General Motors is seeking to apply for a banking charter to revive its lending facilities, in a move that would allow it to accept deposits and expand its auto-finance business, the Wall Street Journal has learnt.
As part of the plan, the vehicle maker’s finance arm, General Motors (GM) Financial Company Inc., has been talking to federal and state banking regulators for months about forming an industrial loan company and could file applications to do so as early as December, according to the report. An industrial-loan charter allows non-banking entities to own both commercial firms and banks, a combination prohibited by a traditional banking license.
GM would use its banking charter and the ability to accept deposits to support its auto-finance business. As such, deposits would provide a stable, low-cost source of capital for GM Financial to grow its business of lending to GM car buyers and dealers. GM Financial currently issues debt to fund most of its lending, according to the WSJ.
The company has also considered using the charter to offer consumers high-yield savings accounts and other deposit products, the report said. Auto makers use their lending arms to provide customers with a one-stop shop and to lure them with special offers and promotional rates on loans and leases.
GM Financial has accounted for a growing share of GM’s revenue in its decade under the GM brand. It generated about $14.5 billion last year, 10.6% of GM’s total revenue. That is up from 0.2% in 2010 and 4.2% in 2015.
GM shares have soared more than 30% over the past month, as the automaker presented investors with a strategic update on its electric vehicle (EV) vision, which includes a $20 billion investment over the next 5 years.
Wedbush analyst Daniel Ives, who has a Hold rating on the stock, expects to hear more from management around these stepped-up EV ambitions over the coming months as the plan remains a linchpin of success for GM going forward.
“GM has touted its proprietary “Ultium” battery cell technology, which can be stacked inside the battery pack either horizontally or vertically,” Ives wrote in a note to investors. “We view that as one of the highlights of GM’s EV strategy as the company looks to become a major player in the EV market over the next decade.” (See GM stock analysis on TipRanks).
Overall, Wall Street analysts have a bullish outlook on the stock. The Strong Buy analyst consensus shows 11 Buys vs. 1 Hold and 1 Sell. With shares up 23% so far this year, the average price target of $45.15 suggests that analysts view the stock as more than fully priced at current levels.