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

[Saving For a Space Ship]

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

 http://www.zerohedge.com/news/2017-08-25/ford-credit-abandon-traditional-credit-scores-sales-stall-and-subprime-delinquencies

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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....

 

Edited August 27, 2017 by Saving For a Space Ship

[Calcutta]

It's always annoyed me that I was fairly prudent pre-2007, I didn't go nuts on credit cards and loans, IVAs, HP and all the other crap everyone else milked dry and then got written off. I thought I'd missed that boat, then along come Ford and offer me a massive free pick-up truck. ****** yeah.

[anonguest]

Of course nothing so irresponsible like that could happen here on our side of the pond..... 

[Riedquat]

25 minutes ago, Calcutta said:

It's always annoyed me that I was fairly prudent pre-2007, I didn't go nuts on credit cards and loans, IVAs, HP and all the other crap everyone else milked dry and then got written off. I thought I'd missed that boat, then along come Ford and offer me a massive free pick-up truck. ****** yeah.

Similar here. I was going to be going abroad for a bit so foreign cash withdrawals would be regular, but got refused a card by someone who offered free foreign withdrawals (think it was Nationwide IIRC) because I had no credit history, due to being prudent enough to not having needed any credit. Eventually I got a credit card for the better backup when buying online, and haven't ever paid a penny of interest on it.

[Calcutta]

30 minutes ago, Riedquat said:

Similar here. I was going to be going abroad for a bit so foreign cash withdrawals would be regular, but got refused a card by someone who offered free foreign withdrawals (think it was Nationwide IIRC) because I had no credit history, due to being prudent enough to not having needed any credit. Eventually I got a credit card for the better backup when buying online, and haven't ever paid a penny of interest on it.

I had a Nationwide account purely for traveling and free withdrawals, the rate was pretty good as well. There's still £4 in that account, I leave it in there so that when there's a run on NW I'm in the queue, ready with my speech for the local news.

[Errol]

Hope they get destroyed when the crisis hits. This sort of insanity deserves no mercy.

[Mapatasy]

56 minutes ago, Errol said:

Hope they get destroyed when the crisis hits. This sort of insanity deserves no mercy.

Agreed.

Unfortunately, due to financialization and the death of Capitalism there is no risk for this sort of criminality. We no longer have people who serve 'us' in position of authority... the only ones that will be shown no mercy will be the tax payer.

[nome]

I've got an ex who has TWICE built up numerous unsecured debts to the tune of almost £40k each time... and each time she's just defaulted on the repayments, put up with a bit of hassle and empty threats from the creditors before reaching  informal arrangements with them all to only pay back around 30% of the original outstanding debt as full and final settlement.

[spyguy]

Why dont they go the full hog and let you buy a Ford with belly button fluff and pubes?

[anonguest]

59 minutes ago, nome said:

I've got an ex who has TWICE built up numerous unsecured debts to the tune of almost £40k each time... and each time she's just defaulted on the repayments, put up with a bit of hassle and empty threats from the creditors before reaching  informal arrangements with them all to only pay back around 30% of the original outstanding debt as full and final settlement.

I have never understood the point of that. Once things get to that stage it makes no difference if you pay back 99% or nothing at all - your credit record will be shot to pieces for 6 years either way. So why pay anything at all? You either default on debt or you don't.  The 'system' doesn't recognise any inbetween.

I've written here before, ages ago, of helping out someone being literally destroyed by debt. The decisione as made to simply walk away' from it all and start their life afresh. No partial repayment or such like. Just turn your back on it and walk away.

Edited August 27, 2017 by anonguest

[Exiled Canadian]

1 minute ago, anonguest said:

I have never understood the point of that. Once things get to that stage it makes no difference if you pay back 99% or nothing at all - your credit record will be shot to pieces for 6 years either way. So why pay anything at all? You either default on debt or you don't.  The 'system' doesn't recognise any inbetween.

You'll still be able to get a new Ford on PCP though - so it's not all bad 

[spyguy]

2 minutes ago, anonguest said:

I have never understood the point of that. Once things get to that stage it makes no difference if you pay back 99% or nothing at all - your credit record will be shot to pieces for 6 years either way. So why pay anything at all? You either default on debt or you don't.  The 'system' doesn't recognise any inbetween.

You might want to get a time machine and explain that point to Provident Finance.

[anonguest]

Just now, Exiled Canadian said:

You'll still be able to get a new Ford on PCP though - so it's not all bad 

But is that dependent on making a partial repayment of the debt to settle it?  How do you know that they still wouldnt get the PCP even if they had opted to not pay anthing back at all?

[Exiled Canadian]

Just now, anonguest said:

But is that dependent on making a partial repayment of the debt to settle it?  How do you know that they still wouldnt get the PCP even if they had opted to not pay anthing back at all?

Sorry comment was tongue in cheek - observing that even with ones credit record "shot to pieces" a new Mondeo on tick was still within reach.

[anonguest]

1 minute ago, spyguy said:

You might want to get a time machine and explain that point to Provident Finance.

I strongly suspect that the issues there, despite what was reported as the reasons, is that there is a chnage in attitudes to debt by the demographic sector that takes out such unsecured high interest debt - in so far as, slowly and gradually, age old attitudes to debt in general are changing (e.g. social stigma, etc) as well as greater rrecognition that, when push comes to shove, there really is bugger all that can be done to the debtor (i.e. nothing that really deprives them of the essentials in life, etc).  In which case why not just walk away from it.

[council dweller]

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According to my old man (born in 1911 and long dead) no one had the money to buy a tank of petrol.

We are truly suffering from 1st world problems as yet....

[oatbake]

Sounds like the return of "subprime" to me! 

[dougless]

Its just another way of 'keeping the plates spinning'.  As I understand it, car manufactures have made more profit from finance than from making cars.  However they still need to keep making the cars and keeping the volume of sales up to recoup the astonishing amount of cash used to develop new models.  Perhaps there is enough separation between the manufacturing side of the business and the finance section to claim 'growth' and 'success' in terms of manufacturing/development etc. despite the potential failure of the finance section.

[doomed]

I know what might increase volume for them, abandon traditional pricing and just give the cars away. 

Just as insane with pretty much the same outcome.

[giggler000]

15 hours ago, Calcutta said:

It's always annoyed me that I was fairly prudent pre-2007, I didn't go nuts on credit cards and loans, IVAs, HP and all the other crap everyone else milked dry and then got written off. I thought I'd missed that boat, then along come Ford and offer me a massive free pick-up truck. ****** yeah.

No one's quoted Henry Ford?

[oatbake]

All that's missing is the securitisation of the loans and we're back in 2007...

[BristolBuyer]

Presumably the managers pushing through this initiative will have collected their bonuses and moved on before the scale of the resulting bad debts becomes apparent. Alternatively, they could recover some of the losses by increasing prices for the deadbeats who want to pay cash for their cars.

[dougless]

6 minutes ago, BristolBuyer said:

Presumably the managers pushing through this initiative will have collected their bonuses and moved on before the scale of the resulting bad debts becomes apparent. Alternatively, they could recover some of the losses by increasing prices for the deadbeats who want to pay cash for their cars.

Good point.

[Saving For a Space Ship]

I'm reminded of a story about Henry Ford ..

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There is a story about the late Henry Ford that illustrates the application of this strategy in the car industry. Ford sent a team of agents to tour the scrap-yards of America in search of discarded Model T Fords.

He told them to find out which components never failed. When they returned they reported failures of just about everything, except the kingpins. They always had years of service left in them when some other part failed irretrievably.

His agents wanted to hear how the boss would improve the quality of all those components that failed. Soon afterwards, Henry Ford announced that in future the kingpins on the Model T would be engineered to a lower specification.

So , the modern equivalent is that car sales have slowed, so Ford sends his staff into the Twilight Zone scrap yard of the auto sub prime debt market.

They return and  Ford says .. ..

Make the 'Traditional Credit Scores' engineered to a lower specification

Edited August 28, 2017 by Saving For a Space Ship

[dougless]

14 minutes ago, Saving For a Space Ship said:

I'm reminded of a story about Henry Ford ..

So , the modern equivalent is that car sales have slowed, so Ford sends his staff into the Twilight Zone scrap yard of the auto sub prime debt market.

They return and  Ford says .. ..

Make the 'Traditional Credit Scores' engineered to a lower specification

A great story and it probably explains Ford's of yesteryear.  This process of looking at the cars they made, including old cars, very carefully, ended up with Ford having some of the best cost accountants in the industry by the 1960's.  This cost consciousness led to a quality gap that took a while to make up however current Fords are very good and probably better than many so called premium German brands.