months about forming an
industrial loan company and could file applications to do so as
early as December, the people said. It would be supervised by the
Federal Deposit Insurance Corp. and the Utah Department of
Financial Institutions, which grants the majority of these
charters.
An industrial-loan charter allows companies to own both
commercial firms and banks, a setup prohibited by a traditional
banking license.
This is familiar territory for GM. The auto maker used this type
of charter to operate GMAC, its former lending arm that nearly
failed under the weight of soured subprime mortgages and was bailed
out by the government during the 2008 financial crisis.
This time around, the company would use its banking charter --
and the ability to accept deposits -- to support its auto-finance
business, according to a person familiar with the matter. Deposits
would provide a stable, low-cost source of capital for GM Financial
to grow its business of lending to GM car buyers and dealers. GM
Financial currently issues debt to fund most of its lending.
The company has also considered using the charter to offer
consumers high-yield savings accounts and other deposit products,
the person said.
Deposits at U.S. commercial banks have reached record highs this
year as consumers and businesses alike, spooked by the economic
fallout of the coronavirus pandemic, stash money at banks despite
paltry interest offered in return.
GM Financial has accounted for a growing share of GM's revenue
in its decade under the GM brand. It brought in about $14.5 billion
last year, 10.6% of GM's total revenue. That is up from 0.2% in
2010 and 4.2% in 2015.
Auto makers use their lending arms to lure customers with
special offers and promotional rates on loans and leases. Dealers
rely on these businesses to make loans to customers with
less-than-stellar credit and to finance their new-car inventory.
Toyota Motor Corp. and BMW AG own industrial banks that offer
products outside auto finance, including home loans and credit
cards.
Applications for industrial-loan charters dried up after the
financial crisis, but they have experienced a revival in recent
years alongside a broader increase in new bank applications. The
FDIC and Utah Department of Financial Institutions approved deposit
insurance and charter applications, respectively, for Square Inc.
and Nelnet Inc. earlier this year. A few additional applications
are pending.
Industrial banks share many of the same powers of traditional
banks, but their parent companies are exempt from oversight by the
Federal Reserve as bank-holding companies and aren't subject to
some regulations that apply to federally chartered depository
institutions.
Traditional banks and consumer advocates have long argued that
they blur the line between commerce and banking and pose threats to
consumers. More than a decade ago, a wave of opposition led by the
banking industry pushed retailers Walmart Inc. and Home Depot Inc.
to abandon their attempts to secure industrial-loan charters.
GMAC transitioned from its industrial-loan charter during the
financial crisis when losses in its consumer-lending businesses
prompted a government bailout that ultimately topped $17 billion.
In late 2008, the company was granted a national banking charter in
a matter of weeks, a move that unlocked government relief it had
been ineligible for as an industrial bank. Shortly after, the bank
changed its name to Ally Financial Inc. GM sold its remaining Ally
stake in 2013.
GM Financial grew out of the auto maker's 2010 acquisition of
AmeriCredit Corp., a Texas-based subprime auto lender. In 2013, it
doubled in size through the purchase of Ally's international
auto-lending operations.
Write to Orla McCaffrey at orla.mccaffrey@wsj.com and Mike
Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
November 27, 2020 13:33 ET (18:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
General Motors (NYSE:GM)
Historical Stock Chart
From Mar 2024 to Apr 2024
General Motors (NYSE:GM)
Historical Stock Chart
From Apr 2023 to Apr 2024