July 27, 2021

Ally swings to Q1 profit on strong auto performance, pandemic recovery

Detroit lender Ally Financial Inc. said Friday it swung to a first-quarter net profit driven by strong consumer auto demand and a favorable comparison to the year-earlier period that was impacted by the coronavirus pandemic.

Ally, one of the largest U.S. auto lenders, reported net income of $796 million compared with a loss of $319 million in last year’s first quarter. Net income more than doubled compared with $374 million in the first quarter of 2019.

Ally originated $10.2 billion in auto loans and leases in the first quarter, its highest volume in five years.

Ongoing inventory constraints are driving up transaction prices as dealership partners mitigate ravenous consumer demand amid limited supply, Ally Financial CEO Jeffrey Brown said on an investor call.

“Overall demand for new and used vehicles was robust during the quarter, while competition remained balanced but intense,” he said. “Industry inventory levels reached multidecade lows as sales trends were strong and we began to see the early impact of constrained OEM production during chip-related shortages.”

First-quarter adjusted earnings per share of $2.09 set an all-time record. Revenue rose 37 percent to $1.94 billion.

Shares of Ally closed Friday’s trading up a fraction to $47.71.

Auto originations rose 12 percent year over year and were sourced from 3.3 million applications on which decisions were made.

Used-vehicle originations of $5.7 billion comprised 56 percent of Ally’s first-quarter originations. The lender originated $3.1 billion in new vehicles and $1.4 billion in leases in the quarter.

Pretax auto income rose to $803 million from a loss of $173 million in the year-earlier quarter. Higher auto revenue and stronger off-lease vehicle values also drove up net auto financing revenue by $166 million to $1.2 billion.

Ally also benefited from reducing its credit reserves, taking in $22 million previously slated to cover losses. The change marked increased consumer demand and improved economic conditions one year into the pandemic.

Ally took in insurance written premiums of $333 million, a business line that includes dealership finance-and-insurance sales. The lender reported its highest monthly levels of service contract sales since 2013.

Strong auto sales coupled with tight inventory lowered the lender’s floorplan business. Dealership floorplan dropped 38 percent year over year to $15.6 billion.

The impacts of coronavirus and factory closures had already lightened dealership inventory, Brown said, yet factors such as trucking shortages and Texas weather events exacerbated the issue.

“It’s pretty amazing how some of these kinks in a supply chain can further disrupt,” Brown said. “I suspect we’re at or around the bottom on floorplan, but I don’t see balances meaningfully rising until maybe the back half of this year at best.”