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Rating Action:

MOODY'S AFFIRMS RATINGS OF FORD MOTOR COMPANY (SENIOR AT Baa1), FORD MOTOR CREDIT COMPANY (SENIOR AT A3) AND HERTZ CORPORATION (SENIOR AT Baa2), OUTLOOKS NEGATIVE

12 Oct 2004
MOODY'S AFFIRMS RATINGS OF FORD MOTOR COMPANY (SENIOR AT Baa1), FORD MOTOR CREDIT COMPANY (SENIOR AT A3) AND HERTZ CORPORATION (SENIOR AT Baa2), OUTLOOKS NEGATIVE

Approximately $175 Billion of Debt Affected

New York, October 12, 2004 -- Moody's Investors Service affirmed the long and short-term ratings of Ford's Motor Company (Baa1 long-term), Ford Motor Credit Company (A3 long-term and Prime-2 short-term) and Hertz Corporation (Baa2 long-term and Prime-2 short-term). The outlook for the ratings remains negative.

The affirmation of the Ford ratings reflects Moody's view that the company has been relatively successful in implementing its Revitalization Plan since 2001, and that its competitive position, earnings, and cash generation, while still weak, have improved in line with Moody's expectations. Ford has largely completed the cost-reduction phase of the plan, and is now entering the critical product-renewal phase in which its cadence of new vehicle introductions, principally passenger cars, will begin to accelerate. Moody's anticipates that this second phase of the revitalization will further improve Ford's financial and operating performance. The negative outlook reflects the fact that despite Ford's progress, the company's credit metrics are still weak for the Baa1 rating, the competitive environment remains intense, and the company must successfully execute the more challenging product-renewal phase of its long-term revitalization plan.

Moody's is also affirming the ratings of Ford Motor Credit, which maintains the one-notch differential to the parent rating. Management's efforts to improve credit quality are reflected in first half 2004 earnings, as tighter underwriting led to reduced loss frequency. Used car values continued to firm, also improving loss performance and contributing to the lower loss provision. Ford Credit's liquidity is strong and it maintains access to diverse funding sources. Moody's will monitor the level of securitization in relation to unsecured funding and the relative quality of both owned and securitized assets. Leverage continues to be high relative to historical levels.

The affirmation and negative outlook for Hertz reflect the company's highly competitive position in the automotive and equipment rental markets and its improving earning performance, balanced with the fact that the company is a wholly-owned subsidiary of Ford and continues to derive a degree of credit lift from this association. Consequently, any pressure on the Ford rating results in pressure on the Hertz rating.

Ford has achieved many of the key objectives of the revitalization and has materially improved its competitive and financial position in line with Moody's expectations. As a result of aggressive cost reductions and a targeted revenue management strategy Ford's 2004 automotive profit before taxes (PBT) should approximate $1.0 billion, the European operations should approach break even, the company's US market share should exceed 19.5%, and its use of incentives has been prudently restrained given market conditions. Automotive free cash generation for this year will likely fall short of the $1 billion that had been expected by the rating agency, but the overall progress of the auto operations, in combination with the robust earnings and cash generation of Ford Credit, should support healthy consolidated cash generation. Moody's also notes that Ford continues to maintain very strong liquidity with cash and securities of approximately $26 billion. This compares with a total adjusted debt burden of $35 billion which is composed of: $19 billion in balance sheet debt, $4 billion in present value of operating leases, and just over $12 billion in unfunded pension liabilities. Moreover, the average maturity of the balance sheet debt is 25 years, and less than $3 billion matures over the next five years.

Despite the operational and financial progress Ford is making, the company continues to face an increasingly challenging environment. These challenges include: 1) the need to restructure the manufacturing base and product positioning of its Jaguar operations, and reverse growing losses generated by this unit; 2) the continuation of intense pricing competition in the US and Europe; 3) healthcare costs that are continuing to increase rapidly and that give rise to an OPEB liability of $29 billion; 4) the potential for a rapid shift in consumer demand from more profitable trucks and SUVs to smaller fuel efficient vehicles as a result of rising gas prices or social pressure; and, 5) the financial and competitive pressures faced by Visteon, whose Ba1 senior implied rating is currently on review for possible downgrade. Visteon is Ford's largest parts supplier. Its eroding condition represents a considerable potential burden for Ford due to the contractual arrangement under which the majority of Visteon's workers are essentially UAW employees of Ford who have been subcontracted to Visteon. These workers receive the same wage and benefits as Ford's UAW employees. In the event that Visteon cannot make the necessary wage and benefit payments to these employees, the requirement to fund these payments would become the direct obligation of Ford.

Ford expects that by 2006 its Revitalization Plan will support automotive profit before taxes (PBT) of $4 billion and Financial Services (including Ford Credit and Hertz) PBT of $3 billion. Moody's anticipates that this operating performance would result in total free cash generation of $4 to $5 billion for the automotive group. This cash generation figure would be after working capital requirements, capital expenditures, the payment of Ford's common dividend, and the receipt of a sustainable dividend from Ford Credit. This level of performance, in combination with a competitive position capable of sustaining it, should provide adequate support for a Baa1 rating. To sustain the Baa1 rating it will be critical for Ford to demonstrate that it remains on track for hitting its 2006 earnings targets. A critical intermediate-term benchmark will be the success of the new-model initiative which is beginning in late 2004. Key new models include: the Ford 500, Mustang, and Freestyle in late 2004; and the Ford Fusion, Mercury Milan and Lincoln Zephyr in 2005.

During early 2005 Moody's expects to closely reassess Ford's performance, and the degree to which it remains on track to meet its 2006 objectives. In doing, so our expectations for the company's 2005 performance will include: automotive PBT of approximately $2 billion (driven by strong profitability in North America, a return to profitability in Europe, and a significant narrowing of the losses by Jaguar); US market share that remains at or above 19.5%; and, Financial Services PBT above $3 billion. In addition, Ford's generation of free cash (after working capital, capital expenditures, the payment of its common dividend and the receipt of a sustainable dividend payment from Ford Credit, but excluding extraordinary items) should exceed $3 billion compared with approximately $2 billion for 2004. Although shortfalls from these expectations could result in a rating downgrade, it is unlikely, in our current view, that any adjustment would be more that one rating notch.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
J. Bruce Clark
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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