What keeps Bruce Harris, VW Credit's chief risk and strategy officer, up at night?
It's the fear that auto lenders can't trust the credit scores they use to decide who is an acceptable risk at a given interest rate, Harris said. That's especially true in the prime sector, where many big auto lenders rely almost exclusively on credit scores to make automated credit decisions, he said.
“Is a score of 700 really a score of 700? Is 2005 the same as 2010? What keeps me up is the uncertainty,” Harris said this month in a presentation at the Royal Media Group Auto Finance Summit in Las Vegas.
That uncertainty among lenders has had an immediate practical effect on dealerships. The safe move since the recession started has been for auto lenders to raise their cutoff scores for risk-based pricing.
For example, in the first half of 2010, the average credit score on auto loans used to create asset-backed securities was 745, up from an average of 713 for all of 2007, according to Standard & Poor's.