Ford (F) decided Monday to suspend its guidance for the year due to the uncertainty around tariffs.
The U.S. auto manufacturer praised President Donald Trump’s tariffs, saying it “supports the administration’s goal to strengthen the U.S. economy by growing manufacturing.” However, it also said it expects tariffs to eat $1.5 billion of its EBITDA this year.
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Ford had expected EBITDA between $7 billion and $8.5 billion for the year.
The Blue Oval wasn’t the only Detroit automaker to suspend its guidance. Rival General Motors did the same thing the week prior.
Related: Ford makes a drastic decision in the face of tariff overhang
GM also paused its $4 billion share buyback plan for now. “Because the original guidance didn’t include the impact from tariffs, prior guidance can’t be relied upon,” said Paul Jacobson, the company’s chief financial officer.
GM had previously expected to earn between $11 and $12 per share this year.
With so much chaos, there are few things Ford can count on, but one thing the company isn’t worried about is the willingness of its potential customers to be flexible when purchasing their cars.
Image source: Morris/Bloomberg via Getty Images
Ford expects buyers to accept longer loan terms
The most common terms for auto loans are 24, 36, 48, 60, 78, and 84 months. The idea is that the longer the term of the loan, the lower your monthly payments, but the more money you end up paying over the life of the loan.
Analysts on Ford’s earnings call this week wondered how resilient Ford’s customers would be should the company need to raise prices soon. The company’s executives didn’t seem too worried, however.
“We see customers doing what they can to afford a new vehicle. I mean, we’ve seen 84-month financing increases as a share of our offers on the financing side. Natural levels are well within the bounds of the industry, but customers are doing what they need to to adjust for their payments,” said CEO Jim Farley.
Related: American car company takes drastic action in response to tariffs
The company is seeing an increase in applications for longer-term financing instead of a drop in demand. But again, the company hedges, saying this could all change if the economy worsens in the second half of the year.
Americans are financing their car purchases
Thanks to salaries that haven’t risen to match inflation over the past five decades, the only way many Americans can own a car is to finance it.
Fewer than 20% of new-car purchases were cash transactions, according to AutoTrader. So, over 80% of new car buyers are financing their purchases.
The median cost of a new car in the United States is about $48,000. And while prices are still below their 2022 peak of $49,507, they have been trending upward.
Since the median salary in the U.S. is $66,622, according to the latest Social Security data, it makes sense that 40% of Americans, or about 134 million people, hold automotive debt.
More Automotive news:
- General Motors delivers surprising business update
- Ford reports surprising news amid Tesla turmoil
- Apple creates clever way to stop car thieves
U.S. auto-loan debt rose by $108 billion to $1.51 trillion in 2023, according to Experian. The average auto loan balance rose to $23,792 at the end of 2023.
For now, Ford expects new car buyers to maintain demand in the face of rising prices by agreeing to longer loan terms.
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