Ford Expects Used-Car Values Will Depreciate Into 2019

Ford Motor Co. expects used-car values will continue to decline and remain low into 2019, and the company has lowered its lease mix to account for that supply, executives said during a “Let’s Chat” forum today.

The company first revised its outlook in March 2016 and further amended it in November when the company realized that overall industry off-lease volume was greater than it had originally predicted, said Marion Harris, Ford Motor Credit’s chief financial officer.

“I have to say our models weren’t fully incorporating the industry effect of leasing,” he said. “I think [the models] were really good at looking at what was happening in the Ford Credit portfolio, but [in November] we really began to understand what was happening in the broader industry. With that, we lowered our outlook for auction values over the course of the remaining life of the portfolio — the next 39 months.”

Ford feels it has an advantage because it started adjusting for the depreciation a year ago this month, executives said on the call, and it’s lease volume is lower than other captive competitors — 22% of retail sales compared to the industry average of 30%, according to Ford’s presentation.  

Bob Shanks, Ford Motor’s executive vice president and chief financial officer, said 60% of its off-lease portfolio residual value will be impacted by lower auction values within the first year, with 30% of the portfolio taking a hit the following year, and 10% in the third year.

“That’s why [this guidance] goes into 2019,” he explained. “The lion’s share of this is taking place or took place in both 2016 and 2017 — when you get into 2018, you actually have lower accumulated supplemental depreciation in that year, versus this year, and as a result Ford Credit will improve. That’s one of the factors that will drive better results in 2018 compared to 2017.”