Ford Credit is focusing on the basics

Greg Smith, new president and COO of Ford Financial, says the captive finance company takes a different approach to the “Back to basics” theme being preached at Ford Motor Co. in recent weeks.

He explains, “For us, we like to say, ‘focus on the basics.’”

That represents a change in strategy for Ford Credit. The finance company for the past seven years had sought to become a worldwide automotive financing juggernaut, with several products driving high growth. That led to risky financing, loan defaults and subsequently big losses.

Now the strategy is to focus more on profitability and the Ford products.

Part of the new strategy includes reducing financing for non-Ford brands and dealers and curtailing its involvement in sub-prime financing. The company also will eliminate funding for loans extending more than 60 months and loans for older used cars.

Ford Credit, though, probably will expand its funding for loans on Ford's certified used vehicles, according to Smith.

“Ford dealers won't be impacted negatively,” he says. “Our interests are totally aligned with our dealer body. But we have to show that value equation every day.”

Ford Credit officials have acknowledged that the company is working to finance fewer high-risk loans, a practice that had forced the company to set aside higher cash reserves to cover the defaults under the presidency of Smith's predecessor, Don Winkler.

The recession and an increased number of layoffs amplified the problem this year, according to Smith.

“Bankruptcies are up 20% right now,” he says. “We're fine-tuning and tweaking the process by which we determine the likelihood of bankruptcies. We're considering things like the level of debt being carried and the trend of that debt.”

Smith claims that the new processes “will not impact the sale of Ford vehicles.”

Texas dealer Jerry Reynolds believes Ford's dealer body can help.

“As Ford dealers, we really need to make sure Ford Credit gets the best paper,” he says. “A healthy Ford Credit means we're healthy also.”

Another area affecting dealers is leasing, which for Ford, was down about 5% in 2001. Smith explains, “Much of that was due to the 0% financing which put everyone into a finance contract.” Also, the recent decrease in used-car values has made leasing difficult.

“But leasing is still strong in New York, California and Florida,” he says. “I don't think we're going to see leasing falling dramatically.”

Ford Credit's internal statistics show that leasing drives owner loyalty — 85% of Red Carpet lessees drive off with another Ford at the end of their term.

Smith says that the company also is looking for ways to leverage its repository database of complete customer history.

“Our goal is to bring the customer back to the originating dealer,” he explains. “We're working with Ford on how we can better help dealers sell Ford cars.”

Ford Credit also is taking a hard look at some of the non-core aspects of its business, says Smith. Areas like home mortgages and investments may be eliminated. “At the very least, we won't be investing any significant capital in those areas,” Smith explains. “We'll probably still carry the insurance, but we'll do that by partnering with experts in the industry.”