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Rating Action:

MOODY'S CHANGES OUTLOOK FOR FORD AND FORD MOTOR CREDIT TO NEGATIVE FROM STABLE

22 May 2001
MOODY'S CHANGES OUTLOOK FOR FORD AND FORD MOTOR CREDIT TO NEGATIVE FROM STABLE

Approximately $165 Billion of Debt Securities Affected.

New York, May 22, 2001 -- Moody's Investors Service confirmed the A2 long-term and Prime-1 short-term ratings of Ford Motor Company and Ford Motor Credit Company, but changed the outlook to negative from stable. The revised outlook reflects our concern that Ford's owner notification program, which is intended to replace 13 million Firestone tires on primarily Explorer, Mountaineer and Ranger vehicles, could weaken the company's competitive position and brand image in the U.S. light-truck and SUV market. The rating agency noted that this change in outlook is driven primarily by the notification program's potentially negative impact on Ford's fundamental competitive position in the U.S. light-truck and SUV market. The $2.1 billion after-tax cost of the notification program and the potential cyclical slowdown in the U.S. automotive market are not the key factors in this action. We believe that Ford's decision to curtail its share repurchase program, which would have approximated $3.0 billion during the balance of 2001, should offset substantially all of the direct and indirect cash costs associated with the notification program. Moreover, Ford's $7.1 billion net liquidity position (including VEBA) at March 31, 2001, in combination with the exceptionally long 28-year average maturity of its outstanding debt, afford the company adequate financial flexibility to weather a cyclical slowdown.

The owner notification program is occurring at a critically sensitive period for Ford and will exacerbate an already challenging environment. Ford is in the process of launching the new Explorer SUV. Virtually all of the new Explorers come with tires made by manufacturers other than Firestone, and the notification program should have little direct impact on the new vehicle. Nevertheless, we believe that the negative publicity surrounding the program could contribute to consumer anxiety/reservations about purchasing the Explorer. Moreover, the new Explorer has been the subject of recalls related to glass shattering in the rear hatch, and to non-Firestone tires being damaged during the vehicle assembly process in Ford plants. These image-damaging incidents are occurring at the same time that the range of highly attractive light-truck and SUV alternatives from Japanese and German manufacturers is increasing dramatically. Within this environment, Ford's share of the U.S. light-truck and SUV market for the four months ending April 2001 has fallen to 27.7%, down from 28.3% during the same period of 2000. This decline has occurred despite Ford's reliance on incentives of as much as $1,500 per vehicle on its truck and SUV models - including the new Explorer.

We believe that Ford Motor Credit is financially sound and has a competitive operating position. This should enable it to continue supporting Ford's automotive operations. The credit company's capital remains adequate for its asset mix, with debt (adjusted for ABS)-to-equity of approximately 14 times. Credit performance has deteriorated, but we believe this to be broadly a temporary result of servicing center consolidation. Credit losses as a percent of net receivables hit 1.06% in March 2001, and U.S. past due accounts as a percent of net receivables rose to 0.62%. We believe that residual levels on the company's lease portfolio have been booked in a prudent manner. We also conclude that the $33 billion in committed borrowing facilities available to Ford Motor Credit, in combination with cash flow from its short-duration assets and its access to the ABS market, provide sound levels of alternate liquidity for its commercial paper borrowings. Moody's notes that it expects the ratings of Ford and Ford Motor Credit to remain closely linked.

During the next six to nine months it will be critical for Ford to effectively manage the negative impact that this recall has on consumer response to its models, particularly the new Explorer. It will also be important for the company to demonstrate that its overall domestic product range (automobiles, the Premier Auto Group, and light-trucks and SUVs) is competitive enough to preserve market share positions near the levels generated during 2000 without a material increase in incentives. In the absence of progress in these areas, or an inability to strengthen its large international operations, there could be further pressure on the company's rating.

Ford Motor Company, headquartered in Dearborn, Michigan, is the world's second largest automobile manufacturer. Ford Motor Credit Company, also headquartered in Dearborn, Michigan, is the world's largest auto finance company.

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

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

No Related Data.
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