Aside from F-series pickups hauling in gobs of profit, Ford Motor Co.'s automotive business isn't carrying much weight lately.
Thank goodness for the finance guys.
Ford Motor Credit, the lending arm that's become accustomed to propping up the company in good times and bad, now generates about half of the automaker's profit, up from 15 to 20 percent as recently as 2016.
Ford Credit is designed to perform a relatively simple task: make loans to the dealers stocking vehicles and the consumers who buy them. Now, Ford is relying on its finance unit to help fund multibillion-dollar outlays on electric and self-driving vehicles while it simultaneously racks up $11 billion in charges from a restructuring that could take years.
"It's like the ballast that keeps the ship steady," said Lawrence Orlowski, an analyst at S&P Global Ratings. "It's a balancing act."
Ford has been selling fewer and fewer vehicles in the U.S. for the past three years, and it's losing billions overseas, including in China, where its annual vehicle deliveries fell by half during that time span.
On Tuesday, Ford reported adjusted fourth-quarter net income plummeted 67 percent to $485 million, while North American earnings fell 64 percent to $700 million, primarily for costs under a new UAW contract, warranty expenses and snafus with the launch of the redesigned Ford Explorer and Lincoln Aviator crossovers.
Ford's finance arm, meanwhile, is on a winning streak. Ford Credit posted its best results in nine years, with 2019 earnings before taxes of $3 billion, up 14 percent from 2018.
The lending unit attributed the strong performance to favorable lease residuals, credit losses and derivatives performance. Healthy consumer credit metrics and a robust balance sheet also aided Ford Credit last year, but the lender cautioned that auction values could be a headwind in 2020. Full-year values for off-lease vehicles sold at auction slipped 2 percent in 2019, and third-party assessments indicate values could fall 5 percent this year, Ford Credit said.
The second-largest U.S. automaker would be far worse off without Ford Credit, which is effectively funding turnaround efforts by routinely borrowing in the debt markets and paying a dividend back to the parent company. The credit unit is expected to contribute almost $3 billion annually to Ford over the next two years, according to Benchmark Co. analyst Mike Ward. That's up from just $400 million in 2017.
Ford Credit borrowed around $10 billion in the U.S. investment-grade bond market in the past year, apart from funds raised in other currencies and securitized debt. By contrast, it's been more than three years since Ford Motor last issued bonds, according to data compiled by Bloomberg, as investors fretted about the company's high debt load and slowing sales.