Ford Motor Company Q4 2008 Fixed Income Earnings Call Transcript

Jan.29.09 | About: Ford Motor (F)

Ford Motor Company (NYSE:F)

Q4 2008 Fixed Income Earnings Call Transcript

January 29, 2009 11:00 am ET

Executives

David Dickenson – Manager, Fixed Income IR

Peter Daniel – SVP & Controller

KR Kent – Ford Motor Credit Vice Chairman & CFO

Neil Schloss – VP & Treasurer

Analysts

Monica Keany – Morgan Stanley

Brian Jacoby – Goldman Sachs

Ed Sally [ph] – JP Morgan

Sarah Thompson – Barclays Capital

Doug Carson – Banc of America Merrill Lynch

Josh Litchen [ph] – EE Bank [ph]

Operator

Good day, ladies and gentlemen, and welcome to the Ford Motor Company fixed income conference call. My name is Katina and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today's call, Mr. David Dickenson, Fixed Income Investor Relations Manager.

David Dickenson

Thank you, Katina, and good morning, ladies and gentlemen. Welcome to all of you who are joining us either by phone or webcast. On behalf of the entire Ford management team, I would like to thank you for spending time with us this morning.

With me this morning are Peter Daniel, Ford's Senior Vice President and Controller; KR Kent, Ford Credit Vice Chairman and Chief Financial Officer; and Neil Schloss, Ford Vice President and Treasurer. We also have some other members of management who are joining us for the call, including David Brandi [ph], Assistant Treasurer; and Mark Hoffman, Director of Global Accounting.

Before we begin, I would like to review a couple of quick items. A copy of this morning’s earnings release and the slides we will be using today have been posted on Ford Motor Company’s Investor and Media websites for your reference. The financial results discussed herein are presented on a preliminary basis. The final data will be included in our Form 10-K for the year-ended December 31, 2008. Additionally, the financial results presented here are on a GAAP basis, and in some cases, on a non-GAAP basis. Any non-GAAP financial measures discussed on this call are reconciled to their GAAP equivalent as part of the appendix to the slide deck.

Finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance. Actual results could differ materially from those suggested by our comments here. Additional information about the factors that could affect future results is summarized at the end of this presentation. These risk factors are detailed in our SEC filings including our annual, quarterly, and current reports to the SEC.

With that, I’d like to turn the call over to Ford's Senior Vice President and Controller, Peter Daniel. Peter?

Peter Daniel

Thanks, Dave. Turning to slide one, I’ll begin by reviewing the key financial results. As shown at the top of the slide, vehicle wholesales last quarter were over 1.1 million units, down 505,000 units from the same period in 2007. Ford’s fourth quarter revenue was $29.2 billion, a $16.3 billion decrease from a year ago. The decrease is primarily explained by lower volume sale of Jaguar Land Rover and exchange translation. Ford's fourth quarter pre-tax operating loss from continuing operations, excluding special items, was almost $3.7 billion, over a $3 billion decline from a year ago. This decline included about a $2.4 billion at automotive and $653 million at financial services. Our fourth quarter net loss was almost $5.9 billion, including about $1.4 billion of pre-tax special charges. We ended the quarter with $13.4 billion of cash. This was down about $21 billion from year-end 2007 levels with almost $16 billion of that decline occurring during the first nine months of the year.

As Alan mentioned during the earnings presentation, we provided notice today to our banks to fully draw our secured credit lines. We took this action because of our growing concerns about the instability of the capital markets with the uncertain side of the global economy. We believe that it is prudent to draw the secured credit lines in this environment. The $10.1 billion would be added to our cash and recorded in our first quarter balance sheet. Under the terms of our credit agreement, we expect to receive the funds from this borrowing next Tuesday, February 3.

On slide two, we will cover special items, which were about $1.4 billion in the fourth quarter. In North America, we recorded a charge of $229 million, largely related to early personnel-reduction programs in the US. International operations secured $280 million of charges related to personnel-reduction programs primarily related to the implementation of Volvo’s and Asia-Pacific's restructuring plans.

We recognized a gain of $82 million due to planned reduction in the number of employees and the job security benefits reserve, primarily due to the utilization of these employees at other plant locations. We recorded a charge of $224 million for accelerated depreciation related to a lease fire at an AAI facility. We recognized a $201 million loss on the side of a portion of our investment in NASDAQ. In addition, we incurred supplier settlement and other cost of $209 million. Finally, we recorded $356 million of retiree healthcare charges related to the VEBA agreement with UAW, primarily related – reflecting losses on the temporary asset account. These losses will be reversed upon transfer of the temporary asset account to the newly-independent VEBA.

Slide three shows our automotive cash and cash flow in the end of the fourth quarter were $13.4 billion in gross cash, down $5.5 billion from the third quarter. Our operating related cash flow was $7.2 billion negative in the fourth quarter, reflecting an automotive pretax loss of about $3.3 billion.

Capital spending during the quarter about $600 million higher than depreciation and amortization, primarily because of spending associated with the loans to the all-new F-150 and the impact of second quarter asset impairment on depreciation and amortization. Changes in working capital and other timing differences that were $2.7 billion negative, this is primarily explained by a reduction in trade payables of about $4 billion and other timing differences as a result of lower production at the end of the quarter. Significant reductions in inventory and receivables were offset by the lower payables, and payment of $600 million to Ford Credit reflecting our change to upfront payment of subvention.

Excluding the upfront subvention payments, our operating cash flow was $6.6 billion negative. This outflow continues to be significantly impacted by a decline in global demand and actions we have taken to reduce dealer stock by another 50,000 units compared with the third quarter to align better with future expectations. Once volumes stabilize, payables will stop declining and generally will grow as volumes recover. In addition, in part because of the major F-150 launch behind us, we expect spending to decline in 2009.

Separation programs resulted in almost [ph] $200 million for the quarter and we contributed $100 million to our non-US pension funds. We received $1.3 billion tax-related payment from Ford Credit. We also received about $500 million from divestitures primarily to settle a portion of our Mazda securities. Including all of these impacts, the total decline in gross cash during the fourth quarter was $5.5 billion.

Slide four summarizes our automotive sector’s net liquidity at December 31, 2008. Total liquidity, including available credit lines was $24 billion. This liquidity includes $10.1 billion available under our secured credit lines and $500 million of other automotive credit lines. As I mentioned earlier, we provided a notice today to our banks to fully draw our secured credit lines.

At year-end, automotive debt was $25.8 billion, of which less than $3 billion are external debt matures in the next three years. This automotive debt excludes the impact of a secured credit line draw. Also, this month, as permitted by the underlying agreement, Ford converted the temporary asset account funds into a new Ford note payable at the end of this year. This will provide the flexibility to utilize over $2 billion of funds to support operations if needed. As a result, this amount will improve liquidity and will be included in gross cash starting this quarter.

Now, onto slide five, which shows results of our 2008 full-year planning assumptions and operational metrics. Total industry volume for 2008 was 13.5 million units in the US and 16.6 million units in Europe, both down substantially from our planning assumptions. On the operational metrics, the quality of our vehicles has risen consistently for four straight years and our vehicle satisfaction has reached an all-time high.

Ford, Lincoln, and Mercury vehicles collectively reduced Things Gone Wrong by 7.7% compared to last year. Things Gone Wrong or TGW is now at the lowest levels ever and statistically tied with the best Japanese brands. Automotive costs were reduced by $4.4 billion, significantly better than planned. US market share was 14.2%, consistent with our planned but better than our recent expectations. Absolute operating cash was $19.5 billion negative; this was higher than planned. And capital expenditures were $6.5 billion.

Slide six summarizes our 2009 outlook, including our key automotive planning assumptions and operational metrics. We’re expecting total industry sales to be in the range of 11.5 to 12.5 million units for the US and in the range of 12.5 to 13.5 units in Europe. These estimates include both light and heavy vehicles.

On operational metrics, we will continue to improve our quality. As mentioned previously, we’ll continue to reduce our automotive structural cost by another $4 billion during 2009. We have focused this symmetric on structural costs at least, or costs that lies within our control. While we continue to pursue our material control reduction initiatives, we recognize that the marketing [ph] task and related hedging gains and losses will continue to be very volatile.

On market share, we expect that both our total US share and our share of the US retail market will stabilize and improvements are possible with our new product lineup. We have included the second share performance measurement, the US share of the retail market, as this is the most important and traditionally, the most profitable market segment in which we participate. In this context, we had a fund in the US retail market that’s excluding all fleet sales, including those (inaudible) rental companies and governments. In 2008, we estimate we had about a 12.1% share of the US retail market.

We anticipate total Europe share to be about equal or improved as compared to 2008. We continue to expect operating cash outflows in 2009, but these will be significantly less than those incurred in 2008. This is based on industry volumes stabilizing early in the year and beginning to recover later in the year. This should result in improvements in payables and a number of other factors. In addition, the outflows related to the acceleration of subvention plan with the Ford Credit will decrease in 2009 and we will be realizing benefits from the actions initiated under our Ford (inaudible) cash improvement plan.

Further, we expect to receive funding from the Department of Energy, the European Investment Bank, and other sources in support of our investments to improve fuel efficiency and reduce CO2 emissions.

Finally, as indicated in November, capital spending will be in the range of $5 billion to $5.5 billion, down from $6.5 billion in 2008 as we completed spending on our major new F-150, and we realized greater efficiencies from our "ONE Ford" product development initiative. Given the volatile nature of today’s market, at this time, we do not believe it would be prudent to provide any further guidance on profitability.

I will now hand it over to KR.

KR Kent

Thanks Peter. Slide seven shows Ford Credit’s operating results and key metrics for the fourth quarter of 2008. As shown in the left box, our fourth quarter pretax loss was $372 million compared with $263 million pretax profit in the fourth quarter of 2007. Shown below the box, excluding the impact of net gains and losses related to market valuation adjustments to derivatives, the pretax loss was $229 million compared with a $223 million pre-tax profit in the same period of 2007.

The net losses related to market valuation adjustments were $143 million in the fourth quarter of 2008, compared to net gains of $40 million in the same period last year. You can see on the right box, our December 31, 2008 management receivables were $118 billion. That’s down $29 billion from a year ago and about $12 billion lower than third quarter. The $29 billion receivable decline primarily reflects lower North American receivables, changes in currency exchange rates, the impact of divestitures in alternative business arrangements, and the second quarter 2008 impairment charge for North American operating leases.

The $12-billion decline from the third quarter of 2008 primarily reflects lower receivables in North America and Europe and changes in currency exchange rates. We are projecting further receivable declines in 2009, which reflects lower industry volumes, Jaguar Land Rover and Mazda as they transition to new financing providers. Our financing share of US Ford, Lincoln, Mercury retail installment and lease contracts was 34% in the fourth quarter of 2008, which is not shown on the slide. It’s up two points compared to the last year and one point higher – I'm sorry, one point higher than 2007. Charge-offs for managed receivables in the fourth quarter 2008 was $366 million and the worldwide managed loss receivables was 118 basis points, up 56 basis points from last year. I’ll speak more of this in a few minutes.

At December 31, the allowance for credit losses for on balance sheet receivables was about $1.7 billion or 140 basis points of receivables. The allowance was about $120 million higher than the third quarter and up about $600 million from a year ago. Also, at December 31, our managed leverage was 9.9 to 1, compared with 9.8 to 1 at December 31, 2007, and below our 2008 year-end originally planned leverage of 11.5 to 1. At the end of the fourth quarter, our equity was about $10.6 billion.

Further, we did not pay a dividend to Ford in the fourth quarter of 2008. However, beginning in 2009, we expect to pay dividends to Ford of about $2 billion through 2010. We will balance returns of capital with the successful execution of our funding plan. This reduction from the previously planned $3 billion dividend through 2010 reflects the impact of an increase in tax payments to Ford consistent with the tax sharing agreement primarily associated with the declining lease portfolio.

In addition, we are restructuring our US operations to meet changing business conditions including lower automotive sales and planned reductions in Jaguar Land Rover and Mazda receivables and to maintain a competitive cost structure. The restructuring will affect servicing, sales, and simple operations, and eliminates about 1200 staff and agency positions or about 20%. The reductions will occur in 2009 through attrition, retirements, and involuntary separation.

Slide eight explains the change in Ford Credit’s pretax profit for the fourth quarter of 2008, compared with the fourth quarter of 2007. As previously mentioned, Ford Credit’s pretax loss was $372 million in the fourth quarter, $635 million lower than in 2007. The decrease in earnings primarily reflected a higher provision for credit losses, higher net losses related to market evaluation adjustment to derivatives, lower volumes, and lower financing margins. Also, lower operating costs were largely offset by other expenses.

Volume and financing margin were lower than a year ago, primarily reflecting a declining receivable in the fourth quarter of 2008. The increase in the provision for credit losses primarily reflects higher severities, higher repossessions and higher dealer related losses in the US as well as higher losses in Europe.

Residual losses were about the same in the fourth quarter of 2008 compared with last year while auction values have declined significantly from a year ago in the fourth quarter. The fourth quarter profit implication of these declines were mitigated by the second quarter 2008 impairment charge of $2.1 billion for North American operating leases. We continue to expect auction values to be volatile.

Our international segment which is primarily Europe was profitable in the fourth quarter of 2008, although on a lower level than in the same period last year, primarily reflecting lower volume and financing margin, a higher provision for credit losses and higher reserves for residual based products, offset partially by lower operation costs. However, our North American segment was unprofitable in the fourth quarter of 2008, primarily reflecting the higher provision of the credit losses and lower volumes.

Slide nine shows quarterly trends of charge-offs and loss-to-receivable-ratios for on-balance sheet and managed portfolios. The top left box shows loss-to-receivable-ratios for the worldwide portfolio. The top right box shows loss-to-receivable-ratios for the US, Ford Lincoln and Mercury retail and lease business.

Both the on-balance sheet and managed loss-to-receivable-ratios are up in the fourth quarter 2008 from a year ago levels, reflecting primarily higher severity per unit, higher repossessions and higher dealer related losses in the US, higher losses in Spain and lower depth [ph] sales in Britain and in Germany. Both worldwide and Ford Lincoln Mercury fourth quarter 2008 loss-to-receivable-ratios were up from third quarter, primarily reflecting higher dealer related losses, higher repossessions and higher severity per unit in the US. Consistent with this, managed charge-offs in the fourth quarter were $366 million. That is up $133 million from a year ago reflecting the same factors I just mentioned.

Slide 10 shows the primary drivers of our credit losses in the US Ford Lincoln and Mercury retail and lease business. Repossessions in the fourth quarter 2008 were 22,000 units. That is up 2,000 units from fourth quarter 2007 and up 1,000 units from the third quarter 2008. Severity of $10,700 in the fourth quarter was $2,400 higher than last year, primarily due to the overall auction value deterioration in the used vehicle market along with an increase in the amount financed and higher mix in the 72 months contracts. Severity was $500 higher than the third quarter 2008, also reflecting auction value deterioration in the used vehicle market.

As previously stated in the third quarter fixed income costs, severity in September 2008 moderated between $9,900 and $10,000. However, we saw more auction weakness as the fourth quarter progressed.

Over 60-day delinquencies totaled 28 basis points in the fourth quarter, up 3 basis points from the third quarter of 2008. Although still lower than our expectation, delinquencies are up about 5 basis points from last year.

Bankruptcy filings totaled 2,000 in the fourth quarter that is up 3,000 compared with the fourth quarter of 2007, and equal to the third quarter of 2008. The credit quality of our contract placements remains very good. We continue to closely monitor our key loss metrics, as mentioned above, for any additional deterioration related to broader trends in the economy.

We have seen deterioration in the second half of 2008 in some of the credit loss drivers and metrics. Now, I would like to take a couple of minutes to put 2008 in a historical context similar to what we did last year at the same time.

Slide 11 shows the longer term trends of key metrics for our on-balance sheet portfolio over the past eight to ten years. I have mentioned several times in the past about the higher credit quality portfolio we have today. The top left box shows the average placement FICO score for the United States retail and lease portfolio which is a substantial portion of our total portfolio.

The average FICO in 2008 was 719 and is consistent with our efforts to maintain the credit quality of our portfolio. The top right box shows on-balance sheet loss-to-receivables ratios. The loss-to-receivables ratio is up from 2007 but still well below 2001 to 2004. The improvement in loss performance compared with the early part of the decade reflects the increase in the quality of the portfolio.

The bottom box shows on-balance sheet charge-offs and the allowance for credit losses. Both charge-offs and the allowance are up over the last two years. At year-end 2008, the credit loss reserve was slightly below 1.5 times 2008 charge-offs.

Slide 12 shows the longer term trends of our Ford Lincoln Mercury US retail and lease portfolio through several key metrics for the past eight years. Full year 2008 repossessions and repossession ratio are higher than a year ago, far below the historical peaks that were experienced in 2003. Loss severity of $9,900 was higher than recent years, primarily due to the overall auction value deterioration in the used vehicle market and increase in the amount financed as well as the higher mix of 72 months contracts. Over 60 day delinquencies totaled 24 basis points in 2008, up 5 basis points from last year but well below the highs seen earlier in the decade.

Bankruptcy filings totaled 37,000, up 10,000 compared with 2007. They are the highest we have seen since the implementation of the Bankruptcy Reform Act of 2005.

I wanted to go through these last two slides to give you some perspective. While we are seeing deterioration in the overall economy, as you can clearly see, has manifested in our severity to the auction values and deteriorating current loss metrics, the decision to improve the overall credit quality of our portfolio during the last eight years has limited these losses to the point.

Slide 13 shows the lease residual performance for our Ford, Lincoln Mercury US brands. Lease return volumes totaled 38,000 units in the fourth quarter of 2008 equal to the fourth quarter of 2007. Return rates were up six points to 90% that is consistent with auction values that were lower than expected at the time of the contract purchase and a general shift in consumer preferences away from trucks and sport utility vehicles.

In the fourth quarter of 2008, auction values for 24 and 36 months lease vehicles of constant mix were down on average about 2,600 per unit and 2,200 per unit, respectively, from year ago levels, primarily reflecting the overall auction market deterioration in the use – in our overall deterioration.

Compared with the prior quarter, auction values were down about $1,000 in the fourth quarter. I will point out in January we have seen auction prices increase roughly $1,000 from December. These placements continue to shift towards cars and crossovers and away from full-size trucks and SUVs. In the fourth quarter of 2008, cars and crossovers represented 74% of new placement, and that is up from 58% in the fourth quarter of 2007 and 71% in the third quarter 2008. Our lease portfolio is presently represented by 53% cars and crossovers, that is up from 42% one year ago.

Our worldwide net investment and operating leases was $22.5 billion at year-end 2008, down about $7.2 billion compared with year-end 2007, primarily reflecting the impairment of certain North American operating leases, lower per unit acquisition costs reflecting the mixed shifts in the lease portfolio to cars and crossovers, and lower lease placements in the second half of 2008.

With that, I will turn it over to Neil.

Neil Schloss

Thanks, KR and good morning everyone. I would like to begin on slide 14 by discussing the external funding environment. We like every other finance company are facing numerous challenges in funding our business. Despite these challenges, we have executed our funding plan. We have maintained our cash balance, and as of December 31, we have liquidity available for use of $21 billion or about 18% of our managed receivables. We achieved this by planned and market driven reduction of managed receivables, the renewal and utilization of some of our committed capacity, and the completion of private funding transactions.

These efforts were supported by utilization of the US Commercial Paper funding program and the European Central Bank financing facility. As we move forward, there are still many challenges remaining related to the volatile and unpredictable credit markets. Our key concerns include access to private and public term securitization, asset-backed commercial paper, unsecured debt and hedging instrument.

Moving to slide 15, I'd like to re-emphasize that we continue to view Ford Credit as a strategic asset and are committed to funding the business under the present ownership structure. Ford Credit’s funding strategy remained centered on maintaining liquidity to meet our short-term funding needs including holding substantial cash balances. We are maintaining our funding programs and structure so that we are prepared to access the public markets when they reopen.

We are planning to renew our committed capacity throughout the year and will utilize government sponsored programs for which we are eligible. Until market access returns, utilization of government sponsored programs in the US and around the world will be an important component of our short-term funding plans. We have already utilized the CPFF and the ECB facilities and are planning on using TALF facility when launched next month.

Any approval of our application for an ILC is also a component of our 2009 funding plans, as it will provide us access to lower cost diversified funding from certificates of deposit. Finally, we will continue to explore and execute alternative business and funding arrangements in those locations where we lack diverse funding capability, while also ensuring that Ford has continued support in these markets if needed.

Slide 16 shows the trends of our funding of our managed receivable. As KR mentioned, at the end of the fourth quarter, managed receivables were $118 billion, down to $29 billion from year-end 2007, and down $12 billion from September 30. We ended the quarter with $23.6 billion in cash including $5.5 billion to support on balance sheet securitizations. Securitized funding was 62% of managed receivables at the end of the fourth quarter. Cash and securitized funding were higher than our prior forecast as market uncertainties let us to fund a greater percentage of our standby liquidity. We expect our managed receivables will decline further in 2009 reflecting lower US and European industry volumes, and as we continue to transition the origination of Jag Land Rover and certain Mazda businesses to other finance providers. We are projecting 2009 year-end managed receivables in the range of $90 billion to $100 billion with securitized funding representing 55% to 60% of managed receivables.

Slide 17 shows our term funding plans for Ford Credit which does not include our short-term funding programs or asset sales to our on-balance sheet asset-backed commercial paper program. For 2008, we completed $42 billion of term funding. Public market transactions totaled $13 billion including $11 billion of securitizations and $2 billion of unsecured debt. In addition, we completed $29 billion of private transactions which were largely asset-backed transactions.

For 2009, our public term funding plans are in the range of $5 billion to $12 billion consisting of $5 billion to $10 billion of public securitization and up to $2 billion of unsecured debt. We continue to have private funding sources in addition to the public markets. These are largely asset-backed securitization programs for retail, wholesale, and lease assets in various countries around the world. For 2009, we are forecasting $10 billion to $15 billion of private funding.

Beginning in November 2008, rating agencies have either downgraded or placed under review for possible downgrade certain notes of our public and private term securitizations in the US, Canada and Europe, as they reevaluate their rating criteria.

Slide 18 details our liquidity programs and our utilization. The top box shows Ford Credits’ committed capacity in our liquidity programs which include unsecured credit facilities, FCAR lines, a multi-asset facility and conduit capacity. The multi-asset facility is committed to fund multiple asset classes including US lease, dealer floor plan and assets that are more difficult to securitize.

As of December 31, we have $69.3 billion of capacity in cash. After excluding securitization cash and adjusting for available assets, liquidity was $59 billion, of which $37.6 billion had been utilized, leaving about $21 billion available for use at our present eligible asset level. This is down about $3 billion from the third quarter consistent with the overall reduction of the balance sheet. Available liquidity as a percent of managed receivable is 18%, about flat with third quarter levels.

Our cash that is not related to securitization totaled about $18 billion at quarter end, up about $4 billion from the third quarter. In addition, we have $4.8 billion of excess capacity which provides incremental funding sources for future originations.

Consistent with the overall market, we have seen lower demand for our FCAR asset-backed commercial paper. As of December 31, $7 billion of the FCAR commercial paper program was placed with the government's CPFF program.

For 2008 in total, we renewed $24 billion or about 77% of our committed capacity that came due, including the renewal of our 364 day FCAR commitments in June. In the fourth quarter, we renewed 39% of our $5.2 billion of committed capacity that was up for renewal. The lower fourth quarter renewal percentage included the non-renewal of a $2 billion portion of our multi-asset facility. Prior to that facility expiring, the program was fully funded. In addition to the lower renewal rate that we experienced in the third and fourth quarters of the year, second half renewals were also completed at higher cost. In 2009, we have about $32 billion of committed capacity up for renewal.

Moving to slide 19, this slide reflects the principal maturities of Ford Credit’s on-balance sheet consolidated assets and debt over coming annual periods. Assets include finance receivables, leases and cash. Virtually, all of the wholesale receivable maturities are reflected in 2009 and we have now shown all floor plan asset-backed securities in 2009 to match debt with the assets, regardless of the ABS transaction contractual maturities.

All of the FCAR asset-backed commercial paper is also reflected in the 2009 debt maturity. As you are aware, Ford Credit asset backed commercial paper is fully supported by bank liquidity facilities that could obligate the banks to fund for underlying term of the assets. The overall message of the slide remains the same. Ford Credit’s balance sheet is inherently liquid.

Assets scheduled to mature in 2009 exceed debt coming due in the same year by $18 billion. Asset maturities exceed debt maturities on a cumulative basis in each of the extended periods shown on the slide. And as a reminder, this slide is updated once a year, when we release our full year results.

So in summary, on slide 20, Ford Motor Company reported 2008 pretax losses from continuing operations excluding special items of $6.7 billion. Net income, including special items, was a loss of $14.6 billion. Automotive cash at year-end was $13.4 billion. Cash together with available automotive credit lines provided total automotive liquidity of $24 billion. As we mentioned, we provided notice today to our banks to fully access the available capacity in the secured credit line.

For Ford Credit, the full year pretax loss excluding impairment was $473 million. The full year pretax loss was $2.6 billion including the second quarter impairment charge of $2.1 billion for operating leases and the net loss of $1.5 billion. Ford Credit continues to provide funding to support its dealers and its customers. The external funding environment remains a challenge, and in 2008, Ford Credit completed $42 billion of term funding. Ford Credit’s liquidity available for use is about $21 billion, of which $18.1 billion is in cash and committed excess asset-backed funding of $4.8 billion.

And with that, I’ll turn it over to David to start the Q&A session.

David Dickenson

Thank you, Neil. Ladies and gentlemen, we are going to start the question-and-answer session now. Katina, can we please have the first question?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Monica Keany representing Morgan Stanley. Please proceed.

Monica Keany – Morgan Stanley

Hi, good morning. I was wondering if you could talk a little bit about the renewal rate in Q4. You talked about it, I think you said it was at 39% and then you talked about the nonrenewable asset of $2 billion? Did you want some of that $2 billion to lapse, was it too expensive, or is it a fact that you are shrinking that you just simply don't need higher renewal rates? Can you just give us a little more color behind that?

Neil Schloss

Yes, I think it was probably a combination of all three of those. The latter one probably was the biggest one which was just the overall shrinkage of the balance sheet. And as I said, I think the key to that was, just before it expired, we filled it with assets. So, it’s still out there from a standpoint of holding our assets and those will liquidate over time. But that was the biggest piece because that was $2 billion of the $5.2 billion that was available for renewal.

Monica Keany – Morgan Stanley

In that $2 billion, what type of assets would that be, and are those assets that type you would not necessarily be originating anymore because it’s harder to finance?

Neil Schloss

No, I think that facility has a lot of flexibility from a standpoint of multi-assets. And I think it was just – the right thing for us to do is to let that facility expire and fill it with assets prior.

Monica Keany – Morgan Stanley

Would you anticipate that the run rate for renewals going forward is going to be in that area? Do you think it’s going to be higher? I mean, obviously environment is getting somewhat tougher, but I’m just trying to figure out, obviously the balance sheet is shrinking a good deal next year? So, the renewal rate you obviously do not need at 100%. Could you give us a sense of what on average renewal rate given what your managed receivables target is you would really need to achieve?

Peter Daniel

I think at this point, we’d rather not say.

Monica Keany – Morgan Stanley

Okay. Can you also give us a sense – I don’t know if you gave us this or not, but the 1,200 headcount, what is the total savings for that that you expect and the cash cost for that?

KR Kent

Yes, Monica, this is KR. We won’t give you a savings of 1,200 reductions but it’s fairly simple to figure out. But as far as the cost, we will 8-K today as well that the total cost of the program will be about $70 million, and that $70 million would include not only involuntary separations but it will include relocations and other things that will be associated with our total restructuring.

Monica Keany – Morgan Stanley

Okay. And then, my last question is you had eluded the fact that Manheim obviously was a lot worst sequentially, sort of the October, November timeframe. It was not as bad in December. Could you talk about, obviously you got impairment charge in Q2 and I think in the third quarter, things were a little better than you expected. And how do things will look in Q4 versus your expectation, and then, how do you feel your reserves right now for 2009 given what Manheim has been trending at?

KR Kent

Okay. Well, as far as reserves real quickly on the depreciation, it’s really not like a reserve, like a credit loss reserve. It’s more of an AFD [ph] build building up depreciation and we believe it’s appropriate. When we came into the second quarter, really April, May, June, we saw the auction market just really drop off dramatically, and that is when we got ourselves looking at the impairment of the second quarter.

At that time, we had expected that the third quarter would actually see deterioration in auction values with just traditionally what you see in the third quarter as the model year ages. But what happened was the third quarter actually improved. And then, we got into the fourth quarter and then the auction market starts to fall off again. It fell off, particularly in November and it fell off again on December. And I think you are going to see basically the same data with the Manheim index. We kind of track along with it and it’s not perfect, but it’s close.

And then, like I said, it fell off in December again. And then we get to the first three weeks of January, we have actually seen about $1,000 improvement in auction values. And by the way, all my commentary, I always do it at a constant mix to try to take out some of the variables that come along with the changing of the portfolio and the like, so just that constant mix gives you an overall respect of it.

Monica Keany – Morgan Stanley

Okay, great. Thanks.

Operator

Your next question comes from the line of Brian Jacoby representing Goldman Sachs. Please proceed.

Brian Jacoby – Goldman Sachs

Hey, guys, good morning.

Neil Schloss

Good morning, Brian.

Brian Jacoby – Goldman Sachs

Few questions just on – maybe on slide 19 where you give the breakout on the amortization of the assets and the debt, can you give us an idea of just the retail versus wholesale and maybe how specifically 2009 and 2010 looks, if possible? And then I have two other quick questions.

Neil Schloss

Yes, I think retail and wholesale are about the same in the first year, and lease is about half of retail.

Brian Jacoby – Goldman Sachs

Okay. If you – right now in 2008, we saw severity close to 10,000. And if we were to experience 2009 to jump up to something like 15,000 which is almost more than double than what we saw back at the last big downturn, but let's just say we got there, I mean how confident are you that your assets based on what you are reserving, what you are projecting would actually cover the debt over the next couple of years?

KR Kent

What you are getting us is another even larger decline in used car prices at that point in time. We didn't see that kind of a decline this year. I mean, it would be much larger than that under that scenario. But it’s hard for me to predict where auction values are going at this point in time, so I can’t really give you anything, any better guidance.

Brian Jacoby – Goldman Sachs

Okay. And then, two others – you had mentioned last quarter, you talked about how Mazda, Jaguar, Land Rover, the runoff of those portfolios, how they will have an impact on liquidity from a positive perspective. Can you just give us an update on, again, how those portfolios as a runoff, the timeframe and just the magnitude? And then the last question I have was, if obviously things did not work out as planned, could you guys perhaps delay paying a dividend to the parent or is that something that really will have to be negotiated with the parent?

Peter Daniel

I'll cover Jaguar, Land Rover and Mazda first? When you look at the Jag, Land Rover and Mazda portfolio that we have on our books, with $118 billion (inaudible) total, Jag and Land Rover represents about 6% to 7%, Mazda represents about 6% to 7% of that total. Wholesale obviously runs off much quicker as it transition out to retail and the lease will take you out several years to loss, so you will be seeing like drop in the first year, and that is why we are telegraphing that the balance sheet will be down to about $90 billion to $100 billion. By the way, I don’t want to confuse you. Industry volumes will be lower so that will also drive the balance sheet down.

As far as the dividend, it’s very straightforward. It is something that is approved by the Ford Credit Board. It is something that we take into consideration, our funding situation as always if you remember at the beginning of 2008, our plan was that we would pay roughly a $3 billion dividend during 2008. And because the funding environment deteriorated, the Board agreed that we would not pay that dividend. So going forward, I’ll give you the same caveat that our plan is that we’ll be able to fund the business well and we’ll be able to pay dividends.

Brian Jacoby – Goldman Sachs

Okay, thank you.

Operator

Your next question comes from the line of Ed Sally [ph] representing JP Morgan. Please proceed.

Ed Sally – JP Morgan

Sorry about that feedback. I don’t know if you guys got that. Good morning. Can you give me some color on the cash slide, on the Ford motor slide, the $1.3 billion tax reconciliation? Can you give me some color on that? What does that involve, the tax refunds from affiliates?

KR Kent

Yes, I’ll take it from the credit point of view since I paid it. The payment primarily reflects the settlement of 2007 federal and state income tax liabilities consistent with the Ford Credit tax sharing agreement and basically these liabilities were primarily generated by the reversal of deferred taxes that were associated with the Ford Credit leasing portfolio.

Ed Sally – JP Morgan

Back to the prior question about dividends, do you guys see – how do you characterize the turning back on the dividends? Is that a sign of confidence in Ford Motor Credit's liquidity or are you more worried about Ford’s liquidity?

KR Kent

As I mentioned to Brian just a second ago, I think it is Ford Credit’s decision and it’s about how the Ford Credit Board feels about the funding environment and how things are moving forward. There is no obligation that we have to pay dividend, but our plan is to pay a dividend both in 2009 and in 2010. It boils around the whole funding environment and our liquidity levels are therefore comfortable.

Ed Sally – JP Morgan

And looking at that with liquidity and asset roll-off, do you guys – are you confident in being able to meet your 2009 maturities without government assistance or without capital markets access? Let’s say you are totally freezed out of the capital markets, do you think you can meet the maturities with just asset roll off?

Neil Schloss

No, I think from that perspective, as we said earlier, the government sponsored programs, the CPFF, and the TALF, as well as the ECB programs are a bigger piece of our overall funding strategy. The asset run off helps but it is not a complete solution.

Ed Sally – JP Morgan

Okay. And then looking at managed charge-offs, I definitely understand the dynamics in the fourth quarter, but it has grown at 20% sequentially, is that rate going to continue or should we see that evade us as we get into easier comps?

KR Kent

Easier comps. I’ll be honest with you. I’m just not comfortable exactly where the economy is going. I do believe that with the stuff that the government is doing in the fiscal stimulus that it will help out in the second half of the year. But there is a lot of stress out there in the consumer base. We are seeing it in delinquencies. We are seeing it in repossessions. And as I mentioned earlier, one of the good things that seem to be happening right now, at least in January, is auction markets are coming back. I’m getting conflicting signals of where all the economy is heading. And so, it’s hard for me to give you a forecast at this point in time. That’s kind of why we decided it would be prudent for us not to provide a forecast this year.

Ed Sally – JP Morgan

But the stability in the auction market is somewhat encouraging, I imagine.

KR Kent

First three weeks of January, but then to be honest, I was very encouraged in the third quarter of 2008. And then, it went off in the fourth quarter.

Ed Sally – JP Morgan

And then just one final question if I could sneak it in, you guys obtained job banks concession without a “shared sacrifice from your bond equity and management.” Do you guys thinking that parity of concessions without that shared sacrifice of bondholders, equity holders and management?

Peter Daniel

This will be clearly part of the negotiations with the OAW [ph]. I think it's fair to say that the OAW's expectation is that we share the sacrifice. So, we'll have to do further discussions with each of the stakeholder.

Ed Sally – JP Morgan

Okay. Thanks a lot, guys.

Operator

The next question comes from the line of Sarah Thompson representing Barclays Capital. Please proceed.

Sarah Thompson – Barclays Capital

Hi, it’s Sarah Thompson with Barclays. A question about the ABS and I apologize because I am very novice at the ABS market but given the –

David Dickenson

Sarah, can you talk louder please?

Sarah Thompson – Barclays Capital

Sorry. Is that better?

David Dickenson

Yes.

Sarah Thompson – Barclays Capital

Okay. A question on the ABS and I apologize because I am not an expert in this area at all, but my understanding of the way that you got risk on the ABS wholesale or floor plan financing giving the ratings actions, I’m just curious of what the options are in terms of do you put more collateral into them? Do you take loans out of them? Do you just let them go into OEM and hope that you can pick it up (inaudible)? How do you think about that?

KR Kent

For one, I don't think there is any early amortization from the rating actions that have been taken. I think the rating agencies have taken a step back and have started to reevaluate their models given the capital market turmoil and the economic turmoil. I think we have to wait and see how some of that resolves before we think about top ups or think about putting more enhancements in the transactions?

Sarah Thompson – Barclays Capital

Okay.

KR Kent

But I think we are in an active dialog with them. We are working not only with them, but we work with investors. We give them our portfolios, we show them how the assets are performing that justifies the structures we have today and that’s not only here but also in Europe.

Sarah Thompson – Barclays Capital

Okay, great. That’s helpful. And then, on the ILC, I know you guys haven’t been approved and I know you’ve said that it’s part of your funding plan but not a huge part for the year. So, if we think about it, if you first got ILC status and you were able to participate under the loan-guaranteed program, then that would obviously be a significant positive versus what you’re planning for right now?

KR Kent

I think what’s – the base plan that has the ILC in it does not assume anything coming from the TLG program, so to the extent that we got the ILC and got access to the guaranteed program as an affiliate of the ILC, that would be an opportunity to the existing plan.

Sarah Thompson – Barclays Capital

Terrific. And can you just tell me at this point, I realize it is all very hypothetical, but assuming that you could and you met the requirements, how much debt you would have that would fall within that September 30 to June 30 time period?

KR Kent

Yes, it’s in the $10 billion range.

Sarah Thompson – Barclays Capital

Terrific. That’s all I had. Thank you very much.

Peter Daniel

Thank you.

Operator

The next question comes from the line of Doug Carson representing Banc of America Merrill Lynch. Please proceed.

Peter Daniel

Good morning, Doug.

Doug Carson – Banc of America Merrill Lynch

Good morning. I know you’ve touched on the industrial loan status. I mean, could you characterize it, the final stages of the negotiations? Because this has been going on so long and it seems that there’s a lot of emphasis in trying to help here. I’m just wondering what’s taken so long to gain that status, and then if we’re at the final stages?

Peter Daniel

I don’t want to characterize at what point or what stages we’re in with them. I mean, we continue to have discussion on our application and that’s just ongoing at this point in time.

Doug Carson – Banc of America Merrill Lynch

Okay. Thank you. And then, I look at slide 17, on the funding, it looks like the forecast for the private transactions is $10 billion to $15 billion. It’s about half of what we had in 2008 and 2007. Is that more of a function of originations falling and less need or the market?

KR Kent

No. It’s definitely a function of the combination of the assets coming down the level of maturing debt and what we need as incremental funding. So, this is the amount of total funding that we need in these two markets as a result of our cash outflows as debt matures plus the inflows as assets get originated.

Peter Daniel

You remember, we’ve come off from last year. Last year, at 2007, we ended with a balance sheet of about $147 billion in managed receivables and we’re heading by the end of this year down of between $90 billion and $100 billion, so it’s substantial reductions [ph].

KR Kent

I think the other piece, if you go back and look at what we’ve said, our full-year 2008 numbers were going to be relative to where we ended the year, we did pre-fund some of the first quarter needs in the fourth quarter. We ended the year with a much larger cash balance than we were projecting, so there’s a combination of that as well.

Doug Carson – Banc of America Merrill Lynch

So, some of that Q1 in 2009 was pulled into 2008?

KR Kent

Correct.

Doug Carson – Banc of America Merrill Lynch

Okay. All right, great. That’s it for me, guys. Thank you.

Peter Daniel

Thank you, Doug.

Operator

Your final question comes from the line of Josh Litchen [ph] representing EE Bank [ph]. Please proceed.

Josh Litchen – EE Bank

All right, thank you. Can you give us your managed leverage targets for the end of 2009 and 2010?

Peter Daniel

No, we are not providing any kind of guidance. What I will tell you Josh is that we ended away at 9.9 [ph]. We have said that the credit company based on the risk of the assets has always been come forward with at least 11.5 to 1. But based on our plans right now, we want to come close to that. We'll be substantially below that.

Josh Litchen – EE Bank

Okay. And then with respect to the ILC, probably there is an affiliate rule that kind of limit what you can do there. Is it your expectation to escrow some relief with respect to those rules or do you have plans to find other ways to do a floor plan so you can originate more retail or –?

Peter Daniel

All we can say at this point in time is we continue to have discussions with the FDIC on the ILC.

Josh Litchen – EE Bank

Okay. All right, great. Thank you very much.

David Dickenson

Ladies and gentlemen, that concludes this call. Thank you for joining us.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect.

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