Ford 2010 Annual Report Download - page 56

Management’s Discussion and Analysis of Financial Condition and Results of Operations
54 Ford Motor Company | 2010 Annual Report
Ford Credit is engaged as servicer to collect and service the securitized assets. Its servicing duties include collecting
payments on the securitized assets and preparing monthly investor reports on the performance of the securitized assets
and on amounts of interest and/or principal payments to be made to investors. While servicing securitized assets, Ford
Credit applies the same servicing policies and procedures that Ford Credit applies to its owned assets and maintains its
normal relationship with its financing customers.
Ford Credit generally has no obligation to repurchase or replace any securitized asset that subsequently becomes
delinquent in payment or otherwise is in default. Securitization investors have no recourse to Ford Credit or its other
assets for credit losses on the securitized assets and have no right to require Ford Credit to repurchase their
investments. Ford Credit does not guarantee any asset-backed securities and has no obligation to provide liquidity or
make monetary contributions or contributions of additional assets to its SPEs either due to the performance of the
securitized assets or the credit rating of its short-term or long-term debt. However, as the seller and servicer of the
securitized assets, Ford Credit is obligated to provide certain kinds of support to its securitization transactions, which are
customary in the securitization industry. These obligations include indemnifications, repurchase obligations on assets
that do not meet eligibility criteria or that have been materially modified, the mandatory sale of additional assets in
revolving transactions, and, in some cases, servicer advances of certain amounts.
Risks to Continued Funding under Securitization Programs. The following securitization programs contain structural
features that could prevent Ford Credit from using these sources of funding in certain circumstances:
• Retail Securitization. If the credit enhancement on any asset-backed security held by FCAR is reduced to zero,
FCAR may not purchase any additional asset-backed securities or issue additional commercial paper and would
wind down its operations. In addition, if credit losses or delinquencies in Ford Credit's portfolio of retail assets
exceed specified levels, FCAR is not permitted to purchase additional asset-backed securities for so long as such
levels are exceeded.
• Retail Conduits. If credit losses or delinquencies on the pool of assets held by a conduit exceed specified levels,
or if the level of over-collateralization or credit enhancements for such pool decreases below a specified level, Ford
Credit will not have the right to sell additional pools of assets to that conduit.
• Wholesale Securitization. If the payment rates on wholesale receivables in the securitization trust are lower than
specified levels or if there are significant dealer defaults, Ford Credit will be unable to obtain additional funding and
any existing funding would begin to amortize.
• Retail Warehouse. If credit losses or delinquencies in Ford Credit's portfolio of retail assets exceed specified
levels, Ford Credit will be unable to obtain additional funding from the securitization of retail installment sale
contracts through its retail warehouse facility (i.e., a short-term credit facility under which draws are backed by the
retail contracts).
• Lease Warehouse. If credit losses or delinquencies in Ford Credit's portfolio of retail lease contracts exceed
specified levels, Ford Credit will be unable to obtain additional funding from the securitization of retail lease
contracts through its lease warehouse facility (i.e., a credit facility under which draws are backed by the retail lease
contracts).
In the past, these features have not limited Ford Credit's ability to use securitization to fund its operations.
In addition to the specific transaction-related structural features discussed above, Ford Credit's securitization
programs may be affected by the following factors: market disruption and volatility, the market capacity for Ford Credit
and Ford Credit's sponsored investments, the general demand for the type of assets supporting the asset-backed
securities, the availability of committed liquidity facilities, the amount and credit quality of assets available, the
performance of assets in its previous securitization transactions, accounting and regulatory changes, and Ford Credit's
credit ratings. In addition, a bankruptcy of Ford, Ford Credit, or FCE would cause certain of Ford Credit's funding
transactions to amortize and result in a termination of certain liquidity commitments. If, as a result of any of these or
other factors, the cost of securitization funding were to increase significantly or funding through securitization
transactions were no longer available to Ford Credit, it would have a material adverse impact on Ford Credit's financial
condition and results of operations, which could adversely affect its ability to support the sale of Ford vehicles.