The automotive market as a whole has undergone some dramatic changes over the past few years, mostly spurred on by supply chain constraints and resulting production cuts that sent the prices of new and used vehicles soaring to new heights as demand remains high. This also prompted many shoppers to opt for lower trim levels and longer finance terms as recently as Q3 of 2022, all in an effort to lower monthly payments. However, while speaking at the recent 2023 J.P. Morgan High Yield & Leveraged Finance Conference, Ford Credit CFO Eliane Okamura revealed that Ford buyers haven’t changed their financing habits much in the months since then.
“So the shift to longer terms has happened but is nothing dramatic, we saw 84 months going up to nine percent by the end of Q4 last year from seven percent,” Okamura said. “We did not see a shift in the other terms and the portfolio has stayed stable.”
This comes roughly a year and a half after Ford Credit changed its policy and removed minimum FICO requirements for 84-month loans, making them available to more new vehicle shoppers than ever before. At that time, Ford noted that a person’s credit score is is just one of several factors that play into securing an automotive loan, including their ability to make payments on a vehicle and debt to income ratio. Regardless, as Ford Authority reported earlier this week, Ford buyers tend to have higher credit scores than customers of most other brands, anyway.
It is worth noting that FoMoCo lessees have changed their habits, at least in terms of how many opt to turn in their vehicles at the end of their lease terms. While Ford’s lease return rates rose somewhat in Q4, they’re still far below pre-pandemic levels as those customers are able to simply purchase their vehicles when the lease is up and sell them for a profit in many instances.
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Comment
Ford is getting way to close to writing ‘upside down loans’ to their clients.
It is a lousy business practice that poisons the well for many customers for years to come.
This side of the business makes Ford a ton of money… some might say too much given the ethical dilemma posed due to high interest pay forever terms.
Better regulation of this maybe called for as not all loans are the same… even though they should be.