Although Capital One Auto Finance Inc. has experienced solid loan growth this past year, the bank is becoming more prudent with its auto book amid headwinds in used-car values and consumer debt, according to the bank’s third-quarter earnings call last week.
“While we still see attractive opportunities for future growth, there are also reasons for caution in the auto industry,” Richard Fairbank, founder and chief executive of Capital One Financial Corp., said during the earnings call. “Our underwriting assumes a decline in used-car prices, and we’ve dialed back on some less resilient programs even as overall originations have grown. As the cycle plays out, we continue to expect the charge-off rate will increase gradually and loan growth will moderate.”
Still, the company was able to grow its portfolio as “competitive intensity in the auto finance marketplace remains a bit muted,” Fairbanks added.
Capital One’s originations grew 4% year over year to $7 billion during the quarter, which boosted outstandings 15% to $53 billion, up from $46 billion the same period the year prior.
Delinquencies and losses were up during the quarter, reflecting Fairbank’s expectation of continued rises. Loans 30 days or more past due grew to 5.71% of the auto portfolio, compared with 5.67% in 3Q16. Likewise, net losses were up 11 basis points to 1.96% of the portfolio.
Auto provisions also experienced a notable increase of $23 million, due to expected losses from the hurricanes that impacted Florida, Puerto Rico, and Texas.
While economic indicators “look pretty benign,” there are continued concerns in auto underwriting across the industry and growing amounts of consumer debt, Fairbanks said.
“We can’t help but point out, though, the sustained growth in the other non-mortgaged debts: student lending, auto lending, installment lending, which have recently been growing at about a 6% rate,” he said. “But if you look at the total level of that debt, it’s significantly above the pre-Great Recession peak.”