Reeling from big credit losses from the high-growth years under its previous leadership, Ford Credit is focusing on the basics of moving the iron.
"We are here to help Ford Motor Co. sell vehicles," said Greg Smith, Ford Motor Credit Co.'s new president and COO. "You will not see aggressive growth from us." Ford retailers welcome the emphasis that Smith and his managers are placing on dealer issues, said Michael Kennedy, vice chairman of the Ford Division National Dealer Council and owner of John Kennedy Ford in Feasterville, Pa.
"They are definitely in our corner," Kennedy said. "That is what I thought Ford Credit was supposed to be about in the first place. Ford Credit should be the captive finance arm for dealerships."
Smith, 50, has begun an initiative to create high vehicle loyalty among retail loan customers that Ford has enjoyed with its lease customers.
Smith says leasing penetration will rise from the artificially low percentage last fall when customers flocked to subsidized 0 percent loans. But leasing won't rise to the peak it reached in 2000.
While Smith emphasizes cultivating existing customers, his predecessor, Ford Credit Chairman Don Winkler, had a mandate to pursue new customers. The result was rapid growth under Winkler and his predecessor, Philippe Paillart. When the economy softened last year, Ford Credit doubled its credit-loss reserves to $3.4 billion in 2001.
Winkler resigned in December, after Ford Motor Co. Chairman Bill Ford replaced Jacques Nasser as CEO in October. Smith's low-key style contrasts with Winkler's flamboyant manner. Smith, who joined Ford in 1993, is the former president of Ford Credit North America.
In 2001, Ford Credit earnings fell 45.4 percent to $839 million.
On Wednesday, April 17, Ford Credit reported net operating income of $242 million in the first quarter of 2002, compared with $406 million in the period a year ago.
Martin Inglis, Ford CFO, said the company expects better performance from its financial arm. In 2001, Ford Motor lost $5.45 billion. It also had to inject Ford Credit with $700 million in capital.
"In no way do we see the first quarter as a benchmark," Inglis said. "Over time as we focus on return on equity, we would expect those returns to improve."
Ford Credit's return on equity stood at 7.5 percent in the first quarter of 2002, compared with 13.3 percent in the period a year ago.
Under Smith, Ford Credit is pulling in its horns. It wants to reduce risk, provide better service to dealers and increase customer loyalty.
"We are going to focus on our knitting and do what we can for Ford and its dealers," Smith said.
On March 6, the company said it will close a subprime subsidiary, Fairlane Credit LLC in Colorado Springs, Colo., by mid-2002. Fairlane's subprime loans and most of its 350 employees will be spread among other Ford Credit subsidiaries.
The company is trying to reduce risky loans, relying on a database of 23 million consumers who have been accepted or rejected by Ford Credit. The company also wants to get better at predicting the residual, or lease-end, value of vehicles returned through its Red Carpet Lease programs.
Smith wants to increase loyalty to Ford brands. Today, 85 percent of Ford Credit's Red Carpet Lease customers lease or buy another Ford Motor Co. product, but only 57 percent of Ford Credit loan customers remain loyal.
"We will ... try to hike that 57 percent to be more like that 85 percent," Smith said.
Smith is taking the lessons learned in leasing and transferring those techniques to Ford Credit's loan portfolio. Ford Division already has made these changes:
Ford Credit also is working to increase loans for 2- or 3-year-old certified used cars, Smith said.