EX-99 8 fmc10q.htm FORD MOTOR COMPANY 10-Q Ford Motor Company 10-Q

Items 2 and 4 of Part I and Items 1 and 2 of Part II of Ford's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005. ALL REFERENCES TO WE, OUR, AND US IN THIS EXHIBIT 99 REFER TO FORD MOTOR COMPANY.
 
 
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


THIRD QUARTER RESULTS OF OPERATIONS

Our worldwide net loss was $284 million or $0.15 per share of Common and Class B stock in the third quarter of 2005, down from net income of $266 million or $0.15 per share in the third quarter of 2004.

Results by business sector for the third quarter of 2005 and 2004 are shown below (in millions):

   
Third Quarter
  
   
Net Income/(Loss)
  
 
  
 
 
 
2005
  
 
 
 
2004
  
2005
Over/
(Under)
2004
  
Income/(loss) before income taxes
                    
Automotive sector
  
$
(1,599
)
$
(673
)
$
(926
)
Financial Services sector
    
1,222
    
1,391
    
(169
)
Total Company
    
(377
)
  
718
    
(1,095
)
Provision for/(benefit from) income taxes
    
(140
)
  
197
    
(337
)
Minority interests in net income/(loss) of subsidiaries *
    
54
    
62
    
(8
)
Income/(loss) from continuing operations
    
(291
)
  
459
    
(750
)
Income/(loss) from discontinued operations
    
7
    
(193
)
  
200
  
Net income/(loss)
  
$
(284
)
$
266
  
$
(550
)
__________
* Primarily related to Ford Europe’s consolidated less-than-100%-owned affiliates.

Included in Income/(loss) before income taxes are items we do not consider indicative of our ongoing operating activities (“special items”). The following table details the third quarter 2005 and 2004 special items by business unit (in millions):

   
Third Quarter
  
   
2005
  
2004
  
Automotive sector
              
Ford North America
              
Visteon-related charges - primarily valuation allowance against employee-related receivables
  
$
(180
)
$
—
  
Salaried personnel-reduction programs
    
(76
)
  
—
  
Fuel-cell technology charges
    
(66
)
  
(41
)
Ford Europe
              
Personnel-reduction programs
    
(49
)
  
—
  
Premier Automotive Group ("PAG")
              
PAG Improvement Plan and personnel-reduction programs
    
(33
)
  
(23
)
Other Automotive
              
Divestiture of non-core business
    
146
    
—
  
Total Automotive sector
    
(258
)
  
(64
)
Financial Services sector
              
Hertz and Other Financial Services
              
Effect of Hertz being held for sale - cessation of depreciation on long-lived assets net of sale-related charges
    
84
    
—
  
Total
  
$
(174
)
$
(64
)




99.1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)


AUTOMOTIVE SECTOR

Details by Automotive business unit of Income/(loss) before income taxes for the third quarter of 2005 and 2004 are shown below (in millions):

   
Third Quarter
Income/(Loss) Before
Income Taxes
  
   
 
 
 
2005
  
 
 
 
2004
  
2005
Over/
(Under)
2004
  
The Americas
                    
Ford North America
  
$
(1,488
)
$
(522
)
$
(966
)
Ford South America
    
96
    
59
    
37
  
Total The Americas 
    
(1,392
)
  
(463
)
  
(929
)
Ford Europe and PAG
                    
Ford Europe
    
(104
)
  
(33
)
  
(71
)
PAG
    
(141
)
  
(194
)
  
53
  
Total Ford Europe and PAG 
    
(245
)
  
(227
)
  
(18
)
Ford Asia Pacific and Africa/Mazda
                    
Ford Asia Pacific and Africa
    
21
    
35
    
(14
)
Mazda and Associated Operations
   
112
    
13
    
99
  
Total Ford Asia Pacific and Africa/Mazda 
    
133
    
48
    
85
  
Other Automotive
    
(95
)
  
(31
)
  
(64
)
Total Automotive
  
$
(1,599
)
$
(673
)
$
(926
)

Details by Automotive business unit of sales and vehicle unit sales for the third quarter of 2005 and 2004 are shown below:

   
Third Quarter
  
 
 
  
Sales
(in billions)
  
Vehicle Unit Sales (a)
(in thousands)
  
 
 
 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
The Americas
                                                  
Ford North America
  
$
18.2
  
$
18.1
  
$
0.1
    
1
%
  
774
    
780
    
(6
)
  
(1
)%
Ford South America
    
1.2
    
0.8
    
0.4
    
50
    
88
    
76
    
12
    
16
  
Total The Americas 
    
19.4
    
18.9
    
0.5
    
3
    
862
    
856
    
6
    
1
  
Ford Europe and PAG
                                                  
Ford Europe
    
6.4
    
5.9
    
0.5
    
8
    
371
    
372
    
(1
)
  
—
  
PAG
    
6.8
    
6.1
    
0.7
    
11
    
169
    
169
    
—
    
—
  
Total Ford Europe and PAG 
    
13.2
    
12.0
    
1.2
    
10
    
540
    
541
    
(1
)
  
—
  
Ford Asia Pacific and Africa/Mazda
                                                  
Ford Asia Pacific and Africa
    
1.9
    
1.9
    
—
    
—
    
115
    
111
    
4
    
4
  
Mazda and Associated Operations (b)
    
0.2
    
—
    
0.2
    
—
    
14
    
—
    
14
    
—
  
Total Ford Asia Pacific and Africa/Mazda
    
2.1
    
1.9
    
0.2
    
11
    
129
    
111
    
18
    
16
  
Total Automotive
  
$
34.7
  
$
32.8
  
$
1.9
    
6
%
  
1,531
    
1,508
    
23
    
2
%
__________
(a)
Included in vehicle unit sales of Ford Asia Pacific and Africa are Ford-badged vehicles sold in China and Malaysia by certain unconsolidated affiliates totaling about 20,000 and 16,000 units in 2005 and 2004, respectively. “Sales” above does not include revenue from these units.
(b)
Reflects sales of Mazda6 by our consolidated subsidiary - AutoAlliance International, Inc. ("AAI") - beginning with the consolidation of AAI in the third quarter of 2005 (See Note 7 of the Notes to the Financial Statements).


99.2
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Details of Automotive sector market share for selected markets for the third quarter of 2005 and 2004, along with the level of dealer stocks as of September 30, 2005 and 2004, are shown below:

   
Third Quarter
  
Dealer-Owned Stocks (a)
  
   
Market Share
  
(in thousands)
  
 
 
Market
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
 
September 30,
2005
  
 
September 30,
2004
  
2005
Over/(Under)
2004
  
                               
U.S. (b)
    
17.5
%
  
17.3
%
  
0.2
   
pts.
    
639
    
785
    
(146
)
Brazil (b)
    
12.3
    
11.4
    
0.9
          
24
    
21
    
3
  
Europe (b) (c)
    
8.6
    
8.8
    
(0.2
)
        
287
    
310
    
(23
)
PAG - U.S./Europe (c)
   
1.2/2.2
    
1.2/2.2
    
— / —
          
42/60
    
39/53
    
3/7
  
Australia (b)
    
12.7
    
15.1
    
(2.4
)
        
21
    
22
    
(1
)
__________
(a)
Dealer-owned stocks represent our estimate of vehicles shipped to our customers (dealers) and not yet sold by the dealers to their retail customers, including some vehicles reflected in our inventory.
(b)
Includes only Ford and, in certain markets (primarily U.S.), Lincoln and Mercury brands.
(c)
European market share is based, in part, on estimated 2005 vehicle registrations for our 19 major European markets.

Overall Automotive Sector

The increase in Loss before income taxes included the impact of the Automotive sector special items detailed above. In addition, the increase primarily reflected unfavorable cost performance (about $300 million), unfavorable currency exchange primarily due to the expiration of favorable hedges (about $300 million), unfavorable changes in volume and mix (about $200 million), and lower results from Other Automotive (about $100 million), offset partially by favorable net pricing (about $200 million). See "First Nine Months Results of Operations - Automotive Sector" for a discussion of cost performance.

The Americas Segment

Ford North America. The decline in results primarily reflected a charge for a valuation allowance against employee-related receivables from Visteon, unfavorable net pricing, higher warranty costs, unfavorable changes in product mix, higher material costs, and lower vehicle unit sales volume.

The higher warranty costs included changes in accruals related to pre-existing warranties, offset partially by the favorable impact of a $240 million settlement reached with Bridgestone Firestone North American Tire, LLC regarding Firestone's August 2000 voluntary safety recall and our May 2001 tire replacement program.

The lower vehicle unit sales volume reflected lower dealer stock levels, offset partially by higher industry sales volume and market share.

Ford South America. The improvement in earnings primarily reflected higher vehicle unit sales volume and favorable net pricing in excess of higher commodity costs.

Ford Europe and PAG Segment

Ford Europe. The decline in results primarily reflected higher material and pension costs and charges for personnel-reduction programs, offset partially by ongoing cost improvements, favorable net pricing, and higher profits at Ford Otosan, our consolidated joint venture in Turkey.

PAG. The improvement in results primarily reflected improved product mix and favorable net pricing due to the impact of new products, offset partially by unfavorable currency exchange due to the expiration of favorable hedges, and charges related to our PAG Improvement Plan.

Ford Asia Pacific and Africa/Mazda Segment

Ford Asia Pacific and Africa. The decline in earnings primarily reflected unfavorable product mix, offset partially by improved net pricing.

Mazda and Associated Operations. The improvement in earnings primarily reflected gains on our investment in Mazda convertible bonds and higher operating results at Mazda. In the third quarter of 2005, we converted to equity about 65% of our Mazda convertible bonds and, therefore, expect diminished income effects in future periods of mark-to-market adjustments for these bonds.

99.3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
 
Other Automotive

The decline primarily reflected the non-recurrence of tax-related interest income on refund claims, offset partially by a gain from the sale of our remaining interest in Kwik-Fit Group Limited. 

FINANCIAL SERVICES SECTOR

Our Financial Services sector includes two primary segments, Ford Credit and The Hertz Corporation ("Hertz"). Details of Financial Services sector Income/(loss) before income taxes for the third quarter of 2005 and 2004 are shown below (in millions):

 
 
  
Third Quarter
Income/(Loss)
Before Income Taxes
  
 
 
 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
               
Ford Credit
  
$
901
  
$
1,134
  
$
(233
)
Hertz
    
350
    
249
    
101
  
Other Financial Services
    
(29
)
  
8
    
(37
)
Total Financial Services sector
  
$
1,222
  
$
1,391
  
$
(169
)


Ford Credit

The decrease in earnings primarily resulted from higher borrowing costs and the impact of lower receivable levels, offset partially by improved credit loss performance and a favorable cumulative accounting adjustment related to the amortization of certain loan origination costs involving securitized assets ($85 million).

The following table shows worldwide credit losses net of recoveries, which are referred to as charge-offs, and loss-to-receivables ratios, which equal annualized charge-offs divided by the average amount of receivables outstanding for the period, for the third quarter of 2005 and 2004:

   
Third Quarter
  
 
 
 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
Charge-offs (in millions)
                          
On-Balance Sheet
  
$
175
  
$
335
  
$
(160
)
      
Managed
    
211
    
395
    
(184
)
      
                           
                           
Loss-to-Receivables Ratios
                          
On-Balance Sheet
    
0.58
%
  
1.04
%
  
(0.46
)
  
pts.
  
Managed
    
0.55
%
  
0.94
%
  
(0.39
)
  
pts.
  

The decrease in charge-offs and loss-to-receivables ratios for the on-balance sheet and managed portfolios primarily reflected fewer repossessions and a lower average loss per repossession. These improvements resulted from a higher quality retail installment and lease portfolio, higher used vehicle prices and enhancements to Ford Credit's collection practices. Lower levels of receivables also contributed to reduced charge-offs.

Ford Credit's net finance receivables and net investment in operating leases for on-balance sheet, securitized off-balance sheet, managed and serviced portfolios are shown below (in billions):

   
 
September 30,
2005
  
 
December 31,
2004
  
2005
Over/(Under)
2004
  
               
On-Balance Sheet (including on-balance sheet securitizations)
  
$
114.4
  
$
132.7
  
$
(18.3
)
Securitized Off-Balance Sheet
    
35.0
    
35.6
    
(0.6
)
Managed
  
$
149.4
  
$
168.3
  
$
(18.9
)
                     
Serviced
  
$
152.8
  
$
172.3
  
$
(19.5
)

99.4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
 
The decrease in on-balance sheet, managed and serviced receivables from year end primarily reflected lower retail contract placement volumes and wholesale inventory levels.

Shown below is Ford Credit's allowance for credit losses related to finance receivables and operating leases for the periods specified:
   
 
September 30,
2005
  
 
December 31,
2004
  
2005
Over/(Under)
2004
  
                   
Allowance for credit losses (in billions) 
  
$
1.8
  
$
2.4
  
$
(0.6
)
      
Allowance as a percentage of end-of-period receivables 
    
1.52
%
  
1.80
%
  
(0.28
)
  
pts.
  

The decrease in the allowance for credit losses of approximately $600 million from year end primarily reflected improved charge-off performance and the impact of lower receivable levels.

Hertz

The improvement in earnings primarily reflected the effect of Hertz being held for sale (i.e., the cessation of depreciation on long-lived assets).

Other Financial Services

The decline in results primarily reflected the write-off of aircraft leases related to the bankruptcy of Delta Air Lines.


FIRST NINE MONTHS RESULTS OF OPERATIONS

Our worldwide net income was $1.9 billion or $0.95 per share of Common and Class B stock in the first nine months of 2005, down from a profit of $3.4 billion or $1.66 per share in the first nine months of 2004.

Results by business sector for the first nine months of 2005 and 2004 are shown below (in millions):

   
First Nine Months
  
   
Net Income/(Loss)
  
 
  
 
 
 
2005
  
 
 
 
2004
  
2005
Over/
(Under)
2004
  
Income/(loss) before income taxes
                    
Automotive sector
  
$
(1,697
)
$
1,104
  
$
(2,801
)
Financial Services sector
    
3,595
    
3,962
    
(367
)
Total Company
    
1,898
    
5,066
    
(3,168
)
Provision for/(benefit from) income taxes (a)
    
(127
)
  
1,277
    
(1,404
)
Minority interests in net income/(loss) of subsidiaries (b)
    
196
    
219
    
(23
)
Income/(loss) from continuing operations
    
1,829
    
3,570
    
(1,741
)
Income/(loss) from discontinued operations
    
45
    
(187
)
  
232
  
Net income/(loss)
  
$
1,874
  
$
3,383
  
$
(1,509
)
__________
(a) See Note 2 of the Notes to the Financial Statements for disclosure regarding first nine months 2005 effective tax rate.
(b) Primarily related to Ford Europe’s consolidated less-than-100%-owned affiliates.

99.5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Included in Income/(loss) before income taxes are items we do not consider indicative of our ongoing operating activities (“special items”). The following table details the first nine months 2005 and 2004 special items by business unit (in millions):

   
First Nine Months
  
   
2005
  
2004
  
Automotive sector
              
Ford North America
              
Visteon-related charges - primarily valuation allowance against employee-related receivables
  
$
(507
)
$
—
  
Salaried personnel-reduction programs
    
(139
)
  
—
  
Fuel-cell technology charges
    
(116
)
  
(161
)
Tax adjustments (result of law changes related to non-income taxes)
    
85
    
—
  
Divestiture of non-core businesses
    
(59
)
  
—
  
Ford Europe
              
Personnel-reduction programs and Ford Europe Improvement Plan
    
(49
)
  
(49
)
Premier Automotive Group ("PAG")
              
PAG Improvement Plan and personnel-reduction programs
    
(66
)
  
(23
)
Ford Asia Pacific and Africa
              
Divestiture of non-core businesses
    
14
    
—
  
Other Automotive
              
Divestiture of non-core businesses
    
146
    
17
  
Total Automotive sector
    
(691
)
  
(216
)
Financial Services sector
              
Hertz and Other Financial Services
              
Effect of Hertz being held for sale - cessation of depreciation on long-lived assets net of sale-related charges
    
84
    
—
  
Total
  
$
(607
)
$
(216
)

AUTOMOTIVE SECTOR

Details by Automotive business unit of Income/(loss) before income taxes for the first nine months of 2005 and 2004 are shown below (in millions):

 
 
  
First Nine Months
Income/(Loss) Before
Income Taxes
  
 
 
 
 
  
 
 
 
2005
  
 
 
 
2004
  
2005
Over/
(Under)
2004
  
The Americas
                    
Ford North America
  
$
(2,145
)
$
1,775
  
$
(3,920
)
Ford South America
    
261
    
96
    
165
  
Total The Americas
    
(1,884
)
  
1,871
    
(3,755
)
Ford Europe and PAG
                    
Ford Europe
    
21
    
134
    
(113
)
PAG
    
(212
)
  
(508
)
  
296
  
Total Ford Europe and PAG
    
(191
)
  
(374
)
  
183
  
Ford Asia Pacific and Africa/Mazda
                    
Ford Asia Pacific and Africa
    
114
    
58
    
56
  
Mazda and Associated Operations
    
223
    
127
    
96
  
Total Ford Asia Pacific and Africa/Mazda
    
337
    
185
    
152
  
Other Automotive
    
41
    
(578
)
  
619
  
Total Automotive
  
$
(1,697
)
$
1,104
  
$
(2,801
)


99.6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Details by Automotive business unit of sales and vehicle unit sales for the first nine months of 2005 and 2004 are shown below:


   
First Nine Months
  
 
 
  
Sales
(in billions)
  
Vehicle Unit Sales (a)
(in thousands)
  
 
 
 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
The Americas
                                                  
Ford North America
  
$
59.2
  
$
61.9
  
$
(2.7
)
  
(4
)%
  
2,534
    
2,710
    
(176
)
  
(6
)%
Ford South America
    
3.1
    
2.1
    
1.0
    
48
    
246
    
209
    
37
    
18
  
Total The Americas
    
62.3
    
64.0
    
(1.7
)
  
(3
)
  
2,780
    
2,919
    
(139
)
  
(5
)
Ford Europe and PAG
                                                  
Ford Europe
    
22.0
    
19.1
    
2.9
    
15
    
1,270
    
1,253
    
17
    
1
  
PAG
    
22.3
    
19.8
    
2.5
    
13
    
559
    
559
    
—
    
—
  
Total Ford Europe and PAG
    
44.3
    
38.9
    
5.4
    
14
    
1,829
    
1,812
    
17
    
1
  
Ford Asia Pacific and Africa/Mazda
                                                  
Ford Asia Pacific and Africa
    
5.9
    
5.4
    
0.5
    
9
    
342
    
315
    
27
    
9
  
Mazda and Associated Operations (b)
    
0.2
    
—
    
0.2
    
—
    
14
    
—
    
14
    
—
  
Total Ford Asia Pacific and
 Africa/Mazda
    
6.1
    
5.4
    
0.7
    
13
    
356
    
315
    
41
    
13
  
Total Automotive
  
$
112.7
  
$
108.3
  
$
4.4
    
4
%
  
4,965
    
5,046
    
(81
)
  
(2
)%
__________
(a)  Included in vehicle unit sales of Ford Asia Pacific and Africa are Ford-badged vehicles sold in China and Malaysia by certain unconsolidated affiliates totaling 54,000 and 51,000 units in 2005 and 2004 respectively. “Sales” above does not include revenue from these units.
(b) Reflects sales of Mazda6 by our consolidated subsidiary - AutoAlliance International, Inc. ("AAI") - beginning with the consolidation of AAI in the third quarter of 2005.

Details of Automotive sector market share for selected markets for the first nine months of 2005 and 2004, along with the level of dealer stocks as of September 30, 2005 and September 30, 2004, are shown below:

   
First Nine Months
  
Dealer-Owned Stocks (a)
  
   
Market Share
  
(in thousands)
  
 
 
Market 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
 
September 30,
2005
  
 
September 30,
2004
  
2005
Over/(Under)
2004
  
                               
U.S. (b)
    
17.4
%
  
18.0
%
  
(0.6
)
  
pts.
    
639
    
785
    
(146
)
Brazil (b)
    
12.5
    
11.3
    
1.2
          
24
    
21
    
3
  
Europe (b) (c)
    
8.7
    
8.9
    
(0.2
)
        
287
    
310
    
(23
)
PAG - U.S./Europe (c)
   
1.1/2.3
    
1.3/2.3
    
(0.2)/0.0
 
        
42/60
    
39/53
    
3/7
  
Australia (b)
    
13.1
    
14.1
    
(1.0
)
        
21
    
22
    
(1
)
__________
(a)
Dealer-owned stocks represent our estimate of vehicles shipped to our customers (dealers) and not yet sold by the dealers to their retail customers, including some vehicles reflected in our inventory.
(b)
Includes only Ford and, in certain markets (primarily U.S.), Lincoln and Mercury brands.
(c)
European market share is based, in part, on estimated 2005 vehicle registrations for our 19 major European markets.

Overall Automotive Sector

The decline in results included the impact of the Automotive special items detailed above. In addition, the decline primarily reflected unfavorable cost performance, lower vehicle unit sales volume, and unfavorable currency exchange, offset partially by favorable net pricing and higher net interest income. The lower vehicle unit sales volume reflected lower dealer stock levels and market share, offset partially by higher industry sales volumes.

99.7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The table below details our first nine months 2005 cost performance (in billions):



 
 
 
Explanation of Cost Performance
First Nine Months
2005 Costs*
Better/(Worse)
Than 2004
     
Net product costs
New product programs and higher commodity prices
$(1.2)
Pension and healthcare
Effect of lower discount rates
  (0.6)
Quality-related
Warranty performance on prior model-year vehicles, offset
  
 
partially by cost recoveries from suppliers (including Bridgestone
  
 
Firestone)
  (0.5)
Depreciation and amortization
Related to investments for new vehicles
  (0.1)
Manufacturing and engineering
Ongoing improvements in our plants and processes.
0.7
 
Total
$(1.7)
__________
* At constant volume, mix, and exchange and excluding special items and discontinued operations.

For additional discussion of cost performance, see "Outlook" below.

The Americas Segment

Ford North America. The decline in results primarily reflected lower vehicle unit sales volume, higher material costs, higher warranty costs, a charge for a valuation allowance against employee-related receivables from Visteon, unfavorable currency exchange, and higher pension and OPEB costs.

Ford South America. The increase in earnings primarily reflected higher vehicle unit sales volume and favorable net pricing in excess of higher commodity costs.

Ford Europe and PAG Segment

Ford Europe. The decline in earnings primarily reflected unfavorable cost performance and net pricing.

PAG. The improvement in results primarily reflected higher net pricing, improved product mix, and favorable cost performance, offset partially by unfavorable currency exchange.

Ford Asia Pacific and Africa/Mazda Segment

Ford Asia Pacific and Africa. The decline in earnings primarily reflected unfavorable product mix, lower market share, and unfavorable cost performance, offset partially by higher industry volume and favorable changes in currency exchange rates.

Mazda and Associated Operations. The improvement in earnings primarily reflected gains on our investment in Mazda convertible bonds.

Other Automotive

The improvement primarily reflected tax-related interest on refund claims (about $200 million), higher favorable effects on interest expense from settlements of prior-year federal and state tax matters (about $200 million in 2005 compared with $100 million in 2004), higher net gain from the sale of non-core businesses (about $100 million), and higher returns on invested cash.


99.8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FINANCIAL SERVICES SECTOR

Details of Financial Services sector Income/(loss) before income taxes for the first nine months of 2005 and 2004 are shown below (in millions):
 
 
 
  
First Nine Months
Income/(Loss)
Before Income Taxes
  
 
 
 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
                     
Ford Credit
  
$
3,124
  
$
3,572
  
$
(448
)
Hertz
    
536
    
386
    
150
  
Other Financial Services
    
(65
)
  
4
    
(69
)
Total Financial Services sector
  
$
3,595
  
$
3,962
  
$
(367
)

Ford Credit

The decrease in earnings primarily resulted from higher borrowing costs, the impact of lower receivable levels and the unfavorable market valuation of derivative instruments and associated exposures, offset partially by improved credit loss performance.

Details of charge-offs and loss-to-receivables for the first nine months of 2005 and 2004 are shown below:

   
First Nine Months
  
 
 
 
  
 
 
2005
  
 
 
2004
  
2005
Over/(Under)
2004
  
Charge-offs (in millions)
                          
On-Balance Sheet
  
$
493
  
$
941
  
$
(448
)
      
Managed
    
609
    
1,192
    
(583
)
      
                           
                           
Loss-to-Receivables Ratios
                          
On-Balance Sheet
    
0.53
%
  
0.97
%
  
(0.44
)
  
pts.
  
Managed
    
0.50
%
  
0.92
%
  
(0.42
)
  
pts.
  

The decrease in charge-offs and loss-to-receivables for the on-balance sheet and managed portfolios primarily reflected fewer repossessions and a lower average loss per repossession. Lower levels of receivables also contributed to reduced charge-offs.

Hertz

The improvement in earnings primarily reflected the effect of Hertz being held for sale (i.e., the cessation of depreciation on long-lived assets) and higher car and equipment rental volumes.


Other Financial Services

The decline in results primarily reflected the write-off of aircraft leases related to the bankruptcy of Delta Air Lines and lower property sales.

99.9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

LIQUIDITY AND CAPITAL RESOURCES

Automotive Sector

For the Automotive sector, liquidity and capital resources include gross cash balances, cash generated by operations, funds raised in capital markets and committed credit lines.

Gross Cash. Automotive gross cash includes cash and cash equivalents, marketable and loaned securities and assets contained in a short-term Voluntary Employee Beneficiary Association trust (“VEBA”) as detailed below (in billions):

   
September 30, 2005
  
January 1, 2005
  
September 30, 2004
  
January 1, 2004
  
                           
Cash and cash equivalents
  
$
9.1
  
$
10.1
  
$
7.9
  
$
6.9
  
Marketable securities
    
7.9
    
8.3
    
9.1
    
9.3
  
Loaned securities
    
0.6
    
1.1
    
2.4
    
5.7
  
Total cash, marketable securities and loaned securities
    
17.6
    
19.5
    
19.4
    
21.9
  
Short-term VEBA assets
    
2.0
    
4.1
    
4.0
    
4.0
  
Gross cash
  
$
19.6
  
$
23.6
  
$
23.4
  
$
25.9
  

In managing our business, we classify changes in Automotive gross cash into two categories: operating-related and other (which includes pension and long-term VEBA contributions, tax refunds, capital transactions with the Financial Services sector, acquisitions and divestitures and other - primarily financing related). Our key metric is operating-related cash flow, which best represents the ability of our Automotive operations to generate cash. We believe the cash flow analysis reflected in the table below, which differs from a cash flow statement presented in accordance with generally accepted accounting principles in the United States ("GAAP"), is useful to investors because it includes cash flow elements that we consider to be related to our operating activities (e.g., capital spending) that are not included in Net cash flows from operating activities, the most directly comparable GAAP financial measure.

Changes in Automotive gross cash for the third quarter and first nine months of 2005 and 2004 are summarized below (in billions):


   
Third Quarter
  
First Nine Months
  
 
  
2005
  
2004
  
2005
  
2004
  
                                 
Gross cash at end of period
  
$
19.6
        
$
23.4
  
$
19.6
  
$
23.4
  
Gross cash at beginning of period
    
21.8
          
26.8
    
23.6
    
25.9
  
Total change in gross cash
  
$
(2.2
)
      
$
(3.4
)
$
(4.0
)
$
(2.5
)
                                 
Operating-related cash flows
                                
Automotive income/(loss) before income taxes
  
$
(1.6
)
      
$
(0.7
)
$
(1.7
)
$
1.1
  
Capital expenditures
    
(1.8
)
        
(2.0
)
  
(5.1
)
  
(4.6
)
Depreciation and special tools amortization
    
1.6
          
1.6
    
5.1
    
4.8
  
Changes in receivables, inventory and trade payables
    
0.3
          
0.1
    
0.1
    
(0.7
)
Other (a)
    
(1.4
)
        
(1.9
)
  
(0.7
)
  
(1.1
)
Total operating-related cash flows
    
(2.9
)
        
(2.9
)
  
(2.3
)
  
(0.5
)
                                 
Other changes in cash
                                
Contributions to funded pension plans/long-term VEBA
    
—
          
(1.5
)
  
(2.6
)
  
(3.0
)
Tax refunds
    
—
          
—
    
0.3
    
—
  
Capital transactions with Financial Services sector (b)
    
1.0
          
1.5
    
2.2
    
3.4
  
Acquisitions and divestitures
    
0.2
    
(c)
 
  
—
    
(0.4
)
  
0.3
  
Dividends paid to shareholders
    
(0.2
)
        
(0.2
)
  
(0.6
)
  
(0.5
)
Changes in total Automotive sector debt
    
(0.1
)
        
(0.3
)
  
(0.4
)
  
(2.0
)
Other
    
(0.2
)
  
(d)
 
  
—
    
(0.2
)
  
(0.2
)
Total change in gross cash
  
$
(2.2
)
      
$
(3.4
)
$
(4.0
)
$
(2.5
)
__________
(a)
Primarily expense and payment timing differences for items such as marketing, warranty, pension and OPEB.
(b)
Primarily dividends received from Ford Credit, excluding proceeds from Financial Services sector divestitures paid to the Automotive sector.
(c)
Primarily proceeds from the sale of our remaining interest in Kwik-Fit Group Limited.
(d)
Primarily the payment for purchase of shares of Automotive Components Holdings, LLC from Visteon (an outflow of about $300 million) and the net issuance of Ford Common stock under employee savings plans (an inflow of about $100 million).


99.10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Shown in the table below is a reconciliation between financial statement Cash flows from operating activities and operating-related cash flows (calculated as shown in the table above), for the third quarter and first nine months of 2005 and 2004 (in billions):


   
Third Quarter
  
First Nine Months
  
   
2005
  
2004
  
2005
  
2004
  
                                       
Net cash flows from operating activities
  
$
(0.3
)
$
2.2
  
$
4.5
        
$
5.0
        
Items included in operating-related cash flows
                                      
Capital expenditures
    
(1.8
)
  
(2.0
)
  
(5.1
)
        
(4.6
)
      
Net transactions between auto and financial services sector
    
0.2
    
(0.4
)
  
(0.2
)
  
(a)
 
  
0.1
    
(a)
 
Net sales/(purchases) of trading securities
    
(0.3
)
  
(4.4
)
  
(1.3
)
        
(3.7
)
      
Other (b)
   
(0.7
)
  
0.2
    
(2.5
)
        
(0.3
)
      
Items not included in operating-related cash flows
                                      
Pension and long-term VEBA contributions
    
—
    
1.5
    
2.6
          
3.0
        
Tax refunds
    
—
    
—
    
(0.3
)
        
—
        
Operating-related cash flows
  
$
(2.9
)
$
(2.9
)
$
(2.3
)
      
$
(0.5
)
      
__________
(a)
Primarily payables and receivables between the sectors in the normal course of business, as shown in our Condensed Sector Statement of Cash Flows for the Automotive sector.
(b)
Primarily the exclusion of cash flow from short-term VEBA contribution/(drawdown).

Debt. At September 30, 2005, our Automotive sector had total debt of $18.2 billion, compared with $18.4 billion at December 31, 2004. Total senior debt at September 30, 2005 was $13.1 billion, compared with $13.3 billion at December 31, 2004. The decrease in senior debt primarily reflected repurchases of debt securities in the open market. Ford Motor Company Capital Trust II had outstanding $5.0 billion of trust preferred securities at September 30, 2005.

Seasonal Working Capital Funding. In July 2005, we raised $2.0 billion of seasonal working capital funding to reduce the cash volatility that results from our summer plant shutdown period. The funding was in the form of 60-day bank loans, which were repaid in early September.

Credit Facilities. At September 30, 2005, the Automotive sector had $7.1 billion of contractually committed credit agreements with various banks, of which $6.9 billion were available for use. Of the total facilities, 73% are committed through June 30, 2010. Of the $7.1 billion, $6.5 billion constitute global credit facilities and may be used, at Ford's option, by any of its direct or indirect majority-owned subsidiaries on a guaranteed basis. Ford also has the ability to transfer, on a non-guaranteed basis, $2.2 billion of such global credit facilities to Ford Credit and about $500 million to FCE Bank plc ("FCE"), Ford Credit's European operation. All of the global credit facilities are free of material adverse change clauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum net worth requirements and credit rating triggers) that would limit our ability to borrow.

Financial Services Sector

Ford Credit

Debt and Cash. Ford Credit’s total debt was $121.6 billion at September 30, 2005, down $22.7 billion compared with year-end 2004, primarily reflecting repayment of maturing debt and lower funding requirements due to lower asset levels. At September 30, 2005, Ford Credit’s outstanding unsecured commercial paper was $1.9 billion, down $7.0 billion from year-end 2004, reflecting decreased investor demand. For additional discussion, see "Credit Ratings" below.

At September 30, 2005, Ford Credit had cash and cash equivalents of $19.0 billion. In the normal course of its funding activities, Ford Credit may generate more proceeds than are necessary for its immediate funding needs. These excess amounts are maintained primarily as highly liquid investments, which provide liquidity for Ford Credit’s short-term funding needs and give Ford Credit flexibility in the use of its other funding programs.

Funding. During the third quarter of 2005, Ford Credit issued $4.1 billion of public and private long-term debt with maturities of one to ten years, including $1.5 billion of unsecured institutional funding, approximately $100 million of unsecured retail bonds and $2.5 billion of asset-backed funding. In addition, Ford Credit realized proceeds of $2.6 billion from public and private sales of receivables in off-balance sheet securitizations. Ford Credit's present full-year 2005 funding plans are in the range of $20 billion to $24 billion for public funding and $18 billion to $23 billion for private transactions. At September 30, 2005, Ford Credit has completed approximately $20 billion of public funding and approximately $14 billion through private transactions.

99.11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
 
Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including establishing pricing for retail, wholesale and lease financing, and assessing its capital structure. Ford Credit calculates leverage on a financial statement basis and on a managed basis.

The following table illustrates the calculation of Ford Credit’s financial statement leverage (in billions, except for ratios):

   
September 30,
  
December 31,
  
 
  
2005
  
2004
  
           
Total debt
  
$
121.6
  
$
144.3
  
Total stockholder’s equity
    
10.6
    
11.5
  
Debt-to-equity ratio (to 1)
    
11.5
    
12.6
  

The following table illustrates the calculation of Ford Credit’s managed leverage (in billions, except for ratios):

   
September 30,
  
December 31,
  
 
  
2005
  
2004
  
               
Total debt
  
$
121.6
  
$
144.3
        
Securitized off-balance sheet receivables outstanding
    
35.0
    
37.7
    
(a)
 
Retained interest in securitized off-balance sheet receivables
    
(4.4
)
  
(9.5
)
  
(b)
 
Adjustments for cash and cash equivalents
    
(19.0
)
  
(12.7
)
      
Adjustments for SFAS No. 133
    
(2.0
)
  
(3.2
)
      
Total adjusted debt
  
$
131.2
  
$
156.6
        
                     
Total stockholder’s equity (including minority interest)
  
$
10.6
  
$
11.5
        
Adjustments for SFAS No. 133
    
(0.1
)
  
(0.1
)
      
Total adjusted equity
  
$
10.5
  
$
11.4
        
                     
Managed debt-to-equity ratio (to 1)
    
12.5
    
13.7
        
__________
(a)
Includes securitized funding from discontinued operations.
(b)
Includes retained interest in securitized receivables from discontinued operations.

Ford Credit’s present strategy is to maintain managed leverage in the 12 - 13 to 1 range. Based on profitability and managed receivable levels, Ford Credit paid cash dividends of $2.6 billion in the first nine months of 2005.

Credit Facilities. For additional funding and to maintain liquidity, Ford Credit and its majority-owned subsidiaries, including FCE, have contractually-committed credit facilities with financial institutions that totaled approximately $6.1 billion at September 30, 2005. This includes $3.7 billion of Ford Credit facilities ($3.1 billion global and approximately $600 million non-global) and $2.4 billion of FCE facilities ($2.3 billion global and approximately $100 million non-global). Approximately $800 million of the total facilities were in use at September 30, 2005. The facilities have various maturity dates. Of the $6.1 billion, about 32% of these facilities are committed through June 30, 2010. Ford Credit's global credit facilities may be used at its option by any of its direct or indirect majority-owned subsidiaries. FCE's global credit facilities may be used at its option by any of its direct or indirect majority-owned subsidiaries. Ford Credit or FCE, as the case may be, will guarantee any such borrowings. All of the global credit facilities have substantially identical contract terms (other than commitment amounts) and are free of material adverse change clauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum net worth requirements and credit rating triggers) that could limit Ford Credit's ability to borrow.

Additionally, at September 30, 2005, banks provided $18.8 billion of contractually-committed liquidity facilities exclusively to support Ford Credit's two asset-backed commercial paper programs; $18.3 billion supported Ford Credit's on-balance sheet securitization program ("FCAR") and $500 million supported the Motown NotesSM portion of its off-balance sheet wholesale securitization program ("Motown Notes"). The FCAR and Motown Notes programs must be supported by liquidity facilities equal to at least 100% and 5%, respectively, of their face amount. At September 30, 2005, about $18.0 billion of FCAR's bank credit facilities were available to support FCAR's asset-backed commercial paper or subordinated debt. The remaining $300 million of available credit lines could be accessed for additional funding if FCAR issued additional subordinated debt. Utilization of these facilities is subject to conditions specific to each program and Ford Credit having a sufficient amount of securitizable assets. At September 30, 2005, the outstanding balances were approximately $14.1 billion for the FCAR program and $8.5 billion for the Motown Notes program.

In addition, Ford Credit has entered into agreements with a number of bank-sponsored commercial paper issuers ("conduits") under which such conduits are contractually committed to purchase from Ford Credit, at Ford Credit's option, up to an aggregate of approximately $16.1 billion of receivables as of September 30, 2005. The agreements have varying maturity dates between June 22, 2006 and October 26, 2006. Ford Credit's ability to access these conduits is subject to
 
99.12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
 
Ford Credit having a sufficient amount of securitizable assets. As of September 30, 2005, approximately $4.9 billion of these conduit commitments were in use.

Hertz

Debt and Cash. At September 30, 2005, Hertz had total debt of $10.6 billion, up $2.2 billion from December 31, 2004, which includes the payment on June 10, 2005 of a dividend of $1.2 billion on Hertz' outstanding common stock paid to Ford in the form of an intercompany note. At September 30, 2005, commercial paper outstanding was $1.5 billion ($850 million asset-backed securitization, and the remainder unsecured), down $0.4 billion from December 31, 2004. At September 30, 2005, Hertz had cash and cash equivalents of about $800 million, up from about $700 million at December 31, 2004.

On May 31, 2005, Hertz began borrowing from external financial institutions under an interim credit facility of $3.0 billion maturing on November 23, 2005. As of September 30, 2005, Hertz had outstanding borrowings of approximately $1.2 billion and C$550 million under this facility. On October 11, 2005, Hertz entered into a commitment letter with external financial institutions to provide Hertz with a $2.6 billion credit facility which will replace and refinance in full the indebtedness under the interim credit facility.

Hertz has an asset-backed securitization (“ABS”) program for its domestic car rental fleet to reduce its borrowing costs and enhance its financing flexibility. As of September 30, 2005, $1.5 billion was outstanding under the ABS program, consisting of $850 million of commercial paper and $600 million of medium-term notes.

Total Company

Stockholders’ Equity. Our stockholders’ equity was $14.0 billion at September 30, 2005, down $2.0 billion compared with December 31, 2004. The decline primarily reflected other comprehensive loss of $3.7 billion and dividends of $552 million, offset partially by net income of $1.9 billion and the net issuance of Ford common stock under employee savings plans of $332 million.

Credit Ratings

Ford. In July 2005, Fitch lowered Ford's long-term rating to BBB- from BBB, affirmed the short-term rating at F2 and maintained the outlook at Negative. In August 2005, Moody's lowered Ford's long-term rating from Baa3 to Ba1 and maintained the outlook at Negative. In October 2005, DBRS lowered Ford's long-term rating to BB (high) from BBB (low), lowered the short-term rating to R-3 (high) from R-2 (low) and maintained the trend at Negative. Also in October 2005, S&P placed Ford's long- and short-term ratings on CreditWatch with negative implications.

Ford Credit. In July 2005, Fitch lowered Ford Credit's long-term rating to BBB- from BBB, affirmed the short-term rating at F2 and maintained the outlook at Negative. In August 2005, Moody's lowered Ford Credit's long-term rating from Baa2 to Baa3, lowered the short-term rating from P2 to P3 and maintained the outlook at Negative. In October 2005, DBRS lowered Ford Credit's long-term rating to BBB (low) from BBB, lowered the short-term rating to R-2 (low) from R-2 (middle) and maintained the trend at Negative. Also in October 2005, S&P placed Ford Credit's long- and short-term ratings on CreditWatch with negative implications.

Hertz. In September 2005, Moody's placed Hertz' ratings under review for possible downgrade. In September 2005, Fitch placed Hertz' ratings on Rating Watch Negative status. In September 2005, S&P placed Hertz' ratings on CreditWatch with negative implications. Also in September 2005, DBRS placed Hertz' ratings under review with negative implications.


99.13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The following chart summarizes our present credit ratings and the outlook assigned by four of the nationally recognized statistical rating organizations:

 
DBRS
Fitch
Moody's
S&P
 
Long-
Term
Short-Term
Trend
Long-Term
Short-Term
Outlook
Long-Term
Short-Term
Outlook
Long-Term
Short-Term
Outlook
Ford
BB (high)
R-3 (high)
Negative
BBB-
F2
Negative
Ba1
NA
Negative
BB+*
B-1*
Watch Negative
Ford Credit
BBB (low)
R-2 (low)
Negative
BBB-
F2
Negative
Baa3
P-3
Negative
BB+*
B-1*
Watch Negative
Hertz
BBB **
R-2 (middle) **
--
BBB-
F2
Watch Negative
Baa3 ***
P-3***
Under Review
BBB-*
A-3*
Watch Negative
__________
* Rating on CreditWatch with negative implications.
** Rating under review with negative implications.
*** Rating under review for possible downgrade.

As a result of credit rating downgrades, our unsecured borrowing costs have increased. In addition, Ford Credit's access to the unsecured debt markets has become more restricted and its outstanding unsecured term debt balances and unsecured commercial paper balances have declined. In response, Ford Credit has increased its use of securitization and other asset-related sources of liquidity. Over time, Ford Credit may also need to reduce further the amount of receivables it purchases. A significant reduction in the amount of purchased receivables would significantly reduce Ford Credit's ongoing profits, and could adversely affect its ability to support the sale of Ford vehicles. 


OFF-BALANCE SHEET ARRANGEMENTS

Special Purpose Entities. At September 30, 2005, the total outstanding principal amount of receivables sold by Ford Credit and held by off-balance sheet securitization entities was $35.0 billion, down about $600 million from December 31, 2004. Ford Credit's retained interests in such sold receivables at September 30, 2005 were $4.4 billion, down $4.8 billion from December 31, 2004.


OUTLOOK

Shown below are our 2005 planning assumptions and operation metrics established and announced in January 2005 and our present full-year outlook for them:

Industry Volume (SAAR incl. heavy trucks)
Planning Assumptions
  
Full-Year Outlook
U.S. (million units)
17.2
  
17.4
Europe (million units)
17.3
  
17.5
       
Operation Metrics
2005 Milestones
    
Quality
Improve in all regions
  
Flat
Market share
Improve in all regions
  
Down
Automotive cost performance *
Hold costs flat
  
Worse
Capital spending
$7 billion or lower
  
On Track
__________
* At constant volume, mix and exchange; excluding special items and discontinued operations.

Our current projection of fourth quarter 2005 production, which will be re-evaluated later in November, is as follows:

   
Fourth Quarter
  
 
 
Business Unit
  
 
 
Vehicle Unit Production
  
2005
Over/(Under)
2004
  
Ford North America
    
810,000
    
(19,000
)
Ford Europe
    
445,000
    
11,000
  
PAG
    
180,000
    
—
  


99.14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)


We continue to face increasingly challenging conditions in the automotive industry. We expect to continue to experience commodity cost pressures (on material costs and the effect of high gasoline prices on vehicle segmentation), unfavorable currency exchange, and the adverse effects of high health care costs and low discount rates compared with a year ago. We also continue to experience the effects of industry overcapacity (e.g., continued high marketing incentives), as well as the effects of increased pressure on the industry's supply base as suppliers cope with higher commodity costs, lower production and other challenges. It has become increasingly challenging for some of our suppliers to achieve and pass on to us the level of productivity improvements that we previously anticipated, and we continue to take actions as necessary, including providing financial assistance to certain suppliers, to ensure an uninterrupted supply of materials and components.

We are in the process of implementing our recently-announced supplier sourcing initiative, designed to improve quality and warranty performance and drive technology innovations while lowering costs. This strategy is expected to reduce by as much as half the number of suppliers providing components to Ford.

In September 2005, we entered into a new collective bargaining agreement with the Canadian Autoworkers Union, which expires on September 16, 2008 and provides for closure of the Windsor Casting Plant in late 2007. The contract also provides for wage and pension increases, while establishing a number of caps on various healthcare programs.

Moving forward, we plan to respond to the tougher environment with additional actions aimed at improving our cost structure, optimizing our global manufacturing footprint, strengthening our balance sheet and making essential investments to drive innovation in our products and operations. We are in discussions with the UAW to explore ways to reduce our ongoing health care costs, and we are planning further actions for our Automotive sector, which likely will include more personnel reductions, significant plant closures and other cost-reduction measures. In addition, we are making investments in growing vehicle segments (e.g., crossovers), growing markets (e.g., Asia Pacific) and new technologies (e.g., hybrid powertrains).

As disclosed in our Current Report on Form 8-K dated September 12, 2005, we entered into a definitive agreement with an investor group of private equity firms under which Ford will sell all of the shares of common stock of Hertz in a transaction valued at approximately $15 billion, including debt. The acquiring investor group is composed of Clayton Dubilier & Rice, The Carlyle Group, and Merrill Lynch Global Private Equity. Under the terms of the transaction, which is anticipated to close by year-end 2005, Ford will receive cash proceeds of $5.6 billion for the equity of Hertz. Pre-tax gain on the sale of Hertz is expected to be in the range of $1.1 billion to $1.3 billion. Closing of the transaction is subject to customary conditions, as set forth in the definitive agreement filed as Exhibit 2 hereto.

As disclosed in our Current Report on Form 8-K dated October 1, 2005, Ford began operation of Automotive Components Holdings, LLC, a Ford-managed business entity consisting of 23 facilities reacquired from Visteon Corporation on October 1, 2005. Ford currently is developing business plans designed to quickly prepare most of the operations for sale to companies with the capital and expertise necessary to provide Ford with components and technologies at competitive prices and high quality. See Note 12 of the Notes to the Financial Statements for additional information regarding the anticipated full-year financial impact of the transaction with Visteon.

On November 4, 2005, we signed a definitive agreement with Fiat Auto SpA and Fiat Auto Poland SA to cooperate on a new small car platform in Europe. We anticipate that this relationship will reduce development costs while providing highly competitive products for the growing small car market. The first Ford-badged vehicle resulting from this alliance would likely enter the European market in 2008, and currently is planned to be a replacement for the Ford Ka in Europe.

We expect Ford Credit's earnings in 2005 to be lower than in 2004, primarily resulting from the impact of higher interest rates and lower receivable levels, offset partially by improved credit loss performance. We expect Ford Credit's managed receivables at year-end 2005 to be about $145 billion to $150 billion.

Risk Factors

Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

•
greater price competition resulting from industry overcapacity, currency fluctuations or other factors;
•
a significant decline in industry sales, particularly in the U.S. or Europe, resulting from slowing economic growth, geo-political events or other factors;

99.15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)


•
lower-than-anticipated market acceptance of new or existing products;
•
economic distress of suppliers that may require us to provide financial support or take other measures to ensure supplies of materials;
•
work stoppages at Ford or supplier facilities or other interruptions of supplies;
•
the discovery of defects in vehicles resulting in delays in new model launches, recall campaigns or increased warranty costs;
•
increased safety, emissions, fuel economy or other regulation resulting in higher costs and/or sales restrictions;
•
unusual or significant litigation or governmental investigations arising out of alleged defects in our products or otherwise;
•
worse-than-assumed economic and demographic experience for our postretirement benefit plans (e.g., investment returns, interest rates, health care cost trends, benefit improvements);
•
currency or commodity price fluctuations, including, for example, last year's sharp rise in steel prices;
•
changes in interest rates;
•
an increase in or acceleration of the market shift from truck sales or from sales of other more profitable vehicles in the U.S.;
•
economic difficulties in any significant market;
•
higher prices for or reduced availability of fuel;
•
labor or other constraints on our ability to restructure our business;
•
a change in our requirements or obligations under long-term supply arrangements pursuant to which we are obligated to purchase minimum quantities or a fixed percentage of output or pay minimum amounts;
•
additional credit rating downgrades;
•
inability to access debt or securitization markets around the world at competitive rates or in sufficient amounts;
•
higher-than-expected credit losses;
•
lower-than-anticipated residual values and/or higher-than-expected return rates for leased vehicles; and
•
increased price competition in the rental car industry and/or a general decline in business or leisure travel due to terrorist attacks, acts of war, epidemic disease
or measures taken by governments in response thereto that negatively affect the travel industry.

We cannot be certain that any expectations, forecasts or assumptions made by management in preparing these forward-looking statements will prove accurate, or that any projections will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

In March 2005, the Financial Accounting Standards Board issued Interpretation No. 47 ("FIN 47"), Accounting for Conditional Asset Retirement Obligations. FIN 47 clarifies that liabilities associated with asset retirement obligations whose timing or settlement method are conditional upon future events should be recognized at fair value as soon as fair value is reasonably estimable. FIN 47 also provides guidance on the information required to reasonably estimate the fair value of the liability. We are in the process of identifying such asset retirement obligations that may exist throughout our global operations and assessing whether the obligations are reasonably estimable. FIN 47 is effective no later than December 31, 2005, and may have a material impact on our consolidated financial position and results of operations.
 
OTHER FINANCIAL INFORMATION
 

The interim financial information included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 has not been audited by PricewaterhouseCoopers LLP ("PwC"). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Accordingly, you should restrict your reliance on their reports on such information. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the interim financial information because such reports do not constitute "reports" or "parts" of the registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933. 


ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. William Clay Ford, Jr., our Chief Executive Officer, and Donat R. Leclair, Jr., our Chief Financial Officer, have performed an evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2005, and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls over Financial Reporting. As a result of changes in the cost-sharing arrangements among Ford, Mazda and AutoAlliance International, Inc. ("AAI"), Ford consolidated AAI for purposes of financial reporting beginning with the third quarter of 2005.

We also replaced several primary Automotive sector financial systems in Italy during the third quarter of 2005, including the general ledger, receivables and payables systems. These new systems are similar to those used by other Automotive sector operations.


PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

Environmental Matters

St. Louis Assembly Plant Enforcement Action. (Previously reported on page 26 of our Annual Report on Form 10-K for the year ended December 31, 2004.) The Department of Justice formally issued a demand letter to Ford on August 30, 2005. Ford has replied to the demand and submitted a settlement offer, and we expect that a negotiated resolution can be reached.

Chicago Assembly Plant Notice of Violation Regarding Waste Handling. (Previously reported on page 26 of our Annual Report on Form 10-K for the year ended December 31, 2004.) Ford and the Environmental Protection Agency have agreed to resolve this notice of violation through an administrative order that includes a $20,394 fine.




99.16

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the third quarter of 2005, we purchased shares of our Common Stock as follows:

 
 
 
 
Period
  
 
 
Total Number of Shares Purchased a/
  
 
 
Average Price Paid per Share
  
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
  
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
 
 
July 1, 2005
through
July 31, 2005
  
 
 
 
2,065,113
  
 
 
 
$10.67
  
 
 
 
0
  
 
 
No publicly announced repurchase program in place
 
August 1, 2005
through
August 31, 2005
  
 
 
 
2,423,770
  
 
 
 
$10.23
  
 
 
 
0
  
 
 
No publicly announced repurchase program in place
 
September 1, 2005
through
September 30, 2005
  
 
 
 
2,056,965
  
 
 
 
$9.89
  
 
 
 
0
  
 
 
No publicly announced repurchase program in place
 
Total
  
 
 
6,545,848
  
 
 
$10.26
  
 
 
0
  
 
 
__________
                
                 

a/
We currently do not have a publicly announced repurchase program in place. Of the 6,545,848 shares purchased, 6,527,415 shares were purchased from the Ford Motor Company Savings and Stock Investment Plan for Salaried Employees ("SSIP") and the Tax Efficient Savings Plan for Hourly Employees ("TESPHE"). Shares are generally purchased from the SSIP and TESPHE when participants in those plans elect to sell units in the Ford Stock Fund upon retirement, upon termination of employment with the Company, related to an in-service distribution, or to fund a loan against an existing account balance in the Ford Stock Fund. Shares are not purchased from these plans when a participant transfers account balances out of the Ford Stock Fund and into another investment option under the plans. The remaining shares were acquired from our employees or directors in accordance with our various compensation plans as a result of share withholdings to pay income taxes with respect to: (i) the lapse of restrictions on restricted stock, (ii) the issuance of unrestricted stock, including issuances as a result of the conversion of restricted stock equivalents, or (iii) to pay the exercise price and related income taxes with respect to certain exercises of stock options.


99.17