By Telis Demos, Wall Street Journal
Stimulus programs started to end in August. But so far, when it comes to auto loans the other shoe remains undropped.
As the coronavirus spread, the question on credit risk has been what would happen when borrowers stopped getting government support. That was particularly the case for areas that were showing signs of stress before the crisis struck, like auto loans.
In the early stages of the pandemic, auto loans started showing high rates of customers in deferral programs. But deferrals have yet to turn into waves of defaults. Nearly all of Ally Financial ’s deferrals—96 percent of them as of the end of August—have expired, the company said Tuesday. In total Ally offered Covid-19 assistance to about 30 percent of its auto-loan accounts, or to about 1.3 million customers. Of those, just 7 percent have exited deferral status to become 30-days-past-due delinquent or to be charged off. Huntington Bancshares reported a 30-day delinquency rate of 4 percent for its auto loans formerly in forbearance.
Late payments have ticked up a bit during the summer as stimulus faded, but they are still well below even recent historical levels. Capital One Financial ’s 30-day-plus auto delinquency rate was 3.63 percent in August, up 0.2 percentage point from July, but down more than 2.6 percentage points from a year earlier. Santander Consumer USA Holdings ’ rate of 7.98 percent in August was up more than a point from July, but still nearly seven points lower than a year earlier.
Credit losses are also being flattered by a surge in used-car demand and pricing—meaning repossessed cars are flipped for good value. Ally Financial updated its full-year forecast for auto-loan net losses to 1.3 percent from a range of 1.8 percent to 2.1 percent. In fact, the major negative right now is that demand for autos is such that banks that lend to dealers are seeing a decline in credit utilization because dealers are finding it hard to put cars on the floor.