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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________________ to __________________
Commission file number 1-6368
FORD MOTOR CREDIT COMPANY
(Exact name of registrant as specified in its charter)
Delaware 38-1612444
(State of Incorporation) (I.R.S. employer identification no.)
The American Road, Dearborn, Michigan 48121
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (313) 322-3000
Securities registered pursuant to Section 12(b) of the Act:
(See following page)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of February 28, 1994, the registrant had outstanding 250,000 shares of
Common Stock.
THE REGISTRANT MEETS THE CONDITION SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
[Cover page 1 of 2 pages]
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Securities registered pursuant to Section 12(b) of the Act as of December 31,
1993
Name of each exchange
Title of each class on which registered
------------------- ----------------------
4 1/2% Convertible Subordinated Debentures New York Stock Exchange
due November 15, 1996
[Cover page 2 of 2 pages]
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PART I
ITEM 1. BUSINESS
The registrant, Ford Motor Credit Company, was incorporated in
Delaware in 1959 and is a wholly owned subsidiary of Ford Motor Company (the
"Company" or "Ford"). As used herein "Ford Credit" refers to Ford Motor Credit
Company and its subsidiaries unless the context otherwise requires.
Ford Credit provides wholesale financing and capital loans to
franchised Ford Motor Company vehicle dealers and other dealers associated with
such dealers and purchases retail installment sale contracts and retail leases
from them. Ford Credit also makes loans to vehicle leasing companies, the
majority of which are affiliated with such dealers. In addition, a wholly
owned subsidiary of Ford Credit provides these financing services in the U.S.
to other vehicle dealers. Vehicle financing accounted for 97.5% of the dollar
volume of financing done by Ford Credit in 1993 and 97.3% in 1992.
More than 85% of all new vehicles financed by Ford Credit are manufactured
by Ford or its affiliates. Ford Credit also provides retail financing for used
vehicles built by Ford and other manufacturers, which accounted for 19% of the
dollar volume of retail vehicle financing done by Ford Credit in both 1993 and
1992. In addition to vehicle financing, Ford Credit makes loans to affiliates
of Ford, finances certain receivables of Ford and its subsidiaries, and offers
diversified financing services which are managed by USL Capital Corporation
(formerly United States Leasing International, Inc.) ("USL Capital"), a wholly
owned subsidiary of Ford Holdings, Inc. ("Ford Holdings").
In 1993 and 1992, United States operations, conducted in all 50
states, the District of Columbia and Puerto Rico, accounted for 93.8% and
93.2%, respectively, of the dollar volume of Ford Credit's financing business;
Canadian operations accounted for 4.6% and 5.0%, respectively, of such volume
in these periods. The balance was in Australia. In addition, Ford Credit
manages the vehicle financing operations of Ford in other foreign countries
which are conducted through other subsidiaries of Ford.
Ford Credit manages the insurance business of The American Road
Insurance Company ("American Road"), a wholly owned subsidiary of Ford
Holdings. Ford Credit is a significant equity participant in Ford Holdings
whose primary activities consist of consumer and commercial financing
operations, insurance underwriting and equipment leasing.
The business of Ford Credit is substantially dependent upon Ford Motor
Company. See "Vehicle Financing" and "Borrowings and Other Sources of Funds"
under the caption "Business of Ford Credit". Also see Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Any protracted reduction or suspension of Ford's production or sale of
vehicles, resulting from a decline in demand, a work stoppage, governmental
action, adverse publicity, or other event, could have a substantial adverse
effect on Ford Credit. For additional information concerning Ford's results
of operations, see Ford Motor Company's Annual Report on Form 10-K for the
year ended December 31, 1993 filed with the Securities and Exchange Commission
and for additional information concerning the business of Ford Holdings, see
Ford Holdings' Annual Report on Form 10-K for the year ended December 31, 1993
filed with the Securities and Exchange Commission.
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The mailing address of Ford Credit's executive offices is The American
Road, Dearborn, Michigan 48121. The telephone number of such offices is (313)
322-3000.
SEGMENT INFORMATION
Segment information called for by Item 1 is set forth in Note 11 of
Notes to Financial Statements and is incorporated herein by reference.
BUSINESS OF FORD CREDIT
Ford Credit accounts for its financing business in four categories --
retail (which consists of vehicle installment sale financing and vehicle lease
financing), wholesale, diversified and other. Total gross finance receivables
and net investment in operating leases outstanding in these four categories
were as follows at the end of the years indicated:
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(in millions)
Retail*.......... $51,210.2 $43,347.9 $37,647.5 $38,660.8 $38,217.0
Wholesale........ 11,698.5 10,056.9 11,465.7 12,721.9 11,058.3
Diversified...... 3,084.0 3,550.2 4,335.0 4,814.9 4,592.0
Other............ 3,626.5 3,279.0 3,138.6 6,095.8 5,708.9
------- -------- -------- ------- -------
Total.......... $69,619.2 $60,234.0 $56,586.8 $62,293.4 $59,576.2
- - - - - - ----------- -------- -------- -------- -------- --------
-------- -------- -------- -------- --------
*Includes net investment in operating leases.
Dollar volume of financing by Ford Credit was as follows during the years
indicated:
1993 1992 1991 1990 1989
-------- -------- -------- -------- -------
(in millions)
Retail*............ $ 40,265.9 $32,302.0 $26,271.7 $25,813.1 $25,967.0
Wholesale......... 86,776.8 65,772.9 65,146.6 52,553.2 51,417.7
Diversified....... 73.5 63.0 206.0 614.8 1,390.5
Other............. 1,578.3 1,457.1 1,137.8 3,134.9 3,344.0
-------- -------- -------- -------- --------
Total........... $128,694.5 $99,595.0 $92,762.1 $82,116.0 $82,119.2
- - - - - - -------- ---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
* Includes operating lease volume.
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VEHICLE FINANCING
RETAIL. Retail financing consists primarily of installment sale
financing and retail lease financing of vehicles and loans to vehicle leasing
companies, most of which are affiliated with franchised Ford Motor Company
dealers. The number of installment sale and lease vehicles financed by Ford
Credit was as follows during the years indicated:
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(in thousands)
New......... 1,799 1,525 1,271 1,302 1,342
Used........ 625 524 441 365 394
----- ----- ----- ----- -----
Total....... 2,424 2,049 1,712 1,667 1,736
----- ----- ----- ----- -----
----- ----- ----- ----- -----
The levels of Ford Credit's retail financing volume and outstanding
receivables and lease investments are dependent on several factors, including
new and used vehicle sales and leases, Ford Credit's share of those vehicle
sales and leases and the average cost of vehicles financed. See "Competition
in Vehicle Financing". In addition, receivables levels will vary depending on
sales of receivables.
Installment sale financing consists principally of purchasing and
servicing installment sale contracts covering sales of new and used vehicles by
vehicle dealers to retail customers. The purchase price paid by Ford Credit to
the dealer for an installment sale contract generally is the amount financed.
In addition, a portion of the finance charge is paid or credited to the dealer.
Ford Credit requires a retail customer to carry fire, theft and collision
insurance on the vehicle. For 1993 in the U.S., the average repayment
obligation for new vehicles covered by installment sale contracts purchased by
Ford Credit was $17,471. The corresponding average monthly payment was $331
and the average original term was 54 months.
Retail lease financing consists principally of purchasing and servicing
lease contracts covering new and used vehicles leased to retail customers by
vehicle dealers. In recent years, vehicle leasing has increased in popularity
by offering the retail customer a lower initial cash outlay for the vehicle and
lower monthly payments when compared with conventional installment sale
financing. Since 1990, retail lease financing has become a larger percentage of
Ford Credit's total retail financing dollar volume, increasing from 15% in 1990
to 26% in 1993. The number of new and used vehicles for which Ford Credit
provided retail lease financing increased from approximately 186,000 units in
1990 to approximately 521,000 units in 1993.
The amount paid by Ford Credit to the dealer for the vehicle and lease
(the "acquisition cost") represents a negotiated amount agreed to between the
dealer and the customer, less any trade-in or downpayment. The monthly lease
payment equals the acquisition cost of the vehicle less the residual value of
the vehicle established by Ford Credit, amortized over the lease term, plus the
lease charge. A retail lessee is required to carry fire, theft, collision and
liability insurance. The acquisition cost to Ford Credit of the vehicle, less
the residual value, is depreciated on a straight line basis over the life of
the lease. Residual values are determined by Ford Credit after analyzing
residual values published by the Automotive Lease Guide and Ford Credit's own
historical experience in the used car market. In addition, joint marketing
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programs with Ford's vehicle divisions can affect established residual values.
At lease termination, Ford Credit either sells the vehicle to the dealer for
the established residual value or sells the vehicle at auction for the market
price.
Retail lease terms range from 12 to 60 months with 24 month and 36
month terms being by far the most popular. The average monthly payment and the
average original term of U.S. retail lease contracts purchased by Ford Credit
in 1993 were $370 and 29 months compared with $337 and 30 months in 1992.
The average original term of the lease financing extended to leasing
companies and daily rental companies by Ford Credit in 1993 was 35 months and
15 months, respectively. Financing charges in connection with such lease
financing generally are based on short-term interest rates in effect at the
time the financing is extended. These rates may be supplemented by payments
from Ford whenever the rate payable is less than the specified minimum rate
agreed upon between Ford Credit and Ford. At December 31, 1993, 8 leasing
companies each accounted for more than $10 million of such lease financing,
three of which accounted for $402.1 million, $287.7 million and $82.6 million
of such lease financing, respectively.
WHOLESALE. Wholesale financing consists principally of loans, under
approved lines of credit, to dealers to assist them in carrying inventories of
new vehicles. Ford Credit generally finances 100% of the wholesale price.
Vehicles are insured against fire, theft and other risks under policies issued
to Ford Credit by American Road. Ford Credit's United States car and truck
wholesale receivables that liquidated were outstanding an average of about 68
days in 1993 and 74 days in 1992.
The levels of Ford Credit's wholesale financing volume and outstanding
wholesale receivables are dependent on several factors, including sales by Ford
to dealers, the level of dealer inventories, Ford Credit's share of Ford's
sales to dealers, vehicle prices and sales of wholesale receivables.
COMPETITION IN VEHICLE FINANCING. The vehicle financing field is
highly competitive, particularly in the case of retail financing. Ford
Credit's principal competitors for retail installment sale financing have been
banks and credit unions. Banks and other leasing companies are Ford Credit's
principal competitors for wholesale financing and lease financing.
Ford Credit financed the following percentages of new Ford and
Lincoln-Mercury cars and trucks sold or leased at retail and sold at wholesale
in the United States during each of the years indicated:
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Retail*................ 38.5% 37.7% 35.2% 31.4% 29.7%
Wholesale.............. 81.4 77.6 74.9 71.0 69.8
* As a percentage of total sales and leases, including cash sales
DIVERSIFIED FINANCING
Diversified finance receivables consist primarily of leases and loans
secured by transportation equipment and facilities, some of which represent
tax-exempt financing for state and local governments, energy related equipment
and other equipment, real estate loans collateralized by first and second
mortgages on
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improved property and privately negotiated investments in preferred stock.
Most diversified finance receivables represent transactions in an original
amount in excess of $1 million each. Because of the relatively large size of
individual diversified financing transactions, any individual loss arising out
of such transactions could be substantial. Diversified finance receivables
generally are intermediate-term; at December 31, 1993 approximately 28.4% of
the outstanding receivables were scheduled to mature within five years.
In 1988, management responsibility for coordinating diversified
financing activities was transferred to USL Capital. No transfer of assets was
involved. In August 1990, USL Capital began funding for its own account
certain diversified receivables that previously were funded by Ford Credit. As
a result, the dollar volume of diversified financing has decreased since 1990.
At December 31, 1993 diversified finance receivables outstanding represented
4.4% of Ford Credit's total gross finance receivables and net investment in
operating leases.
OTHER FINANCING ACTIVITIES
Ford Credit makes capital loans to vehicle dealers for facilities
expansion and working capital and to enable them to purchase dealership real
estate. Such loans totaled $1,769.3 million at December 31, 1993. From time
to time, Ford Credit purchases accounts receivable of certain divisions and
affiliates of Ford. The amount of such receivables as of the end of each month
during 1993 fluctuated between $905.8 million and $1,076.9 million. At
December 31, 1993, such receivables totaled $1,076.9 million, all of which
represent accounts receivable purchased by Ford Credit from Ford pursuant to
agreements under which Ford Credit may purchase such receivables. In addition
to the foregoing receivables, Ford Credit held $780.3 million of other finance
receivables at December 31, 1993.
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CREDIT LOSS EXPERIENCE
The following table sets forth information concerning Ford Credit's
credit loss experience with respect to the various categories of financing
during the years indicated:
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(dollar amounts in millions)
Net losses/(recoveries)
Retail* ....................... $212.8 $298.2 $442.4 $495.2 $687.0
Wholesale...................... (3.5) 14.5 40.2 29.7 27.4
Diversified.................... 14.1 23.4 24.4 14.3 15.9
Other.......................... 5.0 6.5 21.9 33.2 13.4
----- ----- ------ ------ ------
$228.4 $342.6 $528.9 $572.4 $743.7
------ ------ ------ ------ ------
------ ------ ------ ------ ------
- - - - - - -----------
*Includes net losses on operating
leases
Net losses as a percent of average
receivables
Retail*..................... 0.46% 0.75% 1.18% 1.26% 1.56%
Total finance receivables*.. 0.35 0.60 0.92 0.94 1.16
Provision for credit losses....... $270.2 $418.0 $577.9 $655.9 $907.6
Allowance for credit losses....... 915.5 915.5 825.4 894.9 863.1
As percent of net receivables* 1.42% 1.66% 1.60% 1.59% 1.62%
- - - - - - -----------
*Includes net investment in operating
leases
Allowances for estimated credit losses are established as required based on
historical experience. Other factors that affect collectibility also are
evaluated and additional allowances may be provided. The provision for credit
losses generally varies with changes in the amount of loss exposure and the
absolute level of financing. Ford Credit's retail loss experience is dependent
upon the number of repossessions, the unpaid balance outstanding at the time of
repossession, and the resale value of repossessed vehicles. Wholesale losses
generally reflect the financial condition of dealers. For additional
information regarding credit losses, see Notes 1 and 6 of Notes to Financial
Statements.
SECURITY
Ford Credit generally either holds security interests in or is the
title owner of the vehicles which it finances or leases and generally is
able to repossess a vehicle in the event of a default. The right to repossess
under a security interest securing wholesale obligations generally is
ineffectual, as a matter of law, against a retail buyer of a vehicle from a
dealer. Under the wholesale installment sale plan, dealers are permitted to
delay payment of up to 10% of a vehicle's financed balance for up to 60 days
after the dealer sells the vehicle. A portion of such delayed payments may,
under certain circumstances, be unsecured. Obligations arising from lease
financing extended to leasing companies are collateralized to the extent
practicable by assignments of rentals under the related leases and, in almost
all instances, by liens on the vehicles (which liens are not perfected against
third parties in some cases). Diversified finance receivables generally
consist of leases and financings of personal property or real estate in which
Ford Credit has ownership or security interests.
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BORROWINGS AND OTHER SOURCES OF FUNDS
Ford Credit relies heavily on its ability to raise substantial amounts
of funds. These funds are obtained primarily by sales of commercial paper and
issuance of term debt. Funds also are provided by retained earnings and sales
of receivables. The level of funds can be affected by certain transactions
with Ford, such as capital contributions, interest supplements and other support
costs from Ford for vehicles financed and leased by Ford Credit under Ford
sponsored special financing and leasing programs, and dividend payments, and
the timing of payments for the financing of dealers' wholesale inventories and
for income taxes. Ford Credit's ability to obtain funds is affected by its
debt ratings, which are closely related to the outlook for, and financial
condition of, Ford, and the nature and availability of support facilities, such
as revolving credit and receivables sales agreements. In addition, Ford Credit
from time to time sells its receivables in public offerings or private
placements. For additional information regarding Ford Credit's association
with Ford, see "Certain Transactions with Ford and Affiliates".
Ford Credit's outstanding debt at the end of each of the last five
years was as follows:
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(in millions)
Commercial paper
and STBAs(a)............. $24,506 $21,210 $18,232 $23,371 $18,864
Other short-term debt(b)... 1,001 1,785 1,642 1,411 1,467
Long-term debt
(including current
portion).................. 33,363 26,914 28,160 25,903 26,393
------ ------ ------ ------ ------
Total debt.............. $58,870 $49,909 $48,034 $50,685 $46,724
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Memo:
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Total support facilities
(billions) as of January 1,
1994-1990, respectively.... $16.9 $13.9 $13.8 $12.7 $12.7
- - - - - - ---------
(a) Short-term borrowing agreements with bank trust departments
(b) Includes $150 million and $800 million with an affiliated company at
December 31, 1993 and December 31, 1992, respectively
Outstanding commercial paper totaled $24.5 billion at December 31, 1993,
up $3.3 billion from a year earlier. In 1993, long-term debt placements were
$12.9 billion compared with maturities and early redemptions of $6.3 billion.
Long-term debt placements in 1992 were $6.5 billion. In 1993, Ford Credit also
received $2.5 billion from sales of receivables compared with $3.3 billion in
1992.
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Support facilities represent additional sources of funds, if required. At
January 1, 1994, Ford Credit had $15,716 million of contractually committed
facilities for use in the United States, 83% of which are available through
June 1998. These facilities included $12,841 million of revolving credit
agreements with banks (which included $4,835 million of Ford bank lines that
may be used either by Ford or Ford Credit at Ford's option) and $2,875 million
of agreements to sell retail receivables. At January 1, 1994, all of these
U.S. facilities were unused.
Outside of the United States, an additional $1,185 million of facilities
support borrowing operations in Canada, Australia and Puerto Rico, of which 82%
are contractually committed and available through June 1998. Canadian
facilities of $759 million included $210 million of Ford Motor Company of
Canada Limited and Ford Ensite International Inc. lines which are available to
Ford Credit Canada Limited at the option of these two companies. Australian
facilities of $401 million include $155 million of Ford Motor Company of
Australia Limited lines which are available to Ford Credit Australia Limited at
the option of Ford Motor Company of Australia Limited. Ford Motor Credit
Company of Puerto Rico, Inc. had $25 million in support facilities at January
1, 1994. Substantially all of these facilities were unused at January 1, 1994.
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FORD HOLDINGS
Ford Holdings was incorporated on September 1, 1989 for the principal
purpose of acquiring, owning and managing certain assets of Ford. Ford Credit
owns 45% of the common stock of Ford Holdings representing 33.8% of the voting
power and Ford owns the remaining common stock representing 41.2% of the voting
power. The balance of the capital stock, consisting of shares of Flexible Rate
Auction Preferred Stock (Exchange), Series A Cumulative Preferred Stock, Series
B Cumulative Preferred Stock and Series C Cumulative Preferred Stock, is held
by persons other than Ford and accounts for the remaining 25% of the total
voting power. Ford Holdings' primary activities consist of consumer and
commercial financing operations, insurance underwriting and equipment leasing
through its wholly owned subsidiaries, Associates First Capital Corporation
("The Associates"), American Road and USL Capital. Ford Credit accounts for
its investment in Ford Holdings common stock using the equity method of
accounting. For further information regarding Ford Holdings, see Notes 1, 2
and 12 of Notes to Financial Statements. See "Financial Review of Ford Motor
Company Results - 1993 Results of Operations - Financial Services Operations"
and "Liquidity and Capital Resources - Financial Services Operations" for a
discussion of 1993 results of operations and liquidity and capital resources,
respectively, of The Associates, American Road and USL Capital.
ASSOCIATES FIRST CAPITAL CORPORATION
The Associates conducts its operations primarily through its principal
operating subsidiary, Associates Corporation of North America. The Associates'
primary business activities are consumer finance, commercial finance and
insurance underwriting. The consumer finance operation is engaged in making
and investing in residential real estate-secured loans to individuals, making
secured and unsecured installment loans to individuals, purchasing consumer
retail installment obligations, investing in credit card receivables, financing
manufactured housing purchases and providing other consumer financial services.
The commercial finance operation is principally engaged in financing sales of
transportation and industrial equipment and leasing, and providing other
financial services, including automobile club, mortgage banking, and relocation
services. The insurance operation is engaged in underwriting credit life,
credit accident and health, property, casualty and accidental death and
dismemberment insurance, principally for customers of the finance operations of
The Associates.
The Associates' finance receivables were as follows at the dates
indicated (in millions):
December 31,
-------------------------
1993 1992
-------------------------
Consumer finance
Residential real estate-secured receivables $10,626 $ 9,820
Direct installment and credit card receivables 6,060 5,277
Manufactured housing and other
installment receivables 3,810 2,846
------ ------
Total consumer finance receivables 20,496 17,943
Commercial finance
Heavy-duty truck receivables 4,334 3,500
Other industrial equipment receivables 4,743 4,172
------ ------
Total commercial finance receivable 9,077 7,672
------ ------
Gross receivables 29,573 25,615
Unearned financing income (3,208) (2,781)
------ ------
Net finance receivables $26,365 $22,834
------- -------
------- -------
Allowance for losses on finance receivables $ 809 $ 699
------- -------
------- -------
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Credit loss experience, net of recoveries, of The Associates' finance
business was as follows for the years indicated (dollar amounts in millions):
Years Ended or at December 31,
-------------------------------
1993 1992 1991
------ ----- ------
NET CREDIT LOSSES
Consumer finance
Amount $ 372 $ 383 $ 354
% of average net receivables 2.19% 2.64% 2.84%
% of receivables liquidated 3.41 4.57 5.65
Commercial finance
Amount $ 22 $ 42 $ 35
% of average net receivables .30% .64% .60%
% of receivables liquidated .26 .61 .61
Total net credit losses
Amount $ 394 $ 425 $ 389
% of average net receivables 1.61% 2.02% 2.13%
% of receivables liquidated 2.03 2.80 3.24
ALLOWANCE FOR LOSSES
Balance at end of period $ 809 $ 699 $ 591
% of net receivables 3.07% 3.06% 2.93%
The following table shows total balances delinquent sixty days and
more by type of business at the dates indicated (dollar amounts in millions):
Consumer Finance Commercial Finance Total
-------------------- -------------------- ------------------
Balances Delinquent Balances Delinquent Balances Delinquent
60 Days and More 60 Days and More 60 Days and More
------------------ ------------------- ------------------
Gross % of Gross % of Gross % of
Amount Outstandings Amount Outstandings Amount Outstandings
------ ------------ -------------------- ------ ------------
At December 31,
1993 $380 1.85% $48 .53% $428 1.45%
1992 359 2.00 63 .82 422 1.65
An analysis of The Associates' allowance for losses on finance
receivables is as follows for the years indicated (in millions):
1993 1992 1991
------- ------ ------
Beginning balance $699 $591 $450
Additions 477 513 434
Recoveries 88 72 54
Losses (482) (497) (443)
Other adjustments, primarily
reserves of acquired businesses 27 20 96
---- ---- ----
Ending balance $809 $699 $591
---- ---- ----
---- ---- ----
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THE AMERICAN ROAD INSURANCE COMPANY
American Road was incorporated as a wholly owned subsidiary of Ford
Credit in 1959 and was transferred to Ford Holdings in 1989. The operations of
American Road consist primarily of underwriting floor plan insurance related to
substantially all new vehicle inventories of dealers financed at wholesale by
Ford Credit in the United States and Canada, credit life and disability
insurance in connection with retail vehicle financing, and insurance related to
retail contracts sold by automobile dealers to cover vehicle repairs. In
addition, Ford Life Insurance Company ("Ford Life"), a wholly owned subsidiary
of American Road, offers single premium deferred annuities which are sold
primarily through banks and brokerage firms. The obligations of Ford Life,
including annuities, are guaranteed by American Road.
In the second quarter of 1992, Ford Credit discontinued purchasing
collateral protection insurance ("CPI") from American Road for vehicles
financed at retail by Ford Credit. As a result, total premiums written by
American Road in 1992 were down 38% from 1991. The discontinuance of Ford
Credit's purchase of CPI was a significant factor in American Road's 1992
profit decline from 1991 and had a negative but smaller impact on 1993
earnings. American Road exited the CPI market for vehicles and homes financed
by other institutions by the end of 1993.
USL CAPITAL CORPORATION
USL Capital, a diversified commercial leasing and financing
organization, originally incorporated in 1956, was acquired by Ford in 1987 and
was transferred to Ford Holdings in 1989. In November 1993, the corporation's
name was changed from United States Leasing International, Inc. to USL Capital
Corporation. The primary operations of USL Capital include the leasing,
financing, and management of office, manufacturing and other general-purpose
business equipment; commercial fleets of automobiles, vans, and trucks;
large-balance transportation equipment (principally commercial aircraft, rail,
and marine equipment); industrial and energy facilities; and essential-use
equipment for state and local governments. It also provides intermediate-term,
first-mortgage loans on commercial properties and invests in corporate
preferred stock and debt instruments. Certain of these financing transactions
are carried on the books of Ford affiliates.
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The following table sets forth certain information regarding USL
Capital's earning assets, credit losses, and delinquent accounts at the dates
indicated (dollar amounts in millions):
December 31,
----------------------------------
1993 1992 1991
------ ------ ------
Total earning assets
Investments in finance leases - net $2,364 $2,075 $1,463
Investments in operating leases - net 695 558 492
Investments in leveraged leases - net 191 4 -
Notes receivable 721 502 416
Investment in securities 563 329 236
Inventory held for sale or lease 55 97 100
Investments in associated companies 18 20 20
------ ------ ------
Total $4,607 $3,585 $2,727
------ ------ ------
------ ------ ------
Allowance for doubtful accounts
Beginning balance $ 40 $ 30 $ 25
Additions 25 19 11
Deductions (10) (9) (6)
------ ---- ----
Ending balance $ 55 $ 40 $ 30
------ ----- -----
------ ----- -----
Allowance for doubtful accounts
as a percent of earning assets 1.2% 1.1% 1.1%
Total balance over 90 days past due
at year end $ 44 $ 49 $ 23
Percent of earning assets 1.0% 1.4% 0.8%
FORD CREDIT EMPLOYEE RELATIONS
At December 31, 1993, Ford Credit and its subsidiaries had 8,972
employees. All such employees are salaried, and none is represented by a
union. Ford Credit considers its employee relations to be satisfactory.
FORD CREDIT GOVERNMENTAL REGULATIONS
Various aspects of Ford Credit's financing operations are regulated
under both Federal and state law. Various states require licenses to conduct
retail financing. Interest rates, particularly those with respect to consumer
financing, generally are limited by state law and, in periods of high interest
rates, these limitations can have a substantial adverse effect on operations in
certain states if Ford Credit is unable to pass on its increased interest costs
to its customers.
During the past several years, legislative, judicial, and
administrative authorities have evidenced a growing concern for the protection
of the interest of consumers, especially in connection with consumer financing
transactions. As a result, significant changes have been made in the methods
by
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which Ford Credit and the financing industry conduct business, and many
proposals have been made which would require further changes. None of the
changes to date has had a substantial adverse effect on the operations of Ford
Credit.
CERTAIN TRANSACTIONS WITH FORD AND AFFILIATES
For information concerning transactions between Ford Credit and Ford
or affiliates, see Note 12 of Notes to Financial Statements, "Business of Ford
Credit - Other Financing Activities", "Business of Ford Credit - Borrowings and
Other Sources of Funds" and Item 6 - "Selected Financial Data--Selected Income
Statement Data." The profit maintenance agreement referred to in the first
paragraph of Note 12 of Notes to Financial Statements, under which Ford has
agreed to maintain the income of Ford Credit at certain minimum levels, has
been amended and restated and expires at the end of 1998.
BUSINESS OF FORD
Ford was incorporated in Delaware in 1919 and acquired the business of
a Michigan company, also known as Ford Motor Company, incorporated in 1903 to
produce automobiles designed and engineered by Henry Ford. Ford is the second-
largest producer of cars and trucks in the world, and ranks among the largest
providers of financial services in the United States.
GENERAL
The Company's two principal business segments are Automotive and
Financial Services. The activities of the Automotive segment consist of the
manufacture, assembly and sale of cars and trucks and related parts and
accessories. Substantially all of Ford's automotive products are marketed
through retail dealerships, most of which are privately owned and financed.
The Financial Services segment is comprised of the following
subsidiaries: Ford Credit, Ford Credit Europe plc ("Ford Credit Europe"),
First Nationwide Financial Corporation ("First Nationwide"), The Hertz
Corporation ("Hertz"), Ford Holdings, The Associates, American Road and
USL Capital. The activities of these subsidiaries include financing
operations, insurance operations, savings and loan operations and vehicle
and equipment leasing.
AUTOMOTIVE OPERATIONS
The worldwide automotive industry is affected significantly by a
number of factors over which the industry has little control, including general
economic conditions.
In the United States, the automotive industry is a highly-competitive,
cyclical business characterized by a wide variety of product offerings. The
level of industry demand (retail deliveries of cars and trucks) can vary
substantially from year to year and, in any year, is dependent to a large
extent on general economic conditions, the cost of purchasing and operating
cars and trucks and the availability and cost of credit and of fuel, and
reflects the fact that cars and trucks are durable items, the replacement of
which can be postponed.
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The automotive industry outside of the United States consists of many
producers, with no single dominant producer. Certain manufacturers, however,
account for the major percentage of total sales within particular countries,
especially their respective countries of origin. Most of the factors that
affect the U.S. automotive industry and its sales volumes and profitability are
equally relevant outside the United States.
The worldwide automotive industry also is affected significantly by a
substantial amount of government regulation. In the United States and Europe,
for example, government regulation has arisen primarily out of concern for the
environment, for greater vehicle safety and for improved fuel economy. Many
governments also regulate local content and/or impose import requirements as a
means of creating jobs, protecting domestic producers or influencing their
balance of payments.
Unit sales of Ford vehicles vary with the level of total industry
demand and Ford's share of industry sales. Ford's share is influenced by the
quality, price, design, driveability, safety, reliability, economy and utility
of its products compared with those offered by other manufacturers. Ford's
ability to satisfy changing consumer preferences with respect to type or size
of vehicle and its design and performance characteristics can affect Ford's
sales and earnings significantly.
The profitability of vehicle sales is affected by many factors,
including unit sales volume, the mix of vehicles and options sold, the level of
"incentives" (price discounts) and other marketing costs, the costs for
customer warranty claims and other customer satisfaction actions, the costs for
government-mandated safety, emission and fuel economy technology and equipment,
the ability to control costs and the ability to recover cost increases through
higher prices. Further, because the automotive industry is capital intensive,
it operates with a relatively high percentage of fixed costs which can result
in large changes in earnings with relatively small changes in unit volume.
In recent years, due to competitive pressures, vehicle manufacturers
have both expanded the coverages and extended the terms of warranties on
vehicles sold in the U.S. Ford presently provides warranty coverage on most
vehicles sold by it in the U.S. that extends for 36 months or 36,000 miles
(whichever occurs first) and covers nearly all components of the vehicle.
Different warranty coverages are provided on vehicles sold outside the U.S. In
addition, as discussed below under "Governmental Standards - Mobile Source
Emissions Control", amendments to the Federal Clean Air Act extend the required
useful life for emissions equipment on vehicles sold in the U.S. to 10 years or
100,000 miles (whichever occurs first). As a result of these coverages and the
increased concern for customer satisfaction, costs for warranty repairs,
emissions equipment repairs and customer satisfaction actions ("warranty
costs") can be substantial. Estimated warranty costs for each vehicle sold by
Ford are accrued at the time of sale. Such accruals, however, are subject to
adjustment from time to time depending on actual experience.
UNITED STATES
Sales Data. The following table shows U.S. industry demand for the
years indicated:
U.S. Industry Retail Deliveries
(millions of units)
-------------------------
Years Ended December 31
--------------------------
1993 1992 1991 1990 1989
---- ---- ----- ---- ----
Cars......................................... 8.5 8.2 8.2 9.3 9.8
Trucks...................................... 5.7 4.9 4.3 4.8 5.1
---- ---- ---- ---- ----
Total....................................... 14.2 13.1 12.5 14.1 14.9
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Ford classifies cars by small, middle, large and luxury segments and
trucks by compact pickup, compact van/utility, full-size pickup, full-size
van/utility and medium/heavy segments. The large and luxury car segments and
the compact van/utility, full-size pickup and full- size van/utility truck
segments include the industry's most profitable vehicle lines. The following
tables show the proportion of retail car and truck sales by segment for the
industry (including Japanese and other foreign-based manufacturers) and Ford
for the years indicated:
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17
U.S. Industry Car Sales by Segment
Years Ended December 31
----------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Small........................... 28.9% 29.3% 29.0% 28.9% 31.4%
Middle.......................... 52.5 51.7 51.4 51.8 50.4
Large........................... 8.5 9.2 9.6 9.1 9.2
Luxury.......................... 10.1 9.8 10.0 10.2 9.0
----- ---- ----- ----- ----
Total U.S. Industry Car Sales... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Ford Car Sales by Segment in U.S.*
Years Ended December 31
----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Small........................... 28.8% 26.6% 31.2% 31.1% 34.7%
Middle.......................... 51.4 53.4 47.3 44.8 45.6
Large........................... 9.9 10.5 10.1 11.2 10.1
Luxury.......................... 9.9 9.5 11.4 12.9 9.6
----- ----- ----- ----- -----
Total Ford U.S. Car Sales....... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
* Includes Jaguar sales since 1990.
As shown in the first table above, the percentages of industry sales
in the various car segments have remained relatively stable since 1989. As
shown in the second table above, Ford's proportion of sales in 1992 and 1993
has increased in the middle segment and decreased in the small and luxury
segments, reflecting higher sales of Thunderbird, Cougar, Taurus, Sable, Tempo
and Topaz models and lower sales of Escort, Festiva, Mark and Continental
models.
U.S. Industry Truck Sales by Segment
Years Ended December 31
---------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Compact pickup.................. 18.9% 20.8% 22.4% 22.9% 23.7%
Compact van/utility............. 41.1 40.1 38.8 34.7 31.2
Full-Size pickup................ 24.8 24.2 25.1 26.0 26.4
Full-Size van/utility........... 10.6 10.6 9.4 11.4 13.2
Medium/Heavy.................... 4.6 4.3 4.3 5.0 5.5
----- ----- ----- ----- -----
Total U.S. Industry Truck Sales. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Ford Truck Sales by Segment in U.S.
Years Ended December 31
----------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Compact pickup.................. 19.7% 17.0% 18.5% 19.8% 19.5%
Compact van/utility............. 32.6 33.5 31.5 25.3 20.4
Full-Size pickup................ 32.6 33.6 35.8 36.8 38.9
Full-Size van/utility........... 12.4 13.1 11.7 14.9 17.4
Medium/Heavy.................... 2.7 2.8 2.5 3.2 3.8
----- ----- ----- ----- -----
Total Ford U.S. Truck Sales..... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
As shown in the tables above, for both the industry and Ford, the
compact van/utility segment has grown significantly since 1989, while the
full-size segments (pickups and van/utility) have declined as a percentage of
total truck sales.
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Market Share Data. The following tables show changes in car and truck market
shares of United States and foreign-based manufacturers for the years
indicated:
U.S. Car Market Shares*
Years Ended December 31
--------------------------------------------
1993 1992 1991 1990 1989
- - - - - - -------------------------------- ---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford**............................ 22.3% 21.8% 20.1% 21.1% 22.3%
General Motors.................... 34.1 34.6 35.6 35.6 35.1
Chrysler.......................... 9.8 8.3 8.6 9.2 10.4
----- ----- ----- ----- -----
Total U.S. Manufacturers........ 66.2 64.7 64.3 65.9 67.8
Foreign-Based Manufacturers***
Japanese.......................... 29.1 30.1 30.2 27.9 25.4
All Other......................... 4.7 5.2 5.5 6.2 6.8
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers. 33.8 35.3 35.7 34.1 32.2
----- ----- ----- ----- -----
Total U.S. Car Retail Deliveries.. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
U.S. Truck Market Shares*
--------------------------------------
Years Ended December 31
--------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford................................. 30.5% 29.7% 28.9% 29.3% 28.8%
General Motors....................... 31.4 32.2 32.9 34.3 33.7
Chrysler............................. 21.4 21.1 18.5 17.3 19.4
Navistar International............... 1.3 1.3 1.4 1.5 1.5
All Other............................ 1.7 1.4 1.3 1.4 1.7
---- ---- ---- ---- ----
Total U.S. Manufacturers........... 86.3 85.7 83.0 83.8 85.1
Foreign-Based Manufacturers***
Japanese............................. 13.2 13.8 16.5 15.6 14.3
All Other............................ 0.5 0.5 0.5 0.6 0.6
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers.. 13.7 14.3 17.0 16.2 14.9
----- ----- ----- ----- -----
Total U.S. Truck Retail Deliveries 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ------
----- ----- ----- ----- ------
____________________
* All U.S. retail sales data are based on publicly available information
from the American Automobile Manufacturers Association, the media and
trade publications.
** Includes Jaguar sales since 1990.
*** Share data include cars and trucks assembled and sold in the U.S. by
Japanese-based manufacturers selling through their own dealers as well
as vehicles imported by them into the U.S. "All Other" includes
primarily companies based in various European countries and in Korea and
Taiwan.
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U.S. Combined Car and Truck Market Shares*
------------------------------------------
Years Ended December 31
---------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford**............................... 25.5% 24.7% 23.2% 23.9% 24.5%
General Motors....................... 33.1 33.7 34.6 35.2 34.7
Chrysler............................. 14.4 13.1 12.0 12.0 13.5
Navistar International............... 0.5 0.5 0.5 0.5 0.5
---- ---- ---- ---- ----
Total U.S. Manufacturers........... 73.5 72.0 70.3 71.6 73.2
Foreign-Based Manufacturers***
Japanese............................. 22.8 24.0 25.5 23.7 21.6
All Other............................ 3.7 4.0 4.2 4.7 5.2
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers.. 26.5 28.0 29.7 28.4 26.8
----- ----- ----- ----- -----
Total U.S. Car and Truck Retail
Deliveries......................... 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
___________________
* All U.S. retail sales data are based on publicly available
information from the American Automobile Manufacturers Association,
the media and trade publications.
** Includes Jaguar sales since 1990.
*** Share data include cars and trucks assembled and sold in the U.S. by
Japanese-based manufacturers selling through their own dealers as well
as vehicles imported by them into the U.S. "All Other" includes
primarily companies based in various European countries and in Korea
and Taiwan.
Japanese Competition. The market share of Ford and other domestic
manufacturers in the U.S. is affected by sales from Japanese manufacturers. As
shown in the table above, the share of the U.S. combined car and truck industry
held by the Japanese manufacturers increased from 21.6% in 1989 to 25.5% in
1991, but declined to 22.8% in 1993, reflecting in part the effects of the
strengthening of the Japanese yen on the prices of vehicles produced by the
Japanese manufacturers.
In the 1980s and continuing in the 1990s, Japanese manufacturers added
assembly capacity in North America (frequently referred to as "transplants") in
response to a variety of factors, including export restraints, the significant
growth of Japanese car sales in the U.S. and international trade
considerations. Production in the U.S. by Japanese transplants reached 1.6
million units in 1993 and is expected to reach about 2.5 million units a year
when additional Japanese transplant capacity becomes fully operational.
Excess Capacity In North America. In 1993, automotive capacity in North
America, including Japanese transplants, exceeded industry sales by over 5.2
million units. This excess capacity (which includes overtime capacity)
reflected the effect of productivity gains made by manufacturers, added
capacity of Japanese transplants and lower-than-normal industry-wide sales
resulting from modest economic growth.
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Marketing Incentives and Fleet Sales. As a result of intense competition from
new product offerings (from both domestic and foreign manufacturers), excess
industry capacity as discussed above and the desire to maintain economic
production levels, automotive manufacturers that sell vehicles in the U.S. have
provided marketing incentives (price discounts) to retail and fleet customers
(i.e., daily rental companies, commercial fleets, leasing companies and
governments).
Ford's U.S. marketing costs as a percentage of net sales revenue for each of
1993, 1992 and 1991 were: 10.9%, 12% and 16%, respectively. During the
1983-1988 period, such costs as a percentage of sales revenue were in the 4% to
7% range. "Marketing costs" include (i) marketing incentives such as retail
rebates and special financing rates, (ii) reserves for residual guaranties on
retail vehicle leases; (iii) reserves for costs and/or losses associated with
obligatory repurchases of certain vehicles sold to daily rental companies and
(iv) costs for advertising and sales promotions.
Sales by Ford to fleet customers were as follows for the years indicated:
Ford Fleet Sales
-----------------------------------
Years Ended December 31
-----------------------------------
1993 1992 1991 1990
---- ---- ---- ----
Units Sold..................... 881,000 882,000 782,000 821,000
Percent of Ford's
Total Car and Truck Sales.... 25% 28% 27% 24%
Fleet sales generally are less profitable than retail sales. Within total
fleet sales, the mix between sales to daily rental companies and sales to other
fleet purchasers improved in 1992 and 1993; sales to daily rental companies
declined, while other fleet sales (which tend to be more profitable) increased.
EUROPE
Europe is the largest market for the sale of Ford cars and trucks
outside the United States. The automotive industry in Europe is intensely
competitive; for the past 12 years, the top six manufacturers have each
achieved a car market share in about the 10% to 16% range. (Manufacturers'
shares, however, vary considerably by country.) This competitive environment
is expected to intensify further as
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Japanese manufacturers, which together had a European car market share of 11.6%
for 1993, increase their production capacity in Europe and import restrictions
on Japanese built-up vehicles gradually are removed.
In 1993, European car industry sales were 10.8 million cars, down 16%
from 1992 levels. Truck sales were 1.7 million units, down 17% from 1992
levels. Ford's European car share for 1993 was 11.8%, compared with 11.5% for
1992, and its European truck share for 1993 was 12.6%, compared with 11.7% for
1992.
For Ford, Great Britain and Germany are the most important markets
within Europe, although the Southern European countries are becoming
increasingly significant. Great Britain traditionally has been Ford's major
source of European automotive profits, and any adverse change in this market
has a strong effect on total automotive profits. For 1993 compared with 1992,
total industry sales were up 10% in Great Britain and down 19% in Germany.
OTHER FOREIGN MARKETS
Mexico and Canada. Mexico and Canada also are important markets for
Ford. Generally, industry conditions in Canada closely follow conditions in
the U.S. market; however, Canada continues to be in a recessionary period. In
1993, industry sales of cars and trucks in Canada were down 3% from 1992
levels, while the U.S. experienced an 8% increase in industry sales. Mexico
has been a growing market; however, in 1993, industry sales were down 15% to
603,000 units.
The North American Free Trade Agreement ("NAFTA") became effective
January 1, 1994. NAFTA unites Canada, Mexico and the United States into the
world's largest trading region by phasing out regulations which restricted
trade between Mexico and the U.S. and Canada. The Company believes that NAFTA
will benefit the economies of the three countries and the North American
automobile industry in particular.
Latin America. Brazil, Argentina and Venezuela are the principal
markets for Ford in South America. The economic environment in those countries
has been volatile in recent years, leading to large variations in
profitability. Results also have been influenced by government actions to
reduce inflation and public deficits, and improve the balance of payments. In
1993, Ford's profitability in the region improved significantly compared with
1992, primarily reflecting strong results in Brazil. Autolatina (Ford's joint
venture with Volkswagen in Brazil and Argentina) remained the market leader in
Brazil. In Brazil, a new economic plan aimed at stabilizing the Brazilian
economy and reducing inflation was unveiled in late 1993. It is presently
unclear to what extent the new plan will affect overall economic conditions.
In addition, duties on vehicles imported into Brazil have declined
progressively from 85% in 1990 to 35% in October 1993. As a result, imports are
expected to gain a progressively larger share of the car market in Brazil.
Autolatina's future results largely will be dependent on the political and
economic environments in Brazil and Argentina, which historically have been
unpredictable.
Asia-Pacific. In the Asia-Pacific region, Australia and Taiwan are
the principal markets for Ford products. In both markets, Ford is the car
market share leader. In Taiwan (where sales of built-up vehicles manufactured
in Japan are prohibited), Ford has total vehicle sales leadership. Ford's
principal competition in the Asia-Pacific region has been the Japanese
manufacturers. It
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22
is anticipated that the continuing relaxation of import restrictions (including
duty reductions) in Australia and Taiwan will intensify competition in those
markets.
Ford believes that the Asia-Pacific region offers many important
opportunities for the future. Ford is investigating automotive component
manufacturing and vehicle assembly opportunities in China and is expanding the
number of right-hand-drive vehicles it will offer in Japan. A key element of
Ford's presence in the Asia-Pacific region is its long-standing relationship
with Mazda Motor Corporation, in which it has held a 25% ownership interest
since 1979. Recent management appointments by Mazda of Ford personnel have
been made to improve coordination of business and product plans in the
Asia-Pacific region.
FINANCIAL SERVICES OPERATIONS
For information regarding the businesses of Ford Credit, Ford
Holdings, The Associates, American Road and USL Capital, see "Business of Ford
Credit" and "Ford Holdings".
Ford Credit Europe plc. In 1993, most of the European credit operations of
Ford, which generally had been organized as subsidiaries of the respective
automotive affiliates of Ford throughout Europe, were consolidated into a
single company, Ford Credit Europe. Ford Credit Europe, which was originally
incorporated in 1963 in England as a private limited company, is wholly owned
by Ford and certain of its subsidiaries. Ford Credit Europe's primary business
is to support the sale of Ford vehicles in Europe through the Ford dealer
network. A variety of retail, leasing and wholesale finance plans is provided
in most countries in which it operates. The business of Ford Credit Europe is
substantially dependent upon Ford's automotive operations in Europe. Ford
Credit Europe issues commercial paper, certificates of deposits and term debt
to fund its credit operations. One of the purposes of the consolidation
described above is to facilitate Ford Credit Europe's access to public debt
markets. Ford Credit Europe's ability to obtain funds in these markets is
affected by its credit ratings, which are closely related to the financial
condition of and outlook for Ford.
First Nationwide Financial Corporation. First Nationwide, a savings and loan
holding company organized in Delaware in 1959, was acquired by Ford in December
1985. It is a wholly owned subsidiary of Ford.
The principal asset of First Nationwide is the capital stock of First
Nationwide Bank, A Federal Savings Bank ("First Nationwide Bank" or the
"Bank"). The Bank is a federally chartered, capital stock savings bank which,
with its predecessor institutions, has been in the savings and loan business
since 1885. The principal business of the Bank consists of attracting savings
deposits from the public and making loans collateralized by liens on
residential and other real estate. Income is derived from interest charges on
real estate loans and, to a lesser extent, from fees received in connection
with such loans and interest on securities investments. The major expense of
the Bank is the interest it pays on savings accounts and on borrowings.
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23
First Nationwide's loans receivable (including those of the Bank) were
as follows at the dates indicated (in millions):
December 31,
--------------------------
1993 1992*
-------- ---------
Real estate loans $11,712 $13,097
Consumer and other loans 485 536
------- -------
Total 12,197 13,633
Unearned fees and discounts, net (109) (120)
Allowance for loan losses (396) (405)
---- -------
Total loans receivable, net $11,692 $13,108
------- -------
- - - - - - -------------- ------- -------
* Certain amounts for 1992 have been restated to conform with presentations
adopted in 1993.
Included in the above receivables at December 31, 1993 and 1992 were $9.0
billion and $10.2 billion, respectively, of variable rate real estate loans.
Loans held for sale, not included above, were $288 million and $195 million at
December 31, 1993 and 1992, respectively.
The percentages of real estate loans by state were as follows at
December 31, 1993, excluding accrued interest receivable, discounts and
premiums, and loss reserves, and including $288 million of loans held for sale:
California - 55.4%; New York - 10.8%; Florida - 3.8%; Illinois - 3.2%; and 46
other states, none of which exceeded 3.0% of total real estate loans.
The following table reflects at the dates indicated the amount of
non-accrual, past due, and troubled debt restructured loans including the
interest income recognized and total interest income that would have been
recognized had the borrowers performed under the original terms of the loans
(in millions):
December 31,
-----------------------------------------------------------------
1993 1992*
-------------------------------- -------------------------------
Total Total
Interest Interest Interest Interest
Income Income if Income Income if
Balance Recognized Performing Balance Recognized Performing
------- ---------- ---------- ------- ---------- ----------
Non-accrual loans $ 708 $17 $ 55 $1,072 $19 $ 93
Accruing loans
contractually past
due 91 days or more 0 0 0 2 0 0
Troubled debt
restructured loans 512 41 45 336 25 32
------ --- ---- ------ --- ----
Total $1,220 $58 $100 $1,410 $44 $125
- - - - - - -------------- ------ --- ---- ------ --- ----
------ --- ---- ------ --- ----
* Certain amounts for 1992 have been restated to conform with presentations
adopted in 1993.
At December 31, 1993, there were no commitments to lend additional funds to
borrowers whose loans were on non-accrual status or were restructured.
An analysis of First Nationwide's allowance for losses on
loans is as follows for the years indicated (in millions):
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24
Real Consumer
Estate and Other Commercial Total
------ --------- ---------- -----
Balance, December 31, 1990 $267 $16 $ 3 $286
Additions 254 5 14 273
Charge-offs (121) (14) (10) (145)
Recoveries 2 3 - 5
--- --- --- ----
Balance, December 31, 1991 402 10 7 419
Additions 121 3 4 128
Charge-offs (135) (5) (6) (146)
Recoveries 2 1 1 4
---- --- --- ----
Balance, December 31, 1992 390 9 6 405
Additions 137 3 - 140
Charge-offs (152) (5) (6) (163)
Recoveries 12 1 1 14
---- --- --- ----
Balance, December 31, 1993 $387 $ 8 $ 1 $396
---- --- --- ----
---- --- --- ----
Federally chartered savings and loan institutions are regulated
principally by the Office of Thrift Supervision ("OTS"), a bureau of the
Department of Treasury. Deposit insurance for these institutions is provided
by the Federal Deposit Insurance Corporation ("FDIC"). Regulated areas
include: capital requirements, payments of dividends, transactions with
affiliates and activities that might create a serious risk to insured
institutions.
The Bank is subject to regular concurrent examinations of its
operations by the OTS and the FDIC, the most recent of which were completed in
December 1993. In response to examiners' concerns expressed in recent
examinations, the Bank has taken positive steps to improve asset quality and
other areas of its operations. The Bank filed its response to the most recent
OTS examination report in January 1994. Pursuant to an agreement with the OTS,
the FDIC did not issue a separate examination report.
For a discussion of the losses incurred by First Nationwide in 1993
and 1992, see "Financial Review of Ford Motor Company Results".
Ford presently is investigating strategic actions with respect to
First Nationwide. Such actions could include the sale of a substantial portion
of the Bank's assets. It is premature at this time, however, to determine
whether any actions will occur and what impact, if any, such actions could
have on Ford's financial results.
The Hertz Corporation. On March 8, 1994, Ford purchased from
Commerzbank Aktiengesellschaft, a German bank, additional shares of common
stock of Hertz aggregating 5% of the total outstanding voting stock, thereby
bringing Ford's ownership of the total voting stock of Hertz to 54% from 49%.
Since the Company was a principal shareholder of Hertz prior to the purchase
from Commerzbank, no significant change in the relationship between Ford and
Hertz is expected. The effect of this transaction on Ford's consolidated
financial statements is not expected to be material. Hertz had been accounted
for on an equity basis; following the purchase, Hertz's operating results,
assets, liabilities, and cash flows will be consolidated in Ford's financial
statements, as part of the Financial Services business segment. Hertz is
engaged principally in the business of renting automobiles and renting and
leasing trucks, without drivers, in or through approximately 5,200 locations
throughout the U.S. and in over 140 foreign countries.
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25
GOVERNMENTAL STANDARDS
A number of governmental standards and regulations relating to safety,
corporate average fuel economy ("CAFE"), emissions control, noise control,
damageability and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States and Europe.
In addition, manufacturing and assembly facilities in the United States and
Europe are subject to stringent standards regulating air emissions, water
discharges and the handling and disposal of hazardous substances. Such
facilities in the United States also are subject to a comprehensive
federal-state permit program relating to air emissions. Many of the standards
will become increasingly stringent. Moreover, additional and even more
stringent standards and regulations, notably car and truck emissions and CAFE
standards, may be made applicable to future model vehicles as well as to
existing and future facilities. The technological feasibility of achieving
compliance with some of these standards and regulations has not been
established on a commercial basis. Assuming that compliance with all
applicable standards and regulations can be achieved within the prescribed time
frame, it will be extremely costly and it could be necessary for Ford to take
such actions as curtailing or eliminating production of certain cars, trucks
and engines. Such actions could have substantial adverse effects on Ford's
sales volume and profits.
Mobile Source Emissions Control -- As amended in November 1990, the
Federal Clean Air Act (the "Clean Air Act" or the "Act") imposes significantly
more stringent limits on the amount of regulated pollutants that lawfully may
be emitted by new motor vehicles and engines produced for sale in the United
States than those previously in effect. The effective dates of these
standards, some of which have phase-in periods, vary depending upon the type of
vehicle, but begin to apply as early as the 1994 model year. In addition, the
Act doubles the length of the "useful life" during which compliance with the
applicable standards must be achieved. Passenger cars, for example, must
comply for 10 years or 100,000 miles, whichever first occurs. The Act
prohibits, among other things, the sale in or importation into the United
States of any new motor vehicle or engine which is not covered by a certificate
of conformity issued by the United States Environmental Protection Agency (the
"EPA").
The Act also may require production of certain new cars and trucks
capable of operating on fuels other than gasoline or diesel fuel ("alternative
fuels") under a pilot test program to be conducted in California beginning in
the 1996 model year. Under this pilot program, each manufacturer will be
required to sell its pro rata share of 150,000 vehicles in each of the 1996,
1997 and 1998 model years and its pro rata share of 300,000 vehicles in each
model year thereafter. The Act also authorizes certain states to establish
programs to encourage the purchase of such vehicles.
Motor vehicle emissions standards even more stringent than those
referred to above will become effective as early as the 2003 model year, unless
the EPA determines that such standards are not necessary, technologically
feasible or cost-effective.
The Act authorizes California to establish unique emissions control
standards that, in the aggregate, are at least as stringent as the federal
standards if it secures the requisite waiver of federal preemption from the
EPA. The Health and Safety Code of the State of California prohibits, among
other things, the sale to an ultimate purchaser who is a resident of or doing
business in California of a new motor vehicle or engine which is intended for
use or registration in that state which has not been certified by the
California Air Resources Board (the "CARB"). The CARB received a waiver from
the EPA for a series of passenger car and light truck emissions standards (the
"low emission vehicle", or "LEV", standards), effective beginning between the
1994 and 2003 model years, that are more stringent than those prescribed by the
Act for the corresponding periods of time. These California standards are
intended to
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promote the development of various classes of low emission vehicles.
California also requires that a specified percentage of each manufacturer's
vehicles produced for sale in California, beginning at 2% in 1998 and
increasing to 10% in 2003, must be "zero-emission vehicles" ("ZEVs"), which
produce no emissions of regulated pollutants.
Electric vehicles are the only presently known type of zero-emission
vehicles. However, despite intensive research activities, technologies have
not been identified that would allow manufacturers to produce a commercially
viable electric vehicle. To comply with the mandate, manufacturers may have to
offer substantial discounts on electric vehicles, selling them well below cost,
or increase the price or curtail the sale of non-electric vehicles. The
California emissions standards present significant technological challenges to
manufacturers and compliance may require costly actions that would have a
substantial adverse effect on Ford's sales volume and profits.
The Act also permits other states with air quality problems to adopt
new motor vehicle emissions standards identical to those adopted by California,
if such states lawfully adopt such standards two years before commencement of
the affected model year. In October 1991, a group of twelve northeastern
states and the District of Columbia, the Ozone Transport Commission (the
"OTC"), organized under provisions of the Act and executed a Memorandum of
Understanding under which they agreed to propose adoption of the California LEV
standards. On February 1, 1994, the OTC voted to recommend to the EPA that it
require all member states to adopt the California LEV standards in their state
implementation programs. The EPA must act on the petition within nine months
after its receipt. Adoption of the California LEV standards by any state will
present challenges and potential adverse effects similar to those that will be
experienced in California, which may be further aggravated by conditions in a
particular state.
In November 1990, the Department of Environmental Conservation (the
"DEC") of the State of New York adopted regulations, effective beginning in the
1993 model year, that are intended to require that vehicles sold in that state
comply with California's 1993 model year (pre- LEV) emissions standards. In
May 1992, the DEC adopted regulations purporting to implement the California
LEV standards beginning in the 1994 model year. The American Automobile
Manufacturers Association ("AAMA"), of which Ford is a member, and the
Association of International Automobile Manufacturers ("AIAM") challenged the
legality of the DEC's adoption of the LEV standards, as inconsistent with its
legal authority under the Act. A ruling by the U.S. District Court in
Binghamton, New York, that the DEC's adoption of the LEV standards violated
certain provisions of the Act (and was, therefore, invalid) was appealed to the
U.S. Court of Appeals for the Second Circuit (the "Second Circuit Court"). On
February 4, 1994, the Second Circuit Court upheld certain aspects of the State
of New York's adoption of the California LEV standards, including the ZEV sales
mandate. However, the Second Circuit Court also held that the standard would
not apply to 1995 model year vehicles, thereby making the standard applicable to
1996 and beyond model year vehicles. A 1990 Massachusetts law, as implemented
by regulations issued in 1992, purports to adopt the California LEV standards
beginning in the 1995 model year. A special study commission established by
the Massachusetts legislature to re-evaluate adoption of the California Act and
standards recommended proceeding with their adoption. The AAMA and AIAM are
challenging the adoption of the standards in the U.S. District Court in
Massachusetts.
Under the Act, if the EPA determines that a substantial number of any
class or category of vehicles, although properly maintained and used, do not
conform to applicable emissions standards, a manufacturer may be required to
recall and remedy such nonconformity at its expense. Further, if the EPA
determines through testing of production vehicles that emission control
performance requirements are not met, it can halt shipment of motor vehicles of
the configuration tested. California has similar, and in some respects
greater, authority to
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order manufacturers to recall vehicles. Ford has been required, and may in the
future be required, to recall vehicles for such purposes from time to time.
The costs of related repairs or inspections associated with such recalls can be
substantial.
The European Union has established standards which, in many cases,
will require motor vehicle emissions control equipment similar to that used in
the U.S. These standards, which are of generally equivalent stringency to 1983
model year U.S. standards for gasoline-powered vehicles and 1987 model year
standards for diesel-powered vehicles, are applicable to vehicles type-approved
after July 1, 1992, and registered after December 31, 1992. The EU Council of
Ministers has unanimously adopted a common position approving a proposal by the
European Commission to adopt more stringent motor vehicle emission standards.
Under the European Union's new co-decision procedure, the Council's common
position must be referred to the European Parliament (which may accept, modify
or reject the proposal) for further action before the proposal can be adopted.
Under the co-decision procedure, adoption is expected to be completed in the
first half of 1994. The proposed standards would apply to vehicle
homologations (i.e., the European regulatory certification process) beginning
January 1, 1996 and to new vehicle registrations beginning January 1, 1997 and
are of generally equivalent numerical stringency to those which begin to apply
in the U.S. for the 1994 model year. The common position also provides for the
European Commission to propose by the end of 1994 supplementary reductions in
motor vehicle emissions that would take effect beginning January 1, 2000. Such
supplemental reductions would be a function of technical progress achieved
between now and 2000. When the more stringent standards are adopted, European
Union member countries would be permitted to provide "green" incentives for the
purchase of vehicles that comply with the new standards before their effective
date. Certain other European countries also have established, and may in the
future establish, unique automotive emissions standards.
Certain European countries, including member countries of the European
Union, are conducting in-use emissions testing to ascertain compliance of motor
vehicles with applicable emissions standards. These actions could lead to
recalls of vehicles and the future costs of related repairs or inspections
could be substantial.
Motor Vehicle Safety -- Under the National Traffic and Motor Vehicle
Safety Act of 1966, as amended (the "Safety Act"), the National Highway Traffic
Safety Administration (the "Safety Administration") is required to establish
appropriate federal motor vehicle safety standards that are practicable, meet
the need for motor vehicle safety and are stated in objective terms. Since
1968 the Safety Act has prohibited the sale in the United States of any new
motor vehicle or item of motor vehicle equipment that does not conform to
applicable federal motor vehicle safety standards. The Safety Administration
has announced its intention to establish additional such standards in the near
future, which Ford supports in principle. Ford expects to be able to comply
with those standards but only at significantly increased costs, because doing
so will tend to conflict with the need to reduce vehicle weight in order to
meet stringent emissions and fuel economy standards. The Safety Administration
also is required to make a determination on the basis of its investigation
whether motor vehicles or equipment contain defects related to motor vehicle
safety or fail to comply with applicable safety standards and, generally, to
require the manufacturer to remedy any such condition at its own expense. The
same obligation is imposed on a manufacturer which obtains knowledge that any
motor vehicle manufactured by it contains a defect determined in good faith by
it to be related to motor vehicle safety. There currently are pending before
the Safety Administration a number of major investigations relating to alleged
safety defects or alleged noncompliance with applicable safety standards in
vehicles built, imported or sold by Ford. The cost of recall programs to
remedy safety defects or noncompliance, should any be determined to exist as a
result of certain of such investigations, could be substantial.
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The European Union, individual Member States within the European Union
and other countries in Europe also have safety standards applicable to motor
vehicles and are likely to adopt additional or more stringent standards in the
future. The cost of complying with these standards, as well as the cost of any
recall programs to remedy safety defects or noncompliance, could be
substantial.
Motor Vehicle Fuel Economy -- Passenger cars and trucks rated at less
than 8,500 pounds gross vehicle weight are required by regulations issued by
the Safety Administration pursuant to the Motor Vehicle Information and Cost
Savings Act (the "Cost Savings Act") to meet separate minimum CAFE standards.
Failure to meet the CAFE standard in any model year, after taking into account
all available credits, is deemed to be unlawful conduct and would subject a
manufacturer to the imposition of a civil penalty equivalent to $5 for each
one-tenth of a mile per gallon ("mpg") under the applicable standard multiplied
by the number of vehicles in the class (i.e., domestic cars, domestic trucks,
imported cars or imported trucks) produced in that model year. Each such class
of vehicle may earn credits either as a result of exceeding the standard in one
or more of the preceding three model years ("carryforward credits") or pursuant
to a plan, approved by the Safety Administration, under which a manufacturer
expects to exceed the standard in one or more of the three succeeding model
years ("carryback credits") but credits earned by a class may not be applied to
any other class of vehicles.
The Cost Savings Act established a passenger car CAFE standard of 27.5
mpg for the 1985 and later model years, which the Safety Administration asserts
it has the authority to amend to a level it determines to be the "maximum
feasible" level (considering the following factors: technological feasibility,
economic practicality, the effect of other federal motor vehicle standards on
fuel economy, and the need of the nation to conserve energy). Pursuant to the
Cost Savings Act, the Safety Administration established CAFE standards
applicable to 1994 and 1995 model year light trucks (under 8,500 lbs. GVW) at
20.5 mpg and 20.6 mpg, respectively (on a combined two-wheel drive/four-wheel
drive basis). It also has issued a Notice of Proposed Rulemaking ("NPRM")
proposing to set standards for light trucks within the range of 20.5 mpg to
21.5 mpg for model years 1996 and 1997.
If the Safety Administration sets light truck standards for the 1996
and 1997 model years within the range proposed in the NPRM referred to above,
Ford expects to be able to comply with the CAFE standards applicable to its
1994 through 1997 model year "domestic" and "import" cars and light trucks,
although it may be necessary to use credits to do so.
Despite Ford's expectations of compliance, however, there are factors
that could jeopardize its ability to comply. These factors include the
possibility of changes in market conditions, including a shift in demand for
larger vehicles and a decline in demand for small and middle-size vehicles; or
conversely, a shortage of reasonably priced gasoline resulting in a decreased
demand for more profitable vehicles and a corresponding increase in demand for
relatively less profitable vehicles.
It is anticipated that efforts may be made to raise the CAFE standard
because of concerns for CO2 emissions, energy security or other reasons.
President Clinton's Climate Change Action Plan sets a goal to improve new
vehicle fuel efficiency in an amount equivalent to at least 2% per year over a
10 to 15 year period, using a combination of regulatory and non-regulatory
measures. If the entire goal, or a substantial portion of the goal, is to be
achieved through higher CAFE standards, Ford would find it necessary to take
various costly actions that would have substantial adverse effects on its sales
volume and profits. For example, Ford could find it necessary to curtail or
eliminate production of larger family-size and luxury passenger cars and
full-size light trucks, restrict offerings of engines and popular options, and
continue or increase market support programs for its most fuel-efficient
passenger cars and light trucks.
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The Energy Tax Act of 1978, as amended, imposes a federal excise tax
on automobiles which do not achieve prescribed fuel economy levels. Additional
legislative proposals could be introduced that, if enacted, would increase
excise taxes or create economic disincentives to purchase any except the least
fuel consuming vehicles. Because of the uncertainties and variables inherent
in testing for fuel economy and the uncertain effect on fuel economy of other
government requirements, it is not possible to predict the amount of excise
tax, if any, which may be incurred.
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LEGAL PROCEEDINGS
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against the
Company and its subsidiaries, including those arising out of alleged defects in
the Company's products, governmental regulations relating to safety, emissions
and fuel economy, financial services, intellectual property rights, product
warranties and environmental matters. Certain of the pending legal actions
are, or purport to be, class actions. Some of the foregoing matters involve or
may involve compensatory, punitive or antitrust or other treble damage claims
in very large amounts, or demands for recall campaigns, environmental
remediation programs, sanctions or other relief which, if granted, would
require very large expenditures. See "Business of Ford --Governmental
Standards". Included among the foregoing matters are the following:
Product Matters -- Three suits purporting to be nationwide class
actions were filed by some of the plaintiffs of a previously dismissed federal
action that allege claims that are substantially the same as those in the
dismissed federal action -- i.e., that they are or were purchasers or owners of
or passengers in 1976 through 1979 model year Ford vehicles equipped with
certain automatic transmissions who have incurred property damage, personal
injury, economic losses or liability for such losses by reason of an alleged
tendency of the vehicles to slip from park to reverse. A judgment dismissing
the first such suit by the Superior Court for the District of Columbia was
vacated by the local Court of Appeals for the District of Columbia, and renewed
motions to dismiss are under consideration by the Superior Court. The second
suit was filed in the Court of Common Pleas in Philadelphia, Pennsylvania, and
has been stayed pending the entry of final and non-appealable orders in the
action referred to in the immediately preceding sentence. The third suit was
filed in the Circuit Court of Cook County, Illinois. That court granted the
Company's motion to stay proceedings indefinitely and the plaintiffs have
appealed that ruling to the Appellate Court of Illinois for the First Judicial
District-Third Division.
Ford is a defendant in various actions for damages arising out of
automobile accidents where plaintiffs claim that the injuries resulted from (or
were aggravated by) alleged defects in the occupant restraint systems in
vehicle lines of various model years. The damages specified by the plaintiffs
in these actions, including both actual and punitive damages, aggregated
approximately $439 million at January 1, 1994.
Ford is a defendant in various actions involving the alleged
propensity of Bronco II utility vehicles to roll over. The damages specified
in these actions, including both actual and punitive damages, aggregated
approximately $367 million at January 1, 1994.
In some of the actions described in the foregoing paragraphs no dollar
amount of damages is specified or the specific amount referred to is only the
jurisdictional minimum. In addition to the pending actions, accidents have
occurred and claims have arisen which also may result in lawsuits in which such
a defect may be alleged.
Ford is a defendant in various actions for injuries claimed to have
resulted from alleged contact with certain Ford parts and other products
containing asbestos. Damages specified by plaintiffs in complaints in these
actions, including both actual and punitive damages, aggregated approximately
$163 million at January 1, 1994. (In some of these actions no dollar amount of
damages is specified or the specific amount referred to is only the
jurisdictional minimum.) As distinguished from most lawsuits against Ford, in
most of these asbestos-related cases, Ford is but one of many defendants, and
many of these co-defendants have substantial resources.
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Environmental Matters -- Ford has received notices from two government
environmental enforcement agencies concerning two separate matters, each
potentially involving monetary sanctions exceeding $100,000. One agency
believes a Ford facility may have violated regulations relating to the
management of certain of the facility's wastes and the other agency believes a
Ford facility may violate or may have violated limits established by
regulations or permits for emissions or discharges.
Ford has received notices under RCRA, the Superfund Act and applicable
state laws that it (along with others) may be a potentially responsible party
for the costs associated with remediating numerous hazardous substance storage,
recycling or disposal sites in many states and, in some instances, for natural
resource damages. Ford also may have been a generator of hazardous substances
at a number of other sites. The amount of any such costs or damages for which
Ford may be held responsible could be substantial. Contingent losses expected
to be incurred by Ford in connection with many of these sites have been accrued
and are reflected in Ford's financial statements in accordance with generally
accepted accounting principles. However, for many other of these sites the
remediation costs and other damages for which Ford ultimately may be
responsible are not reasonably estimable because of the uncertainties with
respect to factors such as Ford's connection to the site or to materials there,
the involvement of other potentially responsible parties, the application of
laws and other standards or regulations, site conditions, and the nature and
scope of investigations, studies and remediation to be undertaken (including
the technologies to be required and the extent, duration and success of
remediation). As a result, Ford is unable to determine or reasonably estimate
the amount of costs or other damages for which it is potentially responsible in
connection with these sites, although it could be substantial.
Other Matters -- A number of claims have been made or may be asserted
in the future against Ford alleging infringement of patents held by others.
Ford believes that it has valid defenses with respect to the claims that have
been asserted. If some of such claims should lead to litigation, however, and
if the claimant were to prevail, Ford could be required to pay substantial
damages.
On August 7, 1992, Ford was sued in federal court in Nevada by an
individual patent owner seeking damages and an injunction for alleged
infringement of three (later amended to four) U.S. patents characterized by the
individual as covering machine vision inspection technologies, including bar
code reading. Ford and one of its suppliers, Motorola, have filed a
declaratory judgment action in the same court to have those patents and several
other patents directed to machine vision, radiation beam (e.g., laser and
electron beam) uses and semiconductor manufacturing (17 patents in all)
declared invalid, unenforceable and not infringed. If the patent holder were
to prevail, Ford could be required to pay substantial damages of an as yet
indeterminate amount and could become subject to an injunction preventing
future uses of any process or product found to be covered by a valid patent.
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On March 15, 1993, Ford was served with a private purported class
action lawsuit in Texas relating to allegations of paint peeling on unspecified
Ford vehicles. The purported class would include all persons who purchased new
or used Ford vehicles in Texas and who experienced paint peeling as a result of
unspecified defects in Ford's paint process. The plaintiffs seek an
unspecified amount of damages.
Ford has been served with various private purported class action
lawsuits seeking economic damages (including damages for diminution in value
and rescission of purchase agreements) on behalf of Bronco II vehicle owners
relating to the alleged propensity of such vehicles to roll over. The
purported classes include all Bronco II owners in the United States. Each
lawsuit expressly excludes personal injury claimants, whose claims are
discussed above. Several of the lawsuits seek recovery of unspecified punitive
damages. In addition, several of the lawsuits seek an order requiring the
Company to recall and retrofit these vehicles.
Ford of Germany and Volkswagen AG have formed a joint venture to
produce a multi-purpose vehicle ("MPV") in Portugal. The Portuguese government
has agreed to grant an incentive package to the joint venture. On June 15,
1993 the European Court of Justice rejected a claim filed by a French
manufacturer of MPVs challenging the legality of the grant. The same
manufacturer has filed an appeal with the European Court challenging the
decision of the European Commission in December 1992 granting antitrust
approval of the joint venture. Ford has intervened in these proceedings. If
the French manufacturer succeeds in the antitrust case, which Ford considers
unlikely, the joint venture could be dissolved, the grants may have to be
repaid and the participants in the joint venture might have to write off
substantial development costs.
EMPLOYEE RELATIONS
Substantially all hourly employees of Ford in the United States are
included in collective bargaining units represented by unions. Approximately
99% of these unionized hourly employees are represented by the United
Automobile Workers (the "UAW"). Approximately 3% of salaried employees are
represented by unions. Most hourly employees and many nonmanagement salaried
employees of subsidiaries outside the United States also are represented by
unions. Affiliates of Ford also are parties to collective bargaining
agreements in Britain, Spain, Germany and France.
Collective bargaining agreements between Ford and the UAW and between
Ford of Canada and the Canadian Automobile Workers were entered into in 1993
and are scheduled to expire in September 1996.
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SELECTED FINANCIAL DATA OF FORD
The following tables set forth selected financial data and
other data concerning Ford for each of the last ten years (dollar amounts in
millions except per share amounts):
SUMMARY OF OPERATIONS 1993 1992 1991 1990 1989 1988 1987 1986
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AUTOMOTIVE
Sales $ 91,568 $ 84,407 $ 72,051 $ 81,844 $ 82,879 $ 82,193 $ 71,797 $ 62,868
Operating income/(loss) 1,432 (1,775) (3,769) 316 4,252 6,612 6,256 4,142
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles 1,291 (1,952) (4,052) 275 5,155 7,312 6,499 4,300
Income/(Loss) before cumulative effects of changes
in accounting principles (1) 940 (1,534) (3,186) 99 3,175 4,609 3,767 2,512
Net income/(loss) 940 (8,628) (3,186) 99 3,175 4,609 3,767 2,512
- - - - - - ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES
Revenues $ 16,953 $ 15,725 $ 16,235 $ 15,806 $ 13,267 $ 10,253 $ 8,096 $ 6,826
Income before income taxes and cumulative effects
of changes in accounting principles 2,712 1,825 1,465 1,221 874 1,031 1,385 1,321
Income before cumulative effects of changes in
accounting principles 1,589 1,032 928 761 660 691 858 773
Net income 1,589 1,243 928 761 660 691 858 773
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TOTAL COMPANY
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles $ 4,003 $ (127) $ (2,587) $ 1,495 $ 6,030 $ 8,343 $ 7,885 $ 5,620
Provision/(Credit) for income taxes 1,350 295 (395) 530 2,112 2,999 3,226 2,324
Minority interests