Ally Financial Stock Declines on Q3 Auto Loan Income Dip

Ally Financial, a leading bank holding company, witnessed a decline in its stock price following the release of its Q3 earnings report, primarily due to a decrease in auto loan income. This article delves into the factors contributing to the drop in auto loan income and its impact on the company's financial performance and stock price.

Ally Financial's auto loan income suffered a setback in Q3, with several factors contributing to this decline. One significant factor was the increase in auto loan delinquencies and charge-offs. The company's allowance for auto credit losses rose to 3.65% in Q1 2024, up 5 basis points (bps) year-over-year (YoY), reflecting the deteriorating credit quality of its auto loan portfolio. This increase in delinquencies and charge-offs directly impacted Ally's Q3 auto loan income.


Changes in consumer credit quality and approval rates also played a role in the decline of Ally's Q3 auto loan income. The company's average FICO score for auto borrowers rose to 710 during the quarter, up from 704 a year ago and 688 two years ago. This shift towards higher-credit-score customers indicates a more cautious approach to auto lending, which may have contributed to the decrease in auto loan income. Additionally, the approval rate for auto loan applicants dipped to 28% in Q3, down from 30% a year earlier and 35% in 2022, further reflecting the company's increased caution in auto lending.


Shifts in used car values and yields on auto loans also affected Ally's Q3 auto loan income. The used car market experienced softer values throughout much of the quarter, which negatively impacted the company's auto loan portfolio. However, Ally saw stability in used car values in March, exiting the first quarter with flat values compared to December. Furthermore, the yields on auto loans Ally made last quarter rose to 10.5%, up sharply from 8.7% two years ago, indicating that the company is charging higher interest rates to mitigate potential losses from borrowers who may struggle to repay their loans.

Ally Financial's increased caution in auto lending and focus on higher-credit-score customers have influenced its Q3 auto loan income. The company has become more selective in its lending practices, which may have contributed to the decline in auto loan income. However, this strategic shift is designed to better manage risks and protect the company's financial health in the long run.


In conclusion, Ally Financial's stock price declined following the release of its Q3 earnings report, primarily due to a decrease in auto loan income. Factors contributing to this decline include the increase in auto loan delinquencies and charge-offs, changes in consumer credit quality and approval rates, and shifts in used car values and yields on auto loans. While the company's increased caution in auto lending has led to a temporary dip in auto loan income, this strategic shift aims to better manage risks and ensure long-term financial stability. Investors should monitor Ally Financial's performance closely as the company navigates the evolving auto loan market.