Exclusive - Ally assumes it will lose entire GM leasing business: CEO

By Peter Rudegeair

NEW YORK (Reuters) - Ally Financial Inc (ALLY.N) is taking steps to replace its remaining exclusive leasing deals with General Motors Co (GM.N), betting that the largest U.S. carmaker will eventually finish taking that business in-house, the auto lender's chief executive said in an interview.

GM has already said that its financing arm, GM Financial, would replace Ally as the exclusive lessor for Buick, GMC and Cadillac vehicles. Ally expects GM Financial to eventually take over leasing for Chevrolet as well, Ally Chief Executive Jeffrey Brown told Reuters on Thursday.

"That is a planning assumption we've got today," Brown told Reuters.

GM's pullback from Ally threatens to cut off about one-quarter of the bank's retail lending business, though the company expects the changes will have a minimal financial impact in 2015. Brown said Ally is redeploying capital to other types of business, like lending for used cars and to dealers not associated with GM and Chrysler.

Last year, Ally's used car lending volume was up 18 percent from 2013, and its loans to those kinds of dealers increased by 45 percent. Despite that growth, 23 percent of its $41 billion (27 billion pounds) in auto loans and leases last year came from the type of leasing relationships that GM is pulling away from.

GM's decision was a shock to Ally investors, who sent the auto lender's stock down 5.5 percent on Jan. 12, the day after the automaker announced it was replacing Ally with its own lender.

Ally and GM have a longstanding relationship, beginning in 1919 when GM launched its first in-house financing arm, known as GMAC. The automaker sold a majority stake in GMAC to private-equity firm Cerberus Capital Management in 2006, but maintained the business relationship.

Both GM and GMAC were bailed out by the U.S. government at the height of the financial crisis, and in 2013 GM sold the last of its ownership stake in Ally, as GMAC renamed itself in 2009.

Their relationship has loosened in recent years as GM has renewed its interest in financing its customers' purchases amid a broader boom in auto sales. GM bought the auto lender AmeriCredit in 2010 and renamed it GM Financial.

A GM spokesman said that even though the automaker is boosting the capability and scale of its own lending arm, it still expects Ally to play a role supporting GM dealers and customers.

Ally will continue to assist dealers with leasing if GM Financial decides not to be the exclusive provider of leases for all of its brands, Brown said, but the company is preparing for a worst-case scenarios.

"We are going to support the dealers," Brown said. "We don't hold grudges."

Michael Carpenter, Ally's CEO until Feb. 2, had said he was surprised GM was reducing competition in its dealerships.

"What pisses us off is when we don't get the chance to compete on a heads-up basis," Carpenter said in January.

Carpenter abruptly retired just four days after making those remarks. Brown said one of his first tasks as CEO was to reassure GM how committed Ally was to their relationship.

"There was a lot of heat and a lot of tension," Brown said of the coverage of Carpenter's remarks. "I'm going to take the noise level down, take the heat down."

In addition to doing more used car lending, Brown also expects to make more loans to borrowers with weak credit, an area that U.S. law enforcement officials have been focussing on more recently.

"I think nonprime lending can be done responsibility," Brown said.

Ally shares closed on Thursday up 1.3 percent on Thursday afternoon to $21.82.

(Reporting by Peter Rudegeair; Editing by Christian Plumb)