Ford’s 3.9% Problem

Ford offers an incentive of 3.9% APR for 60 months on its F-150 full-sized pickup, the best-selling vehicle in the United States for four decades. Ford has had a tight inventory, so it is hard to figure out why the company would do this. In a period of spiking interest rates, 3.9% is a financial risk that could bite Ford in the next few years.
[in-text-ad]
Incentives are nearly as old as the car industry. When there is plentiful inventory, manufacturers use them to clear dealer lots. And management complains that these incentives cut into profits. However, supply chain challenges have taken dealer inventory to extremely low levels. It is one reason that a 3.9% APR does not seem to make sense.
[nativounit]
Ford may have an oversupply of some models, even though that would seem improbable. It also may find the market share of the F-150 is threatened by its competition, the Chevy Silverado and Ram. Chevy does offer some incentives on the Silverado, although they do not appear as aggressive as Ford’s.

The Ford offer has to be financed via Ford Credit, the financial arm of the car company. Ford could make a profit on these loans. However, it is unclear what Ford will have to “pay” for this money in the years ahead if incentives stay in place. The Federal Reserve’s aggressive rate hikes could extend well into next year.
[wallst_email_signup]
To get an idea of what interest rate banks offer on car loans, note that Chase charges 6.24% on 60-month car loans. Ford has undercut that. Once again, the issue is why.
[recirclink id=1096555]
Ford’s incentives may need to be more aggressive next year. Although inventory has been tight, Wall Street believes a recession could sap demand. The car industry may go from empty lots to dealers who need help from manufacturers to clear their lots. The 3.9% deal could drop lower.