Each month, Motor Finance analyses results
posted by lessors and finance companies over the previous four
weeks to discover the latest trends in the industry. Jason T Hesse
looks at those published in May.
Amid US speculation that it will take over Chrysler Financial’s
retail and wholesale financing, GMAC UK plc has
reported a good year.
Indeed, for the year ending on
December 31, 2008, the General Motors finance subsidiary reported a
pre-tax increase in profit of 65 percent, to reach £12.5 million,
compared with £7.6 million in 2007.
Turnover was also up, reaching £174.9
million – a 7 percent rise on 2007.
“The UK automotive industry has been a
challenging environment in which to operate during 2008, but the
key performance indicators of the company remain strong,” said GMAC
“Strategic decisions made in recent
years including avoidance of sub- and near-prime markets and
effective product initiation and curtailment have created strong
retail and wholesale portfolios.”
The company’s directors also boasted
that losses and delinquencies remained within forecast and were
“well below” industry averages through 2008 and into 2009.
Additionally, the captive said that it
had actively sought to reduce concentrations on the wholesale
portfolio – indeed, wholesale receivables fell by nearly 15
percent, to £273 million, last year.
In terms of funding, GMAC UK financed
its operations through a blend of bank lines, securitisation
programmes and intercompany funding which ultimately came from its
direct parent in the US, GMAC LLC.
At rival FCE Bank
plc, Ford Motor’s European captive, funding was also a key
In 2008, FCE raised around £4.5
billion of funding from external sources: £3.3 billion via
securitisation programmes, and £1.2 billion through unsecured
“Our funding strategy is to maintain a
high level of liquidity and access to diverse funding sources that
are cost effective,” said the company.
“While we continue to access the
unsecured debt market, the company has also increased the use of
securitisation funding as it is presently more cost effective than
unsecured funding and allows access to a broader investor
With funding as a limited resource,
the company said that going forward it would be focusing on
financing Ford and Volvo vehicles.
The Jaguar, Land Rover and Mazda
brands have therefore all started to transition their financial
services business to other finance sources, said the company.
The captive also announced that is
will restructure its European operations – this will affect the
company’s servicing, sales and central operations.
In terms of profitability, last year
saw the captive’s adjusted pre-tax profit fall to £237 million,
down on 2007’s £294 million due to “lower margins and increased
credit losses and residual value reserves”.
Return on equity therefore fell by 1
percentage point year-on-year, to 7.5 percent.
The company also said that lower
demand for vehicles has resulted in lower used vehicle values,
resulting in realised vehicle residual value (RV) losses of £8
million and increased RV provisions of £46 million.
“Despite the challenges of the credit
crisis, we have successfully funded our business and continue to
support the sale of Ford’s automotive brand vehicles,” the
company’s directors said.
Announcing a pre-tax loss of £5.1
million in 2008, the directors of Lex Vehicle Finance Limited
declined a dividend payment.
In 2007, the lessor had reported £3
million in pre-tax profit, of which £1.5 million was paid out as an
The directors also highlighted that
there was a concentration of credit risk with the lessees, but it
was being monitored on an ongoing basis.
“Credit evaluations are performed for
all customers and updated annually,” they said.
The lessor, which acts as an agent
promoting contract purchase of vehicles for HBOS plc (now Lloyds
Banking Group plc), saw revenue fall to £5.3 million, down by over
60 percent year-on-year, from £15.8 million in 2007.
At immediate parent Lex
Vehicle Leasing (Holdings) Limited, annual results were
also significantly down on last year. Although the holding company
reported a pre-tax profit of £15 million, this was 73 percent lower
than 2007’s £54.6 million.
Lex Vehicle Leasing Holdings’ role is
to provide funding to its subsidiary undertakings, which in total
were leasing 182,787 vehicles at December 31, 2008.
The holding company’s subsidiaries
include: Lex Vehicle Finance Limited, Lex Vehicle Leasing Limited,
Vehicle Leasing Limited, Lex Vehicle Partners Limited, HVF Limited
and Whitefleet Limited.
Total revenue at the company was £18.7
million, down by 17 percent on the previous year’s £22.5
“We have received confirmation that it
is the current intention of Lloyds Banking Group plc to ensure that
the company, as a subsidiary of HBOS plc, should have at all times
for the foreseeable future access to adequate resources to continue
to trade and meet its liabilities as they fall due,” the directors
Revenue also fell – by nearly 20
percent, to £58.2 million – at Custom Fleet
Limited, a subsidiary of GE Commercial Finance
Fleet Services Limited.
In the year ending 31 December 2007,
the vehicle contract hire provider, which also provides fleet
management services, also reported a pre-tax loss of £14 million,
down on the previous year’s loss of £2.5 million.
“The level of future growth is not
expected to be as high as experienced in recent years due to the
challenges in the current economic environment, and a strategic
decision to exit from lower margin business,” said Custom Fleet’s
As with its competitors, one of Custom
Fleet’s key risks is used vehicle RVs, for which the company said
it had developed a strategy of using multiple remarketing channels
and a routing process aimed at an individual vehicle level.
“This ensures that where residual
value risk exists the maximum proceeds are obtained for any given
vehicle at a point in time,” the company said.