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GM Financial’s Strong Performance: What It Means to Investors

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May. 11 2016, Updated 8:04 a.m. ET

GM Financial

So far in this series, we’ve seen how General Motors’ (GM) revenues increased and margins expanded in 1Q16. This positive trend was primarily supported by GM’s increasing retail vehicle sales in North America. It’s important to note that the majority of retail vehicle customers prefer to use vehicle financing services when purchasing vehicles. General Motors provides a variety of financing services through GM Financial. Let’s see how the company’s financial services arm performed in 1Q16.

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Strong performance in 1Q16

In 1Q16, GM Financial reported revenues of $2.1 billion. This is 53.2% higher than $1.3 billion in 1Q15. The strong performance of GM Financial can be attributed to GM’s retail sales growth in the United States.

In the last two years, revenues from the company’s financial services arm have nearly doubled. In the first quarter of 2014, GM Financial revenues accounted for 2.9% of GM’s total revenues. In the first quarter of 2016, this increased to 5.6%, as you can see in the above graph.

What does it mean for investors?

Rising revenues for GM Financial reflect optimism in General Motors’ overall sales pattern. As the company continues to cut its fleet sales and make efforts to improve its retail vehicle sales, investors can probably expect the positive trend in GM Financial’s revenues to continue.

Higher retail vehicle sales that drive these revenues should also lead to further expansion in GM’s profitability. Revenues of GM Financial can be seen as an important indicator of General Motors’ overall performance.

Currently, the company’s financing arm provides its services primarily in North America, Europe, China, and South America. At the end of 2015, GM Financial had 50 facilities globally. Of these, 22 are located in the United States. Other major facilities outside the United States include those in Brazil, Canada, China, Germany, Mexico, and the United Kingdom.

Major automakers (VCR) such as Toyota (TM), Ford (F), and Volkswagen (VLKAY) also provide financing facilities to their customers with their own financial services arms.

In the next part, we’ll look at General Motor’s other key developments that took place in 1Q16.

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