Ally Financial delivered a fairly positive outlook about the auto finance market going forward, but did lower profit expectations.
Ally now expects earning to increase by 5 percent this year, down from a projection of close to 15 percent at the start of the year.
Many on Wall Street are concerned about the health of auto finance as delinquencies rise and wholesale volumes increase. Ally, which started its corporate life as General Motors’ captive finance arm, retains a significant focus on this segment.
“We’re one of the few banks lenders that really focuses on the full spectrum of loans and leases in the marketplace,” said Chris Halmy, Ally’s chief financial officer.
The bank had a $66 billion portfolio of consumer auto credit and a $39 billion portfolio of commercial loans to the auto business.
In addition, Ally’s SmartAuction online platform sold 364,000 vehicles last year.
The bank also recently launched Blue Yield, a digital hub for online auto financing.
Ally has worked to transform itself from the independent equivalent of a capitive lender.
“We’re becoming much less exposed to lease residuals and OEM behavior,” Halmy said.
Used-car finance now makes up more than 40 percent of its business as Ally has grown and diversified its dealership base.
Ally has moved its focus on profitability rather than volume in the past year as risk increases for auto finance.
Halmy said consumner loses have been drifting higher, most noticeably on the low-end of the credit spectrum.
There was extra deterioration in the low-end portfolio in the first quarter, Halmy said, which might be a result of the delay in tax refunds.
The long-expected decline in wholesale used vehicle prices also continues, although Halmy called it “a manageable rate.”
The good news for Ally is a decrease in competition as big banks either tighten their lending standards or leave the market entirely.
“While we’re a bit more cautious on the credit side, we’re still very constructive on the market as a whole,” Halmy said.
For the first time,seeing less competition.
Ally’s main peers have also said they are optimistic about auto finance, he said.
Dave Shevsky, Ally’s chief risk officer, said he expects loses to increase in the near tern, but less than the rate of yield expansion.
“We realize people get pretty focused on the loss numnberss, but you can’t really look at the credit side without looking at the yield and profitability and we feel pretty good about the overall portfolio dynamics,” Shevsky said.