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3 8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Services Sector
Ford Credit
Debt and Cash. Ford Credit’s total debt was $144.3 billion at December 31, 2004, down $5.4 billion compared with a
year ago, primarily reflecting lower funding requirements due to lower asset levels. Ford Credit’s outstanding unsecured
commercial paper at December 31, 2004 totaled $8.9 billion, up $2.8 billion compared with a year ago and up approximately
$700 million compared with year-end 2002, primarily reflecting increased investor demand.
At December 31, 2004, Ford Credit had cash and cash equivalents of $12.7 billion. In the normal course of its funding
activities, Ford Credit may generate more proceeds than are necessary for its immediate funding needs. These excess amounts
are maintained primarily as highly liquid investments, which provide liquidity for Ford Credit’s short-term funding obligations
and give Ford Credit flexibility in the use of its other funding programs.
Funding. Ford Credit requires substantial funding in the normal course of business. Ford Credit’s funding requirements are driven
mainly by the need to (i) purchase retail installment sale contracts and vehicle leases to support the sale of Ford products, which
are influenced by Ford-sponsored special financing and leasing programs that are available exclusively through Ford Credit, (ii)
provide vehicle inventory and capital financing for Ford dealers, and (iii) repay its debt obligations.
Ford Credit’s funding sources include debt issuances, sales of receivables in securitizations and other structured financings, and
bank borrowings. Debt issuance consists of short- and long-term unsecured debt, placed directly by Ford Credit or through
securities dealers or underwriters in the United States and international capital markets, and reaches both retail and institutional
investors. Ford Credit issues commercial paper in the United States, Europe, Canada and other international markets. In addition
to its commercial paper programs, Ford Credit also obtains short-term funding from the sale of floating rate demand notes,
which may be redeemed at any time at the option of the holder thereof without restriction. At December 31, 2004, the principal
amount outstanding of such notes was $7.7 billion. Ford Credit does not hold reserves to fund the payment of the demand notes
or any other short-term funding obligation. Ford Credit’s policy is to have sufficient cash and cash equivalents, unused committed
bank-sponsored asset-backed commercial paper issuer capacity, securitizable assets, and back-up credit facilities to provide
liquidity for all of its short-term funding obligations.
During 2004, Ford Credit continued to meet a significant portion of its funding requirements through securitizations because of
the stability of the market for asset-backed securities, their lower relative costs given our credit ratings (as described below), and
the diversity of funding sources that they provide. Securitized funding (both on- and off-balance sheet, net of retained interests)
as a percent of total managed receivables was as follows as of the end of each of the last three years: 2004 - 24%, 2003 - 25%,
2002 - 28%.
The following table illustrates Ford Credit’s term public funding issuances for 2003 and 2004 and its planned
issuances for 2005 (in billions):
The cost of both debt and funding in securitizations is based on a margin or spread over a benchmark interest rate, such as
interest rates paid on U. S. Treasury securities of similar maturities. Over the last two years, on an indicative basis, spreads on
Ford Credit’s securitized funding have fluctuated between 35 and 63 basis points above 3-year U.S. Treasury securities, while
Ford Credit’s unsecured long-term debt funding spreads have fluctuated between 124 and 638 basis points above comparable
U.S. Treasury securities. In 2004, on an indicative basis, Ford Credit’s unsecured term-debt spreads fluctuated between 124 and
205 basis points above 3-year U.S. Treasury securities, with an average spread of 162 basis points and a year-end spread of
165 basis points above comparable U.S. Treasury securities.
2005
Forecast 2004 2003
Unsecured Term Debt
Institutional $ 5 – 9 $ 7 $ 15
Retail 5 – 6 5 4
Total unsecured term debt 10 – 15 12 19
Term Public Securitization* 10 – 15 6 11
Total term public funding $ 20 – 30 $ 18 $ 30
* Reflects new issuance and includes funding from discontinued operations in 2004 and 2003; excludes whole-loan sales, and other structured financings.