GM Financial just got subpoenaed by the US Justice Department. At issue are subprime loans dating back to 2007, my colleague Rob Wile reported on Monday.
On GM’s earnings call about a week and a half ago, Bank of America Merrill Lynch analyst John Murphy asked GM CFO Chuck Stevens about GMF’s subprime exposure. This was obviously before the Justice Department started sending out subpoenas, but Stevens sounded unworried in his response.
Here’s the exchange, courtesy of the Seeking Alpha transcript of the call:
Murphy: There’s obviously a great debate in the markets right now of subprime being overheated for auto lending. It doesn’t necessarily appear that way to us. I was just curious if you could comment on sort of your exposure to subprime, what you think of it right now, and is it more of an issue or an opportunity?
Stevens: That’s a good question. It’s been interesting, our share of sub-prime actually has come down because for a while there was a competitive move into sub-prime so it was being reasonably well served, it looked like in the second quarter that there was a back off from that a little bit perhaps because of the exposures. Let’s just say that AmeriCredit, now GM Financial, are experts in sub-prime, they never lost money during the downturn in 2008-2009, they know how to manage and score these customers. And I think [they] manage an appropriate level of risk associated with subprime, and again, as they expand our overall product offering. So we feel that that’s a very, very well managed segment of their business.
What catches the eye about the Justice Department action is that it requests documents back to 2007, more than year prior to GM’s bailout and bankruptcy.
What’s also interesting is that GM auto financing was in an odd place in 2007. The carmaker’s longtime lending arm, GMAC, had been broken up into pieces and sold off, although GM still retained a chunk.
GM Financial, meanwhile, didn’t actually exist. As Stevens noted in his reply to Murphy, the company was then operating as a different entity. GM bought AmeriCredit in 2010, to access subprime borrowers as the U.S. auto market recovered, and later changed the company’s name.
But last year, GMF trimmed back its subprime business to focus more on prime borrowers, according to Automotive News’ Jim Henry.
We’ll keep tabs on this one. It’s a more potentially negative news for GM, in the wake of a massive recall and, this past weekend, a deadly accident at one of the company’s suppliers in China.
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