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

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."



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.


not dead yet turnoffthewater Sun, 08/27/2017 - 06:00 Permalink

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.

In reply to by turnoffthewater

The Cooler King (not verified) junction Sat, 08/26/2017 - 15:51 Permalink

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 (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...

In reply to by junction

Michigander The Cooler King (not verified) Sat, 08/26/2017 - 16:04 Permalink

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.

In reply to by The Cooler King (not verified)

The Cooler King (not verified) Michigander Sat, 08/26/2017 - 17:06 Permalink

@MichigananderNO STAIRWAY!!! ~~~ DENIED!!! But wait!!! Do they accept CASH? & 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

In reply to by Michigander

Greenspazm The Cooler King (not verified) Sat, 08/26/2017 - 17:06 Permalink

"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)

In reply to by The Cooler King (not verified)

not dead yet shovelhead Sun, 08/27/2017 - 06:17 Permalink

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.

In reply to by shovelhead

Ex-Oligarch stormsailor Sat, 08/26/2017 - 16:07 Permalink

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.   

In reply to by stormsailor

Stan Smith stormsailor Sat, 08/26/2017 - 16:10 Permalink

+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?

In reply to by stormsailor

Golden Showers Stan Smith Sat, 08/26/2017 - 19:45 Permalink

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!!!

In reply to by Stan Smith

True Blue stormsailor Sat, 08/26/2017 - 16:25 Permalink

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.

In reply to by stormsailor

Anteater political_proxy (not verified) Sat, 08/26/2017 - 15:39 Permalink

I still receive mail for a guy who is in prison and hastwo court summons that were delivered by a server.He has credit card apps and auto loan junk mail upthe 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 infree-fall. Prices are 1990s now. Then you look at afully-loaded F150 and it's nearly $50,000! When Iwas 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 amonth and your $100,000 in the bank in 20 years,a new car will cost $100,000 to drive you to thehospital, where emergency surgery will cost you$1,000,000, but who cares, it's Goldman's money!!

In reply to by political_proxy (not verified)