Podcast: ‘Weekly Wrap’ on Q4 earnings kickoff
Listen as AFN editors break down top stories from the past week
Fourth-quarter earnings season kicked off with several banks reporting mixed results in auto originations as some tightened credit and others picked up auto lending activity.
Auto originations declined at Bank of America and Wells Fargo Auto by 10.3% year over year to $6.1 billion and 34% YoY to $3.3 billion, respectively. Wells Fargo tightened credit standards during the quarter, contributing to a continued decline in the bank’s auto book.
Chase Auto, however, saw origination volume jump 32% YoY to $9.9 billion.
Meanwhile, auto lenders and lessors expect volume to increase in 2024 driven by increased demand for auto financing as interest rates decline, but they are less optimistic regarding EV financing volumes. Auto Finance News conducted the Big Wheels Originator Sentiments Survey online in November and December 2023 to provide the auto financing industry with invaluable information about the state of lending practices.
In this episode of the “Weekly Wrap,” AFN Deputy Editor Amanda Harris discusses the top stories for the week ended Jan. 12, and what is in store with additional earnings this coming week.
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Transcript:
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
In economic news, US inflation accelerated in December; the consumer price index increased 3.4% during the year through December. Excluding food and energy, CPI rose 0.3% sequentially and 3.9% year over year. Used-car prices went up for the second consecutive month against expectations of a decline. Economists project rate cuts this year and inflation is expected to moderate further toward the Fed’s 2% target.
In compliance, three trade organizations – Guaranteed Asset Protection Alliance, Motor Vehicle Protection Products Association and Service Contract Industry Council – launched a project this month to bring together lenders, product providers and dealers to discuss compliance challenges surrounding add-on products and possible solutions. The Industry Compliance Program aims to identify compliance challenges the industry faces with ancillary products and work toward implementing solutions.
For example, the process of reviewing F&I forms can be slow and costly, while refund and cancellation procedures often must be done manually. Over six months, the group will bring stakeholders together and then begin plans to implement identified solutions.
Meanwhile, auto lending complaints filed with the Consumer Financial Protection Bureau jumped 46% year over year in 2023 marked by billing and fraud issues. Consumers filed 12,658 complaints tied to auto loans and leases in 2023, with issues managing a loan and lease most prevalent and covering problems related to billings, fees charged and additional products or services purchased with the loan. Consumers also complained about fraudulent loans, credit denial and misleading advertising.
Complaints can help lenders identify potential policies and procedures that need to be adjusted, as well as paint a picture for the CFPB of potential regulatory supervision or investigations that should take place.
In auto news, Hertz plans to sell 20,000 EVs, or a third of its US electric vehicle fleet, as it shifts back to gas-powered cars largely due to the high costs of EVs and waning demand. The rental car company remains committed to agreement to purchase EVs from General Motors as the automaker works to offer cheaper EVs. Unloading EVs is expected to improve Hertz’s cash flow over the next two years.
In auto finance news, auto lenders believe EV financing volume will be flat in the next six months. AFN conducted the Big Wheels Originator Sentiments Survey online in November and December 2023 to provide the auto financing industry with invaluable information about the state of lending practices. Nearly half of the respondents indicated EV financing volume would be the same in the first half of the year compared with the same period in 2023, while 37% said volumes may inch higher.
The survey also found that 56% of respondents expect consumer demand for auto financing to grow in the next six months and 73% project that demand for auto leases will grow during the same time period. You can read more about the survey results on our website.
This week also saw the start of fourth quarter earnings with Bank of America, Chase Auto and Wells Fargo Auto reporting results.
Auto originations declined at Bank of America and Wells Fargo Auto in Q4 by 10.3% year over year to $6.1 billion and 34% YoY to $3.3 billion, respectively. Wells Fargo tightened credit standards during the quarter, contributing to a continued decline in the bank’s auto book.
Chase Auto, however, saw origination volume jump 32% YoY in Q4 to $9.9 billion. Outstandings were also mixed. Bank of America’s auto book increased 3.9% YoY at $53.9 billion and Chase Auto’s portfolio ticked up 8.6% YoY to $86.8 billion. Wells Fargo’s auto outstandings, however, dipped 11% YoY to $47.8 billion, marking the seventh consecutive quarter of decline.
Credit performance also deteriorated in the quarter, with delinquencies and net charge-offs up at Chase and Wells. Bank of America’s net charge-offs rose 38 bps YoY to 0.37% of its auto portfolio. Citizens, Fifth Third, Truist, and US Bank report this week, so stay tuned for more results.
That about does it for today’s episode. Thanks for joining us on the roadmap and be sure to follow us on X, formerly known as Twitter, and LinkedIn. We will see you online at auto finance news.net and here next time.
