Off the Mark at Ford Credit

Ford Credit Co. took it on the chin last year, suffering through arguably its worst year since Henry Ford founded the captive to finance Model Ts for the masses. The first quarter might not be much better.

As financial services companies begin reporting earnings this week, I found a data point in Ford Credit’s 4Q08 earnings presentation that portends more fiscal pain at the nation’s largest automotive financing company.

Last year, Ford Credit’s $1.54 billion net loss can be, in part, attributed to its overzealous forecast for car sales. Ford Credit over-projected the SAAR for US car sales in 2008 by nearly 16%, and that led to hefty losses. (Ford Credit also overestimated Europe car sales.)

So how is Ford Credit doing on its 2009 SAAR projection? Not good. Ford Credit, in its 4Q earnings presentation to fixed-income investors, said it was modeling for a 2009 SAAR of 11.5 to 12.5 million units in the US. Last month, the SAAR was 8.8 million; the average SAAR through the first three months of 2009 was 9.17 million units. That does not bode well for Ford Credit. If the fourth quarter of 2008 is any indication, Ford Credit’s 1Q09 numbers will likely bleed red.

I am not suggesting that 9.17 million is the final SAAR for 2009 — who knows what the final number will be? But when thinking about the first quarter earnings at Ford Credit, a 20% over-estimation of car sales (at the least) is bound to produce sanguine results for the captive.