Ford Credit Losses Force Job Cuts
Ford Credit is in better shape in some ways than rivals GMAC Financial Services and Chrysler Financial, but a sharp drop in new-vehicle volume in 2008; a rise in credit losses and repossessions; plus losses on off-lease trucks are forcing Ford Credit to cut 1,200 jobs, or about 20 percent of its U.S. work force.
Lewis Booth, Ford executive vice president and CFO, said the job cuts will include a mix of attrition, retirements and involuntary layoffs. Ford President and CEO Alan Mulally said in a Jan. 29 conference call that the cuts will take effect by the end of the first half of 2009.
Ford Credit on Jan. 29 reported a net loss of $228 million in the fourth quarter of 2008, versus a net profit of $186 million in the year-ago quarter. For the full year, Ford Credit had a net loss of $1.5 billion in 2008, versus net income of $775 million in 2007.
The net loss in 2008 included a one-time "impairment" of about $2.1 billion, reflecting the difference between the actual value of vehicles coming back from leases â€" mostly pickups and large SUVs â€" versus the amount Ford Credit thought they would be worth two to three years ago, when the leases were made.
The resale value of used pickups and SUVs dropped when gas prices picked up and demand fell. Rivals GMAC and Chrysler Financial also booked steep write-offs on the value of off-lease trucks in 2008. Chrysler Financial dropped leasing entirely, and GMAC cut back sharply on leasing. Ford Credit cut back on leasing, too, but not as much as GMAC.
Ford Credit still belongs to Ford, in contrast to GM, which sold a majority stake in GMAC to Cerberus Capital Management in 2006. Since then, GM has been forced to come to GMAC's financial rescue several times, yet GM does not have operational control of GMAC.
Under the terms of a $6 billion bailout from the U.S. Treasury Department, GM must reduce its stake in GMAC even more, from 49 percent today to no more than 10 percent. Separately, Chrysler Financial also got a government bailout, in the form of a $1.5 billion loan.
Ford Credit hasn't asked for a government bailout per se, but Ford Credit has sold at least $4 billion worth of commercial paper to the Federal Reserve, through the Fed's so-called Commercial Paper Funding Facility, which was created in October 2008 to help un-freeze credit markets.
Like GMAC, which successfully re-invented itself as a bank holding company, Ford Credit also has applied to the Fed for bank holding company status. That would give Ford Credit easier access to cheaper funds, in the form of deposits.
"We view Ford Credit as a strategic asset," said Ford CFO Booth.