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1
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, 1994
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
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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:
Title of each class on which registered
------------------- -----------------------
6 3/8% Notes due November 5, 2008 New York Stock Exchange
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, 1995, 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.
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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
franchisees 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 97.9% of the dollar
volume of financing done by Ford Credit in 1994 and 97.5% in 1993. More than
84% 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 1994 and 1993. 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 1994 and 1993, United States operations, conducted in all 50 states,
the District of Columbia and Puerto Rico, accounted for 93.2% and 93.8%,
respectively, of the dollar volume of Ford Credit's financing business;
Canadian operations accounted for 5.1% and 4.6%, respectively, of such volume
in these periods. The balance was in Australia and Japan. 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, 1994 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, 1994 filed
with the Securities and Exchange Commission.
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 15 of Notes
to Financial Statements and is incorporated herein by reference.
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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:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
Retail* . . . . . . . . . . . . . . . $60,560.5 $51,210.2 $43,347.9 $37,647.5 $38,660.8
Wholesale . . . . . . . . . . . . . . 15,252.9 11,698.5 10,056.9 11,465.7 12,721.9
Diversified . . . . . . . . . . . . . 2,738.2 2,626.0 2,949.0 4,335.0 4,814.9
Other . . . . . . . . . . . . . . . . 4,263.8 3,681.0 3,376.2 3,441.1 6,405.1
--------- --------- --------- --------- ---------
Total . . . . . . . . . . . . . . . $82,815.4 $69,215.7 $59,730.0 $56,889.3 $62,602.7
========= ========= ========= ========= =========
__________
*Includes net investment in operating leases.
Dollar volume of financing by Ford Credit was as follows during the years
indicated:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
Retail* . . . . . . . . . . . . . . . $ 45,402.5 $40,265.9 $32,302.0 $26,271.7 $25,813.1
Wholesale . . . . . . . . . . . . . . 107,253.0 86,776.8 65,772.9 65,146.6 52,553.2
Diversified . . . . . . . . . . . . . 577.7 73.5 63.0 206.0 614.8
Other . . . . . . . . . . . . . . . . 1,882.7 1,578.3 1,457.1 1,137.8 3,134.9
---------- ---------- --------- --------- ---------
Total . . . . . . . . . . . . . . . $155,115.9 $128,694.5 $99,595.0 $92,762.1 $82,116.0
========== ========== ========= ========= =========
__________
* Includes operating lease volume.
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:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
New . . . . . . . . . . . . . . . . . 1,899 1,799 1,525 1,271 1,302
Used . . . . . . . . . . . . . . . . 690 625 524 441 365
----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . 2,589 2,424 2,049 1,712 1,667
===== ===== ===== ===== =====
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4
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 1994 in the U.S., the average repayment
obligation for new vehicles covered by installment sale contracts purchased by
Ford Credit was $18,319. The corresponding average monthly payment was $365 and
the average original term was 53 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 32% in 1994. 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 754,000 units in 1994.
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
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 1994 were $359 and 28 months compared with $370 and 29 months in 1993.
The average original term of the lease financing extended to leasing
companies and daily rental companies by Ford Credit in 1994 was 38 months and
16 months, respectively. Financing charges in connection with such lease
financing generally are fixed, or floating 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, 1994, 11 leasing companies and daily rental companies each accounted for
more than $10 million of such lease financing, three of which accounted for
$681.7 million, $98.3 million and $48.3 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 1994 and 68 days in 1993.
3
5
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 business 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:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Retail* . . . . . . . . 36.6 38.5% 37.7% 35.2% 31.4%
Wholesale . . . . . . . 81.5 81.4 77.6 74.9 71.0
__________________________
* 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 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, 1994 approximately
22.4% of the outstanding receivables were scheduled to mature within five
years. At December 31, 1994 diversified finance receivables outstanding
represented 3.2% 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 $1,951.3 million at December 31, 1994. 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 1994 fluctuated between $1,091.2 million and $1,376.4 million. At
December 31, 1994, such receivables totaled $1,218.5 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 $1,094.0 million of other
finance receivables at December 31, 1994.
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6
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:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN MILLIONS)
Net losses/(recoveries)
Retail* . . . . . . . . . . . . . $220.2 $212.8 $298.2 $442.4 $495.2
Wholesale . . . . . . . . . . . . 1.3 (3.5) 14.5 40.2 29.7
Diversified . . . . . . . . . . . 1.8 14.1 23.4 24.4 14.3
Other . . . . . . . . . . . . . . 5.4 5.0 6.5 21.9 33.2
------ ------ ------ ------ ------
$228.7 $228.4 $342.6 $528.9 $572.4
====== ====== ====== ====== ======
- ----------------
*Includes net losses on operating leases
Net losses as a percent of average receivables
Retail* . . . . . . . . . . . . . . . 0.38% 0.46% 0.75% 1.18% 1.26%
Total finance receivables* . . . . . 0.30 0.35 0.60 0.92 0.94
Provision for credit losses . . . . . . . $246.5 $270.2 $418.0 $577.9 $655.9
Allowance for credit losses . . . . . . . 915.5 915.5 915.5 825.4 894.9
As percent of net receivables* . . . 1.18% 1.42% 1.66% 1.60% 1.59%
________________________
* 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.
5
7
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:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
Commercial paper
and STBAs(a) . . . . . . . . . . $33,300 $24,506 $21,210 $18,232 $23,371
Other short-term debt(b) . . . . . . 1,065 1,001 1,785 1,642 1,411
Long-term debt (including current
portion) . . . . . . . . . . . . 36,075 33,292 26,961 28,455 26,209
------- ------- ------- ------- -------
Total debt . . . . . . . . . . . $70,440 $58,799 $49,956 $48,329 $50,991
======= ======= ======= ======= =======
Memo:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total support facilities
(billions) as of January 1,
1995-1991, respectively . . . . . $ 22.3 $ 16.9 $13.9 $13.8 $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 $33.2 billion at December 31, 1994,
up $8.7 billion from a year earlier. In 1994, long-term debt placements were
$10.7 billion compared with maturities and early redemptions of $8.0 billion.
Long-term debt placements in 1993 were $12.9 billion. In 1994, Ford Credit also
received $3.1 billion from sales of receivables compared with $2.5 billion in
1993.
Support facilities represent additional sources of funds, if required. At
January 1, 1995, Ford Credit had approximately $21.1 billion of contractually
committed facilities for use in the United States, with various maturity dates
through June 1999. These facilities included $18.2 billion of revolving credit
agreements with banks (which included $5.9 billion of Ford bank lines that may
be used either by Ford or Ford Credit at Ford's option) and $2.9 billion of
agreements to sell retail receivables. At January 1, 1995, all of these U.S.
facilities were unused.
Outside of the United States, an additional $1.2 billion of contractually
committed facilities, with various maturity dates through June 1999, support
borrowing operations in Canada, Australia and Puerto Rico. Canadian
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8
facilities of $717 million included $181 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 $453 million include $177 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, 1995. Substantially all of these facilities were unused at January 1, 1995.
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 of all classes of capital stock and Ford owns the remaining common stock
representing 41.2% of the voting power of all classes of capital stock. The
balance of the capital stock, consisting of preferred stock is held by persons
other than Ford or Ford Credit 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 and 3 of Notes to
Financial Statements. See "Financial Review of Ford Motor Company Results -
1994 Results of Operations - Financial Services Operations" and "Liquidity and
Capital Resources - Financial Services Operations" for a discussion of 1994
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 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.
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The Associates' finance receivables were as follows at the dates indicated
(in millions):
December 31,
-------------------------
1994 1993
--------- ---------
Consumer finance
Residential real estate-secured receivables $12,003 $10,626
Direct installment and credit card receivables 7,200 6,060
Manufactured housing and other
installment receivables 4,864 3,810
------- -------
Total consumer finance receivables 24,067 20,496
Commercial finance
Heavy-duty truck receivables 5,001 4,334
Other industrial equipment receivables 5,877 4,743
------- -------
Total commercial finance receivables 10,878 9,077
------- -------
Gross receivables 34,945 29,573
Unearned finance income (3,769) (3,208)
------- -------
Net finance receivables $31,176 $26,365
======= =======
Allowance for losses on finance receivables $ 944 $ 809
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10
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,
------------------------------
1994 1993 1992
------ ------ ------
NET CREDIT LOSSES
Consumer finance
Amount $ 456 $ 372 $ 383
% of average net receivables 2.33% 2.19% 2.64%
% of receivables liquidated 3.09 3.41 4.57
Commercial finance
Amount $ 8 $ 22 $ 42
% of average net receivables .09% .30% .64%
% of receivables liquidated .08 .26 .61
Total net credit losses
Amount $ 464 $ 394 $ 425
% of average net receivables 1.62% 1.61% 2.02%
% of receivables liquidated 1.84 2.03 2.80
ALLOWANCE FOR LOSSES
Balance at end of period $ 944 $ 809 $ 699
% of net receivables 3.03% 3.07% 3.06%
The following table shows total gross balances contractually 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,
1994 $443 1.84% $31 .28% $474 1.36%
1993 363 1.77 48 .53 411 1.39
An analysis of The Associates' allowance for losses on finance receivables
is as follows for the years indicated (in millions):
1994 1993 1992
------ ------- -------
Beginning balance $ 809 $ 699 $ 591
Additions 577 477 513
Recoveries 101 88 72
Losses (565) (482) (497)
Other adjustments, primarily
reserves of acquired businesses 22 27 20
---- ---- ----
Ending balance $ 944 $ 809 $ 699
==== ==== ====
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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 deferred annuities which are sold primarily through
banks and brokerage firms. The obligations of Ford Life, including annuities,
are guaranteed by American Road. In addition, American Road has agreed to
maintain Ford Life's surplus and capital at levels necessary to meet applicable
insurance regulations.
The following table summarizes the revenues and net income of American
Road (in millions):
Premiums Investment Annuities and Net
Earned Income Other Income Total Income
------ ------ ------------ ----- ------
1994 $376 $ 41 $159 $576 $ 58(a)
1993 465 141 130 736 79
1992 519 175 42 736 63(b)
1991 706 211 2 919 126
1990 764 149 4 917 103
- ------------
(a) Includes an increase of $26 million for nonrecurring recovery of income
taxes in 1994 from prior years.
(b) Includes an increase of $16 million resulting from the cumulative effect
of adopting new accounting rules on income taxes.
The detail of premiums earned by American Road was as follows (in millions):
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Extended service contracts $148 $211 $217 $318 $355
Physical damage 119 139 176 227 228
Credit life and disability 109 115 126 161 181
---- ---- ---- ---- ----
Total $376 $465 $519 $706 $764
==== ==== ==== ==== ====
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. 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 senior and subordinated 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,
--------------------------------
1994 1993 1992
-------- -------- --------
Total earning assets
Investments in finance leases - net $2,435 $2,364 $2,075
Investments in operating leases - net 712 695 558
Investments in leveraged leases - net 266 191 4
Notes receivable 825 721 502
Investment in securities 700 563 329
Inventory held for sale or lease 87 55 97
Investments in associated companies 18 18 20
------ ------ ------
Total $5,043 $4,607 $3,585
====== ====== ======
Allowance for doubtful accounts
Beginning balance $ 55 $ 40 $ 30
Additions 8 25 19
Deductions (5) (10) (9)
------- ------ ------
Ending balance $ 58 $ 55 $ 40
======= ====== ======
Allowance for doubtful accounts
as a percent of earning assets 1.2% 1.2% 1.1%
Total balance over 90 days past due
at year end $ 37 $ 44 $ 49
Percent of earning assets 0.7% 1.0% 1.4%
FORD CREDIT EMPLOYEE RELATIONS
At December 31, 1994, Ford Credit and its subsidiaries had 9,399
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 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,
expires at the end of 1998.
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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 direct
subsidiaries, the activities of which include financing operations, vehicle and
equipment leasing and insurance operations: Ford Credit, Ford Credit Europe plc
("Ford Credit Europe"), Ford Holdings, The Hertz Corporation ("Hertz") and
Granite Management Corporation (formerly First Nationwide Financial
Corporation) ("Granite"). Ford Holdings is a holding company that owns
primarily The Associates, USL Capital and American Road. In addition, there are
a number of international affiliates not listed above that are consolidated in
the total Financial Services results, but are managed by either Ford Credit
(which manages Ford Credit Europe, as well as other international affiliates),
The Associates or USL Capital.
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.
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, as well as by the
timing of new model introductions and capacity limitations. 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.
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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.
Ford has operations in over 30 countries and sells vehicles in over 200
markets. These businesses frequently have foreign currency exposures when they
buy, sell, and finance in currencies other than their local currencies. Ford's
primary foreign currency exposures, in terms of revenue and income, are in the
German Mark, Japanese Yen, Italian Lira and French Franc. The effect of
changes in exchange rates on income depends largely on the relationship between
revenues and costs incurred in the local currency versus other currencies.
Historically, the effect of changes in exchange rates on Ford's earnings
generally has been small relative to other factors that also affect earnings
(such as unit sales).
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
------------------------------------
1994 1993 1992 1991 1990
---- ---- ----- ---- ----
Cars........................................ 9.0 8.5 8.2 8.2 9.3
Trucks...................................... 6.4 5.7 4.9 4.3 4.8
---- ---- ---- ---- ----
Total....................................... 15.4 14.2 13.1 12.5 14.1
==== ==== ==== ==== ====
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:
U.S. Industry Car Sales by Segment
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Small........................... 31.5% 28.8% 29.3% 29.0% 28.9%
Middle.......................... 48.9 52.1 51.7 51.4 51.8
Large........................... 8.2 8.5 9.2 9.6 9.1
Luxury.......................... 11.4 10.6 9.8 10.0 10.2
----- ----- ----- ----- -----
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
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Small........................... 35.0% 29.0% 26.6% 31.2% 31.1%
Middle.......................... 45.3 51.7 53.4 47.3 44.8
Large........................... 10.3 9.9 10.5 10.1 11.2
Luxury.......................... 9.4 9.4 9.5 11.4 12.9
----- ----- ----- ----- -----
Total Ford U.S. Car Sales....... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
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As shown in the first table above, the percentages of industry sales in
the various car segments have remained relatively stable since 1990. As shown
in the second table above, Ford's proportion of sales in 1994 has increased in
the small segment and decreased in the middle segment, reflecting lower sales
of Tempo and Topaz models, which were discontinued in 1994.
U.S. Industry Truck Sales by Segment
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Compact pickup.................. 18.5% 18.9% 20.8% 22.4% 22.9%
Compact van/utility............. 40.4 41.1 40.1 38.8 34.7
Full-Size pickup................ 26.3 24.8 24.2 25.1 26.0
Full-Size van/utility........... 9.9 10.6 10.6 9.4 11.4
Medium/Heavy.................... 4.9 4.6 4.3 4.3 5.0
----- ----- ----- ----- -----
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
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Compact pickup.................. 17.8% 19.7% 17.0% 18.5% 19.8%
Compact van/utility............. 33.5 32.6 33.5 31.5 25.3
Full-Size pickup................ 33.4 32.6 33.6 35.8 36.8
Full-Size van/utility........... 12.5 12.4 13.1 11.7 14.9
Medium/Heavy.................... 2.8 2.7 2.8 2.5 3.2
----- ----- ----- ----- -----
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 1990, while the full-size
segments (pickups and van/utility) have declined slightly as a percentage of
total truck sales.
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
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford........................ 21.8% 22.3% 21.8% 20.1% 21.1%
General Motors.............. 34.0 34.1 34.6 35.6 35.6
Chrysler.................... 9.0 9.8 8.3 8.6 9.2
----- ----- ----- ----- -----
Total U.S. Manufacturers.. 64.8 66.2 64.7 64.3 65.9
Foreign-Based Manufacturers**
Japanese.................... 29.6 29.1 30.1 30.2 27.9
All Other................... 5.6 4.7 5.2 5.5 6.2
----- ----- ----- ----- -----
Total Foreign-Based
Manufacturer 35.2 33.8 35.3 35.7 34.1
----- ----- ----- ----- -----
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
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford........................ 30.1% 30.5% 29.7% 28.9% 29.3%
General Motors.............. 30.9 31.4 32.2 32.9 34.3
Chrysler.................... 21.7 21.4 21.1 18.5 17.3
Navistar International...... 1.3 1.3 1.3 1.4 1.5
All Other................... 1.8 1.6 1.4 1.3 1.4
----- ----- ----- ----- -----
Total U.S. Manufacturers.. 85.8 86.2 85.7 83.0 83.8
Foreign-Based Manufacturers**
Japanese.................... 13.5 13.2 13.8 16.5 15.6
All Other................... 0.7 0.6 0.5 0.5 0.6
----- ----- ----- ----- -----
Total Foreign-Based
Manufacturers 14.2 13.8 14.3 17.0 16.2
----- ----- ----- ----- -----
Total U.S. Truck Retail
Deliveries................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
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U.S. Combined Car and Truck Market Shares*
------------------------------------------
Years Ended December 31
------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
U.S. Manufacturers (Including Imports)
Ford........................ 25.2% 25.5% 24.7% 23.2% 23.9%
General Motors.............. 32.7 33.1 33.7 34.6 35.2
Chrysler.................... 14.3 14.4 13.1 12.0 12.0
Navistar International...... 0.5 0.5 0.5 0.5 0.5
All Other................... 0.8 0.7 0.5 0.5 0.5
----- ----- ----- ----- -----
Total U.S. Manufacturers.. 73.5 74.2 72.5 70.8 72.1
Foreign-Based Manufacturers**
Japanese.................... 22.9 22.8 24.0 25.5 23.7
All Other................... 3.6 3.0 3.5 3.7 4.2
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers 26.5 25.8 27.5 29.2 27.9
----- ----- ----- ----- -----
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.
** 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 23.7% in 1990 to 25.5% in
1991, but declined to 22.9% in 1994, 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. In response to the strengthening of the Japanese yen to the
U.S. dollar, Japanese manufacturers are continuing to add production capacity
(particularly in the profitable truck segments) in the United States.
Production in the U.S. by Japanese transplants reached about 2.4 million units
in 1994 and is expected to increase gradually over the next several years.
Marketing Incentives and Fleet Sales. As a result of intense competition
from new product offerings (from both domestic and foreign manufacturers) 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). Marketing incentives
are particularly prevalent during periods of economic downturns, when excess
capacity in the industry tends to exist.
Ford's U.S. and Canada marketing costs as a percentage of gross sales
revenue for each of 1994, 1993 and 1992 were: 8.5%, 9.9% and 10.9%,
respectively. During the 1983-1988 period, such costs as a percentage of sales
revenue were in the 4% to 7% range. In 1991, marketing costs peaked at 14% of
gross revenues. "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.
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Sales by Ford to fleet customers were as follows for the years indicated:
Ford Fleet Sales
---------------------------------------------
Years Ended December 31
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Units Sold..................... 924,000 881,000 882,000 782,000 821,000
Percent of Ford's
Total Car and Truck Sales.... 24% 25% 28% 27% 24%
Fleet sales generally are less profitable than retail sales and sales to daily
rental companies generally are less profitable than sales to other fleet
purchasers. The mix between sales to daily rental companies and other fleet
sales has been about evenly split in recent years.
Warranty Coverages. 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", the Federal Clean Air Act requires a useful
life of 10 years or 100,000 miles (whichever occurs first) for emissions
equipment on vehicles sold in the U.S. 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.
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 Japanese manufacturers, which together had a European car
market share of 11% for 1994, increase their production capacity in Europe and
import restrictions on Japanese built-up vehicles gradually are removed in
total by December 31, 1999.
In 1994, European car industry sales were 11.8 million cars, up 6% from
1993 levels. Truck sales were 1.4 million units, up 6% from 1993 levels.
Ford's European car share for 1994 was 11.8%, compared with 11.5% for 1993, and
its European truck share for 1994 was 14.7%, compared with 14.6% for 1993.
For Ford, Great Britain and Germany are the most important markets within
Europe, although the Southern European countries are becoming increasingly
significant. Any adverse change in the British or German market has a
significant effect on total automotive profits. For 1994 compared with 1993,
total industry sales were up 8% in Great Britain and unchanged 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. In 1994, industry sales of cars and trucks in Canada were up 5% from
1993 levels, slightly less than the increase of 8% in the U.S. over the same
period. Mexico has been a growing market. In 1994, industry sales were up 2%
to 619,000 units. However, substantial devaluation of the Mexican peso in late
1994 created a high level of uncertainty regarding economic activity in Mexico.
Although the long-term outlook remains positive, industry volume
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is expected to be down substantially in 1995. Ongoing financial effects of the
devaluation on Ford are expected to be unfavorable; the magnitude of these will
be dependent in large part upon overall economic conditions and the extent to
which the Mexican government permits price increases.
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. In 1994, Ford had 28,448 export sales to Mexico,
compared with none in 1993.
South 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 1994, Ford's
profitability in the region improved compared with 1993, primarily reflecting
strong results in Brazil and Argentina. Autolatina (Ford's joint venture with
Volkswagen AG in Brazil and Argentina) remained the market leader in Brazil.
Industry sales in Brazil and Argentina were at record levels in 1994. In
Brazil, the economic plan implemented in late 1993 has had a stabilizing effect
on the Brazilian economy and has reduced inflation, but the ongoing success of
the plan remains uncertain. In addition, duties on vehicles imported into
Brazil have declined progressively from 85% in 1990 to 32% in 1995. As a
result, imports have been and are expected to continue to gain a progressively
larger share of the car market in Brazil.
Ford and Volkswagen have agreed on a separation process leading toward
dissolution of Autolatina in Brazil and Argentina by year-end 1995. See
"Financial Review of Ford Motor Company Results" for more information
concerning this plan for dissolution. Ford's future results in the region
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, Taiwan and Japan are
the principal markets for Ford products. In 1994, Ford was the car market
share leader in Australia with a 22.9% car market share and a 20.3% combined
car and truck market share. In Taiwan (where sales of built-up vehicles
manufactured in Japan are prohibited), Ford had a combined car and truck market
share in 1994 of 16.3%. Ford's principal competition in the Asia-Pacific
region has been the Japanese manufacturers. It 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 believes that China is strategically
important to Ford's long-term success in the Asia-Pacific region. Ford China
Operations was established in 1994 to coordinate all of Ford's activities in
China. In 1994, Ford invested in automotive component manufacturing joint
ventures in China (automotive interior trim, automotive glass and automotive
electronic/audio components) and purchased a 6.5% equity interest in Mahindra
and Mahindra Limited, an automotive and tractor manufacturer in India. Ford is
continuing to investigate additional automotive component manufacturing and
vehicle assembly opportunities in those markets as well as others. In
addition, Ford is expanding the number of right-hand-drive vehicles it will
offer in Japan, including the Probe, Explorer and Taurus models.
Ford's relationship with Mazda Motor Corporation, in which it has held a
25% ownership interest since 1979, has been a key element of Ford's presence in
the Asia-Pacific region. Recent management appointments by Mazda of
Ford-nominated executives have been made to improve coordination of business
and product plans in the Asia-Pacific region.
Africa. In late 1994, Ford re-entered the South African market by
acquiring a 45% equity interest in South African Motor Corporation (Pty.)
Limited ("SAMCOR"). SAMCOR is an assembler of Ford and other manufacturers'
vehicles in South Africa.
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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.
Ford Credit Europe's finance receivables and investments in operating
leases were as follows at the dates indicated (in millions):
December 31,
--------------------------
1994 1993
--------- ---------
Finance receivables
Retail $ 9,356 $ 7,143
Wholesale 4,615 3,724
Other 234 100
------- -------
Total finance receivables 14,205 10,967
Loan origination costs, net 85 63
Unearned income (1,159) (955)
Allowance for credit losses (162) (89)
------- -------
Finance receivables, net $12,969 $ 9,986
======= =======
Investments in operating leases $ 1,010 $ 818
Accumulated depreciation (231) (212)
Allowance for credit losses (7) (1)
------- -------
Investments in operating
leases, net $ 772 $ 605
======= =======
An analysis of Ford Credit Europe's allowance for credit losses in
finance receivables and operating leases is as follows for the years indicated
(in millions):
1994 1993 1992
---- ---- ----
Beginning balance $ 90 $123 $145
Additions 50 46 62
Net losses (66) (72) (51)
Other changes 95 (7) (33)
---- ---- ----
Ending balance $169 $ 90 $123
==== ==== ====
The Hertz Corporation
On March 8, 1994, Ford purchased from Commerzbank Aktiengellschaft, a
German bank, additional shares of common stock of Hertz aggregating 5% of the
total outstanding voting stock, thereby bringing
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Ford's ownership of the total voting stock of Hertz to 54% from 49%. On April
29, 1994, Ford acquired 20% of Hertz' common stock from Park Ridge Limited
Partnership, and Hertz redeemed the common stock (26%) and preferred stock of
Hertz owned by AB Volvo for $145 million. These transactions resulted in Hertz
becoming a wholly owned subsidiary of Ford. In addition, a $150 million
subordinated promissory note of Hertz held by Ford Credit was exchanged for
$150 million of preferred stock of Hertz. Because the Company was a principal
shareholder of Hertz prior to these transactions, there was no significant
change in the relationship between Ford and Hertz. Prior to these
transactions, Hertz had been accounted for on an equity basis as part of the
Automotive segment. Hertz' operating results, assets, liabilities and cash
flows were consolidated as part of the Financial Services segment effective
March 31, 1994.
Hertz was incorporated in 1967 and is a successor to corporations which were
engaged in the automobile and truck leasing and rental business since 1924.
Hertz' affiliates, independent licensees and associates are engaged principally
in the business of renting automobiles and renting and leasing trucks, without
drivers, in the U.S. and in over 150 foreign countries. Collectively, they
operate what Hertz believes is the largest rent-a-car business in the world and
one of the largest one-way truck rental businesses in the U.S. In addition,
through its wholly owned subsidiary, Hertz Equipment Rental Corporation, Hertz
operates what it believes to be the largest business in the U.S. involving the
rental, lease and sale of construction and materials handling equipment. Other
activities of Hertz include the sale of its used vehicles, the leasing of
automobiles, and providing claim management and telecommunications services in
the U.S.
Revenue earning equipment is used in the rental of vehicles and construction
equipment and the leasing of vehicles under closed-end leases where the
disposition of the vehicles upon termination of the lease is for the account of
Hertz.
The cost and accumulated depreciation of revenue earning equipment were as
follows for the nine months ended December 31, 1994 (in millions):
Revenue Earning Equipment
----------------------------------------
Accumulated
Cost Depreciation Net Book Value
--------- ------------ --------------
Balance, March 31, 1994 $ 4,211 $ 441 $ 3,770
Additions 5,002 554 4,448
Retirements and other (4,402) (444) (3,958)
------- ----- -------
Balance, December 31, 1994 $ 4,811 $ 551 $ 4,260
======= ===== =======
Granite Management Corporation
Granite, 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.
Until September 30, 1994, the principal asset of Granite was the capital
stock of First Nationwide Bank, A Federal Savings Bank, since known as Granite
Savings Bank (the "Bank"). On September 30, 1994, substantially all of the
assets of the Bank were sold to, and substantially all of the liabilities of
the Bank were assumed by, First Madison Bank, FSB ("First Madison").
The stated sale price for the Bank was $1.1 billion, slightly higher than
tangible net book value at December 31, 1993. In total, Ford retained, through
Granite, approximately $1.2 billion of commercial real estate and other assets
as of the closing date. These retained assets generally are of lower quality
than those included in the sale. In addition, for the three-year period ending
in November 1996, First Madison has the option of requiring Granite to
repurchase up to $500 million of the assets included in the sale that become
nonperforming. This repurchase obligation is guaranteed by Ford.
The sale of the Bank resulted in an after-tax charge of $440 million
against Ford's 1994 first quarter earnings, reflecting the nonrecovery of
goodwill and reserves for estimated losses on the assets retained
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and to be repurchased by Granite. These assets will be liquidated over time as
market conditions permit. Historically, Granite (including the Bank) has not
had a significant effect on Ford's operating results.
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, Europe and
elsewhere. In addition, manufacturing and assembly facilities in the United
States, Europe and elsewhere 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.
Mobile Source Emissions Control -- United States Requirements. As amended
in November 1990, the Federal Clean Air Act (the "Clean Air Act" or the "Act")
imposes 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. In addition, the Act requires that emissions equipment for
vehicles sold in the U.S. have a minimum "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 alternate fuel vehicles in each of the 1996,
1997 and 1998 model years and its pro rata share of 300,000 alternate fuel
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 presently
in effect will become effective as early as the 2004 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 significantly more stringent than those
prescribed by the Act for the corresponding periods of time. These California
standards are intended to 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 an electric
vehicle that either meets customer expectations or is commercially viable.
Such vehicles likely will run on lead-acid batteries with a limited range (well
under 100 miles per recharge in
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optimal conditions), have a long recharge time (up to 8 hours), lack
substantial infrastructure support (home and public facilities for recharging)
and have a significant cost premium over conventional vehicles. 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 nonelectric vehicles.
As part of its State Implementation Plan ("SIP"), California is
considering more stringent standards for medium duty trucks. Adoption of such
standards could require Ford to accelerate implementation of costly and
unproven technology and incur additional recall and warranty expenses or
preclude the sale in California of some medium duty trucks. Further action by
California on SIP provisions could similarly impact light duty vehicles and
heavy trucks.
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 which do not meet national ambient air
quality standards 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. A group of twelve
northeastern states and the District of Columbia, the Ozone Transport
Commission (the "OTC"), organized under provisions of the Act, petitioned the
EPA to require California LEV standards in that region. There are major
problems with transferring California standards to the Northeast -- many
dealers sell vehicles in neighboring states and the range of present ZEVs is
greatly diminished (by more than 50 percent) in cold weather. Also, the
Northeast states have refused to adopt the California reformulated (i.e.,
cleaner burning) gasoline requirement -- the absence of which makes the task of
meeting standards even more difficult. California LEV standards (including the
ZEV requirements) already have been adopted in New York and Massachusetts.
To mitigate these problems, the automobile industry proposed to
voluntarily meet emissions standards nationwide that are more stringent than
those required by the Act. The proposal was based on using technology
developed to meet the California LEV standards, but adjusting for the absence
of the California reformulated gasoline and ZEV requirements. While there was
a general receptivity to the industry's proposal, some of the states are
insisting on either a ZEV mandate or a guarantee that "advanced technology"
vehicles will be sold in their states.
In December 1994, the EPA granted the OTC petition to impose California
LEV standards, while at the same time urging states and manufacturers to agree
on a national approach which the EPA described as "environmentally superior" to
the California standards. The states will have until February 1996 to decide
between the two approaches.
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 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.
European Requirements. The European Union has established standards
which, in many cases, require motor vehicle emissions control equipment similar
to that used in the U.S. These standards 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. New more stringent
vehicle emissions standards
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were established by the European Union in March 1994. These new standards
apply to new vehicle homologations beginning January 1, 1996 and to new vehicle
registrations beginning January 1, 1997 and are of generally equivalent
numerical stringency to 1994 model year U.S. standards. The European Commission
also is examining proposals for more stringent emissions standards and
enforcement procedures (the "Stage III Directive"). It is proposed that the
Stage III Directive would become effective beginning in 2000 for new vehicle
homologations and 2001 for new vehicle registrations. European Union member
countries are 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. The
Safety Act prohibits 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. Compliance with many safety standards is
costly because doing so tends 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 learns that
motor vehicles manufactured by it contain a defect which the manufacturer
decides in good faith is 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.
Canada, the European Union, individual member countries within the European
Union and other countries in Europe, Latin America and the Asia- Pacific
markets 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.
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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 has established CAFE standards
applicable to light trucks (under 8,500 lbs. GVW) for the following model years
(on a combined two-wheel drive/four-wheel drive basis): 1995 - 20.6 mpg, 1996
- - 20.7 mpg and 1997 - 20.7 mpg.
Although Ford expects to be able to comply with the foregoing CAFE
standards, 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 ("CCAP") 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
nonregulatory measures. The Safety Administration is considering significant
increases in the truck CAFE standard for the 1988 - 2006 model years that could
be as high as 28 mpg by the 2006 model year. If the CCAP goals are partially
or fully implemented through increases in the CAFE standard, or if significant
increases in car or light truck CAFE standards for subsequent model years
otherwise are imposed, 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.
The European Union and its member countries also are examining measures to
reduce CO2 emissions, some of which may affect the automotive industry. These
may include proposals: to limit CO2 exhaust emissions for vehicles to 120g/km
by 2005 (which translates into fuel economy requirements of approximately
5L/100 km for gasoline engines and 4.5L/100 km for diesel engines); to improve
fuel economy for vehicles by as much as 15% over the 1995-2005 period and/or by
as much as 25% in one or more markets over the 1990-2005 period; and for member
countries to increase fuel taxes. Some of these proposals, if adopted, would
result in Ford having to take costly actions that could have substantial
adverse effects on its sales volume and profits.
The U.S. 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.
Stationary Source Air Pollution Control -- Pursuant to the Clean Air Act
the states are required to amend their implementation plans to require more
stringent limitations on the quantity of pollutants which may be emitted into
the atmosphere, and other controls, to achieve national ambient air quality
standards established by the EPA. In addition, the Act requires reduced
emissions of substances that are classified as hazardous or that contribute to
acid deposition, imposes comprehensive permit requirements for manufacturing
facilities in addition to those required by various states, and expands federal
authority to impose severe penalties and criminal sanctions. The Act requires
the EPA and the states to adopt regulations, and allows states to adopt
standards more stringent than those required by the Act. The
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costs to comply with these provisions of the Act cannot presently be quantified
but could be substantial. In addition, the enormous complexity and
time-consuming nature of the comprehensive federal-state permit program
provided for by the Act may reduce operational flexibility and may delay or
prevent future competitive upgrading of Ford's production facilities in the
United States.
Water Pollution Control -- Pursuant to the Federal Clean Water Act (the
"Clean Water Act"), Ford has been issued National Pollutant Discharge
Elimination System permits which establish certain pollution control standards
for its manufacturing facilities that discharge wastewater into public waters.
Ford, among many other companies, also is required to comply with certain
standards and obtain permits relating to discharges into municipal sewerage
systems. The EPA also requires management standards and, in some cases,
permits for the discharge of storm water. The standards under the Clean Water
Act are established by the EPA and by the state where a facility is located.
Many states have requirements that go beyond those established under the Clean
Water Act. These various requirements may necessitate the addition of costly
control equipment.
The EPA recently issued proposed regulations, pursuant to the Great Lakes
Critical Programs Act of 1990, that would require more restrictive standards
for discharges into waters that impact the Great Lakes. Ford and many others
have expressed opposition to these proposed regulations which, if adopted,
could require the addition of costly control equipment.
Hazardous Waste Control -- Pursuant to the Federal Resource Conservation
and Recovery Act ("RCRA"), the EPA has issued regulations establishing certain
procedures and standards for persons who generate, transport, treat, store, or
dispose of hazardous wastes. These regulations also require permits for
treatment, storage, and disposal facilities and corrective action for prior
releases at sites where permits are issued. The EPA has delegated permit
authority to states with programs equivalent to RCRA, and states may adopt even
more extensive requirements. The Federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (the "Superfund Act"),
requires disclosure of certain releases from Ford facilities into the
environment, creates potential liability for remediation costs at sites where
Ford waste was disposed and for damage to natural resources resulting from a
release, and provides for citizens' suits for failure to comply with final
requirements of orders or regulations. A number of states have enacted
separate state laws of this type. In addition, under the Federal Toxic
Substances Control Act ("TSCA"), the EPA evaluates environmental and health
effects of existing chemicals and new substances. Pursuant to TSCA, the EPA
has banned production of polychlorinated biphenyls and regulates their use in
transformers, capacitors and other equipment that may be located at Ford's
facilities.
European Stationary Source Environmental Control -- The European Union
(now including Finland, Sweden and Austria) by Directives and Regulations, and
individual member countries by legislation and regulations, impose requirements
on waste and hazardous wastes, incineration, packaging, landfill, soil
pollution, integrated pollution control, air emissions standards, import/export
and use of dangerous substances, air and water quality standards, noise,
environmental management systems, energy efficiency, emissions reporting, and
planning and permitting. Additional or more stringent requirements (including
tax measures and civil liability schemes for cleaning polluted sites) are
likely to be adopted in the future. The cost of complying with these standards
could be substantial.
Climate Change Convention -- In response to the requirements of the United
Nations Climate Change Convention held in Brazil in 1992, national governments
are examining ways to reduce potential global warming risks. These actions may
restrict the use of certain chemicals that are used as refrigerants (in
vehicles and buildings) and cleaning solvents, such as R-134a.
Worldwide Regulatory Compatibility -- Ford's efforts to develop new
markets and increase imports are impeded by incompatible automotive safety,
environmental and other product regulatory standards.
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At present, differing standards either restrict the vehicles Ford can export to
serve new markets or increase the cost and complexity to do so. Also, vehicle
safety is a priority with customers in North America, Europe and key
Asia-Pacific markets and better global understanding of real-world accidents
and injuries is a competitive necessity.
The "traditional" and developed automotive markets have developed their
own bodies of regulation. In Europe, two sets of vehicle regulations exist:
1) European Union directives, which must be accepted by the member countries;
and 2) United Nations Economic Commission for Europe (ECE) regulations, which
may be accepted by the member countries. Although European Union directives
and ECE regulations generally are aligned, some variations exist in the manner
in which they are interpreted and enforced by each member country. The United
States and Canada use a substantially different regulatory system, and Japan
and Australia use a hybrid of the ECE system.
The ECE regulations are generally recognized outside the above markets.
Countries in the process of defining motor vehicle regulations, such as China,
India, Malaysia and Russia, are adopting ECE (versus U.S.) regulations. As a
result, U.S.-built vehicles have to be modified for these markets.
The U.S. and Europe have shown limited willingness to accept each other's
regulations, and negotiations for acceptance of U.S. regulations as being
functionally equivalent to the ECE standards in emerging markets have had
limited success.
Pollution Control Costs -- During the period 1995 through 1999, Ford
expects that approximately $800 million will be spent on its North American and
European facilities to comply with air and water pollution and hazardous waste
control standards which now are in effect or are scheduled to come into effect.
Of this total, Ford estimates that approximately $170 million will be spent in
1995 and $220 million will be spent in 1996.
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, employment related matters, 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 -- 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 $1 billion at December 31, 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
$911 million at December 31, 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
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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
$214 million at December 31, 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.
Environmental Matters -- Ford has received a notice from a government
environmental enforcement agency concerning a matter which potentially involves
monetary sanctions exceeding $100,000. The agency believes a Ford facility may
have violated regulations relating to the management of certain of the
facility's wastes.
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.
In 1992, Ford was sued in federal court in Nevada by an individual
patent owner seeking damages and an injunction for alleged infringement of four
U.S. patents characterized by the individual as covering machine vision
inspection technologies, including bar code reading. Ford filed a declaratory
judgment action in the same court to have those patents and several other
patents directed to machine vision and laser uses declared invalid,
unenforceable and not infringed. The individual counterclaimed, alleging
infringement of the patents added by Ford and several additional patents. 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.
Currently pending against Ford are three purported class action lawsuits
that allege defects in the paint processes used with respect to certain
vehicles manufactured by Ford. One lawsuit, pending in Texas state court, is
limited to Texas purchasers who allegedly experienced paint chipping or
peeling. The other two lawsuits (one pending in federal court in Louisiana,
and one pending in federal court in Alabama) are nationwide in scope and also
allege defects claimed to result in paint chipping and peeling.
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All three lawsuits appear to be focusing on vehicles painted with high-build
electrocoat systems and seek unspecified compensatory and punitive damages and
unspecified injunctive relief. Cumulatively, the three lawsuits apparently
cover certain F-Series/Bronco, Ranger/Bronco II and Mustang vehicles for
several model years beginning in 1984. If the plaintiffs were to prevail in
these lawsuits, Ford could be required to pay substantial 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. A settlement has been reached
in each of these matters, subject to final court approval.
The Federal Trade Commission and the Department of Justice have advised
Ford that they are investigating the retail vehicle financing credit practices
of Ford and Ford Credit for compliance with the Equal Credit Opportunity Act
and Regulation B thereunder.
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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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 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
AUTOMOTIVE
Sales $107,137 $91,568 $84,407 $72,051 $81,844
Operating income/(loss) 5,826 1,432 (1,775) (3,769) 316
Income/(Loss) before income taxes and cumulative
effects of changes in accounting principles 5,997 1,291 (1,952) (4,052) 275
Income/(Loss) before cumulative effects of
changes in accounting principles (1) 3,824 940 (1,534) (3,186) 99
Net income/(loss) 3,824 940 (8,628) (3,186) 99
FINANCIAL SERVICES
Revenues $ 21,302 $16,953 $15,725 $16,235 $15,806
Income before income taxes and cumulative effects
of changes in accounting principles 2,792 2,712 1,825 1,465 1,221
Income before cumulative effects of
changes in accounting principles 1,484 1,589 1,032 928 761
Net income 1,484 1,589 1,243 928 761
TOTAL COMPANY
Income/(Loss) before income taxes and cumulative