Ford Motor Credit Co. is slowly and carefully preparing to boost its volume of subprime consumer loans. Ford Credit CEO Michael Bannister has avoided ambitious revenue targets, and he has added staff to evaluate risky loans.
Bannister's caution is justified. At a time when the economy looks shaky, Ford should go slow in such a hazardous enterprise. If the economy turns sour, bankruptcies could soar - and losses among lenders will soar, too.
Consider last year's unsettling trends: Repossessions, losses per vehicle and late payments all rose. Lenders tightened their standards and wrote fewer loans, according to a recent survey of 23 large subprime lenders. They are worried about rising interest rates and a possible slowdown in vehicle sales.
To make things worse, many consumers are burdened with trade-ins that aren't worth as much as their remaining car payments. Those "underwater" loans force customers to stretch out their payments over 72 months.
Of course, Bannister knows all that. He also knows that Ford Credit suffered credit losses of $2.36 billion in 2002 - the result of former Ford Credit Chairman Don Winkler's fast-growth strategy. After that, Ford reduced its subprime loans sharply, and it managed to reduce delinquencies, repossessions and loan losses this year.
At a time when Ford Motor depends heavily on the profits of its finance operation, it would be tempting for Ford Credit to take some risks. Bannister is properly resisting that temptation.