Ally: Possibility to increase car prices further without affecting demand

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Ally achieved this performance while raising interest rates. Last-quarter loans are expected to yield a yield of 7.82%, up 0.75 points from Ally’s origins in the first quarter and “reflecting significant price action,” LaClair said. She called Ally confident it could generate even higher loan returns in the future.

“We will continue to pay the price,” LaClair said.

Ally is pleased with both the activity and the returns seen in the auto market, she said.

Ally had added more than 1.5 percentage points to its Jan. 1 interest rate in the week before the earnings call, and it expected to have average interest rates of more than 8% during of the third quarter, according to LaClair.

She said the bank’s ability to do this without lowering credit standards reflected the dealer’s willingness to send loans to Ally. The lender in the second quarter had 22,408 dealerships borrowing from it or referring customers to Ally financing, a 14% increase from a year earlier.

Brown said the auto finance market was becoming more competitive, but believed the company’s dealer relationships would keep him in the running for future deals.

“I don’t think you can overstate the importance of dealership growth,” he said.

LaClair said Ally’s interest rates in the second quarter moved very similarly to the federal funds rate, although the two don’t always go hand in hand to that degree. Dealers and consumers will likely see Ally interest fluctuate and move less in unison with the federal rate going forward, she said — especially since Ally expects the Fed raises interest rates eight more times.

Traditionally, interest rate increases haven’t affected demand for vehicles, LaClair said.

“I would say this cycle is very similar to what we’ve seen in the past,” she said.

A one-point increase on a car loan is only about $15 to $20 more per month, LaClair estimated. A customer right now could pay that amount for “two loaves of bread,” she said.

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