Tuesday's Market Minute: Automotive Through The Eyes Of Banks

Earnings season is now in full swing after a soft launch last week. We’ve already had a bank-heavy week with Bank of America (BAC), Wells Fargo (WFC), PNC Financial (PNC) and JPMorgan (JPM) reporting.

And while many are focused on net interest income or provisions for credit losses for banks, I’d like to draw your attention to one line item in each of the more consumer-facing banks’ reports: Auto Loan Originations.

As we’ve learned with the multiple electric vehicle price cuts, deliveries don’t tell the full story for the scattered outlook in the automotive sector, and we have two banks who reported last week with wildly different results for auto loan originations.

Wells Fargo’s auto loan originations dropped 11% year-over-year to $4.8 billion for the second quarter. That was a 4% decline from the prior quarter. The bank attributes the drop to credit-tightening actions and continued price competition. Meanwhile, auto loan and lease originations grew $12 billion, and were up 71% from a year ago at JPMorgan. The company said its competitors pulled back and inventories continued to recover slowly within the auto market.

As pricing competition continues in the auto space and interest rates remain elevated, monthly payments have actually been climbing. According to Edmonds, auto loan interest rates hit their highest level since 2008 back in April. More Edmonds data shows that in the second quarter, auto loan payments hit a record average of $733 a month. The share of customers with monthly payments of more than $1,000 hit a record 17.1%, which was also impacted by interest rates.

But as many continue to forecast a downturn in the second half of the year, I’ll be watching how these numbers evolve, what they tell us about the consumer, and whether shoppers will change their preferences to purchase used or new vehicles.

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