Consumers, Car Dealers Opt for Ally’s Deferred-Payment Offer

About 25% of Ally Financial’s auto loan and lease customers — more than 1 million so far — have taken advantage of an offer to defer payments for up to 120 days, the lender says.

It is a sign that even consumers with good credit are worried about their household finances during the COVID-19 pandemic,

The vast majority of those 1.13 million customers never had prior delinquencies with Ally, CFO Jennifer LaClair says in a presentation on Ally’s first-quarter results. Specifically, 70% had no prior delinquency with Ally, and 76% had no prior extensions with Ally.

Deferral in this case means Ally waives late-payment fees, but interest continues to accrue. Only 12% of the consumers who asked for payment deferrals were delinquent more than 30 days when they asked for the extension, LaClair says.

Dealers Deferring, Too

Many dealers who have commercial loans with Ally are also taking advantage of payment deferrals, Ally says.

It reports it had commercial accounts with about 3,300 dealers at the end of 2019, out of more than 18,000 dealerships with active accounts for consumer loans and leases.

Ally says it has processed more than 1,000 applications from dealers for the Small Business Administration Paycheck Protection Program, leading to about $850 million in loans for dealers. The loans are designed as a stopgap to keep workers on the payroll, and to cover dealership expenses such as rent.

Drop off in March

For the first quarter, Ally reported a net loss of $319 million, down from net income of $374 million a year ago. Negatives included a much bigger provision for future loan losses, at $903 million for the first quarter vs. $282 million a year ago.

Auto loan and lease originations were $9.1 billion for the quarter, down from $9.2 billion a year ago.

LaClair says auto finance business fell dramatically in late March. “Reduced activity at dealerships lowered application volume and originations by over 50% by late March, which we would expect to continue in line with the shelter in place orders,” she says.

Early Mover

Ally was an early mover in offering payment deferrals tied to the pandemic. The lender announced the offers March 18, ahead of a wave of state governors issuing stay-at-home orders.

Today, many other auto lenders also offer payment deferrals and lease extensions, because of high unemployment and the difficulty of trying to visit dealerships in person.

“We were very proactive,” LaClair says of the deferment offer, adding that Ally “emailed our customers and offered them the opportunity to have some more payment flexibility.”

The biggest rush of customers asking for deferrals occurred in the first two weeks after the offer, LaClair said.

“What we saw is heavy, heavy velocity in the first two weeks of the launch, and in particular the first week. Since then it’s plateaued substantially, so we’re seeing very modest tick-up over the last couple days, and even over the last couple weeks.”