Big banks put squeeze on car loans
US car sales drop as banks pull back from providing customers with auto loans.
Car sales are stalling right across America and fears are growing for the car finance market after big banks pull back from providing customers with auto loans.
Santander Consumer USA announced today that it has dropped 800-plus dealerships from its portfolio citing performance-related issues.
Other leading banks have also cut back from handing out car loans. Wells Fargo reported a 29% drop in its auto loan arm compared to the same period last year. Ally Financial Inc. and JPMorgan Chase also reported losses during their Q1 reports.
Several big banks are reporting higher losses on defaulted car loans, and an alarming number of customers are falling behind on their repayments.
Financial experts state that the declines are down to risky lending to consumers with low credit scores and the falling prices of used cars are causing a problem.
Repossessions for unpaid loans are not recouping enough for lenders to justify the initial payout. Lenders who repossess cars are only recovering about 51% of the unpaid loan balances on average, according to a report in the Wall Street Journal.
Recent developments have called into question whether risky car lending can sustain itself. Auto loans have been one of the fastest-growing consumer lending categories since the last recession. Banks and lenders increased originations during the mortgage market slump in search of more revenue.