- Key insight: Even amid challenging conditions for the auto industry, Ally Financial posted third-quarter earnings that outpaced analysts' estimates.
- Supporting Data: Ally's earnings per share for the quarter were $1.18, beating S&P's consensus estimate of 96 cents.
- Expert Quote: "There's certainly a number of things to watch, but right now the momentum is pretty solid," said Ally CFO Russ Hutchinson.
It's been a troubled period for the auto industry, as delinquency rates rise and two high-profile companies recently filed for bankruptcy. But auto lender Ally Financial doesn't seem worried.
In the third quarter, the Detroit-based bank posted earnings that handily beat Wall Street's expectations. Earnings per share were $1.18, surpassing S&P analysts' consensus estimate of 96 cents. And net income came out to $371 million, well above forecasts of $301.9 million.
"If I had to choose one word to define this quarter, it would be momentum — not isolated wins, but sustained improvement," Ally CEO Michael Rhodes said during a call with analysts on Friday.
Revenue for the quarter reached $2.2 billion, outpacing expectations of $2.11 billion, per S&P, and edging up 2% from one year ago.
"Results were largely better than expected," John Hecht, an analyst at Jefferies, wrote in a research note.
The results defied worrisome trends elsewhere in the auto industry. Last month, the car parts manufacturer First Brands and the subprime auto lender Tricolor both
Meanwhile, Americans have been increasingly falling behind on their car loans. In August, auto delinquencies rose at all stages, according to the credit modeling company
None of this was evident from the quarter Ally just posted. In fact, retail auto delinquencies for the bank declined at all stages, and its charge-off rate for retail auto loans dropped to 1.88% — down from 2.24% in the same period last year.
"We feel pretty good about what we're seeing in our retail loan book," Ally's chief financial officer, Russ Hutchinson, told American Banker in an interview. "We do a small amount of subprime, and even on that, we're seeing performance that's better than what we expected when we priced it."
How has Ally managed to remain unscathed? One reason is that, as Hutchinson said, the bank does very little lending to subprime consumers, who have shown the highest spike in delinquencies. Another reason is that Ally tightened its underwriting standards in 2023, helping it avoid the kind of loans that have been going bad in recent months.
"The strength of our dealer relationships and the scale of our franchise enable us to be selective about the loans we book," Rhodes said during the earnings call.
At the same time, demand for cars has been soaring. For Ally, the most recent quarter set an all-time record for auto loan applications — the third consecutive quarter to do so. From July through September, the bank received an unprecedented 4 million consumer auto loan applications, generating $11.7 billion of originations.
At least part of that demand, Hutchinson acknowledged, is due to macroeconomic factors. First, there's been the
So does Hutchinson worry about what will happen when those pull-forward effects wear off?
"You can certainly see some softening in terms of vehicle sales at that point, and we're watching that carefully," he said.
As for the bankruptcies of Tricolor and First Brands, Hutchinson said Ally was not exposed in any way. And in terms of the economic and political environment, he expressed confidence that Ally could continue weathering the storm.
"There's certainly a number of things to watch, but right now the momentum is pretty solid," he said.
