Capital One, other lenders put the brakes on auto loans

brakes on auto loans

Capital One Financial and other lenders have announced plans to curtail their auto financing business, citing a more challenging market environment.

Capital One CEO Richard Fairbanks said during the bank's latest quarterly earnings call that the move is in response to pricing dynamics created by some competing lenders, which has helped profit margins tighten in the bank business. Bank car loans.

The bank said it took out about $10.3 billion in auto loans during the second quarter of 2022, down 12% from $11.7 billion in the first quarter. And auto originations were down 20% from the nearly $13 billion in loans Capital One made in the second quarter of 2021.

"Unsurprisingly, many auto lenders have raised prices as higher interest rates led to higher marginal financing costs, but others have kept prices relatively flat," Fairbanks said.

It was mainly some big players and credit unions that didn't really budge at all in terms of their pricing, Fairbanks continued. As a result, these players have seen a very significant increase in market share.

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Capital One is not alone in its decision to dial back on lending

Capitol One Financial's adjustment to its auto loan business strategy comes amid similar findings by other financial institutions.

Citizens Financial Group also announced plans to gradually wind down its consumer lending, citing concerns about how a recession will affect business. The bank's chief executive officer, Bruce Van Saun, said during his second-quarter earnings call that the bank aimed to put auto and mortgage lending on a stable path and start winding down auto originations. Van Saun described the move as a "return on the cost of capital."

Similarly, Credit Acceptance, a subprime auto lender, sounded the alarm about the impact the economy had on lending performance in the second quarter of 2022. In its latest quarterly earnings report, the lender reported a decrease in expected collection rates for consumer loans allocated from 2020 to 2022.

"It's likely due to a few factors," said Jay Martin, senior vice president of finance and accounting. "Obviously the end of the stimulus and supplemental unemployment benefits, and maybe it took a while for consumers to work through the savings they had built up during those programs. And then I think the other thing that's hitting the consumer is just inflation." ambient."

Credit unions outperform others in the space

On the other hand, credit unions appear to have had success with auto loans.

Tony Boutelle, president, and CEO of Origen, a CU Direct brand, said in a press release that credit unions in the Credit Union Direct Lending (CUDL) network are outperforming non-credit union lenders. and credit in loan growth. They're also the only type of lender to see double-digit growth so far this year, he said.

"Credit unions continue to demonstrate their ability to gain market share in the auto loan market," Boutelle said.

As of May, nearly 611,000 auto loans were financed through credit unions in the CUDL network, an annual increase of 20.8%, according to the press release, citing data from AutoCount. The CUDL Network is collectively the largest auto lender in the nation.

Much of the loan origination volume has been driven by used car financing. According to the press release, roughly three-quarters (76%) of all cars financed through the CUDL system to date have been used cars. The remaining 24% was made up of new vehicles.

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