Ally Increases Car Loan Profits
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UPDATED: Nov 7, 2012
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Ally Financial, which is 74 percent owned by the federal government, has earned $384 million in the third quarter of this year, according to Reuters. This is a massive profit gain compared to a year ago when the car loan lender reported a loss of $210 million in the third quarter of 2011.
According to CEO Michael Carpenter, Ally has been selling assets and focusing on car loan lending as well as internet banking in order to pay back $17 billion in government bailouts the lender still owes. Beginning last May, Ally announced its intention to sell several international subsidiaries in order to speed up repayment and reduce its debt.
Carpenter does believe that the company faces a challenge in making money off car loans now that more banks have entered the car loan lending industry.
Ally’s North American automotive finance unit saw a 6 percent increase in revenue compared to one year ago. Unfortunately, the pretax net income from the company’s operations fell by 7 percent to $510 million. Ally made $9.6 billion in consumer loans in the third quarter, a 4 percent drop compared to 2011.
Ally seems on track to repay the federal government. Last month it sold its Canadian auto finance division and its deposit business to the Royal Bank of Canada. It also sold its Mexican insurance unit to ACE ltd.
While these sales brought in $5 billion in proceeds, Ally is not satisfied. The lender intends to sell several of its European and Latin American businesses, which have an estimated value of $3.3 billion.
Ally is confident it will be able to sell more of its subsidiaries and bring itself closer to being free of debt from the federal government.
“We have a high degree of interest from multiple parties, and we would anticipate making an announcement in November,” said Carpenter, in an interview with Reuters.
The lender has paid back $5.8 billion of its $17 billion debt to the federal government. According to Carpenter, while Ally is eager to pay off its debt, the Federal Reserve must approve its sales in order to prevent the bank from falling below sufficient levels of capital.