Ford Motor Credit Co. recorded its lowest ever repossession rate — 0.98% — in the second quarter, on the heels of a 4.4% decline in earnings.
“This is Ford Credit’s lowest repossession rate on record,” spokeswoman Margaret Mellott told Auto Finance News. “Ford Credit’s proprietary scoring models consider many factors that help us make good credit decisions while buying business across the credit spectrum.”
Put simply, more customers keeping up with their loans translates into fewer Ford repossessions entering the auction houses. Ford Credit (credit.ford.com) posted its previous record-low repo rate — 1.06% — in the second quarter of 2013.
Yet the good news at Ford Credit was tempered by a $5 million loss that stemmed from strong hail storms that wreaked havoc throughout the Midwest in the spring. The Ford Motor Co. captive earned $434 million in income from continuing operations in the second quarter, down from $454 million in the prior-year period.
“Ford Credit’s lower pretax profit this quarter compared to a year ago is more than explained by a higher level of insurance losses from storm damage to dealer inventory in the quarter,” Michael Zanevsky, Ford Credit’s chief financial officer, said during Ford’s fixed-income earnings call.
Second-quarter insurance losses are common for Ford Credit, because inclement weather is more prominent this time of year, according to a company spokeswoman. For instance, pre-tax results in the second quarter of 2013 declined $53 million compared with the first quarter, explained also by seasonal insurance losses, according to the company.
Earnings at rival General Motors Financial Co., on the other hand, were unaffected by insurance claims last quarter. GMF, whose parent company has been plagued by record-level recalls through June, reported a year-over-year increase in income and revenue. GMF revenue and income saw an even greater percentage of increase in Q2 2013 than in same
quarter in 2012.
At Ford Credit, total finance receivables for North America were $66.1 billion at midyear, a result of consistency within the company’s originations practices, Zanevsky said.
“We’re getting three out of four customers who finance a Ford vehicle, who have a Fico score less than 620, and that’s been pretty stable,” he said. “So, as we look at it, we’re getting our share of risk for the people that are walking through the door. And it’s our origination servicing practices that are delivering these types of levels. It’s not our loss. We were down at 8 basis points a couple of years ago. But obviously these levels are well below our long-term average, and customers are just paying.”
Subprime auto lending is on the rise, Zanevsky said, but if it is a bubble that could soon pop, as some recent conversations suggest, he isn’t worried about Ford Credit.
During the July 24 conference call. Zanevsky said that Ford Credit is still getting mostly subprime borrowers. “Is it a worry for the industry? Again, if we’re doing three out of four, we’re kind of managing those customers as best we think we can, and we’re going to work with them. All we can comment on is our own performance, and I think our risk appetite is the right risk appetite. And you can obviously see from the results that our delinquencies and repos are performing extraordinarily well. Is there a risk, with interest rates popping up? Absolutely. But certainly I don’t think so, and to a much lesser extent, to somebody like Ford Credit.”