The case for casting a wider net with credit apps

Jim Henry is a special correspondent for Automotive News.

Auto lenders complain they hate it when dealership F&I managers send them credit applications outside their preferred range of credit scores.

Yet Greg Goebel, CEO of DealerStrong, a dealership training and consulting firm, advised finance managers to do just that at last week’s Industry Summit in Las Vegas. According to an analysis Goebel did with a database of some 200,000 transactions, it’s actually a good idea to push the envelope sometimes.

Some of the biggest lenders in some of the riskiest subprime credit tiers were not who you’d expect, he said. The biggest “shocker”? Ford Motor Credit Co. was the leading lender in a sample of new-vehicle loans to customers with credit scores ranging from 475 to 300, a range that analysts consider the deep end of deep subprime.

Ford Credit doesn’t have a reputation for specializing in subprime. But the company finances roughly three out of four customers with credit scores below 620 who finance a Ford vehicle. It’s just that there aren’t many of them -- only 5 to 6 percent of Ford Credit’s total loans, according to the company. Goebel’s analysis seems to bear that out and its data show Ford Credit can reach well below 620, too.

Goebel found another surprise: Credit unions, which aren’t known for subprime loans, either, accounted for the biggest share of used-vehicle loans to customers with “no score,” that is, customers who don’t have enough credit history to have a credit score.

Goebel said it often pays for an F&I manager to send an application, even if the customer’s credit score doesn’t match a lender’s stated preferences. He didn’t advocate blasting out applications willy-nilly. But he said the right deal structure -- for instance a higher down payment and a lower amount financed relative to the value of the vehicle -- can turn a deal into a category-buster.

So go ahead, he advised the finance managers: “Push the button. Structure a good deal. Make it a low LTV [loan-to-value ratio]. Push the button and give them a chance to say no.”

After all, one lender just might say yes, without complaint.

You can reach Jim Henry at autonews@crain.com

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