Ford Motor Credit Co. is putting money behind a renewed emphasis on used-vehicle financing, including some incentives on used-vehicle leasing.
'My position is to generate some energy, some focus,' said Tom O'Connor, who assumed the newly created position of used-vehicle financing product manager Feb. 17.
'Our original charter is supporting new-vehicle sales. But you can't just be in the new-car business, and do business with dealers. We do used-car financing today, but we probably do 40 or 50 percent as many used cars as we do new ... and it's a 1-to-1 (new to used) market now for franchised dealers,' he said in a March 5 phone interview.
'We have the people in the field. We have the skills in those branches. This is an opportunity for us to be a full-service provider,' he said.
O'Connor said his position is distinct from Fairlane Credit LLC in Colorado Springs, Colo., the subprime subsidiary of Ford Credit, even though Fairlane is also aimed primarily at financing used vehicles. Fairlane started making loans in the summer of 1997.
'My focus is primarily the prime area,' said O'Connor.
'One of the things (that includes) is a better job on the used leasing side of the business. We already have a used-vehicle leasing product, we are going to spend some resources to grow that,' he said.
For instance, he said Ford Credit now offers subvented rates to lease used sport-utilities.
The industry has a glut of nearly new sport-utilities coming off lease. That oversupply tends to depress the street value of used sport-utilities, and that increases the likelihood of losses on sport-utilities that go to auction. As the market leader in two-year leasing, Ford Credit's potential for problems is especially high.
Predicting accurate residual values on new vehicles is tough. It is even tougher on used ones. A prudent lender has to assume low, low residuals on used vehicles, even though that increases the monthly payment. That is one of the reasons used-vehicle leasing is nowhere near as popular as new-vehicle leasing. Another is that incentives are common on new-vehicle leases, but not on used.
'Take a new 1999 Explorer, with no miles, no dents, no transmission problems, new oil, no worries about oil changes - that's (determining a residual) science,' O'Connor said.
'But with a used vehicle, there is a big variability in terms of condition and mileage. There's a lot of art to that.'