Ally Q1 hard-hit from COVID-19; 25% of auto customers seek forbearance

Ally Financial Inc., one of the largest U.S. auto lenders, posted a net loss in first-quarter 2020 due to a worsening economy and measures the lender took to insulate itself from credit losses.

Ally posted a net loss of $319 million in first-quarter 2020, the lender said Monday, compared to a net income of $374 million in first-quarter 2019. Revenue slipped 12 percent to $1.41 billion.

Higher provisions for loan losses, or the cash a lender sets aside for loans it does not expect will be repaid, drove down earnings in the first quarter. Ally allocated $903 million in provisions for loan losses in the quarter, nearly three times more than what it traditionally reserves.

Strong sales in January and February allowed the Detroit lender's auto originations to remain within normal levels, though executives noted Monday a "meaningful" slowdown of auto applications in March amid coronavirus concerns.

Ally offered to extend leases mid-March and defer payments for consumers impacted by the virus. The lender also pledged $3 million in direct financial aid to local communities and organizations.

"The sudden and severe nature of the shutdown has affected the world and our nation in a manner that has arguably never been replicated on a scale of this magnitude. ... Significant action across public and private sectors should continue on a size and scale that has never been seen in history," CEO Jeffrey Brown said on a call with investors. "We still do not know how long it will take to return to a state of normalcy."

Ally said 25 percent of its auto-loan customers have asked for payment deferrals, and the vast majority have never been delinquent before.

Of the 1.1 million borrowers who requested forbearance, more than three-quarters have never asked for a deferral before and 70 percent have never had a late payment with Ally, CFO Jennifer LaClair told analysts during a conference call.

“We believe participation in this program will lower loss content,” LaClair said. “We will be able to track leading indicators of default and intervene early.”

Ally was among U.S. banks that rolled out forbearance programs to try to stem loan losses as much of the country remains under shelter-in-place orders for the coronavirus pandemic. The firm said it’s increasing its servicing staff capacity to prepare for when the payment deferrals end.

The lender's liquidity position is significantly stronger during this economic slowdown than during the 2008 financial crisis, LaClair said.

Ally's cash reserves of $3.2 billion, up from $1.3 billion year over year, is the "highest loss absorption capacity in the history of our company" for credit losses, she said.

Ally's auto business posted a pretax loss of $173 million, down $502 million year over year and down $574 million from fourth-quarter 2019. Ally originated $9.1 billion in loans and leases, down 1.1 percent from a year earlier. The lender decisioned 3 million auto applications.

Ally's growth channel, which consists of business with franchised dealerships that sell brands other than those owned by Fiat Chrysler or General Motors, dipped $100 million in the quarter. The channel includes relationships with companies including Carvana and Vroom. Ally extended credit facilities for both retailers during the pandemic.

Originations from the GM and FCA channels remained flat year over year. Used-vehicle originations dipped $200 million as Ally grew leasing $300 million in the quarter.

Bloomberg contributed to this report.