click to download ford credit 10k and financial review

1

Credit University

2

Agenda

• Overview• Mission & Vision

• What Back to Basics Means for Us

• Finance Company Business Practices• Origination: Buy it Right

• Service: Operate Efficiently & Collect Effectively

• Funding: Fund it Efficiently; Manage Risks

• Results• Customer Loyalty

• Profits

• Conclusion

3

Automotive Industry

Financial Services

Ford Credit Is A Business Where the Automotive Industry and the Financial Services Industry Meet

4

Ford Credit’s Mission and Vision

Be recognized as the world leader in providing automotive financial services, achieving superior profitability through:

•Driving synergies with our automotive partners;

•Maximizing customer, dealer, and employee satisfaction;

•Optimizing operating efficiencies and achieving high performance through resourcefulness, flawless execution, and teamwork;

•Leveraging brands and customer relationships with a focused range of superior products and services.

Vision

To support Ford Motor Company vehicle sales worldwide, and to provide increasing shareholder value.

Mission

5

What Does Ford Credit Add to Total Ford Motor Enterprise Value?

• Creates Synergies that Drive Incremental Retail Vehicle Sales and Financing Profits

• Establishes Frequent Ford Customer Touch Points

• Supports Ford’s Dealer Body

• Supports Ford in Growing Markets

• Provides a Stable Profit Stream Partially Offsetting Automotive Cycles

6

What Back to Basics Means to Us

• Buy it right

– Including pricing and risk

• Collect it effectively

• Operate efficiently

• Provide outstanding service to our customers

– Including consumers, dealers, fleets and our automotive partners

7

Agenda







• Profits

• Conclusion

8

Originate

•Buy it Right

Service

•Operate Efficiently

•Collect it Effectively

Finance Company Basic Business Process

Fund

•Fund it Efficiently

•Manage Risks

9

Buy It Right

• Sourcing: Strong Relationships with Dealers andSupport for Automotive Brands

• Robust Underwriting Process

– Credit Evaluation -- Proprietary Scoring Models

– Verification

Result: Strong Volume, Share and Margins

•Buy it Right

Service



Fund


•Manage Risks

Originate

10

Elements of Strong Dealer Relationships

• Long-term presence in marketplace; consistent finance purchase policy

• Broad array of products and services; dealer training and consulting available

• Automated in-dealership contract origination system – networked to financial institution

• Manufacturer-supported marketing incentive programs

10-K Report – Page 2

11

• Long-term presence in marketplace; consistent finance purchase policy

• Broad array of products and services; dealer training and consulting available

• Automated in-dealership contract origination system – networked to financial institution

• Manufacturer-supported marketing incentive programs

Elements of Strong Dealer Relationships


• More detail on this topic is available on Page 2 of Ford Credit’s 2001 10-K Report

• Additional material in this presentation is also cross-referenced with the2001 10-K Report

12

Several Brands Supporting a Variety of Products

• Retail Installment Contracts

• Lease

• Wholesale

• Commercial Products

• Money Market

• Insurance


13

Underwriting Process

Goal• Separate / differentiate creditworthy applicants from

non-creditworthy applicants

Proprietary Scoring Models• Developed from database of 23 million contracts

(accepted & rejected contracts)• Use credit bureau data, contract, and applicant

characteristics to rank-order probability of repayment• Pricing segmented into 6 tiers for each contract term

and product type• Quarterly validation and comparison to external sources

Verification• Verify information supplied by consumer on credit

application (income, employment, etc.)

14

Credit Unions

17%

TotalFord Credit 20%

GMAC 14%

CFC 7%

Other Banks/ Finance Cos.

19%Banks/Finance

Cos. 27%

Toyota Financial Svcs. 5%

Other Captives 10%

B of A 2%

Bank One 2%

Wells Fargo 1%

Total New Retail Volume - $260 Billion

Total Captives 56%

U.S. New Vehicle Financing Industry

Chase 3%

Total Industry Banks/Finance Companies

10-K Report – Pages 16 & 17

15

U.S. New Wholesale Finance Industry

Total New Wholesale Receivables– $70 Billion

Total Ford Credit

27%(83.5% of Ford and L/M

Wholesale)Other

Finance Sources

43%

GMAC 20%

.(71.5% of GM Wholesale)

CFC 10%

(69% of Chrysler Wholesale)


16

Ford Credit Revenue Sources

• Majority of revenue is in the form of loan & lease payments received from customers

• Interest rate support is received from Ford Motor Company (also known as subvention) and reported as Automotive Variable Marketing Costs

Retail & Lease (Net of Lease

Depreciation)Wholesale Other

Payments from Customers

Support from Ford Motor


17

Key Drivers of Volume and Revenue

• Contract Volume Placed – industry volume, Ford vehicle market share, Ford Credit market share

• Amount Financed – vehicle pricing, product mix, customer down-payment

• Contract Term – customer preferences

• Interest Rate – economic and market conditions, competition

• Support from Ford Motor Company

18

1998 Originations

1999 Originations

2000 Originations

2001 Originations

2002 Originations

2002 PortfolioPBT:

Is mostly comprised of business originated in prior years

Today’s Portfolio

19

Originate

Efficient Operations

• Low Cost – operating costs at about 1% of assets in North America

• Economies of scale from large volume

Fund

•Buy it Right




•Manage Risks

Service

20

Global Operations

FORD CREDIT MARKETS

• Direct Operations in 36 Countries

• Worldwide Trade Financing in an additional 71 Countries

• Over 20,000 Employees

WORLDWIDE TRADE FINANCING MARKETS


21

•8 Consolidated Centers Supporting 175 Sales & Marketing Branches

•Use the latest technology (auto-dialers, workflow imaging, etc.) to drive efficiency

•95% of loans electronically entered; 30-35% electronically approved

Centralized Servicing and Collections


22

Effective Collections

• Credit Losses are an expected part of the business

Fund

Originate

•Buy it Right




•Manage Risks

Service

23

Drivers of Higher Credit Losses

U.S. Economy• Long period of economic expansion;

rapid growth during the transformation

• Weakening in Economic Environment Accelerated Post September 11

– Sharply Higher Unemployment Rates– Decline in Consumer Confidence– Continuing High Level of Bankruptcy

Factors Driving Higher Actual Losses • Frequency (Number of Contracts Charged-Off / Contracts Outstanding)

– Increases in Repossession and Delinquencies– Sharp Rises in Voluntary Surrenders

• Severity (Loss per Unit Charged-Off)

– Lower used car values– Increased Skips (No vehicle recovery)


24

Sharp Rise in Unemployment Post 9/11 Was Unanticipated

U.S. Unemployment Rate

3.5

4.0

4.5

5.0

5.5

6.0

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan

1989 / 2000 1990 / 2001 1991 / 20022000 2001 2002

Dec. 20004%

Dec. 20015.8%

Feb. 20025.5%

5.6%

25

40

60

80

100

120

140

Jan Mar May Jul Sep Nov Jan5678910111213

National Consumer NewBankruptcy Filings (000)

FMCC U.S. NewBankruptcy Filings (000) a/

Bankruptcy Filing TrendsFor 2001, Ford Credit up 18%; National up 20%

a/ Includes PRIMUS & Fairlane; Volume adjusted

2001 2002

b/ Implemented new accelerated bankruptcy notification system in 2002

b/

26

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Worldwide Managed LTR

0.99%

1.46%Ford Credit U.S. Managed LTR

(Retail & Lease)

0.79%

1.76%

2000 & 2001 Credit LossesLoss to Receivables Ratio

2000 2001


1.15%

1.02%

27

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Worldwide Managed LTR

1.51%

0.38%

1.20%Ford Credit U.S. Managed LTR

(Retail & Lease)1.32%

0.54%

1.31%

Ford Credit — Historical Credit Losses

Loss to Receivables Ratio – Full Year


28

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Jan Feb

2000 - 2002 Repossession Ratios

Memo: Voluntary Surrenders as Pct. of Total Reposs.

2.83%

2.17%

Ford Credit U.S. Repossession Ratio

2000 2001

1.92%

2.40%

2.13%

35% 33% 26% 27% 29% 32% 34% 34% 35% 35%

3.02%

2.77%

2.84%

2.21%

2002

20012.37%

29

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

$7,500


$ p

er c

har

ge-

off

Severity TrendAverage $ Loss Per Unit

Ford Credit U.S. Portfolio

$7,211

$5,572

2000 2001

$6,960

$6,487$6,272

$6,107

2002

2001

$6,228 $6,579

30

Credit Loss Reduction Actions

• Refined purchase policy and discount rates (primarily used)

• Developing bankruptcy predictors and monitoring portfolio

• Increased collection capacity

• Improved collection segmentation and processes

• Improved accountability, linkage, and communication


31

Ford Credit Works Throughout Leases

to Manage Residual ValuesAt Contract Origination

• Avoid major volume concentrations

• Manage lease term and vehicle-line mix

• Publish detailed residual values

Through Vehicle Life

• Ford Credit works jointly with Automotive through the vehicle life to improve residual values

At Lease Termination

• Optimize auction seasonality through flexible terms, extensions, and early termination programs

• Utilize vehicle remarketing efficiencies (ship vehicles to most desired auctions)


32

Financial Reporting of Residuals10-K Report – Page 21

40%

45%

50%

55%

60%

65%


% o

f M

SR

P

2000 2001 2002

$(1,600)

Auction Value

ContractLease-End Value

• Contract lease-end value for the customer is set based on market factors

• At lease inception, an internal forecast is developed for expected auction values based on a proprietary econometric model that includes new product plans and vehicle quality data

• The difference between contract lease-end value and expected auction value is adjusted through depreciation expense in a reserve that is included in accumulated depreciation on the balance sheet

• Residual values are monitored monthly; reserve adequacy is reviewed quarterly based on:

• Number of vehicles off-lease• Units to Auction (expected return

rates)

2000 2001 2002

33

$15,925

$13,025

$16,400

$17,575

$19,900

36 MONTH TERM

OCT. DEC. JAN. MAR. MAY JUL. SEP. NOV. JAN. MAR.2000 2001 2002

1998 Model Year 1999 Model Year

Durango

Grand Cherokee

Explorer

Blazer

Explorer Auction Performance

34

$8,650$9,200

$10,750 $10,250

$10,200

$11,475

36 MONTH TERM

OCT. DEC. JAN. MAR. MAY JUL. SEP. NOV. JAN. MAR.2000 2001 2002

1998 Model Year 1999 Model Year

Taurus Auction Performance

Taurus

Lumina

Camry

Cirrus

35

Efficient Funding

• Borrowing cost key drivers

• Credit Ratings

• Funding Sources and Strategy

• Manage Risk

Originate

•Buy it Right

Service



Fund


•Manage Risks

36

Borrowing Cost Key DriversBorrowing Costs Operating

ExpensesCredit Losses

• Borrowing cost is our largest expense

• Borrowing cost is a finance company’s “raw material”

• The key factors that drive our borrowing cost are:

• Credit ratings

• Our funding strategy

• Market conditions and our credit spreads

PROFITS

37

Short and Long-Term Debt Credit Ratings

Credit Ratings are:• An assessment by the rating agencies of the credit risk of the securities

we issue• Each rating agency has criteria for evaluating company risk• Not recommendations to buy, sell or hold securities


Ford Credit Short-Term Debt

Long-Term Debt Company Outlook

Fitch

Moody’s

S&P

Memo:

Ford Motor Company

Fitch

Moody’s

S&P

F-2

P-2

A-2

BBB+

A3

BBB+

BBB+

Baa1

BBB+

Negative

Negative

Negative

Negative

Negative

Negative

Most recent action: January 16, 2002

38

$12 $13

$111$135

$25

$46$42

$14

$135

$53

$6$14

2000 2001 Feb 2002

Funding Structure * ($ Billions)

$190

$208 $208

Commercial paper

as % of total 22% 7% 3%

Our Funding Strategy Focused on Liquidity10-K Report – Pages 23 & 24

Commercial Paper **

Securitization

Term-Debt & Other

Equity

Funding Strategy

• Ensure access to diversified funding sources

• Reduce reliance on short-term funding

• Increase usage of longer-term funding sources

• Increase securitization mix as it represents a lower funding cost alternative

• Optimize back-up facilities

Actions Taken

• Reduced commercial paper target to $5-7 billion

• Diversified funding through higher usage of term-debt

• Increased mix of securitization

• Added back-up liquidity funding sources

* Excludes FASB 133** Net of Overborrowing

39

1996 1997 1998 1999 2000 2001 Feb.

2002

Asset-Backed Securities40

81

Unsecured Debt

44

272

Three-year Credit Spreads: Ford Credit over Treasuries


• Ratings on securities based on asset quality – not Ford Credit’s credit rating

In recent years, spreads on securitized funding have been more stable than unsecured term-debt

Securitization Has Become Lower Cost Funding Source

40

• An originator of financial receivables sells these to a trust

• The trust sells securities to investors to fund the purchase of the receivables

• For the originator’s GAAP statements, the financial receivables are considered to be sold and are subsequently reported as “off-balance sheet”

• Originates receivables

• Continues to service the receivables

• Owns receivables

• Sells highly rated securities

• Receive a return on investment

Ford Financial

Trust A/L

Investors

Receivables

Securities

$ Proceeds

$ Proceeds

Receivables

Securities


In Securitization, We Sell Securities To Investors Backed By Financial Assets

41NOT RECENTLY USED

DIRECT TOTHE MARKET

BANK-SPONSORED

CONDUITS

DISTRIBUTION CHANNELS FOR ALTERNATIVE FUNDING

PROVEN CAPABILITY

ASSET CLASSES

ASSET-BACKED

COMMERCIAL PAPER(FCAR)

FORDFINANCIAL

RETAILASSETS

WHOLESALEASSETS

LEASEASSETS


In Securitization, We Have Multiple Asset Classes And Distribution Channels

42

Accounting Standards Require Ford Credit to Recognize a Gain or Loss on Sale at the Time of Securitization

• Securitization pulls the asset gain or loss to the time of sale

• Profit impact will be neutral over time

• Gain/loss magnitude in the calendar year will vary depending on timing of transaction

Year 1 Year 2 Year 3

= Earnings

A January retail ABS pulls forward 24 months of earnings: 12 months’

earnings from year 1 and 12 months’ from year 2

A December retail ABS pulls forward 24 months of

earnings: 1 month’s earnings from year 1, 12 months’

earnings from year 2 and 11 months’ from year 3

This Recognition Recalendarizes Expected Profits:

10-K Report – Pages 31-32

43


Securitization Requires The Use Of A Special Purpose Entity (SPE)

Ford Financial

Trust A/L

Investors

Receivables Securities

$ Proceeds

$ Proceeds

Receivables

Securities

• SPE is typically a bankruptcy- remote trust

• Transferred receivables are beyond reach of transferor

• The transferee is a “qualifying” SPE (QSPE) or an SPE with minimum 3% outside equity

• The transferor must surrender all control over the transferred receivables

• We use SPEs consistent with conventional industry practices to achieve off-balance sheet status

• We had 50 SPEs at February 28, 2002, including 14 sponsored by banks

• None of our officers, directors or employees holds any equity interests in our SPEs

Transferor

Transferee

44

Owned Securitized

Total Managed

Finance Receivables

Retail Installment

$83.4 $41.2 $124.6

Wholesale 15.4 17.4 32.8

Other 10.9 - 10.9

Subtotal $109.7 $58.6 $168.3

Net Investment in Operating Leases 39.3 0.2 39.5

Total $149.0 $58.8 $207.8

Managed Receivables Include Owned And Sold Receivables

Receivables as of Dec. 31, 2001 (Bils.)


45

Bank-sponsored asset-backed commercialpaperAsset-backedcommercial paper

Ford Credit

Ford Credit Europe

Bank lines shared withFord

$33.4 *

$40.3 *

8.1 8.0

4.5 * 4.3 *

19.4 *

8.7 *

6.8

Year-End2000

Year-End2001

12.5

Back-up Facilities

• Enhance liquidity by protecting refinancing risk

• Market requirement to support commercial paper balances

2001 Implemented Enhancements:

• Increased back-up capacity by expanding distribution channels: Asset-backed commercial

paper Bank-sponsored asset-

backed commercial paper issuers

We Have Increased Our Back-up Credit Facilities To Enhance Liquidity

* Net of used


46

We Monitor Leverage and Adjust Our Capital Structure Over Time

8

9

10

11

12

13

14

15

16

1999 2000 2001* 2002 Feb.

Implemented actions to hold leverage at our targeted level of 14:1• Eliminated planned 4th quarter 2001 and 1st quarter 2002 dividends to Ford• Ford made a capital contribution of $700 million on January 11, 2002• Continue to monitor leverage

Owned Managed

Total Debt

+ Gross Sold

Receivables

- Retained

Interest

- Other *

Adjusted Debt

Equity

+ SFAS-133

Adjusted Equity

Leverage (to 1)

(Bils.)

$146.3

-

-

(5.0)

$141.3

$12.0

0.6

$12.6

11.2

(Bils.)

$146.3

58.7

(12.5)

(5.0)

$187.5

$12.0

0.6

$12.6

14.8

Year-End 2001

14.8

13.6

11.2

14.0

12.0

13.6

12.2

9.7

* SFAS 133, overborrowing portfolio and cash


Debt-to-Equity Ratio

Managed

Owned

47

Agenda







• Profits

• Conclusion

48

Effective Financing Execution Results in Higher Customer Loyalty

Customer Loyalty

Higher Customer Loyalty

Originate

• Buy it Right

Service

• Operate Efficiently• Collect it Effectively

Fund

• Fund it Efficiently• Manage Risks

49

Customer Loyalty to Ford

Loans

49%57%

45%

0%

25%

50%

75%

100%

FordCredit

Dealer-ArrangedBank Customers

CreditUnions

Leases

85%

66%

0%

25%

50%

75%

100%

FordCredit

Dealer-ArrangedBank Customers

Customer Loyalty

Source: Ford New Vehicle Customer Survey

50

Borrowing Costs Operating Expenses

Credit Losses

PROFITS

Dividends to Ford

Our Profits Contribute Directly to Ford

• Ford Credit is a wholly-owned subsidiary of Ford Motor Company

• A portion of Ford Credit’s profits are paid as a dividend to Ford; the reminder is retained at Ford Credit to manage leverage


51

Ford Credit is a Large and Important Contributor to Company Profits

$0.8

$1.5

$1.3

$1.1$1.0

$0.4*

1997 1998 1999 2000 2001

$1.2

Ford Credit Net Income ($-Bil.) Ford Credit Share of Total Ford Net Income

Ford Credit $5.8 Bil.

32%

Automotive Sector $10.6 Bil.

58%

Total 1997-2001 Company Net Income $18.3 Bil. *

Total 1997-2001 Net Income ($-Bils.)

* Excludes gain on spin-off of The Associates

Hertz & Other

$1.9

10%

* One time adjustment in 2001 of $(361) mil. for SFAS 133 and unusual charges

Dividends to Ford $ 0.6 $ 0.5 $ 2.3 $ 0.1 $ 0.4


52

Agenda







• Profits

• Conclusion

53

Modify Vision & Mission Moderate Asset Growth

From

Global Auto Finance Superpower

Industry-leading Growth

Broad Range of Products and Services

From

Global Auto Finance Superpower

Industry-leading Growth

Broad Range of Products and Services

Focus on Automotive Synergies

and Efficient Use of Capital

Re-focus Strategic Direction

To

Focus on AutoFinancing to Ford Brands

Superior Profitability

Focused Range Of Products and Services $113

$245

$208

1995 2001 2006

PriorPlan

PresentPlan

Managed Receivables (Bils.)

54

Summary

• We are focusing on the basics of our business:

– Buy it right – including pricing and risk

– Operate efficiently

– Collect it effectively

– Provide outstanding service to our customers, driving higher owner loyalty

• We will continue to be a competitive advantage for Ford and our dealers

55

Credit University

click to download ford credit 10k and financial review

Documents

total ford credit

ford credit market share

ford credits mission

automotive financial

ford vehicle market

financial services industry

customer relationships

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