Slide 1: Auto Lending and Risk Management
1 Ally Financial Inc. - Auto Lending and Risk Management Ally Financial Inc. Auto Lending and Risk Management August 4, 2016
Slide 2: Forward-Looking Statements and Additional Information
2 Ally Financial Inc. - Auto Lending and Risk Management Forward-Looking Statements and Additional Information The following should be read in conjunction with the financial statements, notes and other information contained in the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
Slide 3: Key Messages
3 Ally Financial Inc. - Auto Lending and Risk Management Key Messages Ally has a competitively advantaged business model for optimizing origination of assets, capital allocation and risk-adjusted returns(1) Deliberate adjustments made to our origination strategy to successfully capture better ri
Slide 4: Prime, Secured Balance Sheet
4 Ally Financial Inc. - Auto Lending and Risk Management Prime, Secured Balance Sheet • Dedicated to sound risk management and robust governance - Significant improvements post crisis and becoming a Fed regulated entity • 13 Retail Auto guardrails (limits), including 9 explicit guardrails against la
Slide 5: Competitively-Advantaged Auto Finance Business
5 Ally Financial Inc. - Auto Lending and Risk Management Competitively-Advantaged Auto Finance Business Relentless Ally for our Dealers; Dealers are Relentless Allies for us − Strong dealer-client relationships with over 18,000 active retail relationships − Superior service model with significant sc
Slide 6: Improving Business Results Through Diversification
6 Ally Financial Inc. - Auto Lending and Risk Management Improving Business Results Through Diversification • Successfully transitioned from GM and Chrysler exclusive subvention contracts - Business is won at the dealer level from 18,000 active retail relationships - 37% of originations from outside
Slide 7: Full Spectrum & Higher Quality = Lower Volatility
7 Ally Financial Inc. - Auto Lending and Risk Management Full Spectrum & Higher Quality = Lower Volatility • Ally, JPM, WFC, BBT and COF originate across the full spectrum but with a focus on higher credit quality - Long history of balancing risk-reward trade-offs over the credit cycles - Produces l
Slide 8: Retail Auto Originations
8 Ally Financial Inc. - Auto Lending and Risk Management Retail Auto Originations YTD 2016 Volume ($ billions) % Total Credit Tier Average FICO Originated yield(1) NAALR(2) Risk-adjusted Yield(3) $5.2 31% S 757 3.15% 0.13% 3.01% 7.2 43% A 668 5.36% 0.79% 4.57% 3.3 20% B 641 8.96% 2.61% 6.36% 0.9 5%
Slide 9: Retail Portfolio Yield
9 Ally Financial Inc. - Auto Lending and Risk Management Retail Portfolio Yield % 5.26% 5.24% 5.26% 5.31% 5.47% 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 5.84% Yield(1) on YTD 2016 Originations View of Increased Yields • Improving retail auto yields driven by: - Better yielding originations - Loan sales of low
Slide 10: Current NAALR and Cost of Credit Distribution
10 Ally Financial Inc. - Auto Lending and Risk Management Current NAALR(2) 2012 2013 2014 2015 YTD 2016 Booked NAALR(1) 0.91% 1.00% 1.00% 1.11% 1.20% % Super Prime (FICO 740+) 33% 29% 29% 23% 20% % Nonprime (FICO <620) 11% 12% 11% 14% 12% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% <.2% .2-1% 1-3% 3-5
Slide 11: Scale Positions Ally for Success
11 Ally Financial Inc. - Auto Lending and Risk Management Scale Positions Ally for Success • Large diversified lender - Ally buys loans from over 18,000 dealers - Represent a very broad range of the US consumer • Technology enabled for access, speed and efficient delivery at point of sale - Anywhere
Slide 12: Risk Management Philosophy and Process
12 Ally Financial Inc. - Auto Lending and Risk Management Risk Management Philosophy and Process Risk & Pricing Models Source Applications Credit / Risk Models Credit Decision Feedback Loop • Retail / Lease • Term • New / Used • Other • Credit Bureau Information • LTV • PTI • Other Approval / Qualif
Slide 13: Determining Cost of Credit
13 Ally Financial Inc. - Auto Lending and Risk Management • Employment and other consumer health metrics: − Losses impacted by unexpected life events: job loss, medical bills, divorce, etc. − Borrowers typically work to keep their vehicle if they maintain employment − Losses also affected by levels
Slide 14: 2013 - 2015 Vintage Performance
14 Ally Financial Inc. - Auto Lending and Risk Management 2013 - 2015 Vintage Performance 1/1/2013 2/1/2013 3/1/2013 4/1/2013 5/1/2013 6/1/2013 7/1/2013 8/1/2013 9/1/2013 10/1/2013 11/1/2013 12/1/2013 1/1/2014 2/1/2014 3/1/2014 4/1/2014 5/1/2014 6/1/2014 7/1/2014 8/1/2014 9/1/2014 10/1/2014 11/1/201
Slide 15: Optimizing Risk-Adjusted Yields
15 Ally Financial Inc. - Auto Lending and Risk Management 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% Priced Loss Expectation 80% Priced Loss Expectation 125% Priced Loss Expectation 150% Priced Loss Expectation Priced Loss Expectation (Avg. 2014-2015) 2Q 16 2Q 15 Originated yield(1) 5.83% 5.28% Price
Slide 16: Portfolio Sensitivity to Stress
16 Ally Financial Inc. - Auto Lending and Risk Management • Ally analyzes its portfolio segments across multiple economic scenarios - Having a wide range of scenarios provides insight to help pricing and underwriting decisions • Portfolio as a whole will be less volatile than any given vintage - Tha
Slide 17: How Does Ally Consider Longer Term Loans?
17 Ally Financial Inc. - Auto Lending and Risk Management Focus on avoiding layered risk • Board established origination guardrails and tighter underwriting parameters - 84 month only available to Ally’s top three credit tiers (S/A/B; 708 WA FICO) - Also, more stringent max vehicle age, mileage, LTV
Slide 18: Collateral Protection Example
18 Ally Financial Inc. - Auto Lending and Risk Management Collateral Protection Example LTV Drivers at Origination • Ally is first and foremost a secured lender • Ally is solely lending to facilitate a vehicle purchase – no cash out financing • LTVs over 100% are typically driven by financing tax, t
Slide 19: Monitoring Risk – Constant Feedback Loop
19 Ally Financial Inc. - Auto Lending and Risk Management ~45% of the outstanding balance at year-end is made up of current year originations % of Retail Auto Outstandings by Origination Year 5% 4% 3% 2% 1% 1% 13% 10% 9% 7% 6% 4% 3% 25% 21% 18% 16% 13% 10% 9% 7% 6% 34% 30% 27% 23% 19% 16% 14% 12% 10
Slide 20: How Auto Lending Differs from the Mortgage Bubble
20 Ally Financial Inc. - Auto Lending and Risk Management How Auto Lending Differs from the Mortgage Bubble • Borrowers do not buy a vehicle as a speculative investment and understand it is a depreciating asset • Ally’s policy is to finance borrowers so they can buy an affordable vehicle to utilize
Slide 21: Ally Index and Lease Dynamics
21 Ally Financial Inc. - Auto Lending and Risk Management Ally Index Average Used Price Change YoY (2Q 2016 vs 2Q 2015) -4% 1% -2% -8% -4% 0% 4% Cars Trucks / SUV Total Lease Dynamics • Competitive advantage in assessing vehicle prices - In-house team of experts and proprietary index - SmartAuction
Slide 22: How will Ally drive EPS growth through a cycle?
22 Ally Financial Inc. - Auto Lending and Risk Management How will Ally drive EPS growth through a cycle? • Strongest players with expertise and scale can typically drive pricing • Participate across the spectrum to identify best risk return in both new and used vehicle lending • Ally has the benefi
Slide 23: How is EPS impacted by various drivers?
23 Ally Financial Inc. - Auto Lending and Risk Management How is EPS impacted by various drivers? • Multiple variables outside of retail credit losses can impact EPS • Based on current auto originations, yield is expected to increase significantly more than losses Illustrative Annual EPS Impact Note
Slide 24: Supplemental
24 CONFIDENTIAL Supplemental
Slide 25: Notes on non-GAAP and other financial measures
25 Ally Financial Inc. - Auto Lending and Risk Management Notes on non-GAAP and other financial measures Supplemental Estimated risk-adjusted retail auto yield is a forward-looking non-GAAP financial measure that management believes is helpful to readers in evaluating the estimated profitability of
Slide 26: Notes on non-GAAP and other financial measures
26 Ally Financial Inc. - Auto Lending and Risk Management Notes on non-GAAP and other financial measures Supplemental 2) U.S. consumer auto originations New Retail Subvented – subvented rate new vehicle loans New Retail Standard – standard rate new vehicle loans Lease – new vehicle lease origi