Auto lending is opening up a new window for big banks, according to The Wall Street Journal (subscription).
Accelerating demand: 2021 was a banner year for auto lending among many big banks, including Bank of America, Wells Fargo and Ally Financial. According to a Moody’s Investors Service analysis, U.S. banks increased their auto loan balances by 12% over the course of 2021, reversing slow lending trends of the preceding year. Supply-side shortages in semiconductors and chips hiked up the price of cars, including used cars, and consumers took out bigger loans to finance big-ticket auto purchases.
Bankers’ paradise: The average new car loan in the third quarter was $37,280, up 8.5% from a year earlier, and the average used car loan was $25,909, up 20%, according to the credit-reporting firm Experian PLC. Rising used car values due to supply chain shortages are a boon for lenders allowing them to sell repossessed cars at higher values. Banks are also pulling market share away from automakers’ financing units.
Temporary high: However, the easing of supply chain constraints and more vehicles on the market could mean a downswing in the lending boom. Used car prices are expected to decline, and falling prices could mean bad news for lenders and car owners alike—if owners default on a loan, the lender may have to resell the car at a lower value.