A Decline In Ally's Profit Highlights The Risks Associated With US Auto Loans

Ally Financial Inc.'s earnings fell more than expected as the company provided fewer vehicle loans and set aside more provisions to address rising customer defaults.

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The Detroit-based lender said in a statement Wednesday that first-quarter net income attributable to common shareholders fell to $291 million, or 96 cents per share, from $627 million, or $1.86, a year earlier. On an adjusted basis, net income was 82 cents per share, compared to the 86-cent average forecast of a surveyed analysts.

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As Americans fall behind on automobile payments at rates not seen since 2009, Ally and other auto lenders have tightened underwriting rules. Consumers are strolling into dealerships with $10,000 in negative equity, while others are struggling to make payments on existing loans.

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"As we move forward in 2023, we continue to see opportunities across all of our businesses," said Chief Executive Officer Jeffrey Brown in a statement. "Our focus remains on risk-adjusted returns, which may lead to slightly lower origination levels as we look to tighten underwriting in certain segments that don't meet return thresholds." 

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The company's stock was down 0.2% to $26.80. in New York. This year, they have increased by 9.7%.

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Ally reported $446 million in reserves for bad loans during the quarter. This was less than the $483.8 million average expectation. The provision in the fourth quarter was $490 million. Originations of vehicle loans in the United States decreased to $9.5 billion from $11.6 billion the previous year.

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