Ford Motor Company is working to reduce its share of long-term auto loans and leases in Canada, where buyers are twice as likely as those in the US to stretch out car payments over terms as long as eight years, Bloomberg reports.
Ford is, in fact, more conservative than most other automakers in Canada, with long-term loans (6+ years) and leases (5+ years) accounting for around 20 percent of its vehicle sales – less than half the rate of the industry as a whole. Still, since depreciation starts to set in as soon as a new car is driven off the lot, and continues over the ensuing years, such long loan terms mean that more buyers end up paying well over what their car is worth.
Further, such loans are contributing to mounting consumer debt in the country that could “magnify any economic shocks,” says Bloomberg.
Of course, the problem with trying to limit such long-term auto loans is their very popularity; Ford needs to compete with other automakers in the country. The Blue Oval was number one in Canadian car sales last year with nearly a 16% market share, and the drawn-out financing has helped fuel three straight years of record industry-wide growth.
Long-term loans are “something that we keep a close eye on,” said Ford Canada CEO Mark Buzzell this week. “We really are trying to limit the trade cycles to shorter terms, but at the end of the day we have to stay competitive.”