Ally Financial marks 11-year record in Q1 auto originations

Ally Financial posted the bank’s highest first-quarter auto origination volume in 11 years despite low new-vehicle inventory. Auto originations increased 13.7% year over year to $11.6 billion sourced from 3.2 million applications, according to the bank’s Q1 earnings supplement released today. While application volume dipped 3.6% YoY, the lender’s number of active dealers jumped to 21,688, up from 18,986 in the same reporting period a year ago. Origination growth can be attributed to Ally’s focus on underwriting prime loans for used vehicles as limited new-vehicle availability constricts volume in the super prime space, Chief Financial Officer Jen LaClair said on today’s earnings call. “At the intersection of used and prime there is still a terrific amount of transaction volume and some of that’s driving churn in the portfolio, but there is a terrific amount of demand still in the system that’s driving transactions and driving originations for us,” she said. “There are some 4 million, 5 million customers that are on the sideline right now just because they cannot find a vehicle to purchase. So not only are we expecting this very strong origination volume to continue this year, we expect it in the future,” LaClair added. Auto outstandings inched up 7.4% YoY to $79,262. Auto loans 30-plus days past due accounted for 2.02% of the outstanding portfolio, a decrease of 12 basis points (bps) sequentially but an increase of 59 bps YoY, according to the earnings supplement. The rate of auto loans 60-plus days delinquent was 0.46%, up 2 bps from the prior quarter but down 14 bps YoY. Net charge-offs stood at 0.58%, an increase of 10 bps from Q4 2021 and 5 bps YoY. Still, the lender decreased its allowance for auto loan losses to 3.49%, compared with 3.54% in the fourth quarter and 3.8% in Q1 2021. “While the current inflationary environment will add some pressure to households, consumers are generally well-positioned with healthy balance sheets,” Chief Executive Jeff Brown said on the call. Turning to the commercial business, Ally Financial’s floorplan outstandings decreased 8.2% YoY to $12.4 billion, representing a sequential increase of 11.7% . The lender expects floorplan balances to “remain low for quite some time,” Brown said. Meanwhile, elevated used-vehicle values drove an increase in lessee and dealer buyouts to 85% compared with 42% in the prior year quarter. The change contributed to a 22.4% YoY decrease in the lenders’ average gain per vehicle through remarketing to $1,640, according to the earnings presentation. Lease yields also fell to 6.96%. The average yield for retail loans was 6.61%, flat quarter over quarter and down 5 bps YoY. “With low inventory and robust used-car pricing, consumers are accelerating trade-ins, resulting in elevated prepayment expense impacting the portfolio yield,” LaClair said. “As inventory levels increase and [used-vehicle] values decline, we expect fewer lessee and dealer buyouts.” Shares of Ally Financial [ NYSE: ALLY ] were trading down 4.96% from market open at $41.22 as of market close today. Ally has a market capitalization of $13.7 billion. Auto Finance Risk Summit, the premier event for risk and compliance management in auto finance, returns April 25-26 in San Diego. This event is the central resource for education and networking focused on best practices in risk management and will prepare your team for the dynamics of the evolving auto finance market. To learn more about the 2022 event and register, visit www.AutoFinanceRiskSummit.com .

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