Though Ford Motor Co. has said it could continue to operate without government backing through 2009, it seems that Ford Credit may not.
Ford Credit lost $1.5 billion last year, compared with earnings of $775 million in 2007. At yearend, it had $21 billion of liquidity available for use, down from $25 billion as of Sept. 30. And the captive will shed 20% of its workforce by midyear.
Ford Credit has renewed efforts to gain approval for an industrial loan charter, a move that would provide it with access to cheaper government funds. Ford Credit initially applied for an ILC charter Feb. 1, 2008, the day after the Federal Deposit Insurance Corp. resumed taking applications after a two-year hiatus. ILC status would enable Ford Credit to issue debt guaranteed by the FDIC and borrow funds at cheaper rates.
I bet the government will finally approve Ford Credit’s ILC application, considering it fast-tracked GMAC’s bank-holding-company charter late last year and has granted Chrysler Financial $1.5 billion of funds. My prediction: The FDIC will greenlight Ford Credit’s ILC by the end of March.
What does this mean as far as FDIC regulation of Ford Credit? Will this mean that Ford Credit will have to have capital equal to 8% to 10% of total assets (risk-based capital rules) PLUS maintain loan loss reserves that pass regulatory muster, and do they have that kind of capital available to them now?
I’m not sure, Gary. I know with GMAC, the company had to come up with a plan that outlines how it will change its operations to conform with the requirements of its new bank-holding-company status. (It’s got certain goals that must be met by designated deadlines.) I’m guessing Ford Credit would have to develop a similar plan. Also, if Ford Credit is redoubling efforts to gain approval as an ILC, I would expect that it has addressed the capital issue.
Incredible. Sadly, I think this is typical for Colorado