ATLANTA–With delinquency ratios rising on auto loan portfolios, some lenders have opted for the exit lane on certain offerings, including credit unions, and that has opened the road for a new group of lenders to grab marketshare, according to a new report.
Equifax reported last week that delinquency rates for subprime auto borrowers aren’t only above prepandemic levels, they are above the levels reached after the 2008 financial crisis in 2009 and 2010, according to the Wall Street Journal.
But delinquencies are also up on higher tiers of borrowers as well, with Ally Financial now forecasting a retail auto net charge-off rate of 1.8% in 2022, which was at the top end of its previously given range, the Journal reported. This is versus a historical average for 2017 to 2019 of around 1.4%.
‘Pulling Over’
“Amid all that, some lenders are pulling over,” the Wall Street Journal stated. “This has opened up more of an opportunity to profitably lend in auto—even by picking off only the best borrowers. Ally told analysts…that potential returns on super-prime loans were ‘significantly higher than normal.’ Capital One Financial said that even though it had its ‘foot on the brake’ in auto for a while, ‘in the very recent months, we’ve seen the opportunity to lean in a little bit more’.”
That activity is coming as banks such as Fifth Third and U.S. Bancorp have said they are selling or scaling back auto loans.
“There has also been a sharp contraction among credit unions, whose aggressive pricing had previously been making things harder for bank lenders,” the Journal said. “Cox Automotive’s Dealertrack Auto Credit Availability Index in June showed a nearly 17% decrease year-over-year by credit unions, versus just a 7.5% pullback among banks.”
What Ally Financial Found
Noting the best customers default less often, the Journal further reported they also command lower interest rates, pressuring lending yields. According to the Journal, Ally told analysts that its “originated yield declined in the quarter as we’ve increased the superprime proportion of our volume.”
In addition, Capital One CEO Richard Fairbank described what he called a “deferred charge-off effect.”
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