Ford Credit Exits Retail Finance; Dealer Floorplan Finance To Follow?

The assurance was given prior to the Treasurer's announcement in December of the AUD$2 billion Special Purpose Vehicle designed to fill the floorplan financing ‘hole’ left by GE and GMAC’s exit from the dealer financing market.

Technically, of course, Ford Credit is continuing to provide finance to its dealer network - it has not, at this stage, announced plans to withdraw from dealer wholesale finance (or 'floorplan' finance). But this is a technicality; withdrawing from retail finance will leave many of those dealers currently utilising Ford Credit finance without the facility to finance their customers in the purchase of vehicles.

This will mean lost sales opportunities and loss of commission revenues for the dealerships affected.

More alarming in this announcement is that private retail vehicle finance in Australia (which does not have the 'no-recourse' financial products available to US consumers and which shift risk away from the customer and back to the dealer and financier) is a profitable arm of the dealership and also profitable for financiers.

Here, the risks to the financier are relatively low in that vehicle finance is secured against the asset, the interest rate margins are relatively high, and the consumer remains liable for the loan - ie. carries the full risk of the value of the loan irrespective of the depreciation or dimunition in the value of the asset.

(In the US, under a no-recourse financing product, at the conclusion of the finance term a consumer can simply hand the vehicle back to the dealer or financier, with 'no recourse': no more to pay, provided they have made the agreed payments over the term.)

So why would Ford Credit be bailing on retail finance, but retaining a wholesale finance presence?

It makes no sense unless this is part of a two-step withdrawal from the Australian market. Withdrawing retail finance will put enormous pressure on dealers utilising Ford Credit floorplan to find alternative financiers. Most dealers offer retail finance through their floorplan provider. Ford Credit's announced withdrawal from retail finance means that dealers using Ford Credit will be denied access to their floorplan financier for retail finance for their customers.

Many of the dealers affected - Ford, Mazda, Volvo, LandRover, among others - will likely seek a new floorplan financier in securing a new retail finance provider. Those who CAN, of course. Many will not, and, as The Motor Report has warned previously, worst-affected will be country dealerships.

You can take from this announcement that Ford Credit intends to also bail on wholesale dealer finance; perhaps not next month, but soon, because this announcement makes no sense otherwise. Also take it as read that assurances given to the Treasurer and to its dealer network from Ford Credit is just so much smoke being blown up so many skirts.

Lastly, we can also take from this announcement the grim reality that Ford's Australian operation does not amount to a 'hill of beans' in Ford US thinking and future strategies.

If its dealer network is all-but expendible, so is its manufacturing operation. Every day, an Australian Ford Taurus, assembled here, sure, is increasingly likely and the end of the 'local car' for the local market increasingly certain.