Ford 2010 Annual Report Download - page 49

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2010 Annual Report 47
Pension Plan Contributions. Our policy for funded plans is to contribute annually, at a minimum, amounts required by
applicable laws and regulations. We do from time to time make contributions beyond those legally required. In 2010, we
contributed $1 billion to our worldwide funded pension plans (including Volvo) and made $400 million of benefit payments
directly by the Company for unfunded plans (including Volvo). During 2011, we expect to contribute from Automotive
cash and cash equivalents $1.2 billion to our worldwide funded plans, and to make $400 million of benefit payments
directly by the Company for unfunded plans, for a total of $1.6 billion.
Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major
U.S. pension plans in 2011. For discussion of our pension plans, see Note 18 of the Notes to the Financial Statements.
Liquidity Sufficiency. One of the four key priorities of our business plan is to finance our plan and strengthen our
balance sheet, while at the same time having resources available to grow our business. The actions described above
are consistent with this priority. Based on our planning assumptions, we believe that we have sufficient liquidity and
capital resources to continue to invest in new products that customers want and value, grow our business, pay our debts
and obligations as and when they come due, and provide a cushion within an uncertain global economic environment.
We will continue to look for opportunities to strengthen our balance sheet, primarily by working to ensure our underlying
business generates positive Automotive operating-related cash flow that can be used to reduce debt even as we
continue to invest in the growth of our business.
Financial Services Sector
Ford Credit
Funding Strategy. Ford Credit's funding strategy is to have sufficient liquidity to enable it to profitably support us, our
dealers and customers in all economic environments. Ford Credit maintains a substantial cash balance, committed
funding capacity, and access to diverse funding sources, and it also manages interest rate and currency risks. Ford
Credit's credit ratings improved in 2010 though Ford Credit remains below investment grade levels. As a result,
securitization continues to represent a substantial portion of its funding mix as this market remains more cost effective
than unsecured funding and allows access to a wider investor base. Ford Credit expects its unsecured funding mix to
increase as it is able to source term funding from the unsecured markets on increasingly favorable terms. In addition,
Ford Credit has various alternative business arrangements for select products and markets that reduce its funding
requirements while allowing it to support Ford (e.g., Ford Credit's partnering in Brazil for retail financing and FCE’s
partnering with various institutions in Europe for full service leasing and retail and wholesale financing).
In 2010, Ford Credit completed about $19 billion of public and private securitization funding in the United States,
Canada and Europe across all asset classes, including $2 billion in the fourth quarter. Ford Credit also completed about
$6 billion of unsecured funding globally, including $1 billion in the fourth quarter. Ford Credit extended the term of its
funding by issuing unsecured debt at longer tenors and selling longer term subordinate notes of its securitization
transactions. Ford Credit's credit spreads improved significantly compared to 2009 levels reflecting improved credit
profiles of Ford and Ford Credit, strong investor demand for its debt transactions and supportive markets.
At December 31, 2010, Ford Credit had committed capacity totaling $34.3 billion, about equal to 2009 year-end
levels. About 69% of its committed capacity, as of December 31, 2010, is up for renewal in 2011. Ford Credit's renewal
strategy is to protect its global funding needs, optimize capacity utilization and maintain sufficient liquidity. Most of its
asset-backed committed facilities enable it to obtain term funding up to the time that the facilities mature. Any
outstanding debt at the maturity of the facilities remains outstanding and is repaid as underlying assets liquidate. Ford
Credit's ability to obtain funding under its committed asset-backed liquidity programs is subject to having a sufficient
amount of assets eligible for these programs, and for certain programs, having the ability to obtain derivatives to manage
the interest rate risk.
Ford Credit's funding plan is subject to risks and uncertainties, many of which are beyond its control, including
disruption in the capital markets for the types of asset-backed securities used in its asset-backed funding and the effects
of regulatory reform efforts on the financial markets. Potential impacts of industry events and regulation on its ability to
access debt and derivatives markets, or renew its committed liquidity programs in sufficient amounts and at competitive
rates, represents another risk to Ford Credit's funding plan. As a result of such events or regulation, Ford Credit may
need to reduce new originations thereby reducing its ongoing profits and adversely affecting its ability to support the sale
of Ford vehicles.