Wells Fargo & Co. is expanding loans to customers of General Motors Co., threatening to take business from Ally Financial Inc. as the bailed-out auto lender seeks a turnaround.
GM, the biggest U.S. automaker, already had chosen Wells Fargo, the bank with the biggest branch network, to provide financing to Chevrolet, Buick, GMC and Cadillac dealers and customers in its U.S. west marketing region. The agreement has since broadened to include the south central region, and San Francisco-based Wells Fargo wants more, said Tom Wolfe, who heads the unit that oversees auto and credit-card loans.
“We like the relationship, so we’d certainly like to think about expanding it,” Wolfe said in an Aug. 10 interview. It’s a program “we can offer to other manufacturers,” he said.
Wells Fargo, last year’s No. 2 auto lender, is pushing deeper into a market that was dominated in 2011 by Ally, the Detroit-based firm once owned by GM. Banks are pursuing auto financing after the category performed better than most other consumer debt during the financial crisis, and U.S. sales of cars and light trucks climbed 14 percent this year through July.
The GM accord allows Wells Fargo to bid on “subvented” loans, made to consumers at below-market rates for the automaker’s marketing campaigns, Wolfe said. It also allows Wells Fargo to provide commercial services such as treasury or wealth management to GM dealers, he said. On subvented loans, the automaker pays the lender to make up the difference.
“Wells Fargo continues to complement our captive offerings through GM Financial, our extensive relationship with Ally, and our leasing program with U.S. Bank,” Dave Roman, a GM spokesman, said in an e-mail.
GM’s subvented business accounted for 18 percent of Ally’s total U.S. originations in the second quarter, compared with 7 percent for Chrysler Group LLC, the carmaker controlled by Fiat SpA, according to a presentation.
“We have continued to broaden and diversify our business and have reduced reliance on the subvented business,” said Gina Proia, an Ally spokeswoman. “The auto-finance business has seen significant levels of competition for some time now as many banks have tried to find growth. We compete in the market every day, and in the second quarter Ally posted its second-highest level of U.S. consumer originations in five years.”
Ally Chief Executive Officer Michael Carpenter, 65, is searching for ways to repay U.S. bailouts exceeding $17 billion that left the U.S. Treasury Department with a 74 percent stake, and to refocus his firm on auto lending and online banking.
“Our objective in life is pretty straightforward,” Carpenter said during an Aug. 1 conference call. “It’s to continue building the auto business, to continue to build the bank, and it’s to get the U.S. government completely out of their shareowner position.” The latter goal has been delayed by the May bankruptcy of Ally’s Residential Capital mortgage unit.
Ally has a contract to be GM’s preferred lender through Dec. 31, 2013. Wolfe said that while Wells Fargo would like to do more with the automaker, the decision is “really up to GM and what their timelines and goals are.”
Wells Fargo rose 22 cents, or 0.6 percent, to $34.18 at 11:45 a.m. in New York. The shares have gained 24 percent this year, compared with the 19 percent return for the 24-company KBW Bank Index.
Wells Fargo, run by CEO John Stumpf, 58, extended $20.2 billion in indirect auto loans through about 11,900 dealers in 2011, according to a May presentation. The bank also provides commercial services for more than 850 dealers, the presentation showed.
The lender also may seek to do more financing for Chrysler, which has an arrangement with Ally expiring next year. The agreement entitles Ally to finance a minimum percentage of vehicles sold with subvented loans, generating about $50 billion in annual originations.
Wells Fargo is among banks such as Santander Holdings USA Inc., General Electric Capital Corp., U.S. Bancorp and JPMorgan Chase & Co. that have negotiated with Chrysler about its auto-financing needs, three people familiar with the talks said in February. Wolfe declined to comment on any talks with Chrysler.
“As those things become available, we would be interested in them,” Wolfe said. “The difference for us now is three years ago, we didn’t have the capabilities to compete.”
Wells Fargo’s auto loans rose 18 percent to a record $6.6 billion in the second quarter from a year earlier, according to a bank statement. The company doesn’t disclose how much it makes from the GM relationship.
GM said yesterday its lending arm made a bid in July for Ally’s international operations, which, if successful, could more than double the unit’s consolidated assets. Ally is seeking to divest more than $30 billion of assets in Canada, Mexico, Europe and Latin America.