CREDIT UNIVERSITY
March 17, 2014
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
SLIDE 2
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 50 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 go-to-market 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,
– World-class operating cost structure, and
– World-class risk management organization
• Our comprehensive customer relationship management process
emphasizes the sales and service experience, and drives repeat
Ford business and only Ford business
• 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%
29 ppts.
14 ppts.
45%
45%
35%
35%
25%
25%
2009
2010
Ford Credit
2011
Dealer Arranged
2012
2013
Customer Arranged
Source: Maritz New Vehicle Customer Survey 2009 – September 2013
Buyers/Lessees
2008
2009
Ford Credit
2010
Dealer Arranged
2011
2012
Customer Arranged
Source: Internal
* 2013 Europe Data will be available in 2Q 2014
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%
8 ppts.
Ford Credit Financing
Other Dealer Arranged Financing
Source: Maritz New Vehicle Customer Survey 2009 – September 2013 Buyers/Lessees
40%
2009
2010
2011
2012
2013
Ford Credit Financing Has Consistently Obtained Higher Customer Satisfaction
Ratings Over Other Dealer-Arranged Financing
SLIDE 8
FORD CREDIT VALUE PROPOSITION -- U.S.
DEALERS WHO FLOORPLAN WITH FORD CREDIT
Automotive Retail Market Share
Performance vs.
Non-Ford Credit Dealers
+ 0.8 ppts
(within the dealer’s market area)
Ford Credit Share of Ford Retail Sales
Customer Satisfaction
Certified Pre-Owned Penetration
+ 13.3 ppts
+ 1.2 ppts
+ 26.5 ppts
(as a % of total used vehicle sales)
ESP Penetration
+ 10.1 ppts
(extended service plan)
WearCare Penetration
+ 0.6 ppts
(covers excess wear and tear on leases at termination)
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
$2.3
$2.5
$2.2
$2.1
$1.8
$1.8
$2.5
$2.4
$2.0
$2.0
$2.0
$1.7
$1.8
$1.2
$(2.6)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Over The Last 20 Years, Ford Credit Generated $43 Billion In Pre-Tax Profits And
$27 Billion In Distributions
SLIDE 10
Scope of Operations
SLIDE 11
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
• Globally, Ford Credit employs about 6,000 full-time employees
and provides financing in approximately 100 countries
• As of year-end 2013, Ford Credit was financing worldwide:
– About 5,200 Ford and Lincoln dealers
– Over 3.8 million retail customers
•
Ford Credit generates more than 80 million customer touch
points every year through websites, calls, e-mails, preapprovals
and invoices
SLIDE 13
WORLDWIDE MANAGED RECEIVABLES AND
EQUITY AT YEAR-END 2013
Managed Receivables* Of $103 Billion
Regional View
Product View
International
19%
$20 Billion
Dealer Loan
and Other
3%
$3 Billion
Wholesale 28%
$29 Billion
Retail 50%
$51 Billion
U.S. & Canada
81%
$83 Billion
Leases 19%
$20 Billion
Equity**
$10.6 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
SLIDE 14
** Equity equals shareholder’s interest reported on Ford Credit’s balance sheet
RELATIONSHIP AGREEMENTS 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 or make
equity investments in any of Ford’s 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
SLIDE 15
Ford Credit Business Model and
the Drivers of the Business
SLIDE 16
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
• Utilize robust credit evaluation and verification process
• Segment credit applications and price appropriately for risk
Technology And Judgment Combine To Minimize Credit Losses
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 originations scoring models results in a proprietary
risk rating referred to as Probability of Payment (POP)
• Models generate a POP for every application. POP is used as a
credit decisioning variable globally and is the basis for our risk
based pricing in North America
• The 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 score (FICO®) alone
• FICO® is a significant factor used in the scoring models
• Process governance includes:
– Risk management portfolio performance analysis
– Monthly purchase quality reports
SLIDE 19
PURCHASING GUIDELINES AND CONTROL
PROCESSES
• Ford Credit has originations policies and procedures that
leverage technology to ensure consistent credit decisions
– Purchase quality guidelines establish targets for the
purchase of lower and marginal quality contracts
– Risk factor guidelines provide a framework for evaluation of
certain attributes of an application, including loan-to-value
and payment-to-income
– Procedures are established for verification of income,
employment and residency
• Supervisory personnel regularly review decisions of credit
analysts to ensure consistency with purchasing standards
These Capabilities Enable Predictability Of Portfolio Performance
SLIDE 20
2013 PORTFOLIO LARGELY REFLECTED
BUSINESS ORIGINATED IN PRIOR YEARS
2013 Portfolio
Prior Originations
2010 Originations
2011 Originations
2012
Originations
2013 Originations
Year-End 2013 Managed Receivables Were $103 Billion
SLIDE 21
HISTORICAL VOLUME AND RECEIVABLES
Contract Placement Volume (000s)
1,950
2008
1,762
1,193
1,218
2009
2010
1,420
2011
1,542
2012
2013
End of Period Managed Receivables (Bils.)
$122
$97
2008
2009
$84
$85
$92
2010
2011
2012
$103
~$110
$110 - $120
2013
2014
MidDecade
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 contract’s 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 behavior scoring models assess the
risk of a customer defaulting using a number of variables,
including origination characteristics, customer history,
payment patterns and updated credit bureau data
• Output of the behavior scoring models is a proprietary risk
rating referred to as Probability of Default (POD)
– POD is updated for each customer account monthly on its
due date
– POD is used to segment risk and determine collection
strategy
• Ford Credit regularly monitors the behavioral scoring models
to ensure their predictability
Servicing 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
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 rating
– Assignment timing / Follow-up intensity
– Specialized departments based on delinquency stage
• Economy
– Unemployment
– Growth
– Bankruptcy rates
– Used vehicle auction values
SLIDE 26
HISTORICAL U.S. RETAIL AND LEASE
CREDIT LOSS DRIVERS*
Over-60-Day Delinquencies
Average Placement FICO Score
738
715
706
2004
710
714
719
726
730
737
0.24% 0.24%
738
0.15%
2005
2006
2007
2008
2009
2010
2011
2012
2013
3.02%
2.30%
2.41%
2.30%
0.79%
1.86%
109
94
74
1.35%
81
0.14%
0.15% 0.15%
2010
2011
2012
2013
42
31
23
17
1.36% 1.32%
1.32%
$803
1.94% 1.89%
82
0.15%
Charge-Offs (Mils.) and LTR (%)
Repo.
Ratio
3.01%
0.16%
2004 2005 2006 2007 2008 2009
Memo: New Bankruptcy Filings (000)
85
84
21
27
37
47
Repossessions (000)
165
0.19%
0.18%
$774
0.74%
$635
0.68%
0.56%
$433
1.18%
64
0.36%
$431
$309
29
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Memo: Severity
$6,600 $6,100 $6,300 $7,400 $9,900 $8,300 $6,900 $6,500 $6,900 $7,600
0.23% 0.26%
$280
45
32
LTR
$144
2004
2005
2006
2007
2008
2009
* Includes Ford, Lincoln and Mercury
2010
2011
$100
$127
2012
2013
SLIDE 27
HISTORICAL CREDIT LOSS METRICS
Worldwide Charge-Offs (Mils.) and Loss-to-Receivables (%)
1.02%
1.07%
0.84%
0.57%
0.47%
0.39%
0.46%
LTR
0.24%
0.16%
0.18%
$1,327
$706
$523
$632
$1,135
$1,095
$415
$201
$136
$176
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Worldwide Credit Loss Reserve (Mils.) and Reserves as a Pct.
Of EOP Managed Receivables
1.80%
Reserves as %
of EOP Rec.
1.61%
1.40%
1.19%
1.02%
0.81%
0.77%
0.63%
0.44%
0.37%
$2,434
$1,586
$1,110
$1,090
$1,668
$1,549
$854
$534
$408
$380
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
SLIDE 28
HISTORICAL U.S. LEASE RESIDUAL PERFORMANCE
Lease Return Volume (000)
Auction Values (At Incurred Mix)
24-Month
36-Month
39-Month / Other
159
24-Month
$19,740
$19,875
$19,000
$18,905
159
$18,170
39
60
114
$17,535
86
71
65
4
2009
49
2010
17
2012
2013
Memo: Ford and Lincoln U.S. Return Rates
78%
65%
56%
2012
$13,730
26
17
12
38
2011
2011
62
33
34
36-Month
$15,800
71
44
$16,540
$17,385
2009
2010
2013
Memo: Worldwide Net Investment in Operating Leases (Bils.) *
62%
71%
$13.5
$9.1
$10.1
$13.6
$18.3
* During the fourth quarter of 2013, Ford Credit changed its accounting method to include unearned operating lease interest supplements and residual support in Net investment in Operating leases.
The prior periods were revised to conform to current year presentation.
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
Investment Grade
Memo: Ford Credit ratings (at year-end)
S&P
Moody’s
BBB- BB+
B
B
CCC+
B-
B+
BB+
BB+ BBB-
Baa3
B1
B1
Caa1
B3
Ba2
Ba1
Baa3 Baa3
A3
Unsecured Spreads Are Inversely Correlated To Ratings;
Spreads Have Improved Significantly Since Achieving Investment Grade
SLIDE 34
FUNDING STRUCTURE
Funding of Managed Receivables (Bils.)
Unsecured Commercial Paper
Ford Interest Advantage*
Asset-Backed Commercial Paper**
$103
$2
$92
$85
$5
$7
Term Asset-Backed Securities**
$40
Term Debt (incl Bank Borrowings)
$2
$5
$3
$5
$6
$43
~$110
~$3
~$6
$40-45
$37
$39
$45
$50-54
$5
$33
Other
Equity
$3
$9
$4
$10
$11
$5-6
$11-12
Cash, Cash Equivalents and
Marketable Securities***
$12
$11
$11
$9-11
Securitized Funding as Percentage
of Managed Receivables
Year-End
2011
55%
Year-End
2012
47%
Year-End
2013
44%
Year-End
2014 Fcst.
38-42%
* 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. See Appendix 3 for
Impact of On-Balance Sheet Securitization
*** Excludes marketable securities related to insurance activities
As We Continue To Strengthen Our Balance Sheet And Our Ratings Improve,
Securitization As Percent Of Managed Receivables Is Expected To Decline
SLIDE 35
PUBLIC TERM FUNDING PLAN
2012
Actual
(Bils.)
2013
Actual
(Bils.)
2014
Forecast
(Bils.)
Unsecured
$9
$ 11
$ 9 – 12
Securitizations*
14
14
12 – 15
$23
$ 25
$21 – 27
Total
* Includes Rule 144A offerings
Projected 2014 Public Issuance Largely Consistent With 2013 -- Continue To
Maintain A Significant Presence In Both Unsecured And Securitization Markets
SLIDE 36
2013 LIQUIDITY PROGRAMS
Liquidity Sources*
Cash**
Unsecured Credit Facilities
FCAR Bank Lines
Conduit / Bank ABS
Total Liquidity Sources
Utilization of Liquidity
Securitization Cash ***
Unsecured Credit Facilities
FCAR Bank Lines
Conduit / Bank ABS
Total Utilization of Liquidity
Gross Liquidity
Dec. 31,
2012
(Bils.)
2013
Sep. 30
Dec. 31
(Bils.)
(Bils.)
$
10.9
0.9
6.3
24.3
$
$
42.4
$
(3.0)
(0.1)
(5.8)
(12.3)
$
10.8
1.6
3.5
29.4
$
43.6
$
45.3
$
(2.9)
(0.4)
(4.0)
(12.6)
$
(4.4)
(0.4)
(3.3)
(14.7)
$ (21.2)
$ (19.9)
$ (22.8)
$
$
$
21.2
$
19.7
23.7
$
22.6
Committed Capacity
$34.5 billion
22.5
(1.1)
(1.1)
(1.5)
Capacity in Excess of Eligible Receivables
Liquidity Available For Use
11.0
1.5
5.0
26.1
$
21.4
* FCAR and Conduits are subject to availability of sufficient assets and ability to obtain derivatives to manage interest rate risk; FCAR commercial paper must be supported by bank
lines equal to at least 100% of the principal amount; conduits include committed securitization programs
** Cash, cash equivalents, and marketable securities (excludes marketable securities related to insurance activities)
*** Securitization cash is to be used only to support on-balance sheet securitization transactions
Available Liquidity Remains Strong At $21.4 Billion
SLIDE 37
BALANCE SHEET LIQUIDITY PROFILE
Cumulative Maturities -- As of December 31, 2013 (Bils.)
Assets (a)
Debt (b)
(c)
2014
2015
2016
2017 & Beyond
$9.0
$20.3
Memo: Unsecured long-term debt maturities (Bils.)
$4.5
(a)
(b)
(c)
$9.3
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 immediately to match the underlying assets.
Includes all of the wholesale ABS term and conduit maturities of $8.7 billion that otherwise contractually extend to 2015 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
2012
(Bils.)
2013
(Bils.)
Interest Rate Derivatives
Pay-fixed swaps
$
17
$
11
Pay-floating swaps
30
27
Securitization swaps
42
47
Subtotal interest rate derivatives
$
89
$
85
Other Derivatives
Cross-currency swaps
3
3
Foreign currency forwards
2
2
Total derivative notional
$
94
$
90
Non-designated derivative notional (Bils.)
$
75
$
74
Income/(Loss) from unallocated risk management (Mils.)
$
(53)
$
(102)
Memo:
Income/(Loss) as a percent of non-designated notional (Pct.)
(0.07) %
(0.14) %
Despite The Significant Derivative Notional Balance,
Ford Credit’s Derivatives Had A Minimal Impact On Total Profit
SLIDE 41
FORD CREDIT KEY CAPITAL STRATEGY METRICS
ABS Debt as Pct. of Mgd. Receivables (~ 35%)
Liquidity (Months of Protection)
MidDecade
Target
MidDecade
Target
2012
2013
Mid-Decade
2012
Mid-Decade
Return on Equity (High Single Digits)
Managed Leverage* (8-9 to 1)
MidDecade
Target
2013
MidDecade
Target
2012
2013
Mid-Decade
2012
2013
Mid-Decade
* See Appendix 2 for reconciliation to GAAP
Ford Credit Is On Track To Deliver All Key Financial Metrics By
Mid-Decade With Three Of Four Key Metrics Already Achieved
SLIDE 42
Ford Credit Profit Reporting
SLIDE 43
2013 FULL YEAR PRE-TAX RESULTS
COMPARED WITH 2012 -- VOLUME
Pre-Tax Results (Mils.)
$59
$1,697
$1,756
Volume represents the change in
average receivables multiplied by the
prior period financing margin
$304
$6
Managed
Receivables (Bils.)
2012
2013
$92
$103
Volume
Financing
Margin
$(139)
$(62)
$(50)
Credit
Loss
Lease
Residual
Other
SLIDE 44
VOLUME PROFIT VARIANCES
Managed Receivables (Bils.)
2013 Compared with 2012
2013 Average Receivables (Bils.)
2012 Average Receivables
Beginning of Period
End of Period
$103
$85
$92
Volume Variances
~$110
$103
$92
Increase / (Decrease) in Receivables
Average 2012 Financing Margin
$ 10.2
~
2013 Compared with 2012 (Mils.):
Directional 2014 Compared with 2013
2014 Average Receivables (Bils.)
2013 Average Receivables
2013
Memo: Average Receivables
$86.2
$96.4
3 %
$ 304
~
$ 107
96.4
Increase / (Decrease) in Receivables
~
$ 10.6
Average 2013 Financing Margin
~
2014 Compared with 2013 (Mils.):
2012
$ 96.4
86.2
3 %
~ $ 320
2014
~$107
SLIDE 45
2013 FULL YEAR PRE-TAX RESULTS
COMPARED WITH 2012 -- FINANCING MARGIN
Pre-Tax Results (Mils.)
$59
$1,697
Financing Margin
equals the change in
revenue net of base
depreciation less
borrowing costs at
constant volume
$1,756
$304
$6
Managed
Receivables (Bils.)
2012
2013
$92
$103
Volume
Financing
Margin
$(139)
$(62)
$(50)
Credit
Loss
Lease
Residual
Other
SLIDE 46
FINANCING MARGIN FUNCTION OF FINANCING
REVENUE AND BORROWING COST
Financing Margin – Financing margin is 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.
Financing margin yield equals revenue, less interest expense and
scheduled 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.
In 2014, Financing Margin Will Be Impacted By The Continued Runoff Of HigherYielding Assets, And The Impact Of Ford Credit’s Strategy To Increase Its Percentage
Of Unsecured Debt As We Continue To Build A Stronger Investment Grade Company
SLIDE 47
2013 FULL YEAR PRE-TAX RESULTS
COMPARED WITH 2012 -- CREDIT LOSSES
Pre-Tax Results (Mils.)
$59
$1,697
Credit Loss equals the change in:
• Charge-offs, plus
• Changes in the Allowance for Credit
Losses
$1,756
$304
$6
Managed
Receivables (Bils.)
2012
2013
$92
$103
Volume
Financing
Margin
$(139)
$(62)
$(50)
Credit
Loss
Lease
Residual
Other
SLIDE 48
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 in local currency during the period, multiplied by the average
exchange rate
=
Provision for Credit Losses: Expense that flows through the income
statement to provide appropriate allowance for credit losses
SLIDE 49
2013 FULL YEAR PROVISION FOR CREDIT LOSSES
VARIANCE EXPLANATION
Worldwide On-Balance Sheet Charge-Offs and Allowance for
Credit Losses (Bils.)
2013 Profit Impact
Reserves
Reserves
Charge-Offs
Other, Primarily Exchange
2013
(Mils.)
$
(98)
(40)
(1)
Total Provision for Credit Losses
$
$(98)
$126
$534
$28
$408
(139)
$380
Charge-Offs
$(40)
$201
$136
$176
2011
2012
2013
MEMO: LTR (%)
0.24%
0.16%
0.18%
SLIDE 50
2014 FULL YEAR PROVISION FOR CREDIT LOSSES
DIRECTIONAL GUIDANCE
Worldwide On-Balance Sheet Charge-Offs and Allowance for
Credit Losses (Bils.)
$TBD - $28
Reserves
$28
• Reserves are a function of receivables and
credit loss trends.
$ TBD
$TBD
$408
$380
Directional 2014 Compared with 2013
$380
• Charge-offs are expected to increase in
2014 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
54 bps.
Charge-Offs
$TBD
$TBD
$136
$176
$176
2012
2013
2014
MEMO: LTR (%)
0.16%
0.18%
TBD
Credit Losses Are Expected To Increase From The Near Historical Lows In 2013.
Reserves Are A Function Of Receivables And Credit Loss Trends.
SLIDE 51
2013 FULL YEAR PRE-TAX RESULTS
COMPARED WITH 2012 -- LEASE RESIDUAL
Pre-Tax Results (Mils.)
$59
$1,697
$1,756
Lease Residual equals the change in:
• Residual losses, plus
• Change in Supplemental Depreciation
$304
$6
Managed
Receivables (Bils.)
2012
2013
$92
$103
Volume
Financing
Margin
$(139)
$(62)
$(50)
Credit
Loss
Lease
Residual
Other
SLIDE 52
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
+
Residual Gains / Losses: Reflects the difference between the auction value and
the depreciated value (base + supplemental depreciation)
+
Impairment (Rarely Used): Reflects a decrease in the book value of a lease due
to accounting guidance
=
Lease Residual: The sum of the change in supplemental depreciation, residual
gains or losses, and impairment for the period
SLIDE 53
2013 NORTH AMERICA LEASE TERMINATION
VOLUME AND LEASE RESIDUAL PERFORMANCE
VARIANCE
Lease Termination Volume (000)
Impaired
Unimpaired
386
2013 Profit Impact
Unimpaired Unit
Average Gain or Loss on Terminated Unit*
Volume
2012
2013
$
100
124,000
$ (300)
174,000
408
Other, primarily International Markets (Mils) $
(50)
$
(50)
(40)
$
(102)
$
(62)
125
Total Lease Residual Incl. Other (Mils.)
172
$
246
Change in Residual Gains/(losses) (Mils.)
47
126
2
282
214
199
124
2009
2010
174
2011
Memo: North America Return Rates
81%
69%
59%
174
2012
2013
63%
67%
* See slide 29 for actual U.S. 24-month and 36-month auction values
SLIDE 54
2014 NORTH AMERICA LEASE TERMINATION
VOLUME AND LEASE RESIDUAL PERFORMANCE
VARIANCE
Lease Termination Volume (000)
Directional 2014 Profit Impact
2013
Impaired
Unimpaired
Unimpaired Unit
Average Gain or Loss on Terminated Unit*
Volume
$ (300)
174,000
2014
~
$ (TBD)
260,000
408
Other, primarily International Markets (Mils) $
(50)
$ (TBD)
(102)
$ (TBD)
125
260
246
47
126
199
124
2010
2011
2012
Memo: North America Return Rates
69%
59%
63%
Change in Residual Gains/(losses) (Mils.)
174
2
282
Total Lease Residual Incl. Other (Mils.)
$
(TBD)
260
174
2013
2014
67%
TBD
* See slide 29 for actual U.S. 24 month and 36-month auction values
In 2014, Lease Residual Performance Variance Is Dependent On Auction Values
SLIDE 55
2013 FULL YEAR PRE-TAX RESULTS
COMPARED WITH 2012 -- OTHER
Pre-Tax Results (Mils.)
$59
$1,697
Primarily includes
Operating expenses*,
Other revenue**, and
Insurance expenses
on the income
statement
$1,756
$304
$6
Managed
Receivables (Bils.)
*
**
2012
2013
$92
$103
Volume
Financing
Margin
$(139)
$(62)
$(50)
Credit
Loss
Lease
Residual
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 56
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
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Ford Credit Is Committed To Achieving An Operating Cost Ratio Among The
Best In The Industry
SLIDE 57
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 or Europe, 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 our 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 or other financial institutions 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, 2013, as updated by
our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
SLIDE 58
APPENDIX
NET FINANCE RECEIVABLES AND OPERATING
LEASES
Dec. 31 2012
Dec. 31 2013
(Bils.)
(Bils.)
Receivables *
Net Receivables
Finance Receivables
Finance Receivables – North America Segment
Consumer -- Retail financing
$
39.5
$
40.9
Non-Consumer
19.5
1.1
Dealer financing **
Other
Total Finance Receivables – North America Segment
22.1
1.0
$
60.1
$
64.0
$
9.0
$
10.8
Finance Receivables – International Segment
Consumer -- Retail financing
Non-Consumer
Dealer financing **
7.5
0.4
Other
Total Finance Receivables – International Segment
$
Unearned interest supplements
$
75.1
19.5
(1.5)
(0.4)
$
81.6
18.3
13.6
Net investment in operating leases ***
Total Net Receivables
$
(1.5)
(0.4)
Allowance for credit losses
Finance receivables, net
16.9
8.3
0.4
$
88.7
$
99.9
$
88.7
2.6
0.4
0.0
$
99.9
3.1
0.4
0.0
$
91.7
$
103.4
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.
*** Beginning in the fourth quarter, Ford Credit changed its accounting method to include unearned interest supplements and residual support in Net investment in operating leases. These amounts are
amortized to Depreciation on vehicles subject to operating leases. The prior period was revised to conform to current year presentation. There is no change to profit before income tax or net income.
**** Prior period was revised to conform to current year presentation.
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)*****
Dec. 31
2012
(Bils.)
Dec. 31
2013
(Bils.)
$ 89.3
(10.9)
(0.8)
$ 98.7
(10.8)
(0.2)
$ 77.6
$ 87.7
$
9.7
(0.3)
$ 10.6
(0.3)
$
9.4
$ 10.3
9.2
8.3
9.3
8.5
* 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