Ford Motor Credit Takes Billion Dollar Hit in Second Quarter

by Frank Williams

Published: July 24th, 2008

ford motor credit takes billion dollar hit in second quarter

Ford's PR folks are busy weaving their tangled web. Case in point: in the press release announcing the dismal Q2 results for Ford Motor Credit, The Blue Oval Boyz state the net loss is "$1,427 million." I guess that doesn't sound as as bad as saying they lost $1.427 billion in one quarter. Compare that to last year's second quarter earnings of $62m and that's quite a deep hole they've dug. Anyway, let's blame the economy! Yes, U.S. consumer preferences shifted "from full-size trucks and traditional sport utility vehicles to smaller, more fuel-efficient vehicles… [which] caused a significant reduction in auction values for used full-size trucks and traditional sport utility vehicles." In other words, their parent company put all their eggs in the truck/SUV basket, gave credit where credit wasn't due, offered lease deals based on unrealistic residuals, and had nothing to offer in the subcompact market when the market shifted. But it sounds so much better to tell the stockholders "it's the economy, stupid" than to admit "we screwed up."

Frank Williams

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4 of 14 comments

Sherman Lin on Jul 24, 2008

So does this mean for the next 2 to 3 years as off lease SUV's come back there will be just a constant stream of losses due to low residual values of those off lease vehicles?

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Sajeev Mehta on Jul 24, 2008

Damn right they screwed up. The residuals on Navigators were always inflated, more so than the sistership Expedition. Sherman: yes, for 2-4 years to come. From what I've seen on off-lease 'gators, a 2005 model (39 month lease) with a residual of $24,000 meets the auction market today at $18,000 or less. Losing $5000 or more per unit is gonna be commonplace. Ouch.

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Sherman Lin on Jul 24, 2008

Too bad GM didn't sell 100% of GMAC to Cerberus.

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RobertSD on Jul 24, 2008
@ Sajeev Mehta Ford didn't inflate residuals. The residuals used for assumptions about outstanding lease assets were made by wholesale prices and estimates at the time of sale. The write-down reflects the huge shift Ford Credit is seeing at wholesale auctions. @ Sherma Lin When companies know they're going to have a bad quarter, they generally try to estimate their asset losses as largely as possible because expectations are low anyway. My guess is there will be no further write-downs unless there is complete collapse of the economy.

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