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What Does GM Financial’s Growth in 2016 Mean for Investors?

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GM Financial

General Motors (GM) has all types of vehicles, ranging from small cars to large trucks, in its product lineup, but the majority of its portfolio is targeted at the mass market. To encourage people to purchase its vehicles, the company provides automotive financing services through General Motors Financial. Let’s take a look at General Motors Financial’s performance so far in fiscal 2016.

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Performance in 2016

In the first three quarters of fiscal 2016, GMF (GM Financial) reported total revenues of $6.9 billion, which represents a 50% rise over its revenues of $4.6 billion in 2015. GMF’s strong performance can primarily be attributed to the company’s retail sales growth in the US, along with higher penetration in Europe and Latin America.

During this period, GMF’s profitability remained flat on a YoY (year-over-year) basis. The financial arm reported an EBIT (earnings before interest and taxes) of $700 million, without any change from the previous year.

Lower penetration?

Despite GMF’s higher revenues and flat profitability, its penetration level fell across all key markets. In the first nine months of 2016, its penetration in terms of percentage of the company’s total retail sales fell to 33% this year, as compared to 38% last year.

GMF’s penetration in North America stood at 28%, 37%, and 50% in North America, Europe, and Latin America, respectively, in first three quarters of 2016. In 2015, its penetration levels were higher, at 33%, 40%, and 57% in these respective markets. This means that overall, GMF’s lower penetration should not concern investors—as long as the segment keeps yielding stable revenues and profitability for the company.

Notably, mainstream automakers (XLY) Toyota Motor (TM), Ford Motor (F), and Volkswagen (VLKAY) also provide financing facilities to their customers with their own financial services arms.

Continue to the next part for a look at GM’s pension obligations.

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