Ford Motor Credit Competition
Now Viewing Ford Motor Credit's competition in: Consumer Finance
Call Preparation Questions
Customers, Marketing, Pricing, Competition
Does the company provide credit directly to consumers, or through commercial partners? - Auto loans are often bought from car dealers, which are the company's real customers. Sales financing and private-label credit cards require signing up merchants and other commercial customers.
How does the company market its products and services? - A direct sales force is needed to sell to commercial customers. Consumer marketing usually combines telemarketing, the Internet, direct mail, and local media advertising.
Does the company price its loans according to the credit profile of the borrower? - Most companies use a scoring system for credit approvals that can also be used to classify customers according to price.
Does the company market to college students? - This is a particularly risky group to lend money to.
Is the company constrained on pricing by state laws? - Many states have price caps. Subprime lenders often charge the maximum price allowed by law.
Competitive Landscape
Demand is driven by consumer income and demographics. The profitability of individual companies depends on the correct assessment of repayment likelihood and effective collections activities. Large companies have an advantage in the ability to manage large portfolios of mortgage, auto, and credit card loans through sophisticated computer risk modeling. Small companies can compete effectively in the cash lending or sales finance segments, where a local or neighborhood presence is highly effective. The industry is capital-intensive; annual revenue per worker is about $430,000.
Business Challenges
CRITICAL ISSUES
Predatory Lending Regulations - Consumer finance companies need to comply with state regulations against subprime "predatory" lending practices (high interest rates and fees, deceptive advertising, and contracts that confuse borrowers) because they often make credit available to consumers with poor or thin credit who may have limited financial sophistication. The industry is affected by punitive damages in class action lawsuits from claims of predatory lending or deceptive marketing. The industry may be subject to increased state and federal regulations, especially about allowable interest rate spreads and add-on products.
Vulnerability to Economic Slowdowns - Consumer finance companies are more vulnerable to financial losses during economic slowdowns, when delinquencies, bankruptcies, and foreclosures are disproportionately higher for subprime borrowers. During the recession of the late 2000s, job losses caused delinquencies and foreclosures to skyrocket. Lower income consumers, the primary customers of finance companies, are most likely to have financial difficulties during a recession or periods of high inflation.
Industries Where Ford Motor Credit Competes
- Financial Services
- Lending
- Auto Lending(primary)
- Commercial Lending
- Lending
