Capital One, other lenders curb auto loans

Capital One and other auto lenders announced they were pulling out of auto loans. (iStock)

Capital One Financial and other lenders announced plans to scale back their auto finance business, citing a tougher market environment.

Capital One CEO Richard Fairbanks said at the last quarterly income call that the move is in response to pricing momentum created by some competing lenders, which has contributed to tighter profit margins in the bank’s auto lending business.

The bank said it made 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 20% lower than Capital One’s nearly $13 billion in loans in the second quarter of 2021.

“As you’d expect, many auto lenders raised prices as rising interest rates drove up marginal financing costs, but others held prices relatively flat,” Fairbanks said.

It’s mostly a few big players and credit unions that really haven’t budged at all price-wise, Fairbanks continued. As a result, these players experienced a very significant increase in their market share.

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Capital One is not the only one to decide to reverse its loans

Capitol One Financial’s adjustment to its auto lending business strategy comes amid similar moves by other financial institutions.

Citizens Financial Group also announced plans to cut consumer lending, citing concerns about the impact of a recession on businesses. The bank’s CEO, Bruce Van Saun, said during his second quarter earnings call that the bank aimed to stabilize mortgage and auto lending and begin to reduce auto emissions. Van Saun described the move as a “return on the cost of capital”.

In the same way, Credit acceptancea subprime auto lender, has sounded the alarm over the impact of the economy on loan performance in the second quarter of 2022. In its latest quarterly earnings report, the lender flagged lower recovery rates forecast for consumer loans granted from 2020 to 2022.

“It’s probably due to a few factors,” said Jay Martin, senior vice president of finance and accounting. “Obviously the end of the stimulus and the extra unemployment benefits, and maybe it took a little while for consumers to use up the savings they had accumulated during those programs. And then I think that the other thing that impacts the consumer is just environmental inflation.”

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Credit unions outperform others in space

On the other hand, it seems that credit unions have had success with car loans.

Tony Boutelle, President and CEO of Origence, a CU Direct brand, said in A press release that credit unions in the Credit Union Direct Lending Network (CUDL) outperform non-credit union lenders in loan growth. They are also the only type of lender to see double-digit growth year-to-date, he said.

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

In May, nearly 611,000 auto loans were funded by CUDL network credit unions, an annual increase of 20.8%, the press release said, citing AutoCount data. The CUDL network is collectively the nation’s largest auto lender.

Much of the loan origination volume was driven by used car funding. About three-quarters (76%) of all cars financed through the CUDL system since the start of the year were used cars, according to the press release. The remaining 24% was made up of new vehicles.

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