Ford Motor Credit recorded its highest ever quarterly earnings before taxes of $1.6 billion, contributing to a second-quarter distribution of $4 billion to Ford Motor Co.
Consumer loan and lease outstandings for U.S. and Canada clocked in at $82.3 billion for Q2, a 1.1% decrease year over year.
The captive also posted in recoveries on net charge-offs amounting to 0.07% of its portfolio, or $9 million. By comparison, net charge-offs clocked in at 0.15% in the same reporting period last year. Positive recoveries have been a mark of the second quarter, driven by elevated used-vehicle values and reserve releases. Ally Financial, Capital One, Citizens One Auto Finance, Santander Consumer USA and U.S. Bank all recorded positive recovery rates on net charge-offs this quarter.
Looking closer, repossession rates dropped 11 basis points (bps) YoY to 0.63% and 60-day delinquencies clocked in at 0.08%, a decrease of 7 bps YoY. The captive’s credit loss reserve was reduced to 1.1%, a decrease from 1.17% sequentially and 1.18% YoY.
Meanwhile, chip constraints have contributed to squeezed inventory across the industry, causing Ford Motor to rethink its market strategy when it comes to stocking dealer’s lots, Ford Motor Chief Executive James Farley said on Wednesday’s earnings call. The new strategy will focus more on online vehicle ordering and build-to-order sales, allowing for reduced inventories.
As a result of tight inventory, commercial outstandings dropped to $11.4 billion, a decrease of 43.8% from the same period last year, and 32.1% sequentially.
“We have learned that, yes, operating with fewer vehicles on lots is not only possible, but it’s better for customers, dealers and Ford,” Farley said. “But we’re also driving a significant increase in the number of customers configuring and ordering their vehicles online.”
Earlier this month AutoNation Chief Executive Mike Jackson alluded to a similar prediction for the industry, saying “U.S. automakers won’t go back to bloated output and bulging dealer lots, even after the global semiconductor shortage ends.”
Shares of Ford Motor Co. [NYSE: F] were trading at $14.39 as of 4 p.m. ET today, up 3.82% at market close. Ford Motor has a market capitalization of $57.44 billion.
Auto Finance Summit, the premier industry event, returns October 27-29 in Las Vegas. The Summit continues to bring together the best and brightest in the industry year after year for unparalleled networking and professional education. To learn more about the 2021 event and register, visit www.AutoFinanceSummit.com.