Auto loan picture grim

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A $23.9-billion quarterly loss is hard to see around. But lost in all the heartburn over the effect that subprime mortgages had on Wachovia Corp.’s third-quarter results was the fact that the bank didn’t get much help from automobile loans either.

The soon-to-be unit of Wells Fargo & Co. reported that 2.89% of its $27.5-billion auto-loan portfolio was delinquent by 30 or more days, up about half a percentage point from the same period a year ago. That’s $795 million in past-due loans, compared to $581 million a year ago.

Meanwhile, the value of Wachovia’s nonperforming auto loans, generally defined as those that are 90 or more days delinquent, reached $93 million, up from $69 million a year ago.

Most tellingly, the bank charged off — essentially giving up hope of collecting on — $195 million in auto loans in the third quarter, a whopping 99% increase over a year earlier.

As a result, the bank said it had tightened lending standards, raising the average FICO score for a new car loan to 673, and cutting way back on long-term auto loans, which can have a terrible effect on borrowers and lenders. At one point, 6.5% of Wachovia’s new auto loans were for seven-year terms, a number the bank hopes to reduce to 2% of its originations. Wachovia also reduced overall originations of auto loans by 30% compared to the second quarter, to just $2.6 billion.

Of course, some of that reduction could be because fewer people are looking to buy a car in this down economy. But the figures also shed light on why consumers are complaining that they’re having trouble getting financing for a new purchase.

Wachovia’s auto woes are hardly unique...

Over the last 10 days, most of the nation’s largest banks have reported their third-quarter results, and all have had problems in the category. The data from the other banks suggest that, like Wachovia, they have a lot of older loans issued to questionable credit risks still on the books. Now, with captive lenders like GMAC turning away anyone without a 700+ FICO score, and banks hastening to follow the lead, getting an auto loan is going to be harder than ever.

A sampling of data from other banks tells the tale. JP Morgan Chase said charge-offs on auto loans were up to 1.12% of its portfolio, compared to 0.97% a year ago; the bank reduced originations by 32% since the second quarter, to $3.8 billion, blaming ‘industry-wide weakness in auto sales.’

Originations also crashed at Citibank. In the third quarter of last year, it wrote $2.6 billion in auto loans. This year, that dropped to $1 billion for the period, a 62% decline. Meanwhile, Citi’s 90-day+ delinquencies increased 42%, to 1.78% of its auto portfolio, or $350 million in loans, and the bank wrote off $259 million in bad loans, up 76% from a year earlier.

Then there’s Wells Fargo. The bank is one of the largest auto lenders in the category, with a $25-billion portfolio. In the third quarter, Wells lost $316 million in its auto loans division, accounting for 15% of the bank’s quarterly losses. Its delinquencies were up 12% from the second quarter. Most tellingly, the bank said it had reduced the size of its portfolio by 24% from the second quarter; it did that by ‘tightening of account acquisition strategies to reduce loan volume in higher risk tiers and tiers with unacceptable returns.’ Translation: fewer loans to people with worse credit scores.

For the auto industry, stuck with decades-low sales figures and a business environment that no longer supports leasing many classes of vehicles (we’re looking at you, SUVs), the news could hardly be worse.

Next week, subprime auto lending specialist Americredit will release its third-quarter results, with GMAC coming sometime thereafter.

—Ken Bensinger