Weekly Wrap: Q3 earnings highlight supply shortage, consumer demand

The third quarter is so far a tale of declining floorplan business and a robust growth in consumer auto sales. At Ally Financial , for one, floorplan fell 8.4% YoY and 2.4% from the second quarter to $7.6 billion. Floorplan is expected to be down through at least the end of this year, and likely into the latter part of next year. Still, while tight supply has also compressed vehicle sales in Q3, originations have not suffered. In fact, Ally joins a growing list of lenders this quarter to post some of the highest origination volume in years. Ally broke a 15-year record, with originations clocking in at $12.3 billion, up 25.5% year over year from a record 3.3 million decisioned auto applications. This follows similar trends seen in Q2. Citizens One Auto , too, saw another strong quarter of originations. The lender’s auto portfolio increased 12.1% YoY to a record $13.5 billion . In this episode of the Weekly Wrap, Deputy Editor Amanda Harris and Associate Editor Whitney McDonald discuss third-quarter earnings trends and what’s to come next week when industry leaders gather for the Auto Finance Summit in Las Vegas . Subscribe to The Roadmap Podcast on iTunes , Spotify , or download the episode. Auto Finance Summit, the premier industry event, returns October 27-29 in Las Vegas. The Summit continues to bring together the best and brightest in the industry year after year for unparalleled networking and professional education. To learn more about the 2021 event and register, visit www.AutoFinanceSummit.com . Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . Amanda Harris 00:02 Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation's leading newsletter on automotive lending and leasing. It's Friday, October 22. And I'm Amanda Harris, and joining me today is Whitney McDonald. This is our weekly wrap on what happened in auto finance for the past week. As always, I want to thank our auto finance news advertisers, Alfa, Cox automotive, cedar cx, dealertrack, defi solutions, NCB, LexisNexis, Verisk, Wolters Kluwer, and Westlake financial for their continuing support. First, in some manufacturing news that came out this week, US factory production, so the largest it has in seven months in September. And this was driven in part by a pullback in manufacturing of motor vehicles and material shortages. Our production declined point 7% September, which followed a decline of point 4% in August. related to motor vehicles, cars and parts output fell 7.2% in September, which is the sharpest drop since April after a 3.2% decrease in August, largely due to the semiconductor chip shortage. So we've actually kind of seen this play out the past week or two in recent third quarter earnings. So pretty much across the board, we kind of talked about a little bit last week too tight supply is really contributed to consecutive declines in floor plan outstandings this held true for the third quarter so far as well. So ally financial floorplan so 8.4% year over year, and 2.4% from the second quarter to $7.6 billion floor plan is expected to be down through at least the end of this year, likely into later part of next year. And could go past that we've you know heard from dealers and and all that that they may not go back to a really large amounts of inventory on their lots. So it could be playing out for quite a while. Still, while tight supply did compress vehicle sales as well. In the third quarter, originations did not suffer. So in fact ally joined a growing list of auto lenders this quarter to post some of the highest origination volume they've seen in years. So ally did break a 15 year record with originations clocking in at 12 point 3 billion, up 25.5% year over year from a record 3.3 million decisions, auto applications. That was similar to what they saw on the second quarter. So I think it really shows that, you know, even though supply is down, the demand is still very much there. People are applying for vehicle financing, they're buying cars soon as they can, the demand is still clearly there. So until supply completely catches up, I think we're going to be in a similar situation we've been in for months and probably into a good bit and next year as well. dealers to also remain very highly profitable that came up during our earnings call. And a lot of that has to do with the fact that vehicle values are so high. So when they do sell cars, they're making good bit of money on them. So that helps you in the third quarter as well. And that probably will also be something that continues, even though there has been some talk of vehicle values kind of normalizing in the next quarter into next year just kind of depends on how supply catches up. I am hearing rumblings that the fourth quarter should be a little bit of an improvement that this quarter really was the bottom out points for inventory. They don't think things can get much worse on the supply side. I think they're the consensus is the third quarter really is kind of the evidence that we're going to see of this at its biggest point. So we'll see how if that holds true next quarter when we follow those earnings, but that's what I'm hearing. On the other side of things is credit performance. We've been talking about that a lot. Of course, over the last like every time we covered earnings pretty much all this year. Credit performance definitely has outpaced original expectations when it became a pandemic first started. So that's still true at ally delinquencies did take up a bit sequentially. They said at about 1.83%. But that's still down about 42 basis points from the third quarter 2020. So really owning year over year basis. we're nowhere near where we were this time last year, and that's pretty much across the board as well. And I think that will also hold true no one seems to be super concerned about all sudden change an export interleaving. So thanks citizens, again, another strong quarter as well. So Some similar trends. So Whitney, I know you dived a little bit into Citizens Bank. So what were some of the takeawaysWhitney McDonald 05:04 there? Yep, Citizens released their q3 earnings earlier this week. And yes, like you said, they posted another strong quarter equipped with high origination and low net charge offs, which continues to be on trend. So even amid those ongoing supply chain shortages and labor shortages that we're seeing the bank was able to grow its auto portfolio, which seems to be what we're hearing across the board. So the portfolio grew five and a half percent from the second quarter to 13 and a half billion, which was a record high for the bank. They're not charge offs, like I said, remained low, they did come off of second quarter recoveries of 2 million. They didn't have poster recovery again, but they are still remaining low. Another bank that had similar trends last week was US Bank, they came off a second quarter of posting recoveries too, but they remained low, which they're anticipating to continue to see in the fourth quarter. And like Amanda said, we're continuing to see that dealers are remaining profitable, which is again continued going to continue into the fourth quarter and into 2022. Um, q3 earnings, just keep saying that they're going to be keeping their eye on supply chain issues. But we're hoping to start seeing those recoveries by the end of the year and going into next. So I know that everybody's going to be eager to see those normalized just as we are. So we're going to be following those trends and continuing to follow the q3 earnings as they come out over the next couple of weeks.Amanda Harris 06:43 We do have some more coming next week. So we have Ford Credit, GM financial, along with Capital One, Huntington bank, and we'll have some powersports. So it will make for an exciting week of earnings. But on top of that, our auto finance summit is also next week. So we will be covering that live every day. I for one, I'm definitely looking forward to some of the sessions, particularly the women in auto finance, that's always a great one. We have some great coverage on diversity and inclusion. Really good. No news should come out of our awesome we have two firesides this year. So we are looking forward to that and kind of seeing what news will will come out of those sessions as well. When anything that you're looking forward to with the summit.Whitney McDonald 07:34 Yeah, I think that there's a lot of topics that we've been following over the past year that are going to be addressed at the summit, I think that our executive panel will be really rich. So yeah, I'm looking forward to that. I'm also looking forward to our powersport summit. I think that next week is going to be jam packed with a lot of new information and kind of hearing some updates as to where the industry is going over the next quarter and into next year. So lots to look forward to for next week summit.Amanda Harris 08:03 Definitely Yeah, next week will be exciting, for sure. Yep. So we are opening the week with powersports signing at summit, and then that'll be on the 26th. And then the next few days will be all about auto finance summit. So you can learn more about the 2020 event. And there's still time to register at auto finance summit.com. And of course, we look forward to seeing everyone in Vegas, or virtually as well. And of course, again, we will be providing coverage every day. So make sure you follow our socials, our website to see what all comes out of the summit. And we always want to hear from you. So please don't I thank you for joining again the roadmap and please rate the roadmap on whichever platform you use as listened to this program. Make sure you follow us on Twitter and LinkedIn. And we'll see you online at auto finance news dotnet and here next time.

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