Ally Financial Inc.’s total originations dipped 8.6% in the second quarter, but the lender is expecting some stabilization in early 2018 as the company continues to phase out leases from General Motors Co., according to its second quarter earnings call.
Although lease originations rose to $1.1 billion compared with $900 million during the same period the year prior, lease balances are declining overall, Christopher Halmy, Ally’s chief financial officer, said on the call today. GM Financial first dropped Ally from its subvented lease program in early 2015 and has seen slow and substantial declines in that business ever since.
“Looking at leases, the portfolio is declining at a steady pace,” Halmy said. “We expect it to level out at $8 billion [outstandings] sometime early next year as we finish with the GM lease business.”
Ally did not breakout auto outstandings, but the company held $11.4 billion in lease contracts at the end of 2016, according to Big Wheels Auto Finance 2017.
The bank’s auto originations totaled $8.6 billion for the quarter, down from $9.4 billion in the prior-year period. The decrease was largely driven by a 25% decrease in new vehicle retail loans from both Chrysler and GM.
Overall, more volume — a record 41% — is coming from non-GM and non-Chrysler channels, Halmy said. “We feel great about the more diversified mix of originations we’re getting today,” Halmy said. “Our used-loan originations ranked higher than new loans, which we think is generally a good trade from a profitability perspective.”
Although losses and delinquencies rose on a year over year basis, the company noted that the rise has softened compared to recent previous quarters. Delinquent loans 30 days or more past due make up 2.7% of the lender’s portfolio for a total of $1.8 billion. That’s a 10.3% increase over the same period the year prior, whereas delinquencies increased by 11.8% in 1Q year over year. Likewise, net charge-offs grew to $199 million, compared with $148 million in the second quarter of last year.
“We expect the year over year charge-off rate to decline again next quarter,” Halmy said. “That positions us to land in the 1.4% to 1.6% [of the total portfolio] range for the full year, per our prior guidance.”
