Ally says the auto loan party is not over yet

While Ally Financial expects the strong used car market to lose steam over the next two years, there is still no sign of decline.

The Detroit-based lender continues to benefit from strong car sales and moderate credit costs, which keep financial returns well above pre-pandemic levels.

“Where we take out insurance contributions and specifically at the intersection of used and basic, there is still a huge volume of transactions,” Chief Financial Officer Jenn LaClair said Thursday during a conference call with analysts.

Ally reported first-quarter earnings of $ 627 million, down 20% year-on-year. In 2021, strong used car sales brought in record profits of $ 3.1 billion.

Bloomberg

LaClair estimated that 4 to 5 million consumers are currently on the sidelines of the car market simply because they can not find a vehicle to buy.

“So not only do we expect this very strong source of volume to continue this year, but also in the future,” LaClair said.

Ally reported first-quarter earnings of $ 627 million, a 20% year-over-year decline largely due to a $ 167 million loan loss forecast. A year earlier, the company had recorded a $ 13 million reserve.

The layout for the first quarter “reflects strong start-up activity and the expected gradual normalization of credit performance,” Ally’s CEO Jeffrey Brown told a news conference.

Although Ally’s first quarter earnings fell year on year, they continued to represent a big leap against comparable net income in 2020 and 2019. For all 2022, Ally forecasts a return on tangible common stock in the range of 16% to 18%. against 12% in 2019.

Ally’s first-quarter results and guidance for 2022 “reflect a generally stable business with core, fundamental growth amid improved performance,” wrote John Hecht, an analyst covering the company for Jefferies, in a research note.

Ally, which has $ 184.3 billion in assets, has strengthened its mortgage and retail lending profile in recent years. And last year, it was extended to credit cards with a $ 750 million, cash agreement for the publisher of the subprime Fair Square Financial.

These moves helped diversify the company’s balance sheet, but at its core the Alliance remains a car lender, with car loans accounting for nearly two-thirds of the $ 175 billion in profits.

Last year, Ally recorded record profits of $ 3.1 billion, based on used car sales, which reached 40.9 million units nationwide.

As the market normalizes, Ally predicts that the average value of used cars will fall by 10% to 15% by 2023. However, conditions remained strong enough in the first quarter for the Ally to generate car consumer loans totaling $ 11.6 billion. dollars, up 14% year-over-year. Total consumer income included $ 7.6 billion in used car loans.

The continued power of Ally’s retail cars stems from a shift in focus to key borrowers, according to LaClair. He said super-prime consumers tend to wait to buy the preferred new car option, even in the wake of pandemic-era supply chain disruptions.

LaClair added that even if second-hand sales start to slow down – as many observers expect – new car sales and car dealerships should work as what he called a “hedge fund”.

“I think Ali really wins in every way,” Lackler said.

Despite Ally’s expectation that credit quality would gradually normalize, it remained stable in the first quarter. Net retail car charges totaled $ 113 million, slightly higher on an annual basis but less than half of the total since the first quarter of 2020.

Ally expects net retail car charges, which stood at 0.58% of loans in the quarter ended March 31, to remain below 1% throughout 2022, according to Hecht.

Ally reported $ 1.7 billion in home loans in the first quarter, according to its results for the first quarter of 2021, but down 41% on a quarterly basis. Point of sale loans of $ 442 million and credit card balances of $ 1 billion increased significantly.

The Allies reported $ 142 billion in deposits on March 31, up 3% from the same period in 2021. Basic deposits, excluding intermediary financing, increased by 6% year-on-year.

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