Ford 2005 Annual Report Download - page 46

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Managementʼs Discussion and Analysis of Financial
Condition and Results of Operations
See Note 23 of the Notes to the Financial Statements for more information regarding costs and assumptions for other
postretirement benefits.
Sensitivity Analysis. The December 31, 2005 OPEB obligation is affected by December 31, 2005 assumptions. OPEB expense for
2005 is based on the plan design and assumptions as of December 31, 2004. Note that these sensitivities may be asymmetric, and are
specific to 2005. They are not additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining
the individual sensitivities shown. The effect of the indicated increase/(decrease) in selected assumptions is shown below (in
millions):
Effect on U.S. and Canadian Plans:
Increase/(Decrease)
Assumption
Percentage
Point Change
December 31, 2005
Obligation
2005
Expense
Discount rate..................................................................................................................... +/- 1.0 pt. $(5,540)/$6,330 $(460)/$530
Health care cost trend rates — total expense ................................................................... +/- 1.0 4,910/(3,890) 830/(650)
Health care cost trend rates — service and interest expense ........................................... +/- 1.0 4,910/(3,890) 490/(380)
Allowance for Credit Losses — Financial Services Sector
The allowance for credit losses is Ford Credit's estimate of credit losses related to impaired finance receivables and operating
leases at the date of the financial statements. Ford Credit monitors credit loss performance monthly and assesses the adequacy of its
allowance for credit losses quarterly. Because credit losses can vary substantially over time, estimating credit losses requires a
number of assumptions about matters that are uncertain.
Nature of Estimates Required. Ford Credit estimates the credit losses related to impaired finance receivables and operating leases
by evaluating several factors including historical credit loss trends, the credit quality of its present portfolio, trends in historical and
projected used vehicle values and general economic measures.
Assumptions Used. Ford Credit makes projections of two key assumptions:
•Frequency. The number of finance receivables and operating lease contracts that it expects will default over a period of time,
measured as repossessions; and
•Loss severity. The expected difference between the amount a customer owes Ford Credit when it charges off the finance
contract and the amount it receives, net of expenses, from selling the repossessed vehicle, including any recoveries from the
customer.
Ford Credit uses these assumptions to assist in setting its allowance for credit losses. See Note 14 of the Notes to the Financial
Statements for more information regarding allowance for credit losses.
Sensitivity Analysis. Changes in the assumptions used to derive frequency and severity would affect the allowance for credit
losses. The effect of the indicated increase/decrease in the assumptions is shown below for Ford, Lincoln and Mercury brand vehicles
in the United States (in millions):
Increase/(Decrease)
Assumption
Percentage
Point Change
December 31, 2005
Allowance for
Credit Losses
2005
Expense
Repossession rates *......................................................................................................... +/- 0.1 pt. $40/$(40) $40/$(40)
Loss severity..................................................................................................................... +/- 1.0 10/(10) 10/(10)
__________
* Reflects the number of finance receivables and operating lease contracts that we expect will default over a period of time relative to the average number of
contracts outstanding.
Changes in our assumptions affect the Provision for credit losses on our income statement and the allowance for credit losses
contained within Finance receivables, net on our balance sheet.
Ford Motor Company Annual Report 2005 44 Ford Motor Company Annual Report 2005 45