CREDIT UNIVERSITY March 17, 2014

Transcription

1 CREDIT UNIVERSITY March 17, 2014

2 CREDIT UNIVERSITY Outline Ford Credit Strategic Value, Virtuous Circle and Value Proposition Scope of Operations Ford Credit Business Model and the Drivers of the Business Originate: Buy it Right Service: Operate Efficiently, Collect Effectively Fund: Fund Efficiently, Manage Risk Ford Credit Profit Reporting SLIDE 1

3 SLIDE 2

4 Ford Credit Strategic Value, Virtuous Circle and Value Proposition SLIDE 3

5 FORD CREDIT STRATEGIC VALUE Profitably support Ford, its dealers and customers through economic cycles Strategic value delivered through: More than 50 years of automotive financing experience Consistent vehicle inventory financing, supporting automotive production plans and dealer inventory requirements Exclusive Ford and Lincoln retail and lease consumer financing products; integrated go-to-market strategies SLIDE 4

6 FORD CREDIT STRATEGIC VALUE Ford Credit is integrally tied to Ford Motor Company Our profitability is based on competitive leverage and return targets We have a relentless focus on driving value based on A competitive funding structure, World-class operating cost structure, and World-class risk management organization Our comprehensive customer relationship management process emphasizes the sales and service experience, and drives repeat Ford business and only Ford business Ford Credit s processes and focus create the Virtuous Circle SLIDE 5

7 A VIRTUOUS CIRCLE -- INTEGRATION CREATES A STRATEGIC ADVANTAGE Trusted brand Access to dealer channel More products, faster Dealers Automotive specialist with vested interest in Ford dealer success Training and consulting Consistent market presence Higher customer satisfaction and loyalty Profits and dividends Fast, flexible, quality service Full array of products Incremental vehicle sales (Spread of business and customer relationship management) SLIDE 6

8 75% 65% 55% 45% 35% 25% 75% 65% 55% 45% 35% 25% FORD CREDIT VALUE PROPOSITION -- CUSTOMER LOYALTY TO FORD U.S. - % Loyal to Ford & Lincoln Europe (Big 5 Markets) - % Loyal to Ford* 29 ppts. 14 ppts Ford Credit Dealer Arranged Customer Arranged Source: Maritz New Vehicle Customer Survey 2009 September 2013 Buyers/Lessees Ford Credit Dealer Arranged Customer Arranged Source: Internal * 2013 Europe Data will be available in 2Q 2014 Customers Who Finance With Ford Credit Are More Loyal To Ford Compared With Customers Who Finance With Other Lenders SLIDE 7

9 FORD CREDIT VALUE PROPOSITION -- U.S. CUSTOMER SATISFACTION WITH DEALER-ARRANGED FINANCING 90% 8 ppts. Ford Credit Financing Other Dealer Arranged Financing 40% Source: Maritz New Vehicle Customer Survey 2009 September 2013 Buyers/Lessees Ford Credit Financing Has Consistently Obtained Higher Customer Satisfaction Ratings Over Other Dealer-Arranged Financing SLIDE 8

10 FORD CREDIT VALUE PROPOSITION -- U.S. DEALERS WHO FLOORPLAN WITH FORD CREDIT Automotive Retail Market Share (within the dealer s market area) Ford Credit Share of Ford Retail Sales Customer Satisfaction Certified Pre-Owned Penetration (as a % of total used vehicle sales) ESP Penetration (extended service plan) WearCare Penetration (covers excess wear and tear on leases at termination) Performance vs. Non-Ford Credit Dealers ppts ppts ppts ppts ppts ppts Ford Credit, Through The Virtuous Circle, Delivers Higher Value To Ford, Our Dealers And Our Customers Than Other Finance Providers SLIDE 9

11 FORD CREDIT VALUE PROPOSITION -- HISTORICAL PROFITABILITY Distributions $2.3 $2.3 $2.2 $2.1 $1.8 $1.8 $2.5 $2.5 $4.9 $2.0 $3.7 $2.9 $2.0 Pre-tax Profits $3.1 $2.0 $1.2 $2.4 $1.7 $1.8 $(2.6) Over The Last 20 Years, Ford Credit Generated $43 Billion In Pre-Tax Profits And $27 Billion In Distributions SLIDE 10

12 Scope of Operations SLIDE 11

13 FORD CREDIT GLOBAL PRESENCE Ford Credit Operations Joint Ventures Outsource Partners Ford Credit Export Finance Ford Credit Supports Ford Everywhere It Operates Around The World -- With The Right Business Model For Each Market SLIDE 12

14 SIZE AND SCOPE OF OPERATIONS Ford indirectly owns 100% of Ford Credit Ford Credit offers a wide variety of automotive financing products to and through automotive dealers around the world Globally, Ford Credit employs about 6,000 full-time employees and provides financing in approximately 100 countries As of year-end 2013, Ford Credit was financing worldwide: About 5,200 Ford and Lincoln dealers Over 3.8 million retail customers Ford Credit generates more than 80 million customer touch points every year through websites, calls, s, preapprovals and invoices SLIDE 13

15 WORLDWIDE MANAGED RECEIVABLES AND EQUITY AT YEAR-END 2013 Managed Receivables* Of $103 Billion Regional View International 19% $20 Billion U.S. & Canada 81% $83 Billion Product View Wholesale 28% $29 Billion Leases 19% $20 Billion Retail 50% $51 Billion Dealer Loan and Other 3% $3 Billion Equity** $10.6 Billion Supporting Operations * Managed receivables equals net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). See Appendix 1 for reconciliation to GAAP ** Equity equals shareholder s interest reported on Ford Credit s balance sheet SLIDE 14

16 RELATIONSHIP AGREEMENTS WITH FORD Any extension of credit to Ford will be on arm s-length terms and will be enforced in a commercially reasonable manner Ford Credit will not guarantee more than $500 million of or make equity investments in any of Ford s automotive affiliates Ford Credit can require Ford to make a capital contribution if Ford Credit s managed leverage is greater than 11.5 to 1 Ford Credit will not be required to accept credit or residual risk beyond what it would be willing to accept acting in a prudent and commercially reasonable manner Ford and Ford Credit are separate, legally distinct companies and will continue to maintain separate books, accounts, assets and liabilities SLIDE 15

17 Ford Credit Business Model and the Drivers of the Business SLIDE 16

18 FORD CREDIT BUSINESS MODEL Buy it Right Operate Efficiently Collect Effectively Originate Service Fund Fund Efficiently Manage Risks SLIDE 17

19 ORIGINATIONS STRATEGY Buy it Right Operate Efficiently Collect Effectively Originate Service Fund Fund Efficiently Manage Risks Support Ford Motor Company brands Build strong relationships with dealers Utilize robust credit evaluation and verification process Segment credit applications and price appropriately for risk Technology And Judgment Combine To Minimize Credit Losses SLIDE 18

20 ORIGINATIONS SCORING MODELS Ford Credit s proprietary originations scoring models assess the creditworthiness of an applicant using a number of variables including information from the credit application, the proposed contract terms and credit bureau data Output of the originations scoring models results in a proprietary risk rating referred to as Probability of Payment (POP) Models generate a POP for every application. POP is used as a credit decisioning variable globally and is the basis for our risk based pricing in North America The scoring models build on the predictive power of credit bureau and credit application data. Internal studies show that POP is more effective than credit bureau score (FICO ) alone FICO is a significant factor used in the scoring models Process governance includes: Risk management portfolio performance analysis Monthly purchase quality reports SLIDE 19

21 PURCHASING GUIDELINES AND CONTROL PROCESSES Ford Credit has originations policies and procedures that leverage technology to ensure consistent credit decisions Purchase quality guidelines establish targets for the purchase of lower and marginal quality contracts Risk factor guidelines provide a framework for evaluation of certain attributes of an application, including loan-to-value and payment-to-income Procedures are established for verification of income, employment and residency Supervisory personnel regularly review decisions of credit analysts to ensure consistency with purchasing standards These Capabilities Enable Predictability Of Portfolio Performance SLIDE 20

22 2013 PORTFOLIO LARGELY REFLECTED BUSINESS ORIGINATED IN PRIOR YEARS Prior Originations 2013 Portfolio 2010 Originations 2011 Originations 2012 Originations 2013 Originations Year-End 2013 Managed Receivables Were $103 Billion SLIDE 21

23 HISTORICAL VOLUME AND RECEIVABLES Contract Placement Volume (000s) 1,950 1,193 1,218 1,420 1,542 1, End of Period Managed Receivables (Bils.) $122 $97 $84 $85 $92 $103 ~$110 $110 - $ Mid- Decade Since 2010, Contract Volume And Receivables Have Been Growing SLIDE 22

24 SERVICING STRATEGY Buy it Right Operate Efficiently Collect Effectively Originate Service Fund Fund Efficiently Manage Risks Ford Credit has a world-class servicing organization Credit losses are an expected part of the business The objective is to collect within the contract s loss expectation while managing costs Customer and dealer satisfaction is critical Technology And Judgment Combine To Minimize Credit Losses SLIDE 23

25 SERVICING STRATEGY Ford Credit s proprietary behavior scoring models assess the risk of a customer defaulting using a number of variables, including origination characteristics, customer history, payment patterns and updated credit bureau data Output of the behavior scoring models is a proprietary risk rating referred to as Probability of Default (POD) POD is updated for each customer account monthly on its due date POD is used to segment risk and determine collection strategy Ford Credit regularly monitors the behavioral scoring models to ensure their predictability Servicing Models Support The Timely Resolution Of Payment Issues SLIDE 24

26 SERVICING STRATEGY -- RISK SEGMENTATION Segmentation allows the matching of the account risk with the appropriate collection strategy POD is the primary driver in determining risk segmentation Risk segmentation establishes: Assignment issuance timing Follow-up intensity Assignment transfers from an early stage delinquency to a late stage delinquency strategy HIGH RISK LOW RISK EARLIER HIGHER EARLIER ASSIGNMENT TIMING FOLLOW-UP INTENSITY MOVE TO LATE STAGE COLLECTIONS LATER LOWER LATER SLIDE 25

27 CREDIT LOSS KEY DRIVERS Purchase Practices Broad spread of business (credit quality mix) New and used product mix Term and loan-to-value ratio Collections Practices Proprietary risk rating Assignment timing / Follow-up intensity Specialized departments based on delinquency stage Economy Unemployment Growth Bankruptcy rates Used vehicle auction values SLIDE 26

28 HISTORICAL U.S. RETAIL AND LEASE CREDIT LOSS DRIVERS* Average Placement FICO Score Over-60-Day Delinquencies % 0.15% 0.16% 0.19% 0.24% 0.24% 0.15% 0.14% 0.15% 0.15% % % % 1.89% 82 Repossessions (000) % % % % 45 Repo. Ratio 1.35% 1.18% Memo: New Bankruptcy Filings (000) % $803 Charge-Offs (Mils.) and LTR (%) 0.79% $ % $ % $ % 1.32% $774 $ % $280 LTR 0.36% $ % 0.26% $100 $ Memo: Severity $6,600 $6,100 $6,300 $7,400 $9,900 $8,300 $6,900 $6,500 $6,900 $7, * Includes Ford, Lincoln and Mercury SLIDE 27

29 HISTORICAL CREDIT LOSS METRICS Worldwide Charge-Offs (Mils.) and Loss-to-Receivables (%) 1.02% 0.84% 1.07% 0.57% 0.47% 0.46% 0.39% LTR 0.24% 0.16% 0.18% $1,327 $706 $523 $632 $1,135 $1,095 $415 $201 $136 $ % Worldwide Credit Loss Reserve (Mils.) and Reserves as a Pct. Of EOP Managed Receivables 1.19% 0.81% 0.77% 1.40% 1.61% 1.02% 0.63% Reserves as % of EOP Rec. 0.44% 0.37% $2,434 $1,586 $1,110 $1,090 $1,668 $1,549 $854 $534 $408 $ SLIDE 28

30 HISTORICAL U.S. LEASE RESIDUAL PERFORMANCE Lease Return Volume (000) 24-Month 36-Month 39-Month / Other Memo: Ford and Lincoln U.S. Return Rates % 65% 56% 62% 71% Auction Values (At Incurred Mix) 24-Month $19,740 $19,875 $18,905 $19,000 $18,170 $17,535 $17,385 $16, Month $15,800 $13, Memo: Worldwide Net Investment in Operating Leases (Bils.) * $13.5 $9.1 $10.1 $13.6 $18.3 * During the fourth quarter of 2013, Ford Credit changed its accounting method to include unearned operating lease interest supplements and residual support in Net investment in Operating leases. The prior periods were revised to conform to current year presentation. SLIDE 29

31 LEASE ACCOUNTING -- BASE DEPRECIATION Assumptions: Lease Term: 24 Months MSRP: $21,000 Acquisition Cost $ 21,000 Generally, depreciation for leases is the sum of base and supplemental depreciation. Contract Lease- End Value Percent of MSRP 50.0 % Dollar Value $ 10,500 Base Depreciation reflects scheduled depreciation from the Acquisition Cost to the Contract Lease-End Value and does not change for the life of the contract. Contract Inception Contract Termination T-0 T-3, T-6 T-24 In this example, base depreciation is $ each month for the contract term (24 months) for a total of $10,500. SLIDE 30

32 LEASE ACCOUNTING -- SUPPLEMENTAL DEPRECIATION Assumptions: Lease Term: 24 Months MSRP: $21,000 Acquisition Cost $ 21,000 Book Value $ 19, Supplemental Depreciation reflects additional depreciation to achieve expected actual residual (i.e., auction) values for the leased vehicles. Contract Lease- End Value Expected Actual Residual (i.e., Auction) Value at Lease Contract Termination Percent of MSRP 50.0 % 46.0 % Additional Credit Co. Supplemental Depreciation Expense Dollar Value $ 10,500 $ 9,660 Supplemental depreciation can change based on expectations and it is assessed quarterly. It can be negative, however, it can never un-depreciate above base depreciation. Contract Inception Contract Termination T-0 T-3, T-6 T-24 In this example, supplemental depreciation is $40 each month for remaining term (21 months) for a total of $840. SLIDE 31

33 EFFICIENT FUNDING Buy it Right Operate Efficiently Collect Effectively Originate Service Fund Fund Efficiently Manage Risks Ford Credit s funding strategy is to: Maintain strong liquidity Access diverse and cost-effective funding sources SLIDE 32

34 KEY COST DRIVERS Base Rates Spreads Operating Costs Borrowing Costs Residual & Credit Losses Borrowing cost is our largest expense Borrowed funds are a finance company s raw material Key factors that drive our borrowing cost are: Base interest rates Credit ratings Funding strategy Credit spreads Market conditions SLIDE 33

35 HOW DO RATINGS IMPACT PROFITABILITY? Ford Credit U.S. Unsecured Debt Spreads vs. Issuer Rating Basis Points S&P Issuer Rating Achieved Investment Grade Ratings from Fitch, Moody s and DBRS in 2012 and S&P in 2013 Spreads should continue to improve with our ratings Memo: Ford Credit ratings (at year-end) S&P Moody s BBB- A3 BB+ Baa3 B B1 B B1 CCC+ Caa1 B- B3 B+ Ba2 BB+ Ba1 Investment Grade BB+ Baa3 BBB- Baa3 Unsecured Spreads Are Inversely Correlated To Ratings; Spreads Have Improved Significantly Since Achieving Investment Grade SLIDE 34

36 FUNDING STRUCTURE Funding of Managed Receivables (Bils.) Unsecured Commercial Paper Ford Interest Advantage* Asset-Backed Commercial Paper** $85 $5 $7 $92 $2 $5 $6 $103 $2 $5 $3 $43 ~$110 ~$3 ~$6 $40-45 Term Asset-Backed Securities** $40 $37 Term Debt (incl Bank Borrowings) $33 $39 $45 $50-54 Other Equity Cash, Cash Equivalents and Marketable Securities*** $3 $9 $12 $5 $5-6 $11 $11-12 Year-End Year-End Year-End Year-End Securitized Funding as Percentage Fcst. of Managed Receivables 55% 47% 44% 38-42% * The Ford Interest Advantage program consists of our floating rate demand notes ** Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements. See Appendix 3 for Impact of On-Balance Sheet Securitization *** Excludes marketable securities related to insurance activities As We Continue To Strengthen Our Balance Sheet And Our Ratings Improve, Securitization As Percent Of Managed Receivables Is Expected To Decline $4 $10 $11 $11 $9-11 SLIDE 35

37 PUBLIC TERM FUNDING PLAN 2012 Actual (Bils.) 2013 Actual (Bils.) 2014 Forecast (Bils.) Unsecured $9 $ 11 $ 9 12 Securitizations* Total $23 $ 25 $21 27 * Includes Rule 144A offerings Projected 2014 Public Issuance Largely Consistent With Continue To Maintain A Significant Presence In Both Unsecured And Securitization Markets SLIDE 36

38 2013 LIQUIDITY PROGRAMS Dec. 31, Sep. 30 Dec. 31 (Bils.) (Bils.) (Bils.) Liquidity Sources* Cash** $ 10.9 $ 11.0 $ 10.8 Unsecured Credit Facilities FCAR Bank Lines Conduit / Bank ABS Total Liquidity Sources $ 42.4 $ 43.6 $ 45.3 Committed Capacity $34.5 billion Utilization of Liquidity Securitization Cash *** $ (3.0) $ (2.9) $ (4.4) Unsecured Credit Facilities (0.1) (0.4) (0.4) FCAR Bank Lines (5.8) (4.0) (3.3) Conduit / Bank ABS (12.3) (12.6) (14.7) Total Utilization of Liquidity $ (21.2) $ (19.9) $ (22.8) Gross Liquidity $ 21.2 $ 23.7 $ 22.5 Capacity in Excess of Eligible Receivables (1.5) (1.1) (1.1) Liquidity Available For Use $ 19.7 $ 22.6 $ 21.4 * FCAR and Conduits are subject to availability of sufficient assets and ability to obtain derivatives to manage interest rate risk; FCAR commercial paper must be supported by bank lines equal to at least 100% of the principal amount; conduits include committed securitization programs ** Cash, cash equivalents, and marketable securities (excludes marketable securities related to insurance activities) *** Securitization cash is to be used only to support on-balance sheet securitization transactions Available Liquidity Remains Strong At $21.4 Billion SLIDE 37

39 BALANCE SHEET LIQUIDITY PROFILE Cumulative Maturities -- As of December 31, 2013 (Bils.) Assets (a) Debt (b) (c) & Beyond Memo: Unsecured long-term debt maturities (Bils.) $4.5 $9.3 $9.0 $20.3 (a) (b) (c) Includes finance receivables net of unearned income, investment in operating leases net of accumulated depreciation, cash and cash equivalents, and marketable securities (excludes marketable securities related to insurance activities). Retail and lease ABS are treated as amortizing immediately to match the underlying assets. Includes all of the wholesale ABS term and conduit maturities of $8.7 billion that otherwise contractually extend to 2015 and beyond. Ford Credit s Balance Sheet Is Inherently Liquid As Assets Liquidate More Quickly Than Debt SLIDE 38

40 INTEREST RATE RISK -- ASSET LIABILITY MISMATCH Assets Floating Rate Assets, primarily Cash and Wholesale receivables Fixed Rate Assets, primarily Retail/Lease contracts Repricing (Years) Liabilities Fixed Rate Liabilities, primarily unsecured debt and Retail/Lease securitization Floating Rate Debt, primarily Ford Interest Advantage, Commercial Paper, and Wholesale securitization Repricing (Years) Interest Rate Risk Is Created When Repricing Characteristics Of Funding Sources Do Not Naturally Match Repricing Characteristics Of Assets SLIDE 39

41 INTEREST RATE RISK -- ASSET LIABILITY MISMATCH Assets Liabilities, Derivatives & Equity Step 1: Excess long-term fixed rate debt is swapped to floating rate debt Repricing (Years) Assets Liabilities, Derivatives & Equity Step 2: Excess floating rate debt is swapped to fixed rate debt to match asset repricing profile in line with risk tolerance Repricing (Years) Swaps Are Used To Manage Our Interest Rate Exposure In Line With Risk Management Strategy And Tolerances SLIDE 40

42 FORD CREDIT DERIVATIVE NOTIONAL (Bils.) (Bils.) Interest Rate Derivatives Pay-fixed swaps $ 17 $ 11 Pay-floating swaps Securitization swaps Subtotal interest rate derivatives $ 89 $ 85 Other Derivatives Cross-currency swaps 3 3 Foreign currency forwards 2 2 Total derivative notional $ 94 $ 90 Memo: Non-designated derivative notional (Bils.) $ 75 $ 74 Income/(Loss) from unallocated risk management (Mils.) $ (53) $ (102) Income/(Loss) as a percent of non-designated notional (Pct.) (0.07)% (0.14) % Despite The Significant Derivative Notional Balance, Ford Credit s Derivatives Had A Minimal Impact On Total Profit SLIDE 41

43 FORD CREDIT KEY CAPITAL STRATEGY METRICS ABS Debt as Pct. of Mgd. Receivables (~ 35%) Liquidity (Months of Protection) Mid- Decade Target Mid- Decade Target Mid-Decade Managed Leverage* (8-9 to 1) Mid-Decade Return on Equity (High Single Digits) Mid- Decade Target Mid- Decade Target Mid-Decade * See Appendix 2 for reconciliation to GAAP Mid-Decade Ford Credit Is On Track To Deliver All Key Financial Metrics By Mid-Decade With Three Of Four Key Metrics Already Achieved SLIDE 42

44 Ford Credit Profit Reporting SLIDE 43

45 2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH VOLUME $59 $1,697 $1,756 Pre-Tax Results (Mils.) Volume represents the change in average receivables multiplied by the prior period financing margin $304 $6 $(139) $(62) $(50) Volume Financing Credit Managed Margin Loss Receivables (Bils.) $92 $103 Lease Residual Other SLIDE 44

46 VOLUME PROFIT VARIANCES Managed Receivables (Bils.) Volume Variances Beginning of Period End of Period 2013 Compared with Average Receivables (Bils.) $ Average Receivables 86.2 $85 $92 $92 $103 ~$110 $103 Increase / (Decrease) in Receivables $ 10.2 Average 2012 Financing Margin ~ 3 % 2013 Compared with 2012 (Mils.): $ 304 Directional 2014 Compared with Average Receivables (Bils.) ~ $ Average Receivables 96.4 Increase / (Decrease) in Receivables ~ $ 10.6 Average 2013 Financing Margin ~ 3 % 2014 Compared with 2013 (Mils.): ~ $ Memo: Average Receivables $86.2 $96.4 ~$107 SLIDE 45

47 2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH FINANCING MARGIN $59 $1,697 $1,756 Pre-Tax Results (Mils.) Financing Margin equals the change in revenue net of base depreciation less borrowing costs at constant volume $304 $6 $(139) $(62) $(50) Volume Financing Credit Managed Margin Loss Receivables (Bils.) $92 $103 Lease Residual Other SLIDE 46

48 FINANCING MARGIN FUNCTION OF FINANCING REVENUE AND BORROWING COST Financing Margin Financing margin is reflected within Net financing margin on the income statement. Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average receivables. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average receivables for the same period. Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management. In 2014, Financing Margin Will Be Impacted By The Continued Runoff Of Higher- Yielding Assets, And The Impact Of Ford Credit s Strategy To Increase Its Percentage Of Unsecured Debt As We Continue To Build A Stronger Investment Grade Company SLIDE 47

49 2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH CREDIT LOSSES $59 $1,697 $1,756 Pre-Tax Results (Mils.) Credit Loss equals the change in: Charge-offs, plus Changes in the Allowance for Credit Losses $304 $6 $(139) $(62) $(50) Volume Financing Credit Managed Margin Loss Receivables (Bils.) $92 $103 Lease Residual Other SLIDE 48

50 UNDERSTANDING CREDIT LOSS TERMINOLOGY BALANCE SHEET Allowance for Credit Losses (Reserve): Estimate of the credit losses inherent in the finance receivables and operating leases as of the date of the financial statements INCOME STATEMENT IMPACT Charge-offs (net): Actual loss incurred on a receivable or lease net of recoveries. Recoveries are amounts collected from customers after the account has been charged off + Change in Reserves: Reflects the increase or decrease in Allowance for Credit Losses in local currency during the period, multiplied by the average exchange rate = Provision for Credit Losses: Expense that flows through the income statement to provide appropriate allowance for credit losses SLIDE 49

51 2013 FULL YEAR PROVISION FOR CREDIT LOSSES VARIANCE EXPLANATION Worldwide On-Balance Sheet Charge-Offs and Allowance for Credit Losses (Bils.) Reserves $534 $(98) $126 $28 $408 $ Profit Impact 2013 (Mils.) Reserves $ (98) Charge-Offs (40) Other, Primarily Exchange (1) Total Provision for Credit Losses $ (139) Charge-Offs $(40) $201 $136 $ MEMO: LTR (%) 0.24% 0.16% 0.18% SLIDE 50

52 2014 FULL YEAR PROVISION FOR CREDIT LOSSES DIRECTIONAL GUIDANCE Worldwide On-Balance Sheet Charge-Offs and Allowance for Credit Losses (Bils.) Reserves $28 $TBD - $28 $ TBD Directional 2014 Compared with 2013 Reserves are a function of receivables and credit loss trends. $408 $380 $380 Charge-Offs $TBD Charge-offs are expected to increase in 2014 from near historical lows due to higher managed receivables and higher loss-to-receivable ratio; however, credit losses still remain below 10-year average of 54 bps. $TBD $TBD $136 $176 $ MEMO: LTR (%) 0.16% 0.18% TBD Credit Losses Are Expected To Increase From The Near Historical Lows In Reserves Are A Function Of Receivables And Credit Loss Trends. SLIDE 51

53 2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH LEASE RESIDUAL $59 $1,697 $1,756 Pre-Tax Results (Mils.) Lease Residual equals the change in: Residual losses, plus Change in Supplemental Depreciation $304 $6 $(139) $(62) $(50) Volume Financing Credit Managed Margin Loss Receivables (Bils.) $92 $103 Lease Residual Other SLIDE 52

54 UNDERSTANDING LEASE RESIDUAL TERMINOLOGY -- INCOME STATEMENT RESIDUAL PERFORMANCE IN THE FINANCIAL STATEMENTS Lease residual performance is included in depreciation in our financial statements, which is part of Net Financing Margin. For analytical purposes, we move the residual performance portion of depreciation from Net Financing Margin into its own category RESIDUAL PERFORMANCE Supplemental Depreciation: Reflects the increase or decrease in depreciation as a result of changes in the projected residual values beyond base depreciation + Residual Gains / Losses: Reflects the difference between the auction value and the depreciated value (base + supplemental depreciation) + Impairment (Rarely Used): Reflects a decrease in the book value of a lease due to accounting guidance = Lease Residual: The sum of the change in supplemental depreciation, residual gains or losses, and impairment for the period SLIDE 53

55 2013 NORTH AMERICA LEASE TERMINATION VOLUME AND LEASE RESIDUAL PERFORMANCE VARIANCE Lease Termination Volume (000) Impaired Unimpaired 2013 Profit Impact Unimpaired Unit Average Gain or Loss on Terminated Unit* $ 100 $ (300) Volume 124, , Other, primarily International Markets (Mils) $ (50) $ (50) Total Lease Residual Incl. Other (Mils.) $ (40) $ (102) Change in Residual Gains/(losses) (Mils.) $ (62) Memo: North America Return Rates 81% 69% 59% 63% 67% * See slide 29 for actual U.S. 24-month and 36-month auction values SLIDE 54

56 2014 NORTH AMERICA LEASE TERMINATION VOLUME AND LEASE RESIDUAL PERFORMANCE VARIANCE Lease Termination Volume (000) Impaired Unimpaired 408 Directional 2014 Profit Impact Unimpaired Unit Average Gain or Loss on Terminated Unit* $ (300) $ (TBD) Volume 174,000 ~ 260,000 Other, primarily International Markets (Mils) $ (50) $ (TBD) Total Lease Residual Incl. Other (Mils.) $ (102) $ (TBD) Change in Residual Gains/(losses) (Mils.) (TBD) Memo: North America Return Rates 69% 59% 63% 67% TBD * See slide 29 for actual U.S. 24 month and 36-month auction values In 2014, Lease Residual Performance Variance Is Dependent On Auction Values SLIDE 55

57 2013 FULL YEAR PRE-TAX RESULTS COMPARED WITH OTHER $59 $1,697 $1,756 Pre-Tax Results (Mils.) Primarily includes Operating expenses*, Other revenue**, and Insurance expenses on the income statement $304 $6 $(139) $(62) $(50) Volume Financing Credit Managed Margin Loss Receivables (Bils.) $92 $103 Lease Residual Other * Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts ** In general, other revenue changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates), which are included in unallocated risk management, and other miscellaneous items SLIDE 56

58 OPERATING COSTS -- MAIN DRIVER IN OTHER End-of-Period Managed Receivables, Operating Cost and Global Operating Cost Ratio Managed Receivables Operating Cost Operating Cost Ratio Ford Credit Is Committed To Achieving An Operating Cost Ratio Among The Best In The Industry SLIDE 57

59 RISK FACTORS Statements included or incorporated by reference herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation: Decline in industry sales volume, particularly in the United States or Europe, due to financial crisis, recession, geopolitical events, or other factors; Decline in Ford's market share or failure to achieve growth; Lower-than-anticipated market acceptance of Ford's new or existing products; Market shift away from sales of larger, more profitable vehicles beyond Ford's current planning assumption, particularly in the United States; An increase in or continued volatility of fuel prices, or reduced availability of fuel; Continued or increased price competition resulting from industry excess capacity, currency fluctuations, or other factors; Fluctuations in foreign currency exchange rates, commodity prices, and interest rates; Adverse effects resulting from economic, geopolitical, or other events; Economic distress of suppliers that may require Ford to provide substantial financial support or take other measures to ensure supplies of components or materials and could increase costs, affect liquidity, or cause production constraints or disruptions; Work stoppages at Ford or supplier facilities or other limitations on production (whether as a result of labor disputes, natural or man-made disasters, tight credit markets or other financial distress, production constraints or difficulties, or other factors); Single-source supply of components or materials; Labor or other constraints on Ford's ability to maintain competitive cost structure; Substantial pension and postretirement health care and life insurance liabilities impairing our liquidity or financial condition; Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates or investment returns); Restriction on use of tax attributes from tax law "ownership change;" The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or increased warranty costs; Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash expenditures, and / or sales restrictions; Unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise; A change in requirements under long-term supply arrangements committing Ford to purchase minimum or fixed quantities of certain parts, or to pay a minimum amount to the seller ("take-or-pay" contracts); Adverse effects on results from a decrease in or cessation or clawback of government incentives related to investments; Inherent limitations of internal controls impacting financial statements and safeguarding of assets; Cybersecurity risks to operational systems, security systems, or infrastructure owned by Ford, Ford Credit, or a third-party vendor or supplier; Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities; Inability of Ford Credit to access debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts, due to credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors; Higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles; Increased competition from banks or other financial institutions seeking to increase their share of financing Ford vehicles; and New or increased credit, consumer, or data protection or other regulations resulting in higher costs and / or additional financing restrictions. We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. For additional discussion, see "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. SLIDE 58

60 APPENDIX

61 NET FINANCE RECEIVABLES AND OPERATING LEASES Receivables * Net Receivables Finance Receivables Finance Receivables North America Segment Dec Dec (Bils.) (Bils.) Consumer -- Retail financing $ 39.5 $ 40.9 Non-Consumer Dealer financing ** Other Total Finance Receivables North America Segment $ 60.1 $ 64.0 Finance Receivables International Segment Consumer -- Retail financing $ 9.0 $ 10.8 Non-Consumer Dealer financing ** Other Total Finance Receivables International Segment $ 16.9 $ 19.5 Unearned interest supplements (1.5) (1.5) Allowance for credit losses (0.4) (0.4) Finance receivables, net $ 75.1 $ 81.6 Net investment in operating leases *** Total Net Receivables $ 88.7 $ 99.9 Managed Receivables Total Net Receivables $ 88.7 $ 99.9 Unearned interest supplements and residual support Allowance for credit losses Other, primarily accumulated supplemental depreciation Total Managed Receivables **** $ 91.7 $ * Includes finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit s balance sheet and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit s other creditors. ** Dealer financing primarily includes wholesale loans to dealers to finance the purchase of vehicle inventory. *** Beginning in the fourth quarter, Ford Credit changed its accounting method to include unearned interest supplements and residual support in Net investment in operating leases. These amounts are amortized to Depreciation on vehicles subject to operating leases. The prior period was revised to conform to current year presentation. There is no change to profit before income tax or net income. **** Prior period was revised to conform to current year presentation. APPENDIX 1 of 3

62 RECONCILIATION OF MANAGED LEVERAGE TO FINANCIAL STATEMENT LEVERAGE Dec. 31 Dec (Bils.) (Bils.) Leverage Calculation Total Debt * $ 89.3 $ 98.7 Adjustments for Cash, Cash Equivalents, and Marketable Securities** (10.9) (10.8) Adjustments for Derivative Accounting*** (0.8) (0.2) Total Adjusted Debt $ 77.6 $ 87.7 Equity**** $ 9.7 $ 10.6 Adjustments for Derivative Accounting*** (0.3) (0.3) Total Adjusted Equity $ 9.4 $ 10.3 Financial Statement Leverage (to 1) Managed Leverage (to 1)***** * Includes debt reported on Ford Credit s balance sheet that is issued in securitization transactions and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. ** Excludes marketable securities related to insurance activities. *** Primarily related to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to designated fair value hedges and adjustments to equity are related to retained earnings. **** Shareholder s interest reported on Ford Credit s balance sheet. ***** Equals total adjusted debt over total adjusted equity. APPENDIX 2 of 3

63 APPENDIX 3 of 3 IMPACT OF ON-BALANCE SHEET SECURITIZATION Impact of On-Balance Sheet Securitization receivables include finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit s balance sheet and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit s other creditors. Total debt includes debt reported on Ford Credit s balance sheet that is issued in securitization transactions and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.