Ford To Abandon "Traditional Credit Scores" For Underwriting Decisions As Sales Stall

Tyler Durden's picture

So, what do you do when your sales are stalling because you've already financed new cars for every man, woman and child with a credit score north of 500?  Well, you simply abandon credit scores in the underwriting process and instead explicitly mandate that your loan officers approve every potential car buyer that walks through the door with a pulse. 

Maybe we're exaggerating a little, but according to a new report from the Wall Street Journal, Ford Credit "has decided to change its approval process to look beyond credit scores in an effort to pump up sales."  Which is a genius strategy if we understand it correctly.

The company says it is looking at ways to increase loan and lease approvals for applicants with limited credit histories. These consumers are often denied credit because they lack a history of managing debt and as a result have low credit scores. Ford’s credit division plans to review new data to try to determine whether these customers, as well as those with more robust borrowing histories, are likely to repay their loans.

The move by Ford Motor's financing unit is expected to unfold in coming years, even as concerns mount about rising auto-loan losses in the industry. Ford Motor Credit is expected to announce the plans as soon as Friday.

 

Ford Credit is among the largest U.S. lenders to say that it is looking at using alternative methods of underwriting, beyond the traditional factors that are mostly centered around credit reports. “No financial services firm would take that decision lightly,” says Jim Moynes, vice president of risk management at Ford Credit.

 

Ford Credit is hoping the new ways to assess credit will better predict risk among a broad array of borrowers. While its charge-off rate is lower than the industry average, losses are rising. The company wrote off $82 million in U.S. consumer loans and leases as a loss in the second quarter, up 30% from a year prior.

Of course, this move comes just as more traditional lenders have decided to pull back on auto loans presumably because they're growing increasingly worried that mounting auto inventory on dealer lots is confirmation that the industry is at the tail end of a nasty bubble.  In fact, as we pointed out last month, Wells Fargo slashed their auto loans by 45% in 2Q 2017.

 

Meanwhile, JP Morgan will still underwrite your subprime auto loan but only if they can dump it on unsuspecting investors via a toxic ABS deal (see: Deja Vu: JPM Slashes Auto Loans For Their Own Book; Ramps Up ABS Issuance For The Suckers). 

Of course all of this comes just days after Equifax Chief Economist Amy Crews Cutts pointed out that 2016 and 2017 vintage auto ABS deals are mysteriously performing more like 2007 securitizations than those underwritten in 2010. Per Bloomberg:

“Performance of recent deep subprime vintages is awful,” Equifax said in a slide show on second-quarter credit trends.

 

“We’re seeing an increase in delinquencies across all credit scores, but in the highest credit quality, it’s just a basis point or two,” Chief Economist Amy Crews Cutts said in an email Tuesday. “In deep subprime, the rise is more substantial. What stood out to me was the issuers. Those that have been doing this for a decade or more were showing the ‘better’ performance, while those that were relative newcomers were in the ‘worse’ category.”

 

But sure Ford Credit, now is probably a great time to abandon "traditional credit metrics" in your underwriting practice....while you're at it, maybe consider following in Chrysler's footsteps by offering a $1,500 discount to people with "Low Credit Scores."

"April 2017 Pricing on all new vehicles may include up to $1500 in finance rebates that have certain credit requirements to be able to claim this rebate. The finance office is Credit Score based and you must be below 620 to qualify. If you are over a 620 you must add up to $1500 to the price. Varies by make and model. Not all units are eligible for this rebate. Call Dealer for Details."

Truck

 

That said, somehow we suspect that offering $0 down, 0% financing for 80 months to everyone with a pulse doesn't actually pencil out over the long haul...but good luck with that.

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junction's picture

Soon NINJA loans will be back.

peddling-fiction's picture

Repo(session) men are grinning and wetting their lips.

css1971's picture

That is the next growth industry. Get in now, ahead of the crowd.

runswithscissors's picture

What could possibly go wrong>? edit ( oh...I see someone else asked this same question...so I am not the only one thinking this way :)

Pure Evil's picture

They should peddle this shit down in Mexico to their $5 an hour assembly workers.

Unemployed Americans can't afford it no matter their credit score.

two hoots's picture

Ford sees how this works, the'll go for the bailout this time.  There is no longer any honor or profit in doing the right thing anymore.

813kml's picture

Anyone with a good credit score is too smart to buy a Ford.

ufos8mycow's picture

I'm selling my old Hustler magazines. Only $120,000 per issue. If you are a human and were alive within the last two years I am offering an instant rebate of $119,995 per issue! Get yours now!!!

DWD-MOVIE's picture

I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do… http://disq.us/url?url=http%3A%2F%2Fwww.jobproplan.com%3A68UoF1LgzM-Yo3S...

turnoffthewater's picture

"Anyone with a good credit score is too smart to buy a Ford."

Anyone that buys on credit is stupid

not dead yet's picture

Anybody that says buying on credit is stupid is stupid. Intelligent use of debt is a great tool that built our modern society. If you want a house you will never get one trying to save up the full amount while paying rent. Or driving an old wreck and having your mechanic on speed dial and selling your stuff to pay for repairs. I borrowed money and paid for my house instead of paying a landlord. Paid it off in 12 years and free and clear for the last 28. Better than paying rent for 40 years and now I don't need to use credit. Our whole world was built on the intelligent use of debt from factories to infrastructure and beyond. When debt is used for stupid things then we can say the use of credit is dumb.

post turtle saver's picture

your post will probably get lost in the shuffle in this thread but it's dead on correct... +1

back to vehicle purchasing, I think we all can agree that buying $50k half ton pickup trucks is just plain dumb - regardless of how you got the money to buy them...

Hal n back's picture

Sign and drive is baaack!

clade7's picture

Thats right!  This is a good Idea on Fords part!  Sell Sell sell!  Who gives a shit who pays for them!  "We just make these rigs dammit!"

Bigern's picture

Finance truck zero down. Drive truck home. Strip it to the frame and sell the pieces. Repo man shows up six months later and eats crow.

Go buy the same truck at auction for half the price. Pocket the change.

This will be a growth industry.

The Ram's picture

Ford obviously knows the sub-prime loans will be bailed out when the time comes.  No worries. Loan on.

The Cooler King's picture

MOSLEY!!!

 

I'm counting on you my friend!!!

 

I want to know EXACTLY when FORD is gonna accept 15 bitcoins so I can buy a 2018 FORD VELOCIRAPTOR!!!

I tried to buy one on OVERSTOCK.com (as you suggested), but all they wanted to sell me was some cheap ass Chinese furniture that they claimed to be at a 70% discount... for $6k... Which... means that FULL RETAIL on that would have been $20k... & whereby, I might have just gone to SOTHEBY's to buy, like, a Lord Cornwalis (circa 1700's) desk that was used when he was signing the 'Surrender at Yorktown'... 

 

But FUCK ME!!! SOTHEBY's doesn't take bitcoin either...

Michigander's picture

None of them take bullion either you fucking retard. Ya know, I don't think they would take real estate or stocks either. Come to think of it, if you walked in with 40,000 in cash, they wouldnt take that either. Is this really how you think? Maybe its time to empty your drool bucket.

Im ready to compare my portfolio performance of cash in hand, bullion in hand, modest single famiy home rentals, and cryptocurrencies anytime anywhere.

Its like talking to a fucking wall.

The Cooler King's picture

@Michiganander

NO STAIRWAY!!! ~~~ DENIED!!!

 

But wait!!! Do they accept CASH?

 

https://www.youtube.com/watch?v=vd4zwINEcLY

 

& since, as you claim, you're...

 

"ready to compare my portfolio performance of cash in hand, bullion in hand, modest single famiy home rentals, and cryptocurrencies anytime anywhere"

 

The by all means, LET'S DO SO...

 

Sincerely ~

Joe Black

https://www.youtube.com/watch?v=Z18f51GtZzA

Greenspazm's picture

@Michigander

So Buttcoin isn't

"an innovative payment network and a new kind of money"

with

"Fast peer-to-peer transactions/ Worldwide payments/ Low processing fees"

and

"Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system"

after all?

Pretty good  conjob.

"Bitcoin.org needs your support!"

Falling Down's picture

They won't.

Mt friend who no longer sells Phords said the sales manager at his store hated when people paid cash.

BeanusCountus's picture

Buy used. Especially non-dealer. You can buy anything you want. America lives on.

Pernicious Gold Phallusy's picture

That's because they normally make more on the loan than the sale.

Joiningupthedots's picture

"Maybe its time to empty your drool bucket."

That was a genuine coffee out of the nose moment......brilliant. LMAO!

Greenspazm's picture

"Enter cryptocurrencies like bitcoin. Bitcoin arrives seemingly from nowhere, conjured by a magical crypto-wizard by the name of Satoshi Nakamoto, a label supposed to represent a person or group of people that no one has ever seen or heard from. We are simply meant to have faith that they don't work for the NSA or a similar entity. But who cares who they are, right!? It doesn't matter because bitcoin is such a work of art it is nearly infallible — the perfect countermeasure to a monetary world lorded over by the dollar and the Federal Reserve.

Numerous libertarians and anarchists collectively orgasm. They join what appears to be a grassroots effort to bring bitcoin and blockchain technology into the mainstream. They stop trading as many of their fed notes for gold and silver as before and buy digital nothings instead. To question the validity of the idea elicits dramatic displays of indignance from the bitcoin cult bordering on zealotry. The "smartest guys in the room" know bitcoin is the solution to everything — don't you want to be one of those guys, too? Bitcoin is the way, the truth, the life..."

(Brandon Smith)

tmosley's picture

>Furniture is the only think Overstock will sell you for bitcoin

Most children grow out of playing pretend by 7 or 8 years old.

natxlaw's picture

Sounds like they are already here.

War and Fleece's picture

Was bound to happen.

Bubble in 3....2...

stormsailor's picture

so if you have a credit score of 846 you don't get the discount?

Dead Indiana Sky's picture

That's what I thought also.  So essentially, the less you have, the less is expected of you.  A familiar theme.

DeaconPews's picture

Kind of like that where I work. Putzes get to be putzes and the people who bust their asses always bust their asses.

Pure Evil's picture

Yeah, but the putzes still get performance bonuses even though someone else did the work.

Anyway, that's what I've seen at a few places I'ved worked.

Cognitive Dissonance's picture

You're lucky to get a 'Hello'.

You already repay your loans on time at super low interest rate. They don't make no stinking money off of you.

Now if you were willing to take a truck loan at a penalty rate of 26.66%, they might actually talk to you.

shovelhead's picture

Lol.

I had a credit card cancel my account because I "didn't maintain a sufficient balance".

$0 balance was unacceptable.

I couldn't resist calling them to go through the manager hoops pretending I cared and then laughing at their lying contortions trying to avoid saying the obvious.

"Fuck you deadbeat. We ain't making money off you."

 

not dead yet's picture

I've paid off my credit cards in full every month for the last 35 years and have never been threatened with cancellations. You must have either store cards or crap ones. What a lot of people don't know is that the non store card outifts make money even if you don't pay interest as they collect a fee from the seller for every charge. One article I read, if true, claimed over 50% of cardholders paid their bill in full every month. The card company has to borrow money to pay the charges not paid for and issues bonds to get it. I have cards that require you to make at least one charge per year or they will close the account.

Uncertain T's picture

Paid off entire balance every month for over 10 years on same credit card.  They recently lowered my credit limit by 60% saying I didn't need it.... Well I didn't but so what?

Moving and Grooving's picture

But I'll bet that you get 'You're Pre-Approved!' mail constantly. The card companies are nefarious.

Ex-Oligarch's picture

It may be worse than that.  I don't have a WSJ subscription to check, but the ZH article suggests that in addition to the $1,500 rebate for buyers with scores below 620, there is a price increase for those with scores above 620.  At least that is how I read this:

"April 2017 Pricing on all new vehicles may include up to $1500 in finance rebates .... you must be below 620 to qualify. If you are over a 620 you must add up to $1500 to the price."

This whole strategy is so Alice In Wonderland backasswards that it I wouldn't hazard a guess as to whether the pricing strategy actually contemplates a $3,000 swing dependent on credit score, or if it is just a poorly written summary.   

the artist's picture

I caught that too. My $ is on the $3k swing. Fucking lawyers would never let that slide. 

Stan Smith's picture

+1 and gazillions more.   To the Nth degree.

I've commented on previous threads that the difference between now and 10+ years ago is that anyone can get any vehicle.  

While the wife and I recently purchased a new family truckster with 800+ credit scores, good incomes - verified, and a huge chunk for a down payment...  some one with virtually no verifiable income, 500 credit scores, and no down payment; or even worse negative equity from the trade in; can get the exact same vehicle my wife and I just bought.

Sure, my terms and rates are infinitely better on the deal,  but the fact that any moron with a pulse can get a car loan speaks to how broken this all is.   Between this and all the off-lease cars coming back on the market in 2017-2020 is there anyone who thinks the auto market is going to be doing well?

Golden Showers's picture

All I see is "sign up for a loan and get a free truck" offer.

Did you all catch Amy Crews Cutts? Crews Cuts? Amy Crew Cut? What the fuck kind of name is that? Like Amy Bulls Dykes, or Amy Blowups Dolls... Dayum!

Look: if you want me to pay 60k for a new Dodge, make it a Dodge Dually Diesel, throw in a flatbed and a bobcat. Gift wrap it. I'll sign up. Otherwise, throwing dipshits a bone to make thier low credit score life better with a new vehicle doesn't impress. Anyone with a new car is a fool. Anyone with shit fuck credit who wants to get a new vehicle is a moron. But never underestimate the depth of stupidity.

Obviously, if you are "good" you pay a premium over value for the privelege of getting a loan. Because your ass is already over a barrel. How could you ever think of damaging your precious credit score?

My car has 1490 cc 60 horse power inline 4 and I drive that piece of shit so hard. The number one, Numero UNO, factor of life is reaction time. You could have a fucking new piece of shit ford or a better dodge, but if you sit there at a green light while you check your credit score on your phone, sucking two dicks at the same time on your way to Walmart in your new Ford Platinum edition F1 Shitty air conditioned hunk of junk repo bait, you'll see me flashing past you getting 32 mpg giving you the finger.

My car is 31 years old and I don't give a fuck about it. Funky ass car loans ain't for me. I know this one poor bastard paying $450 a month on a 2012 ford focus. He knocked his bitch up and she left his fat ass and now he pays 2 rents and child support. How the fuck are stupid people supposed to get to work every day? This dumb shit humors me.

Just sign for a loan and you get a free vehicle. Please!!!

True Blue's picture

My read was that if you have a score over 620 you are actually subsidizing the lower price for those who don't. Keep being responsible and working hard -the lazy and shiftless depend on you.

The only question is how will Wells Fargo bundle these loans into financial instruments in order to muppet fuck some third party into taking the risk pool off their hands and how will Standard and Poor lie in order to justify giving those products a AAA+ rating.

Dogman57's picture

My credit score is only 834. I am SOL.

political_proxy's picture

No worries, the Gov (the tax payers)will save them.

Anteater's picture

I still receive mail for a guy who is in prison and has

two court summons that were delivered by a server.

He has credit card apps and auto loan junk mail up

the ying yang. He could go buy a new F350 with his 

multiple credit cards, then skip the state tomorrow,

once he gets out of the slammer. Used cars are in

free-fall. Prices are 1990s now. Then you look at a

fully-loaded F150 and it's nearly $50,000! When I

was a kid, you could buy a new house for $25,000,

and new car for $2,500. "But we have no inflation."

When you're retired on your fixed income $1,200 a

month and your $100,000 in the bank in 20 years,

a new car will cost $100,000 to drive you to the

hospital, where emergency surgery will cost you

$1,000,000, but who cares, it's Goldman's money!!

Pernicious Gold Phallusy's picture

I'm sure you could sell that mail to somebody who knows what to do with it.