By on July 24, 2008

The red background certainly is appropriateFord'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."

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14 Comments on “Ford Motor Credit Takes Billion Dollar Hit in Second Quarter...”


  • avatar

    I guess I am surprised that the bath on the lease residuals was this low. Or is there even more bad news coming in 3rd quarter?

  • avatar
    OldandSlow

    What’s a billion here, a billion there between friends?

    A credit portfolio heavily based on consumers being able to pay off their bloated SUV loans isn’t quite as bad as subprime housing portfolio, but it is close.

  • avatar
    jaje

    When you desperately need to move the metal you need to sell to the customers that really couldn’t afford that vehicle in the first place. If your customers are underwater in their current vehicle you have to roll all that negative equity over into a new sale just to create a customer. How many years have the D2.8 been doing this same solution (what Mitsubishi did years back – bad loans to those that should have been rejected and swamp fleets with vehicles to keep factories running and sales growth). Now these terrible decisions by management have come to roost 10 fold.

  • avatar
    jaydez

    They can blame me for part of it. They are financing my 06 Fusion for free.

    The reason they are losing money so quickly is because they gave anone with a pulse 0% financing for 72 months on every 06 for close to 2 months.

  • avatar
    detroit1701

    The astounding losses in financial services and credit markets really hammer home the precarious economic circumstances a big chunk of Americans are living in.

    If your mortgage jumps 2%, or fuel rises $1/gallon, a lot of people just cannot cope. It is frightening that Americans do not save money, and moreover try to live the maximize lifestyle for their income.

    The irresponsibility of some hurts us all.

  • avatar
    monkeyboy

    Surprised they’re not blaming Rick Wagoner for this !

    Where’s Golden Tongue Bob when you need spin!

  • avatar
    John Horner

    “offered lease deals based on unrealistic residuals”

    Ford has made many mistakes, but lease residuals are based on historical trends. What is catching them out is that the historical depreciation rates for trucks and SUVs suddenly don’t apply to today’s market. Every single bank and finance company which does automotive leasing is getting caught by this sudden market change.

    The 2.8 have done a lot of things wrong, but the lease residuals catastrophe is one of the few things that happened to them, not because of them.

  • avatar
    Lumbergh21

    I gree with John Horner. I can’t blame Ford or any other automotive manufacturer for “unrealistic lease residuals.” The estimated residual values for these cars come from two to three years ago when they were leased, and the values were probably very realistic.

  • avatar

    Detroit1701, “It is frightening that Americans……try to live the maximize lifestyle for their income. “

    That’s my pet peeve and its what’s destroying this country in my opinion. It’s not the Republicans, it’s not the Democrats, it’s not the unions and it’s not big business. People have control over their own destiny by simply deferring consumption. They can have a great life and be quite well off and have virtually all the same toys in the long run if they simply sacrifice a little and live within their means in the early part of their life.

  • avatar
    macarose

    In the remarketing business, we’re seeing all manufacturers getting hurt by the new economic realities. Toyota, GM, Ford, virtually anyone with a significant presence in what was once a very profitable segment is now losing money in residuals.

    The only thing I fault at this point is the car buyer who couldn’t take the proverbial hint after Katrina and decided to buy an SUV anyway. Oil prices were already headed up and most folks understood that SUV’s were becoming costly propositions in the marketplace.

    On a quick note, I do have to give Ford a thumbs up for making the next gen Explorer a car based model. An SUV that gets mileage in the high-20’s should sell decently although the days where these models can become top-10 sellers is long gone.

  • avatar

    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?

  • avatar

    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.

  • avatar

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

  • avatar
    RobertSD

    @ 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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