Thursday, Jul. 27, 2006, 08:00 PM UPDATED 11:59 AMBy Nick Zulovich
DETROIT (July 28, 2006) -- The ebb and flow of market fluctuations within the remarketing industry are part of the reason GMAC's Automotive Finance operations recently reported lower earnings for the second quarter when compared to same period a year ago. GMAC simply had fewer units being remarketed during the quarter, 69,000, compared to 83,000 in the same time frame of 2005, a GMAC executive explained Thursday.
For the quarter, GMAC Automotive Finance reported earnings of $251 million, down from $366 million earned in the same quarter of the prior year.
"It's simply fluctuations from quarter to quarter," said Mike Stoller, manager of GMAC media relations. "It's not a sign anything is broken. Canada had a mix issue. For example, we had more Caviliers than Escalades for resale or remarketing, and the strengthening Canadian dollar also had an impact."
As for the U.S., Stoller explained, "The U.S. had some vehicle mix issues as well. Gas prices also put some pressure on the SUVs, but that is something that is temporary."
Discussing the remarketing operations at GM and GMAC as a whole, Stoller went on to say that these efforts have increased dramatically over the last several years.
"Our approach to managing the termination of a lease is better," he pointed out. "GM has been staying in the 15- to 20-percent range (in leasing penetration). They've really gotten out of the phase of 50-percent leasing programs for periods of time. GM is operating in a much more manageable way. We're at a very comfortable spot for the quarter with 19 percent penetration."
According to Stoller, GM's goal is to keep leasing penetration between 15 and 20 percent for each quarter. He said the rate was lower in the second quarter of 2005 at 16 percent, whereas, during this year's second quarter it came in at 19 percent. He attributed the higher percentage this year to the automaker's 72-hour sale.
"The percentage will be much lower in the third quarter," Stoller reported. "It will come in at 15 to 17 percent for the year. GM is being more surgical in their use of this with alliances and fleets."
On another front, Stoller said GMAC will continue to support GM's cash flow even after the financial arm sells off a 51-percent stake to a group of investors.
GMAC has been contributing to GM's cash flow in recent quarters. For example, the financial gave $1.4 billion to GM for the second quarter through a dividend. Stoller said GMAC will continue bolstering GM's cash flow through the remaining 49-percent share retained after the sale of the majority stake is completed in the fourth quarter.