Capital One Continues To Push Auto Loans Despite Weakening Industry Conditions

JPMorgan Chase, Ally Financial, Wells Fargo, Capital One and Bank of America are the banks with the largest presence in the auto lending industry – together holding just under 25% of all outstanding auto loans in the country. However, taking into consideration the fact that banks account for roughly 37% of all auto loans in the country (with the finance arms of the auto makers garnering a larger market share), these banks hold nearly 70% of the total auto loan portfolio across all U.S. commercial banks.

The figure for each bank is as reported in their latest quarterly earnings disclosures. Bank of America combines its auto lending portfolio with other specialty loans in its quarterly reports, so the figure here is taken from its latest call report as filed with the FDIC here. The total portfolio of auto loans by all commercial banks in the U.S. is from weekly data compiled by the Federal Reserve, accessible here. The total auto loans outstanding in the country are taken from the website of the Federal Reserve Bank of St. Louis here. The yellow-to-green shading across a row helps identify the overall trend in outstanding auto loans for a particular bank over this period.

The auto industry has seen a marked increase in outstanding loans in recent years, with data compiled by the Fed showing that total auto loans jumped by almost 40% in four years. While an important factor behind the growth was the steady improvement in economic conditions since 2011, the growth rate was unusually high, as auto lenders lowered their credit requirements and offered higher loan amounts for used cars at cheaper rates to attract more customers.

But a sharp increase in auto delinquencies over recent quarters has resulted in growth rates slowing down. The slowdown is evident from the fact that total auto loans for JPMorgan and Bank of America have remained largely constant over Q4 2016 – Q2 2017. The sequential reduction in auto loans for Wells Fargo can be attributed to the reputational hit taken by the bank from its fake account opening scandal revealed last September, and also from its mis-selling of auto insurance.

Notably, Ally, JPMorgan and Bank of America have seen their auto loans grow largely around the same rate as the overall industry. In contrast, Capital One continues to focus on growing its auto lending operations – a strategy that could lead to significant losses if auto loan charge-offs remain elevated in the near future. The chart below shows Capital One’s total auto lending portfolio over the years and our forecast for the metric. You can see how changes to this figure affects our price estimate for the bank by modifying the forecast.

See full Trefis analysis for Wells Fargo | JPMorgan | Capital One | Bank of America

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