Used-vehicle prices are so high, Ally Financial actually posts a small gain, properly called a “net recovery,” instead of a loss, or “net charge-off,” on auto loans that went bad in the second quarter – an unheard-of phenomenon largely due to high resale values for repossessions.
Ally says the $5 million net recovery on charged-off auto loans for the quarter was a first in the 102-year history of Ally and its predecessor company, General Motors Acceptance Corp. In second-quarter 2020, Ally had net charge-offs of $137 million.
Ally CFO Jennifer LaClair (pictured below, left) says the lender now expects used-car values to rise in the “mid- to upper-20% range year-over-year” for all of 2021, thanks to high consumer demand and low inventories. “We’re continuing to see incredibly strong demand for personal vehicle ownership,” she says in a July 20 earnings conference call.
Remarkably, a gain approaching 30% for the full year represents a slowing in the increase in used-vehicle values. “Clearly the first half of this year, used-vehicle pricing is up kind of over 30%, and the second quarter, up over 40%,” LaClair says.
For the quarter, Ally posts net income of $900 million, up from $241 million a year earlier. Consumer auto originations were $12.9 billion for the second quarter, an increase of 79% vs. a year ago, and the highest quarterly originations since 2006.
Ally sees signs of relative “normalization” of used-vehicle values, but the lender expects used-vehicle values to remain elevated, possibly into 2022 and even 2023. “So, while we’re expecting this normalization, I think the big question, quite frankly, is, when will that happen?” LaClair says. “We are expecting it to come down in our modeled numbers, through ’22 and ’23.”
Ally CEO Jeffrey Brown says Ally hasn’t significantly changed its approval standards to pursue more loan volume. “We haven’t really changed anything,” he says. The average FICO credit score on retail auto originations is 682 for the second quarter, virtually flat vs. 685 a year ago, the company says.
For full-year 2021, Ally says originations should be in the range of $40 billion to $45 billion, up from $35.1 billion in 2020. “Our strategy is not to chase volume, but we will chase opportunity when we see it,” LaClair says. “And we are certainly seeing it this year.”