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Executives

Caitlin DeYoung - VP of IR

Dan Berce - President and CEO

Chris Choate - CFO

Clifton Morris -Chairman

Steve Bowman - Chief Credit and Risk Officer

Mark Floyd - Co-Chief Operating Officer

Preston Miller - Co-Chief OperatingOfficer

Analysts

Bob Napoli - Piper Jaffray

David Hochstim - Bear Stearns

JamesFotheringham - Goldman Sachs

Sameer Gokhale -KBW

John Hecht - JMP Securities

Carl Drake - SunTrust Robinson Humphrey

Chris Brendler - Stifel

Moshe Orenbuch - Credit Suisse

Dan Fannon - Jefferies

John Stilmar - FBR Capital Markets

AmeriCredit Corp. (ACF) F1Q08 Earnings Call October 24, 2007 5:30 PM ET

Operator

Good afternoon. My name is Keith Austin, and I will be yourconference facilitator today. At this time, I would like to welcome everyone tothe AmeriCredit First Quarter of Fiscal Year 2008 Earnings Call. Today's callis being recorded. All lines have been placed on mute to prevent any backgroundnoise. After management's remarks, there will be a question-and-answer period.

I will now turn the call over to Caitlin DeYoung, VicePresident of Investor Relations. Please go ahead.

Caitlin DeYoung

Thank you. Good afternoon, and welcome to AmeriCredit'sfirst quarter fiscal year 2008 earnings conference call. With me today for theprepared remarks are Dan Berce, President and CEO; and Chris Choate, ChiefFinancial Officer. Also joining us are CliftonMorris, Chairman of the Board; Steve Bowman, Chief Credit and Risk Officer and;and Co-Chief Operating Officers Mark Floyd and Preston Miller.

Before we proceed, I must remind everyone that the topics wewill discuss during today's call will include forward-looking statements thatinvolve risk and uncertainties detailed in the Company's filings and reportswith the Securities and Exchange Commission, including the annual report onForm 10-K for the year ended June 30, 2007. Forward-looking statements arebased on the beliefs of the Company's management, as well as assumptions madeby and information currently available to the Company's management. Actualresults and events may differ materially. We will be posting a transcript ofthe prepared remarks to our website shortly after we conclude today's call.

I will now turn the call over to Dan Berce. Dan?

Dan Berce

Thank you, Caitlin. As you read in our press release, weearned $62 million or $0.49 per share for the September quarter. We achievedour target for originations and we are particularly encouraged by our executionin the capital markets. However, we were somewhat disappointed with our creditresults, particularly in our 2006 subprime origination vintage and the lowertiers of our Long Beach portfolio.We are anticipating slightly weaker credit performance in the calendar year2008, and as a result have increased our provision for loan losses to $245million for the quarter, which was approximately 10% higher than what we hadexpected.

During today's call, I will provide a more detaileddiscussion of originations and credit performance, including the steps we aretaking to tighten our credit execution. After that, I will turn the call overto Chris for details on the key drivers of earnings, followed by an update onour funding and capital position. I will then conclude our prepared remarkswith a summary of changes to our earnings guidance for fiscal year 2008.

During the September quarter, AmeriCredit originated $2.4billion in new loans and leases, compared to $2.5 billion in the June quarterand $1.7 billion in the September 2006 quarter. The sequential decrease inorigination volume resulted from normal seasonality, as well as our efforts toslow originations growth through more aggressive pricing strategies in light ofthe difficult credit markets.

During the September quarter, we successfully raised APRs onnew loan originations by approximately 25 basis points across our platforms,and at an even greater rate in our core subprime business. Of our originationvolume for the September quarter, $272 million were originated through our Long Beach platform, $251 million through our prime BayView platform and $142 million through our leasing platform.

We conducted business with approximately 14,700 autodealers, almost 1,000 more than this same time last year. In September, welaunched a pilot program that allows dealers to submit applications across thecredit spectrum to one single underwriting platform, instead of having to sendprime, near-prime and subprime applications to our various underwritingplatforms. The program is still relatively new, and is currently being testedin approximately 60 dealerships. We plan to begin rolling out our unifiedfull-spectrum program to all our dealers by the end of this fiscal year.

Now turning to credit. For the September quarter, early andlate stage delinquencies and net credit losses followed normal seasonalpatterns, increasing from the June quarter. Portfolio net credit losses were5.4% for the September quarter, compared to 3.3% in the June quarter. ExcludingLong Beach, net credit lossesincreased to 5.7%, from 5.4% last September quarter.

We experienced higher-than-expected credit losses in lowercredit tier loans from our Long Beachportfolio this quarter. These lower tier loans represent about 25% of the Long Beach portfolio. The strength of the Long Beach platform and their historical underwritingexpertise has been in the higher tiers of near-prime lending, not in theselower tiers, which overlap with AmeriCredit's subprime underwriting expertise.We are not seeing the same deterioration in Long Beach'shigher-end near-prime originations, nor are we seeing any spillover impact of subprimemortgages in our near-prime portfolio in general.

In conjunction with their integration efforts, AmeriCreditofficers have assumed responsibilities for managing servicing activities forthe Long Beach portfolio, as wellas oversight for risk management, which includes portfolio performanceanalysis. We have also announced the relocation of Long Beach's collections and customer service operationsfrom Orange, Californiato Arlington, Texasin January 2008.

We are experiencing a pull-forward of losses across the Long Beach portfolio, due to the implementation ofAmeriCredit's historical servicing policies and procedures, in addition to theweaker performance on lower tier loans previously referred to. We anticipatethat the distraction of migrating the near-prime servicing platform over thenext few months may result in a continuing trend of weaker credit performancein the Long Beach portfolio throughthe December quarter, and we are working hard to mitigate any potentialproblems during the transition.

In looking at our core subprime portfolio, we continue tosee pressure in both delinquencies and losses in our 2006 loan vintage. Furtherseasoning of the 2006 vintage has led us to conclude that cumulative net losseswill be 100 to 150 basis points higher than our previous expectations. Ourrevised expectations result from two main factors.

First, we now believe that there will be a more prolongedtimeframe before the bankruptcy substitution effect will normalize. Whilenational bankruptcy filings have been increasing, our filing levels have notincreased by the same magnitude. Further, we expect our filing rates tonormalize at less than our pre-October 2005 levels. This behavioral shift hasaccelerated the timing of defaults we are seeing in our 2006 vintage, as wellas increased the severity of these losses.

Second, for the past several years, in the midst of a strongeconomy, there has been an industry-wide expansion of risk, as AmeriCredit andother lenders have sought to grow at higher than overall market rates. Weexpected weaker credit results in such an environment, and actual creditperformance has turned out to be slightly worse than our expectations.

As I mentioned earlier, we increased pricing during thequarter to better compensate for the risk we are taking. We are also takingsteps to improve credit execution on loans we originate. For example, we areimplementing tighter tolerances for loan-to-values in lower credit tier loansfor new loan originations. We are lowering our originations target for thefiscal year to $9 billion to $9.5 billion as we approach a potentially softereconomy and weaker consumer sector with more caution and focus on tighter creditand pricing execution.

Also, we are in the process of developing our six-generationcredit scoring model that will incorporate data obtained through ouracquisitions of Bay View and Long Beach,as well as our more recent subprime credit experience. This integrated suite ofscorecards will enhance our assessment of default risk across our spectrum oflending products. We anticipate rolling the new scorecards out in early 2008.

Now to discuss the details of our September earnings andprovide you with an update on our funding and capital position, I'll turn thecall over to Chris Choate.

Chris Choate

Thanks, Dan. AmeriCredit reported net income of $62 millionor $0.49 per share in the September quarter. Net interest margin of 10.8%represented a 30 basis points decline from the June quarter. The decline in netinterest margin reflects an increase in funding costs for the quarter and anincrease in leverage from 7.7 times assets to equity at June 30 to 8.2 times atSeptember 30.

Additionally, we are also seeing the full impact of lower marginloans originated during the June quarter. At September 30, prime and near-primeloans represented 39% of our total portfolio, compared to 38% at June 30. Withthe increase in loan pricing during the quarter and a more constant credit mix,we anticipate the trend in portfolio net interest margin will stabilize in the10.5% to 11% range.

Now turning to the provision for loan losses. For theSeptember quarter, we recorded a provision for loan losses of $245 million or 6%of the average portfolio, compared to $190 million or 4.9% for the Junequarter. Our provision for the quarter was approximately 10% higher than weexpected, and approximately two-thirds of this miss resulted from the change inour cumulative loss expectations for the lower credit tier Long Beach loans. The remainder was related to our core2006 origination vintage that Dan already discussed.

Allowance for loan losses was 5.2% of the portfolio atSeptember 30. Excluding Long Beach,the allowance for loan losses was 5.5%, compared to 5.6% last quarter. Theallowance for loan losses for Long Beachwas 2.7% at September 30, compared to 2.2% at June 30.

Operating expenses for the September quarter decreased to$105 million or 2.6% of the average managed portfolio from 2.8% for the Junequarter. The decrease in operating expenses resulted from a growing portfolioand from cost synergies now beginning to be realized from the integration of Long Beach. Based on our progress to-date on theintegration, we are tightening our expectation for operating expenses forfiscal year 2008 to 2.5% to 2.7%, down from 2.6% to 3%.

One final comment related to our tax rate for the quarter,which was 28.4%. This lower tax rate arose from revised estimates of ourdeferred tax assets and liabilities relating to state income tax rates. Goingforward, we expect our tax rate to be approximately 37%. Our unrestricted cashbalance was $637 million at September 30, 2007, down from $910 million at June 30. The decrease in cashprimarily resulted from the repurchase of $128 million of stock and the fundingof $142 million of lease originations. We are working on a funding facility tofinance lease originations, and anticipate this facility will be available foruse in the near future.

Now turning to funding. In general, the credit market thisquarter can be characterized as extraordinarily difficult and volatile. ForAmeriCredit, it has been an exceptionally successful funding quarter. InAugust, we renewed our $500 million repurchase facility, with the same creditspread and a better advance rate matrix than the previous agreement.

Then in September, we completed a one-year, $1.5 billionprime/near-prime facility. This facility replaced our three separate prime andnear-prime facilities totaling $1.45 billion. As of the end of the quarter, wehave committed warehouse capacity totaling $5.4 billion, of which $3.25 billionis not scheduled to mature until October 2009, and the balance of which is notscheduled to mature until the summer of 2008.

Additionally, we were recently able to successfully executetwo securitizations for a total of $2 billion. Our $1 billion 2007 D-F subprimesecuritization priced in September with a weighted-average coupon of 5.5% andtarget credit enhancement of 13%, both unchanged from our subprime transactionwe completed in July. Then, earlier this month, we completed a $1 billionnear-prime securitization with a weighted average coupon of 5.3%. The targetcredit enhancement in this deal was 7.75%, a level we considered appropriategiven the collateral mix and structure of the transaction.

Now turning to equity. Shareholders' equity at September 30, 2007 totaled $2.010billion. Book value per share increased to $17.61 per share. Tangible bookvalue, excluding goodwill related to our acquisitions, was $15.78 per share atSeptember 30. Return on equity was 12% for the September quarter, compared to17.3% for the June 2007 quarter. There were 114 million shares outstanding atSeptember 30.

Now I will return the call back to Dan to discuss ourearnings guidance and make some closing remarks.

Dan Berce

We are updating our net income guidance for fiscal year 2008to $295 million to $320 million and earnings per share guidance to $2.30 to$2.50 per share, to reflect changes in credit expectations for certain portionsof our portfolio and the impact of lower originations on the provision for loanlosses. Our earnings forecasts are based on the following revised factors;origination volume of $9 billion to $9.5 billion; net interest margin of 10.5%to 11% of average receivables; operating expenses, excluding depreciation on leasedvehicles, of 2.5% to 2.7% of the portfolio; credit losses of between 4.5% and5%; and provision for loan losses as a percent of average receivables ofbetween 5% and 5.5%. These forecasts do not include any share repurchaseactivity subsequent to September 30.

To conclude, although somewhat disappointing, we still had asolid quarter on many fronts. Originations volume was $2.4 billion, even as weincreased pricing to obtain higher margins. Operating expense declined to itslowest level in three years, as we obtained leverage from a growing portfolioin our integration of prime and near-prime acquisitions. And our fundingplatform has proven to be strong, as we completed over $3.5 billion ofsecuritization and obtained $2 billion of warehouse commitments since July 1st.

Credit performance in our portfolio has become morechallenging of late. We believe we have taken the appropriate steps to addressthe pressures we are seeing. We increased our provision for loan losses tocover higher levels of expected losses. We are surgically tightening our creditexposure on new loan originations, while continuing to focus on pricingexecution.

As we enter into the seasonally weak December quarter, wewill continue to vigilantly monitor changes in macroeconomic indicators andconsumer trends and their potential impact on our portfolio. As you have seentoday, we are committed to modifying our operating plans if economic orcompetitive factors change.

I will now turn the call back over to Caitlin.

Caitlin DeYoung

Thank you, Dan. As a reminder to everyone, we will beposting a transcript of the prepared remarks on our website shortly after thecall. Operator, this concludes our prepared remarks, and we are ready to openthe call for questions.

Question-and-AnswerSession

Operator

Thank you. (Operator Instructions) We'll go first to BobNapoli with Piper Jaffray.

Bob Napoli - PiperJaffray

Thank you. Good afternoon. A couple of questions: Maybe,Dan, if you could, a little more color on the tweaks in underwriting. If welook at your origination plan, and you've taken $1 billion, about 10%, out ofthe plan, out of your forecast. And, I was wondering: is more of that comingout of Long Beach? Can you break downwhere the reduction is coming from?

Dan Berce

Bob, it's really across the board, with perhaps theexception of the Bay View platform. We're accomplishing it. First of all, whenthe credit market's disruption occurred a couple months ago, we began to sloworiginations, mainly through pricing means. We were pushing the pricingenvelope pretty hard, and that of course reduced our closure rates.

We've also, more recently, approached it from a creditstandpoint. I used the word surgically, meaning, we didn't make any broadacross-the-board changes, but we have taken steps to tighten up on things likeloan-to-value in lower credit tiers, fewer exceptions to underwriting policy.It's much more; I'd say a tightening of execution than anything.

Bob Napoli - PiperJaffray

Well, the 25% of the Long Beachportfolio you sound disappointed, and: is more of it coming out of there on arelative basis?

Dan Berce

Well, that's a relatively small part of our total originationmix in the first place. But it's fair to say that we're clearly being morecautious in that segment.

Bob Napoli - PiperJaffray

And, given this environment, and, looking at your stocktrading at book value: will you continue buying back stock? Or:  will you pull back until you see how theeconomy shakes out?

Dan Berce

Well, of course, we have limits on what we can buy back.Going through today, we had bought back roughly 130 million in the quarter, andthat was all we could buy back. So, with the release of earnings today, if youremember the formula, we can buy back half of net income, plus whatever equitywas added to the Company through option or warrant exercises. So, our basket asof today is about $40 million. And so, it's likely we would use that, butthat's the extent of buybacks that we can accomplish.

Bob Napoli - PiperJaffray

What was average price of the buybacks in the quarter?

Dan Berce

It was 22-ish, I believe, because we did it mostly earlierin the quarter.

Bob Napoli - Piper Jaffray

Okay. And just last question on the leasing business. How dowe think about the growth of that business, and is that business profitable?

Dan Berce

Let me give some parameters on what we're doing first.Number one, the average FICO on that is clearly a prime customer. It's in themid-to-even high 700's range. And the collateral that we're doing leasingtransactions on is 100% foreign manufacture, high-quality collateral.

That being said, we likely will not do as much leasing thisquarter and through the rest of the fiscal year as we did in the first quarter.We probably did an overly good job of training our people to sell leasing, andit's a product that is needed by the dealers. But we will use it morestrategically for the rest of the fiscal year.

Bob Napoli - PiperJaffray

Thank you.

Operator

We'll go next to David Hochstim with Bear Stearns.

David Hochstim - BearStearns

Hi, thanks. I wonder: on the leasing, are those new cars,used cars or mix?

Dan Berce

I'm sorry, David, what?

David Hochstim - BearStearns

The leasing --?

Dan Berce

100% new car.

David Hochstim - BearStearns

100% new car. Okay. And then: can you give us an update onthe fee income initiatives that you talked about earlier in the year?

Dan Berce

Sure. We implemented some payment-based fee products in thequarter, mid-quarter, and we were successful generating fee income and didn'thave any reduction in our payment rates.

David Hochstim - BearStearns

Okay. And I mean: at one point, it seemed that could be a prettymeaningful contributor to --

Dan Berce

It wasn't meaningful in the quarter. I think it may give us$0.5 million a month, going forward.

David Hochstim - BearStearns

Okay. And then: could you just expand on some of theunderwriting changes? Was there any change in the 72-month contracts?

Dan Berce

Well, not a change in 72's, because we haven't seen anyfrequency impact of 72's, negligible frequency impact. And the severity pieceof it is again very easy to calculate and see and price for. So that wasn't anarea we approached.

I mentioned loan-to-value as one area. On the lower credittiers, we are not seeing a change in frequency for loan-to-value on bettercredit tiers, but it's all a matter of payment size in the lower credit tiers, whetherpayment is high because of loan-to-value or other reasons, that's an issue weare attacking.

David Hochstim - BearStearns

How much did you increase loan-to-values?

Dan Berce

LTVs this quarter were about the same as last quarter. But prospectively,we are taking measures in the lower credit tiers to mitigate our exposure tosome of the high LTV loans.

David Hochstim - BearStearns

Okay. So: maybe you can give us an idea of how much wouldthat change?

Dan Berce

I mean: it's not going to change a heck of a lot, becauseagain, the Bay View loans, even though they are high LTV, they're performingexceptionally well. Long Beachloans that are high or near-prime are performing exceptionally well. Our coreproduct for the upper credit scores on a loan-to-value basis are performing asexpected. It's the lower tiers that we really need to get more diligent on.

David Hochstim - BearStearns

And: is it basically in the Long Beachlower tiers?

Dan Berce

And ours, and our core.

David Hochstim - BearStearns

But, I guess, I had the impression from what you saidearlier, that when you looked at comparable loans from Long Beach and AmeriCredit, the AmeriCredit loans wereperforming better than Long Beachloans that were, I guess, similar borrowers. Is that not true? There's nooverlap?

Dan Berce

Well, the bottom tier of Long Beach'sportfolio is, again, probably outside a little bit of their sweet spot. I mean thattype of loan is right in our alley of expertise. So those are loans we're goodat, and perhaps their platform wasn't as good.

David Hochstim - BearStearns

And so: the loans that AmeriCredit was making wereperforming better than the loans to similar borrowers at Long Beach. Is that what you're saying?

Dan Berce

That's a broad comparison, but certain tiers, yes.

David Hochstim - BearStearns

Okay. Great, thanks a lot.

Operator

We'll go next to James Fotheringham with Goldman Sachs.

James Fotheringham -Goldman Sachs

Thank you. I was just trying to understand the root causesof credit issues this quarter as well, so two questions. What was the keydifference in the underwriting process at Long Beachrelative to AmeriCredit? And: what do you intend to fix by relocating from Californiato Texas? And, incremental to theLong Beach issue: what inspired thecredit result, if it's not an impact from the subprime housing predicament?Thanks.

Dan Berce

Well, first of all, if you look at the credit companywide,the losses were 5.4% this quarter. There were 5.4% a year ago. So, there isn'ta quote credit issue of magnitude. There're pieces of our portfolio that weneed to work on. The '06 vintages work is strong, as what we had hoped theywould be, and as I pointed out, the lower tiers of Long Beach, especially the last half of '06 underperformed.

Now, if you look at Long Beach,why was that? AmeriCredit has done tens of billions of dollars of loans in thatcredit tier, and we've got very robust scoring models just to help usunderwrite. Those underwriting models weren't utilized by Long Beach before we bought them, for instance. So, one ofour plans is, shortly after the first of the calendar year, we will bemigrating all the platforms onto a six generation scorecard, so that the coresubprime loans, whichever platform they are on, will be underwritten by ourmore robust models.

James Fotheringham -Goldman Sachs

Understood. And incremental to the Long Beach issue, you have been cautious with the outlookfor credit for some time. That's appreciated, and when I look at the strategicand operational overview presentation that you have on your website, I'm stillseeing no difference in the delinquency rates for homeowners versusnon-homeowners.

Dan Berce

And that's absolutely still the case. James, The '06, I meanI explained the Long Beach issue, it's just, they didn't have a robust datasetto underwrite those loans compared to what we have. Our '06 vintages, it'sstill largely a function of the bankruptcy substitution effect.

If you look at -- you have the presentation. There's a slidethat says total bad rates in our '06 portfolio. And a bad rate is defined aseither a repo, a bankrupt or a serious delinquent. Our '06 vintages, on thatbasis are performing just like '05. But the reality is that, out of those badloans, many, many more are repos than bankrupts in '06 compared to '05. And wehave a charge-off faster on a repo, and the amount of charge-off is higher thanif the customer had gone bankrupt.

James Fotheringham -Goldman Sachs

Understood. No, thanks for that. And one last thing, Chris. Sorrywe missed it here, but: what did you say the end-of-period shares were?

Chris Choate

114 million.

James Fotheringham -Goldman Sachs

Thanks very much.

Operator

We will go next to Sameer Gokhale with KBW.

Sameer Gokhale - KBW

Hi, good evening. I just had a question, Dan, about yourearnings guidance. If you look at this quarter and you strip out the taxbenefit, it looks like EPS would have been more like $0.42 or so a share. And,clearly, the run rate seems to be a lot lower than what it would take you guysto get to that midpoint of your $2.30 to $2.50 range for the year.

I know you have laid out for us all these differentcomponents of your guidance, but I think my question is: how much confidencewould you have in these EPS numbers, given that the provisioning guidance --and I'd like to specifically know: what have you guys baked in from aneconomic, from a macroeconomic standpoint, into the provisioning guidance? Ifyou could talk about that, that would be helpful.

Dan Berce

Provisioning guidance is now in the -- we took the upperhalf of our previous guidance, and we did that for credit losses, too.Macroeconomic-wise, we're looking for same to softer type economy; we're notlooking for things to go to heck. And, in fact, we have always said our biggestfactor that correlates to our performance is the labor market, and, even ifthat started to weaken, it probably wouldn't affect our performance to a greatdegree this fiscal year.

Sameer Gokhale - KBW

So is it fair to say, given the concerns that people arehaving about the overall macro economy, that there could be more downwardrevisions to your earnings? It doesn't strike me, based on your commentary,that these are particularly conservative forecasts from an earnings standpoint.

Dan Berce

They are realistic forecasts. We make our best estimate ofwhat we think the remainder of the fiscal year is in and go with that. I thinkthe economic caution we are taking is more on the underwriting side. I'd saythat that's where we are, I think, being particularly cautious on what weunderwrite through the rest of the fiscal year.

Sameer Gokhale - KBW

Okay then could you perhaps parse for us and I think wecould probably estimate this, but could you parse for us on the credit losseskind of overall guidance? Would you be able to tell us how much you areforecasting on the credit loss side for the prime/near-prime versus the coresubprime?

Dan Berce

No, we wouldn't be able to delineate it like that.

Sameer Gokhale - KBW

Okay. And then, just my last question on the OpEx ratio, itlooks like, relative to the current quarter, the guidance for the rest of theyear is somewhat in line with the current quarter, somewhat flat. So youmentioned, you talked about it a little bit in your commentary, but shouldn'twe be -- are you factoring in here increased collections expenses into yourOpEx ratio, which is offsetting, maybe, some scale economies as you grow theportfolio?

Dan Berce

Not really. We don't expect much incremental servicing costthroughout the rest of the year.

Operator

We'll go next to John Hecht with JMP Securities.

John Hecht - JMPSecurities

Good afternoon, guys. Thanks for taking my questions. Not tobeat a dead horse on credit, but I guess two quick questions, in addition onthat is. One is: you talked about an increase in the cumulative lossexpectations in the '06 pools. How are the early '07 pools ramping up? And doyou -- are you applying the same cumulative loss expectations to the '07 pools?

Dan Berce

Good question, John. The '07 pools are performing better outthe gate than the '06, partly because I think earlier in the year, we hadalready taken some small steps to manage credit. But they are performingbetter, and as a result, we would expect -- our cumulative loss expectation forthose is lower than when we are now seeing for '06.

John Hecht - JMPSecurities

Okay. And now, looking at the losses for the quarter of 5.4%-- and Dan, you suggest we should, from a seasonal perspective as well as someof the cleanup in Long Beach, expecthigher in Q4. But then in the guidance, it's a 4.5% to 5.0%. So at this point,based on, it sounds like, everything you're seeing in terms of your, we'll callit: “core products” and the seasonality effect that we would expect, Q1calendar quarter and Q2 calendar quarters next year to show a normal type ofrecovery?

Dan Berce

That's right. We would expect, just like we did this year,to see particularly Q2 calendar year, June quarter, to have much, much lowerlosses than any other quarter in the year.

John Hecht - JMPSecurities

Okay. And then, looking at the guidance also with respect tomargin, it looks like you're modeling the lower half, you're forecasting in thelower half of the margin range relative to the last time. So, I guess, this ismore of a follow-up from what you were considering in the macro backdrop fromthe last question. I was wondering: are you anticipating any Fed reductions inthat, in terms of interest rates? And on offsetting that, given some of thepressure that the grantors or insurance companies are seeing right now: are youassuming that you have to go to a senior sub-type structure? That the cost offunds are going to go up in some other fashion, given the funding state of theeconomy?

Chris Choate

John, this is Chris. We really model the funding piece ofour net interest margin forecasts just off of our outlook throughout the fiscalyear, off of forward curve and when we expect to enter the market and what kindof pricing and spread expectations we may have. And obviously, the forwardcurve is going to have whatever the market expects, related to what the Fed isgoing to do.

Second part of the question -- on the bond insurance piece,we still believe there's plenty of appetite out there for bond insurers to wrapour transactions. We would, as we stated before, prefer to do our aparttransactions in a senior subordinated structure. We did do our last aparttransactions wrapped to give us a little boost with execution, but we reallydon't foresee there being any change overall in our general approach to wrappedversus unwrapped deals under either one of our securitization platforms.

John Hecht - JMPSecurities

Okay. Thanks very much. The kind of last question is theother income was up a little bit this quarter is this: a) can you give us, Iguess, the construct of that? And: are there any “one-time items” in there? Or:is this a decent base against assets going forward? And thank you very much fortaking my questions.

Chris Choate

Yeah. The other income is leasing, really, finance chargeincome and fees off the leasing product. And that ought to stay fairly stable.Dan mentioned that leasing volumes will come down, but that ought to stayrelatively stable over the next several quarters.

Operator

We'll go next to Carl Drake with SunTrust Robinson Humphrey.

Carl Drake - SunTrustRobinson Humphrey

Good afternoon. Expanding a little bit on the net interestmargin -- Chris, you were just discussing -- could you talk a little bit aboutyour assumptions in terms of mix shift? Also: have you been able to continue toincrease price? I think you mentioned 25 basis points across the platform. Isthat a stable price at this point, going forward?

Chris Choate

Yeah, we really haven’t. Dan mentioned, with our volumeforecast changes, that we're really seeing that mix shift staying prettyconstant. So there's really nothing we're trying to do there, again, with theexception that, because of the performance at Bay View and the rollout there,that one may have relatively a little more rapid growth rate. Pricing-wise, asI believe we mentioned in our comments, we did have a successful quarter andpushing the envelope on pricing to capture 25, 30 basis points. Again, we'regoing to continue to focus on pricing, but look towards a little bit moresurgical tightening on credit execution.

Carl Drake - SunTrustRobinson Humphrey

Okay. So there's not a potential upward movement in margins,based on pushing the envelope on pricing and you got your warehouse fundingcosts coming down somewhat?

Chris Choate

No, as I said, we really expect our stabilization in netinterest margin going forward.

Carl Drake - SunTrustRobinson Humphrey

Okay. And on the disruption in the Long Beach, the consolidation of those platforms, could youexpand a little bit on the comments -- what is going on there? What processesyou're employing that are causing some temporary disruptions in the creditmetrics there?

Dan Berce

Sure. As I said in the prepared remarks, our collectionsofficers have assumed management of their portfolio. And we're actually movingthe collections platform into our own. It will still be a separate unit thatcollects the portfolio, but it will be located in Arlington.

Some of the things that we do different than perhaps whatthey had done historically is simple things like contact patterns, our dialingtechnology, for instance, is better. Days to repo would be quicker, clearingout of repo cues would be quicker. Just those types of things accelerate thetimeframe in which a charge-off takes place.

Carl Drake - SunTrustRobinson Humphrey

Do you feel like, over time, that that's a temporary blip inthat lower tier?

Dan Berce

Yes, absolutely temporary blip. It's just a matter of movinglosses forward temporarily, and then it will normalize.

Carl Drake - SunTrustRobinson Humphrey

Okay. And last question Dan: what is your view on used carvalues? I know we're going into a seasonal difficult period, but: has therebeen any change in your views on used car pricing and inventory levels, et cetera?

Dan Berce

Yeah, other than the seasonality, the weakness we will seebetween now and into the early part of next calendar year, we're not seeinganything that concerns us from a used car valuation standpoint. All the factorswe look at and everything we read leads us to believe that it should be areasonably stable market.

Carl Drake - SunTrustRobinson Humphrey

Okay. Thank you.

Operator

We'll go next to Chris Brendler with Stifel

Chris Brendler -Stifel

Hi. Thanks, good afternoon. On the margin, you had mentionedhigher funding costs in the quarter, was that more the LIBOR-based, since yoursecuritization was sort of priced in line with your last deal?

Chris Choate

Well, the securitizations we did in the September quarterwere both at 5.5%, which -- we're still experiencing the phenomenon of highersecuritization costs on new deals as older cheaper deals roll off. And I alsomentioned the fact that we had higher leverage; that's due in large part to thefact that we did a high-yield deal towards the end of June and had the fullimpact of that from a funding cost in our numbers for September. Warehousecosts were somewhat of a push, they've -- up and down with the way LIBOR movedthroughout the quarter.

Chris Brendler -Stifel

Okay. So, I guess, next quarter, both those trends probablycontinue, or LIBOR maybe eases a little bit?

Chris Choate

It’s not possibly. Of late it has.

Chris Brendler -Stifel

Okay. I'm not sure this has been asked. I think it may havebeen, sort of in a roundabout way, but are you seeing -- how did the pricingincrease go? What do you see on the competitive front? And I think, maybe youalso could opine on the stretching that took place in '06, I don't think youare alone; I know CapitalOne has talked about problems they are seeing fromthat vintage. Are you seeing competitors be a little more rational in thisenvironment?

Dan Berce

Well, from a purely pricing standpoint, I think we wereamong only a few players that were moving up pricing. I think most of the marketstayed where they were, which is one of the reasons our closure rates have begunto suffer a bit.

I think the extent of our price increases is done now. Ithink we pushed it as far as we could. Of course, the funding environment haschanged, too. So perhaps funding will be, net-net, cheaper going forward. Sothe need to raise pricing doesn't exist today as much as it did three monthsago.

Competitively, outside pricing, we are seeing sometightening. Again, nothing across the board, nothing dramatic, but we're justhearing overtones that some players are getting more cautious, just like weare.

Chris Brendler -Stifel

Okay. And then you mentioned tightening in subprime, nothinglike cutting out the lower FICO, the lower custom score business, like you didin the last recession, but just tightening up on LTV's, which had gottenprobably a little too aggressive. Anything else you can point to, like 72-monthis still looking good. Is it really just the LTV's that got out of whack fromyour perspective, in terms of what is wrong with the '06 vintage?

Dan Berce

Well, it -- and again, it's not kind of across the board,all the '06 loans. We can pinpoint a few areas that we would have morevulnerability in. And I mentioned loan to value being one. We wanted to lookcloser at payment to income type ratios. We've done some scorecardrecalibration, to make sure all of our scorecards are working to the maximumeffectiveness.

Chris Brendler -Stifel

What about the [STIF] waivers? Has that been an area ofweakness?

Dan Berce

No.

Chris Brendler -Stifel

Okay. And then you said 150 basis point increase incumulative loss. I wasn't sure exactly the base of the bankruptcy effect. Areyou saying that -- I know you charged off sooner, but: why would that affectthe cumulative loss?

Dan Berce

Well, its again, I talked about bad rates for '06 being thesame as '05, but there's just a lot more repos than bankrupts. So that's thesubstitution.

Historically, on a bankruptcy, we ended up charging off only75% of them instead of 100%. So you've got that other 25% that, even thoughthey declared bankruptcy, they end up, through discharge or payments under abankruptcy plan, paying for their loan. The other 75% that end up charging off,we end up receiving a pretty good payment stream before they end up actuallygiving up. So the size of charge-off on a bankruptcy account in general is justmuch less than on a repo, notwithstanding the fact that the repo half of thecharge-off happens much sooner.

The reason we didn't recognize this cumulative loss changeuntil now is that we kept anticipating, I think, just like many players in thebusiness, that bankruptcies would come back to near levels of what they were acouple years ago. And especially for our portfolio that's just hasn't happened.I mentioned that our filing rates haven't budged much at all, even thoughnational filing rates are coming back a little bit. So the fact that that trendof bankruptcy substitution has just been sustained and prolonged made us justchange our loss assumptions.

Chris Brendler -Stifel

Got you. And one more question would be the comment abouthomeowners and renters still maintaining that gap. On the other side of thatequation: are you seeing any unusual weakness in some of the formerly hot housingmarkets -- California, Florida, in particular where you maybe seeing greaterimpact from the mortgage meltdown and potential job losses there?

Dan Berce

Not really, and part of it is that we just don't have muchexposure in those areas. But we are not seeing any meaningful shift in losses.

Chris Brendler -Stifel

Okay. Great, thanks for your answers.

Operator

We will go next to Moshe Orenbuch with Credit Suisse

Moshe Orenbuch - CreditSuisse

Yeah, thanks. Actually, my questions were just answered inthat last credit discussion.

Operator

We will go next to Dan Fannon with Jefferies.

Dan Fannon -Jefferies

Thanks. Most of my questions have been answered. But, Dan,given where your stock is trading, I was wondering: if, hypothetically, you couldkind of walk through the factors where we, or give a scenario where book valueactually gets impacted or you see book value eroded, what type of stress levelsyou guys have, obviously, various models that you run. What are the scenariosor factors that have to happen for that to impact book value?

Dan Berce

Well, first of all have pretty robust reserves against theportfolio, 5.2% at September 30th. But we also have a -- we did make $60million in the quarter. So, between the buffer of the allowance and ourearnings streams, losses would have to be considerably higher than they are nowfor us to erode book value.

I'm sorry, Dan, I don't have a, kind of a point estimate ofwhere losses could be, would have to be for book value to be affected. But it'sa long way from here.

Dan Fannon -Jefferies

Okay. And you have managed this company through previouscycles, and we're potentially at the early stages of the beginning of aweakening credit cycle. Are you seeing signs that are familiar to you, in termsof things getting materially worse from here? Or, just kind of from ahistorical perspective, kind of give us a thought process of how you're lookingat this business potentially from a credit perspective, longer-term?

Dan Berce

Well, by analogy, I can talk about what we saw in 2002, inparticular, and into early '03. We are not seeing any such thing now. We sawpretty meaningful deterioration in delinquencies during those periods. Ofcourse, that period was accompanied by a large decline in used car values. Weare not seeing any of that now. Of course, back then, 2001, the labor markethad eroded throughout the last half of '01. And I think that precipitated a lotof the things we saw in 2002.

We are just externally, we're just not seeing the samethings now that caused the problems in '02, credit problems, that is. And ournumbers are fairly stable. There's some areas of the portfolio we need to workon, but as I said, stripping out Long Beach comparable numbers, losses were5.4% a year ago, 5.7% this year. Delinquencies are -- 60-day are up a littlebit. But it's not anything that's alarming us, but it's something we are payingattention to.

Dan Fannon -Jefferies

Okay. Thank you.

Operator

We'll go next to John Stilmar with FBR Capital Markets

John Stilmar - FBRCapital Markets

Hi, guys. Thank you for taking my questions. And most of myquestions, as well, have been answered. With regards to reserves: how should webe thinking about that in terms of a coverage ratio? Is it 12 months, 14months? How is it that you look at it, and how should we be thinking about it?

Chris Choate

We have been very consistently looking at a range of 15 to18 months' coverage, really across our portfolio.

John Stilmar - FBRCapital Markets

Okay. Great, thank you very much.

Operator

(Operator Instructions) We will go next to Bob Napoli withPiper Jaffray.

Bob Napoli - PiperJaffray

Dan, I was just wondering if you guys might want to give alittle color on where you would expect charge-offs to come out in the fourth quarter,understanding that would probably be the peak charge-off quarter, seasonally,for the company. Would you expect it to be about 100 basis points above thirdquarter, broadly or?

Dan Berce

Just obviously, directionally, they will be up and they willbe pushing into the 6% range.

Bob Napoli - Piper Jaffray

Okay. Andthen just on your pricing increases -- and you have been around this business along time -- it does raise the risk of negative selection if others aren'tfollowing you. How do you protect, or how do you know that you're not beingnegatively selected as you raise rates and others don't?

Dan Berce

Well, that is clearly a risk. But I think the fact that welost volume, I think, is the reason we don't think we were adversely selected.Those loans just went elsewhere, because we were out of the marketpricing-wise.

Bob Napoli - PiperJaffray

Okay And with regards to Bay View, how would youcharacterize the performance of Bay View versus your expectations?

Dan Berce

It's at or better. That portfolio has held up extremelywell.

Bob Napoli - Piper Jaffray

Okay. Andjust as a piece of your guidance, it's kind of a new item introduced into yourincome statement that's broken out separately, the leasing depreciation thatyou don't give guidance on -- as you're thinking about a net interest margin,you're not including in that thought the lease margin? That is only on loans?You are not looking at a margin, a rental margin, if you will?

Dan Berce

Well, the lease margin more or less is in the number,because the lease income and they're all operating leases. The lease incomegoes through other income, and to finance the leases, we have interest of sometype. So that would be the margin, the net of the two.

Bob Napoli - PiperJaffray

Is the depreciation included in that?

Dan Berce

No, the depreciation would be below the line.

Bob Napoli - Piper Jaffray

Okay. Andyou're expecting….

Dan Berce

But it shouldn't be that material Bob, especially as we aregoing to be managing the lease volume the last part of the fiscal year.

Bob Napoli - PiperJaffray

And last question on the collection shift, in this industryI think I've seen companies really stumble on when they are shiftingcollections from one office to another, one collector to another. And, Ibelieve, you are experienced in this as well. How are you making sure that --you lose contact with a borrower on the lower -- with a subprime borrower, orkind of the low-end Long Beachborrower for a couple weeks, and that could spike your loss rates?

Dan Berce

Yeah. That's a risk in any servicing transfer that we'recognizant of. New Long Beachoriginations will begin servicing in Arlingtonon a transition basis. We're seeking to move a number of their key players to Arlingtonfor continuity purposes, and we are staffing up the unit in Arlington,well ahead of the needs that we will have people trained and ready to hit theground running. And as I say, we just have better technology than Long Beach has from a collection standpoint, and just kindof better tracking, because we've had a $15 billion portfolio, and they havebeen a tenth our size. Necessarily, we have been probably a bit moresophisticated.

Bob Napoli - PiperJaffray

Are there material expense efficiencies at the end of theday?

Dan Berce

Yeah. There are some. Obviously, Orange, California is a higher-cost area, whetheryou look at labor costs or rent. So there is -- certainly, that's part of theequation, but to the whole OpEx line, not material.

Bob Napoli - PiperJaffray

Right. Thank you.

Operator

We'll got next to Chris Brendler with Stifel

Chris Brendler -Stifel

I am sorry dragging on, but one more quick one. The cashbalance was a little lower than I was expecting, given the stock you boughtback and distributions from the trust. Is there anything that moved it downkind of a $150 million lower than I thought it would be?

Chris Choate

Yeah, Chris this is, its Chris. That would be the, thatreally that difference is the lease originations of $140 million in the quarter.Net, that was around $130 million net of deposits. Those we funded out ofequity. As I commented, we don't have a facility in place to finance those onat this point, although we are working diligently to put one in place.

Chris Brendler -Stifel

Okay. And then future, there is restriction on stockbuyback, $40 million in this quarter, when you are, I think, generating quite abit more than that -- are there other alternatives that you would look to,maybe a dividend with the excess cash? Or you just want to keep it, for now?

Dan Berce

Well, dividend is in the same payment bucket that sharebuyback is. So it's the same restriction, Chris.

Chris Brendler -Stifel

Chris.

Dan Berce

The only way to remove that restriction would be to somehowget a modification to the high-yield instrument indenture, and we're not goingto do that right now. Down the road, perhaps, we would look at that, but notnow.

Chris Choate

Looking out over a three or four-quarter period, though, ifour FD guidance is on point, we will be able to repurchase $160 million, $170million worth of stock, which is not insignificant. That frankly kind of linesup with what the remaining authorization is from our Board.

Chris Brendler -Stifel

Right, but you'll generate more cash than that.

Chris Choate

Correct. But again, all I'll make a comment is it's not aninsignificant amount.

Chris Brendler -Stifel

Okay. Thank again.

Operator

Ladies and gentlemen, there are no more questions. I willnow turn the conference back to Caitlin DeYoung for closing remarks.

Caitlin DeYoung

Thank you. This concludes AmeriCredit's first quarter fiscalyear 2008 earnings conference call. If you have any additional questions,please contact me or anyone in the Investor Relations department. Thanks toeveryone for participating in today's call and for your continued support ofAmeriCredit.

Operator

Ladies and gentlemen, this concludes today's conference. Weappreciate your participation. You may disconnect.

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Source: AmeriCredit Corp. F1Q08 (Qtr End 9/30/07) Earnings Call Transcript

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