SAN FRANCISCO–The nation’s biggest banks have begun pulling back “sharply” from auto loans, which is contributing to a drop in car sales and raising concerns the auto slump might deepen, according to one new report.
But much of the decline being seen is in the subprime segment.
Among the big banks reporting big declines in auto loans is Wells Fargo, which last month said its auto loan originations were down 29% compared with the first quarter, according to the Wall Street Journal. It is the biggest decline Wells Fargo has seen in five years, and is similar to announcements being made by JPMorgan Chase, Ally Financial, and Santander Consumer USA, the Journal reported.
“The declines are mostly occurring in lending to riskier borrowers, in particular those with low credit scores, where lending had ramped up for years,” the Journal analysis stated.
The Journal reported that some banks, including Fifth Third and Citizens Financial, are retreating from even higher quality “prime” auto loans as “new risks emerge.”
“It’s been an overheated sector,” Fifth Third CEO Greg Carmichael told the Journal. “The auto business just isn’t as attractive right now.”
In addition, the Journal said that declining auto values have also meant that lenders are recouping smaller amounts on repossessions.
“Lenders who are repossessing cars tied to prime auto loans that were securitized in 2015 are recovering about 51% of the unpaid loan balances on average, down from 56% for 2014 loans,” the Journal said.