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Ford's credit unit tightens the screws

The new chief
Name: Greg Smith

Title: President and COO, Ford Motor
Credit Co.

Age: 50

Ford Motor Co. career highlights:

  • 1995: Executive vice president, international financing operations

  • 1994: Vice president, new business development, Ford Credit Diversified Operations

  • 1993: Executive director, strategic planning and external affairs, Ford Financial Services Group

  • 1990: Director of strategy and advanced planning, car product development

  • 1989: Dallas district operations manager, Lincoln Mercury Division; regional marketing manager, Ford Division Central Region

  • 1987: Manager, car marketing plans, Ford Division

  • 1985: Truck and powertrain marketing plans manager, Ford Division

  • 1973: Truck operations engineer

  • Ford Motor Credit Co. is tightening credit standards in light of the recession, job losses and growing repossessions and bankruptcies. And Ford Motor Co. CFO Martin Inglis warns that its credit arm may have to crack down even more.

    That will be the top challenge for Greg Smith, 50, who took over the helm of Ford Credit from Don Winkler, who resigned on Dec. 14.

    Ford Credit already has been taking steps to tighten standards for the past 12 to 18 months, according to A.J. Wagner, Ford Credit executive vice president. He wouldn’t disclose details, but he said the captive has:

  • Raised rates on its highest-risk loans.

  • Reduced the number of long-term loans over 60 months.

  • Raised its loan-to-value standards in some cases.

    Tighter standards are bad news for dealers because they depend heavily on finance and insurance income.

    Feeling the effects

    Ford dealer Dan Ramirez said he is feeling the effects, although dealers in other regions said they have not noticed any dramatic tightening.

    “They’re tightening, no doubt about it; I’ve really noticed it since Sept. 11,” said Ramirez, who owns Ramirez Ford in Rio Grande City, Texas. He said Ford Credit still will negotiate to get customers qualified, for example, requiring a bigger down payment.

    Red ink

    Inglis said Dec. 5 that losses at the captive finance company will be higher than expected. That forced Ford Credit to increase its reserves for future losses — which already were at $1.9 billion at the end of the third quarter, up 73.6 percent from a year earlier.

    Inglis said that to conserve cash, Ford Credit also will not pay the parent company a dividend at the end of the year.

    Ford Credit’s poor performance was bad news for Winkler. Fairly or unfairly, Winkler is taking the blame for credit decisions that, according to Ford Credit, look too risky in hindsight.

    Smith, Ford Credit COO, keeps his present titles, and the company will shelve the titles of Ford Credit chairman and CEO.

    Ford Credit’s tightening follows even more drastic cutbacks by most of the big banks in auto lending.

    General Motors Acceptance Corp. said in a written statement on Dec. 5 that it is not changing its policies, but GMAC has a more conservative approach than Ford.

    For instance, GMAC largely stayed out of the short-term lease boom Ford Credit sparked in the mid-1990s. Short-term leases generated huge losses for Ford Credit and other lenders in the late 1990s because of lower-than-expected residual values of off-lease vehicles.

    Ramirez said he has talked with other Ford dealers in some markets who estimate that as many as 25 percent of their customers could be “automatic turndowns” under Ford’s tighter guidelines.

    But Ralph Seekins, chairman of the Ford Division National Dealer Council, thinks otherwise. “I don’t think there’s going to be this knee-jerk overtightening to where it’s going to result in a loss of business — not in the loss of good business, anyway,” he said. Seekins owns Seekins Ford-Lincoln-Mercury in Fairbanks, Alaska.

    Wagner estimated that 95 percent of the tightening at Ford Credit has been implemented.

    He said Ford Credit rarely turns down an application without at least some attempt to get the deal done — perhaps asking for a bigger down payment or a better-qualified co-signer.

    “I don’t think dealers should anticipate anything dramatic,” he said. “Having said that, if the recession turns into a depression at some time in the future, that’s different."

  • You can reach Jim Henry at

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