Ally, once known as GMAC Financial Services, is getting ready to go public this year, and is making the case that subprime loans for used car buyers are not about to produce the same results that they did in the housing market a few years ago -- a near-collapse of the financial system.
Auto loans performed relatively well during the downturn, and demand for cars is up, so auto lending is one of the few types of consumer debt that is growing.
Ally wants to show investors that this makes it different from many other banks, which are struggling with weak loan demand and their own soured mortgages.
The company is making more loans to subprime borrowers, and financing more purchases of used cars, both steps with higher risk. It has said it wants to raise the percentage of auto loans on used cars that it makes to 50 percent from its current 20 percent.
Subprime car lending is "a very attractive business today," Ally President William Muir told analysts on May 3. Profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay, he said. Plus, providing loans on used cars endears the company to dealers.
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