Ford 2007 Annual Report Download - page 33

Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2007 Annual Report 31
Consistent with the overall market, Ford Credit was impacted by volatility in the asset-backed securities markets during
the second half of 2007. Since August 2007, Ford Credit has experienced higher credit spreads and, in certain
circumstances, shorter maturities in its public and private securitization issuances. Given present market conditions, Ford
Credit expects that its credit spreads and the cost of renewing its committed liquidity programs will increase in 2008.
If there were reductions in the market capacity for the types of asset-backed securities used in Ford Credit's asset-
backed funding, there could be increased risk to its available funding sources. As a result, Ford Credit may need to reduce
the amount of receivables and operating leases it purchases or originates. A significant reduction in Ford Credit's managed
receivables would reduce its ongoing profits, and could adversely affect its ability to support the sale of Ford vehicles.
Debt and Cash. Ford Credit's total debt plus securitized off-balance sheet funding was $144.7 billion at
December 31, 2007, $6.2 billion lower compared with a year ago. At December 31, 2007, Ford Credit's cash, cash
equivalents and marketable securities (excluding marketable securities related to insurance activities) totaled $16.7 billion
(including $4.7 billion to be used only to support on-balance sheet securitizations), compared with $21.8 billion at year-
end 2006. 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 needs 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. 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 securitizations 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. During 2007, Ford Credit continued to meet a significant portion of its funding requirements through
securitizations because of their lower relative costs given its 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 at the end of each of the last three years: 2007 – 51%, 2006 – 48%, 2005 – 38%.
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, and other international
markets. At December 31, 2007, 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 $5.4 billion. At December 31, 2007, the
principal amount outstanding of Ford Credit's unsecured commercial paper was about $500 million. Ford Credit does not
hold reserves specifically to fund the payment of any of its short-term funding obligations. Instead, Ford Credit maintains
multiple sources of liquidity, including cash, cash equivalents, and marketable securities (excluding marketable securities
related to insurance activities), unused committed liquidity programs, excess securitizable assets, and committed and
uncommitted credit facilities, which Ford Credit believes should be sufficient for its short-term funding obligations.
The following table illustrates Ford Credit's public and private term funding issuances for 2006 and 2007 and its
planned issuances for 2008 (in billions):
!!
!!!!
!!!
!!
! "##C
"##C"##C
"##C!
!!
!D*4,)706
D*4,)706D*4,)706
D*4,)706!
!!
! "##$
"##$"##$
"##$!
!!
! "##%
"##%"##%
"##%!
!!
!
K:2E5)!G,4+!D:(N5(O!
K:2E5)!G,4+!D:(N5(O!K:2E5)!G,4+!D:(N5(O!
K:2E5)!G,4+!D:(N5(O!!
!!
! ! ! ! ! !
X(0,):4,N<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< =!!!!!!!#!U !!!"! =! %! =! @!
F,):4565`765*(0!.71 <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< ! !!!!C!U !A>! ! %! ! A>!
G*67E!I:2E5)!6,4+!3:(N5(O <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< =! !!C!U !A%! =! A"! =! "B!
! ! ! !
K45;76,!G,4+!D:(N5(
K45;76,!G,4+!D:(N5(K45;76,!G,4+!D:(N5(
K45;76,!G,4+!D:(N5(O
OO
O!
!!
!.21 <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< =! A#!U !"#! =! "C! =! "@!
__________
(a) Reflects new issuance; excludes whole loan sales and other structured financings.
(b) Includes private term debt, securitizations, other structured financings and whole loan sales; excludes sales to Ford Credit's on-balance sheet asset-
backed commercial paper programs
The cost of securitizations and unsecured debt funding is based on a margin or spread over a benchmark interest rate.
Spreads are typically measured in basis points. Ford Credit's asset-backed funding and unsecured long-term debt costs are
based on spreads over U.S. Treasury securities of similar maturities, a comparable LIBOR or other comparable benchmark
rates. Ford Credit's unsecured commercial paper funding costs are based on spreads to LIBOR. Ford Credit's floating rate