Ally Bank 2014 Annual Report Download - page 52

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
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holding costs, and broadening the number of prospective buyers. We maintain the internet auction site, set the pricing floors on
vehicles, and administer the auction process. We earn a service fee for every vehicle sold through SmartAuction, which, in 2014,
was approximately 373,000 vehicles.
• Physical auctions — We dispose of our off-lease vehicles not purchased at termination by the lease consumer or dealer or sold on
an internet auction through traditional official manufacturer-sponsored auctions. We are responsible for handling decisions at the
auction including arranging for inspections, authorizing repairs and reconditioning, and determining whether bids received at
auction should be accepted.
Commercial Automotive Financing
Automotive Wholesale Dealer Financing
One of the most important aspects of our dealer relationships is supporting the sale of vehicles through wholesale or floorplan financing.
We primarily support automotive finance purchases by dealers of new and used vehicles manufactured or distributed before sale or lease to
the retail customer. Wholesale automotive financing represents the largest portion of our commercial financing business and is the primary
source of funding for dealers' purchases of new and used vehicles.
Wholesale credit is arranged through lines of credit extended to individual dealers. Wholesale floorplan loans are secured by the vehicles
financed (and all other vehicle inventory), which provide strong collateral protection in the event of dealership default. Additional collateral
(e.g., blanket lien over all dealership assets) and/or other credit enhancements (e.g., personal guarantees from dealership owners) are
oftentimes obtained to further manage credit risk. Furthermore, Ally benefits from automotive manufacturer repurchase arrangements, which
serve as an additional layer of protection in the event of repossession of dealership inventory and/or dealership franchise termination. The
amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles, which includes destination and other
miscellaneous charges, and a price rebate, known as a holdback, from the manufacturer to the dealer in varying amounts stated as a
percentage of the invoice price. Interest on wholesale automotive financing is generally payable monthly. Most wholesale automotive
financing is structured to yield interest at a floating rate indexed to London interbank offer rate (LIBOR) or the Prime Rate. The rate for a
particular dealer is based on, among other things, competitive factors, the size of the account, and the dealer’s creditworthiness. Additionally,
we make incentive payments to certain commercial automotive wholesale borrowers under our Ally Dealer Rewards Program and account for
these payments as a reduction to interest income in the period they are earned.
Under the terms of the credit agreement with the dealer, we may demand payment of interest and principal on wholesale credit lines at
any time; however, unless we terminate the credit line or the dealer defaults or the risk and exposure warrant, we generally require payment of
the principal amount financed for a vehicle upon its sale or lease by the dealer to the customer.
Total commercial wholesale revenue of our Automotive Finance operations was $860 million, $908 million, and $999 million for the
years ended December 31, 2014, 2013, and 2012, respectively.
Commercial Wholesale Financing Volume
The following table summarizes the average balances of our commercial wholesale floorplan finance receivables of new and used
vehicles and share of dealer inventory in the United States.
Average balance
% Share of
manufacturer franchise
dealer inventory
Year ended December 31, ($ in millions)2014 2013 2012 2014 2013 2012
GM new vehicles (a) $ 16,736 $ 15,650 $ 15,331 64 67 71
Chrysler new vehicles (a) 7,658 6,885 6,693 45 50 58
Non-GM/Chrysler new vehicles 3,039 2,637 2,230
Used vehicles 3,129 3,044 2,985
Total commercial wholesale finance receivables $ 30,562 $ 28,216 $ 27,239
(a) Share of manufacturer franchise dealer inventory based on a 13-point average of dealer inventory.
Commercial wholesale financing average volume increased during 2014, compared to 2013. Wholesale penetration with GM and
Chrysler decreased during 2014 compared to 2013, as a result of increased competition in the wholesale marketplace. The decrease in
wholesale penetration during 2014 was more than offset by an increase in commercial wholesale financing average volume, primarily due to
growing dealer inventories required to support increasing automotive industry sales, and increases in Non-GM/Chrysler volume.
Other Commercial Automotive Financing
We also provide other forms of commercial financing for the automotive industry including automotive dealer term loans and automotive
fleet financing. Automotive dealer term loans are loans that we make to dealers to finance other aspects of the dealership business. These
loans are usually secured by real estate and/or other dealership assets, and are typically personally guaranteed by the individual owners of the
dealership. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used
to purchase vehicles, which they lease or rent to others.