August 1, 2021

Used-car pricing boom bolsters lender profits

Strong vehicle prices amid the chip shortage bolstered auto lender profits in the first quarter, a change from the early days of the pandemic when lenders feared repossessions would rock the used-vehicle market.

Instead, repossessions remained low, and high consumer demand absorbed off-lease vehicle inventory. As a result, lenders repurposed cash set aside to cushion losses, counting it toward its profit instead.

“They’ve really kept consumer losses via repossessions and the like in check,” said Michael Buckingham, senior director of the auto finance practice at J.D. Power.

GM Financial’s used-vehicle prices have climbed about 30 percent since Jan. 1, CEO Dan Berce told Automotive News in May. Used-vehicle values rose 11 percent from the first quarter of 2020. And the share of vehicles returned to GM Financial at lease end fell to 55 percent, compared with 79 percent a year earlier.

Still, lenders predict the high used-vehicle values will fade and will plan accordingly.

“We’re not baking in these high recovery rates and these record used-car prices into our underwriting practices,” Karam said. “We definitely take a longer-term view when we underwrite these loans.”

Hannah Lutz and Michael Martinez contributed to this report.