Some Kind Of Auto Lending Crisis Is In The Making

Erik Shilling
Yesterday 2:25PM •

Auto lending in the midst of an economic collapse is never pretty, as people stop paying on their car loans to divert money to more immediate necessities like food and shelter. This collapse is no different.

Exhibit A: Credit Acceptance, one of the biggest subprime lenders in the country (and one of the most unsavory). It had this to say in a report filed yesterday with the Securities and Exchange Commission:

In an attempt to slow the spread of COVID-19, state governments have implemented social distancing guidelines, travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These actions have caused economic hardship in the areas in which they have been implemented and have led to an increase in unemployment and resulted in many consumers delaying payments or re-allocating resources, leading to a significant decrease in our realized collections.

In short: an unspecified number of people have stopped paying on their car loans, the full extent of which Credit Acceptance can’t reveal yet.

If all of that is to be somewhat expected—Credit Acceptance’s business is lending money to people who might not be able to afford it long-term—a somewhat more alarming situation is in a different report out this week.

Exhibit B: Ally Financial, which was founded over a century as the lending arm of General Motors. It was known as GMAC until, er, the last economic crisis about a decade ago, a few years after GM sold a majority stake in the business. Today by volume it is one of the biggest auto-loan lenders in the country; Monday it said many of its more reliable borrowers weren’t so reliable anymore.

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