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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (10736)	3/23/2004 1:54:09 PM
From: ild	Read Replies (1) \| Respond to of 110194

Will Ford's brass prove to be right? (I'm short F) DETROIT (Dow Jones)--Long-term auto loans are increasing industrywide, but Ford Motor Co.'s (F) credit arm said Tuesday it is resisting the trend toward extending the life of car loans. Ford Credit Chairman and Chief Executive Greg Smith said on a conference call that, in some regions of the U.S., 50% of all car loans issued these days are 60 month loans or higher. Those loans can be risky for creditors because they are often created for customers who need lower monthly payments, and could be higher risk customers. The length of the loans also means that consumers can be quickly "under water" with their loans - meaning they owe more on the vehicle than they could resell it for. "All things being equal, longer term loans are not a positive factor in the marketplace," Smith said. Customers trading in vehicles bought with long-term loans often do not have enough equity in their cars or trucks for a down payment on another vehicle, so they must add more cash to the deal. But another option - one that might be more troubling for car makers - is to guide buyers to lower-priced vehicles or to vehicles with fewer options. In recent years, buyers have been using the aggressive incentives offered by the auto makers to upgrade the kind of car they buy. Rather than using the discounts to lower the price of their car, they often use the incentives to put more bells and whistles in their vehicles - a trend that auto makers have been pleasantly surprised by. "This is this is a brutally competitive marketplace right now on the sale of new vehicles," Smith said, noting that many dealers have been using the lure of low monthly payments to get customers into showrooms. Advertised monthly payments are often based off 72-month loans, he said. Smith, the Ford Credit chief executive, said Ford Credit targets its 72-month loans at "high quality customers" who have an average credit score that's higher than the average 60-month loan customer. Ford has seen fewer defaults on its 72- month loans than on its 60-month loans, Smith said. The company is also attempting to get customers back into the buying cycle earlier by using targeted mailings. For example, Smith said Ford may send a long-term loan customer an offer of a free oil change if the driver comes to a showroom to test drive a new car. Ford Credit's 72-month contracts accounted for 21% of loan volume in 2003, up from 7% of volume in 2002. Smith said the company factors in negative equity into a customer's credit application. Negative equity is when a customer owes more on a vehicle than it is actually worth. The company's delinquency rate for all loans is on the decline. Over the last 18 months, 60-day delinquencies hit a peak of about 28,000 in the first quarter of 2002. That declined to around 7,000 in the first quarter of 2004. Ford Credit expects its provision for credit losses to decline in 2004. Worldwide managed credit losses were $2.8 billion in 2003 and 2002. The company said it also expects used car prices will continue to rise in the long term, which will help bolster the value of trade-ins.