Ally Financial plunges 19% after CFO says its borrowers are struggling

Shares of Ally Financial plunged as much as 19% on Tuesday after the company’s CFO said it is seeing a deterioration in the financial health of its consumers.

At a Barclays conference on Tuesday, Ally CFO Russell Hutchinson said high inflation and a worsening employment picture had weakened its customers’ ability to pay back its loans.

“Our borrower is struggling with high inflation and cost of living, and now more recently, a weakening employment picture,” Hutchinson said.

Those challenges have hindered the ability of Ally Financial’s customers to pay back their loans in a timely manner.

Ally Financial is one of the largest auto lenders in the country, with tens of billions of dollars in debt on its balance sheet tied to consumer auto loans.

“On the retail auto side, our credit challenges have intensified over the course of the quarter,” Hutchinson said. “In July and August, we saw delinquencies up about 20 basis points versus our expectations.”

He added: “We’re clearly dealing with a cohort of borrowers who have been struggling with cost of living and now are struggling with an employment picture that’s worsened.”

Hutchinson expects Ally’s delinquency rates to continue rising in the coming months, “just given the size of this population of struggling borrowers.”

“And so that’s really kind of one of the things that’s put us on notice around credit development,” Hutchinson added.

To soften the blow from the rise in delinquency rates, Hutchinson said he expects the company to move up its reserves to cover any potential credit losses.

Overall, Ally Financial’s comments are not encouraging for the consumer picture, but Ally Financial is known for catering to borrowers with credit scores in the lower to middle ranges.

KBW managing director Sanjay Sakhrani questioned whether Ally’s struggles would spread to other banks.

“Clearly, the guide was disappointing and begs the question if this is ALLY-specific or a canary in the coal mine,” Sakhrani said on Tuesday.