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What Does Ford Credit’s Improving Performance Mean for Investors?

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Ford Credit

Ford Credit is the financial services arm of Ford Motor Company (F). It offers a range of automotive financing products to its customers and dealers. This includes the credit facility to purchase new and used vehicles and lease contracts for consumers.

In this part, we’ll explore Ford Credit’s 1Q16 performance and how it complements the company’s automotive business.

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Ford Credit’s 1Q16 performance

In 1Q16, Ford Credit’s revenue stood at $2.5 billion, 17.2% higher than $2.1 billion in the corresponding quarter of the previous year. For the quarter, the company’s receivables also rose 17% year-over-year (or YoY) to $132 billion. The company attributed this optimism in its financial services arm to consistent originations, servicing, and collections.

In addition, 1Q16 pretax profits from Ford Credit also rose 6.4% YoY to $514 million, compared to $483 million in the corresponding quarter of 2015.

What does this mean for investors?

Ford targets the masses with the majority of its vehicles, so financing services play a crucial role in attracting middle-class consumers. As the company continues to make efforts to improve its retail vehicle sales, investors can expect the positive trend in Ford Credit’s revenue to continue. The higher retail vehicle sales that drive this revenue should also lead to further expansion in Ford’s profitability.

Apart from financing facilities for consumers, Ford’s financial services business also provides financial help to its dealers. These services for dealers include floorplan financing, working capital loans, and financing the purchase of dealership real estate.

Therefore, Ford Credit’s higher revenue can be seen as an important indicator of Ford Motor Company’s overall performance.

Note that other major automakers (IYK) such as General Motors (GM), Toyota (TM), and Volkswagen (VLKAY) also provide financing facilities to their customers and have their own financial services arms.

Continue to the next part to read about Ford Motor Company’s 2016 guidance.

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