Strong Credit Ratings Fueled by High Demand, Leading to Lower Inventory Levels
Auto Lenders Focus on Growth and Credit Quality in Q2 2025
In the second quarter of 2025, two major auto lenders, GM Financial and Ally Financial, prioritized increasing auto loan originations while maintaining a disciplined approach to credit quality and controlling incentive spending.
GM Financial reported a 9.6% rise in originations, reflecting growth alongside General Motors' overall operational cash flow. However, GM's adjusted automotive free cash flow declined compared to the previous year. Ally Financial also experienced a rise in auto loan originations and lease activity, driven by record application volumes. Despite this, the lender reported Q2 earnings slightly below estimates and maintained capital discipline with narrowed auto net charge-off guidance around 2%–2.15%.
GM Financial, the leading provider of floorplan financing for U.S. GM dealers, with a market share of 47.8%, continued to focus on high-credit-rated borrowers for both new and used vehicles. About 42% of Ally originations belonged to borrowers in its highest-rated risk tier, similar to a year ago at 44%.
Inventory levels for dealers are down due to a last-minute rush of consumers buying new vehicles in March and April to avoid tariffs. As a result, GM dealer inventory at the end of the second quarter was 526,000 units, down 9.5% compared to a year ago and 11.9% compared to the end of 2024. New-vehicle inventory in the U.S. fell below 2.5 million units at the end of June, down from an estimated 2.9 million a year earlier and 3.3 million at the end of December 2024.
Ally's average FICO score for new-vehicle originations was 726 for the second quarter, up from 714 a year ago. For used-vehicle loans, the average FICO score was 703, compared to 710 a year ago. Ally defines credit scores below 620 as "nonprime," and borrowers with scores below 620 or with no FICO score accounted for about 13% of total originations for the second quarter, similar to a year ago.
Despite challenges with delinquencies among younger buyers, lenders are still approving loans for these buyers. Ally originations to borrowers with "super prime" FICO credit scores (760 and above) accounted for about 29% of the total. Auto lenders are keeping discounts and loan approvals conservative, despite complaints about high interest rates and lack of affordability.
GM and GM Financial are keeping a tight rein on incentive spending. U.S. incentives as a percentage of average transaction price are below 5% and more than 2 percentage points below the industry average. Ally CEO Michael Rhodes stated that through the first half of the year, commercial floorplan balances have been lower than expected, which he says is good news for dealers.
In conclusion, Q2 2025 strategies for GM Financial and Ally Financial prioritized growth in originations with a disciplined approach to credit quality and careful management of incentives to ensure sustainability amid market volatility.
The Q2 2025 strategies of GM Financial and Ally Financial not only focused on increasing auto loan originations but also on the finance sector, as they aimed to maintain a disciplined approach to credit quality. In the transportation industry, particularly the automotive business, both lenders carefully managed incentives to ensure sustainability amid market volatility.
