Ally Financial closes year on high note

Ally Financial closed out 2020 with strong origination volume and positive credit performance despite COVID-19’s adverse impact on the industry. The Detroit-based lender clocked $35.1 billion in total auto originations on the year sourced from 12.1 million applications, the company’s second-highest application volume on record. Of those applications, $9.1 billion came in the fourth quarter, an increase of $1 billion year over year, and the company’s best Q4 in the last three years, Chief Financial Officer Jennifer LaClair said on the company’s earnings call Friday. Origination growth was largely attributed to increased auto decisioning, the use of data analytics. Positive loan performance was attributed to disciplined underwriting reflected by increased FICO scores and a smaller share of nonprime loans, LaClair said. In fact, nonprime loans made up 9% of Ally’s originations in the fourth quarter, down 3 percentage points from a year ago. New retail contracts make up 36% of originations, with used and lease making up 51% and 13%, respectively. A year ago, used vehicles made up 49% of the lender’s origination share. Weighted average (WA) FICO came in at 690, and has been steadily increasing all year, but still remains slightly below 4Q19’s WA FICO of 691. Full-year retail origination yields exceeded 7% for the third consecutive year, LaClair said, despite benchmark interest rates dropping 150 basis points to 200 bps in the past two years. Total outstandings clocked in at $83.1 billion, a 2.1% increase from 2019. Of those, $73.4 billion were retail installment contracts, and $9.6 billion were lease. Retail auto loan growth outpaced the decline in lease exposure, LaClair said. Ally Financial also expanded its network of dealer partners to 18,700, the most in the history of the company. “Scale of this magnitude provides us with broad market insights; it allows us to generate impressive volumes with attractive returns,” Chief Executive Jeffrey Brown said. “Throughout the year, we streamlined user experiences and enhanced digital capabilities across our servicing, underwriting and SmartAuction platforms. We continue to employ the use of advanced data analytics in 2020, leading to our fifth consecutive year of improved auto decision levels and reduced response times.” The bank’s commercial auto portfolio, on the other hand, declined to $22.4 billion, down from $31.9 billion in fourth quarter of 2019. Yet, average commercial auto balances have showed a steady 11% improvement from the trough in July as inventory levels continue to build, Brown said. Net charge-offs (NCO) for the quarter clocked in at 1.01%, a 37 bps increase from last quarter, but a 49 bps decline from the same reporting period last year, “reflecting the combined impact of lower frequency and improved severity, as customer payment behavior remained solid and used-car values remained elevated,” LaClair said. The lender’s retail auto reserve balance also decreased sequentially to $2.9 billion, or 3.95% of balances, from $3 billion, or 4.04% of balances. Sixty-plus day delinquencies showed a similar trend, increasing 11 bps sequentially in the fourth quarter to 0.58%, but remain 17 bps below 4Q19’s level. Looking forward, Ally is expecting NCOs to accelerate “more reflective of frequency versus severity here in the first half,” of 2021, with NCOs peaking in the latter two quarters this year, before settling on the historic 1.3% to 1.6% range in early 2022, LaClair said. Shares of Ally Financial Inc. [NYSE: ALLY] were trading at $39.36 as of market close, down 3.10% from market open. Ally Financial has a market capitalization of $14.7 billion. Auto Finance Innovation Summit, the premier event for technology in auto finance, returns March 16-17, 2021, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceInnovation.com .

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