The COVID-19 crisis has been tough on financials for the most part, with the exception of the mortgage bankers. Banks have reported big credit writedowns, while the real estate investment trust sector has seen decreases in tenants paying rent. The crisis has increased credit losses, and social distancing has put a crimp on lending overall.

Ally Financial (NYSE:ALLY) is a consumer-finance company that used to be known as General Motors Acceptance Corp (GMAC). As such, its bread and butter is the auto loan. Below, we'll look at how the crisis is affecting the auto sector and Ally's performance.

Keys on top of auto loan application

Image source: Getty Images.

COVID-19 has decreased demand for auto loans

Social distancing policies have meant that auto sales are way off, and that's reduced demand for auto loans as well. In the second quarter, Ally reported net financing revenues down 9% year over year, from $1.15 billion to $1.05 billlion. Net income fell 56%, from $1.46 per share to $0.64, driven by increased provisioning for credit losses and increased non-interest expense. Deposits overall rose 13% to $131 billion. COVID should be more favorable for internet banking than walk-in branches, but the effect is probably marginal at best. 

Work-from-home has cut down how much driving people do, with one estimate suggesting miles driven have plunged by 40%. As a result, auto sales fell 24% in the first half of 2020, and inventory is tight, although vehicles are moving quickly off dealer lots. Lower interest rates should help increase demand for auto financing, but economic uncertainty will be a drag on sales overall. 

Ally's mortgage arm is only average

Ally also has a mortgage arm, and the mortgage origination sector is in the middle of a feast. Last quarter, the company originated $1.2 billion in direct-to-consumer loans. This is just over the Mortgage Banker's Association average origination volume for the quarter of $1 billion. To put that number into perspective, Rocket Mortgage (NYSE:RKT), better known as Quicken, did $72.3 billion last quarter. So mortgage origination remains a potential area of future growth, depending how fast it can ramp it up. As of now, Ally's mortgage business is only average. 

Ally isn't necessarily cheap

Ally's price-to-book ratio sits at 68%, which is much higher than its April low of 32%, but below the historical three-year average of about 80%. So there probably is some book-value catch-up built into the stock price. Ally's price-to-earnings ratio, however, is right at the top of the range. Certainly the post-lockdown vaulation discount is gone. The stock has largely matched the performance of the Financials Select Sector SPDR ETF (NYSEMKT:XLF) year to date, which is down about 17%. 

ALLY Price to Book Value Chart

ALLY Price to Book Value data by YCharts

There are better opportunities in the financial sector

The overall financial sector has struggled over the past six months, although the economy seems to be on the mend. The auto lending business should improve with the economy; however, the mortgage lending arm is too small to have an effect. In many ways, Ally is punching below its weight in this line of business. If the stock had more exposure to that sector, it would be more attractive. Ally is trading at 23 times expected 2020 earnings, while mortgage giant Rocket is trading at eight times expected 2020 earnings.

Ultimately, if a stock is in an out-of-favor sector, it should at least be cheap. It isn't. Rocket is cheaper, has faster growth, and operates in a much more attractive sector with a much better macro picture. I just can't get excited about Ally.