Ally Reports Net Charge-Offs Rise Due to High-Priced Cars

Ally Financial reported Wednesday (July 17) that its net charge-offs (NCOs) in the second quarter rose in comparison to the same quarter a year earlier, due in part to losses from loans made when the price of cars peaked about two years ago.

While its net charge-offs of $435 million were up from $399 million in the second quarter of 2023, they were lower than the $539 million reported in the first quarter, the company said in a presentation released Wednesday in conjunction with its quarterly earnings call.

“Retail auto NCOs were in line with guidance provided at an investor conference last month, decreasing 46 basis points quarter over quarter,” Ally Chief Financial Officer Russ Hutchinson said Wednesday during the call.

In response to higher net charge-offs, the company increased its provision for credit losses by $30 million year over year, according to a Wednesday earnings release.

Ally’s net charge-offs fared better than expected at a time when interest rates have remained higher for a longer period of time than many analysts had forecast, Bloomberg reported Wednesday (July 17).

The company’s net charge-offs of $435 million totaled less than the $481.3 million average estimate of analysts surveyed by Bloomberg.

“Retail auto losses continue to be pressured by the back-book, specifically the 2022 vintage,” Hutchinson said during the call. “We expect losses from the 2022 vintage peaked in 2Q, and we expect NCOs to moderate in the second half of 2024, on a seasonally adjusted basis.”

The prices of both new and used cars peaked in 2022, Hutchinson said. In addition, in 2023, Ally began tightening its underwriting, he added.

“From an industry perspective, we all kind of get a tailwind from the fact that 2023 going forward loans and leases were basically underwritten at less than peak prices for both new and used vehicles,” Hutchinson said. “So, I think that’s helpful for us, it’s helpful for the industry.”

In addition to making changes to its underwriting, Ally has made improvements to its servicing, Hutchinson said.

The firm has altered its serving model “to give our collectors a little bit more time to work the credits and to give our customers a little bit more time to correct,” Hutchinson said.