Despite a $111.9 million loss, Capital One Financial Corp. saw improvement in its auto finance portfolio in the first quarter.
Cap One Auto Finance earned $71.4 million last quarter — its highest profit since mid-2006 — and the unit was the company’s only lending business to post lower delinquency and chargeoff rates. The improved loan performance comes amid slowing origination volume, which often results in higher — not lower — delinquency rates.
Cap One Auto’s 30-day delinquency rate improved to 7.52% in the first quarter, from 9.91% in the final quarter of 2008. Its chargeoff rate fell to 4.88% from 5.67% during the same period.
In the past year, Cap One has scaled back auto origination volume. Last quarter it originated $1.46 billion of loans, down from $2.44 billion in 1Q08.
Here’s a chart of Cap One Auto’s originations versus delinquencies:
Good point, Barry. If pricing is up that high, do you think we’ll see an even bigger shift to used cars? (Pricing on used cars might be up, too, but used cars are still cheaper than new ones.) And how detrimental would it be to a finance company to cap loans at 60 months — might that work?
Following US Bancorp’s positive results in 1Q in auto credit performance, I took Cap One’s delinquency/chargeoff numbers as yet another sign that maybe we’re seeing the light at the end of the tunnel. Look, at least Cap One’s delinquencies/chargeoffs are trending downward.
I see Cap One is treading downward, or did they just get rid of a lot of bad loans in the past. Cutting back volume will help if it is good quality and delinquency runs off. The numbers to me are still too high and it would seem easier to improve the numbers when they are high to begin with. The real story will be told when we see at what level they end up at. I would think some of the reasons for the high profit in 2006 was the loans they bought at Onyx and other companies that had good loans and a ton of volume they put on in 2005/2006 before delinquency started to really get high. This does not really give me confidence there is a light at the end of the tunnel. Companies need to have people in place that know how loans should be made, checks and balances and even in this economy, you can still make with good procedures and follow ups in place.