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ReprintsFord Credit results suggest tough used-car market in 2012
Ford Credit's financial results for the fourth quarter and the full year 2011 point to trends dealerships can expect in 2012, including a continuing scarcity of newer used cars, the return of seasonal ups and downs in used-car prices, and potential pressure on retail pricing for used cars.
Here are some of the details:
Fewer off-lease cars are coming back.
Ford Credit fact: Lease returns fell 50 percent in the fourth quarter from the year-ago period to 15,000 units. That low level of returns isn't likely to change any time soon based on a sharp drop in Ford Credit lease originations from 2008 to 2009.
Industry context: Lease returns and lower-mileage used cars are in short supply generally, reflecting the drop in new retail volume in 2008 and 2009.
Implication for dealerships: Dealers will continue to scramble to find used inventory in 2012.
Off-lease cars command high prices.
Ford Credit fact: On average, Ford Credit's 36-month lease returns in the U.S. market were worth $16,540 at auction in 2011. That's an increase of $740, up about 5 percent from 2010. The 2011 average was up almost $4,000 from the recent low point, in 2008, Ford Credit said.
Industry context: Used-vehicle prices are at a high plateau, but the rate of improvement has slowed. For example, used-vehicle prices experienced "seasonal softening" in November, according to ADESA Inc.
Implication for dealerships: Used-vehicle retail prices could come under pressure in 2012 as consumers adjust to the new reality of higher, but relatively stable, used-vehicle prices.
AutoNation Inc., the first publicly traded new-car group to report fourth-quarter earnings, said separately last week that its gross profit per used vehicle fell about 5 percent in the fourth quarter. For the year, gross profit per used vehicle improved less than 2 percent at AutoNation, while new vehicles improved almost 12 percent.
Credit quality is as good as it gets.
Ford Credit fact: The captive's loss-to-receivables ratio -- losses for bad loans, as a percent of total outstanding -- was only 0.24 percent in 2011. "We've never seen it that low," said Mike Seneski, CFO of Ford Motor Credit Co., in a Jan. 27 conference call.
In fact, Ford Credit expects to add "a little" to reserves against potential credit losses in 2012, according to Lewis Booth, CFO for Ford Motor Co. In 2010, cutting reserves as performance improved provided a big boost to Ford Credit earnings. In 2011, the absence of those cuts lowered Ford Credit's earnings, the company said.
Industry context: Delinquencies and losses on average are at or near long-term lows across the auto lending industry. That includes both prime and subprime risk segments. The improvement in credit quality was a bigger change from 2009 to 2010, and less of an improvement from 2010 to 2011. From 2011 to 2012, it's old news.
Implication for dealerships: Even though it's old news, better credit quality is finally encouraging a strong comeback in subprime lending in 2012. Subprime has been slower to recover than prime.
Despite increased vehicle sales, Ford Credit's profits have slipped. The company reported a fourth-quarter pretax operating profit of $506 million, down from $572 million in 2010. For the whole of 2011, pretax operating profit was $2.4 billion, down from $3.1 billion in 2010.
Ford Credit's U.S. contract volume for 2011 was 870,000, up 22 percent from 2010. Worldwide contract volume was up about 17 percent to 1.4 million. Those contract numbers present loans and leases for new and used vehicles.
You can reach Jim Henry at autonews@crain.com.
