Ford Motor Credit’s lease volume decreased 3.4% year over year, which reflects a continued strategy to lessen its lease share amidst low auction values for end-of-term units, the company said in its 4Q 2016 results.
Lease originations fell to 393,000 compared to 407,000 the year prior, which kept its lease share of retail sales flat at 22% year over year, the report stated. Meanwhile, the industry share of lease to overall retail grew to 30% in 2016 up two basis points over 2015.
“We actually have had a strategy to take down our lease penetration at Ford Credit,” said Bob Shanks, chief financial officer for Ford Motor Company, on the earnings call. “This is in response to higher incentives, which is making leasing very expensive as well as lower auction values and recognition of all the units coming back to markets.”
Ford’s off-lease returns grew 36.6% to 246,000 units up from 180,000 the year prior. That was paired with a 3.5% drop in 24-month off-lease auction values and a 4.2% drop in 36-month vehicles at auction.
Due to a “shift toward longer term leasing made in 2013,” those faster depreciating 36-month off-lease vehicles represented a greater share of the company’s total off-lease volume in 2016 at 60% compared to 41% the year prior, the report stated.
“Over the last several years, we have seen industry lease share grow with rising industry volumes,” the company said in its earning report. “As a result, the supply of off-lease vehicles is higher and will continue to grow for the next several years. We expect the increased supply of used vehicles to continue to put downward pressure on auction values.”
The captive is currently looking into digital solutions to manage lease returns, in addition to traditional auctions, Dale Jones, executive vice president of the Americas at Ford Credit, said Thursday during the American Financial Services Association’s 2017 Vehicle Finance Conference.
“I think, if you take the number of off expected lease termination in 2017 – in the neighborhood of 300 million — that’s a lot more vehicles to push through the same granular channel of physical auctions,” he said. “I know that we are [looking into online options], especially if the supply of off lease grows — you’re going to need both.
Across Ford Credit’s full retail portfolio, delinquencies 60 days or longer rose to 0.16% from 0.13% the year prior. That was matched by a 57.2% increase in charge offs to $324 million up from $206 million in 2015.
Repossessions also increased 17.8% to 33,000 units up from 28,000 compared to last year.
Loan originations and total outstandings were not disclosed in the report.
