As the Gulf Coast continues to clean up after one of the worst hurricane seasons on record, the United States auto lending industry is starting to tally the financial damage. An estimated 500,000 to 1,000,000 vehicles sustained some type of damage during the storms, and the impact to lenders in the long-term is still being determined.
Interestingly, since actual auto lenders comprise less than 10% of the market-share, a great number of credit unions, financing arms of automakers, and banks that deal in auto loans are affected by the storm season. So, auto lenders aren’t the only ones in trouble, but rather a wider spectrum of auto loan providers.
With that being said, who’s actually in trouble? Texas and Puerto Rico were the hardest hit by the storms, and this directly affects what banks and other financial institutions are expected to be hit the hardest according to American Banker.
Some banks had already prepared and built up their reserves. Wells Fargo, for instance, built up a $450 million reserve for hurricane-related claims; however, they have not specified the amount put aside for auto claims. Wells Fargo’s subsidiary Reliable Auto is the largest financing company in Puerto Rico, so it makes sense that the big bank would have the reserve ready to absorb losses and costs.
Other market leaders had to absorb losses, but one company, Ally, said it wasn’t the end of the world. While Ally had over $19 million in loss of business from its auto dealers, it wasn’t dealt a crippling blow. Apparently, many auto loan dealers were able to relocate their cars to safer ground. Commenting on the minimal losses, Ally CFO Chris Halmy noted, “This is why historically hurricanes haven’t been as impactful for us versus hailstorms that are less predictable and can pop up very quickly.”
At this point, the biggest concern for the banks and auto lenders is the risk of future default by affected consumers. These consumers could start prioritizing other expenses over their auto loan payments, and an increasing number of defaults could add to the overall bill on the financial institutions. These sort of losses are harder to predict given the variability of consumer financial health in light of the hurricanes.
It’s clear that these storms have been devastating to homes and businesses around the Gulf region. However, what does the impact on the auto loan industry mean for the average consumer?
Well, for the most part, the average auto loan borrower will not see a significant change as a result of the storms, but any changes will naturally depend on the auto loan provider. For instance, if you are borrowing from a company out of the Pacific Northwest, you may not see any changes to a variable rate auto loan. The same might not be true for a lender with a significant stake in the Gulf region auto loan market.
At any rate, losses are still being analyzed in various different markets in addition to the auto loan industry. The full picture isn’t here yet, so only time will tell how an individual consumer will be affected as well as the market as a whole.