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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(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, 1995, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM___________________ TO _________________
COMMISSION FILE NUMBER 1-6368
FORD MOTOR CREDIT COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(State of incorporation)
THE AMERICAN ROAD, DEARBORN, MICHIGAN
(Address of principal executive offices)
38-1612444
(I.R.S. employer identification no.)
48121
(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
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6 3/8% Notes due November 5, 2008
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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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 29, 1996, the registrant had outstanding 250,000 shares of
Common Stock. No voting stock of the registrant is held by non-affiliates of the
registrant.
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 an indirect 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. and
Canada to other vehicle dealers. Vehicle financing accounted for 97.5% of the
dollar volume of financing done by Ford Credit in 1995 and 97.9% in 1994. 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 22% of the dollar
volume of retail vehicle financing done by Ford Credit in 1995 and 19% in 1994.
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 1995 and 1994, United States operations, conducted in all 50 states, the
District of Columbia and Puerto Rico, accounted for 93.4% and 93.2%,
respectively, of the dollar volume of Ford Credit's financing business; Canadian
operations accounted for 4.8% and 5.1%, respectively, of such volume in these
periods. The balance was in Australia, Japan and Mexico. 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. At
December 31, 1995, 55% of the common stock of Ford Holdings was owned by Ford
and 45% was owned by Ford Credit. See, "Business of Ford -- Financial Services
Operations -- Ford Holdings, Inc. and Ford FSG, Inc." for a discussion of the
repurchase in February 1996 by Ford Holdings of substantially all of the Ford
Holdings common stock owned by Ford Credit and the expected contribution of
American Road common stock to Ford Credit.
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, 1995 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:
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN MILLIONS)
Retail*............................. $68,584.0 $60,560.5 $51,210.2 $43,347.9 $37,647.5
Wholesale........................... 16,506.9 15,252.9 11,698.5 10,056.9 11,465.7
Diversified......................... 2,736.8 2,738.2 2,626.0 2,949.0 4,335.0
Other............................... 4,630.6 4,263.8 3,681.0 3,376.2 3,441.1
--------- --------- --------- --------- ---------
Total.......................... $92,458.3 $82,815.4 $69,215.7 $59,730.0 $56,889.3
========= ========= ========= ========= =========
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* Includes net investment in operating leases.
Dollar volume of financing by Ford Credit was as follows during the years
indicated:
1995 1994 1993 1992 1991
---------- ---------- ---------- --------- ---------
(IN MILLIONS)
Retail*.............................. $ 51,019.5 $ 45,402.5 $ 40,265.9 $32,302.0 $26,271.7
Wholesale............................ 110,220.9 107,253.0 86,776.8 65,772.9 65,146.6
Diversified.......................... 537.6 577.7 73.5 63.0 206.0
Other................................ 2,057.4 1,882.7 1,578.3 1,457.1 1,137.8
---------- ---------- ---------- --------- ---------
Total........................... $163,835.4 $155,115.9 $128,694.5 $99,595.0 $92,762.1
========== ========== ========== ========= =========
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* 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:
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
(IN THOUSANDS)
New...................................................... 1,961 1,899 1,799 1,525 1,271
Used..................................................... 774 690 625 524 441
----- ----- ----- ----- -----
Total............................................... 2,735 2,589 2,424 2,049 1,712
===== ===== ===== ===== =====
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. In the U.S., the average repayment obligation for new
vehicles covered by installment sale contracts purchased by Ford Credit in 1995
was $19,743. The corresponding average monthly payment was $355 and the average
original term was 55 months.
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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 for the same vehicle. Since 1991, retail lease financing has become a
larger percentage of Ford Credit's total retail financing dollar volume,
increasing from 17% in 1991 to 35% in 1995. The number of new and used vehicles
for which Ford Credit provided retail lease financing increased from
approximately 228,000 units in 1991 to approximately 815,000 units in 1995.
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 48 months with a 24 month term being by
far the most popular. The average monthly payment and the average original term
of new U.S. retail lease contracts purchased by Ford Credit in 1995 were $368
and 26 months compared with $359 and 28 months in 1994.
The average original term of the lease financing extended to leasing
companies and daily rental companies by Ford Credit in 1995 was 30 months and 15
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, 1995, 26 leasing
companies and daily rental companies each accounted for more than $10 million of
such lease financing, three of which accounted for $589 million, $103 million
and $55 million of such lease financing, respectively.
Wholesale. Wholesale financing consists of loans, under approved lines of
credit, to dealers to assist them in carrying inventories of new and used
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 77 days in 1995
and 68 days in 1994.
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 financing are 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:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Retail*.......................... 36.9% 36.6% 38.5% 37.7% 35.2%
Wholesale........................ 79.7 81.5 81.4 77.6 74.9
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* As a percentage of total sales and leases, including cash sales
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The general increase in the percentage of new Ford and Lincoln-Mercury cars
and trucks sold at wholesale in the United States since 1991 financed by Ford
Credit reflects competitive marketing programs and less competition.
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. Diversified receivables outstanding at December 31, 1995 totaled $2,736.8
million. 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, 1995 approximately
23.9% of the outstanding receivables were scheduled to mature within five years.
At December 31, 1995 diversified finance receivables outstanding represented
3.0% 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 $2,097.0 million at December 31, 1995. 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 1995
fluctuated between $1,185.2 million and $1,334.8 million. At December 31, 1995,
such receivables totaled $1,288.6 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 $1,245.0 million of other finance receivables at
December 31, 1995.
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:
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS)
Net losses/(recoveries)
Retail*.................................. $376.7 $220.2 $212.8 $298.2 $442.4
Wholesale................................ 7.9 1.3 (3.5) 14.5 40.2
Diversified.............................. 4.8 1.8 14.1 23.4 24.4
Other.................................... 4.5 5.4 5.0 6.5 21.9
------ ------ ------ ------ ------
$393.9 $228.7 $228.4 $342.6 $528.9
====== ====== ====== ====== ======
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* Includes net losses on operating leases
Net losses as a percent of average
receivables
Retail*.................................. 0.57% 0.38% 0.46% 0.75% 1.18%
Total finance receivables*............... 0.44 0.30 0.35 0.60 0.92
Provision for credit losses................ $437.9 $246.5 $270.2 $418.0 $577.9
Allowance for credit losses................ 927.3 915.5 915.5 915.5 825.4
As percent of net receivables*........... 1.07% 1.18% 1.42% 1.66% 1.60%
- -------------------------
* Includes net investment in operating leases
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The general improvement in credit losses since 1991 reflects fewer
repossessions and a decline in the loss per repossession. This improvement has
resulted from actions Ford Credit has taken over the past few years to improve
the quality of contracts purchased and collection procedures. In addition,
improvements in the economy and a low interest rate environment have helped to
reduce credit losses. For a discussion of the increase in credit losses in 1995
compared with 1994, see Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations -- 1995
Compared with 1994."
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 net 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.
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".
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Ford Credit's outstanding debt at the end of each of the last five years
was as follows:
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN MILLIONS)
Commercial paper and STBAs(a).................. $35,038 $33,300 $24,506 $21,210 $18,232
Other short-term debt(b)....................... 1,463 1,065 1,001 1,785 1,642
Long-term debt (including current
portion)(c).................................. 42,666 36,075 33,292 26,961 28,455
------- ------- ------- ------- -------
Total debt................................... $79,167 $70,440 $58,799 $49,956 $48,329
======= ======= ======= ======= =======
Memo:
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Total support facilities (billions) as of
December 31, 1991-1995, respectively......... $27.4 $22.3 $16.9 $13.9 $13.8
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(a) Short-term borrowing agreements with bank trust departments
(b) Includes $36 million, $150 million and $800 million with an affiliated
company at December 31, 1995, December 31, 1993 and December 31, 1992,
respectively
(c) Includes $1,174 million with affiliated companies at December 31, 1995.
Outstanding commercial paper totaled $35.0 billion at December 31, 1995, up
$1.8 billion from a year earlier. In 1995, long-term debt placements were $11.8
billion compared with maturities and early redemptions of $5.2 billion.
Long-term debt placements in 1994 were $10.7 billion. In 1995, Ford Credit also
received $4.4 billion from sales of receivables and operating leases compared
with $3.1 billion in 1994.
Support facilities represent additional sources of funds, if required. At
December 31, 1995, Ford Credit had approximately $27.4 billion of contractually
committed facilities for use which included $7.6 billion of Ford bank lines that
may be used by Ford Credit at Ford's option. These facilities have various
maturity dates through June 2000. The entire $27.4 billion may be used, at Ford
Credit's option, by its subsidiaries in Canada, Australia, Mexico, Japan, and
Puerto Rico. Any such borrowing will be guaranteed by Ford Credit.
FORD HOLDINGS
For information concerning the businesses of Ford Holdings in 1995
conducted primarily through Associates First Capital Corporation ("The
Associates"), USL Capital and American Road, see "Business of Ford -- Financial
Services Operations". For a discussion of 1995 results of operations and
liquidity and capital resources of The Associates, USL Capital and American
Road, see "Financial Review of Ford Motor Company Results -- 1995 Results of
Operations -- Financial Services Operations" and "-- Liquidity and Capital
Resources -- Financial Services Operations".
FORD CREDIT EMPLOYEE RELATIONS
At December 31, 1995, Ford Credit and its subsidiaries had 10,253
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
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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.
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 primary activities of the Financial Services segment consist of
financing operations, vehicle and equipment leasing and insurance operations.
These activities are conducted through the Company's subsidiaries, Ford FSG,
Inc. ("FFSGI"), Ford Holdings, The Hertz Corporation ("Hertz") and Granite
Management Corporation ("Granite"). FFSGI is a holding company that owns
primarily Ford Credit, a majority of Ford Credit Europe plc ("Ford Credit
Europe"), and The Associates. Ford Holdings is a holding company that owns
primarily a portion of FFSGI and all of USL Capital and American Road.
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.
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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.
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 net corporate exposure, 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,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Cars.............................. 8.6 9.0 8.5 8.2 8.2
Trucks............................ 6.5 6.4 5.7 4.9 4.3
---- ---- ---- ---- ----
Total........................... 15.1 15.4 14.2 13.1 12.5
==== ==== ==== ==== ====
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
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by segment for the industry (including Japanese and other foreign-based
manufacturers) and Ford for the years indicated:
U.S. INDUSTRY VEHICLE SALES BY SEGMENT
YEARS ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Cars
Small.............................. 17.7% 18.4% 17.3% 18.3% 18.9%
Middle............................. 28.3 28.5 31.2 32.4 33.5
Large.............................. 4.3 4.8 5.1 5.8 6.3
Luxury............................. 6.8 6.6 6.4 6.1 6.5
----- ----- ----- ----- -----
Total U.S. Industry Car Sales... 57.1 58.3 60.0 62.6 65.2
----- ----- ----- ----- -----
Trucks
Compact Pickup..................... 6.8 7.7 7.6 7.8 7.8
Compact Van/Utility................ 18.0 16.9 16.5 15.0 13.5
Full-Size Pickup................... 11.5 11.0 9.9 9.0 8.7
Full-Size Van/Utility.............. 4.4 4.1 4.2 4.0 3.3
Medium/Heavy....................... 2.2 2.0 1.8 1.6 1.5
----- ----- ----- ----- -----
Total U.S. Industry Truck
Sales......................... 42.9 41.7 40.0 37.4 34.8
----- ----- ----- ----- -----
Total U.S. Industry Vehicle
Sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
FORD VEHICLE SALES BY SEGMENT IN U.S.
YEARS ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Cars
Small.............................. 15.1% 17.5% 15.1% 14.6% 17.6%
Middle............................. 22.3 22.7 26.9 29.4 26.7
Large.............................. 4.9 5.2 5.1 5.8 5.7
Luxury............................. 4.4 4.7 4.9 5.2 6.4
----- ----- ----- ----- -----
Total Ford U.S. Car Sales....... 46.7 50.1 52.0 55.0 56.4
----- ----- ----- ----- -----
Trucks
Compact Pickup..................... 8.0 8.9 9.5 7.6 8.1
Compact Van/Utility................ 20.1 16.7 15.6 15.1 13.7
Full-Size Pickup................... 17.9 16.7 15.6 15.1 15.6
Full-Size Van/Utility.............. 5.9 6.2 6.0 5.9 5.1
Medium/Heavy....................... 1.4 1.4 1.3 1.3 1.1
----- ----- ----- ----- -----
Total Ford U.S. Truck Sales..... 53.3 49.9 48.0 45.0 43.6
----- ----- ----- ----- -----
Total Ford U.S. Vehicle Sales... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
As shown in the tables above, since 1991 there has been a significant shift
from cars to trucks for both industry sales and Ford sales. Most of the shift
reflects fewer sales of cars in the middle and large segments for the industry
and in the middle, large and luxury segments for Ford and increased sales of
trucks in the compact van/utility (e.g., Windstar and Explorer) and full-size
pickup segments for both the industry and Ford. The increased sales of full-size
pickups reflects the increased use of such vehicles for personal (rather than
commercial) purposes.
9
11
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,
---------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
U.S. Manufacturers (Including Imports)
Ford............................................. 20.9% 21.8% 22.3% 21.8% 20.1%
General Motors................................... 33.9 34.0 34.1 34.6 35.6
Chrysler......................................... 9.1 9.0 9.8 8.3 8.6
----- ----- ----- ----- -----
Total U.S. Manufacturers...................... 63.9 64.8 66.2 64.7 64.3
Foreign-Based Manufacturers**
Japanese......................................... 29.7 29.6 29.1 30.1 30.2
All Other........................................ 6.4 5.6 4.7 5.2 5.5
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers............. 36.1 35.2 33.8 35.3 35.7
----- ----- ----- ----- -----
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,
---------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
U.S. Manufacturers (Including Imports)
Ford............................................. 31.9% 30.1% 30.5% 29.7% 28.9%
General Motors................................... 29.9 30.9 31.4 32.2 32.9
Chrysler......................................... 21.3 21.7 21.4 21.1 18.5
Navistar International........................... 1.4 1.3 1.3 1.3 1.4
All Other........................................ 2.0 1.8 1.6 1.4 1.3
----- ----- ----- ----- -----
Total U.S. Manufacturers...................... 86.5 85.8 86.2 85.7 83.0
Foreign-Based Manufacturers**
Japanese......................................... 12.7 13.5 13.2 13.8 16.5
All Other........................................ 0.8 0.7 0.6 0.5 0.5
Total Foreign-Based Manufacturers............. 13.5 14.2 13.8 14.3 17.0
----- ----- ----- ----- -----
Total U.S. Truck Retail Deliveries............... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
U.S. COMBINED CAR AND TRUCK MARKET SHARES*
---------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
U.S. Manufacturers (Including Imports)
Ford............................................. 25.6% 25.2% 25.5% 24.7% 23.2%
General Motors................................... 32.2 32.7 33.1 33.7 34.6
Chrysler......................................... 14.3 14.3 14.4 13.1 12.0
Navistar International........................... 0.6 0.5 0.5 0.5 0.5
All Other.......................................... 0.9 0.8 0.7 0.5 0.5
----- ----- ----- ----- -----
Total U.S. Manufacturers...................... 73.6 73.5 74.2 72.5 70.8
Foreign-Based Manufacturers**
Japanese......................................... 22.6 22.9 22.8 24.0 25.5
All Other........................................ 3.8 3.6 3.0 3.5 3.7
----- ----- ----- ----- -----
Total Foreign-Based Manufacturers............. 26.4 26.5 25.8 27.5 29.2
----- ----- ----- ----- -----
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.
10
12
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 decreased from 25.5% in 1991 to 22.6% in
1995, reflecting in part the effects of the strengthening of the Japanese yen on
the prices of vehicles produced by the Japanese manufacturers, the overall
market shift from cars to trucks and improvements in the vehicles produced by
U.S. 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 2.3 million units in 1995 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 marketing costs in North America as a percentage of gross sales
revenue for each of 1995, 1994 and 1993 were: 7.5%, 7.3% and 8.7%, respectively.
During the 1983-1988 period, such costs as a percentage of sales revenue were in
the 3% to 5% range. In 1991, marketing costs peaked at 12% 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.
Sales by Ford to fleet customers were as follows for the years indicated:
FORD FLEET SALES
---------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Units Sold.................................... 931,000 924,000 881,000 882,000 782,000
Percent of Ford's Total Car and Truck Sales... 24% 24% 25% 28% 27%
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 for defects in factory-supplied materials and workmanship on all
vehicles sold by it in the U.S that extends for at least 36 months or 36,000
miles (whichever occurs first) and covers all components of the vehicle, other
than tires which are warranted by the tire manufacturers. 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.
11
13
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 10.9% for 1995, increase their production capacity in Europe and import
restrictions on Japanese built-up vehicles gradually are removed in total by
December 31, 1999.
In 1995, European car industry sales were 11.8 million cars, equal to 1994
levels. Truck sales were 1.6 million units, up 7% from 1994 levels. Ford's
European car share for 1995 was 11.9%, the same as 1994, and its European truck
share for 1995 was a record 14.8%, compared with 14.7% for 1994.
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 1995 compared with 1994,
total industry sales were up 1% in Great Britain and up 3% 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 1995, industry sales of cars and trucks in Canada were down 7% from
1994 levels, somewhat worse than the decrease of 2% in the U.S. over the same
period. Mexico had been a growing market until late 1994. 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 was down 62% in 1995. Ongoing financial effects on
Ford of the devaluation are expected to be unfavorable; the magnitude of these
effects will be dependent in large part upon overall economic conditions.
South America. Brazil and Argentina 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 1995, Ford's results in the region
declined compared with 1994. The decrease reflected primarily losses for
operations in Brazil, where higher import duties and a market shift to small
cars resulted in excess dealer inventories and higher marketing costs. The lower
results are expected to continue into 1996. The Company is reestablishing
manufacturing capacity in Brazil for small cars, which should assist in
improving the Company's competitiveness in this region longer term. Industry
sales in 1995, compared with 1994, were up 19% in Brazil but down 35% in
Argentina. 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 and are expected to continue to be volatile and subject
to rapid change.
In November 1995, Ford and Volkswagen AG dissolved their Autolatina joint
venture in Brazil and Argentina. See "Financial Review of Ford Motor Company
Results" for more information concerning the effects of this dissolution.
Asia-Pacific. In the Asia-Pacific region, Australia, Taiwan and Japan are
the principal markets for Ford products. In 1995, Ford was the car market share
leader in Australia with a 21.5% combined car and truck market share. In Taiwan
(where sales of built-up vehicles manufactured in Japan are prohibited), Ford
was the market share leader with a combined car and truck market share in 1995
of 18.9%. 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.
The Asia Pacific region offers many important opportunities for the future.
Ford believes that China is strategically important to its long-term success in
the Asia Pacific region. In 1995, Ford purchased a 20% equity interest in a
Chinese light truck manufacturer, Jiangling Motors Corporation, Ltd.;
established a wholly
12
14
owned holding company in Beijing; and invested in an aluminum radiator joint
venture in China, in addition to the previously established automotive component
manufacturing joint ventures in China (automotive interior trim, automotive
glass and automotive electronic/audio components). In late 1995, Ford
established a joint venture in Thailand with Mazda Motor Corporation ("Mazda")
to manufacture pickup trucks designed by Mazda. In 1994, Ford purchased a 6.5%
equity interest in Mahindra and Mahindra Limited ("Mahindra"), an automotive and
tractor manufacturer in India. In 1995, Ford received governmental approval to
invest in an automobile manufacturing joint venture in India with Mahindra. 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 Explorer and Taurus models.
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.
FINANCIAL SERVICES OPERATIONS
FORD HOLDINGS, INC. AND FORD FSG, INC.
Ford Holdings was incorporated in 1989 for the principal purpose of
acquiring, owning and managing certain assets of Ford. In December 1995, Ford
Holdings merged with Ford Holdings Capital Corporation, a wholly owned
subsidiary of Ford Holdings, which resulted in the cancellation of all of the
voting preferred stock of Ford Holdings. All of the outstanding common stock of
Ford Holdings, representing 100% of the voting power in Ford Holdings, is owned
beneficially by Ford.
In late 1995, Ford began a reorganization of its Financial Services group
in order to align more closely under a single subsidiary legal ownership of the
Financial Services affiliates with management responsibility for such
affiliates. As part of the reorganization, Ford Holdings formed FFSGI to own
primarily all of the Financial Services affiliates. At the time, 55% of the
common stock of Ford Holdings was owned by Ford and 45% was owned by Ford
Credit.
After the formation of FFSGI, Ford Holdings contributed its interest in The
Associates to FFSGI in exchange for 100% of the common stock of FFSGI and the
assumption by FFSGI of certain debt of Ford Holdings. Thereafter, Ford
contributed to FFSGI all of its interest in Ford Credit Europe. In exchange for
this contribution, Ford received a class of common stock in FFSGI that has
controlling voting power of FFSGI but otherwise is equal to all other common
stock of FFSGI as to the payment of dividends, etc. (the "Class F Stock"). In
February 1996, substantially all of the shares of Ford Holdings common stock
owned by Ford Credit were repurchased by Ford Holdings in exchange for the
issuance of a promissory note by Ford Holdings. Thereafter, Ford contributed to
FFSGI all of its interest in Ford Credit in exchange for additional shares of
Class F Stock of FFSGI. In addition, Ford will contribute to FFSGI certain of
its international Financial Services affiliates managed by Ford Credit in
exchange for additional stock in FFSGI. It also is expected that Ford Holdings
will contribute American Road to FFSGI, which in turn is expected to contribute
it to Ford Credit. The percentages of economic interests of FFSGI held by Ford
and Ford Holdings are based on the relative value of the entities contributed to
FFSGI by Ford and Ford Holdings. Currently, those percentages are approximately
78% for Ford and 22% for Ford Holdings.
On February 9, 1996, The Associates filed a registration statement with the
Securities and Exchange Commission for an initial public offering of its common
stock representing up to a 19.8% economic interest in The Associates (the
"IPO"). Substantially all of the net proceeds from the IPO are expected to be
used to repay indebtedness of The Associates, which will be incurred to repay an
intercompany debt owed to FFSGI in the amount of $1.75 billion. Prior to
completion of the IPO, Ford expects to contribute to The Associates certain
international affiliates owned by Ford but managed by The Associates. Also, as
announced by Ford in the fourth quarter of 1995, Ford is investigating the sale
of all or a part of USL Capital.
13
15
FORD MOTOR CREDIT COMPANY
For information regarding the businesses of Ford Credit, see "Business of
Ford Credit".
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 now owned by FFSGI and Ford Werke AG. 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. 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 deposit 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,
-------------------
1995 1994
------- -------
Finance receivables
Retail................................................................. $10,638 $ 9,356
Wholesale.............................................................. 5,616 4,615
Other.................................................................. 246 234
------- -------
Total finance receivables........................................... 16,500 14,205
Loan origination costs, net.............................................. 107 85
Unearned income.......................................................... (1,390) (1,159)
Allowance for credit losses.............................................. (119) (162)
------- -------
Finance receivables, net............................................ $15,098 $12,969
======= =======
Investments in operating leases.......................................... $ 1,146 $ 1,010
Accumulated depreciation................................................. (268) (231)
Allowance for credit losses.............................................. (9) (7)
------- -------
Investments in operating leases, net................................ $ 869 $ 772
======= =======
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):
1995 1994 1993
---- ---- ----
Beginning balance....................................... $169 $ 90 $123
Additions............................................. 43 50 46
Net losses............................................ (92) 5 (72)
Other changes*........................................ 8 24 (7)
---- ---- ----
Ending balance.......................................... $128 $169 $ 90
==== ==== ====
- -------------------------
* The reported amounts reflect primarily foreign currency transaction
adjustments.
14
16
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 and commercial finance. The
consumer finance operation invests in home equity, personal lending and sales
finance receivables, and credit card receivables primarily through a wholly
owned credit card bank, in addition to providing financing in the foregoing
areas and in manufactured housing. The commercial finance operation is
principally engaged in financing and leasing transportation and industrial
equipment, and providing other services, including automobile fleet leasing and
management, relocation services and automobile club and roadside assistance
services. The Associates has an insurance operation which underwrites credit
life, credit accident and health, property, casualty and accidental death and
dismemberment insurance, principally for customers of the finance operations.
Such insurance activity is conducted by The Associates' licensed insurance
agents and is managed as a separate activity. Insurance sales are dependent on
the business activities and volumes of the consumer and commercial business. As
mentioned above, The Associates has filed a registration statement with the
Securities and Exchange Commission for an initial public offering of its common
stock representing up to a 19.8% economic interest in The Associates.
The Associates' net finance receivables were as follows at the dates
indicated (in millions):
DECEMBER 31,
------------------
1995 1994
------- -------
Consumer finance
Home equity lending..................................................... $13,190 $11,455
Personal lending and retail sales finance............................... 4,753 4,189
Credit card............................................................. 4,858 4,035
Manufactured housing.................................................... 2,049 1,681
------- -------
Total consumer finance............................................... 24,850 21,360
------- -------
Commercial finance
Truck and truck trailer................................................. 7,416 6,553
Equipment............................................................... 3,959 2,970
Other................................................................... 384 293
------- -------
Total commercial finance............................................. 11,759 9,816
------- -------
Net finance receivables................................................... $36,609 $31,176
======= =======
15
17
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
--------------------------
1995 1994 1993
------ ----- -----
Net Credit Losses
Consumer finance
Amount....................................................... $ 547 $ 456 $ 372
% of average net receivables................................. 2.36% 2.33% 2.19%
% of receivables liquidated.................................. 3.20 3.09 3.41
Commercial finance
Amount....................................................... $ 21 $ 8 $ 22
% of average net receivables................................. .19% .09% .30%
% of receivables liquidated.................................. .19 .08 .26
Total net credit losses
Amount....................................................... $ 568 $ 464 $ 394
% of average net receivables................................. 1.68% 1.62% 1.61%
% of receivables liquidated.................................. 2.03 1.84 2.03
Allowance For Losses
Balance at end of period........................................ $1,124 $ 944 $ 809
% of net receivables......................................... 3.07% 3.03% 3.07%
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,
1995....................... $622 2.25% $ 85 0.64% $707 1.73%
1994....................... 439 1.82 31 0.28 470 1.34
An analysis of The Associates' allowance for losses on finance receivables
is as follows for the years indicated (in millions):
1995 1994 1993
------ ----- -----
Beginning balance.................................................... $ 944 $ 809 $ 699
Additions.......................................................... 743 577 477
Recoveries......................................................... 116 101 88
Losses............................................................. (684) (565) (482)
Other adjustments, primarily reserves of acquired businesses....... 5 22 27
------ ---- ----
Ending balance....................................................... $1,124 $ 944 $ 809
====== ==== ====
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
16
18
instruments. Certain of these financing transactions are underwritten by Ford
Credit. As mentioned above, Ford is considering the sale of all or a part of USL
Capital.
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,
------------------------------
1995 1994 1993
------ ------ ------
Total earning assets
Investments in finance leases -- net......................... $2,549 $2,435 $2,364
Investments in operating leases -- net....................... 904 712 695
Investments in leveraged leases -- net....................... 438 266 191
Notes receivable............................................. 1,040 825 721
Investments in securities.................................... 1,065 700 563
Inventory held for sale or lease............................. 108 87 55
Investments in associated companies.......................... 17 18 18
------ ------ ------
Total..................................................... $6,121 $5,043 $4,607
====== ====== ======
Allowance for doubtful accounts
Beginning balance............................................ $ 58 $ 55 $ 40
Additions.................................................... 6 8 25
Deductions................................................... (4) (5) (10)
------ ------ ------
Ending balance............................................ $ 60 $ 58 $ 55
====== ====== ======
Allowance for doubtful accounts as a percent of earning
assets....................................................... 1.0% 1.2% 1.2%
Total balance over 90 days past due at year end................ $ 23 $ 37 $ 44
Percent of earning assets...................................... 0.4% 0.7% 1.0%
THE AMERICAN ROAD INSURANCE COMPANY
American Road was incorporated by Ford in 1959, became a wholly owned
subsidiary of Ford Credit in 1966, and was transferred to Ford Holdings in 1989.
It is expected that American Road will be transferred back to Ford Credit as
part of the reorganization of the Financial Services group. 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 late
1995, American Road agreed to sell all of its interest in Ford Life Insurance
Company ("Ford Life"), a wholly owned subsidiary of American Road, to SunAmerica
Inc. At the time of the sale, Ford Life's business consisted of offering
deferred annuities sold primarily through banks and brokerage firms; the
nonannuities portion of the business was transferred to another subsidiary of
American Road prior to the sale of Ford Life.
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
-------- ---------- --------------- ----- ------
1995....... $310 $ 72 $ 215 $ 597 $ 28
1994....... 376 41 159 576 58*
1993....... 465 141 130 736 79
1992....... 519 175 42 736 63**
1991....... 706 211 2 919 126
- -------------------------
* Includes an increase of $26 million for nonrecurring recovery of income taxes
in 1994 from prior years.
** Includes an increase of $16 million resulting from the cumulative effect of
adopting new accounting rules on income taxes.
17
19
The detail of premiums earned by American Road was as follows (in
millions):
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Extended service contracts........................ $ 92 $148 $211 $217 $318
Physical damage................................... 113 119 139 176 227
Credit life and disability........................ 105 109 115 126 161
---- ---- ---- ---- ----
Total........................................... $310 $376 $465 $519 $706
==== ==== ==== ==== ====
THE HERTZ CORPORATION
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.
During 1994, Ford entered into various transactions which resulted in Hertz
becoming a wholly owned subsidiary of Ford. Hertz, its affiliates and
independent licensees are engaged principally in the business of renting
automobiles and renting and leasing trucks, without drivers, in the U.S. and in
approximately 150 foreign countries. Collectively, they operate what Hertz
believes is the largest car rental 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 in Australia
and New Zealand and in Europe through an affiliate; 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 and the year ended December
31, 1995 (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
Additions.............................................. 7,255 804 6,451
Retirements and other.................................. (7,410) (869) (6,541)
------- ----- -------
Balance, December 31, 1995............................... $ 4,656 $ 486 $ 4,170
======= ===== =======
GRANITE MANAGEMENT CORPORATION
Granite, a savings and loan holding company organized in Delaware in 1959,
was acquired by Ford in December 1985. 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").
At the time of the sale, Ford retained, through Granite, approximately $1.2
billion of commercial real estate and other assets formerly owned by the Bank.
These retained assets generally were of lower quality than those included in the
sale and will be liquidated over time as market conditions permit. 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. Through December 31, 1995, approximately $387 million of such assets had
been repurchased by Granite. At December 31, 1995, approximately $875 million of
Granite's assets remained unsold.
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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 clean 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 alternative fuel vehicles in each of the 1996, 1997 and 1998 model years
and its pro rata share of 300,000 alternative fuel vehicles in each model year
thereafter. The Act also authorizes certain states to establish programs to
encourage the purchase of such vehicles. Since the Act considers California's
already adopted reformulated (i.e., cleaner burning) gasoline to be an
alternative fuel, most manufacturers will be able to comply with this
requirement in California by selling vehicles certified to California standards.
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. In February 1996, CARB issued a notice for
eliminating the ZEV mandate applicable before the 2003 model year. Final action
on the proposed rule change is expected at the March 1996 board meeting. If CARB
eliminates the mandate, manufacturers have volunteered to provide air quality
benefits for California equivalent to a 49 state program (i.e., providing
vehicles certified to California LEV emissions standards nationwide beginning
with the 2001 model year), to continue research and development of EV technology
and to provide specific numbers of advanced technology battery vehicles through
demonstration programs in California.
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 optimal conditions), have a
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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. The proposed elimination of the ZEV mandate and the
manufacturers' voluntary program will better allow market forces to guide the
introduction of ZEVs into the market. If the mandate is not changed, compliance
may require manufacturers to offer substantial discounts on electric vehicles,
selling them well below cost, or increase the price or curtail the sale of
nonelectric vehicles.
The California LEV 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. Twelve northeastern states
and the District of Columbia organized under the provisions of the Act into a
group known as the Ozone Transport Commission (the "OTC") and 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 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. Connecticut also has adopted such
standards, but without the ZEV requirements.
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 early 1996 to include in their
State Implementation Plans a California LEV program or an acceptable
alternative.
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 may be required to recall vehicles for
such purposes from time to time. In addition, as it has from time to time in the
past, Ford may voluntarily recall vehicles to fix emissions-related concerns.
The costs of related repairs or inspections associated with such recalls can be
substantial.
The Act generally prohibits the introduction of new fuel additives unless a
waiver is granted by the EPA. In 1995, the U.S. Court of Appeals for the
District of Columbia ordered the EPA to grant such a waiver to Ethyl Corporation
for the additive MMT, over the objections of the EPA and U.S. automobile
manufacturers, including Ford. Ethyl Corporation can now market MMT for use in
unleaded gasoline. Ford and other manufacturers believe that the use of MMT will
impair the performance of current emissions systems and onboard diagnostics
systems. The introduction of MMT could increase Ford's future warranty costs and
necessitate changes in the Company's warranties for emission control devices.
European Requirements. Council Directive 70/220/EEC (as amended through
Council Directive 94/12/EEC) and related European legislation impose limits on
the amount of regulated pollutants that may be emitted by new motor vehicles and
engines sold in the European Union. Standards for vehicles
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homologated before January 1, 1996 are of generally equivalent stringency to
1983 model year U.S. standards for gasoline powered vehicles and to 1987 model
year U.S. standards for diesel powered vehicles. All passenger cars homologated
from January 1, 1996 and all new passenger cars registered from January 1, 1997
must comply with more stringent standards that are of generally equivalent
stringency to 1994 model year U.S. standards. Similarly, new more stringent
standards for light duty trucks ("LDTs") have been proposed but not yet finally
enacted by the European Union. These would apply to passenger-car derived LDTs
from January 1, 1997 for new homologations and October 1, 1997 for new
registrations and would apply to other classes of LDTs from January 1, 1998 for
new homologations and October 1, 1998 for new registrations. The European
Commission is presently preparing proposals for even more stringent emissions
standards and for new enforcement procedures for both passenger cars and trucks
(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.
Certain European countries are conducting in-use emissions testing to
ascertain compliance of motor vehicles with applicable emission standards. These
actions could lead to recalls of vehicles; 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, would subject a manufacturer to the imposition of a civil
penalty of $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.,
trucks, domestic cars, or imported cars) produced in that model year. Each such
class of vehicle may earn credits either as a result of exceeding the standard
in one or more of the preceding three model years ("carryforward credits") or
pursuant to a plan, approved by the Safety Administration, under which a
manufacturer expects to exceed the standard in one or more of the three
succeeding model years ("carryback credits"), but credits earned by a class may
not be applied to any other class of vehicles.
The Cost Savings Act established a passenger car CAFE standard of 27.5 mpg
for the 1985 and later model years, which the Safety Administration asserts it
has the authority to amend to a level it determines to be the "maximum feasible"
level (considering the following factors: technological feasibility, economic
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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 a 20.7 mpg CAFE standard
applicable to light trucks (under 8,500 pounds gross vehicle weight on a
combined two-wheel drive/four-wheel drive basis) for model years 1996 and 1997
and has proposed the same for 1998.
The EPA issued proposed regulations pursuant to the Clean Air Act that
would change the test procedures for measuring motor vehicle emissions and fuel
economy. If adopted without adequate adjustments, these regulations may require
costly measures to reduce tailpipe emissions and to increase fuel economy.
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 carbon dioxide ("CO(2)") 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 1999-2006 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.
International concerns over global warming due to the emission of
"greenhouse gasses" have given rise to strong pressures to increase fuel economy
of motor vehicles as a means of limiting their emission of CO(2). For example,
the United Nations Climate Change Convention held in Brazil in 1992 (the "U.N.
Climate Change Convention") sought to stabilize greenhouse gas emissions at 1990
levels by the year 2000. A subsequent meeting of the parties to the U.N. Climate
Change Convention in Berlin in March 1995 resulted in an agreement to establish
goals by 1997 for reductions in greenhouse gas emissions after the year 2000.
In December 1994, the European Union Council of Environmental Ministers
directed the European Commission to develop proposals for reducing CO(2)
emissions from passenger cars to 120 grams per kilometer by 2005 (which equates
to 5 liters consumed per 100 kilometers for gasoline engines and 4.5 liters
consumed per 100 kilometers for diesel engines). Similar proposals have been
made within the European Parliament. In December 1995, the European Commission
issued a communication to the Council and the Parliament proposing a package of
potential measures for reducing CO(2) emissions from passenger cars. These
include fiscal measures (taxes and incentives), fuel economy labeling, increased
research and development efforts, and a negotiated agreement with industry for
reduction in CO(2) emissions from new cars of 25% from 1990 levels by 2005. The
proposed agreement may also include incremental targets and monitoring
provisions for the years before 2005. Some of these proposals, if adopted, could
require costly actions that could have substantial adverse effects on Ford's
sales volumes and profits in Europe.
On March 23, 1995, the German Automobile Manufacturers Association (of
which Ford Werke AG is a member) undertook an industry-wide voluntary agreement
with the German government to reduce the average fuel consumption of new cars
sold in Germany by 25% from 1990 levels by 2005, to review before the year 2000
the need for and feasibility of further reductions in average fuel consumption,
to make regular reports on fuel consumption, and to increase industry research
and development efforts. At the same time, the German government undertook to
improve traffic management systems, eliminate infrastructure bottlenecks,
integrate transport modes, promote alternative fuels and improved drive systems,
and introduce an emission-based road tax system.
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On January 26, 1996, French vehicle manufacturers made a voluntary pledge
to reduce the average fuel consumption of new vehicles to a sales-weighted
average of 150 grams of CO(2) per kilometer by 2005, to offer at least one
vehicle that emits less than 120 grams of CO(2) per kilometer by 2005, to
propose an objective by 2000 for further reducing CO(2) emissions by 2010, and
to promote alternative fuel technologies that result in reduced CO(2) emissions.
This pledge assumes a 50/50 mix of gasoline and diesel engined vehicles, no
change in the mix of vehicles by weight and engine size class, no new regulatory
requirement beyond those forecast in 1995 for the year 2000, and that oil
companies and tire producers will contribute to reduction in vehicle fuel
consumption. The pledge of the French vehicle manufacturers may create pressure
for similar pledges from automobile importers (such as Ford France S.A.).
Other initiatives for reducing CO(2) emissions from motor vehicles may be
proposed by other European countries. Taken together such proposals could have
substantial adverse effects on Ford's sales volumes and profits in Europe.
Japan has adopted automobile fuel consumption goals that manufacturers must
attempt to achieve by the 2000 model year. The consumption levels apply only to
gasoline-powered vehicles, vary by vehicle weight, and range from 5.8 km/l to
19.2 km/l. To achieve these target fuel consumption levels for the vehicles Ford
exports to Japan may require costly actions that could have substantial adverse
effects on Ford's sales volume and profits in Japan.
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 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 adopted 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. These regulations may
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
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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 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 U.N.
Climate Change Convention, 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), such as
R-134a, and cleaning solvents.
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. 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. Two sets of European vehicle regulations overlay those of
individual European countries: 1) European Union directives and regulations,
which member countries are obligated to implement; and 2) United Nations
Economic Commission for Europe (ECE) regulations, which member countries have
the option to implement. Although European Union directives and regulations and
ECE regulations generally are aligned (the European Union directives cover about
half of the 99 ECE regulations), 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 1996 through 2000, Ford
expects that approximately $700 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 $200 million will be spent in
1996 and $150 million will be spent in 1997.
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LEGAL PROCEEDINGS
Various legal actions, governmental investigations and proceedings and
claims are pending or may be instituted or asserted in the future against the
Company and its subsidiaries, including those arising out of alleged defects in
the Company's products; governmental regulations relating to safety, emissions
and fuel economy; financial services; 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 Liability 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 $782 million at December 31, 1995.
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 $1 billion
at December 31, 1995.
In most 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. It has been Ford's experience that in cases that allege
a specific amount of damages in excess of the jurisdictional minimum, such
amounts, on average, bear little relation to the actual amounts of damages paid
by Ford in such cases, which generally are, on average, substantially less than
the amounts originally claimed. In addition to the pending actions, accidents
have occurred and claims have arisen which also may result in lawsuits in which
such a defect may be alleged.
Ford is a defendant in various actions for injuries claimed to have
resulted from alleged contact with certain Ford parts and other products
containing asbestos. Damages specified by plaintiffs in complaints in these
actions, including both actual and punitive damages, aggregated approximately
$977 million at December 31, 1995. (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 two notices from a government
environmental enforcement agency concerning a matter which potentially involve
monetary sanctions exceeding $100,000. The agency believes that Ford facilities
may have violated regulations relating to the management of certain materials or<