December 3, 2020

Major auto lenders claim further stimulus could preserve portfolio performance

Two of the three major auto lenders posted significant increases in auto loan originations in the third quarter and cited improved customer demand and credit metrics in their results. But all three lenders signaled concern that without further government stimulus, consumer auto loan performance could suffer.

Auto loan originations surged and set records at Ally Financial and Chase Auto in the third quarter. Wells Fargo Auto’s auto loan levels, however, dropped by double digits. Wells attributed the loss to the economic slowdown prompted by the COVID-19 pandemic.

Detroit-based lender Ally Financial generated its highest level of auto loan and lease originations in five years, the company said last week. Demand for personal vehicle ownership has continued to be strong, while ride-sharing and public transportation continue to drop precipitously because of COVID concerns, Ally CFO Jenn LaClair told Automotive News.

“The freedom and flexibility that a car provides in this environment has continued to be robust,” she said. “We’re seeing that on the front end in terms of origination flows and used vehicle pricing. But we’re also seeing it on the back end.

“We’ve run through our entire forbearance program and servicing metrics are pretty much as good as they get.”

Chase Auto, based in New York, originated $11.4 billion in auto loans and leases in the third quarter — its highest-ever third-quarter volume.

Chase Auto CEO Peter Muriungi said last week that the lender’s results were “remarkable” but added that originations were proportionate to a V-shaped recovery in auto demand.

“Our mix improved in terms of credit quality,” he said. “We also picked up [market] share in both the new and used space.”

Wells Fargo CEO Charlie Scharf said on an investor call last week that material improvements to the economy from stimulus are fading, which is slowing the pace of job growth and the rebound in consumer spending. Auto loan originations of $5.4 billion at Wells Fargo were down 22 percent from the same time last year. Total auto volume also dipped 3.7 percent to $48.45 billion.

“Clearly, the recovery is in process. And while the gains we’ve seen this quarter are important, the path to full recovery for all remains uncertain,” Scharf said. “Until the risks of COVID are behind us, these individuals and companies are still at risk without more support.”

The need for additional stimulus isn’t all encompassing, LaClair said, citing the consistency of industries that deal with durable goods.

However, “When you shift over to industries like restaurants, airlines, hotels — they are struggling,” she said. “And I do think that there is a greater need for support in some of these industries that have been hit hard by COVID. But any kind of stimulus that is rolled out — above and beyond what has already been rolled out — would be kind of a net positive to us.”