The coronavirus has idled all sorts of lending, as banks and other financial services firms eye consumers with wariness. Unemployment, after all, has skyrocketed, indicating that household cash flow is dicey, and remaining current on debt might not be top of mind.
To that end, Wells Fargo is putting the brakes on much of its lending to independent auto dealerships. The loans are sold to end customers who in turn finance their vehicle purchases.
In an email to Fox Business, an unnamed spokesperson said the bank would only continue lending activity with dealers where “deep, longstanding relationships” are in place.
“As a responsible lender, we also have an obligation to review our business practices in light of the economic uncertainty presented by COVID-19, and have let the majority of our independent dealer customers know that we will suspend accepting applications from them,” the statement said.
For Wells, the hit, at least short-term, would be felt across a loan book that stood at more than $48 billion at the close of the first quarter of 2020. Auto loan origination was up 19 percent year on year to $6.5 billion. Independent dealers are about 10 percent of the 11,000 dealer roster that Wells uses to sell those loans. Roughly speaking (very roughly), all else being equal, assuming the independent dealers are tied to a commensurate percentage of loan activity, this implies a $650 million hit to loan originations.
Beyond the Wells-specific impact looms a larger, more ominous signal: Consumers are having trouble carrying these payments, which in a good economy can be significant.
As estimated by the Federal Reserve Bank of New York, total household debt increased by 1.1 percent in the first quarter of 2020, up by $155 billion to $14.3 trillion. Digging a bit deeper into the numbers, auto loans were up by $15 billion in the quarter. And in this subset of lending, serious delinquency rates for auto loans recently stood at 2.4 percent. The Fed noted in its recent report that there has been a bit of credit tightening, as there has been a three-point increase in the median originating credit score.
“The volume of subprime auto originations was $28 billion, a level on par with the last several years,” said the Fed.
Separately, TransUnion reported that the percentage of auto loan accounts in hardship as of April stood at 3.5 percent, up from about 50 basis points a year ago and up 64 basis points from March of this year.
In addition, as PYMNTS has reported, 60 percent of consumers live paycheck to paycheck – indicating that when the paychecks stop (which, of course, has become an all-too-common experience), paying off those loans becomes a juggling act, if the loans get paid at all.