Credit: Shutterstock photoGeneral Motors ( GM ) operates a large vehicle leases and loans division. This business segment is engaged in the activity of purchasing loan and lease contracts from dealerships and assuming the residual risk on a vehicle sold on loan or lease by the dealership. Over the last five years, the asset base owned by this division has grown five fold, while revenue has grown slightly less than that term. The growth in asset base has been driven by the significant increase in capital expenditure on purchasing leased vehicles from dealerships. Notably, the implied interest rate on a vehicle sold via lease or loan, calculated as the ratio of revenue earned by the segment divided by its asset base, has been declining despite the increase in mix of leased vehicle sales, which command a higher interest rate. Additionally, GM's operating expenditures, comprised mostly of marketing expenses for the division, have been increasing as a percentage of revenue. This trend looks unsustainable and the company will have to find a way to reverse it in the near future to keep the division profitable.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
