Ally Financial Corp. experienced a steep decline in its stock price on Tuesday, following a warning from the company that more consumers are falling behind on their car loan payments due to ongoing inflationary pressures and a softening labor market.
Shares of Ally closed down 17.6%, marking the company’s largest single-day drop since March 16, 2020, when the stock plunged 21.8%, according to data from FactSet. The downturn erased all gains Ally had made in 2024, with the stock now down 6.4% for the year. In contrast, the KBW Nasdaq Bank Index has risen 14.1% over the same period.
The financial services firm highlighted a worsening trend in its retail auto loan portfolio, with delinquencies rising more than anticipated. According to Chief Financial Officer Russ Hutchinson, the company now faces increased pressure to meet its long-term goal of a 15% return on tangible common equity.
“Credit challenges have grown throughout the quarter,” Hutchinson said during a presentation at the Barclays Global Financial Services Conference in New York. “Our borrowers are being hit hard by persistent inflation and elevated living costs, and more recently, we’re seeing the added impact of a weakening job market.”
Ally reported that retail auto loan delinquencies were approximately 0.2% higher than expected. Additionally, net charge-offs—loans the company has deemed unlikely to be repaid—also came in 0.1% above projections.
“We’re clearly dealing with a group of borrowers who were already under pressure from the cost of living and are now being impacted by worsening employment conditions,” Hutchinson stated.
Despite the challenges in its auto lending operations, Ally noted that its corporate finance division has remained stable, with no reported losses. Its credit card segment is performing in line with expectations, while the mortgage division has either met or exceeded projections.
The company’s latest update paints a sobering picture of consumer financial health amid ongoing economic uncertainty. As inflation continues to strain household budgets and job stability becomes more fragile, lenders like Ally are bracing for potentially prolonged stress in the consumer credit market.
