Ford Credit loan performance offsets 2Q volume decline

Photographer: Jeff Kowalsky/Bloomberg

Despite a decline in loan origination volume and lease penetration at Ford Motor Credit, Vice President and Chief Executive David McClelland credits an increase in second-quarter revenue to improving portfolio performance.

U.S. loan contract placement volume dropped 26% year over year to 220,00 units, from 299,000. Similarly, lease placement dropped to 81,000 units from 104,000 year over year — a 22% decline. Leases accounted for 20% of Ford Credit’s retail sales in the quarter, down from 23% in the second quarter of 2018. By comparison, industry standard lease penetration is 30%, according to JD Power.

Still, Ford Credit’s revenue inched up to $3.1 billion for the quarter, compared with $3 billion in the prior-year period.

“I look at the originations — the strength of what we’re seeing coming through the door still is still really strong — I don’t see any flickering at all. It’s solidly green,” McClelland said, pointing to several favorable factors that contributed to the captive’s portfolio performance.

For one, the average Fico score hovered around 747, an improvement from 741 in the first quarter.

Additionally, loan terms were favorable to Ford Credit’s portfolio performance, hovering at 65 months, compared with the 69-month industry average, McLelland added. The percent of 84-month loans in the portfolio declined to 3%, from 5% in the first quarter.

Though auction values of off-lease vehicles performed slightly better than expected in the second quarter, McClelland said the company expects that full-year 2019 auction values will be down “about 3%, on average year over year.”

Meanwhile, net receivables on a year-over-year basis remained flat at $143 billion, and net charge-offs dropped 1 basis point, to 0.39%. Further, 60 day-plus delinquencies fell 1 basis point to 0.11%.

Overall, Ford Credit earned $831 million before taxes, a 29% year-over-year increase. Last quarter, Ford Credit earned $801 before taxes, its best results since 2010.

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