Record car sales too good to be true? Ford seeks to curb loans to Canadian customers

07/20/2017 05:48 pm | Posted by Admin

Ford Motor Co. is seeking to limit the growth in long-term auto loans and leases in Canada, where consumers are twice as apt as U.S. buyers to stretch out payments to as long as eight years in order to afford a car.

“It’s something that we keep a close eye on,” Mark Buzzell, chief executive officer of Ford Canada, said in an interview at the Vancouver auto show this week. “We really are trying to limit the trade cycles to shorter terms, but at the end of the day we have to stay competitive.”

In Canada, automakers are selling about 41 percent of vehicles with loans of at least six years or leases of at least five years, said Buzzell. Increasing competition among automakers seeking to capture customers has stretched them to as long as eight years in some cases. In the U.S., the average new car loan in 2015 was 5.5 years, compared with six years in Canada.

“They’ve gone about as far as they can go,” said Jason Mercer, a Toronto-based analyst at Moody’s Investors Service.

Record Car Sales

Demand for long-dated deals are helping drive Canadian passenger car sales, which hit a record for the third straight year in 2016. About 85 percent of them are bought with debt, according to DesRosiers Automotive Consultants. As low interest rates and longer terms fuel both a housing and auto boom, the Bank of Canada has repeatedly warned about dangerously high consumer debt levels that could magnify any economic shocks.

 

Since vehicles depreciate over time, longer-dated loans “significantly increase” the chance that an owner ends up owing more than their car is worth, a report by the Financial Consumer Agency of Canada warned last year. The share of Canadians trading in vehicles with negative equity rose to 30 percent in 2015, and on average they were underwater by about C$6,700 ($5,000), according to statistics from J.D. Power.

Buzzell said information from the company’s financing arm, Ford Credit, indicates loss ratios are still “very healthy” but added that Ford is more conservative than some rivals. Only about 20 percent of Ford’s cars are sold under such extended terms, half the level of the industry as a whole in Canada, Buzzell said.

Ford, based in Dearborn, Michigan, was the top-selling carmaker in Canada last year, with almost 16 percent market share, according to figures from DesRosiers.


Read the full story on Financial Post

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