福特汽車 (F) 2007 Q4 法說會逐字稿

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

I would now like to hand the presentation over to David Dickenson, Fixed Income Investor Relations Manager. Please proceed, sir.

Thank you, Michelle, 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.

Our speakers this morning are Peter Daniel, Ford's Senior Vice President and Controller; K.R. Kent, Ford Credit Vice Chairman and Chief Financial Officer; and Neil Schloss, Ford Vice President and Treasurer. We do have some other members of management who are joining us for the call including David Brandi, Assistant Treasurer; Mark Kosman, Director of Accounting; and Phil Horlock, Director, Corporate Finance.

Before I hand the call over to Peter, 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 website for your reference. The financial results discussed herein are presented on a preliminary basis. Final data will be included in our Form 10-K for 2007. 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 equivalents as part of the appendix in the slide deck.

Finally, today's presentation may include 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 are summarized at the end of this presentation. These risk factors are detailed in our SEC filings, including our Form 10-K, 10-Q and 8-Ks.

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

Thanks, David, and good morning to everyone. We will begin by reviewing the key financial results from the fourth-quarter. As shown at the top of the slide, vehicle wholesales last quarter were over 1.6 million units, up 75,000 from the same period in '06. Total company revenue of $45.5 billion was up about 13% from a year ago. The increase primarily reflects favorable exchange in net pricing as well as higher volume.

Pretax results from continuing operations were a loss of $620 million, an improvement of $1.3 billion from the same period in 2006. This includes a more than $1.4 billion improvement in Automotive operating profits, partially offset by lower profits at Financial Services.

Our fourth-quarter net loss was $2.8 billion. This included $3.9 billion of pretax special charges. I will take you through these largely non-cash charges shortly. And we ended the quarter with $34.6 billion of gross cash, an increase of $700 million from 2006.

Overall, our plan is working and we continue to show progress. For the full year we had a pretax profit of $126 million from continuing operations, an improvement of about $3.3 billion from 2006. Our net loss was $2.7 billion, an improvement of nearly $10 billion compared with 2006.

We go to slide two, this covers our special items, which were $3.9 billion pretax in the fourth-quarter. The two main items in the fourth quarter were both non-cash. On an annual basis, we test for asset impairment. As a result of our review this year, we have recorded a charge of $2.4 billion for impairment of goodwill at Volvo. This largely reflects the deterioration in Volvo results during 2007 primarily related to exchange rates, incentives and lower-than-planned volumes and the likelihood of lower-than-previously-projected forward year volumes reduced the fair value of our Volvo. Based on the accounting rules, we wrote the book value down to fair value and that charge was $2.4 billion pretax. No write-off was necessary for Jaguar or Land Rover.

We also took a charge of $1.4 billion to reflect the change in our business practice related to providing retail incentives, or variable marketing to our dealers, which we discussed with you back in November. This change revises our process to commit to offering incentives on an annual basis.

In addition to these charges, we recorded a number of smaller pretax adjustments in the fourth-quarter, including $120 million gain on the exchange of the $567 million of debt for equity, recognition of market-to-market losses of $76 million on certain hedges at Jaguar and Land Rover that previously would have been deferred -- this is in line with the prior two quarters -- and additional charges totaling about $120 million primarily for personnel reductions at PAG and North America.

Slide three shows Automotive cash and cash flow. We ended the year with $34.6 billion of gross cash, a decrease of $1 billion compared with September 30, but a $700 million increase compared with year end 2006. Our operating cash flow was $1.2 billion negative in the quarter, including an Automotive pretax loss of $900 million. Capital spending during the quarter was about $200 million higher than depreciation and amortization. Changes in working capital were $900 million negative because of lower December production. And our operating cash flow was $700 million positive -- sorry, other operating cash flow was $700 million positive, including $300 million of tax-related interest.

Separation programs resulted in an outflow of $300 million to the quarter and we contributed $200 million to our pension plans. In addition, we received a tax refund of $700 million related to prior year settlements and our performance in operating and total cash flow for last year was well ahead of plan.

We go to slide four, which summarizes our net liquidity at year end. Gross cash was $34.6 billion, this includes $1.9 billion of short-term VEBA. These VEBA assets and $2.8 billion of cash will be excluded from gross cash starting with 2008 reporting and that is consistent with our recent UAW agreement. Total liquidity as of year end, including available credit lines, was $46.5 billion. As shown in the memo, long-term VEBA assets were $2 billion. As a result of the UAW VEBA agreement, these assets will not be a source of use of cash to Ford.

Automotive debt was $26.7 billion. Upon expected implementation of the independent VEBA on January 1, 2010, debt will increase by $6.3 billion.

Slide five shows our 2008 Automotive planning assumptions and metrics. We are expecting total industry sales to be about 16 million units for the U.S. and 17.6 million units for Europe, which includes light and heavy vehicles. On the operational metrics, we expect to continue to improve our quality. We plan to continue to reduce our automotive cost by about $3 billion during 2008. On market share, we anticipate that U.S. share will be around the low end of the planned 14% to 15% range during 2008, with further reductions planned on the fleet side.

We continue to expect operating cash outflows in 2008. These outflows will include about $3 billion related to the acceleration of subvention payments to Ford Credit as discussed in November. Capital spending is projected at around $6 billion. This reflects lower capital expenditures because of the planned sale of JLR, offset by our high expenditures at our other Ford operations.

Slide six shows our 2008 outlook by sector. We expect the Automotive pretax results to be a loss, but should be equal to or better than 2007 when you excluded Jaguar and Land Rover from the 2007 results. Financial Services 2008 pretax results are expected to be about equal to 2007. Total company pretax operating results, excluding special items are expected to be equal to or better than 2007, again excluding Jaguar and Land Rover from 2007. We also expect special items to be less than 2007. We project that these will include a full year's personnel-related restructuring cost of about $1 billion. Both the total pretax results and net income we expect to improve from 2007.

Now if we turn to slide seven, we'll share with you our assessment on where we stand on achieving our key business metrics and financial goals. We remain committed to our plan. The improvements we saw in 2007 give us added confidence that we will meet our 2009 profitability targets. Achievement of the cost target is a key element of the plan. We expect to make further cost reductions in 2009 and the benefits of the UAW agreement will begin contributing meaningfully in 2010. For U.S. market share during 2008, we expect to get the lower end of the 14% to 15% range and we are planning on a $12 to $14 billion cash outflow for 2007 to 2009 to fund operating losses and the restructuring of our business.

With that, I will turn it over to K.R.

Thanks, Peter, and good morning, everyone.

Starting with slide eight, which shows Ford Credit operating results and key metrics for the fourth-quarter of 2007. We have also included a full-year version of this slide in the appendix. As shown in the left box, our fourth-quarter pretax profits were $263 million, down about $143 million from a year ago. For full year 2007, pretax profits were $1.2 billion, down $738 million from a year ago. Excluding the impact of market valuation adjustments from derivatives, 2007 pretax profits for the full year were $1.3 billion, slightly above the low end of the range of our 2007 guidance.

Shown below the left box, pretax profits, excluding the impact of gains and losses related to the market valuation adjustments from derivatives, in the fourth-quarter were $223 million, down $254 million from fourth-quarter 2006. The net gains and losses related to market valuations were $111 million better than the same period last year.

You can see in the right box our December 31, 2007, managed receivables were $147 billion, that is down slightly from a year ago and down about $1 billion from the third quarter. Charge-offs for managed receivables in the fourth-quarter 2007 were $233 million. That was up 11% from a year ago. The worldwide managed loss receivables was 62 basis points in the Fourth quarter, also up six basis points from a year ago.

At December 31, 2007, the credit loss reserve for on-balance sheet receivables was $1.1 billion, or 77 basis points of receivables. This was up about $100 million from the third quarter.

In 2007 regular dividends from Ford Credit to Ford were suspended to enhance funding flexibility and as you can see, we did not pay a dividend in the fourth-quarter.

At December 31, 2007, our managed leverage was 9.8 to 1 compared to 11.4 to 1 at the end of 2006. As we discussed in the third quarter call, we plan to pay regular distributions in 2008 and to move our managed leverage evenly over the next four quarters from 9.8 to 1 at the end of 2007 to around 11.5 to 1 by the end of 2008. 2008 distributions will reflect Ford Credit's 2008 after-tax profits plus a return of capital reflecting the planned increase in leverage, as well as a projected smaller managed receivable base. We expect to hit our new leverage target by the end of this year.

In 2008, we also expect Ford Credit earnings to be about equal to our 2007 results. I would like to mention that Ford Credit's North American transformation to business centers is on track and by the end of December, we had integrated 97% of our branches into the regional business centers, with only two branches left to do in 2008.

Slide nine explains the changes in Ford Credit's pretax profits for the fourth-quarter of 2007 compared to the fourth-quarter of 2006. As mentioned before, earnings at Ford Credit were $263 million in the fourth-quarter, $143 million lower than in 2006. The decrease in earnings primarily reflected the non-recurrence of credit loss reserve reductions, higher borrowing costs and higher depreciation expense for leased vehicles. These factors were offset partially by lower expenses and the non-recurrence of losses related to market valuation adjustments from derivatives. Fourth quarter included a $55 million unfavorable accounting adjustment related to the valuation of certain interest rate swaps. As of January 2008, we have resumed the use of designated hedge accounting for derivatives at Ford Credit, which should reduce our ongoing earnings volatility.

On slide ten, it shows quarterly trends of charge-offs and loss-to-receivable ratios for our 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 U.S. Ford Lincoln Mercury retail and lease business. Both the on-balance sheet and managed loss-to-receivable ratios are up in the fourth quarter 2007 from year-ago levels reflecting primarily increased severity per unit in the U.S. retail and lease portfolio. Fourth quarter 2007 ratios were also up from third quarter primarily reflecting the higher severity and a seasonal increase in repossessions. Consistent with this, managed charge-offs in fourth-quarter were $233 million, up $23 million from a year ago.

Slide 11 shows the primary drivers of credit losses in the U.S. Ford Lincoln Mercury retail and lease business. Repossessions in the fourth-quarter of 2007 were 20,000 units, equal to a year ago and up 1000 from the third quarter reflecting seasonal trends. Loss severity of $8300 in the fourth quarter is $1500 higher than last year. This is consistent with an increase in the amount financed as well as a higher mix of 72-month contracts. Loss severity is $800 higher than the third quarter primarily reflecting deteriorations in the used vehicle auction market.

Over-60-day delinquencies totaled 23 basis points in the fourth-quarter 2007. Although still very low, delinquencies are up six basis points from last year and up one basis point from the third quarter. Bankruptcy filings totaled 7000 in the fourth-quarter, up 1000 compared with the fourth-quarter of 2006 and equal to the third quarter of 2007. Bankruptcy filings continue at a very low level.

The quality of our portfolio is very good and we are pleased with the loss performance. We continue to monitor closely our key loss metrics for any deterioration related to broader trends in the economy.

We have seen some deterioration in the latter part of 2007 in some of the credit loss drivers and metrics and I would like to take a couple of minutes to put it into a historical context on the next two slides. On slide 12, it shows the longer-term trends of key metrics for our on-balance sheet portfolio over the past seven years. I have mentioned this several times in the past about the higher 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 2007 was 714 and is consistent with our efforts to improve the quality of our portfolio.

The top right box shows worldwide on-balance sheet loss-to-receivable ratios. Loss-to-receivable ratios is up from 2006, but well below 2001 to 2004. The improvement over time in loss performance reflects the increase in the quality of our portfolio.

The bottom box shows on-balance sheet charge-offs and the allowance for credit losses itself. Both charge-offs and the allowance are below prior levels. At year end 2007, the credit loss reserve was slightly below two times 2007 charge-offs.

Slide 13 also gives another historical perspective and it shows the longer-term quality trends of our Ford Lincoln Mercury U.S. retail and lease portfolio through several key metrics for the past seven years. Full year 2007 repossessions and the repossession ratio were the lowest in the last seven years, reflecting the high-quality portfolio. Loss severity at $7400 was higher than recent years and, again, that is consistent with the increase in amount financed over time as well as a higher mix of 72-month contracts. Over-60-day delinquencies totaled 19 basis points in 2007, up three basis points from last year, but well below the highs seen earlier in the decade. As noted previously, repossessions and the repossession ratio improved over 2006, so the increase in delinquencies during 2007 have not translated into higher repossessions.

Bankruptcy filings totaled 27,000, which is up 6000 compared with 2006, but again, well below the levels we have seen in the 2001 through 2005 period. And the low numbers in 2006 and 2007 reflect the impact of the Bankruptcy Reform Act of 2005.

Moving back to the fourth-quarter results, slide 14 shows the lease residual performance for our Ford and Lincoln Mercury U.S. brands. These return volumes totaled 38,000 units in the fourth-quarter 2007, up 6000 units from the fourth-quarter of 2006. The increase primarily reflects the growth in lease placement volumes since 2004 as well as higher return rates. In the fourth-quarter 2007, auction values for 24-month lease vehicles, at constant mix, were up about $170 per unit from a year ago primarily reflecting increased vehicle content on returning vehicles. Auction values for 36-month lease vehicles were down about $425 per unit from a year ago levels primarily reflecting auction market weakness for trucks and SUVs.

Auction values were down from the third quarter 2007 for both terms, consistent with a deterioration in a used car market. Overall, auction value results for vehicles returned in 2007 were not as high as our expectations when we purchased the contracts originally.

Our worldwide net investment in operating leases was $29.7 billion at the end of 2007, which was up about $0.5 billion compared with the third quarter 2007.

With that, I will turn it over to Neil.

Thanks, K.R., and we are now on slide 15. This slide shows the trends of funding for our managed receivables.

As K.R. mentioned, at year end 2007, managed receivables were $147 billion, down slightly from year end 2006. We ended the year with $16.7 billion in cash, including $4.7 billion to support our on-balance sheet securitizations. Cash was higher than our prior forecast of 12 to $14 billion as we took advantage of some private securitization funding to pre-fund some of our first-quarter unsecured debt maturities.

Securitized funding at the end of the year was 51% of managed receivables, slightly higher than our prior forecast.

For 2008, our year end managed receivable forecast is projected to be between $135 and $145 billion, with securitized funding representing 49 to 54% of managed receivables. Achieving the lower end of the receivable range would reflect the successful execution of several strategic actions.

We plan to continue to hold a substantial cash balance. Our target cash level for year end 2008 is in the range of $13 to $16 billion.

Moving to slide 16, Ford Credit's funding strategy includes maintaining strong liquidity to meet near-term funding obligations by having a substantial cash balance and committed funding capacity. We will continue to expand and diversify our global ABS funding and we will renew asset-backed funding capacity around the world. We will also potentially access the unsecured market and continue to consider alternative business arrangements to improve funding capability where it makes sense. As K.R. also mentioned earlier, Ford Credit will resume regular distributions in 2008.

Slide 17 shows our term funding plans for Ford Credit, which does not include our short-term funding programs, our asset sales to our on-balance sheet, asset-backed commercial paper programs or proceeds from revolving transactions. For 2007, we completed $40 billion of term funding. Public market transactions totaled $12 billion, split evenly between securitizations and unsecured debts. In addition, there were $28 billion worth of private transactions, which were largely asset-backed transactions for retail, lease and wholesale assets around the world.

For 2008 in the public term markets, we are projecting funding of $10 to $20 billion, consisting of up to $4 billion in the unsecured market and $10 to $16 billion in the securitization market. We are forecasting private transactions also to be in the range of $10 to $20 billion. This week we successfully completed a $2 billion public retail asset-backed securitization transaction in the U.S.

Moving to slide 18, the top box shows Ford Credit's committed liquidity programs, which include unsecured credit lines, FCAR lines, unrated notes facility and conduit capacity. Shown in the far right box, Ford Credit had capacity and cash of $73.5 billion at year end 2006 -- I am sorry, 2007. Subject to available assets and excluding $4.7 billion of cash to support the on-balance sheet securitization transactions, liquidity was $64 billion. The bottom box shows our utilization of these programs, which was $36.1 billion at year end. Our FCAR program continues to perform well with their year end balance of $13.7 billion, which was up $1.4 billion from the third quarter.

In total, Ford Credit's liquidity exceeded utilization by $28 billion. As shown on this slide, we continue to carry capacity in excess of available assets. This capacity allows us flexibility in the execution of our funding plans.

Moving to slide 19, first you will notice that we have changed this chart to reflect all of Ford Credit's on-balance sheet receivables, cash and debt and we no longer show maturity baskets shorter than one year. We believe this chart is more comprehensive because in the past, we only showed non-securitized receivables, unsecured debt and cash for the U.S., Canada and Europe.

The message on this chart, though, remains the same -- Ford Credit's balance sheet is inherently liquid because of the short-term nature of its assets. Assets scheduled to mature in 2008 exceed debt coming due in the same year by $32 billion. Asset maturities exceed debt maturities in all the extended periods shown on the slide. Going forward, this slide will be updated once a year as we release our full-year results.

So in summary, Ford Motor Company reported 2007 pretax profits from continuing operations of $126 million, excluding special items. Net income, including special items, was a loss of $2.7 billion, substantially less than the loss incurred in 2006.

Automotive gross cash at year-end remained strong at $34.6 billion. When you add together the cash plus the Automotive credit lines, we had total liquidity of $46.5 billion.

For Ford Credit, pretax profit was $1.2 billion dollars and net income was $775 million. Excluding the net losses related to the market valuation adjustment for derivatives, pretax profits were $1.3 billion.

Ford Credit's North America transformation to business centers is essentially complete. As of year end 2007, Ford Credit had integrated all of its branches into the regional business centers with exception to two branches in Canada, which will be consolidated during the first quarter of 2008.

In 2007, Ford Credit completed $40 billion of term funding and Ford Credit liquidity continues to remain strong, with committed asset-backed funding capacity beyond our present needs.

With that, I'll turn it over to David to begin the Q&A session.

Thanks, Neil. Ladies and gentlemen, we're going to start the question-and-answer session now. Michelle, can we please have the first question?

Chester Luy, Barclay Capital.

Good morning, everyone. A few quick ones here. First, tax refunds accounted for about $2.6 billion of cash generation in '07. Can you give us a sense as to how this should trend in '08?

That will be substantially lower in 2008, so you won't be seeing that anywhere near that level going forward.

Of the $3 billion in structural cost savings, how much of this will be cash versus non-cash?

A substantial portion of it will be cash. If you think about those structural savings, we took about 32.5 thousand people out in '07 and we're going to get the full flow through benefit of that. We are going to do, as you heard, another enterprise-wide buyout, which will generate, on an operating basis, additional cash savings. So I would say a large percentage is cash-related.

Can you talk about your access to the ABS market and how much more on average in terms of funding cost did you incur in your last public retail asset-backed transaction versus last year?

I think from the standpoint of the asset-backed programs, the CP program that we have, which is our FCAR program, is actually doing better so far this year than in the third quarter -- in the fourth-quarter as we have been able to extend back-out term to more of levels that we saw prior to the August change in the markets. And the ABS deal we did -- that we closed this week was actually at a lower cost in total when you take into consideration the lower underlying interest rates.

And the final question is the Company is forecasting flat profits for Ford Credit in '08. How should we view the deterioration of credit quality in the macro environment and its impact on your result '08? Delinquency rates rose only modestly in the quarter, but severity seems to have risen meaningfully, it's 8300 from 7500.

I will give you a little perspective, this is K.R. When you think about 2008 compared to 2007, what we are looking at at this point in time, there are a couple of real positives that are going to happen. We should see a margin improvement in our business as the underlying rates come down and that slowly works its way through our portfolio. We should see good news on operating cost, which will be another nice positive, as a result of our restructuring that we did. Primarily, as I mentioned, we are almost complete with that, but most of it was done during '07. So not only will we have lower headcount, lower personnel levels overall, but the restructuring cost itself that we had to pay in 2007 won't repeat.

Likewise on the lease residual side, while we have seen some deterioration in the auction market, because you forecast out what your expectations are for the used car market, we picked up a lot of the depreciation in 2007, which won't repeat again.

And then you get on the negative sides. What's working against us a bit is that volumes will be lower next year as we bring down the receivable base a bit, which will have a negative impact. And then you are left with -- the last one is credit losses and heading into 2008, coming out of the back end of 2007 we have seen rises in the key credit metrics, including, as you pointed out, the severity. But the view right now is that the positives and negatives will basically offset each other and we will be about equal to 2007 overall profits.

Great, thanks. That is all I have.

Brian Jacoby, Goldman Sachs.

Along those same lines, can you give us an idea at Ford Motor Credit perhaps maybe where you see the loss-to-receivables ratio going or some type of metric that -- kind of what you are assuming with respect to charge-offs? Obviously the loss-to-receivables ratio will probably rise, but I know you have the denominator falling and so forth, but can you kind of give us a range on where you see this going relative to what it did back in '01?

Brian, a couple of things. This time, if you notice, I did add in these slides about the history. I wanted to give people a real perspective on how the portfolio has changed because I often talk about how it has changed, but unless you can actually see something like a FICO score it is hard to really understand exactly what is going on. And I did show the FICOs because that is generally what people recognize.

FICO -- I've talked about this in the past, our proprietary scoring model, it is only a piece of how we underwrite, but it does give you a perspective of how the portfolio has changed over time. When you get into 2008, at this point in time I don't want to get into projections on individual line items, but I think overall we seem pretty balanced where we stand right now.

Is it fair to assume on slide 12 that that loss ratio -- is it fair to assume that we could see levels that are similar to '04? Or you guys just don't want to get into that type of --?

I really don't want to get into that and it's really important to -- on slide 12 when you see to the left the FICO scores, from going like to say an average of call it 676 for the first four years shown there and then moving up to an average of say 710'ish, that is a pretty substantial improvement in FICO scores.

And these are placement FICO scores, so you do have the portfolio affect that you have three straight years of 710 and above would actually represent a major component of today's portfolio.

Okay. And then I had just two other quick questions; one is just on the -- you're calling for $1 billion in essentially restructuring costs in '08 related to separation. And previously you had said through '07 through '09 roughly $5 billion to $6 billion in total cash restructuring.

And in '07 you spent $2.5 billion and you're saying $1 billion in '08 -- so that's sort of implying that like cash restructuring -- I thought cash restructuring would be lower by '09. But from what you're implying is that cash restructuring might actually be higher in '09. Either that or you're going to come in a lot lower than the $5 billion to $6 billion. Can you comment on that?

The restructuring costs are going to be lower than what we incurred in '07. We will be incurring in the range of $1 billion to $2 billion in restructuring costs in '08 and --.

$1 billion to $2 billion?

Yes.

Okay. And then along those similar lines just with first quarter now, we are in the first quarter and you had to put in $6.5 billion into the new VEBA trust. So the short-term VEBA of 1.9 that you had at the end of '07 which effectively boosts your operating GAAP cash flow, we would expect that to be a reversal in first quarter where that would be a negative 1.9 outflow, is that how to look at that?

Yes.

Okay, so the net cash payment into that VEBA trust is somewhere around $2.6 billion when you factor in both the long-term and the short-term?

The actual cash that goes into temporary asset account will be about $2.7 billion.

2.7, okay. Great. Thank you.

(OPERATOR INSTRUCTIONS) Eric Selle, JPMorgan.

Just to get some clarity on your flat year-over-year guidance, you said that you're going to see some benefit from lower depreciation and I'm just confused by that with higher lease volumes coming through as well as more severity and more of your customers giving back the vehicles at the lease. How do you get over that in 2008?

Eric, a way to think about it is on lease vehicles, as we see weakness in the auction market, we depreciate the vehicles from today to what we think their residual will be at end of the lease. And so effectively, as we have seen the weakness in the auction market all through this year and we saw last year as well -- I'm sorry, 2006 as well in the third quarter, we have taken down what our expectations are of what those vehicles will be worth at auction. So we actually depreciate between that point in time where we made that recognition until the end of the lease period. So you have actually picked up a large chunk of the depreciation already.

Okay. Then moving to slide 12, does that loss-to-receivables include Triad?

No, this is basically data that we restated a couple of years ago when Triad was a discontinued operation. Triad is not included in these numbers.

And then on slide nine -- I'm sorry, we're down at our conference and I missed the first call, but can you give me some more detail on this other item of $200 million add-back, the year-over-year positive delta?

Sure, it is a number of elements, but it is primarily lower operating costs and there is also we had a few tax refund items that we have had in the Credit company around the world, as well as there is some other tax-related items in there.

Some of that is restructuring savings that you guys consummated about a year ago?

Correct. Some of the operating cost reductions are starting to flow through.

Okay. Then on slide 10, you look at the worldwide loss-to-receivables and then U.S. loss-to-receivables and they track pretty consistently, whereas the U.S. is about 20 basis points above the worldwide loss. But it jumps to about a 50-basis-point differential in the fourth quarter. Am I being paranoid or is there some explanation there that we're seeing performance in the U.S.?

Yes, what we are seeing coming through the portfolio right now, when you look at the weaknesses that we are seeing, it is primarily in the U.S. The rest of the world is doing pretty good. And then when you get into the U.S., as I mentioned before, it is still the same type of states, like California, Nevada, Arizona, Florida and it's starting to a little bit in the Midwest like Ohio and Michigan, but for the most part, the deterioration that we are seeing has been primarily driven by the U.S.

I will point out, though, there have been -- we did a couple of debt sales in Europe, which helps the net in the fourth quarter that were planned all year long. The underlying itself wasn't really changing.

What percentage of your receivables are U.S. versus worldwide?

Roughly the portfolio today, U.S. retail and lease is about 50% of the total portfolio, the on-balance sheet portfolio. I guess it doesn't really matter much. There is not much off-balance sheet anymore, but it is roughly 50%

And then one final question. On slide 17, your private transactions are expected to go from $28 billion in '07 to anywhere from 10 to 20. Why is that reduction? Are we seeing buyers retreat or is that just intentional on your part?

I think the '07 numbers reflected a lot of strategic transactions around the world on specific asset classes that utilize the private market. Our '08 plan goes back more to the sort of steady-state plan like it was in '05 and '06.

Thanks a lot for your time.

James Leda, Merrill Lynch.

Thanks for taking the question. I apologize, I got cut off for a short while when Brian was asking his question and picked back up when Eric was on the line. So if I repeat anything, just let me now. We will pick it up off-line.

I wanted to ask about the loss severity. Obviously it has trended up. Is there a reasonable way to think about that loss severity in the context of, let's say, revenue per unit for example, because if I think about what is happening here, we would have a revenue per unit? There would obviously be some type of a down payment. There would be some interim payments in the period before the repossession would occur and then you would have some kind of an auction value to bring you back to a net loss severity. How can we think about those individual pieces, how they have trended and then is that loss severity, as a percentage of the RPU and I guess we can calculate that, but is that something that you look or that's meaningful in your view?

You brought up a lot of points, because it is dynamic and it has a number of elements that can all drive your severities. I will just give you some examples. When you think about the change versus, say, last year, you see the auction market weakness is flowing through, you see higher 72-months disposal, whereas we have moved to a larger proportion of our portfolio being 72 months than we were, say, a year ago. There is also a higher truck and SUV mix, which is also tied back to the auction market weaknesses. You end up getting the largest severity right now associated with them.

The problem is that it is not something that is easily modeled. It is something that we monitor and track all the time and understand what is going on, but it is really -- it is a little bit difficult to model when you are trying to pick up all these different pieces and the dynamics. I will think about it, though.

Do you have any statistics that point to how many months into these loans the typical default period? In other words, are they defaulting 12 months in on average or 15 months in?

Two things. One is on that specific question, the months to repossession has been fairly stable. It usually runs between 26 and 27 months and it has been that way for the last couple of years. The other thing I wanted to mention on the severity, you also get into the amount financed has an impact to that as well and we have seen a higher amount financed on the vehicles in the last few years.

I don't know if you guys have said this before, but what is the average loan [tender] now that you have moved to more 72-month in the mix? Can you give us a ballpark on that?

It is 59 to 60 months.

59 to 60. And then --

That is for U.S., retail. Obviously lease can be less or --

That is helpful. Slides 12 and 13 -- this is a bit nitpicky -- it doesn't include Triad. Have they also been adjusted to take out Fairlane?

No, Fairlane was still in. Triad was considered a discontinued operation. I tried to tie back to data that had been published in our Ks and Qs in the past and Triad, specifically, since it was a discontinued operation, was taken out of all of the numbers, but Fairlane was not done in the same vein.

Okay.

Fairlane was never a large portion of the overall portfolio. We are talking less than 1% of the portfolio.

Okay. So if I look at the increase on slide 12 in FICO scores, let's just say that from the 99 to '03 period it averaged maybe 675, 680 and then you get about a 30-point rise to the more recent year average. Are there statistics or studies that can show what that incremental boost in FICO score gets you? Obviously the models that you guys work with show that that is going to be a big mitigating factor with regard to charge-offs on a go-forward basis, but how can we gain comfort in what that formula is?

I will give a little perspective, because, again, I think our underwriting practices our much better than just using FICO alone. However -- and I don't know what the official -- the FICO group or what they might say or what is on their website. You might want to look at that. The rough rule of thumb that people in my company use is that for about every 40 points of improvements in FICO is cutting your risk in half. Or said the other way, if you dropped your FICOs by 40 points, you're basically doubling up with your risk. That has kind of any rule of thumb and I'm sure it is not perfect, but it is the rule of thumb that we have used in the Credit company.

Okay, that is insightful. One last question, got a lot of calls on it this morning from our friends across the pond, FCE Bank, where can folks find information?

We have got separate financial statements they can find on FCE or they can contact the fixed income relations manager, myself, for questions.

So those will be filed later with the European regulators?

They are filed later with the European regulators, yes.

Excellent. Thank you very much for your time.

Brian Johnson, Lehman Brothers.

My question, again, on the FICO breakout on page 12. What was the business strategy, vis-a-vis the support of the dealers, that changed between '03 and '04 and what does that mean and how have you done that and at the same time seemingly held up your captive penetration?

I can -- I think it was 2001 when we decided that we would focus more on the Ford brands. Up until that point, sometime during 2001, we did a lot of used vehicle business. We did a lot of other makes, other brands and what has really happened is we've always have a good penetration with Ford Motor Company and that what we've done in the last five years or so is really focus on the Ford Motor Company brand and moved away from other types of businesses. Within Ford Motor Company, we continue to buy what we consider to be a good spread of business, which does pick up some lower-credit-quality customers, and it is an effort that we will continue to focus on.

If you go back and look at the receivable balances that existed back at the same time in the 2000, 2001 time frame, this was a $200 billion balance sheet. So the reduction that K.R. just mentioned for used and for other brands reflected in a smaller balance sheet as well.

So if we think about it as Ford Lincoln Mercury, probably the FICO scores would it be fair to say would have been higher in the 99 through '03 period? Sort of what was driving on slide 15 the repossession and --?

Brian, I'll admit I can't answer that. I don't actually have any kind of split like that.

Do any of these include FICO expansion scores or are these just pure classic or next-gen FICOs?

Good question. I believe they are just classic.

Okay, thanks.

Steve Polychyk, Goldman Sachs.

I just had a couple of quick questions. The debt maturities slide that you show, for 2008, how much of that is unsecured versus secured, roughly?

There is about $12 billion of unsecured.

Okay, great. Did it look like subvention from Ford Manufacturing was up again despite the contract volume being down? Do you want to just give us some more color on that?

One second. I actually -- I actually had the subvention was actually down I thought versus the third-quarter. Are you comparing to last year?

I guess I was looking at the line that says interest supplements and other support costs from affiliates. There may be multiple items in there?

Okay. It is actually down slightly from the third-quarter.

Steve Polychyk I'm sorry, against a year ago I guess is what I was comparing it to.

It has been up. It's been growing over the last several years primarily as the way Ford Credit and Ford have been going to market. There has been a lot of subvened type business that we have been doing, you know, rate subvention for the last couple of years, so it has been growing.

Should we expect that to continue in '08 or is it more stabilizing?

No, as far as subvened business or the absolute amount that is outstanding?

I guess in terms of the business itself.

Because the reason I was getting at is actually what you will see is that subvention level will be dropping over time as they payoff. As Ford pays all new business, they pay upfront when the business is placed and then the older business, which represents this $5 billion or so, as it slowly rolls off over the next few years.

So even from an income statement perspective that timing affect would be -- because I guess I just understood that as a different-than-cash payment.

That is true, that is different than cash. As far as the income -- you are looking at the income affect?

Right.

That should, I believe, I think it'll probably stabilize and be flat over time.

Okay, great. That is all I had. Thank you very much.

Might grow a little bit as you catch up, but it should stabilize. A lot of it all depends on in the future how Ford and Ford Credit go to market, if it continues with rates subvention or if we choose a different path.

Okay, great. Thank you very much.

Raul Sequera, JPMorgan.

Thanks for taking the question. I would like to know whether it is possible for you guys to provide a little bit of granularity with respect to sensitivity analysis. GM, for example, came out with some sensitivity analysis with respect to if there is any significant reduction, let's say, in medium units in 2008 in terms of total volumes, what kind of impact would that represent in the Automotive cash flow for 2008, for example?

Raul, can you speak up, because we're having trouble hearing you?

I was saying I would like to know if it is possible for you guys to provide a little bit of detail with respect to sensitivity of the sales number, for example, your overall light vehicle sales in North America is reduced by, let's say, a medium unit? How much that would represent in terms of operating-related cash flow burn for the Automotive operations?

We would anticipate that if the industry dropped by about one million units that the impact on cash would be about $1.5 to $2 billion.

1.5 to two. Okay, great. Thank you very much. The other question on the Automotive side, as well, could you provide an estimate of how much is baked in or included in the $5 billion dollar, the 4 .7 to $5.2 billion of further operating cost reductions by the end of 08? How much do you have in there represented by the expected cost savings which will result of the second special attrition program which will be launched in 2008?

I'm not going to get into the specifics on how much the second enterprise-wide buyout we announced this week because we haven't even declared what the number is externally. We have got, obviously, some internal estimates, but a big chunk of the savings will, frankly, be of the first round of buyouts, which are going to carry forward into '08. So if you look at the numbers, we said that between hourly and salaried, we took out 32.5 thousand people in '07 and that is going to have a full year affect in '08. So that's going to have a dramatic affect and whatever else we do in '08 on buyouts obviously will generate incremental -- so we're well on the way to getting out $5 billion.

But definitely on the second round there are cost savings which will actually arise from that second round which are factored into $5 billion operating cost save -- the $5 billion, right?

Yes, they are. We have made an assumption and factored that into the $5 billion.

The last question I had was related to the committed facilities in FMCC. Could you break down or give us a little bit of flavor -- or maybe that is going to be reported on the 10-K -- of basically how much of those facilities is basically maturing in 2008 and 2009? Is it going to be a significant amount that you will have to basically roll or renegotiate?

I think you really need to look at it by program and we will give you more color in the 10-K for that. On the FCAR program, the back-up credit facilities for that program are about half and half five-year facilities versus 364-day. On the rest of the conduits and other capacity, there is a combination of 364-day facilities and term facilities as well, so it really is a mixed bag and on the 364-day facilities, they mature at different times throughout the calendar year.

Robert Schwartz, Citadel.

Have some questions, I think K.R., on slide 15 you guys talk about your funding structure for '08. Can you guys give us an idea of -- you mentioned some sort of a potential strategic transaction that could lower the receivables size and I am wondering without that, can you give me a range on receivables if that doesn't take place?

Sure, Robert. We ended the year at 147. We are looking at lower, for example, lower U.S. volumes, which will drive our receivables down a bit with the industry being down. We are also looking at some other strategic actions around the world in a couple of places mainly in Asia and a little bit in the northern part of Europe, roughly $4 or $5 billion of the decline might be related to our strategic actions. The rest of it related to the base business.

And are those strategic actions Ford Credit-specific or is that a broader Ford --?

No, they are Ford Credit-specific actions. What we have done in places that are harder to finance, we have tried to develop an alternative business arrangement generally with a bank or with somebody else that can contain the funding much better at a better rate then what we can do. The keys for us when we do these things is that we have an alliance or a strategic partnership that makes sure that the Automotive brands are well supported. And the best example we have is we did a deal with Bradesco several years ago down in Brazil. We are kind of the front-end. They handle the front-end, they handle the -- they underwrite everything, but it is a very good relationship where we keep the support for the Ford brands going.

Appreciate that. Then in light of the leverage going up and the book shrinking, the subvention cash payment, isn't that sort of -- it looks like that might be completely offset by dividends to the parent. Is that the right way to think about it?

Roughly speaking, Don mentioned earlier there is about $3.3 billion or so, $3 billion of subvention payments upfront. When you look at where we have -- where we ended the year at a leverage at about 9.8 to 1, you take that up to about 11.5, it is roughly $2 billion that would be returned as well as 2008 profits, which being roughly equal to 2007 on PBT level of 1.2, it translates into about $800 million or so in PAT. And so you are at 2.8 and then it really depends on where the balance sheet ends up for the rest of it.

Are you guys seeing -- what are you seeing in terms of competitive loan rates to consumers this year in response to the Fed actions? I'm wondering, are banks or credit unions getting more competitive on rate are you seeing rates being pretty sticky?

As far as rates themself in the U.S., I actually haven't seen the latest in the last few weeks, so I am not comfortable giving you a good answer.

And then you guys had a borrowing costs in '07 of 6.1%. Any idea where that could go to in '08 with where rates are today?

It should go down. It is hard for me to give you an exact number of what should happen. With the Fed rate reductions and the translation of that into the rest of the yield curve, which is all good news, obviously, and then you have got a little bit of repricing on the risk side of it, like our spreads are up, so it really boils down to at the end, will our margins improve. And I think our margins will improve. I think our borrowing costs will drop a bit, but you also got the portfolio affect, not all of it rolls at once. So it will come down, but I'm not real comfortable giving you a number of how much at this point in time.

Doug Karson, Banc of America.

Good morning. I had two questions. I assume that the 60-day delinquency pool is still very low at I think about 23 basis points, but various recent vintages of asset-backed deals in the market have a much, much higher reading. Would you be able to give us some more color, if possible, on how some of the recent loan book has performed versus the loan book in aggregate? Most of the market has a feeling that the recent stuff is kind of working at a much higher delinquency and I'm not sure if that is correct.

I don't -- like I said, we don't have the data with me right now.

We could maybe follow-up off-line on that.

That's something we could follow-up on.

Separately, on the cash side, you came in around $16.7 billion. That is about $4 billion higher than Q3. I may have missed that, but what caused it jump in the cash there? And then I have a separate question. With the cash balance there and the recent sell-off in all financial-related bonds, internally are you guys considering a more attractive way of buying some of this debt back that is trading and $88 versus maybe issuing unsecured debt at these rates? Has your philosophy changed at all given where the bonds are traded?

The answer to the first question and why cash came in higher than we had projected previously was we had some chance to get some private funding done to get ahead of the first quarter from a standpoint of some of our debt maturities that were coming due in the first quarter, so we were able to get some private transactions done. I would not jump to conclusions that the larger cash balance gives us more opportunities to repurchase debt and I don't think our strategy has changed from the standpoint of continuing to maintain a very strong liquidity position given the volatility in the market.

Finally, the European market, a lot of talk here in North America. Just a quick snippet, how's that market been holding up?

As far as the financing side or the origination side?

Origination side.

For the most part for FCE Bank things have been holding up very well. We haven't really seen anything like what we are seeing in the U.S. as far as weakness.

The FCE Bank continues to be very profitable. They continue to have a well-run machine. The penetration on financing was pretty much in line with last year, not too far off, and it is a well-run bank and we are doing okay right now.

All right, great. Thanks, guys.

That concludes today's call. I would like to remind you if you have additional questions to please contact Fixed Income Investor Relations and thank you for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a good day.