Elevated interest rates contributed to a competitive landscape that prompted some banks to slow auto lending activity in the fourth quarter while others saw growth in origination volume.
Fifth Third Bank’s indirect secured consumer outstandings, primarily made up of auto, decreased 9.6% year over year to $15 billion as the bank intentionally scaled back auto lending due to high rates. Truist’s auto portfolio fell 16.9% YoY to $23.4 billion, in line with the bank’s strategic shift away from low-return portfolios.
U.S. Bank’s auto loan and lease outstandings declined 46.2% YoY to $9.7 billion while originations ticked down 1.9% YoY to $1.1 billion.
Huntington Auto Finance’s outstandings fell 5.3% YoY to $12.6 billion while originations were flat YoY. The bank’s full-year RV and marine originations ticked up 6.7% YoY.
On the other hand, Ally Financial‘s origination volume increased 4.4% YoY to $9.9 billion on the heels of strong application volume.
PNC Financial’s auto portfolio ticked up 0.7% YoY to $14.9 billion after declining for six consecutive quarters.
In this episode of the “Weekly Wrap,” Auto Finance News Deputy Editor Amanda Harris and Senior Associate Editor Riley Wolfbauer discuss bank earnings results for the week ended Jan. 19, and what to expect in the coming week.
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Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Hello everyone, and welcome to The Roadmap from Auto Finance News, since 1996 the nation’s leading newsletter on automotive lending and leasing. It is Monday, Jan. 22, and I’m Amanda Harris. This is our weekly wrap on what happened in auto finance for the week ending Jan. 19, 2024.
In economic news, economists predict gross domestic product to show an annualized 2% increase in the fourth quarter on the heels of a 4.9% uptick in the third quarter and mark the strongest two consecutive quarters of growth since 2021, according to Bloomberg. Inflation is slowing, opening the door for US central banks to drop interest rates this year, but policymakers so far have been reluctant to commit to a decline early this year.
In auto news, Ford Motor Company plans to cut about 1,400 employees making its F-150 Lightening truck amid waning consumer demand for electric vehicles. The cuts will come as the company scales back production to one shift beginning in April at its Rouge Electric Vehicle Center. Ford also cut its production goals for the F-150 in half for this year.
In auto finance news, we had more fourth quarter bank earnings last week and the results remain mixed.
Ally Financial’s origination volume increased 4.4% YoY to $9.9 billion. For the full year, Ally received 13.8 million auto finance applications, with full-year origination volume down 13.8% YoY to $40 billion as the bank’s approval rate ticked down 4 percentage points compared with the full year 2022. Ally’s auto outstandings were flat YoY at $94.2 billion.
Fifth Third’s indirect secured consumer outstandings, primarily made up of auto, decreased 9.6% year over year to $15 billion as the bank intentionally scaled back auto lending due to high rates. The bank does expect auto production to pick back up this year as credit unions pull back again and rates come down.
Delinquencies and net-charge offs across Ally and Fifth Third’s auto books increased during the quarter in line with trends we’ve seen across the industry.
Truist, PNC Financial, U.S. Bank and Huntingon also reported this week. Riley, what’s the upshot there?
Riley Wolfbauer 2:29
Yeah. So I’ll give a little overview without really diving into specifics, but get into the trends that we’re seeing across the banks, umm, as we expected this earnings season has. Has come out as expected to being some banks, pulling back and prioritizing.
Higher revenue lines of business. So starting with originations between those four banks, Huntington and U.S.
Bank were the only two to break out originations. Twisting PNC did not Huntington’s originations were flat year over year at $1.2 billion U.S. Bank tallied a 2% decline in their originations at $1.1 billion U.S.
Banks president and chief executive Andy Cecere, credited to elevated interest rates, compressed interest margins and a competitive environment, which prompted the bank to be less aggressive in certain lending categories, which includes auto.
And that’s something that we’ve been seeing across most of the banks that have reported so far this quarter turning to outstandings, PNC’s auto portfolio increased the just under 1% year over year to 14.9 billion. They now join Bank of America and Chase Auto as the only banks who reported a year over year increase in their in their portfolio.
So that means outstandings were down at Huntington, Truist and U.S.
Bank U.S. Bank reported the largest decline in their portfolio of 46% year over year, which brought their portfolio to $9.7 billion.
Trust outstandings came in at 23 billion.
They were down 17% year over year and then Truist also does expect further decline in there average commercial and consumer balances in the first quarter as the bank is shifting as well towards umm deepening client relationships and deemphasizing those lower return portfolios. As we’ve seen over the last few quarters, delinquencies continue to rise a little bit.
They rose at all four banks except for PNC.
PNC is actually the only bank that is reported a decline in delinquency levels this quarter.
There are 30 to 59 days delinquent came in at six, 1% and so that’s still very much below the entire the entire market, Huntington Senior executive VP Anti Financial Officer said.
That credit quality across the bank’s portfolio remained strong, but they actually had slight deterioration on their auto book.
Truest, meanwhile, had the largest delinquency increase among those four banks.
Their loans at 30 to 89 days delinquent, went up 55 basis points year over year to 2.8%, and then PNC gave a little bit of a 2024 economic outlook that I wanted to leave you on.
They said that they are expecting a mild recession in the middle of 2024 with a contraction of less than 1% in real GDP.
Uh Robert Reilly said.
We expect the federal funds rate to remain unchanged between 5.25 to 5.5% through mid 2024 and then when the Fed begins to cut rates, they expect a reduction of 75 basis points in 2024 with 25 basis point decline in July, November and December.
So that’s pretty much all the bank earnings side. We have the captives, I believe, reporting next week. Umm. So we’ll bring you that coverage and then the retailers come after that, so.
Amanda Harris 6:08
Definitely, yeah. More earnings coming down the pipe and I think it’ll be an interesting quarter because we know that credit unions are, you know had kind of been stepping in a little bit on auto.
We saw them, you know, securitizing quite a bit of their auto books as well as liquidity challenge is kind of persist.
And I am hearing, you know, that might shake up things a little bit as captives come back in with incentives, we might see the bank step back even further.
Credit unions. Kind of in the middle, depending on, you know, each one’s liquidity situation and whether auto makes sense for them, where to put their capital. So I think those things are gonna play out and make a very interesting uh quarter and quarters to come this year just for earnings. So we’ll have to keep a close eye on that.
And like you said, we’ll have some more earnings coming up this week. Tesla and Capital One report, so stay tuned for those results and more earnings in the coming weeks as we finish out to the earnings seasoned for this quarter. But that will do it for today’s episode. So thanks for joining us on the roadmap and be sure to follow us on X, formally known as Twitter and LinkedIn, and we will see you online at autofinancenews.net and here next time.