While banks and credit unions are originating fewer 84-month loan terms, Ford Motor Credit Co. anticipates other lenders in the industry will push forward with extended terms, causing the trend to “plateau,” Marion Harris, the captive’s chief financial officer, said during a live-broadcasted forum Thursday.
He stopped short of saying what Ford’s specific approach to loan terms would be, as new-vehicle prices continue to rise. However, Ford’s 2016 outlook predicts industry-wide new-vehicle auto sales will decline in the coming year and lenders should not be tempted to extend terms past 84 months because “it’s not favorable for the industry.”
“We need to, as an industry, stay focused on [profit] margins,” Harris said. “That way, the volume will fall out, as opposed to chasing price.”
For the past 25 years, volume decreases have been “dealt with” by growing loan terms longer in order to make ever-more-expensive vehicles affordable for consumers, he said. Extending any further wouldn’t be advantageous for the industry, however, he anticipates there will be lenders that continue to extend terms anyway.
“We expect that trend to continue, because customers like to buy a car based on monthly payment and sometimes they’ll go a little bit longer to get into a vehicle,” Harris said. “As long as the credit makes sense and it’s consistent with the overall risk of the portfolio, it’s something the industry will do. … [The industry] will just maintain these levels, so we’ll see a plateau.”