GM Pullback Could Reduce Ally's Lending Business by 25 Percent

Feb 20, 2015 11:19 AM EST | Jordan Ecarma


General Motors is easing off its long-time relationship with Ally Financial and will eventually bring all of its leasing deals with the bank in-house, Ally CEO Jeff Brown told Reuters in a recent interview.

The company won't feel the shift too much this year, but losing GM as a client would reduce Ally's lending business by around 25 percent.

GM Financial, the automaker's financing arm, has already been tapped to replace Ally to exclusively lease Buick, GMC and Cadillac vehicles. The auto lender expects GM to bring Chevrolet leasing in-house in the near future as well.

"That is a planning assumption we've got today," Brown told Reuters.

Ally investors reacted to GM's decision to reduce its leasing deals with the lender by sending the bank's stock down 5.5 percent on Jan. 12 after the automaker announced the change.

GM is bringing its lease deals back in-house after a decades-long relationship with Ally, which started as GMAC, the automaker's first financing arm, in 1919.

"The automaker sold a majority stake in GMAC to private-equity firm Cerberus Capital Management in 2006, but maintained the business relationship," Reuters reported in its exclusive.

"Both GM and GMAC were bailed out by the U.S. government at the height of the financial crisis, and in 2013 GM sold the last of its ownership stake in Ally, as GMAC renamed itself in 2009."

The lender will keep providing leasing deals for auto dealerships, but Ally is steeling itself against the day that GM becomes the exclusive lessor for all of its brands.

"We are going to support the dealers," Brown told Reuters. "We don't hold grudges."

Brown expects the company to work with more used car loans and to provide more loans to subprime credit borrowers.

"I think nonprime lending can be done responsibility," he told Reuters.

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