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Bank of Montreal (TSX:BMO), also known as BMO Financial Group, has announced plans to shutter its indirect retail auto finance business. This decision comes in the wake of escalating bad debt provisions and a desire to reallocate resources, as reported on Monday.
The closure is expected to lead to an unspecified number of layoffs in Canada and the United States. BMO's bad debt provisions have surged to C$492 million in Q2 2023, three times higher than the previous year. Within its retail line, provisions for credit losses have soared by 800 percent to C$81 million in the last quarter, up from C$9 million in the same period last year.
This indirect retail auto loans segment of BMO works closely with car dealerships to arrange financing for car buyers. However, this closure does not impact BMO's commercial banking business, which supports auto dealers through inventory financing.
The move comes at a time when consumers are grappling with recent interest rate hikes and a general economic slowdown. These factors have started to dampen some lending demand and deal-making amid stiff competition among Canadian banks on mortgage rates.
Jeff Roman, a spokesman for BMO Financial Group, stated that by winding down the indirect retail auto finance business, they could focus their resources on areas where they believe their competitive positioning is strongest. The termination of the dealer agreement took effect on September 15, with the bank still intending to fund contracts approved before that date.
In other news, General Motors (NYSE:GM) has announced a delay in the production of its BrightDrop electric vans until spring 2024 due to battery module delays. Workers at the Ingersoll, Ontario CAMI plant are expected to be laid off in October with plans to return next spring. This comes less than a year after GM retooled the facility for electric vehicle battery system production.
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