Editor's note: An earlier version of this story gave the wrong year for when Silverstone joined Ford Credit Britain.
While its Detroit competitors were buffeted by bankruptcy and the loss of their captive finance arms during the 2009 financial crisis, Ford Motor Credit Co. soldiered on doing what it was created to do when it was founded in 1959: provide funds for Ford dealers and their customers.
The consistency has paid off. Among captives, Ford Credit trails only Toyota Financial Services in market share, according to Experian Automotive.
Ford Credit had a 3.41 share of all automotive financing in the first quarter of 2012, down 0.7 percent from the same period in 2011. Among captives, only Toyota had a larger share, at 4.27 percent, down 18.4 percent. Ally led all lenders with a 6.39 percent share, down 26.5 percent.
COO Bernard Silverstone discussed his company's strategy and the auto finance market with Staff Reporter Bradford Wernle. Silverstone was named COO of Ford Motor Credit in January.
He leads Ford Credit operations in North America, Europe, Asia Pacific and Africa and Latin America. He is also in charge of marketing, sales and brand, business center operations, quality and process management and insurance operations. He reports to Mike Bannister, Ford Credit chairman.
Silverstone, 56, a native of the United Kingdom, joined Ford Credit Britain in 1979 as a field representative.
Q: What is your assessment of the current automotive finance market, and where does Ford Credit fit in?
A: I think the automotive credit industry follows the automotive industry.
When you think about from the time we were formed in 1959 -- over 50 years -- we've been through cycles. The last one was extremely tough. Alan [CEO Alan Mulally] and Bill [Chairman Bill Ford] have both been unequivocal by saying up front that Ford Credit is a strategic asset. Our focus is on supporting Ford sales. We're focused on customer satisfaction and understanding what needs to be provided and improving the services. We've got that extra vested interest. If we take care of the customer we get more repeat sales, and Ford gets more repeat sales.
There has been a gradual easing in credit markets. Automotive credit is bouncing back. How do you assess the market, and does a more relaxed credit market free you to make more subprime loans?
There are multiple questions in there. The credit environment is pretty good right now. Most companies are reporting historically low credit losses. Certainly we're in the same position. We're pleased with that.
The fact is that the economy is improving -- slower than everybody would like, but it is improving, we mustn't forget that -- at about a 2 percent growth rate. The industry is bouncing back. The industry has come from 10 million to a 14 million current running rate, or thereabouts. That's a big bounce-back.
Within that industry there's a broad spectrum of customers with different levels of credit. We've always had within our overall portfolio a level of high risk and a level of lower risk. That proportionally is about the same.
High-risk customers represent about 5 percent. Of the high risk customers that end up buying a car and are financed, we're financing 75 percent. And that's been consistent for several years. That tells us we're doing our job.
Would you tend to have a higher rate of leasing with your Lincoln customer than with the Ford brand customer?
Luxury brands tend to lease more, and therefore we compete with those, and, yeah, you'll see a higher percentage of leasing. Overall, last year about 15 percent of our total business was leasing. That's up from where it was prior years. We kept leasing as an offering throughout the cycle. Even when others were unable to offer leasing, we were still offering leasing. We just adjusted the offer according to what it was right to go to market with.
Are you increasing residual forecasts in anticipation of a 16-million-unit market in a couple of years?
There are a lot of different factors that go into residual forecasting. We do our own proprietary forecasting and also look at the external models.
We feel it's a strategic advantage to be able to forecast at the right level because clearly nobody wants to be taken by surprise. So when you look at the factors, there's potential for the market to continue to grow back and we all hope for that.
We're also watchful for other factors that could be disruptive. Europe's a worry right now. That could be contagious to the global economy.
Vehicle quality is improving and therefore durability improves. The pace of technology is hastening and therefore the obsolescence of technology.
Regarding subprime finance, what's the lowest credit rating you will buy at the current moment?
Without saying it's zero, we certainly look at external credit ratings and a number of other factors. Mechanical buying of credits is helpful because it can speed up the process and be faster for the clean-cut decisions. That frees up our agents to work on the tougher credits.
We don't set a floor. We allow them to try to find a way to make a deal. That's one of the things the dealers recognize in the surveys. They appreciate we've clearly sharpened our focus with our agents. We look to make a deal, make a sale, make a customer happy. If we can make them happy and make a good credit decision, a deal that's buyable and collectable, that customer's got a chance of being loyal for life.
Do you see that as an advantage over a bank that you're able to perhaps buy deeper because this is your business?
Even if you're a specialist in automotive finance and you're trying to service all the brands, if you're going to get into deeper purchasing, you've got to do it across the brands. You've got to do it for all your customers. We just focus on Ford. We're the specialists. In my mind we're always going to beat them on the total equation.
Ford Credit seems to be doing a lot of two-year leases. Is that a deliberate strategy?
Personally, I think that's a good thing. But at the end of the day, the customer chooses. We offer a range of leasing terms. If a customer's appetite is for a two-year lease, we're going to see that customer in two years instead of three years. Clearly it's a good offering because customers enjoy having a new car every two years.
If the economy comes back further, we may see more people coming back and being prepared to take on shorter-term leases. But their recent experience has been that a lot of people extended. A lot of people moved to retail financing on longer terms, again [because of] the economic situation and the uncertainties there. We offer a broad range. What we don't do is go really long term. We don't create a situation of gain today that would lead to tears tomorrow.
What are you doing to help with a perennial consumer concern: making the F&I approval process go faster in dealerships?
Mechanization is a big thing -- things like e-contracting so we can speed up the production of the contract.
We are seeing customers doing a lot of research ahead of time on the Internet. We think of that as the purchase funnel. There are developments in that arena where we're offering more online services to customers before they come into the dealership.
We offered a service where customers could go fairly far down the credit application route, and we found they weren't going as far as we expected. So we put some research groups together. We found there was a degree of nervousness, uncertainty or apprehension about whether they would be approved or not.
This year we introduced this neat little facility called Test Drive Your Credit. It's on our Web site now. We found the response was really good. It doesn't register as a search. It's a simulation. It was a direct response to customer feedback and customer demand that it gets over this hurdle of apprehension about the credit process.
They'll start up online, but at some point they'll want to go to the dealership and touch the metal, smell the car and make their final choice. If they've already started the credit process, they don't want to do it twice.
Could you characterize how getting your investment-grade credit rating back helped you?
It's made us a lot happier. It was a great moment. I remember the day we got the second rating.
The second rating was critical. That's the day our bonds went into the investment grade index. We formed the big blue oval out here.
After that, of course, the effect we see is that when we go to market since then, there's a continuous ability to fund.
We saw some of the investment grade investors participating over the last year or so even when we were not investment grade. They were creeping back in to buy our paper. They were certainly coming back in anticipation. And now that we're fully investment grade, that's proven a good reward for those investors who did that. I don't want to overplay it.
This is not the first cycle we've been through. We were able to keep our business fully funded globally even through the tough times.
We still issue some asset backed securities. We just did some recently. Diversity of funding is important to us. We want to keep our access to those investors and keep liquid because who knows what's around the corner.