Ally Financial is seeing few signs of a slowdown in the auto market, which continued to fuel the Detroit-based lender’s growth during the second quarter.
The company made $13.3 billion in consumer auto loans during the period, its biggest quarterly origination volume since 2006. Ally executives predict that higher-income customers will continue to push up demand.
Vehicle ownership remains “incredibly important” in the United States, said Ally Chief Financial Officer Jennifer LaClair. Supply-chain backlogs and low dealer inventories have also meant some 4 million to 5 million customers are “on the sidelines simply because they can’t find the vehicles they want to purchase,” LaClair said Tuesday.
“We still think that there's a lot of pent-up demand that will continue to fuel originations,” LaClair said in an interview after the company reported its quarterly earnings.
That outlook would provide a boost to Ally, which in recent years has
The value of used vehicles has jumped nearly 60% in the past two years, according to the
Higher car prices have dampened demand among lower-income customers, as some potential buyers have been “priced out” of the market, LaClair noted. In the first half of this year, customers with incomes below $50,000 have filed 16% fewer loan applications than they did in 2019, according to Ally data.
But Ally has simultaneously seen a 25% jump since 2019 in loan applications from people with incomes above $50,000. Ally auto borrowers have an average income of more than $100,000, and they don’t appear to have much “price sensitivity” at a time when interest rates are climbing and it costs more to purchase a vehicle, LaClair told analysts.
Even as investors have broader worries about the auto market and potential credit quality
Ally’s net income slipped to $482 million during the quarter, down from $900 million a year earlier, partly because the company set aside $304 million in loan-loss reserves as it grew its auto loans.
LaClair told analysts that the company was “unapologetic” about the reserve buildup even as she said executives are not seeing significant deterioration in credit quality.
The bank, which is already a major advertiser in women’s sports, challenged other companies to follow its lead in balancing financial commitments to men's and women's athletics.
Roughly 2.5% of Ally’s retail auto loans were delinquent by at least 30 days in the second quarter, up from 1.6% at the same time last year, but below pre-pandemic levels. Annualized net charge-offs in retail auto loans rose to 0.54%, compared with net recoveries of 0.03% in the same quarter a year earlier.
The second-quarter credit performance was “within our expectations,” LaClair told analysts, as the company anticipates credit metrics will gradually return to pre-pandemic levels.
One metric that is already back to 2019 levels is loan delinquencies of at least 60 days, which stood at 0.57% of loans last quarter. LaClair attributed that deterioration partly to the company's move to shift its timelines for repossessing cars from customers who are seriously delinquent on their payments.
Ally is now giving customers “a little bit more time to cure their delinquency” without being subject to a repossession, LaClair told American Banker, and that has pushed up the company’s delinquency rates temporarily, instead of resulting in higher charge-offs.
