US Bancorp says its lease returns and credit deterioration in its auto finance portfolio appear to have peaked in the third and fourth quarters of 2008.
USB made the disclosure during its first quarter 2009 earnings call this morning. USB has pledged that it will remain in the auto finance business.
US Bancorp’s auto finance portfolio last quarter was slightly over $9 billion, down from $9.2 billion in the fourth quarter of 2008. Auto finance represented about 4.9% of the bank’s overall loan portfolio.
I agree with your statement but additionally you need to take into consideration that the New and USED car market pricing has gone through the roof. The two major compenents and building blocks of cars are steel and plastic…both of which have increased in cost significantly. Steel has gone up 23% this year and DOW chemical recently announced that is increasing the cost of plastic by as much as 20% per customer (Auto Manufacturers).
To top off the cost of goods increasing, you have Ford and GMC taking on more and more overhead due to an aging work force. All of these factors combine to make all cars more expensive.
Unfortunately, consumers have been backed into buying more car than they can afford under all circustances, hence why leasing and longer terms have become quite popular.
Did they specify what observations support their claims? Auto performance usually follow a clear seasonal pattern: weakening over the third and fourth quarters and improving in the first quarter. Just curious if their claim is based on false positive in recent months.
Larry
I am going to check the official transcript of the call for that.
Good question Larry. It would be interesting to know if the information is based on quarterly performance versus individual static pool performance.
Andy Cecere, USB vice chairman and CFO:
Finally within non-interest income and other income, excluding the impact of significant items was lower year-over-year due to higher end-of-term residual losses in consumer auto leases and lower equity investment income. On a linked quarter basis, the corporate real estate transaction, as expected and as expected lower in the term losses on retail auto leases, accounted for the majority of the variance. As we indicated in our last call, the end of term losses on auto leases peaked in the third and fourth quarter of 2008 as a number of cars coming off lease began to decline.