Ford 2013 Annual Report Download - page 39

Ford Motor Company | 2013 Annual Report 37
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
2012 Compared with 2011
The chart below details the change in Ford Credit’s 2012 pre-tax results compared with 2011 by causal factor.
The unfavorable lease residual performance primarily reflected lower residual gains, driven by lower termination and
return volumes and lower per-unit gains. On average, vehicles were sold at gains in 2011 and 2012, but Ford Credit had
fewer lease vehicles returned. For 2012, the lower return volume and smaller per-unit gains resulted in $523 million
adverse residual performance when compared to 2011.
Lower financing margin is more than explained by a reduction in revenue from consumer finance receivables and
operating leases in North America. This decline reflected the run-off of higher yielding consumer finance receivables and
operating leases originated in prior years and the origination in more recent years of lower yielding assets. Interest
expense as a percent of average receivables decreased, but at a lower rate.
LIQUIDITY AND CAPITAL RESOURCES
Automotive Sector
Our Automotive liquidity strategy includes ensuring that we have sufficient liquidity available with a high degree of
certainty throughout the business cycle by generating cash from operations and maintaining access to other sources of
funding. We target to have an average ongoing Automotive gross cash balance of about $20 billion. We expect to have
periods when we will be above or below this amount due to (i) future cash flow expectations such as for pension
contributions, debt maturities, capital investments, or restructuring requirements, (ii) short-term timing differences, and
(iii) changes in the global economic environment. In addition, we also target to maintain a revolving credit facility for our
Automotive business of up to about $10 billion to protect against exogenous shocks. As discussed below, we currently
have total commitments of $10.7 billion under our revolving credit facility.
We assess the appropriate long-term target for total Automotive liquidity, comprised of gross cash and the revolving
credit facility, to be about $30 billion, which is an amount we believe is sufficient to support our business priorities and to
protect our business. Our Automotive gross cash and Automotive liquidity targets could be reduced over time based on
improved operating performance and changes in our risk profile.
For a discussion of risks to our liquidity, see “Item 1A. Risk Factors,” of our Annual Report on Form 10-K for year
ended December 31, 2013, as well as Note 29 of the Notes to the Financial Statements regarding commitments and
contingencies that could impact our liquidity.
For more information visit www.annualreport.ford.com