Ford Credit Reports Stronger Credit Quality in 3Q

Ford Motor Credit Co. reported stronger credit performance in the third quarter, with the average Fico originated up five points year over year to 748, according to the company’s earnings last Thursday.

Meanwhile, 60-plus day delinquencies are down year over year by one basis point, and loss-to-receivables (LTR) increased eight basis points to 0.53%. Charge-offs increased 20% to $95 million in the quarter, up from $79 million from the same time a year prior. However, LTR and charge-offs were “still within placement expectations,” according to the earnings presentation.

“Fico scores remained strong, and our origination, servicing, and collections practices continued to be disciplined and consistent,” Robert Shanks, the captive’s chief financial officer, said on the earnings call.

New and used retail lease contract placement volume for the quarter dipped to 290,000 units in the U.S. and 53,000 units in Canada, down year over year from 330,000 and 54,000 units, respectively. Meanwhile, China saw 71,000 new and used retail and leases units, up from 46,000 the same time a year prior.

Meanwhile, stronger than expected auction values are supporting lease residual and credit loss performance, but Ford remains conservative on auction values.

“We are still writing new contracts on an assumption that auction values will be lower,” Shanks said, “but I have to say that we expect them to not be quite as low as what we had thought previously.”

Additionally, Ford Motor Co. is trying to keep its bottom line disciplined as it strategizes to become more aggressive in the autonomous vehicles and mobility sector.

“Our first priority is to restore revenue and attack costs,” James Hackett, Ford’s chief executive, said on the call. Hackett became Ford’s CEO five months ago. His predecessor, Mark Fields, left the OEM in May after he was unable to deliver the high-tech strategy that was desired.

Along with a disciplined bottom line, Ford Credit will play a significant role in advancing a future mobility agenda, Hackett said. Ford Credit it approaching its business as a “fintech,” Hackett said, adding that, “there’s some really good things that we’re going to scale that we’ll be sharing in the future.”

Overall, Ford Credit is “in great shape,” Hackett said. Ford Credit has “the right kind of reserves [and] it’s earning the right kind of margins.”