Ford 2010 Annual Report Download - page 50

Management’s Discussion and Analysis of Financial Condition and Results of Operations
48 Ford Motor Company | 2010 Annual Report
Funding. Ford Credit requires substantial funding in the normal course of business. Its funding requirements are
driven mainly by the need to: (i) purchase retail installment sale contracts and retail lease contracts to support the sale of
Ford products, which are influenced by Ford-sponsored special-rate financing programs that are available exclusively
through Ford Credit, (ii) provide wholesale financing and capital financing for Ford dealers, and (iii) repay its debt
obligations.
Ford Credit's funding sources include primarily securitization transactions (including other structured financings) and
unsecured debt. Ford Credit issues both short- and long-term debt that is held by both institutional and retail investors,
with long-term debt having an original maturity of more than 12 months. Ford Credit sponsors a number of securitization
programs that can be structured to provide both short- and long-term funding through institutional investors in the United
States and international capital markets.
Ford Credit obtains short-term unsecured funding from the sale of floating rate demand notes under its Ford Interest
Advantage program and by issuing unsecured commercial paper in the United States, Europe, Mexico, and other
international markets. At December 31, 2010, the principal amount outstanding of Ford Interest Advantage notes, which
may be redeemed at any time at the option of the holders thereof without restriction, was $4.5 billion. At present, all of
Ford Credit's short-term credit ratings by nationally recognized statistical rating organizations ("NRSROs") are below the
Tier-2 category, and as a result it has limited access to the unsecured commercial paper market and Ford Credit's
unsecured commercial paper cannot be held by money market funds. At December 31, 2010, the principal amount
outstanding of Ford Credit's unsecured commercial paper was about $80 million which represents issuance under its
commercial paper program in Mexico. Ford Credit does not hold reserves specifically to fund the payment of any of its
unsecured short-term funding obligations. Instead, Ford Credit maintains multiple sources of liquidity, including cash,
cash equivalents, and marketable securities (excluding marketable securities related to insurance activities), unused
committed liquidity programs, excess securitizable assets, and committed and uncommitted credit facilities, which should
be sufficient for Ford Credit's unsecured short-term funding obligations.
U.S. Financial Industry Regulations. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act")
was enacted July 21, 2010 to reform practices in the financial services industries, including automotive financing and
securitization of automotive finance receivables. Since its enactment, the Act has briefly interrupted the securitization
market on several occasions. Each time, temporary or indefinite regulatory clarifications have reopened the markets.
The Act is subject to significant rulemaking, and we cannot predict the impact of the Act and the resulting regulations on
our business until such rulemaking is complete.
Government-Sponsored Securitization Funding Programs
U.S. Federal Reserve's Term Asset-Backed Securities Loan Facility ("TALF"). TALF began in March 2009 to make
credit available by restoring liquidity in the asset-backed securitization market. TALF expired in March 2010. At
December 31, 2010, the outstanding balance of Ford Credit's asset-backed securities that were TALF-eligible at
issuance was $7.7 billion, compared with $8.1 billion at December 31, 2009 reflecting issuance of $2.3 billion in the first
quarter of 2010 more than offset by amortization of about $2.7 billion in 2010. The outstanding balance of Ford Credit's
asset-backed securities that were TALF-eligible at issuance will decline to zero over time as the debt continues to
amortize and no new securities are issued.
European Central Bank ("ECB") Open Market Operations. FCE is eligible to access liquidity through the ECB’s open
market operations program. This program allows eligible counterparties to use eligible assets (including asset-backed
securities) as collateral for short-term liquidity. During 2010, FCE repaid all ECB funding relating to retained asset-
backed securities with the majority of previously retained asset-backed securities now placed with traditional public term
securitization investors. FCE continues to obtain funding from the ECB under a longstanding credit claim program using
certain of its German wholesale receivables as collateral. At December 31, 2010, FCE had $67 million of funding from
the ECB, down from $1.8 billion at December 31, 2009.