Post on 26-Apr-2018
transcript
March 17, 2014
CREDIT UNIVERSITY
SLIDE 1
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 2
Ford Credit Strategic Value, Virtuous Circle and Value Proposition
SLIDE 3
SLIDE 4
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 5
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 6
A VIRTUOUS CIRCLE -- INTEGRATION CREATES A STRATEGIC ADVANTAGE
• Automotive specialist with vested interest in Ford dealer success
• Training and consulting
• Consistent market presence
• Fast, flexible, quality service • Full array of products • Incremental vehicle sales
(Spread of business and customer relationship management)
More products,
faster
• Higher customer satisfaction and loyalty
• Profits and dividends
• Trusted brand • Access to dealer channel
Dealers
SLIDE 7
FORD CREDIT VALUE PROPOSITION -- CUSTOMER LOYALTY TO FORD
Customers Who Finance With Ford Credit Are More Loyal To Ford Compared With Customers Who Finance With Other Lenders
25%
35%
45%
55%
65%
75%
2009 2010 2011 2012 2013
U.S. - % Loyal to Ford & Lincoln
Ford Credit Dealer Arranged Customer Arranged
25%
35%
45%
55%
65%
75%
2008 2009 2010 2011 2012
Europe (Big 5 Markets) - % Loyal to Ford*
Ford Credit Dealer Arranged Customer Arranged
Source: Maritz New Vehicle Customer Survey 2009 – September 2013 Buyers/Lessees
Source: Internal * 2013 Europe Data will be available in 2Q 2014
14 ppts.
29 ppts.
SLIDE 8
FORD CREDIT VALUE PROPOSITION -- U.S. CUSTOMER SATISFACTION WITH DEALER-ARRANGED FINANCING
2009 2010 2011 2012 2013 40%
90%
8 ppts.
Ford Credit Financing Has Consistently Obtained Higher Customer Satisfaction Ratings Over Other Dealer-Arranged Financing
Source: Maritz New Vehicle Customer Survey 2009 – September 2013 Buyers/Lessees
Ford Credit FinancingOther Dealer Arranged Financing
SLIDE 9
Automotive Retail Market Share + 0.8 ppts (within the dealer’s market area)
Ford Credit Share of Ford Retail Sales + 13.3 ppts
Customer Satisfaction + 1.2 ppts
Certified Pre-Owned Penetration + 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 VALUE PROPOSITION -- U.S. DEALERS WHO FLOORPLAN WITH FORD CREDIT
Performance vs. Non-Ford Credit Dealers
Ford Credit, Through The Virtuous Circle, Delivers Higher Value To Ford, Our Dealers And Our Customers Than Other Finance Providers
SLIDE 10
Pre-tax Profits
FORD CREDIT VALUE PROPOSITION -- HISTORICAL PROFITABILITY
Over The Last 20 Years, Ford Credit Generated $43 Billion In Pre-Tax Profits And $27 Billion In Distributions
$2.3 $2.3 $2.2 $1.8 $1.8
$2.1 $2.5 $2.5
$4.9
$2.0
$3.7
$2.9
$2.0
$1.2
$(2.6)
$2.0
$3.1
$2.4
$1.7 $1.8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Distributions
SLIDE 11
Scope of Operations
SLIDE 12
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 13
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 14
WORLDWIDE MANAGED RECEIVABLES AND EQUITY AT YEAR-END 2013
* 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
U.S. & Canada 81%
$83 Billion
International 19%
$20 Billion
Regional View
Retail 50% $51 Billion
Wholesale 28% $29 Billion
Leases 19% $20 Billion
Product View
Dealer Loan and Other
3% $3 Billion
$10.6 Billion Supporting Operations
Equity**
Managed Receivables* Of $103 Billion
SLIDE 15
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 16
Ford Credit Business Model and the Drivers of the Business
SLIDE 17
• Buy it Right • Operate Efficiently • Collect Effectively
• Fund Efficiently • Manage Risks
Originate
FORD CREDIT BUSINESS MODEL
Service
Fund
SLIDE 18
ORIGINATIONS STRATEGY
• 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
• Buy it Right • Operate Efficiently • Collect Effectively
• Fund Efficiently • Manage Risks
Service Originate
Fund
Technology And Judgment Combine To Minimize Credit Losses
SLIDE 19
• 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
ORIGINATIONS SCORING MODELS
SLIDE 20
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 21
Prior Originations
2010 Originations
2011 Originations
2012 Originations
2013 Originations
2013 Portfolio
2013 PORTFOLIO LARGELY REFLECTED BUSINESS ORIGINATED IN PRIOR YEARS
Year-End 2013 Managed Receivables Were $103 Billion
SLIDE 22
End of Period Managed Receivables (Bils.)
Contract Placement Volume (000s)
$122 $97
$84 $85 $92 $103
2008 2009 2010 2011 2012 2013 Mid-Decade
$110 - $120
HISTORICAL VOLUME AND RECEIVABLES
1,950
1,193 1,218 1,420 1,542
1,762
2008 2009 2010 2011 2012 2013
2014
~$110
Since 2010, Contract Volume And Receivables Have Been Growing
SLIDE 23
SERVICING STRATEGY
• Buy it Right • Operate Efficiently • Collect Effectively
• Fund Efficiently • Manage Risks
Service Originate
Fund
• 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 24
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 25
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
ASSIGNMENT TIMING
FOLLOW-UP INTENSITY
MOVE TO LATE STAGE COLLECTIONS
LATER
LOWER
LATER
EARLIER
HIGHER
EARLIER
SLIDE 26
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 27
165
109
82 74 81 94
64 45
32 29
3.02%
2.30%
1.94% 1.89%
2.30%
3.01%
2.41%
1.86%
1.35% 1.18%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0.18% 0.15% 0.16%
0.19%
0.24% 0.24%
0.15% 0.14% 0.15% 0.15%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
706 715 710 714 719
726 730 738 737 738
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Average Placement FICO Score
Repossessions (000) Repo. Ratio
Charge-Offs (Mils.) and LTR (%)
Over-60-Day Delinquencies
HISTORICAL U.S. RETAIL AND LEASE CREDIT LOSS DRIVERS*
* Includes Ford, Lincoln and Mercury
Memo: New Bankruptcy Filings (000) 85 84 21 27 37 47 42 31 23 17
Memo: Severity $6,600 $6,100 $6,300 $7,400 $9,900 $8,300 $6,900 $6,500 $6,900 $7,600
$803
$433
$309 $431
$774
$635
$280
$144 $100 $127
1.32%
0.79%
0.56%
0.74%
1.36% 1.32%
0.68%
0.36%
0.23% 0.26%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
LTR
SLIDE 28
HISTORICAL CREDIT LOSS METRICS
$1,327 $706 $523 $632 $1,135 $1,095 $415 $201 $136 $176
1.02%
0.57%
0.39% 0.46%
0.84% 1.07%
0.47%
0.24% 0.16% 0.18%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Worldwide Charge-Offs (Mils.) and Loss-to-Receivables (%)
LTR
$2,434 $1,586 $1,110 $1,090 $1,668 $1,549 $854 $534 $408 $380
1.80%
1.19%
0.81% 0.77%
1.40% 1.61%
1.02%
0.63% 0.44% 0.37%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Reserves as % of EOP Rec.
Worldwide Credit Loss Reserve (Mils.) and Reserves as a Pct. Of EOP Managed Receivables
SLIDE 29
HISTORICAL U.S. LEASE RESIDUAL PERFORMANCE
Memo: Ford and Lincoln U.S. Return Rates 78% 65% 56% 62% 71%
34 49 38
12 17
65 71
44
17 26
60 39
4
33
71
2009 2010 2011 2012 2013
Lease Return Volume (000)
Memo: Worldwide Net Investment in Operating Leases (Bils.) * $13.5 $9.1 $10.1 $13.6 $18.3
2012
24-Month 36-Month 39-Month / Other
159
86
159
2013 2009 2010 2011
114
62
$19,000
$19,875$19,740
$18,170$18,905
$17,385$17,535
$16,540$15,800
$13,730
Auction Values (At Incurred Mix) 24-Month
36-Month
* 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 30
LEASE ACCOUNTING -- BASE DEPRECIATION
– Generally, depreciation for
leases is the sum of base and supplemental depreciation.
– 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.
Assumptions:
Lease Term: 24 Months
MSRP: $21,000
Acquisition Cost
Contract Lease- End Value
Percent of MSRP
50.0 %
Contract Termination
Dollar Value
$ 10,500
$ 21,000
Contract Inception
T-0 T-3, T-6… T-24
SLIDE 31
LEASE ACCOUNTING -- SUPPLEMENTAL DEPRECIATION
– Supplemental Depreciation
reflects additional depreciation to achieve expected actual residual (i.e., auction) values for the leased vehicles.
– 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.
Book Value
Contract Lease- End Value
Expected Actual Residual (i.e., Auction) Value at Lease Contract Termination
Percent of MSRP
50.0 %
46.0 %
Contract Termination
Dollar Value
$ 10,500
Additional Credit Co. Supplemental Depreciation Expense
$ 9,660
$ 19,687.50
Contract Inception
T-0 T-3, T-6… T-24
Acquisition Cost $ 21,000
Assumptions:
Lease Term: 24 Months
MSRP: $21,000
SLIDE 32
EFFICIENT FUNDING
• Buy it Right • Operate Efficiently • Collect Effectively
• Fund Efficiently • Manage Risks
Service Originate
Fund
Ford Credit’s funding strategy is to: • Maintain strong liquidity • Access diverse and cost-effective funding sources
SLIDE 33
KEY COST DRIVERS
• 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 – Market conditions
Credit spreads
Operating Costs Spreads Base Rates
Residual & Credit Losses Borrowing
Costs
SLIDE 34
250
500
1000
HOW DO RATINGS IMPACT PROFITABILITY?
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
750
Ford Credit U.S. Unsecured Debt Spreads vs. Issuer Rating
S&P Issuer Rating
Bas
is P
oint
s
Achieved Investment Grade Ratings from Fitch,
Moody’s and DBRS in 2012 and S&P in 2013
Memo: Ford Credit ratings (at year-end)
BB+ Ba1
B+ Ba2
B- B3
CCC+ Caa1
B B1
B B1
BB+ Baa3
BBB- A3
BB+ Baa3
S&P Moody’s
BBB- Baa3
Spreads should continue to improve
with our ratings
Investment Grade
Unsecured Spreads Are Inversely Correlated To Ratings; Spreads Have Improved Significantly Since Achieving Investment Grade
SLIDE 35
Securitized Funding as Percentage of Managed Receivables 55% 47% 44% 38-42%
Funding of Managed Receivables (Bils.) FUNDING STRUCTURE
Equity
Asset-Backed Commercial Paper**
Term Asset-Backed Securities**
Term Debt (incl Bank Borrowings)
Cash, Cash Equivalents and Marketable Securities***
Ford Interest Advantage*
~$110
$40-45
$50-54
$11-12
$9-11
~$6
$85
$40
$9
$12
$33
$7 $5
$92
$37
$10
$11
$39
$6 $5
Unsecured Commercial Paper ~$3
$2
* 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
$103
$43
$11
$11
$45
$3 $5 $2
Year-End 2011
Year-End 2012
Year-End 2014 Fcst.
Year-End 2013
Other $4 $3 $5 $5-6
As We Continue To Strengthen Our Balance Sheet And Our Ratings Improve, Securitization As Percent Of Managed Receivables Is Expected To Decline
SLIDE 36
PUBLIC TERM FUNDING PLAN
Unsecured $9 $ 11 $ 9 – 12
Securitizations* 14 14 12 – 15
Total $23 $ 25 $21 – 27
2012 Actual (Bils.)
2014 Forecast
(Bils.)
2013 Actual (Bils.)
Projected 2014 Public Issuance Largely Consistent With 2013 -- Continue To Maintain A Significant Presence In Both Unsecured And Securitization Markets
* Includes Rule 144A offerings
SLIDE 37
2013 LIQUIDITY PROGRAMS
* 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
Committed Capacity $34.5 billion
Available Liquidity Remains Strong At $21.4 Billion
Dec. 31,2012 Sep. 30 Dec. 31
(Bils.) (Bils.) (Bils.)Liquidity Sources*Cash** 10.9$ 11.0$ 10.8$ Unsecured Credit Facilities 0.9 1.5 1.6 FCAR Bank Lines 6.3 5.0 3.5 Conduit / Bank ABS 24.3 26.1 29.4
Total Liquidity Sources 42.4$ 43.6$ 45.3$
Utilization of LiquiditySecuritization Cash *** (3.0)$ (2.9)$ (4.4)$ Unsecured Credit Facilities (0.1) (0.4) (0.4) FCAR Bank Lines (5.8) (4.0) (3.3) Conduit / Bank ABS (12.3) (12.6) (14.7)
Total Utilization of Liquidity (21.2)$ (19.9)$ (22.8)$
Gross Liquidity 21.2$ 23.7$ 22.5$
Capacity in Excess of Eligible Receivables (1.5) (1.1) (1.1)
Liquidity Available For Use 19.7$ 22.6$ 21.4$
2013
SLIDE 38
BALANCE SHEET LIQUIDITY PROFILE
Assets (a)
Debt (b)
Memo: Unsecured long-term debt maturities (Bils.)
2014 2015 2016 2017 & Beyond
$4.5 $9.3 $9.0 $20.3
Cumulative Maturities -- As of December 31, 2013 (Bils.)
(c)
(a) Includes finance receivables net of unearned income, investment in operating leases net of accumulated depreciation, cash andcash equivalents, and marketable securities (excludes marketable securities related to insurance activities).
(b) Retail and lease ABS are treated as amortizing immediately to match the underlying assets.(c) 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 39
INTEREST RATE RISK -- ASSET LIABILITY MISMATCH
0-1 1-2 2-3 3-4 4-5 5+
Assets
Liabilities
Repricing (Years)
Repricing (Years)
Floating Rate Assets, primarily Cash and Wholesale receivables
Fixed Rate Assets, primarily Retail/Lease contracts
Floating Rate Debt, primarily Ford Interest Advantage, Commercial Paper,
and Wholesale securitization
Fixed Rate Liabilities, primarily unsecured debt and Retail/Lease securitization
Interest Rate Risk Is Created When Repricing Characteristics Of Funding Sources Do Not Naturally Match Repricing Characteristics Of Assets
SLIDE 40
Step 1: Excess long-term fixed rate debt is swapped to floating rate debt
Assets
Liabilities, Derivatives
& Equity
0-1 1-2 2-3 3-4 4-5 5+ Repricing (Years)
Step 2: Excess floating rate debt is swapped to fixed rate debt to match asset repricing profile in line with risk tolerance
0-1 1-2 2-3 3-4 4-5 5+ Repricing (Years)
Assets
INTEREST RATE RISK -- ASSET LIABILITY MISMATCH
Liabilities, Derivatives
& Equity
Swaps Are Used To Manage Our Interest Rate Exposure In Line With Risk Management Strategy And Tolerances
SLIDE 41
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
Memo:
Non-designated derivative notional (Bils.) $ 75 $ 74
Income/(Loss) from unallocated risk management (Mils.) $ (53) $ (102)
Income/(Loss) as a percent of non-designated notional (Pct.) (0.07) (0.14)
FORD CREDIT DERIVATIVE NOTIONAL
(Bils.) 2013 2012
(Bils.)
% %
Despite The Significant Derivative Notional Balance, Ford Credit’s Derivatives Had A Minimal Impact On Total Profit
FORD CREDIT KEY CAPITAL STRATEGY METRICS
2012 2013 Mid-Decade
Return on Equity (High Single Digits) Managed Leverage* (8-9 to 1)
Liquidity (Months of Protection)
2012 2013 Mid-Decade
ABS Debt as Pct. of Mgd. Receivables (~ 35%)
2012 2013 Mid-Decade
2012 2013 Mid-Decade
Mid- DecadeTarget
Mid- Decade Target
Mid- DecadeTarget
Mid- Decade Target
SLIDE 42
Ford Credit Is On Track To Deliver All Key Financial Metrics By Mid-Decade With Three Of Four Key Metrics Already Achieved
* See Appendix 2 for reconciliation to GAAP
SLIDE 43
Ford Credit Profit Reporting
SLIDE 44
Lease Residual
Volume 2013 2012 Credit Loss
Other
Pre-Tax Results (Mils.)
Financing Margin Managed
Receivables (Bils.) $92 $103
2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH 2012 -- VOLUME
Volume represents the change in average receivables multiplied by the
prior period financing margin $1,697 $1,756
$304 $6
$(139) $(62) $(50)
$59
SLIDE 45
$85 $92
$103 $92
$103
VOLUME PROFIT VARIANCES
Memo: Average Receivables $86.2 $96.4 ~$107
Managed Receivables (Bils.) Beginning of Period End of Period
2013 2014 2012
Volume Variances
~$110
2013 Compared with 20122013 Average Receivables (Bils.) 96.4$ 2012 Average Receivables 86.2 Increase / (Decrease) in Receivables 10.2$
Average 2012 Financing Margin ~ 3 %
2013 Compared with 2012 (Mils.): 304$
Directional 2014 Compared with 20132014 Average Receivables (Bils.) ~ 107$ 2013 Average Receivables 96.4 Increase / (Decrease) in Receivables ~ 10.6$
Average 2013 Financing Margin ~ 3 %
2014 Compared with 2013 (Mils.): ~ 320$
SLIDE 46
$1,697 $1,756
$304 $6
$(139) $(62) $(50)
2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH 2012 -- FINANCING MARGIN
Financing Margin equals the change in revenue net of base
depreciation less borrowing costs at constant volume
Lease Residual
Volume 2013 2012 Credit Loss
Other
Pre-Tax Results (Mils.)
Financing Margin Managed
Receivables (Bils.) $92 $103
$59
SLIDE 47
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 Higher-Yielding 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 48
2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH 2012 -- CREDIT LOSSES
$1,697 $1,756
$304 $6
$(139) $(62) $(50)
Lease Residual
Volume 2013 2012 Credit Loss
Other
Pre-Tax Results (Mils.)
Financing Margin Managed
Receivables (Bils.) $92 $103
$59 Credit Loss equals the change in: • Charge-offs, plus • Changes in the Allowance for Credit
Losses
SLIDE 49
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 50
$201 $136 $176
$534 $408 $380
Worldwide On-Balance Sheet Charge-Offs and Allowance for Credit Losses (Bils.)
$126 $28
$(40)
$(98)
2013 FULL YEAR PROVISION FOR CREDIT LOSSES VARIANCE EXPLANATION
Charge-Offs
2012 2011 2013
Reserves
MEMO: LTR (%) 0.24% 0.16% 0.18%
2013 Profit Impact 2013(Mils.)
Reserves (98)$ Charge-Offs (40) Other, Primarily Exchange (1) Total Provision for Credit Losses (139)$
SLIDE 51
$408 $380 $380
$136 $176 $176
Worldwide On-Balance Sheet Charge-Offs and Allowance for Credit Losses (Bils.)
2014 FULL YEAR PROVISION FOR CREDIT LOSSES DIRECTIONAL GUIDANCE
• Reserves are a function of receivables and credit loss trends.
• 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.
Directional 2014 Compared with 2013
$28
$TBD - $28
$ TBD
$TBD
Charge-Offs
2013 2012 2014
Reserves
$TBD
MEMO: LTR (%) 0.16% 0.18% TBD
$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 52
2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH 2012 -- LEASE RESIDUAL
$1,697 $1,756
$304 $6
$(139) $(62) $(50)
Lease Residual
Volume 2013 2012 Credit Loss
Other
Pre-Tax Results (Mils.)
Financing Margin Managed
Receivables (Bils.) $92 $103
$59
Lease Residual equals the change in: • Residual losses, plus • Change in Supplemental Depreciation
SLIDE 53
UNDERSTANDING LEASE RESIDUAL TERMINOLOGY -- INCOME STATEMENT
RESIDUAL PERFORMANCE IN THE FINANCIAL STATEMENTS Lease residual performance is included in depreciation in our financial statements, which is part of Net Financing Margin. For analytical purposes, we move the residual performance portion of depreciation from Net Financing Margin into its own category RESIDUAL PERFORMANCE Supplemental Depreciation: Reflects the increase or decrease in depreciation as a result of changes in the projected residual values beyond base depreciation
+ Residual Gains / Losses: Reflects the difference between the auction value and the depreciated value (base + supplemental depreciation)
+ Impairment (Rarely Used): Reflects a decrease in the book value of a lease due to accounting guidance
= Lease Residual: The sum of the change in supplemental depreciation, residual gains or losses, and impairment for the period
SLIDE 54
2013 NORTH AMERICA LEASE TERMINATION VOLUME AND LEASE RESIDUAL PERFORMANCE VARIANCE
214 282
199 124
174
172 125
47
2
2009 2010 2011 2012 2013
Lease Termination Volume (000) Impaired Unimpaired
386
246
126
408
2013 Profit Impact
* See slide 29 for actual U.S. 24-month and 36-month auction values
Memo: North America Return Rates 81% 69% 59% 63% 67%
174
2012 2013Unimpaired UnitAverage Gain or Loss on Terminated Unit* 100$ (300)$ Volume 124,000 174,000
Other, primarily International Markets (Mils) (50)$ (50)$
Total Lease Residual Incl. Other (Mils.) (40)$ (102)$
Change in Residual Gains/(losses) (Mils.) $ (62)
SLIDE 55
282 199
124 174
260
125
47
2
2010 2011 2012 2013 2014
246
126
408
174
2014 NORTH AMERICA LEASE TERMINATION VOLUME AND LEASE RESIDUAL PERFORMANCE VARIANCE
Lease Termination Volume (000) Impaired Unimpaired
Directional 2014 Profit Impact
Memo: North America Return Rates 69% 59% 63% 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
260
2013 2014Unimpaired UnitAverage Gain or Loss on Terminated Unit* (300)$ $ (TBD)Volume 174,000 ~ 260,000
Other, primarily International Markets (Mils) (50)$ $ (TBD)
Total Lease Residual Incl. Other (Mils.) (102)$ $ (TBD)
Change in Residual Gains/(losses) (Mils.) (TBD)
SLIDE 56
2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH 2012 -- OTHER
$1,697 $1,756
$304 $6
$(139) $(62) $(50)
Lease Residual
Volume 2013 2012 Credit Loss
Other
Pre-Tax Results (Mils.)
Financing Margin Managed
Receivables (Bils.) $92 $103
$59 Primarily includes
Operating expenses*, Other revenue**, and Insurance expenses
on the income statement
* 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 57
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
OPERATING COSTS -- MAIN DRIVER IN “OTHER”
End-of-Period Managed Receivables, Operating Cost and Global Operating Cost Ratio
Ford Credit Is Committed To Achieving An Operating Cost Ratio Among The Best In The Industry
Managed Receivables Operating Cost Operating Cost Ratio
SLIDE 58
RISK FACTORS
• 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.
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:
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.
APPENDIX
NET FINANCE RECEIVABLES AND OPERATING LEASES
* 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.
Dec. 31 2012 Dec. 31 2013(Bils.) (Bils.)
Receivables *Net Receivables
Finance ReceivablesFinance Receivables – North America Segment
Consumer -- Retail financing 39.5$ 40.9$
Non-Consumer
Dealer financing ** 19.5 22.1
Other 1.1 1.0
Total Finance Receivables – North America Segment 60.1$ 64.0$
Finance Receivables – International SegmentConsumer -- Retail financing 9.0$ 10.8$
Non-Consumer
Dealer financing ** 7.5 8.3
Other 0.4 0.4
Total Finance Receivables – International Segment 16.9$ 19.5$
Unearned interest supplements (1.5) (1.5)
Allowance for credit losses (0.4) (0.4)
Finance receivables, net 75.1$ 81.6$
Net investment in operating leases *** 13.6 18.3
Total Net Receivables 88.7$ 99.9$
Managed Receivables
Total Net Receivables 88.7$ 99.9$ Unearned interest supplements and residual support 2.6 3.1 Allowance for credit losses 0.4 0.4
Other, primarily accumulated supplemental depreciation 0.0 0.0
Total Managed Receivables **** 91.7$ 103.4$
APPENDIX 1 of 3
RECONCILIATION OF MANAGED LEVERAGE TO FINANCIAL STATEMENT LEVERAGE
* 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.
Dec. 31 Dec. 312012 2013(Bils.) (Bils.)
Leverage Calculation Total Debt * $ 89.3 $ 98.7 Adjustments for Cash, Cash Equivalents, and Marketable Securities** (10.9) (10.8)Adjustments for Derivative Accounting*** (0.8) (0.2)
Total Adjusted Debt $ 77.6 $ 87.7
Equity**** $ 9.7 $ 10.6 Adjustments for Derivative Accounting*** (0.3) (0.3)
Total Adjusted Equity $ 9.4 $ 10.3
Financial Statement Leverage (to 1) 9.2 9.3 Managed Leverage (to 1)***** 8.3 8.5
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