Ally Emphasizes 'Pass-through' Program

Ally Financial is emphasizing a fast-growing “pass-through” program, where the auto lender asks its dealers to send it 100% of their application volume — regardless of whether it fits Ally’s typical prime-risk credit profile — and Ally refers applications that don’t meet its approval criteria to partner lenders.

“Application flow is the differentiator for us,” along with Ally’s “secret sauce” of close and often longstanding relationships with dealers, Doug Timmerman, Ally interim CEO, says in an earnings conference call.

“We’re willing to do the work.We don’t want to miss out on an opportunity to help them sell another car and truck. We don’t want to miss an opportunity to capture the business. That resonates very well with the dealer,” Timmerman says.

In the first quarter, Ally reports a record volume of 3.8 million consumer auto loan and lease applications, driving $9.8 billion in origination volume. That’s up from 3.3 million applications in the year-ago quarter and $9.5 billion in originations.

Timmerman says the pass-through program benefits both Ally and its dealers. It’s convenient for dealership F&I managers who don’t have to work as hard to shotgun-distribute applications to multiple lenders.

At the same time, Ally earns fees it otherwise wouldn’t get on applications it refers to its partners which result in a loan.

“For certain loans that do not meet our underwriting criteria, we pass through those applications to our partners. For loans that are ultimately funded by our partners, Ally receives an origination fee and generates servicing revenue without using any capital” to make the loans, Timmerman says.

As of Dec. 31, 2023, pass-throughs grew to a portfolio of $956 million in loans, up from $227 million a year earlier, Ally reports in its fourth-quarter and full-year 2023 results.

Ally also earns fees from its SmartAuction dealer-to-dealer online auction sales. Combining SmartAuction fees with fees from pass-throughs, Ally expects those revenues to grow to $190 million in 2024, up 120% vs. 2019, Timmerman says.