CREDIT UNIVERSITY
March 13, 2015
CREDIT UNIVERSITY
Outline
•
Ford Credit Strategic Value, Virtuous Circle and Value
Proposition
•
Scope of Operations
•
Ford Credit Business Model and the Drivers of the Business
– Originate: Buy it Right
– Service: Operate Efficiently, Collect Effectively
– Fund: Fund Efficiently, Manage Risk
•
Ford Credit Profit Reporting
SLIDE 1
Anything else is just credit.
Ford Credit Strategic Value,
Virtuous Circle and
Value Proposition
SLIDE 3
FORD CREDIT STRATEGIC VALUE
•
Profitably support Ford, its dealers and customers through
economic cycles
•
Strategic value delivered through:
– More than 55 years of automotive financing experience
– Consistent vehicle inventory financing, supporting automotive
production plans and dealer inventory requirements
– Exclusive Ford and Lincoln retail and lease consumer
financing products; integrated marketing strategies
SLIDE 4
FORD CREDIT STRATEGIC VALUE
•
Ford Credit is integrally tied to Ford Motor Company
•
Our profitability is based on competitive leverage and
return targets
•
We have a relentless focus on driving value based on:
– A competitive funding structure
– A world-class operating cost structure
– A world-class risk management organization
•
Our comprehensive customer relationship management process
enhances the sales and service experience, and drives repeat
business for Ford and Lincoln
•
Ford Credit’s processes and focus create the “Virtuous Circle”
SLIDE 5
A VIRTUOUS CIRCLE -INTEGRATION CREATES A STRATEGIC ADVANTAGE
• Trusted brand
• Access to dealer channel
• Automotive specialist
with vested interest in
Ford dealer success
More
products,
faster
Dealers
• Training and
consulting
• Consistent market presence
• Fast, flexible, quality service
• Full array of products
• Incremental vehicle sales
(Spread of business and
customer relationship
management)
• Higher customer satisfaction
and loyalty
• Profits and dividends
SLIDE 6
FORD CREDIT VALUE PROPOSITION -CUSTOMER LOYALTY TO FORD
U.S. ‐ % Loyal to Ford & Lincoln
Europe (Big 5 Markets) ‐ % Loyal to Ford*
75%
75%
65%
65%
55%
55%
27 ppts.
17 ppts.
45%
45%
35%
35%
25%
25%
2010
2011
Ford Credit
2012
Dealer Arranged
2013
2014
Customer Arranged
Source: Maritz New Vehicle Customer Survey 2010-2014
2009
2010
Ford Credit
2011
2012
Dealer Arranged
2013
Customer Arranged
Source: Internal
* 2014 European Data will be available in 2Q 2015
Customers Who Finance With Ford Credit Are More Loyal To Ford
Compared With Customers Who Finance With Other Lenders
SLIDE 7
FORD CREDIT VALUE PROPOSITION -U.S. CUSTOMER SATISFACTION WITH
DEALER-ARRANGED FINANCING
90%
6 ppts.
Ford Credit Financing
Other Dealer-Arranged Financing
Source: Maritz New Vehicle Customer Survey 2010–2014
40%
2010
2011
2012
2013
2014
Customers Are More Satisfied With Ford Credit
Than Other Dealer-Arranged Financing
SLIDE 8
FORD CREDIT VALUE PROPOSITION -FORD CREDIT U.S. FLOORPLAN DEALERS
Performance vs.
Non-Ford Credit Dealers
Automotive Retail Market Share
+ 0.8
ppts
+ 11.8
ppts
Customer Satisfaction
+ 2.0
ppts
Certified Pre-Owned Penetration
+ 5.4
ppts
+ 11.8
ppts
(within the dealer’s market area)
Ford Credit Share of Ford / Lincoln Retail Sales
(as a % of total used vehicle sales)
Extended Service Plan Penetration
Ford Credit, Through The Virtuous Circle, Delivers Higher Value To Ford, Our
Dealers And Our Customers Than Other Finance Providers
SLIDE 9
FORD CREDIT VALUE PROPOSITION -HISTORICAL PROFITABILITY
$4.9
Pre-tax Profits
Distributions
$3.7
$3.1
$2.9
$2.3
$2.5
$2.2
$2.1
$1.8
$1.8
$2.5
$2.4
$2.0
$2.0
$2.0
$1.7
$1.8
$1.9
$1.2
$(2.6)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Over The Last 20 Years, Ford Credit Generated
$42 Billion In Pre-Tax Profits And $28 Billion In Distributions
SLIDE 10
Scope of Operations
FORD CREDIT GLOBAL PRESENCE
Ford Credit Operations
Joint Ventures
Outsource Partners
Ford Credit Export Finance
Ford Credit Supports Ford Everywhere It Operates Around The World -With The Right Business Model For Each Market
SLIDE 12
SIZE AND SCOPE OF OPERATIONS
•
Ford indirectly owns 100% of Ford Credit
•
Ford Credit offers a wide variety of automotive financing products
to and through automotive dealers around the world
•
Ford Credit has about 6,500 full-time employees and provides
financing in approximately 100 countries
•
As of year-end 2014, Ford Credit was financing worldwide:
– About 5,200 Ford and Lincoln dealers
– About 4.2 million customer contracts
•
Ford Credit generates about 100 million customer touch points
every year through websites, calls, e-mails, preapprovals,
and invoices
SLIDE 13
WORLDWIDE MANAGED RECEIVABLES AND
EQUITY AT YEAR-END 2014
Managed Receivables* Of $113 Billion
Regional View
Product View
International
19%
$22 Billion
Dealer Loan
and Other
3%
$3 Billion
Wholesale 27%
$31 Billion
Retail 49%
$55 Billion
U.S. & Canada
81%
$91 Billion
Leases 21%
$24 Billion
Equity**
$11.4 Billion
Supporting
Operations
* Managed receivables equals net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). See
Appendix 1 for reconciliation to GAAP
** Equity equals shareholder’s interest reported on Ford Credit’s balance sheet
SLIDE 14
RELATIONSHIP AGREEMENT WITH FORD
•
Any extension of credit to Ford will be on arm’s-length terms
and will be enforced in a commercially reasonable manner
•
Ford Credit will not guarantee more than $500 million of
indebtedness of, or make equity investments in any of, Ford or
its automotive affiliates
•
Ford Credit can require Ford to make a capital contribution if
Ford Credit’s managed leverage is greater than 11.5 to 1
•
Ford Credit will not be required to accept credit or residual risk
beyond what it would be willing to accept acting in a prudent
and commercially reasonable manner
•
Ford and Ford Credit are separate, legally distinct companies
and will continue to maintain separate books, accounts, assets
and liabilities
•
Up to $2 billion of borrowing capacity under Ford’s revolving
credit facility allocated to Ford Credit
SLIDE 15
Ford Credit Business Model and
the Drivers of the Business
FORD CREDIT BUSINESS MODEL
• Buy it Right
• Operate Efficiently
• Collect Effectively
Originate
Service
Fund
• Fund Efficiently
• Manage Risks
SLIDE 17
ORIGINATIONS STRATEGY
• Buy it Right
• Operate Efficiently
• Collect Effectively
Originate
Service
Fund
• Fund Efficiently
• Manage Risks
•
Support Ford Motor Company brands
•
Build strong relationships with dealers
•
Segment credit applications and price appropriately for risk
•
Use robust credit evaluation and verification process
•
Ensure efficient use of capital
Technology And Judgment Combine To Buy It Right
SLIDE 18
ORIGINATIONS SCORING MODELS
•
Ford Credit’s proprietary originations scoring models assess the
creditworthiness of an applicant using a number of variables,
including information from the credit application, the proposed
contract terms and credit bureau data
•
Output of the origination scoring models is a proprietary risk
score referred to as Probability of Payment (POP)
– The origination scoring models build on the predictive power
of credit bureau and credit application data
– Internal studies show that POP is more effective than credit
bureau data alone
•
POP is used as a credit decisioning variable globally
•
Process governance includes:
– Senior personnel regularly review decisions of credit analysts
to ensure consistency with purchasing quality guidelines
– Quarterly Risk Management portfolio performance analysis is
performed
SLIDE 19
PURCHASING GUIDELINES AND CONTROL
PROCESSES
•
Ford Credit has originations policies and procedures that
leverage technology and use well established purchase
guidelines to ensure consistent credit decisions
– Portfolio Level: Purchase quality guidelines establish
portfolio targets for the purchase of lower and marginal
quality contracts and to manage the overall quality of
the portfolio
– Credit Application Level: Risk factor guidelines provide a
framework for credit application evaluation criteria focused
on the customer’s repayment ability, including for example,
loan-to-value, payment-to-income and contract term length
• Procedures are established for verification of income,
employment and residency if appropriate
These Capabilities Enable Predictability Of Portfolio Performance
SLIDE 20
2014 PORTFOLIO LARGELY REFLECTED
BUSINESS ORIGINATED IN PRIOR YEARS
2014 Portfolio
Prior Originations
2011 Originations
2012 Originations
2013
Originations
2014 Originations
Year-End 2014 Managed Receivables Were $113 Billion
SLIDE 21
HISTORICAL VOLUME AND RECEIVABLES
Contract Placement Volume (000s)
1,974
1,950
2008
1,762
1,193
1,218
2009
2010
1,420
2011
1,542
2012
2013
2014
End of Period Managed Receivables (Bils.)
~$155
$122
$97
2008
2009
$84
$85
$92
2010
2011
2012
$103
2013
$113
2014
$126
$123
- $128
2015
End of
Decade
Since 2010, Contract Volume And Receivables Have Been Growing
SLIDE 22
SERVICING STRATEGY
• Buy it Right
• Operate Efficiently
• Collect Effectively
Originate
Service
Fund
• Fund Efficiently
• Manage Risks
•
•
•
•
Ford Credit has a world-class servicing organization
Credit losses are an expected part of the business
The objective is to collect within the portfolio loss expectation while
managing costs
Customer and dealer satisfaction is critical
Technology And Judgment Combine To Minimize Credit Losses
SLIDE 23
SERVICING STRATEGY
•
Ford Credit’s proprietary behavioral scoring models assess the
risk of a customer default using a number of variables,
including origination characteristics, customer history,
payment patterns and updated credit bureau data
•
Output of the behavioral scoring models is a proprietary risk
score referred to as Probability of Default (POD)
– Contracts are scored monthly on their due date to get an
updated POD
– Ford Credit’s behavioral scoring models differ based on
contract characteristics and performance
•
Ford Credit regularly monitors the behavioral scoring models
to ensure the predictability of the variables and confirm the
continued business significance
Behavioral Scoring Models Support The Timely Resolution Of Payment Issues
SLIDE 24
SERVICING STRATEGY -- RISK SEGMENTATION
•
Segmentation allows the matching of the account risk with the
appropriate collection strategy
•
POD is the primary driver in determining risk segmentation
•
Risk segmentation establishes:
– Assignment issuance timing
– Follow-up intensity
– Assignment transfers from an early stage delinquency to a late
stage delinquency strategy
– Segmentation ensures past due customer accounts are
assigned to the right collection work queue at the right time
HIGH RISK
LOW RISK
EARLIER
ASSIGNMENT TIMING
LATER
HIGHER
FOLLOW-UP INTENSITY
LOWER
EARLIER
MOVE TO LATE STAGE COLLECTIONS
LATER
SLIDE 25
CREDIT LOSS KEY DRIVERS
•
Purchase Practices
– Broad spread of business (credit quality mix)
– New and used product mix
– Term and loan-to-value ratio
•
Collections Practices
– Proprietary risk score
– Assignment timing / Follow-up intensity
– Specialized departments based on delinquency stage
•
Economy
– Unemployment
– Growth
– Bankruptcy rates
– Used vehicle auction values
SLIDE 26
HISTORICAL CREDIT LOSS METRICS
Worldwide Charge-Offs (Mils.) and Loss-to-Receivables (LTR) Ratio (%)
1.07%
0.84%
0.57%
0.39%
0.47%
0.46%
LTR Ratio
0.24%
0.16%
0.18%
0.19%
$706
$523
$632
$1,135
$1,095
$415
$201
$136
$176
$209
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Worldwide Credit Loss Reserve (Mils.) and Reserves as a Pct.
of End-of-Period (EOP) Managed Receivables
1.61%
Reserves as %
of EOP Rec.
1.40%
1.19%
1.02%
0.81%
0.77%
0.63%
0.44%
0.37%
0.32%
$1,586
$1,110
$1,090
$1,668
$1,549
$854
$534
$408
$380
$359
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
SLIDE 27
HISTORICAL U.S. RETAIL AND LEASE
CREDIT LOSS DRIVERS*
Over-60-Day Delinquencies
Average Placement FICO Score
738
715
710
714
719
726
730
737
738
741
0.24% 0.24%
0.19%
0.15%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2.30%
1.36%
109
0.79%
1.35%
94
1.32%
81
1.18%
64
1.06%
0.74%
0.56%
2008
2011
2012
2013
2014
31
23
17
14
LTR
$433
$635 0.68%
0.36%
0.23%
$431
$309
$280
45
2007
0.14%
$775
1.86%
1.89%
2005 2006
Memo: Severity
0.15% 0.15%
Charge-Offs (Mils.) and LTR (%)
Repo.
Ratio
1.94%
74
0.14%
2.41%
2.30%
82
0.15%
2005 2006 2007 2008 2009 2010
Memo: New Bankruptcy Filings (000)
84
21
27
37
47
42
Repossessions (000)
3.01%
0.16%
2009
2010
2011
32
29
28
2012
2013
2014
$6,100 $6,300 $7,400 $9,900 $8,300 $6,900 $6,500 $6,900 $7,600 $7,900
$144
2005
2006
2007
2008
2009
2010
* Includes Ford, Lincoln and Mercury
2011
0.26% 0.27%
$100
$127
$146
2012
2013
2014
SLIDE 28
HISTORICAL U.S. LEASE RESIDUAL PERFORMANCE
Lease Return Volume (000)
Auction Values (At Incurred Mix)
24-Month
36-Month
39-Month / Other
24-Month
$19,740
189
$19,875
$19,000
$18,905
$18,765
159
$17,535
39
114
114
86
71
4
46
33
2010
38
17
12
2011
2012
26
17
29
2013
2014
Memo: Ford and Lincoln U.S. Return Rates
65%
56%
36-Month
71
44
49
62%
$17,865
$16,540
$15,800
62
$17,385
2010
2011
2012
2013
2014
Memo: Worldwide Net Investment in Operating Leases (Bils.)
71%
78%
$9.1
$10.1
$13.6
$18.3
$21.5
SLIDE 29
LEASE ACCOUNTING -- BASE DEPRECIATION
Assumptions:
Lease Term: 24 Months
MSRP: $21,000
– Generally, depreciation for
leases is the sum of base and
supplemental depreciation.
$ 21,000
Acquisition
Cost
Percent of MSRP
Contract LeaseEnd Value
Dollar Value
50.0 %
$ 10,500
Contract
Inception
T-0
T-3,
Contract
Termination
T-6…
T-24
– Base Depreciation
reflects scheduled depreciation
from the Acquisition Cost to
the Contract Lease-End Value
and does not change for the
life of the contract.
– In this example, base
depreciation is $437.50 each
month for the contract term
(24 months) for a total of
$10,500.
SLIDE 30
LEASE ACCOUNTING -SUPPLEMENTAL DEPRECIATION
Assumptions:
Lease Term: 24 Months
MSRP: $21,000
– Supplemental Depreciation
reflects additional depreciation
to achieve expected actual
residual (i.e., auction) values
for the leased vehicles.
Acquisition Cost $ 21,000
$ 19,687.50
Book Value
Percent of MSRP
Contract LeaseEnd Value
Expected Actual
Residual (i.e.,
Auction) Value at
Lease Contract
Termination
Dollar Value
50.0 %
$ 10,500
Additional Credit Co.
Supplemental
Depreciation
Expense
$ 9,660
46.0 %
Contract
Inception
T-0
T-3,
Contract
Termination
T-6…
T-24
– Supplemental depreciation can
change based on expectations
and it is assessed quarterly.
– It can be negative, however, it
can never “un-depreciate”
above base depreciation.
– In this example, supplemental
depreciation is $40 each
month for remaining term
(21 months) for a total of $840.
SLIDE 31
EFFICIENT FUNDING
• Buy it Right
• Operate Efficiently
• Collect Effectively
Originate
Service
Fund
• Fund Efficiently
• Manage Risks
Ford Credit’s funding strategy is to:
• Maintain strong liquidity
• Access diverse and cost-effective funding sources
SLIDE 32
KEY COST DRIVERS
Base Rates
Spreads
Borrowing
Costs
Operating
Costs
Residual & Credit
Losses
•
Borrowing cost is our largest expense
•
Borrowed funds are a finance company’s “raw material”
•
Key factors that drive our borrowing cost are:
– Base interest rates
– Credit ratings
– Funding strategy
Credit spreads
– Market conditions
SLIDE 33
HOW DO RATINGS IMPACT PROFITABILITY?
Ford Credit U.S. Unsecured Debt Spreads vs. Issuer Rating
Achieved Investment Grade
Ratings from Fitch,
Moody’s and DBRS in 2012
and S&P in 2013
Basis Points
1000
S&P Issuer Rating
750
500
Spreads should
continue to improve
with our ratings
250
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Investment Grade
Memo: Ford Credit ratings (at year-end)
S&P
Moody’s
BBB- BBB-
BBB-
BB+
B
B
CCC+
B-
B+
BB+
BB+
A3
Baa3
B1
B1
Caa1
B3
Ba2
Ba1
Baa3 Baa3 Baa3
Unsecured Spreads Are Inversely Correlated To Ratings;
Spreads Have Improved Significantly Since Achieving Investment Grade
SLIDE 34
FUNDING STRUCTURE
* The Ford Interest Advantage program consists of our floating rate demand notes
** Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements
*** Excludes marketable securities related to insurance activities
As We Continue To Strengthen Our Balance Sheet And Our Ratings Improve,
Securitization As A Percent Of Managed Receivables Is Expected To Decline
SLIDE 35
PUBLIC TERM FUNDING PLAN
Unsecured
Securitizations*
Total
*
2015
Forecast
(Bils.)
2012
Actual
(Bils.)
2013
Actual
(Bils.)
2014
Actual
(Bils.)
$ 9
$ 11
$ 13
$ 12 – 15
14
14
15
13 – 16
$ 23
$ 25
$ 28
$ 25 – 31
Includes Rule 144A offerings
Projected 2015 Public Issuance Largely Consistent With 2014; Continue To
Maintain A Significant Presence In Both Unsecured And Securitization Markets
SLIDE 36
2014 LIQUIDITY PROGRAMS
Committed Capacity
$37.3 billion
*
**
***
****
Cash, cash equivalents, and marketable securities (excludes marketable securities related to insurance activities)
Committed ABS lines are subject to availability of sufficient assets and ability to obtain derivatives to manage interest rate risk
Used only to support on-balance sheet securitization transactions
Adjustments include other committed ABS lines in excess of eligible receivables and certain cash within FordREV available through future sales of receivables
Available Liquidity Remains Strong At $26.5 Billion
SLIDE 37
BALANCE SHEET LIQUIDITY PROFILE
Cumulative Maturities -- As of December 31, 2014 (Bils.)
Assets (a)
$122
$113
Debt (b)
$105
$97
$82
$72
$68
$49 (c)
2015
2016
2017
2018 & Beyond
Memo: Unsecured long-term debt maturities (Bils.)
$9.1
(a)
(b)
(c)
$10.4
$11.1
$21.0
Includes finance receivables net of unearned income, investment in operating leases net of accumulated depreciation, cash and
cash equivalents, and marketable securities (excludes marketable securities related to insurance activities).
Retail and lease ABS are treated as amortizing to match the underlying assets.
Includes all of the wholesale ABS term and conduit maturities of $9.7 billion that otherwise contractually extend to 2016 and beyond.
Ford Credit’s Balance Sheet Is Inherently Liquid
As Assets Liquidate More Quickly Than Debt
SLIDE 38
INTEREST RATE RISK -- ASSET LIABILITY MISMATCH
Floating Rate Assets, primarily Cash
and Wholesale receivables
Fixed Rate Assets, primarily
Retail/Lease contracts
Assets
Repricing (Years)
Liabilities
Fixed Rate Liabilities, primarily unsecured debt and
Retail/Lease securitization
Floating Rate Debt, primarily Ford
Interest Advantage, Commercial Paper,
and Wholesale securitization
0-1
1-2
2-3
3-4
4-5
5+
Repricing
(Years)
Interest Rate Risk Is Created When Repricing Characteristics Of Funding Sources
Do Not Naturally Match Repricing Characteristics Of Assets
SLIDE 39
INTEREST RATE RISK -- ASSET LIABILITY MISMATCH
Step 1:
Assets
Excess long-term fixed rate
debt is swapped to floating rate
debt
Liabilities,
Derivatives
& Equity
0-1
1-2 2-3
3-4
4-5
5+
Assets
Repricing (Years)
Step 2:
Excess floating rate debt is
swapped to fixed rate debt to
match asset repricing profile in
line with risk tolerance
Liabilities,
Derivatives
& Equity
0-1
1-2
2-3
3-4 4-5
5+
Repricing (Years)
Swaps Are Used To Manage Our Interest Rate Exposure In Line
With Risk Management Strategy And Tolerances
SLIDE 40
FORD CREDIT DERIVATIVE NOTIONAL
2013
(Bils.)
Interest Rate Derivatives
Pay-fix swaps
Pay-float swaps
Securitization swaps
Subtotal interest rate derivatives
Other Derivatives
Cross-currency swaps
Foreign currency forwards
Total derivative notional
Memo:
Non-designated derivative notional (Bils.)
Income/(loss) from Unallocated Risk Management (Mils.)
Income/(Loss) as a % of non-designated notional (Pct.)
$
$
17
30
42
89
$
3
2
94
$
$
75
(53)
(0.07) %
2014
(Bils.)
$
$
15
36
29
80
$
2
2
84
$
$
61
(6)
(0.01) %
Despite The Significant Derivative Notional Balance,
Ford Credit’s Derivatives Had A Minimal Impact On Total Profit
SLIDE 41
FUNDING A STRONG FORD CREDIT BALANCE
SHEET
•
Expanding and diversifying our funding programs globally
– Increasing mix of term debt, reducing annual financing requirements
– Developing innovative funding platforms in mature and growth markets
•
Maintaining strong liquidity to protect against funding disruptions
– Targeting total liquidity of $25 billion +
•
Delivering around 10% return on equity with sustainable distributions
– Maintaining leverage between 8 and 9 to 1
•
Targeting single-A credit rating profile
Strong Funding and Liquidity Profile Supports Growth in Receivables
SLIDE 42
Ford Credit Profit Reporting
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- METHODOLOGY USED IN 2014 10-K
Millions
$98
$1,756
$1,854
$357
$8
2013
2014
Volume
$(87)
$(51)
Financing
Margin
Credit
Loss
$(129)
Lease
Residual
Other
SLIDE 44
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- REVISED METHODOLOGY
Millions
$98
$1,756
$1,854
• Added Mix to the Volume
category
• Previously, Mix (by default)
was included in Financing
Margin
• New variance category to isolate
changes in pre-tax profit driven
by changes in exchange rates
• Previously, pre-tax profit effect of
changes in exchange rates was
reflected in each causal factor
$429
$36
$(135)
2013
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
SLIDE 45
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- VOLUME (REVISED METHODOLOGY)
Millions
$98
$1,756
$1,854
• Volume represents the change in average receivables multiplied by the
prior period financing margin yield at prior period exchange rates
• Mix represents changes in net financing margin driven by changes in
the composition of our average managed receivables by product and
by country or region
$429
$36
$(135)
2013
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
SLIDE 46
VOLUME AND MIX PROFIT VARIANCES
Managed Receivables (Bils.)
Beginning of Period
End of Period
$113
$103
$123-128
$113
Volume and Mix Variances
2014 Compared with 2013
Volume
2014 Average Receivables at 2013 Exchange Rates (Bils.)
2013 Average Receivables
Increase / (Decrease) in Receivables
$103
Average 2013 Financing Margin
$92
~
2.80 %
Volume Variance (Mils.)
~ $
350
Mix (Primarily Higher Leases and China Receivables)
Total Volume and Mix
~
79
429
Directional 2015 Compared with 2014
Volume
2015 Average Receivables at 2014 Exchange Rates (Bils.)
2014 Average Receivables
Increase / (Decrease) in Receivables
2013
2014
Memo:
Average Receivables at Incurred Exchange Rates
$108.4
$
~ $ 122.0
108.4
~ $ 13.6
2015
Average 2014 Financing Margin (similar to 2014)
$96.4
$ 108.9
96.4
$ 12.5
~$119
~
2.80 %
Volume Variance (Mils.)
~ $
380
Mix (similar to 2014)
Total Volume and Mix
~
~ $
80
460
Average Receivables at Prior Year Exchange Rates
$108.9
~$122
SLIDE 47
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- FINANCING MARGIN
(REVISED METHODOLOGY)
Millions
$98
$1,756
$1,854
Financing Margin equals the change
in revenue net of base depreciation
less borrowing costs
$429
$36
$(135)
2013
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
SLIDE 48
FINANCING MARGIN FUNCTION OF FINANCING
REVENUE AND BORROWING COST
Financing Margin – Financing margin is primarily reflected within Net
financing margin on the income statement.
• Financing margin variance is the period-to-period change in financing
margin yield multiplied by the present period average receivables at prior
period exchange rates. Financing margin yield equals revenue, less
interest expense and base depreciation for the period, divided by
average receivables for the same period.
• Financing margin changes are driven by changes in revenue and
interest expense. Changes in revenue are primarily driven by the level of
market interest rates, cost assumptions in pricing, mix of business, and
competitive environment. Changes in interest expense are primarily
driven by the level of market interest rates, borrowing spreads, and
asset-liability management.
2014 Versus 2013 Unfavorable Financing Margin Variance Of $135 Million Primarily
Reflects Lower Portfolio Pricing In North America And A One-Time Reserve In Europe
SLIDE 49
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- CREDIT LOSSES (REVISED
METHODOLOGY)
Millions
$98
$1,756
Credit Loss equals the change in:
• Charge-offs, plus
• Changes in the Allowance for Credit
Losses
At prior period exchange rates
$1,854
$429
$36
$(135)
2013
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
SLIDE 50
UNDERSTANDING CREDIT LOSS TERMINOLOGY
BALANCE SHEET
Allowance for Credit Losses (Reserve): Estimate of the credit losses inherent in
the finance receivables and operating leases as of the date of the financial
statements
INCOME STATEMENT IMPACT
Charge-offs (net): Actual loss incurred on a receivable or lease net of recoveries.
Recoveries are amounts collected from customers after the account has been
charged off
+
Change in Reserves: Reflects the increase or decrease in Allowance for Credit
Losses during the period, net of changes in reserves resulting from changes in
exchange rates, which flow through Accumulated Other Comprehensive Income and
not through the Income Statement.
=
Provision for Credit Losses: Expense that flows through the income statement to
provide appropriate allowance for credit losses
SLIDE 51
2014 FULL YEAR CREDIT LOSS VARIANCE
EXPLANATION (REVISED METHODOLOGY)
Worldwide On-Balance Sheet Charge-Offs and Allowance for
Credit Losses (Bils.)
Profit Impact
Reserves
$(7)
$28
$408
Change in Reserves
Exchange Rate Impact on Reserves*
Change in Reserves Variance
$21
$380
$359
(33)
(4)
(55)
$
* In the absence of a stronger dollar, Reserves
would have been about $370 million -- $11
million higher.
Charge-Offs
$(33)
$176
$209
2012
2013
2014
MEMO: LTR (%)
0.16%
0.18%
$136
Charge-Offs
Exchange Rate Impact on Losses
Total Credit Loss Variance
2014
(Mils.)
$
(7)
(11)
$
(18)
0.19%
SLIDE 52
2015 FULL YEAR PROVISION FOR CREDIT LOSSES
DIRECTIONAL GUIDANCE
Worldwide On-Balance Sheet Charge-Offs and Allowance for
Credit Losses (Bils.)
$TBD - $21
Reserves
$21
• Reserves are a function of receivables and
credit loss trends.
$ TBD
$TBD
$380
$359
Directional 2015 Compared with 2014
$359
• Charge-offs are expected to increase in
2015 from near historical lows due to
higher managed receivables and higher
loss-to-receivable ratio; however, credit
losses still remain below 10-year average of
46 bps.
Charge-Offs
$TBD
$TBD
$176
$209
$209
2013
2014
2015
MEMO: LTR (%)
0.18%
0.19%
Higher
Credit Losses Are Expected To Increase From The Near Historical Lows In 2014.
Reserves Are A Function Of Receivables And Credit Loss Trends
SLIDE 53
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- LEASE RESIDUAL (REVISED
METHODOLOGY)
Millions
$98
$1,756
$1,854
Lease Residual equals the change in:
• Residual performance, plus
• Change in Supplemental Depreciation
At prior period exchange rates
$429
$36
$(135)
2013
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
SLIDE 54
UNDERSTANDING LEASE RESIDUAL
TERMINOLOGY -- INCOME STATEMENT
RESIDUAL PERFORMANCE IN THE FINANCIAL STATEMENTS
Lease residual performance is included in depreciation in our financial statements,
which is part of Net Financing Margin. For analytical purposes, we move the
residual performance portion of depreciation from Net Financing Margin into its
own category
RESIDUAL PERFORMANCE
Supplemental Depreciation: Reflects the increase or decrease in depreciation as
a result of changes in the projected residual values beyond base depreciation at
prior period exchange rates
+
Residual Gains / Losses: Reflects the difference between the auction value and
the depreciated value (base + supplemental depreciation) at prior period exchange
rates
+
Impairment (Rarely Used): Reflects a decrease in the book value of a lease due
to significant decline in the value of the vehicles
=
Lease Residual: The sum of the change in supplemental depreciation, residual
gains or losses, and impairment for the period
SLIDE 55
2014 LEASE RESIDUAL PERFORMANCE VARIANCE
(REVISED METHODOLOGY)
North America
Lease Termination Volume (000)
2014 Profit Impact
Impaired
Unimpaired
2013
2014
408
North America
Average Gain / (Loss) on Terminated Unit*
Volume
Gain / (Loss) on Terminated Units (Mils.)
$ (300)
174,000
(52)
$ (700)
261,000
(183)
125
Other Global Markets / Other (Mils.)
$
(50)
$
(47)
$
(102)
$
(230)
261
246
Total Lease Residual Incl. Other (Mils.)
47
126
282
2
199
124
2010
174
2011
2012
Change in Residual Gains/(losses) (Mils.)
$(128)
261
174
2013
2014
Memo: North America Return Rates
69%
59%
60%
67%
74%
* See slide 29 for actual U.S. 24-month and 36-month auction values
SLIDE 56
2015 LEASE RESIDUAL PERFORMANCE VARIANCE
North America
Lease Termination Volume (000)
Directional 2015 Profit Impact
Impaired
Unimpaired
261
246
~ 260
47
2014
2015
North America
Average Gain / (Loss) on Terminated Unit*
Volume
Gain / (Loss) on Terminated Units (Mils.)
$ (700)
261,000
$ (183)
$ (TBD)
~260,000
$ (TBD)
Other Global Markets / Other (Mils.)
$
(47)
$ (TBD)
$
(230)
$ (TBD)
174
Total Lease Residual Incl. Other (Mils.)
126
2
261
~ 260
Change in Residual Gains/(losses) (Mils.)
199
$ (TBD)
174
124
2011
2012
2013
2014
2015
74%
TBD
Memo: North America Return Rates
59%
60%
67%
* See slide 29 for actual U.S. 24 month and 36-month auction values
Lease Residual Performance Variance Is Dependent On Auction Values
SLIDE 57
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- EXCHANGE (REVISED METHODOLOGY)
Millions
$98
$1,756
• Exchange equals the difference between present period
Profits at present period Exchange Rates and present
period Profits at prior period Exchange Rates
$1,854
• Over 30% of Ford Credit's Profits are generated outside of
the U.S.
$429
$36
$(135)
2013
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
SLIDE 58
2014 FULL YEAR PRE-TAX RESULTS COMPARED
WITH 2013 -- OTHER (REVISED METHODOLOGY)
Millions
$98
$1,756
Primarily includes
Operating expenses*,
Other revenue**, and
Insurance expenses
on the income
statement at prior
period exchange rates
$1,854
$429
$36
$(135)
2013
*
**
2014
Volume /
Mix
Financing
Margin
$(55)
Credit
Loss
$(128)
Lease
Residual
$(49)
Exchange
Other
Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with
the origination and servicing of customer contracts
In general, other revenue changes are primarily driven by changes in earnings related to market valuation adjustments to
derivatives (primarily related to movements in interest rates), which are included in unallocated risk management, and
other miscellaneous items
SLIDE 59
OPERATING COSTS -- MAIN DRIVER IN “OTHER”
End-of-Period Managed Receivables, Operating Cost and Global
Operating Cost Ratio
Managed Receivables
Operating Cost
Operating Cost Ratio
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Ford Credit Is Committed To Achieving An Operating Cost Ratio Among The
Best In The Industry
SLIDE 60
RISK FACTORS
Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties,
and other factors that could cause actual results to differ materially from those stated, including, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Decline in industry sales volume, particularly in the United States, Europe, or China, due to financial crisis, recession, geopolitical events, or other factors;
Decline in Ford’s market share or failure to achieve growth;
Lower-than-anticipated market acceptance of Ford’s new or existing products;
Market shift away from sales of larger, more profitable vehicles beyond Ford’s current planning assumption, particularly in the United States;
An increase in or continued volatility of fuel prices, or reduced availability of fuel;
Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or other factors;
Fluctuations in foreign currency exchange rates, commodity prices, and interest rates;
Adverse effects resulting from economic, geopolitical, or other events;
Economic distress of suppliers that may require Ford to provide substantial financial support or take other measures to ensure supplies of components or materials and
could increase costs, affect liquidity, or cause production constraints or disruptions;
Work stoppages at Ford or supplier facilities or other limitations on production (whether as a result of labor disputes, natural or man-made disasters, tight credit markets or
other financial distress, production constraints or difficulties, or other factors);
Single-source supply of components or materials;
Labor or other constraints on Ford’s ability to maintain competitive cost structure;
Substantial pension and postretirement health care and life insurance liabilities impairing liquidity or financial condition;
Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates or investment returns);
Restriction on use of tax attributes from tax law “ownership change;”
The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or increased warranty costs;
Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash expenditures, and/or sales restrictions;
Unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise;
A change in requirements under long-term supply arrangements committing Ford to purchase minimum or fixed quantities of certain parts, or to pay a minimum amount to
the seller (“take-or-pay” contracts);
Adverse effects on results from a decrease in or cessation or clawback of government incentives related to investments;
Inherent limitations of internal controls impacting financial statements and safeguarding of assets;
Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit, or a third-party vendor or supplier;
Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities;
Inability of Ford Credit to access debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts, due to credit rating downgrades,
market volatility, market disruption, regulatory requirements, or other factors;
Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;
Increased competition from banks, financial institutions, or other third parties seeking to increase their share of financing Ford vehicles; and
New or increased credit, consumer, or data protection or other regulations resulting in higher costs and/or additional financing restrictions.
We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be
realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their
initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future
events, or otherwise. For additional discussion, see "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, as updated
by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
SLIDE 61
APPENDIX
NET FINANCE RECEIVABLES AND OPERATING
LEASES
Dec. 31, 2013
Dec. 31, 2014
(Bils.)
(Bils.)
Receivables*
Net Receivables
Finance Receivables
Finance receivables – North America Segment
Consumer retail financing
$
Non-Consumer
Dealer financing**
Other
Total finance receivables – North America Segment
Finance receivables – International Segment
Consumer retail financing
Non-Consumer
Dealer financing **
Other
Total finance receivables – International Segment
Unearned interest supplements
44.1
22.5
1.0
$
64.0
$
67.6
$
10.8
$
11.8
8.3
0.4
9.3
0.3
$
19.5
(1.5)
(0.4)
$
21.4
(1.8)
(0.3)
$
81.6
18.3
$
86.9
21.5
$
99.9
$
108.4
$
99.9
$
108.4
$
3.1
0.4
0.0
103.4
$
3.9
0.4
0.1
112.8
Net investment in operating leases
Total net receivables
$
22.1
1.0
Allowance for credit losses
Finance receivables, net
40.9
Managed Receivables
Total net receivables
Unearned interest supplements and residual support
Allowance for credit losses
Other, primarily accumulated supplemental depreciation
Total managed receivables
* Includes finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the
requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheet and are available only for payment of the debt
issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of
Ford Credit or the claims of Ford Credit’s other creditors
** Dealer financing primarily includes wholesale loans to dealers to finance the purchase of vehicle inventory
APPENDIX 1 of 3
RECONCILIATION OF MANAGED
LEVERAGE TO FINANCIAL STATEMENT LEVERAGE
Leverage Calculation
Total Debt*
Adjustments for Cash, Cash Equivalents, and Marketable Securities**
Adjustments for Derivative Accounting***
Total Adjusted Debt
Equity****
Adjustments for Derivative Accounting***
Total Adjusted Equity
Financial Statement Leverage (to 1)
Managed Leverage (to 1)*****
2013
Dec. 31
(Bils.)
2014
Dec. 31
(Bils.)
$ 98.7
(10.8)
(0.2)
$ 105.0
(8.9)
(0.4)
$ 87.7
$ 95.7
$ 10.6
(0.3)
$ 11.4
(0.4)
$ 10.3
$ 11.0
9.3
8.5
9.2
8.7
*
Includes debt reported on Ford Credit's balance sheet that is issued in securitization transactions and payable only out of collections on the underlying securitized
assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the
securitization entities that are parties to those securitization transactions
** Excludes marketable securities related to insurance activities
*** Primarily related to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges
and adjustments to equity are related to retained earnings
**** Shareholder's interest reported on Ford Credit's balance sheet
***** Equals total adjusted debt over total adjusted equity
APPENDIX 2 of 3
IMPACT OF ON-BALANCE SHEET SECURITIZATION
Impact of On-Balance Sheet Securitization – receivables include finance receivables (retail and
wholesale) sold for legal purposes and net investment in operating leases included in
securitization transactions that do not satisfy the requirements for accounting sale treatment.
These receivables and operating leases are reported on Ford Credit’s balance sheet and are
available only for payment of the debt issued by, and other obligations of, the securitization
entities that are parties to those securitization transactions; they are not available to pay the
other obligations of Ford Credit or the claims of Ford Credit’s other creditors. Total debt
includes debt reported on Ford Credit’s balance sheet that is issued in securitization
transactions and payable only out of collections on the underlying securitized assets and
related enhancements. Ford Credit holds the right to receive the excess cash flows not needed
to pay the debt issued by, and other obligations of, the securitization entities that are parties to
those securitization transactions.
APPENDIX 3 of 3
FURTHER INFORMATION
Ford Investor Relations Contacts:
Fixed Income Investors:
Stephen Dahle (U.S.-based)
313.621.0881
Fixedinc@ford.com
Information on Ford:
• www.shareholder.ford.com
• 10-K Annual Reports
• 10-Q Quarterly Reports
• 8-K Current Reports
• Ford University
• 2013/2014 Sustainability Report
– www.corporate.ford.com/microsites/sustainability-report-2013-14/default.html
Information on Ford Motor Credit Company:
• www.fordcredit.com/investor-center
• 10-K Annual Reports
• 10-Q Quarterly Reports
• 8-K Current Reports
• Ford Credit University
SLIDE 66