Magazine article American Banker

Car Lenders' Double-Whammy: More Late Payments, Slumping Prices

Magazine article American Banker

Car Lenders' Double-Whammy: More Late Payments, Slumping Prices

Article excerpt

Byline: Kevin Wack

Signs of growing weakness in the U.S. auto loan market are hurting the bottom line at one of the nation's largest car lenders.

Ally Financial in Detroit said Tuesday that its 2017 profits will likely be dinged by rising delinquencies on subprime auto loans, as well as by falling used-car prices. The worsening industrywide trends were long predicted by observers who noted that car loans were becoming less affordable for American consumers, particularly those with poor credit scores.

Some of those fears are now being realized. Industrywide data shows that the volume of auto loans at banks that were at least 30 days past due rose by 17% in the fourth quarter of last year, as compared with three months earlier, according to Federal Deposit Insurance Corp. data.

What's more, used-car prices have been falling quickly in the wake of a steep climb in the number of vehicles being manufactured. In February, used-car prices were 8% below their level of a year earlier, according to the National Association of Auto Dealers.

The decline in what it costs to buy a used vehicle means less money for banks and auto-finance companies, which sell cars that have been repossessed or returned at the end of a lease period.

Negative trends in the auto-lending market figure to have an outsize impact at Ally, since the $186 billion-asset firm, which was spun off from General Motors in 2006, leans far more heavily on auto lending and leasing than other big banks do.

Ally earned $2.16 per share last year and previously predicted earnings per share growth of less than or equal to 15% in 2017. On Tuesday it adjusted the target to between 5% and 15% due in part to what it expects to be an uptick in losses on car loans. Ally said it expects losses in its auto portfolio to increase to 1.4% to 1.6% of total loans, up from 1.24% in 2016.

Ally's stock fell 2. …

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