Ford Credit Europe is still feeling the effects of changes it made in the past few years to focus more on Ford brands. FCE Bank, as the Ford Motor Credit unit is called, reported lower profits for the first half of the year, though losses have improved.
Ford Motor Co. sold Jaguar and Land Rover to Tata Motors in 2008, and reduced its share in Mazda to 3% from 33%. In 2010, Ford sold Volvo to Geely Automotive.
As such, FCE’s pre- tax profits for the first half of 2011 were $169 million, down $52 million ― 23.5% ― from the same period last year. “This was mainly the result of FCE holding high levels of equity and the impact of lower average portfolio size,” said Peter Jepson, FCE’s executive director of finance and strategy, in a teleconference this week.
In addition to reducing liquidity costs, FCE repurchased early some debt set to mature next year. “That had the effect of pulling ahead related costs from the second to the first half of the year,” Jepson said. “FCE is well on track in delivering its 2011 funding plan.”
Two other areas to note within FCE’s earnings report revolve around the retail-to-wholesale split and credit losses.
In the most recent period, wholesale loans accounted for 48% of FCE’s portfolio. That figure is up from 42% in the first half of 2011 and from 39% in the first half of 2009. The ratio of retail loans will continue to shrink as the non-Ford loans run off, a scenario that happened much quicker on the wholesale side.
Meanwhile, FCE’s credit losses improved in all of its markets, the result of a number of initiatives. The lender increased monitoring, implemented more restrictive underwriting for some markets, increased prioritizations of resources to collection activities, and beefed up risk management and account servicing.
The earnings report emphasizes the importance of the German and U.K. markets, and points out the lower financing volume in the Spanish market. Although FCE’s loss ratio has improved in Spain, worsening economic conditions have kept losses high relative to other markets. The ratio, however, is exaggerated because the size of the FCE portfolio is shrinking in that market, Jepson noted. See the chart below:
