Some of the biggest U.S. auto lenders are socking away significantly more money to cover higher losses ahead. The upshot for dealers and customers is likely to be tighter credit down the road, especially in subprime.
For example, Wells Fargo & Co., the perennial volume leader in used-vehicle loans, had $890 million in allowance for credit losses for consumer auto loans as of the first quarter, up 51 percent from a year earlier.
Wells Fargo is battening down the hatches in other ways, too. Its auto loan originations of $5.5 billion in the first quarter were down 24 percent vs. a year earlier, and the bank said it was originating fewer subprime loans.
"We have tightened credit underwriting standards in response to early signs of rising delinquencies in the industry and declining used-car values," said Wells Fargo CFO John Shrewsberry during a conference call in April. "As a result, the quality of originations has improved, and we expect to see the size of our auto portfolio continue to decline in 2017."
Wells Fargo has "gotten ahead of any significant issues," CEO Tim Sloan added. "I don't know exactly where auto losses are going to go. They certainly could go a bit higher."
Lenders said rising reserves and expectations of higher losses are not necessarily an emergency. In announcing first-quarter results, several lenders stressed that losses are returning to "normal" levels after a long stretch of below-average losses.