Wells Fargo Drops Dealership Customers in Latest Kick to the Balls for Legacy Auto

With a pandemic, massive unemployment, riots, and the threat of Tesla, legacy auto hasn’t exactly been having the best year. Unfortunately banks are starting to notice, and aren’t afraid to kick the auto industry while they’re down to try and save their own balance sheets.

Wells Fargo dropped this bomb on the auto industry earlier today:

Wells Fargo & Co will stop providing loans to a majority of its independent auto dealer customers due to the economic challenges brought on by the COVID-19 pandemic, a spokeswoman said on Tuesday

“We are doing everything we can to help customers weather the economic impacts of this health crisis … we also have an obligation to review our business practices in light of the economic uncertainty presented by COVID-19,” the spokeswoman said in an email. 

Reuters

“We’re doing everything we can to help customers… but we’re worried some of those customers may be running out of cash”

This is rough. The essence of the dealership business is buying cars using capital from banks and financing partners, and selling those cars to customers who may also need to finance their purchase. Dealership and sales rep commissions on these financing deals can often be among the most profitable parts of any car sale. When capital goes dry, the auto industry dies. That’s precisely why a banking crisis in 2008 dragged American automakers into bankruptcy too.

CNBC reported here earlier on Tuesday the lender, who is worried about defaults, had informed hundreds of dealerships last month that it would drop them as customers. 

The bank in April said it has set aside nearly $4 billion to cover expected loan losses due to the coronavirus outbreak. 

Reuters

This couldn’t have been an easy decision for Wells Fargo. This move will burn a lot of bridges. Does it matter much on its own? No; It’s just another straw that won’t break the camel’s back. But if you’re trying to get a glimpse at legacy auto’s credit report, this is a peak at the ice burg lying under the waves.

Read the full story at Reuters

Read the full story at CNBC

Join 347 other subscribers

2 thoughts on “Wells Fargo Drops Dealership Customers in Latest Kick to the Balls for Legacy Auto

Leave a Reply