DETROIT - Four months into his new job as chairman and CEO of Ford Motor Credit, the world's largest auto finance company, Philippe Paillart has been handed a tall order: Increase earnings 10 percent in 1999.
The unit had the same goal for 1998, but after nine months, earnings were up only 5 percent, to $850 million. Net income in 1997 was just over $1 billion, with receivables of $133 billion in loans and leases.
'It is not an impossible goal,' Paillart (pronounced pie-yahr) insisted in a recent interview at Ford Credit headquarters in Dearborn, Mich. He said Ford Credit hit its profit target in the fourth quarter of 1998, so the finance company starts the year with some momentum.
As chief economist for Renault SA, the 47-year-old French native was part of the team that integrated American Motors Corp. into Renault after Renault acquired AMC in 1979. He joined Ford in September 1998, after spending more than a decade in international banking.
Paillart spoke with Staff Reporter Jim Henry on Jan. 13. Edited excerpts follow.
Is 10 percent profit growth a realistic goal?
At first, 10 percent might seem high. But in the last quarter of 1998 earnings grew 10 percent, so there has been some momentum acquired. It is not an impossible goal. When you start focusing, it's amazing what can happen.
How do you go about it?
The big drivers are volume and efficiency. There is not a big change on margins. When I say efficiency, don't get me wrong ... it is not efficiency at any cost. We would never put in danger the quality of service. We are No. 1 in the U.S., and we want to stay that way. Our share will increase as we increase our volume with Ford dealers. There are still Ford dealers who do not do business with us. ... It means we must offer support to our dealers, so that the first name that comes to their mind when they think of finance is Ford Credit. These are not magic things.
What is your share?
We do 45 percent of Ford business. That is, 45 percent of the Ford vehicles sold are financed by Ford Credit.
There traditionally is a high wall between the finance guys on one side and the marketing guys on the other. Is that a thing of the past?
We are a close team with the car company - and not just here (in Dearborn), but also in California with Lincoln Mercury, and also in the dealership. Dealers know that using us increases loyalty to the brand, and loyalty to the dealership. ... We are really part of the automotive company. Do we do that because we love each other? Well, yeah, sure, we love each other - but we do it because it makes sense.
Is the growth in leasing over?
Leasing is still increasing, for a number of reasons. The first is customer demand. Now we see leasing being done by a much wider array of customers, with a much wider array of vehicles. Ten years ago, leasing was mostly luxury cars. For us, it was Lincoln.
How are you doing on residual values?
We feel better now than we used to feel. I think we are out of the problems, or at least out of where it was a problem managing them.
What's your expected off-lease volume for 1999? Isn't that what drives residuals?
You're right, it is a question of supply and demand. We don't usually say (off-lease volumes). But off-lease volume increased last year vs. the previous year.
How about credit losses, and delinquencies?
In 1998, credit losses were down as a percent of the total. The ratio was down, but the total dollars were up, because of bigger volume. That (improvement) is a combination of customer behavior and our operations - things like our credit scoring (and) our collections are working more efficiently.
What do you mean by customer behavior?
People are either paying or not paying. What are people's priorities? The mortgage, the credit card or the grocery store? We can win just by connecting better to the customer. We do things like give payment holidays, for instance. But we are not in the business to lose money and give away cars.
Why did Ford Credit recently decide to switch to monthly statements in 1999? Isn't it cheaper to use a coupon book, where the customer tears out a page and mails it in?
If you go back to the era of the Model T, somebody, I'm not sure who it was, said the ideal car is where you sell a car and never hear from the customer again. They meant well by saying that, meaning there would be no repairs, no complaints - the customer would be happy.
The coupon book is like that. We give you a booklet, and we never hear from you again, except to receive payments. We had no idea of communicating with the customer, or staying in touch, or offering to sell them the roof rack or whatever ...
With the monthly statement, we are now in relationship marketing. We have a unique opportunity to communicate monthly with the customer - with a legitimate reason for doing it, without creating much waves. We are unique in this, in the (Ford Motor) group.
What else can you do with statements?
Eventually, if customers want a statement quarterly, they get it quarterly; weekly, weekly; with (promotional) offers, or no offers; through the Internet or through the mail. The sky is the limit. For teachers, for instance, we already offer a nine-month payment plan so there's no payment in the summer.
Back to your target of 10 percent higher profits. Is overseas business a big part of that?
We have lots of opportunities, and overseas markets are part of the growth overall. But the biggest driver is auto sales. The important thing for us is how to finance as much of that business as we can.
I assume Ford Credit's market share is much higher in the United States than it is overseas. That implies that to achieve an average of 10 percent profit growth worldwide, growth will have to be a lot higher than 10 percent overseas. Right?
Yes. We are much smaller in Europe. There are only two countries (United Kingdom and Germany) where our share is around what it is in North America. ... In North America, growth can't be much less than 10 percent, because it is such a big piece of the total. If it gets to be less than 10 percent in North America, you need an awful lot of overseas business to make it up. So say (we need) 10 percent in North America, and more than that elsewhere.
There are some countries where we have good size, all the tools are in place, and a little effort can give me bigger results - say, Italy and France. In Asia, that would be Thailand and Taiwan.
Would you cut interest rates, to gain volume?
No. We will always be very competitive ... (but) the real thing is the share of cars we finance. The challenge is to match the U.S., pretty quickly.