More Bad News For Autos: Wells' Auto Loan Originations Crash To An All Time Low

Joining the trifecta of reporting (and beating) banks, Wells Fargo also reported better than expected Q2 EPS of $1.07 (exp. $1.01) despite missing on the top line (revenue of $22.2bn vs exp. $22.5bn) but the better news was to be found elsewhere, namely in the sequential rebound in the company's mortgage loan originations and mortgage pipeline, which after tumbling to a post crisis low in Q1 staged a modest rebound, with applications rising 41% to $83 billion in Q2 while the pipeline rebounded by 21% to $34 billion, although on a year over year basis the numbers were still disappointing, down 13% and 28% respectively.

The good news - if only for Wells - was accentuated by the favorable increase in the bank's Net Interest Income, with Net Interest Margin rising to a multi-year high of 2.90%, "as the benefit from higher short-term interest rates, disciplined deposit pricing and a reduction in long-term debt, was partially offset by the impact from lower loan and investment securities balances."

However, while the bank's modest improvement in its core housing business was admirable (if not for the market which has sent the stock in the red at least in premarket trading), there was a flashing red light elsewhere: in an unexpected twist, Wells reported that auto loan originations crashed 45% Y/Y to only $4.5 billion, the lowest print since the bank started disclosing this item back in 2013.

The lack of loan origination hit Wells at the bottom line, with total average loans $956.9 billion, down $6.8BN q/q, with period-end loan balances down $982MM, reflecting the decline in auto loans; the bank also notes legacy junior lien mortgage loans continued to decline as expected.

Wells blamed "tighter underwriting standards", which if accurate is ominous for the broader auto sector which is now facing not only surging delinquencies primarily among subprime borrowers, but according to Wells, is about to get squeezed "bigly" on the supply side. It also means that auto sales in the coming quarters, already poor, are about to suffer an even sharper decline, pressuring not only overall US debt-funded consumer spending but also manufacturing production among the auto suppliers and downstream sectors, with adverse consequences for the broader economy.

Source: Wells Fargo


hedgeless_horseman Bill of Rights Fri, 07/14/2017 - 09:43 Permalink

 Many sub-prime Americans driving wrecked vehicles because they cannot afford the $500 deductible.…

Our collective failure to meet this challenge -- year after year, decade after decade -- has led us to the breaking point.  Everyone understands the extraordinary hardships that are placed on the uninsured, who live every day just one accident away from bankruptcy.  These are not primarily people on welfare.  These are middle-class Americans.  Some can't get insurance on a car they need to get to their job.  Others are self-employed, and can't afford it for their work vehicle.  Many other Americans who are willing and able to pay are still denied affordable insurance due to previous accidents or prior convictions that insurance companies decide are too risky or too expensive to cover. We are the only democracy -- the only advanced democracy on Earth -- the only wealthy nation -- that allows such hardship for millions of its people.  There are now millions of American citizens who cannot get coverage.  In just a two-year period, one in every three Americans goes without car insurance coverage at some point.  And every day, 14,000 Americans lose their coverage.  In other words, it can happen to anyone.

In reply to by Bill of Rights

NoDebt yogibear Fri, 07/14/2017 - 10:14 Permalink

I posted this up earlier today in another thread but it's probably a better fit here:This morning I got an email from the place I bought my wife's Jeep a couple years back.  It's titled "These cars must GO!"  It's full of new 2016(!!!) model year cars and trucks (plus a bunch of used vehicles) marked down between $3,000 and $8,000.  There's even a 2017 Ram 1500 Sport marked down more than $10,000.  And so it begins....

In reply to by yogibear

Almost Solvent jcaz Fri, 07/14/2017 - 10:22 Permalink

Last week in the mail I recevied a post-card from the Toyota Dealer I purchased a used vehicle from . . . . in 2011. Six years ago. Haven't thought about them in about that long. Got the post-card and thought, damn they are scrapping the bottom of their customer lists for leads. Made me think of Glengarry Glen Ross desperation.

In reply to by jcaz

curbjob Fri, 07/14/2017 - 09:41 Permalink

There are apparently still some consumers with standards  who refuse to do business with a bank that defrauds its customers . Who knew  ?

Snaffew Fri, 07/14/2017 - 09:43 Permalink

and all this means is higher stock prices once again....what kind of news would actually sell off these markets...that Trump is actually a woman?  that would probably spike this bubbling cesspool even further

yogibear Fri, 07/14/2017 - 09:58 Permalink

Expect the Fed to annouce rate lowering again and a $200 billion/month QE in the coming months.The following QE (5) will have to be $500 billion/month or helicopter money (checks to everyone).

j0nx Fri, 07/14/2017 - 09:59 Permalink

Yet auto prices are STILL at all time highs and continuing to rise. Cars that I traded in 5 years ago are damn near selling for what I traded them in for 5 years ago and have 5x the miles that mine did. Ridiculous.

innertrader j0nx Fri, 07/14/2017 - 10:17 Permalink

SURE, but when you "traded" in your car, the dealer gave you wholesale or less.... pending.  The message is, don't trade them in, unless it's worth it to you not to mess with selling a car, which can be a pain. SETH RICH!!!  I wonder if Billary's hit men are actually FBI or CIA employees?  We know Billary used the Arkansas highway patrol back in the day.  Humm, wonder what happened to Bill's black son?  Anyone heard lately???  Gee, you start on the Clinton Clan and it's never ending, yet they have never spent a day in jail.  That's what I call "just us"!TRIUMPH with TRUMP!!!    

In reply to by j0nx

Arrest Hillary Fri, 07/14/2017 - 10:14 Permalink

My 2011 Kia Soul is getting a little long in the tooth .... I walked into Frank Hyundai to take a look at the Hyundai Accent .... I had $500 dollars in my pocket .... I left 2 hours later .... with a new Elantra 2.0 liter 6 on the floor .... out the door price $16K .... only $500 more than I paid for my Kia .... no trade in .... financed by Hyundai Motors .... I actually got the advertiser's special ?

Binnie Fri, 07/14/2017 - 11:08 Permalink

I am a car dealer.  Until three months ago we sold the majority of our paper to Wells.  Their lien perfection processes are archaic and their management is in disarray.  We got tired of messing with them.  Our numbers are up and we do very little subprime business even in used.  Don't misunderstand the story.  The real story is that Wells is poorly managed.