Low Interest Rates Weighing On Ford’s Credit Division

+15.77%
Upside
12.18
Market
14.10
Trefis
F: Ford Motor logo
F
Ford Motor

Ford Motor (NYSE: F) operates a large vehicle leases and loans business. This business is engaged in the activity of purchasing loan and lease contracts from dealerships and assuming the residual risk on a vehicle sold on loan or lease by the dealership. Over the last three years, the asset base owned by this division has grown by over 20%, while revenue has grown slightly less than that term. The growth in asset base has been driven by the a strong increase in investment in purchasing leased vehicles from dealerships. Notably, the implied interest rate on a vehicle sold via lease or loan, calculated as the ratio of revenue earned by the segment divided by its asset base, has been flat despite the increase in mix of leased vehicle sales, which command a higher interest rate. This is largely because interest rates have been extremely low and while the average implied interest rate on leases has grown from 18.7% in 2013 to 19.4% in 2015, the interest rate on loans has declined from 5.3% to 4.5% over the same period. The higher presence of loans in the mix has kept the overall implied interest rate from rising.

ford credit

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor

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