Ally Financial net income down as it repositions for digital growth
Ally Financial, one of the nation’s largest auto lenders, reported lower net income in the third quarter, while net financing revenue inched up. Auto originations also fell, but the lender said it will launch a digital, direct-to-consumer approach to auto financing and continue to build its retail loan portfolio.
Ally’s net income plunged 22 percent to $209 million, while net financing revenue rose 2.7 percent to $996 million, the company said in a statement today.
Auto loan and lease originations in the third quarter dipped to 9.3 billion, a 16 percent decline from $11.1 billion in the year-earlier period.
Nonprime originations, 11 percent of Ally’s portfolio, fell 36 percent compared with the third quarter of last year. Ally also decreased its superprime (credit scores 740 and higher) originations, CFO Chris Halmy said during the company’s earnings call this morning. Most of Ally’s auto borrowers have credit scores between 620 and 739, putting them in the prime and near-prime categories.
“The U.S. consumer is healthy but overall pretty cautious,” CEO Jeffrey Brown said during the call. He expects the auto finance balance sheet to remain “pretty flat as we move from leases to loans.”
Leasing has declined at a “good pace” as that business has been replaced by retail loans, Halmy said. General Motors had provided subvented leases through Ally until December 2013.
In the third quarter this year, leases made up 11 percent of Ally’s originations. The percentage has been steady -- between 9 and 11 percent -- over the past year. New-vehicle loans made up about half of the portfolio, and used-vehicle loans, which have risen over the past year, accounted for 40 percent. Halmy expects used loans to make up 40 to 45 percent of the mix in 2017.
Pretax income in Ally’s auto finance division fell 1.2 percent in the quarter to $319 million, while net financing revenue increased 9.4 percent to $911 million.
On the auto insurance side, pretax income jumped 40 percent to $56 million, and insurance net financing revenue surged 50 percent to $24 million.
Direct to consumer
In the third quarter, Ally acquired technology assets from Blue Yield, an online auto lender exchange. This acquisition will allow Ally to build a direct-to-consumer digital lending platform. “These actions will enable the company to respond to the growing trends for a more streamlined and digital auto financing process to serve both dealers and consumers,” Ally said in its statement.
“Strides were made to enhance and invest in digital F&I capabilities key to adapting with the changing industry,” Brown said in the statement. “Expanded offerings, new technological capabilities and a commitment to doing what’s right for our customers are foundational to our long-term success.”
Brown believes that dealers will play a “central role in the buying and financing process,” he added during the earnings call. But Ally established the partnership to ensure it plays a “leading role” as the auto finance arena becomes more digital.
Ally also formed a transportation and equipment finance team to provide commercial financing to companies for the purchase or lease of vehicles and equipment.
“This is designed to provide incremental volume and diversification, while aligning to Ally’s core strengths in vehicle financing and secured lending,” the statement said.
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