Ford Credit, DriveTime prepare for downturn despite healthy consumer credit

© Can Stock Photo / hin255

LAS VEGAS — Although much of the talk at SFVegas earlier this week was positive, lenders said in a panel discussion that they are proactively preparing for a potential downturn.

“At Ford Credit, we’ve been preparing for the next downturn since the last downturn,” said Ryan Hershberger, director of global funding and capital markets for Ford Motor Co., during a panel discussion. He is responsible for leading the global funding programs for both the OEM and the captive.

Ford Credit, which boasts a $74.5 billion auto portfolio, according to Big Wheels Auto Finance Data, will utilize a two-pronged approach that addresses underwriting and funding.

“Not that we’ve changed our underwriting standards, but we have a playbook in place that, when the downturn happens, we will take some actions, like the level of servicing we have, and follow-up frequency, that will increase,” Hershberger said. For example, he said, between 40% and 50% of the captive’s approvals are electronically decisioned, and Ford Credit would do fewer electronic approvals if the economy were to turn.

“A downturn affects not only originations but access to capital markets and spreads, so we have been very diligent to put lots of funding tools in place to get ready for that downturn,” he added.

Those tools span various areas of capital markets but, in securitizations specifically, Ford Credit introduced its five-year, revolving auto ABS platform “so we’re not in the market every month with a securitization transaction on the loan retail side,” Hershberger said. The public lease platform, which Ford Credit did not have in place during the last recession, will also give the lender “a lot more leverage for the next downturn to manage funding markets and capital markets,” he noted.

Meanwhile, subprime lender DriveTime is focused on portfolio performance monitoring and recession modeling, which includes analyzing historical data through the last recession, “understanding what happened when, and ensuring we have the right frameworks in place now to have that type of modeling comfort you want to have,” said Mary Leigh Phillips, DriveTime’s chief financial officer.

Additionally, the Tempe, Ariz.-based lender is investing and leveraging alternative data and other forms of account data and “spending time to make sure [the company] is comfortable with the revolving warehouse facilities,” Phillips said.

Still, even with the preparations, it seems overall consumer credit is healthy, said Ines Beato, DBRS Morningstar’s senior vice president of structured finance, U.S. ABS.

“We’re seeing [2019] to be very stable compared to 2018, so overall, whether it’s an auto loan or a consumer loan or even mortgage, wages are increasing, unemployment is low,” Beato said. “Even though consumers are taking on more debt, their debt to their income seems to be very healthy.”

“For the most part, you’re seeing everybody’s been fairly stable across credit cards, autos and mortgages,” Moody’s Analytics Director Nicole Lawrence agreed. “You’ll probably look to credit cards first to see when they’ll have a little bit of falter, whether that carries over into the auto market as well.”

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