Advantage, Ford: Mulally likes owning Ford Credit

Ford CEO Alan Mulally: Divesting noncore brands has freed capacity for Ford Credit to focus on the Ford, Lincoln and Mercury businesses. Photo credit: GLENN TRIEST
DETROIT — As its crosstown rivals deal with balky captive finance companies that they no longer control, Ford Motor Co. is pitching its full ownership of Ford Motor Credit Co. as a strategic advantage.

Ford Credit has "been through a lot with the world slowing down, and they have restructured aggressively to focus especially on the Ford brand," Ford CEO Alan Mulally said in an interview last week. "And it's been helped by us divesting the noncore brands."

That has freed capacity for Ford Credit to focus on the Ford, Lincoln and Mercury businesses, especially in the United States, Mulally said. But he acknowledged that Ford Credit has been challenged as borrowing costs have risen.

"With the situation being what it is, it's hard, but the dealers and the customers say they're doing a great job during the hardest of times," Mulally said.

Ford Motor Co.'s ownership of Ford Credit enables faster marketing initiatives and more leeway in setting lending criteria, company officials say. On several occasions, Jim Farley, Ford's group vice president for marketing and communications, has touted Ford Credit's lending ability, including leasing.

On Oct. 15, Ford sent a note to dealers assuring them that Ford Credit was a "strong and supportive finance source." The letter said that while other automotive lending companies have reduced their exposure by "tightening their purchase policies," Ford Credit was "here for you."

Still captive?
Who owns Detroit 3 captive finance companies
Ford Motor Credit: Ford Motor Co. owns 100%.
GMAC Financial Services: Cerberus Capital Management owns 51%, GM 49%.
Chrysler Financial: It is owned by Chrysler Holding, of which Cerberus owns 80.1% and Daimler 19.9%.

'We have money'

"We have not changed our credit criteria," says Meredith Libby, a spokeswoman for Ford Credit. "We have money to lend."

Likewise, Ford Credit is working actively with the automaker to keep dealer business, says George Pipas, Ford's sales analyst. Ford announced a half-point increase in its floorplan rates, which took effect Saturday, Nov. 1, but offers dealers an "earn back" option. That means they won't pay the half-point if they sell a certain number of vehicles.

"We're not encouraging any of our dealers and our customers to walk to other finance companies," Pipas says. "If they want financing, Ford has it."

But another source said Ford Credit, like its rivals, faces tight access to credit.

"There's an advantage to full ownership, but not a big advantage because the issue is that nobody will loan us money," says a source close to Ford who asked not to be identified.

GM owns 49 percent of its finance company, GMAC Financial Services. The Wall Street firm Cerberus Capital Management LP owns the remaining 51 percent. Chrysler Financial also is controlled by Cerberus.

Standard & Poor's has assigned subinvestment-grade ratings to all three finance arms. Ford Credit and GMAC are rated B- with a credit watch of negative. Chrysler Financial has an S&P rating of CCC+ with a negative outlook — lower than the GMAC and Ford ratings.

An edge for Ford

"Everyone's facing a difficult environment with the funding markets the way they are," says Gregg Lemos Stein, a credit analyst at Standard & Poor's in New York. "There are some factors that appear to be better for Ford than for the others. Some of the losses on recent securitizations haven't been as severe for Ford as the other two."

Peter Morici, a business professor at the University of Maryland, says having a wholly owned captive "is useful for moving cars out if you don't abuse it." 

Amy Wilson contributed to this report

You can reach Jamie LaReau at jlareau@crain.com

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