AmeriCredit's CEO Discusses Full Spectrum, 2Q Financials

FORT WORTH, Texas — According to AmeriCredit, the company is making progress with its integration of Bay View Acceptance Corp. 

"We have combined the marketing of our core subprime credit products and specialty prime Bay View products in approximately half of the states we do business in, and look to complete the integration of these product offerings in the remaining states by the end of the fiscal year," explained Dan Berce, AmeriCredit's president and chief executive officer, in a conference call discussing the company's second-quarter financial results. 

"We closed on our acquisition of Long Beach on Jan. 1," he continued. "Over the next several months, we will work with Long Beach's management to determine the appropriate integrated platform to provide full-spectrum products to our dealers." 

After this decision is made, Berce said the company will then develop plans to highlight the best practices of both AmeriCredit and Long Beach. 

"The near-prime Long Beach product fits perfectly on the credit scale between our core subprime product and Bay View's specialty prime product," Berce said. "Bay View generally originates prime business at FICO scores of 680 and above, and AmeriCredit originates subprime business in a FICO range of 500 to 620. 

"Long Beach fills that 620 to 680 near-prime gap," he added. "This complete suite of credit products will better position us to support our existing dealer network and extend our reach to new dealers and consumers." 

Discussing the recent acquisitions at the National Auto Dealers Association's Convention & Expo, Kyle Birch, executive vice president of dealer services for AmeriCredit, noted that by buying higher on the credit spectrum, the company can then buy deeper into subprime. 

He explained that the higher credit spectrum loan origination offsets the risk of the lower indirect lending, which will ultimately allow the company to reach out to more consumers with lower credit scores. 

"Our average bureau score will remain 590," he told SubPrime Auto Finance News. "We'll just be able to buy a little bit deeper and still be there for our dealers in that deeper subprime market. As long as we have a balanced mix, we're good." 

He went on to say that the company has been requesting back from its dealer partners and is taking that input into account as it expands and integrates its full-spectrum offerings. 

As the company grows again, Birch also pointed out that many of the employees who had to be laid off earlier in the decade when AmeriCredit was in recovery mode, are now ing officials in hopes of being rehired. 

"We're very proud of our comeback," he said. "A lot of it is about our people. A lot of people want to come back and that's a testament to our company and working environment. The sky's the limit." 

As the company slowly reaches out to more independent dealers, Birch offered some tips as to what the company is looking for: 

—Five years in business
—Two years of tax returns
—A mix of vehicles on the lot
—Prefer vehicles under 80,000 miles on the odometer
—Clean, well kept lot and store
—Solid reputation 

Looking ahead, Berce said, "With this broader product spectrum and solid origination trends coming out of the first half of our fiscal year, we are well positioned to take advantage of the seasonally strong March and June quarters and continue to gain market share. 

"As a reminder, we historically experience a boost in origination volume in the March quarter, a modest sequential increase in the June quarter, followed by sequentially flat or even slightly weaker originations in the September and December quarters. We expect the same seasonal pattern this year," Berce noted. 

2Q Financial Results 

AmeriCredit announced net income of $95 million for its second quarter, compared to $87 million for the same time frame of the previous year. 

For the sixth-month period, the company posted net income of $170 million, compared to $141 million during the same months of the prior year. 

Officials noted that net income for both the quarter and sixth-month period included a $23 million after-tax gain related to the partial sale of the company's investment in DealerTrack Holdings. 

Loan purchases climbed to $1.74 billion for the quarter, compared to $1.34 billion in the same period of the previous year. As for loan purchases during the sixth-month period, they came in at $2.42 billion, compared to $2.86 billion in the same time frame of the previous year. Managed receivables were $12.58 billion as of Dec. 31, compared to $11 billion in December 2005. 

"We had a solid December quarter, in what is historically a seasonally challenging time of the year," Berce said in the conference call. "Our origination volume grew 30 percent and credit results were stable compared to last year." 

More specifically, he said, "Loan purchases in the December quarter included $130 million originated through the Bay View platform. We conducted business with 13,960 dealers during the quarter, compared to 13,760 last quarter and 12,250 a year ago. Loans per producing dealer were 6.8 loans per dealer for the December quarter, compared to 6.9 loans per dealer last quarter and 6.3 a year ago." 

AmeriCredit's average loan term is now 70 months, coming in just below the 72-month program, Berce highlighted. 

"As expected, because of the expansion of our 72-month program that I discussed during our September 2006 earnings conference call, our average loan term increased sequentially from 68 months to 70 months for the December 2006 quarter," Berce said. 

"Seventy-two month loans now make up 76 percent of our core AmeriCredit originations, a mix that is now more in line with the market" he continued. 

Furthermore, annualized net charge-offs for the company totaled 5.8 percent of the average managed receivables for the quarter, compared to 5.9 percent for the same quarter of the previous fiscal year. For the sixth-month period, annualized net charge-offs came in at 5.6 percent, compared to 5.8 percent. 

As for delinquent accounts, executives said managed receivables 31 to 60 days past due were 6.7 percent of the portfolio as of Dec. 31, compared to 6.5 percent. Accounts more than 60 days delinquent were 2.6 percent of the portfolio, compared to 2.8 percent. 

"Accounts receiving deferment totaled 6.7 percent of the portfolio during the December 2006 quarter, up seasonally from 6.3 percent in the September quarter, but down from 6.8 percent in the December 2005 quarter," Berce explained. "Last December quarter, we granted approximately 70 basis points of deferments related to the effects of Hurricanes Katrina and Rita. 

"Changes in bankruptcy laws last year have caused a pull-forward of losses as some of our customers are unable to qualify or are reluctant to file for bankruptcy protection under the stricter filing guidelines," he added. 

"Alternatively, these customers end up defaulting either voluntarily or through delinquency and repossession," Berce pointed out. "Loans are charged-off sooner through the repossession process than if the customers had or have filed for bankruptcy and ultimately defaulted. Although this factor has shifted the timing of losses forward, our cumulative credit loss expectation remains relatively unchanged for our 2006 vintage." 

Meanwhile, he said the company's quarterly recovery rates of 48.8 percent were slightly higher than the previous quarter and up from 46.4 percent a year ago. 

"As indicated by the Manheim Used Vehicle Value Index, used-car prices held up reasonably well in the latter part of calendar 2006 as manufacturer incentives have been more rational and new-car production volumes have declined. We anticipate used-car prices to remain stable for 2007," Berce concluded.

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