(Bloomberg) -- Ally Financial Inc. is monitoring borrowers who bought expensive cars two years ago and are struggling to keep up with high monthly payments.
Ally Chief Financial Officer Russ Hutchinson said that in post-pandemic times — 2022 in particular — consumers flocked to buy cars when used-auto prices were elevated, saddling themselves with bills at a time when they had yet to realize the full impact of soaring inflation. While those borrowers still have jobs, he said, they’re grappling with stiff loan payments on top of car-ownership costs that also are up.
“We’re kind of working our way through that, like the rest of the industry,” Hutchinson said Thursday at the BancAnalysts Association of Boston Conference. “We’re got a large pool of consumers who are clearly struggling with making the monthly budget balance.”
The online bank flagged the economic effects hitting their loan book when it reported third-quarter earnings last month, though Chief Executive Officer Michael Rhodes said he expects that Ally’s efforts to tighten access to credit will help stem losses over time. Hutchinson reiterated that outlook on Thursday, saying 2023 and 2024 borrowers have fared more favorably.
“We’ve put a lot of curtailment on the underwriting side over the last 18 months,” Hutchinson said. “Auto credit is stabilizing, and we expect it to get better.”
Even higher-income consumers are struggling with how expensive cars – both new and used – have gotten over the years. While it’s not a widespread practice across the industry, Ally has been verifying the income and employment for potential borrowers in more cases, especially when they’re taking on potentially steep payments, Hutchinson said.
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