Auto lender Ally Financial goes into 2024 sticking with an upmarket strategy of a higher mix of loans and leases to borrowers with “super-prime” credit scores and lower risk, even if the strategy also means lower volume overall.
Russ Hutchinson, Ally chief financial officer, says 43% of the company’s retail auto loan volume in fourth-quarter 2023 was in its highest-rated, lowest-risk credit tier. That’s the highest the share seen in over a decade, he says. In fourth-quarter 2022, it was 31%.
In the fourth quarter, Ally’s retail auto loan originations were $9.6 billion, up about 4% compared to a year earlier. For all of 2023, retail auto originations were $40 billion, down 13.8% vs. 2022.
Ally net income was down more sharply. Net income attributable to shareholders for the fourth quarter was $49 million, down 82.4% vs. year-ago. For all of 2023, net income attributable to shareholders was $910 million, down 43.3%.
In April 2023, Ally moved to “shift up the credit spectrum,” Hutchinson says. The move echoes an increase in delinquencies and charge-offs related to loans originated in 2022, the lender says.
“I would characterize, obviously, the losses on the 2022 book as being elevated,” Hutchinson says. More recently, Ally has improved the outcomes on some of its troubled loans by delaying repossessions, he says. That gives customers more time to make a payment and possibly avoid the repossession altogether.
Ally’s delinquency rate for 30-plus days was 4.42% in the fourth quarter, up from 3.56% a year ago. Net charge-offs for bad loans were $623 million in the fourth quarter, up from $390 million a year ago.
In 2024, Ally expects charge-offs from those 2022 loans to peak in the first half of the year and possibly improve in the second half. Hutchinson says the increase in problem loans probably reflects households with “near-prime” credit struggling to keep up with inflation.
In 2023, Ally reduced originations in almost every credit tier except what it defines as super-prime, with credit scores of 760 or above. There also was a very small increase in its subprime category, defined as credit scores of 539 and below.
