Ford's Financial Services Business About to Enter the Red

Ford Motor Company (F) has lost $18 billion in income from 2001 through 2007. Ford just hasn't been able to turn a profit in selling cars.

There has, however, been one consistent earning division at Ford until recently: financial services. Here Ford makes money financing vehicles for dealers, leasing companies and other customers. Ford's financial services section has helped to offset a lot of the Ford's losses.

A few years ago, this part of the business was quite a money maker. In 2005, Ford made $5 billion before taxes on $23 billion of revenue. However, its numbers are becoming weaker and weaker. Credit loss provisions keep mounting. In 2006, revenue had dropped to $17 billion with a decline in earnings to $2 billion. Revenue in 2007 was $18 billion with only $1.2 billion in net income. Last quarter, on revenue of only $4 billion, Ford made only $67 million!

This now tiny income is even more disturbing when you consider that the credit division by itself shouldered a debt of $114 billion (2007). With mounting credit loss provisions, I predict that next quarter, Ford Credit will go into the red. I cannot find any year that it has done so going back as far as 1999.

Does it matter? While Ford lost a total $18 billion from 2001 through 2007, its credit division made $21 billion in income before taxes. Without that, Ford's losses would have doubled. Unfortunately, with the difficulties in the credit markets, Ford's last safety net is about to go. Ford is quietly losing its one profitable area and no one is noticing.

Disclosure: Short F

Comments

[Ames Tiedeman:]

Kirkorian paid $8.50? Where is the value?

2008 Jul 20 09:46 AM

[fellowparker:]

The Ford shorts have stabilized at about 380K or 6 to 8 times daily volume; a highly bullish technical indicator. Now, the pros are covering. Ford has enough cash to cover any loss for the forseeable future for quite a few years.

Parker

2008 Jul 20 01:28 PM

[rds333:]

Ford has made huge cuts in employees, plants, medical, etc. etc.
Down the road this is all going to pay off.

RDS

2008 Jul 20 01:43 PM

[hoffman23:]

You have not mentioned another area where FMCC is going to lose a bundle. They have a huge lease portfolio full of trucks and SUV's coming off lease in the next two years. With the switch to cars, each vehicle can represent a $3-6000 loss at the wholesale auctions. Likely no insurance to cover. This is the stuff that can put them into bankruptcy. GM doesn't have anywhere near this problem, as they are not as heavy into leasing. Plus Cerebus (those brilliant auto guys) have 51% of that loss. I always find it amazing that the finance guys never ask the auto people about the underlying grief. Anybody in auto retail could tell you this is a bomb that is already exploding.

2008 Jul 20 04:01 PM

[hoffman23:]

Even if Kerkorian gets control of Ford, what the hell is he going to do with the debt. The whole company is owned by the banks, including the Blue Oval. He must need a big tax loss.

2008 Jul 20 04:07 PM

[User 229487:]

KERKORIAN PAYED 8.50, COME ON AT 5.50 ITS A STEAL buy buy buy

2008 Jul 21 01:53 PM

[mommasontwo:]

Ford is my speculative play. It's a very active trade between 5 and 9 dollars. The business part of Ford went south a long time ago. Will it recover in the US? Who knows?

2008 Jul 23 02:34 PM

[sharpRider:]

As a former employee, its time for uaw to cut off pension benefits to workers who retired at age 55 and are still at a working age (less than 70). We need to become competive again. Currently new workers don't get the pension, but the existing benefits to the older employees are whats dogging the detroit industry.

2008 Nov 19 11:50 AM

[sharpRider:]

abcnews.go.com/Blotter...

Interesting story there. The CEOs went to DC to beg for bailout cash but flew there in their private luxury jets....

2008 Nov 19 12:26 PM