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.
Ally Financial Inc. said 25% of its auto-loan customers have asked for payment deferrals, and the vast majority have never been delinquent before.
Of the 1.1 million borrowers who requested forbearance, more than three-quarters have never asked for a deferral before and 70% have never had a late payment with Ally, Chief Financial Officer Jennifer LaClair told analysts during a conference call Monday.
Exhibit C: Lenders like Volkswagen Credit, which said last week it was waiving payments for six months for some people who have lost their job because of the virus. It’s a preemptive admission that you can’t get blood from a stone, I guess. But that also came with some stipulations:
To qualify, unemployment must not occur within the first 90 days of ownership. The customer must have lost their job because of economic reasons and must be collecting unemployment benefits. Customers also must have been employed full time at least 12 consecutive weeks before job loss. The offer is good for 12 months from the date of purchase.
The program does not cover leases, and it is not available in New York.
The lending arms of most of the other big automakers are also offering various deferment plans for borrowers, which delay payments until the end of the loan. Edmunds says that most lenders prefer to deal with customers on a case-by-case basis. The best thing you can do if you can’t make your payment is to reach out and try and strike a deal. I myself fear that increasingly many borrowers won’t even be able to afford that.