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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☑ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2023
or
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| ☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| | For the transition period from ____________________ to ____________________ | |
Commission file number 1-6368
Ford Motor Credit Company LLC
(Exact name of registrant as specified in its charter)
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| Delaware | | | 38-1612444 |
(State of organization) | | | (I.R.S. employer identification no.) |
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| One American Road | | | |
| Dearborn, | Michigan | | | 48126 |
| (Address of principal executive offices) | | | (Zip Code) |
(313) 322-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Floating Rate Notes due November 15, 2023* | | F/23D | | New York Stock Exchange |
| 3.021% Notes due March 6, 2024* | | F/24M | | New York Stock Exchange |
| 2.748% Notes due on June 14, 2024* | | F/24S | | New York Stock Exchange |
| 4.125% Notes due on June 20, 2024* | | F/24O | | New York Stock Exchange |
| 1.744% Notes due July 19, 2024* | | F/24R | | New York Stock Exchange |
| Floating Rate Notes due December 1, 2024* | | F/24L | | New York Stock Exchange |
| 3.683% Notes due on December 3, 2024* | | F/24Q | | New York Stock Exchange |
| 1.355% Notes due February 7, 2025* | | F/25I | | New York Stock Exchange |
| 4.535% Notes due March 6, 2025* | | F/25K | | New York Stock Exchange |
| 3.250% Notes due September 15, 2025* | | F/25M | | New York Stock Exchange |
| 2.330% Notes due on November 25, 2025* | | F/25L | | New York Stock Exchange |
| 2.386% Notes due February 17, 2026* | | F/26AB | | New York Stock Exchange |
| 6.860% Notes due June 5, 2026* | | F/26A | | New York Stock Exchange |
| 3.350% Notes due Nine Months or More from the Date of Issue due August 20, 2026 | | F/26N | | New York Stock Exchange |
| 4.867% Notes due August 3, 2027* | | F/27A | | New York Stock Exchange |
| 6.125% Notes due May 15, 2028* | | F/28B | | New York Stock Exchange |
| *Issued under Euro Medium Term Notes due Nine Months or More from The Date of Issue Program |
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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer þ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
All of the limited liability company interests in the registrant (“Shares”) are held by an affiliate of the registrant. None of the Shares are publicly traded.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.
FORD MOTOR CREDIT COMPANY LLC
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2023
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| Table of Contents | | Page |
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| Part I. Financial Information | | |
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| Part II. Other Information | | |
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the periods ended September 30, |
| 2022 | | 2023 | | 2022 | | 2023 |
| Third Quarter | | First Nine Months |
| (unaudited) |
| Financing revenue | | | | | | | |
| Operating leases | $ | 1,123 | | | $ | 1,017 | | | $ | 3,500 | | | $ | 3,095 | |
| Retail financing | 857 | | | 1,104 | | | 2,637 | | | 3,046 | |
| Dealer financing | 270 | | | 617 | | | 655 | | | 1,721 | |
| Other financing | 17 | | | 36 | | | 39 | | | 94 | |
| Total financing revenue | 2,267 | | | 2,774 | | | 6,831 | | | 7,956 | |
| Depreciation on vehicles subject to operating leases | (579) | | | (576) | | | (1,643) | | | (1,690) | |
| Interest expense | (851) | | | (1,653) | | | (2,119) | | | (4,575) | |
| Net financing margin | 837 | | | 545 | | | 3,069 | | | 1,691 | |
| Other revenue | | | | | | | |
| Insurance premiums earned | 19 | | | 29 | | | 51 | | | 84 | |
| Fee based revenue and other | 17 | | | 25 | | | 95 | | | 99 | |
| Total financing margin and other revenue | 873 | | | 599 | | | 3,215 | | | 1,874 | |
| Expenses | | | | | | | |
| Operating expenses | 336 | | | 340 | | | 991 | | | 1,000 | |
| Provision for/(Benefit from) credit losses (Note 4) | 39 | | | 74 | | | (81) | | | 191 | |
| Insurance expenses | (2) | | | 14 | | | — | | | 54 | |
| Total expenses | 373 | | | 428 | | | 910 | | | 1,245 | |
| | | | | | | |
| Other income/(loss), net (Note 11) | 89 | | | 187 | | | (59) | | | 413 | |
| | | | | | | |
| Income before income taxes | 589 | | | 358 | | | 2,246 | | | 1,042 | |
| Provision for/(Benefit from) income taxes | 151 | | | 119 | | | 335 | | | 277 | |
| Net income | $ | 438 | | | $ | 239 | | | $ | 1,911 | | | $ | 765 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the periods ended September 30, |
| 2022 | | 2023 | | 2022 | | 2023 |
| Third Quarter | | First Nine Months |
| (unaudited) |
| Net income | $ | 438 | | | $ | 239 | | | $ | 1,911 | | | $ | 765 | |
| Other comprehensive income/(loss), net of tax | | | | | | | |
| Foreign currency translation gains/(losses) | (476) | | | (124) | | | (922) | | | (18) | |
| Reclassification of accumulated foreign currency translation (gains)/losses to net income | — | | | — | | | 231 | | | — | |
| Comprehensive income/(loss) | $ | (38) | | | $ | 115 | | | $ | 1,220 | | | $ | 747 | |
The accompanying notes are part of the consolidated financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| (unaudited) |
| ASSETS | | | |
| Cash and cash equivalents (Note 3) | $ | 10,393 | | | $ | 10,651 | |
| Marketable securities (Note 3) | 1,493 | | | 1,464 | |
| Finance receivables, net | | | |
| Retail installment contracts, dealer financing, and other financing | 94,090 | | | 99,041 | |
| Finance leases | 6,423 | | | 6,928 | |
Total finance receivables, net of allowance for credit losses of $845 and $876 (Note 4) | 100,513 | | | 105,969 | |
| Net investment in operating leases (Note 5) | 21,821 | | | 20,358 | |
| Notes and accounts receivable from affiliated companies | 793 | | | 1,296 | |
| Derivative financial instruments (Note 7) | 987 | | | 1,043 | |
| Other assets (Note 8) | 2,576 | | | 2,770 | |
| Total assets | $ | 138,576 | | | $ | 143,551 | |
| | | |
| LIABILITIES | | | |
| Accounts payable | | | |
| Customer deposits, dealer reserves, and other | $ | 1,097 | | | $ | 974 | |
| Affiliated companies | 581 | | | 726 | |
| Total accounts payable | 1,678 | | | 1,700 | |
| Debt (Note 9) | 119,039 | | | 122,892 | |
| Deferred income taxes | 921 | | | 921 | |
| Derivative financial instruments (Note 7) | 3,026 | | | 2,982 | |
| Other liabilities and deferred revenue (Note 8) | 2,035 | | | 2,432 | |
| Total liabilities | 126,699 | | | 130,927 | |
| | | |
| SHAREHOLDER’S INTEREST | | | |
| Shareholder’s interest | 5,166 | | | 5,166 | |
| Accumulated other comprehensive income/(loss) | (1,017) | | | (1,035) | |
| Retained earnings | 7,728 | | | 8,493 | |
| Shareholder’s interest attributable to Ford Motor Credit Company | 11,877 | | | 12,624 | |
| Shareholder’s interest attributable to noncontrolling interests | — | | | — | |
| Total shareholder’s interest | 11,877 | | | 12,624 | |
| Total liabilities and shareholder’s interest | $ | 138,576 | | | $ | 143,551 | |
The following table includes assets to be used to settle the liabilities of the consolidated variable interest entities (“VIEs”). These assets and liabilities are included in the consolidated balance sheets above.
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| (unaudited) |
| ASSETS | | | |
| Cash and cash equivalents | $ | 2,274 | | | $ | 2,348 | |
| Finance receivables, net | 49,142 | | | 51,805 | |
| Net investment in operating leases | 12,545 | | | 10,563 | |
| Derivative financial instruments | 264 | | | 215 | |
| | | |
| LIABILITIES | | | |
| Debt | $ | 45,451 | | | $ | 46,664 | |
| Derivative financial instruments | 2 | | | — | |
The accompanying notes are part of the consolidated financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S INTEREST
(in millions, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shareholder’s Interest | | Accumulated Other Comprehensive Income/(Loss) | | Retained Earnings | | Total Shareholder’s Interest | | Shareholder’s Interest Attributable to Non-controlling Interests | | Total Shareholder’s Interest |
| Balance at December 31, 2021 | | $ | 5,227 | | | $ | (690) | | | $ | 7,839 | | | $ | 12,376 | | | $ | 22 | | | $ | 12,398 | |
| Net income/(loss) | | — | | | — | | | 669 | | | 669 | | | — | | | 669 | |
| Other comprehensive income/(loss), net of tax | | — | | | 152 | | | — | | | 152 | | | — | | | 152 | |
| Distributions declared | | — | | | — | | | (1,000) | | | (1,000) | | | — | | | (1,000) | |
| Other (Note 10) | | (61) | | | — | | | — | | | (61) | | | (22) | | | (83) | |
| Balance at March 31, 2022 | | 5,166 | | | (538) | | | 7,508 | | | 12,136 | | | — | | | 12,136 | |
| Net income/(loss) | | — | | | — | | | 804 | | | 804 | | | — | | | 804 | |
| Other comprehensive income/(loss), net of tax | | — | | | (367) | | | — | | | (367) | | | — | | | (367) | |
| Distributions declared | | — | | | — | | | (600) | | | (600) | | | — | | | (600) | |
| Balance at June 30, 2022 | | 5,166 | | | (905) | | | 7,712 | | | 11,973 | | | — | | | 11,973 | |
| Net income/(loss) | | — | | | — | | | 438 | | | 438 | | | — | | | 438 | |
| Other comprehensive income/(loss), net of tax | | — | | | (476) | | | — | | | (476) | | | — | | | (476) | |
| Distributions declared | | — | | | — | | | (500) | | | (500) | | | — | | | (500) | |
| Balance at September 30, 2022 | | $ | 5,166 | | | $ | (1,381) | | | $ | 7,650 | | | $ | 11,435 | | | $ | — | | | $ | 11,435 | |
| | | | | | | | | | | | |
| Balance at December 31, 2022 | | $ | 5,166 | | | $ | (1,017) | | | $ | 7,728 | | | $ | 11,877 | | | $ | — | | | $ | 11,877 | |
| Net income/(loss) | | — | | | — | | | 240 | | | 240 | | | — | | | 240 | |
| Other comprehensive income/(loss), net of tax | | — | | | 88 | | | — | | | 88 | | | — | | | 88 | |
| Distributions declared | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at March 31, 2023 | | 5,166 | | | (929) | | | 7,968 | | | 12,205 | | | — | | | 12,205 | |
| Net income/(loss) | | — | | | — | | | 286 | | | 286 | | | — | | | 286 | |
| Other comprehensive income/(loss), net of tax | | — | | | 18 | | | — | | | 18 | | | — | | | 18 | |
| Distributions declared | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at June 30, 2023 | | 5,166 | | | (911) | | | 8,254 | | | 12,509 | | | — | | | 12,509 | |
| Net income/(loss) | | — | | | — | | | 239 | | | 239 | | | — | | | 239 | |
| Other comprehensive income/(loss), net of tax | | — | | | (124) | | | — | | | (124) | | | — | | | (124) | |
| Distributions declared | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at September 30, 2023 | | $ | 5,166 | | | $ | (1,035) | | | $ | 8,493 | | | $ | 12,624 | | | $ | — | | | $ | 12,624 | |
The accompanying notes are part of the consolidated financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | |
| For the periods ended September 30, |
| 2022 | | 2023 |
| First Nine Months |
| (unaudited) |
| Cash flows from operating activities | | | |
| Net income | $ | 1,911 | | | $ | 765 | |
| Provision for/(Benefit from) credit losses | (81) | | | 191 | |
| Depreciation and amortization | 2,131 | | | 2,133 | |
| Amortization of upfront interest supplements | (1,428) | | | (1,305) | |
| Net change in deferred income taxes | 278 | | | (2) | |
| Net change in other assets | (377) | | | (605) | |
| Net change in other liabilities | 668 | | | 449 | |
| All other operating activities | 83 | | | (62) | |
| Net cash provided by/(used in) operating activities | 3,185 | | | 1,564 | |
| | | |
| Cash flows from investing activities | | | |
| Purchases of finance receivables | (24,934) | | | (30,919) | |
| Principal collections of finance receivables | 28,252 | | | 27,336 | |
| Purchases of operating lease vehicles | (6,949) | | | (7,021) | |
| Proceeds from termination of operating lease vehicles | 7,736 | | | 6,740 | |
| Net change in wholesale receivables and other short-duration receivables | (6,800) | | | (1,129) | |
| Purchases of marketable securities and other investments | (3,341) | | | (1,918) | |
| Proceeds from sales and maturities of marketable securities and other investments | 3,585 | | | 1,979 | |
| Settlements of derivatives | 179 | | | (214) | |
| All other investing activities | (69) | | | (58) | |
| Net cash provided by/(used in) investing activities | (2,341) | | | (5,204) | |
| | | |
| Cash flows from financing activities | | | |
| Proceeds from issuances of long-term debt | 29,560 | | | 36,582 | |
| Payments of long-term debt | (33,578) | | | (31,663) | |
| Net change in short-term debt | 1,137 | | | (885) | |
| Cash distributions to parent | (2,100) | | | — | |
| All other financing activities | (58) | | | (109) | |
| Net cash provided by/(used in) financing activities | (5,039) | | | 3,925 | |
| | | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (443) | | | (30) | |
| | | |
| Net increase/(decrease) in cash, cash equivalents and restricted cash | $ | (4,638) | | | $ | 255 | |
| | | |
| Cash, cash equivalents, and restricted cash at beginning of period (Note 3) | $ | 11,091 | | | $ | 10,520 | |
| Net increase/(decrease) in cash, cash equivalents, and restricted cash | (4,638) | | | 255 | |
| Cash, cash equivalents, and restricted cash at end of period (Note 3) | $ | 6,453 | | | $ | 10,775 | |
The accompanying notes are part of the consolidated financial statements.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
| | | | | | | | |
| Footnote | | Page |
| Presentation | |
| Accounting Policies | |
| Cash, Cash Equivalents, and Marketable Securities | |
| Finance Receivables and Allowance for Credit Losses | |
| Net Investment in Operating Leases | |
| Transfers of Receivables and Variable Interest Entities | |
| Derivative Financial Instruments and Hedging Activities | |
| Other Assets and Other Liabilities and Deferred Revenue | |
| Debt | |
| | |
| | |
| Employee Separations and Restructuring Actions | |
| Other Income/(Loss) | |
| | |
| Segment Information | |
| | |
| Commitments and Contingencies | |
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
Principles of Consolidation
For purposes of this report, “Ford Credit,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Credit Company LLC, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”). Our consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X. We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.
In the opinion of management, these unaudited financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of our results of operations and financial condition for the periods, and at the dates, presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K Report”).
NOTE 2. ACCOUNTING POLICIES
Adoption of New Accounting Standards
Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses, Troubled Debt Restructurings and Vintage Disclosures. Effective January 1, 2023, we adopted the new standard, which eliminates the troubled debt recognition and measurement guidance and requires disclosure of current-period gross charge-offs by year of origination (vintage disclosure). Adoption of the new standard did not have a material impact to our consolidated financial statements or financial statement disclosures.
We also adopted the following ASUs during 2023, none of which had a material impact to our consolidated financial statements or financial statement disclosures:
| | | | | | | | | | | |
| ASU | | | Effective Date |
| 2022-01 | Derivatives and Hedging – Fair Value Hedging – Portfolio Layer Hedging | | January 1, 2023 |
| 2022-03 | Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions | | January 1, 2023 |
| 2018-12 | Targeted Improvements to the Accounting for Long Duration Contracts (and related amendments) | | January 1, 2023 |
| 2023-03 | Amendments to SEC Paragraphs Pursuant to SEC Bulletins & Announcements | | July 14, 2023 |
| 2023-04 | Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 121 | | August 3, 2023 |
| | | |
Accounting Standards Issued But Not Yet Adopted
ASUs issued but not yet adopted were assessed and determined to be not applicable or are not expected to have a material impact on our consolidated financial statements or financial statement disclosures.
Provision for Income Taxes
For interim tax reporting, we estimate one single effective tax rate for subsidiaries that are subject to tax, which is applied to the year-to-date ordinary income/(loss). Tax effects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| Fair Value Level | | December 31,
2022 | | September 30,
2023 |
| Cash and cash equivalents | | | | | |
| United States government | 1 | | $ | 1,045 | | | $ | 2,111 | |
| United States government agencies | 2 | | 150 | | | 100 | |
| Non-United States government and agencies | 2 | | 199 | | | 280 | |
| Corporate debt | 2 | | 792 | | | 659 | |
| Total marketable securities classified as cash equivalents | | | 2,186 | | | 3,150 | |
| Cash, time deposits, and money market funds | | | 8,207 | | | 7,501 | |
| Total cash and cash equivalents | | | $ | 10,393 | | | $ | 10,651 | |
| | | | | |
| Marketable securities | | | | | |
| United States government | 1 | | $ | 187 | | | $ | 274 | |
| United States government agencies | 2 | | 221 | | | 223 | |
| Non-United States government and agencies | 2 | | 658 | | | 549 | |
| Corporate debt | 2 | | 266 | | | 269 | |
| Other marketable securities | 2 | | 161 | | | 149 | |
| Total marketable securities | | | $ | 1,493 | | | $ | 1,464 | |
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash, as reported in the consolidated statements of cash flows, were as follows (in millions):
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| Cash and cash equivalents | $ | 10,393 | | | $ | 10,651 | |
| Restricted cash (a) | 127 | | | 124 | |
| Total cash, cash equivalents, and restricted cash | $ | 10,520 | | | $ | 10,775 | |
__________
(a)Restricted cash is included in Other assets on our consolidated balance sheets and is primarily held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements. Restricted cash does not include required minimum balances or cash securing debt issued through securitization transactions.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
We manage finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
For all finance receivables, we define “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date.
Total Finance Receivables, Net
Total finance receivables, net were as follows (in millions):
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| Consumer | | | |
| Retail installment contracts, gross | $ | 67,043 | | | $ | 71,240 | |
| Finance leases, gross | 6,765 | | | 7,339 | |
| Retail financing, gross | 73,808 | | | 78,579 | |
| Unearned interest supplements from Ford and affiliated companies | (2,305) | | | (2,967) | |
| Consumer finance receivables | 71,503 | | | 75,612 | |
| | | |
| Non-Consumer | | | |
| Dealer financing | 28,408 | | | 29,366 | |
| Other financing | 1,447 | | | 1,867 | |
| Non-Consumer finance receivables | 29,855 | | | 31,233 | |
| Total recorded investment | $ | 101,358 | | | $ | 106,845 | |
| | | |
| Recorded investment in finance receivables | $ | 101,358 | | | $ | 106,845 | |
| Allowance for credit losses | (845) | | | (876) | |
| Total finance receivables, net | $ | 100,513 | | | $ | 105,969 | |
| | | |
| Net finance receivables subject to fair value (a) | $ | 94,090 | | | $ | 99,041 | |
| Fair value (b) | 91,410 | | | 96,775 | |
__________
(a)Net finance receivables subject to fair value exclude finance leases.
(b)The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.
Finance leases are comprised of sales-type and direct financing leases. Financing revenue from finance leases for the third quarter of 2022 and 2023 was $73 million and $102 million, respectively, and for the first nine months of 2022 and 2023 was $223 million and $276 million, respectively, and is included in Retail financing on our consolidated income statements.
At December 31, 2022 and September 30, 2023, accrued interest was $187 million and $247 million, respectively, which we report in Other assets on our consolidated balance sheets.
Included in the recorded investment in finance receivables were consumer and non-consumer receivables that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. See Note 6 for additional information.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Credit Quality
Consumer Portfolio. Credit quality ratings for consumer receivables are based on our aging analysis. Consumer receivables credit quality ratings are as follows:
•Pass – current to 60 days past due;
•Special Mention – 61 to 120 days past due and in intensified collection status; and
•Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.
The credit quality analysis of consumer receivables at December 31, 2022 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost Basis by Origination Year | | | | |
| | Prior to 2018 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Total | | Percent |
| Consumer | | | | | | | | | | | | | | | | |
| 31-60 days past due | | $ | 41 | | | $ | 60 | | | $ | 91 | | | $ | 181 | | | $ | 150 | | | $ | 126 | | | $ | 649 | | | 0.9 | % |
| 61-120 days past due | | 9 | | | 12 | | | 20 | | | 39 | | | 40 | | | 29 | | | 149 | | | 0.2 | |
| Greater than 120 days past due | | 9 | | | 4 | | | 5 | | | 7 | | | 7 | | | 6 | | | 38 | | | 0.1 | |
| Total past due | | 59 | | | 76 | | | 116 | | | 227 | | | 197 | | | 161 | | | 836 | | | 1.2 | |
| Current | | 883 | | | 2,564 | | | 6,149 | | | 13,864 | | | 18,382 | | | 28,825 | | | 70,667 | | | 98.8 | |
| Total | | $ | 942 | | | $ | 2,640 | | | $ | 6,265 | | | $ | 14,091 | | | $ | 18,579 | | | $ | 28,986 | | | $ | 71,503 | | | 100.0 | % |
The credit quality analysis of consumer receivables at September 30, 2023 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost Basis by Origination Year | | | | |
| | Prior to 2019 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Total | | Percent |
| Consumer | | | | | | | | | | | | | | | | |
| 31-60 days past due | | $ | 50 | | | $ | 58 | | | $ | 140 | | | $ | 129 | | | $ | 172 | | | $ | 96 | | | $ | 645 | | | 0.9 | % |
| 61-120 days past due | | 9 | | | 12 | | | 30 | | | 35 | | | 50 | | | 28 | | | 164 | | | 0.2 | |
| Greater than 120 days past due | | 8 | | | 4 | | | 6 | | | 10 | | | 10 | | | 3 | | | 41 | | | — | |
| Total past due | | 67 | | | 74 | | | 176 | | | 174 | | | 232 | | | 127 | | | 850 | | | 1.1 | |
| Current | | 1,296 | | | 3,093 | | | 8,800 | | | 12,892 | | | 22,287 | | | 26,394 | | | 74,762 | | | 98.9 | |
| Total | | $ | 1,363 | | | $ | 3,167 | | | $ | 8,976 | | | $ | 13,066 | | | $ | 22,519 | | | $ | 26,521 | | | $ | 75,612 | | | 100.0 | % |
| Gross charge-offs | | $ | 38 | | | $ | 30 | | | $ | 55 | | | $ | 61 | | | $ | 81 | | | $ | 14 | | | $ | 279 | | | |
Non-Consumer Portfolio. The credit quality of dealer financing receivables is evaluated based on our internal dealer risk rating analysis. We use a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that we consider most significant in predicting a dealer’s ability to meet its financial obligations. We also consider numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with ourselves and other creditors.
Dealers are assigned to one of four groups according to risk ratings as follows:
•Group I – strong to superior financial metrics;
•Group II – fair to favorable financial metrics;
•Group III – marginal to weak financial metrics; and
•Group IV – poor financial metrics, including dealers classified as uncollectible.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The credit quality analysis of dealer financing receivables at December 31, 2022 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis by Origination Year | | | | | | |
| Dealer Loans | | | | | | |
| Prior to 2018 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Total | | Wholesale Loans | | Total | | Percent |
| Group I | $ | 402 | | | $ | 148 | | | $ | 35 | | | $ | 67 | | | $ | 185 | | | $ | 224 | | | $ | 1,061 | | | $ | 24,242 | | | $ | 25,303 | | | 89.1 | % |
| Group II | 2 | | | 21 | | | — | | | 5 | | | 2 | | | 42 | | | 72 | | | 2,751 | | | 2,823 | | | 9.9 | |
| Group III | — | | | — | | | — | | | — | | | — | | | 10 | | | 10 | | | 233 | | | 243 | | | 0.9 | |
| Group IV | — | | | — | | | 1 | | | — | | | — | | | 3 | | | 4 | | | 35 | | | 39 | | | 0.1 | |
| Total (a) | $ | 404 | | | $ | 169 | | | $ | 36 | | | $ | 72 | | | $ | 187 | | | $ | 279 | | | $ | 1,147 | | | $ | 27,261 | | | $ | 28,408 | | | 100.0 | % |
__________
(a)Total past due dealer financing receivables at December 31, 2022 were $9 million.
The credit quality analysis of dealer financing receivables at September 30, 2023 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis by Origination Year | | | | | | |
| Dealer Loans | | | | | | |
| Prior to 2019 | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Total | | Wholesale Loans | | Total | | Percent |
| Group I | $ | 491 | | | $ | 31 | | | $ | 66 | | | $ | 159 | | | $ | 62 | | | $ | 304 | | | $ | 1,113 | | | $ | 25,364 | | | $ | 26,477 | | | 90.2 | % |
| Group II | 2 | | | — | | | 2 | | | 4 | | | 2 | | | 50 | | | 60 | | | 2,384 | | | 2,444 | | | 8.3 | |
| Group III | — | | | — | | | — | | | — | | | 1 | | | 6 | | | 7 | | | 386 | | | 393 | | | 1.3 | |
| Group IV | — | | | 1 | | | — | | | — | | | — | | | 2 | | | 3 | | | 49 | | | 52 | | | 0.2 | |
| Total (a) | $ | 493 | | | $ | 32 | | | $ | 68 | | | $ | 163 | | | $ | 65 | | | $ | 362 | | | $ | 1,183 | | | $ | 28,183 | | | $ | 29,366 | | | 100.0 | % |
| Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | |
__________
(a)Total past due dealer financing receivables at September 30, 2023 were $4 million.
Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.
Loan Modifications. Consumer and non-consumer receivables that have a modified interest rate and/or a term extension (including receivables that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code) are typically considered to be loan modifications. We do not grant modifications to the principal balance of our receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
During the collection process, we may offer a term extension to a customer experiencing financial difficulty. During the extension period, finance charges continue to accrue. If the customer's financial difficulty is not temporary, but we believe the customer is willing and able to repay their loan at a lower payment amount, we may offer to modify the interest rate and/or extend the term in order to lower the scheduled monthly payment. In those cases, the outstanding balance generally remains unchanged. The use of interest rate modifications and term extensions helps us mitigate financial loss. Term extensions may assist in cases where we believe the customer will recover from short-term financial difficulty and resume regularly scheduled payments. Before offering an interest rate modification or term extension, we evaluate and take into account the capacity of the customer to meet the revised payment terms. Although the granting of an extension could delay the eventual charge-off of a receivable, we are typically able to repossess and sell the related collateral, thereby mitigating the loss. The effect of most loan modifications made to borrowers experiencing financial difficulty is included in the historical trends used to measure the allowance for credit losses. A loan modification that improves the delinquency status of a borrower reduces the probability of default, which results in a lower allowance for credit losses. At September 30, 2023, an insignificant portion of our total finance receivables portfolio had been granted a loan modification and these modifications are generally treated as a continuation of the existing loan.
Allowance for Credit Losses
The allowance for credit losses represents our estimate of the lifetime expected credit losses inherent in finance receivables as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly.
Adjustments to the allowance for credit losses are made by recording charges to the Provision for/(Benefit from) credit losses on our consolidated income statements. The uncollectible portion of a finance receivable is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer or borrower, the value of the collateral, recourse to guarantors, and other factors.
Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event we repossess the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheets.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
An analysis of the allowance for credit losses related to finance receivables for the periods ended September 30 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter 2022 | | Third Quarter 2023 |
| Consumer | | Non-Consumer | | Total | | Consumer | | Non-Consumer | | Total |
| Allowance for credit losses | | | | | | | | | | | |
| Beginning balance | $ | 754 | | | $ | 9 | | | $ | 763 | | | $ | 866 | | | $ | 7 | | | $ | 873 | |
| Charge-offs | (73) | | | — | | | (73) | | | (105) | | | — | | | (105) | |
| Recoveries | 39 | | | 1 | | | 40 | | | 37 | | | — | | | 37 | |
| Provision for/(Benefit from) credit losses | 40 | | | (1) | | | 39 | | | 75 | | | (1) | | | 74 | |
| Other (a) | (9) | | | — | | | (9) | | | (3) | | | — | | | (3) | |
| Ending balance | $ | 751 | | | $ | 9 | | | $ | 760 | | | $ | 870 | | | $ | 6 | | | $ | 876 | |
| | | | | | | | | | | |
| First Nine Months 2022 | | First Nine Months 2023 |
| Consumer | | Non-Consumer | | Total | | Consumer | | Non-Consumer | | Total |
| Allowance for credit losses | | | | | | | | | | | |
| Beginning balance | $ | 903 | | | $ | 22 | | | $ | 925 | | | $ | 838 | | | $ | 7 | | | $ | 845 | |
| Charge-offs | (196) | | | (1) | | | (197) | | | (279) | | | — | | | (279) | |
| Recoveries | 126 | | | 3 | | | 129 | | | 113 | | | 1 | | | 114 | |
| Provision for/(Benefit from) credit losses | (67) | | | (14) | | | (81) | | | 193 | | | (2) | | | 191 | |
| Other (a) | (15) | | | (1) | | | (16) | | | 5 | | | — | | | 5 | |
| Ending balance | $ | 751 | | | $ | 9 | | | $ | 760 | | | $ | 870 | | | $ | 6 | | | $ | 876 | |
__________
(a)Primarily represents amounts related to translation adjustments.
During the third quarter and first nine months of 2023, the allowance for credit losses increased $3 million and $31 million, respectively, driven by an increase in finance receivables. Net charge-offs increased from a year ago, reflecting normalization from extraordinarily low levels. The impact of higher inflation and higher interest rates on future credit losses remains uncertain. We will continue to monitor economic trends and conditions and portfolio performance and will adjust the reserve accordingly.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5. NET INVESTMENT IN OPERATING LEASES
Net investment in operating leases consists primarily of lease contracts for vehicles with individuals, daily rental companies, and fleet customers with terms of 60 months or less. Included in Net investment in operating leases are net investment in operating leases that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. See Note 6 for additional information.
Net investment in operating leases was as follows (in millions):
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| Vehicles, at cost (a) | $ | 26,055 | | | $ | 24,235 | |
| Accumulated depreciation | (4,234) | | | (3,877) | |
| Net investment in operating leases | $ | 21,821 | | | $ | 20,358 | |
__________
(a)Includes interest supplements and residual support payments we receive on certain leasing transactions under agreements with Ford and affiliated companies, and other vehicle acquisition costs.
NOTE 6. TRANSFERS OF RECEIVABLES AND VARIABLE INTEREST ENTITIES
We securitize finance receivables and net investment in operating leases through a variety of programs using amortizing, variable funding, and revolving structures. We also sell finance receivables, or pledge them as collateral in certain transactions outside of the United States, in other types of structured financing transactions. Due to the similarities between securitization and structured financing, we refer to structured financings as securitization transactions. Our securitization programs are targeted to institutional investors in both public and private transactions in capital markets primarily in the United States, Canada, Germany, Italy, the United Kingdom, and China.
The finance receivables sold for legal purposes and net investment in operating leases included in securitization transactions are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. They are not available to pay our other obligations or the claims of our other creditors. The debt is the obligation of our consolidated securitization entities and not the obligation of Ford Credit or our other subsidiaries. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.
We use special purpose entities (“SPEs”) to issue asset-backed securities in our securitization transactions. We have deemed most of these SPEs to be VIEs of which we are the primary beneficiary, and therefore, are consolidated. The SPEs are established for the sole purpose of financing the securitized financial assets. The SPEs are generally financed through the issuance of notes or commercial paper into the public or private markets or directly with conduits.
We continue to recognize our financial assets related to our sales of receivables when the financial assets are sold to a consolidated VIE or a consolidated voting interest entity. We derecognize our financial assets when the financial assets are sold to a non-consolidated entity and we do not maintain control over the financial assets.
We have the power to direct significant activities of our SPEs when we have the ability to exercise discretion in the servicing of financial assets, issue additional debt, exercise a unilateral call option, add assets to revolving structures, or control investment decisions. We generally retain a portion of the economic interests in the asset-backed securitization transactions, which could be retained in the form of a portion of the senior interests, the subordinated interests, cash reserve accounts, residual interests, and servicing rights. The transfers of assets in our securitization transactions do not qualify for accounting sale treatment.
We have no obligation to repurchase or replace any securitized asset that subsequently becomes delinquent in payment or otherwise is in default, except when representations and warranties about the eligibility of the securitized assets are breached, or when certain changes are made to the underlying asset contracts. Securitization investors have no recourse to us or our other assets and have no right to require us to repurchase the investments. We generally have no obligation to provide liquidity or contribute cash or additional assets to the VIEs and do not guarantee any asset-backed securities. We may be required to support the performance of certain securitization transactions, however, by increasing cash reserves.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. TRANSFERS OF RECEIVABLES AND VARIABLE INTEREST ENTITIES (Continued)
Certain of our securitization entities may enter into derivative transactions to mitigate interest rate exposure, primarily resulting from fixed-rate assets securing floating-rate debt. In certain instances, the counterparty enters into offsetting derivative transactions with us to mitigate its interest rate risk resulting from derivatives with our securitization entities. These related derivatives are not the obligations of our securitization entities. See Note 7 for additional information regarding the accounting for derivatives.
Most of these securitization transactions utilize VIEs. The following tables show the assets and debt related to our securitization transactions that were included in our consolidated financial statements (in billions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Cash and Cash Equivalents | | Finance Receivables and Net Investment in Operating Leases (a) | | Related Debt
(c) |
| Before Allowance
for Credit Losses | | Allowance for
Credit Losses | | After Allowance
for Credit Losses | |
| VIE (b) | | | | | | | | | |
| Retail financing | $ | 1.5 | | | $ | 31.7 | | | $ | 0.3 | | | $ | 31.4 | | | $ | 26.6 | |
| Wholesale financing | 0.2 | | | 17.7 | | | — | | | 17.7 | | | 10.6 | |
| Finance receivables | 1.7 | | | 49.4 | | | 0.3 | | | 49.1 | | | 37.2 | |
| Net investment in operating leases | 0.6 | | | 12.5 | | | — | | | 12.5 | | | 8.2 | |
| Total VIE | $ | 2.3 | | | $ | 61.9 | | | $ | 0.3 | | | $ | 61.6 | | | $ | 45.4 | |
| | | | | | | | | |
| Non-VIE | | | | | | | | | |
| Retail financing | $ | 0.5 | | | $ | 12.2 | | | $ | 0.2 | | | $ | 12.0 | | | $ | 10.7 | |
| Wholesale financing | — | | | 0.5 | | | — | | | 0.5 | | | 0.3 | |
| Finance receivables | 0.5 | | | 12.7 | | | 0.2 | | | 12.5 | | | 11.0 | |
| Net investment in operating leases | — | | | — | | | — | | | — | | | — | |
| Total Non-VIE | $ | 0.5 | | | $ | 12.7 | | | $ | 0.2 | | | $ | 12.5 | | | $ | 11.0 | |
| | | | | | | | | |
| Total securitization transactions | | | | | | | | | |
| Retail financing | $ | 2.0 | | | $ | 43.9 | | | $ | 0.5 | | | $ | 43.4 | | | $ | 37.3 | |
| Wholesale financing | 0.2 | | | 18.2 | | | — | | | 18.2 | | | 10.9 | |
| Finance receivables | 2.2 | | | 62.1 | | | 0.5 | | | 61.6 | | | 48.2 | |
| Net investment in operating leases | 0.6 | | | 12.5 | | | — | | | 12.5 | | | 8.2 | |
| Total securitization transactions | $ | 2.8 | | | $ | 74.6 | | | $ | 0.5 | | | $ | 74.1 | | | $ | 56.4 | |
__________
(a)Unearned interest supplements and residual support are excluded from securitization transactions.
(b)Includes assets to be used to settle the liabilities of the consolidated VIEs.
(c)Includes unamortized discount and debt issuance costs.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. TRANSFERS OF RECEIVABLES AND VARIABLE INTEREST ENTITIES (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Cash and Cash Equivalents | | Finance Receivables and Net Investment in Operating Leases (a) | | Related Debt
(c) |
| Before Allowance
for Credit Losses | | Allowance for
Credit Losses | | After Allowance
for Credit Losses | |
| VIE (b) | | | | | | | | | |
| Retail financing | $ | 1.6 | | | $ | 34.9 | | | $ | 0.3 | | | $ | 34.6 | | | $ | 28.7 | |
| Wholesale financing | 0.2 | | | 17.2 | | | — | | | 17.2 | | | 10.7 | |
| Finance receivables | 1.8 | | | 52.1 | | | 0.3 | | | 51.8 | | | 39.4 | |
| Net investment in operating leases | 0.5 | | | 10.6 | | | — | | | 10.6 | | | 7.3 | |
| Total VIE | $ | 2.3 | | | $ | 62.7 | | | $ | 0.3 | | | $ | 62.4 | | | $ | 46.7 | |
| | | | | | | | | |
| Non-VIE | | | | | | | | | |
| Retail financing | $ | 0.5 | | | $ | 10.3 | | | $ | 0.2 | | | $ | 10.1 | | | $ | 8.9 | |
| Wholesale financing | — | | | 0.5 | | | — | | | 0.5 | | | 0.3 | |
| Finance receivables | 0.5 | | | 10.8 | | | 0.2 | | | 10.6 | | | 9.2 | |
| Net investment in operating leases | — | | | — | | | — | | | — | | | — | |
| Total Non-VIE | $ | 0.5 | | | $ | 10.8 | | | $ | 0.2 | | | $ | 10.6 | | | $ | 9.2 | |
| | | | | | | | | |
| Total securitization transactions | | | | | | | | | |
| Retail financing | $ | 2.1 | | | $ | 45.2 | | | $ | 0.5 | | | $ | 44.7 | | | $ | 37.6 | |
| Wholesale financing | 0.2 | | | 17.7 | | | — | | | 17.7 | | | 11.0 | |
| Finance receivables | 2.3 | | | 62.9 | | | 0.5 | | | 62.4 | | | 48.6 | |
| Net investment in operating leases | 0.5 | | | 10.6 | | | — | | | 10.6 | | | 7.3 | |
| Total securitization transactions | $ | 2.8 | | | $ | 73.5 | | | $ | 0.5 | | | $ | 73.0 | | | $ | 55.9 | |
__________
(a)Unearned interest supplements and residual support are excluded from securitization transactions.
(b)Includes assets to be used to settle the liabilities of the consolidated VIEs.
(c)Includes unamortized discount and debt issuance cost.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates. To manage these risks, we enter into highly effective derivative contracts. We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.
Income Effect of Derivative Financial Instruments
The gains/(losses), by hedge designation, reported in income for the periods ended September 30 were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Fair value hedges | | | | | | | |
| Interest rate contracts | | | | | | | |
| Net interest settlements and accruals on hedging instruments | $ | (39) | | | $ | (137) | | | $ | 62 | | | $ | (407) | |
| Fair value changes on hedging instruments | (600) | | | (219) | | | (1,922) | | | (285) | |
| Fair value changes on hedged debt | 615 | | | 210 | | | 1,991 | | | 223 | |
| Cross-currency interest rate swap contracts | | | | | | | |
| Net interest settlements and accruals on hedging instruments | (8) | | | (23) | | | (17) | | | (56) | |
| Fair value changes on hedging instruments | (66) | | | (46) | | | (164) | | | (48) | |
| Fair value changes on hedged debt | 67 | | | 44 | | | 173 | | | 47 | |
| Derivatives not designated as hedging instruments | | | | | | | |
| Interest rate contracts | 130 | | | 28 | | | 342 | | | 125 | |
| Foreign currency exchange contracts (a) | 112 | | | 59 | | | 137 | | | 30 | |
| Cross-currency interest rate swap contracts | (494) | | | (137) | | | (1,164) | | | (112) | |
| Total | $ | (283) | | | $ | (221) | | | $ | (562) | | | $ | (483) | |
__________
(a)Reflects forward contracts between us and an affiliated company.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance Sheet Effect of Derivative Financial Instruments
Derivative assets and liabilities are reported on the balance sheets at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties, which we do not use to offset our derivative assets and liabilities.
The fair value of our derivative instruments and the associated notional amounts were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | September 30, 2023 |
| Notional | | Fair Value of Assets | | Fair Value of Liabilities | | Notional | | Fair Value of Assets | | Fair Value of Liabilities |
| Fair value hedges | | | | | | | | | | | |
| Interest rate contracts | $ | 16,883 | | | $ | — | | | $ | 1,653 | | | $ | 16,821 | | | $ | — | | | $ | 1,439 | |
| Cross-currency interest rate swap contracts | 885 | | | — | | | 161 | | | 2,078 | | | — | | | 202 | |
| Derivatives not designated as hedging instruments | | | | | | | | | | | |
| Interest rate contracts | 63,210 | | | 931 | | | 483 | | | 59,155 | | | 830 | | | 720 | |
| Foreign currency exchange contracts (a) | 4,219 | | | 41 | | | 76 | | | 11,009 | | | 158 | | | 106 | |
| Cross-currency interest rate swap contracts | 6,635 | | | 15 | | | 653 | | | 6,396 | | | 55 | | | 515 | |
| Total derivative financial instruments, gross (b) (c) | $ | 91,832 | | | $ | 987 | | | $ | 3,026 | | | $ | 95,459 | | | $ | 1,043 | | | $ | 2,982 | |
__________
(a)Includes forward contracts between us and an affiliated company, including offsetting forward contracts with our consolidated entities, totaling $5.6 billion in notional amounts and $95 million in both assets and liabilities at September 30, 2023.
(b)At December 31, 2022 and September 30, 2023, we held collateral of $210 million and $128 million, respectively, and we posted collateral of $193 million and $162 million, respectively.
(c)At December 31, 2022 and September 30, 2023, the fair value of assets and liabilities available for counterparty netting was $166 million and $329 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED REVENUE
Other assets and other liabilities and deferred revenue consist of various balance sheet items that are combined for financial statement presentation due to their respective materiality compared with other individual asset and liability items.
Other assets were as follows (in millions):
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| Prepaid reinsurance premiums and other reinsurance recoverables | $ | 779 | | | $ | 810 | |
| Accrued interest and other non-finance receivables | 576 | | | 622 | |
| Collateral held for resale, at net realizable value | 233 | | | 330 | |
| Property and equipment, net of accumulated depreciation (a) | 233 | | | 258 | |
| Investment in non-consolidated affiliates | 177 | | | 175 | |
| Deferred charges - income taxes | 158 | | | 153 | |
| Restricted cash | 127 | | | 124 | |
| Operating lease assets | 64 | | | 56 | |
| Other | 229 | | | 242 | |
| Total other assets | $ | 2,576 | | | $ | 2,770 | |
__________
(a)Accumulated depreciation was $415 million and $437 million at December 31, 2022 and September 30, 2023, respectively.
Other liabilities and deferred revenue were as follows (in millions):
| | | | | | | | | | | |
| December 31,
2022 | | September 30,
2023 |
| Unearned insurance premiums and fees | $ | 891 | | | $ | 922 | |
| Interest payable | 683 | | | 890 | |
| Income tax and related interest (a) | 115 | | | 274 | |
| Operating lease liabilities | 66 | | | 58 | |
| Other | 280 | | | 288 | |
| Total other liabilities and deferred revenue | $ | 2,035 | | | $ | 2,432 | |
__________
(a)Includes income tax and interest payable to affiliated companies of $36 million and $146 million at December 31, 2022 and September 30, 2023, respectively.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. DEBT
Debt outstanding and interest rates were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Interest Rates |
| Debt | | Average Contractual | | Average Effective |
| | December 31,
2022 | | September 30,
2023 | | 2022 | | 2023 | | 2022 | | 2023 |
| Short-term debt | | | | | | | | | | | |
| Unsecured debt | | | | | | | | | | | |
| Floating rate demand notes | $ | 10,303 | | | $ | 10,782 | | | | | | | | | |
| Other short-term debt | 6,515 | | | 4,897 | | | | | | | | | |
| Asset-backed debt (a) | 2,806 | | | 3,132 | | | | | | | | | |
| Total short-term debt | 19,624 | | | 18,811 | | | 3.8 | % | | 5.0 | % | | 3.8 | % | | 5.0 | % |
| Long-term debt | | | | | | | | | | | |
| Unsecured debt | | | | | | | | | | | |
| Notes payable within one year | 7,980 | | | 10,664 | | | | | | | | | |
| Notes payable after one year | 39,620 | | | 42,700 | | | | | | | | | |
| Asset-backed debt (a) | | | | | | | | | | | |
| Notes payable within one year | 21,839 | | | 18,756 | | | | | | | | | |
| Notes payable after one year | 31,840 | | | 34,046 | | | | | | | | | |
| Unamortized (discount)/premium | 23 | | | 13 | | | | | | | | | |
| Unamortized issuance costs | (197) | | | (233) | | | | | | | | | |
| Fair value adjustments (b) | (1,690) | | | (1,865) | | | | | | | | | |
| Total long-term debt | 99,415 | | | 104,081 | | | 3.6 | % | | 4.5 | % | | 3.6 | % | | 4.5 | % |
| Total debt | $ | 119,039 | | | $ | 122,892 | | | 3.6 | % | | 4.5 | % | | 3.6 | % | | 4.5 | % |
| | | | | | | | | | | |
| Fair value of debt (c) | $ | 117,214 | | | $ | 122,386 | | | | | | | | | |
__________
(a)Asset-backed debt issued in securitizations is the obligation of the consolidated securitization entity that issued the debt and is payable only out of collections on the underlying securitized assets and related enhancements. This asset-backed debt is not the obligation of Ford Credit or our other subsidiaries.
(b)These adjustments are related to hedging activity and include discontinued hedging relationship adjustments of $31 million and $(320) million at December 31, 2022 and September 30, 2023, respectively. The carrying value of hedged debt was $33.3 billion and $37.3 billion at December 31, 2022 and September 30, 2023, respectively.
(c)At December 31, 2022 and September 30, 2023, the fair value of debt includes $16.9 billion and $15.7 billion of short-term debt, respectively, carried at cost, which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. EMPLOYEE SEPARATIONS AND RESTRUCTURING ACTIONS
We generally record costs associated with voluntary separations at the time of employee acceptance. We record costs associated with involuntary separation programs in Operating expenses when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Below are employee separation actions and exit and disposal activities that have been initiated. In addition, we continue to review our global businesses and may take additional restructuring actions to maintain long-term competitiveness.
Europe
During the third quarter of 2023, we initiated various actions to improve our cost structure and competitiveness in Europe which will simplify our business model and reduce the number of countries that we operate in. We anticipate the restructuring and recognition of related expenses will be substantially complete by the end of 2025. Total charges, primarily attributable to employee separations and non-cash reclassification of accumulated foreign currency translation gains and losses to income, are not expected to be significant.
South America
In June 2021, we announced that our subsidiaries in Brazil and Argentina would cease originating receivables and wind down operations. During the fourth quarter of 2021, we completed the sale of our wholesale and dealer receivables portfolio in Brazil and ceased originations of wholesale and dealer receivables in Argentina. In the first nine months of 2022, we liquidated three of our investments in Brazil and reclassified accumulated foreign currency translation losses of $155 million to Other income/(loss), net.
In December 2021, we received a capital contribution from a subsidiary of Ford in exchange for a minority interest share in one of our Argentina-based subsidiaries. As a result, we recorded $22 million in Shareholder’s interest attributable to noncontrolling interests on our consolidated balance sheets. During the first quarter of 2022, we reacquired Ford’s minority interest share and, in exchange, transferred assets associated with an Argentina-based subsidiary to Ford. In addition, during the first quarter of 2022, we sold our shares in a second Argentina-based subsidiary to Ford. The difference between the carrying value of the net assets transferred and sold to Ford and the consideration received from Ford was $61 million, reported as a reduction to Shareholder’s interest. As a result of the transfer and sale, Ford Credit reclassified $75 million of accumulated foreign currency translation losses to net income, included in Other income/(loss), net.
Accumulated foreign currency translation losses associated with our remaining investments in Brazil and Argentina included in Accumulated other comprehensive income/(loss) at September 30, 2023 were $223 million. We expect to reclassify these losses to income upon substantially complete liquidation of our investments, which may occur over multiple reporting periods.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11. OTHER INCOME/(LOSS)
Other income/(loss) consists of various line items that are combined on the consolidated income statements due to their respective materiality compared with other individual income and expense items.
The amounts included in Other income/(loss), net for the periods ended September 30 were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Interest and investment income (a) | $ | 30 | | | $ | 135 | | | $ | 26 | | | $ | 378 | |
| Currency revaluation gains/(losses) | 351 | | | 156 | | | 920 | | | 24 | |
| Gains/(losses) on derivatives | (301) | | | (98) | | | (807) | | | 3 | |
| Gains/(losses) on changes in investments in affiliates (b) | — | | | — | | | (231) | | | — | |
| Other | 9 | | | (6) | | | 33 | | | 8 | |
| Total other income/(loss), net | $ | 89 | | | $ | 187 | | | $ | (59) | | | $ | 413 | |
__________(a)Includes impairment losses of non-consolidated investments of $9 million in the second quarter of 2023.
(b)Includes 2022 losses related to our restructuring in South America described in Note 10.
NOTE 12. SEGMENT INFORMATION
We conduct our financing operations directly and indirectly through our subsidiaries and affiliates. We offer substantially similar products and services throughout many different regions, subject to local legal restrictions and market conditions. Our segments are: the United States and Canada, Europe, and All Other. Our All Other segment includes China, India, Mexico, Brazil, Argentina, and our joint venture in South Africa.
We measure the performance of our segments primarily on an income before income taxes basis, after excluding market valuation adjustments to derivatives and exchange-rate fluctuations on foreign currency-denominated transactions, which are reflected in Unallocated Other. These adjustments are excluded when assessing our segment performance because they are carried out at the corporate level.
Beginning in the third quarter of 2022, consistent with how our Chief Operating Decision Maker assesses performance of the segments and makes decisions about resource allocations, we changed the measurements used in allocating interest and governance expenses among the operating segments. Prior period amounts have been adjusted retrospectively to reflect the foregoing changes.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. SEGMENT INFORMATION (Continued)
Key financial information for our business segments for the periods ended or at September 30 was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| United States and Canada | | Europe | | All Other | | Total
Segments | | Unallocated Other | | Total |
| Third Quarter 2022 | | | | | | | | | | | |
| Total revenue | $ | 2,015 | | | $ | 188 | | | $ | 100 | | | $ | 2,303 | | | $ | — | | | $ | 2,303 | |
| Income before income taxes | 394 | | | 74 | | | 24 | | | 492 | | | 97 | | | 589 | |
Depreciation on vehicles subject to operating leases | 588 | | | (9) | | | — | | | 579 | | | — | | | 579 | |
| Interest expense | 792 | | | 52 | | | 47 | | | 891 | | | (40) | | | 851 | |
| Provision for/(Benefit from) credit losses | 42 | | | (12) | | | 9 | | | 39 | | | — | | | 39 | |
| | | | | | | | | | | |
| Third Quarter 2023 | | | | | | | | | | | |
| Total revenue | $ | 2,366 | | | $ | 346 | | | $ | 116 | | | $ | 2,828 | | | $ | — | | | $ | 2,828 | |
| Income before income taxes | 257 | | | 78 | | | 21 | | | 356 | | | 2 | | | 358 | |
Depreciation on vehicles subject to operating leases | 568 | | | 8 | | | — | | | 576 | | | — | | | 576 | |
| Interest expense | 1,354 | | | 185 | | | 65 | | | 1,604 | | | 49 | | | 1,653 | |
| Provision for/(Benefit from) credit losses | 71 | | | 4 | | | (1) | | | 74 | | | — | | | 74 | |
| | | | | | | | | | | |
| First Nine Months 2022 | | | | | | | | | | | |
| Total revenue | $ | 6,073 | | | $ | 604 | | | $ | 300 | | | $ | 6,977 | | | $ | — | | | $ | 6,977 | |
| Income before income taxes | 1,840 | | | 256 | | | (148) | | | 1,948 | | | 298 | | | 2,246 | |
Depreciation on vehicles subject to operating leases | 1,673 | | | (30) | | | — | | | 1,643 | | | — | | | 1,643 | |
| Interest expense | 1,998 | | | 148 | | | 141 | | | 2,287 | | | (168) | | | 2,119 | |
| Provision for/(Benefit from) credit losses | (82) | | | (17) | | | 18 | | | (81) | | | — | | | (81) | |
| Net finance receivables and net investment in operating leases | 93,930 | | | 16,454 | | | 5,088 | | | 115,472 | | | — | | | 115,472 | |
| Total assets | 102,916 | | | 19,282 | | | 5,720 | | | 127,918 | | | — | | | 127,918 | |
| | | | | | | | | | | |
| First Nine Months 2023 | | | | | | | | | | | |
| Total revenue | $ | 6,841 | | | $ | 974 | | | $ | 324 | | | $ | 8,139 | | | $ | — | | | $ | 8,139 | |
| Income before income taxes | 801 | | | 269 | | | 70 | | | 1,140 | | | (98) | | | 1,042 | |
Depreciation on vehicles subject to operating leases | 1,676 | | | 14 | | | — | | | 1,690 | | | — | | | 1,690 | |
| Interest expense | 3,807 | | | 477 | | | 173 | | | 4,457 | | | 118 | | | 4,575 | |
| Provision for/(Benefit from) credit losses | 170 | | | 6 | | | 15 | | | 191 | | | — | | | 191 | |
| Net finance receivables and net investment in operating leases | 101,885 | | | 19,330 | | | 5,112 | | | 126,327 | | | — | | | 126,327 | |
| Total assets | 114,585 | | | 23,301 | | | 5,665 | | | 143,551 | | | — | | | 143,551 | |
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies primarily consist of guarantees and indemnifications as well as litigation and claims.
Guarantees and Indemnifications
Guarantees and indemnifications are recorded at fair value at their inception. For financial guarantees, subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The probability of default is applied to the expected exposure at the time of default less recoveries to determine the expected payments. Factors to consider when estimating the probability of default include the obligor’s financial position, forecasted economic environment, historical loss rates, and other communications. For non-financial guarantees, we regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under a guarantee or indemnity, the amount of probable payment is recorded.
The maximum potential payments under these guarantees and limited indemnities totaled $83 million and $47 million at December 31, 2022 and September 30, 2023, respectively. Of these values, $17 million and $20 million at December 31, 2022 and September 30, 2023, respectively, were counter-guaranteed by Ford to us. There were no recorded liabilities related to guarantees and limited indemnities at December 31, 2022 or September 30, 2023.
In some cases, we have guaranteed debt and other financial obligations of outside third parties and unconsolidated affiliates, including Ford. Expiration dates vary, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by the failure of the third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full and may be limited in the event of insolvency of the third party or other circumstances.
In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; governmental regulations and employment-related matters; dealer and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of the contract brought by a counterparty or a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include, but are not limited to, matters arising out of governmental regulations; tax matters; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer and other contractual relationships; personal injury matters; investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, sanctions, assessments, or other relief, which, if granted, would require very large expenditures.
The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.
We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.
Item 1. Financial Statements (Continued)
FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)
For nearly all matters where our historical experience with similar matters is of limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably and could require us to pay damages or make other expenditures. We do not reasonably expect, based on our analysis, that such matters would have a material effect on future financial statements for a particular year, although such an outcome is possible.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recent Developments
UAW and Unifor
On September 14, 2023, Ford’s collective bargaining agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) in the United States expired. Following the expiration of the agreement, negotiations with the UAW continued; however, UAW strikes at Ford’s Michigan Assembly Plant (where Ford produces the Ranger and Bronco), Chicago Assembly Plant (where Ford produces the Explorer and Aviator), and Kentucky Truck Plant (where Ford produces the Super Duty, Expedition, and Navigator) led to the cessation of production at those facilities and impacted operations at additional Ford plants that support or rely on the production operations at the three strike locations.
Although a tentative agreement has been reached between Ford and the UAW, it is still subject to union ratification. As a result, the ultimate impact on Ford’s business, including its suppliers, remains uncertain and could have an adverse effect on our financial results for full-year 2023. See Item 1A. Risk Factors in Ford’s Annual Report on Form 10-K for the year ended December 31, 2022 and as updated by its subsequent filings with the SEC for additional discussion of the risks related to production disruptions.
On September 24, 2023, Unifor-represented employees in Canada ratified a new three-year collective bargaining agreement with Ford.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Definitions and Information Regarding Causal Factors
In general, we measure year-over-year changes in EBT using the causal factors listed below:
•Volume and Mix – Volume and Mix are primarily reflected within Net financing margin on the consolidated income statements.
◦Volume primarily measures changes in net financing margin driven by changes in average net receivables excluding the allowance for credit losses at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicles sold and leased, the extent to which we purchase retail financing and operating lease contracts, the extent to which we provide wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through us, and the availability of cost-effective funding.
◦Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of our average net receivables excluding the allowance for credit losses by product within each region.
•Financing Margin – Financing Margin is reflected within Net financing margin on the consolidated income statements.
◦Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average net receivables excluding the allowance for credit losses at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average net receivables excluding the allowance for credit losses for the same period.
◦Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management.
•Credit Loss – Credit Loss is reflected within Provision for/(Benefit from) credit losses on the consolidated income statements.
◦Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses.
◦Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of our present portfolio, changes in trends in historical used vehicle values, and changes in forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2022 Form 10-K Report.
•Lease Residual – Lease Residual is reflected within Depreciation on vehicles subject to operating leases on the consolidated income statements.
◦Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation.
◦Residual gain and loss changes are primarily driven by the number of vehicles returned to us and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in our estimate of the expected auction value at the end of the lease term and changes in our estimate of the number of vehicles that will be returned to us and sold. Depreciation on vehicles subject to operating leases includes early termination losses on operating leases due to customer default events. For additional information, refer to the “Critical Accounting Estimates – Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2022 Form 10-K Report.
•Exchange – Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
•Other – Primarily includes Operating expenses, Other revenue, Insurance expenses, and Other income/(Loss), net on the consolidated income statements at prior period exchange rates.
◦Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts.
◦In general, other income/(loss) changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates), which are included in unallocated risk management, and other miscellaneous items.
In addition, the following definitions and calculations apply to the charts contained in Item 2 of this Report:
•Cash (as shown in the Funding and Liquidity section) – Cash and cash equivalents and Marketable securities reported on Ford Credit’s balance sheets, excluding amounts related to insurance activities.
•Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions.
•Earnings Before Taxes (“EBT”) – Reflects Income before income taxes as reported on our consolidated income statements.
•Loss-to-Receivables (“LTR”) Ratio (as shown in Credit Loss tables) – LTR ratio is calculated using net charge-offs divided by average finance receivables, excluding unearned interest supplements and the allowance for credit losses.
•Reserve as a % of EOP Receivables Ratio (as shown in the Credit Loss tables) – The reserve as a percentage of EOP receivables ratio is calculated as the credit loss reserve amount, divided by end of period finance receivables, excluding unearned interest supplements and the allowance for credit losses.
•Return on Equity (“ROE”) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period.
•Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash is held for the benefit of the securitization investors (for example, a reserve fund). Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements.
•Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada.
•Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements.
•Total Net Receivables (as shown in the Key Metrics and Financial Condition tables) – Includes finance receivables (retail financing and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors.
•Unallocated Other (as shown in the Segment Results table) – Items excluded in assessing segment performance because they are managed at the corporate level, including market valuation adjustments to derivatives and exchange-rate fluctuations on foreign currency-denominated transactions.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations
Key Metrics
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| GAAP Financial Measures | 2022 | | 2023 | | H / (L) | | 2022 | | 2023 | | H / (L) |
| Total Net Receivables ($B) | $ | 115.5 | | | $ | 126.3 | | | $ | 10.8 | | | | | | | |
| Loss-to-Receivables (bps) (a) | 18 | | | 38 | | | 20 | | | 10 | | | 32 | | | 22 | |
| Auction values (b) | $ | 32,010 | | | $ | 30,250 | | | (5) | % | | $ | 33,565 | | | $ | 31,010 | | | (8) | % |
| EBT ($M) | $ | 589 | | | $ | 358 | | | $ | (231) | | | $ | 2,246 | | | $ | 1,042 | | | $ | (1,204) | |
| ROE (%) | 14.6 | % | | 7.8 | % | | (6.8) ppts | | 20.9 | % | | 8.4 | % | | (12.5) ppts |
| | | | | | | | | | | |
| Other Balance Sheet Metrics | | | | | | | | | | | |
| Debt ($B) | $ | 108.0 | | | $ | 122.9 | | | 14 | % | | | | | | |
| Net liquidity ($B) | $ | 20.9 | | | $ | 27.0 | | | 29 | % | | | | | | |
| Financial statement leverage (to 1) | 9.4 | | | 9.7 | | | 0.3 | | | | | | | |
__________
(a)United States retail financing only.
(b)United States 36-month off-lease third quarter auction values at Q3 2023 mix and YTD amounts at 2023 YTD mix.
Third Quarter 2023 Compared with Third Quarter 2022
The following table shows the factors that contributed to third quarter 2023 EBT (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in EBT by Causal Factor | | | | | | | | | |
| Third quarter 2022 EBT | | | | | | | | | | $ | 589 | |
| Volume / Mix | | | | | | | | | | 50 | |
| Financing margin | | | | | | | | | | (75) | |
| Credit loss | | | | | | | | | | (36) | |
| Lease residual | | | | | | | | | | (97) | |
| Exchange | | | | | | | | | | 10 | |
| Other | | | | | | | | | | (83) | |
| Third quarter 2023 EBT | | | | | | | | | | $ | 358 | |
Our third quarter 2023 EBT of $358 million was $231 million lower than a year ago, explained primarily by lower lease residual performance, non-recurrence of derivative market valuation adjustment gains (included in Other), lower financing margin due to higher borrowing costs, and higher credit losses. ROE was 7.8%, 6.8 percentage points lower than a year ago, driven by lower net income. Total net receivables were $126.3 billion, $10.8 billion or 9% higher than a year ago, reflecting the impact of increased non-consumer and consumer financing, partially offset by a smaller lease portfolio. The U.S. LTR ratio remained at a low level in the third quarter of 2023, at 38 basis points, though higher than a year ago as losses continue to normalize from historic lows. U.S. auction values in the third quarter of 2023 were lower compared to a year ago. At the end of the third quarter of 2023, we had $27.0 billion in net liquidity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Segment Results
Results of operations by segment and Unallocated Other for the periods ended September 30 are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | H / (L) | | 2022 | | 2023 | | H / (L) |
| Results (a) | | | | | | | | | | | |
| United States and Canada segment | $ | 394 | | | $ | 257 | | | $ | (137) | | | $ | 1,840 | | | $ | 801 | | | $ | (1,039) | |
| Europe segment | 74 | | | 78 | | | 4 | | | 256 | | | 269 | | | 13 | |
| All Other segment | 24 | | | 21 | | | (3) | | | (148) | | | 70 | | | 218 | |
| Total segments earnings before taxes | $ | 492 | | | $ | 356 | | | $ | (136) | | | $ | 1,948 | | | $ | 1,140 | | | $ | (808) | |
| Unallocated other | 97 | | | 2 | | | (95) | | | 298 | | | (98) | | | (396) | |
| Earnings before taxes | $ | 589 | | | $ | 358 | | | $ | (231) | | | $ | 2,246 | | | $ | 1,042 | | | $ | (1,204) | |
| Provision for/(Benefit from) income taxes | 151 | | | 119 | | | (32) | | | 335 | | | 277 | | | (58) | |
| Net Income | $ | 438 | | | $ | 239 | | | $ | (199) | | | $ | 1,911 | | | $ | 765 | | | $ | (1,146) | |
__________
(a)Beginning in the third quarter of 2022, there were changes in the allocation of interest and governance expenses among the operating segments. Prior periods have been adjusted retrospectively to reflect these changes.
For additional information, see Note 12 of our Notes to the Financial Statements.
United States and Canada Segment
The United States and Canada segment third quarter 2023 EBT of $257 million was $137 million lower than third quarter 2022, explained primarily by unfavorable net financing margin, lower lease residual performance, and higher credit losses. The United States and Canada segment first nine months 2023 EBT of $801 million was $1,039 million lower than first nine months 2022, explained primarily by unfavorable net financing margin, lower lease residual performance, non-recurrence of credit loss reserve releases, and higher credit losses.
Europe Segment
The Europe segment third quarter 2023 EBT of $78 million was $4 million higher than third quarter 2022. The Europe segment first nine months 2023 EBT of $269 million was $13 million higher than first nine months 2022. Both are explained by favorable changes in volume and net financing margin, partially offset by the non-recurrence of residual gains and credit loss reserve releases.
All Other Segment
The All Other segment third quarter 2023 EBT of $21 million was $3 million lower than third quarter 2022. The All Other segment first nine months 2023 EBT of $70 million was $218 million higher than first nine months 2022, explained primarily by the non-recurrence of South America restructuring losses.
For additional information on our restructuring in South America, refer to Note 10 of our Notes to the Financial Statements.
Unallocated Other
Unallocated Other was a $2 million gain for third quarter 2023, a $95 million deterioration from third quarter 2022. Unallocated Other was a $98 million loss for first nine months 2023, a $396 million deterioration from first nine months 2022. Both are primarily explained by the non-recurrence of positive derivative market valuation adjustments.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financing Shares and Contract Placement Volume
Our focus is on supporting Ford and Lincoln dealers and customers. This includes going to market with Ford and our dealers to support vehicle sales with financing products and marketing programs. Ford’s marketing programs may encourage or require Ford Credit financing and influence the financing choices customers make. As a result, our financing share, volume, and contract characteristics vary from period to period as Ford’s marketing programs change.
The following table shows our retail financing and operating lease share of new Ford and Lincoln brand sales, wholesale financing share of new Ford and Lincoln brand vehicles acquired by dealers (in percent), and contract placement volume for new and used vehicles (in thousands) in several key markets:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Share of Ford and Lincoln Sales (a) | | | | | | | |
| United States | 41 | % | | 50 | % | | 41 | % | | 50 | % |
| Canada | 77 | | | 67 | | | 70 | | | 70 | |
| United Kingdom | 36 | | | 34 | | | 35 | | | 34 | |
| Germany | 33 | | | 33 | | | 35 | | | 32 | |
| China | 46 | | | 34 | | | 45 | | | 38 | |
| | | | | | | |
| Wholesale Share | | | | | | | |
| United States | 73 | % | | 71 | % | | 73 | % | | 71 | % |
| United Kingdom | 100 | | | 100 | | | 100 | | | 100 | |
| Germany | 92 | | | 89 | | | 91 | | | 88 | |
| China | 69 | | | 72 | | | 68 | | | 71 | |
| | | | | | | |
| Contract Placement Volume - New and Used (000) | | | | | | | |
| United States | 172 | | | 210 | | | 484 | | | 607 | |
| Canada | 43 | | | 32 | | | 101 | | | 89 | |
| United Kingdom | 25 | | | 23 | | | 70 | | | 69 | |
| Germany | 12 | | | 14 | | | 42 | | | 41 | |
| China | 37 | | | 25 | | | 97 | | | 73 | |
| | | | | | | |
__________
(a)United States and Canada exclude Fleet sales, other markets include Fleet sales.
United States contract placement volumes in the third quarter of 2023 were higher than a year ago, reflecting higher Ford Credit share and Ford deliveries. Canada contract placement volumes in the third quarter of 2023 were lower than a year ago, reflecting lower Ford Credit share and Ford deliveries. United Kingdom contract placement volumes in the third quarter of 2023 were down, driven by lower Ford Credit share partially offset by higher Ford deliveries. Germany contract placement volumes in the third quarter of 2023 were higher compared to a year ago, reflecting higher Ford deliveries. China contract placement volumes in the third quarter of 2023 were lower than a year ago, reflecting lower Ford deliveries and Ford Credit share.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition
Our receivables, including finance receivables and operating leases, were as follows (in billions):
| | | | | | | | | | | | | | | | | | | |
| | | September 30,
2022 | | December 31,
2022 | | September 30,
2023 |
| Net Receivables | | | | | | | |
| United States and Canada Segment | | | | | | | |
| Consumer financing | | | $ | 53.8 | | | $ | 55.8 | | | $ | 60.2 | |
| Non-Consumer financing | | | 17.7 | | | 21.4 | | | 21.7 | |
| Net investment in operating leases | | | 22.4 | | | 21.7 | | | 20.1 | |
| Total United States and Canada Segment | | | $ | 93.9 | | | $ | 98.9 | | | $ | 102.0 | |
| | | | | | | |
| Europe Segment | | | | | | | |
| Consumer financing | | | $ | 10.2 | | | $ | 11.0 | | | $ | 11.0 | |
| Non-Consumer financing | | | 6.2 | | | 7.3 | | | 8.0 | |
| Net investment in operating leases | | | 0.1 | | | 0.1 | | | 0.2 | |
| Total Europe Segment | | | $ | 16.5 | | | $ | 18.4 | | | $ | 19.2 | |
| | | | | | | |
| All Other Segment | | | | | | | |
| Consumer financing | | | $ | 3.8 | | | $ | 3.9 | | | $ | 3.5 | |
| Non-Consumer financing | | | 1.3 | | | 1.1 | | | 1.6 | |
| Net investment in operating leases | | | — | | | — | | | — | |
| Total Other Segment | | | $ | 5.1 | | | $ | 5.0 | | | $ | 5.1 | |
| | | | | | | |
| Total net receivables | | | $ | 115.5 | | | $ | 122.3 | | | $ | 126.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
At September 30, 2022, December 31, 2022, and September 30, 2023, total net receivables includes consumer receivables before allowance for credit losses of $40.7 billion, $43.9 billion, and $45.2 billion, respectively, and non-consumer receivables before allowance for credit losses of $14.3 billion, $18.2 billion, and $17.7 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. In addition, at September 30, 2022, December 31, 2022, and September 30, 2023, total net receivables includes net investment in operating leases of $11.0 billion, $12.5 billion, and $10.6 billion, respectively, that have been included in securitization transactions but continue to be reported in our consolidated financial statements. The receivables and net investment in operating leases are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of our other creditors. We hold the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions. For additional information on our securitization transactions, refer to the “Securitization Transactions” and “On-Balance Sheet Arrangements” sections of Item 7 of Part II of our 2022 Form 10-K Report and Note 6 of our Notes to the Financial Statements herein.
Total net receivables at September 30, 2023 were $10.8 billion and $4.0 billion higher compared with September 30, 2022 and December 31, 2022, respectively, resulting from higher non-consumer and consumer financing, offset partially by lower operating leases.
Our operating lease portfolio was 16% of total net receivables at September 30, 2023. Leasing is an important product, and our leasing strategy balances sales, share, residuals, and long-term profitability. Operating leases in the United States and Canada represent 99% of our total operating lease portfolio.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Risk
Credit risk is the possibility of loss from a customer’s or dealer’s failure to make payments according to contract terms. Credit losses are a normal part of a lending business, and credit risk has a significant impact on our business. We manage the credit risk of our consumer (retail financing) and non-consumer (dealer financing) receivables to balance our level of risk and return using our consistent underwriting standards, effective proprietary scoring system (discussed below), and world-class servicing. The allowance for credit losses (also referred to as the credit loss reserve) represents our estimate of the expected credit losses inherent in our finance receivables for the lifetime of those receivables as of the balance sheet date. The allowance for credit losses is estimated using a combination of models and management judgment and is based on such factors as historical loss performance, portfolio quality, receivable levels, and forward-looking macroeconomic scenarios. The adequacy of our allowance for credit losses is assessed quarterly and the assumptions and models used in establishing the allowance are evaluated regularly.
Most of our charge-offs are related to retail financing. Net charge-offs are affected by the number of vehicle repossessions, the unpaid balance outstanding at the time of repossession, the auction price of repossessed vehicles, and other amounts owed. We also incur credit losses on our dealer financing, but default rates for these receivables historically have been substantially lower than those for retail financing.
In purchasing retail financing contracts, we use a proprietary scoring system that measures credit quality using information from sources including the credit application, proposed contract terms, credit bureau data, and other information. After a proprietary risk score is generated, we decide whether to purchase a contract using a decision process based on a judgmental evaluation of the applicant, the credit application, the proposed contract terms, credit bureau information (e.g., FICO score), proprietary risk score, and other information. Our evaluation emphasizes the applicant’s ability to pay and the applicant’s creditworthiness with a focus on payment, affordability, applicant credit history, and stability as key considerations. While FICO is a part of our scoring system, our models enable us to more effectively determine the probability that a customer will pay than using credit scores alone. When we originate business, our models project expected losses and we price accordingly. We ensure the business fits our risk appetite.
For additional information on our allowance for credit losses and the quality of our receivables, see Note 4 of our Notes to the Financial Statements.
United States Origination Metrics
The following table shows United States retail financing and operating lease average placement FICO and higher risk portfolio mix metrics. Also shown are extended term mix and United States retail financing average placement terms.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Origination Metrics | | | | | | | |
| Average placement FICO | 743 | | | 757 | | | 747 | | | 755 | |
| Higher risk portfolio mix | 5 | % | | 4 | % | | 5 | % | | 4 | % |
| Greater than or equal to 84 months placement mix | 9 | % | | 8 | % | | 6 | % | | 8 | % |
| Average placement term (months) | 64 | | | 63 | | | 63 | | | 62 | |
Our third quarter 2023 average placement FICO score increased compared with the same period a year ago, and remains strong. We support customers across the credit spectrum. Our higher risk business, as classified at contract inception, represents 4% of our portfolio and has been stable for over 15 years.
During the third quarter of 2023, our average retail financing placement term was lower compared to a year ago. Retail financing contract mix of 84 months and longer decreased compared to a year ago and continue to be a small part of our business. We remain focused on managing the trade cycle – building customer relationships and loyalty while offering financing products and terms that customers want. Our origination and risk management processes deliver robust portfolio performance.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
United States Retail Financing Credit Losses
The following table shows the primary drivers of credit losses in the United States retail financing business, which comprised 69% of our worldwide consumer finance receivables at September 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Credit Loss Drivers | | | | | | | |
| Over-60-Day delinquencies (excl. bankruptcies) | 0.15 | % | | 0.19 | % | | 0.15 | % | | 0.17 | % |
| Repossessions (000) | 4 | | | 4 | | | 11 | | | 12 | |
| Repossession ratio | 0.78 | % | | 0.89 | % | | 0.74 | % | | 0.83 | % |
| Loss severity (000) (a) | $ | 9.6 | | | $ | 12.7 | | | $ | 8.5 | | | $ | 11.4 | |
| Net charge-offs ($M) | $ | 21 | | | $ | 50 | | | $ | 37 | | | $ | 121 | |
| LTR ratio (%) (b) | 0.18 | % | | 0.38 | % | | 0.10 | % | | 0.32 | % |
__________
(a)The expected difference between the amount a customer owes when the finance contract is charged off and the amount received, net of expenses, from selling the repossessed vehicle.
(b) See Definitions and Information Regarding Causal Factors section for calculation.
While delinquencies have increased from a year ago, repossessions, net charge-offs, and LTR ratio continue to be low by historical standards. Loss severity increased from a year ago, reflecting higher average amount financed as well as lower auction values. While credit performance has remained strong, high inflation and interest rates have caused economic uncertainty which we expect will have an unfavorable impact on our future retail credit losses.
Worldwide Credit Losses
The following table shows key metrics related to worldwide credit losses:
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Net charge-offs ($M) | $ | 33 | | | $ | 68 | | | $ | 68 | | | $ | 165 | |
| LTR ratio (%) (a) | 0.14 | % | | 0.25 | % | | 0.10 | % | | 0.21 | % |
| Credit loss reserve ($M) | $ | 760 | | | $ | 876 | | | | | |
| Reserve as percent of EOP Receivables (a) | 0.79 | % | | 0.80 | % | | | | |
__________(a)See Definitions and Information Regarding Causal Factors section for calculation.
Our worldwide credit loss metrics remain strong. Net charge-offs and the worldwide LTR ratio in the third quarter of 2023 increased from a year ago reflecting normalization from extraordinary low levels. Our credit loss reserve is higher than a year ago, primarily reflecting the impact of higher receivable balances.
Our credit loss reserve is based on such factors as historical loss performance, portfolio quality, receivables level, and forward-looking macroeconomic scenarios. The reserve reflects lifetime expected losses as of the balance sheet date and is adjusted accordingly based on our assessment of the portfolio and economic trends and conditions. Our credit loss reserve at September 30, 2023 considers a range of potential scenarios that include the economic uncertainty of higher inflation and interest rates. See Note 4 of our Notes to the Financial Statements for more information.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Residual Risk
Leasing is an important product that many customers want and value, and operating lease customers also are more likely to buy or lease another Ford or Lincoln vehicle. We manage our lease share with an enterprise view to support sales, protect residual values, and manage the trade cycle. Ford Credit and Ford work together under a leasing strategy that considers share, term, model mix, geography, and other factors.
We are exposed to residual risk on operating leases and similar balloon payment products where the customer may return the financed vehicle to us. Residual risk is the possibility that the amount we obtain from returned vehicles will be less than our estimate of the expected residual value for the vehicle. We estimate the expected residual value by evaluating recent auction values, return volumes for our leased vehicles, industry wide used vehicle prices, marketing incentive plans, and vehicle quality data. For operating leases, changes in expected residual values impact depreciation expense, which is recognized on a straight-line basis over the life of the lease.
For additional information on our residual risk on operating leases, refer to the “Critical Accounting Estimates – Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2022 Form 10-K Report.
United States Ford and Lincoln Brand Operating Leases
The following table shows share of Ford and Lincoln brand retail financing and operating lease sales, placement volume, and residual performance metrics for our United States operating lease portfolio, which represents 77% of our total net investment in operating leases at September 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | First Nine Months |
| 2022 | | 2023 | | 2022 | | 2023 |
| Lease Share of Retail Sales | | | | | | | |
| Ford Credit | 12 | % | | 13 | % | | 13 | % | | 12 | % |
| Industry (a) | 16 | % | | 20 | % | | 17 | % | | 20 | % |
| | | | | | | |
| Placement Volume (000) | | | | | | | |
| 24-Month | 12 | | | 9 | | | 37 | | | 24 | |
| 36-Month | 26 | | | 34 | | | 75 | | | 78 | |
| 39-Month / Other | 4 | | | 5 | | | 20 | | | 27 | |
| Total | 42 | | | 48 | | | 132 | | | 129 | |
| | | | | | | |
| Residual Performance | | | | | | | |
| Return rates | 11 | % | | 29 | % | | 11 | % | | 24 | % |
| Return volume (000) | 9 | | | 19 | | | 27 | | | 49 | |
| Off-lease auction values (b) | $ | 32,010 | | | $ | 30,250 | | | $ | 33,565 | | | $ | 31,010 | |
__________
(a)Source: J.D. Power PIN.
(b)36-month off-lease auction values; quarterly amounts at Q3 2023 mix; YTD amounts at 2023 YTD mix.
Our United States operating lease share of retail sales in the third quarter of 2023 was higher compared with a year ago and remains below the industry average. Our third quarter 2023 total lease placement volume was up compared with a year ago, reflecting higher Ford Credit lease share and higher Ford retail sales.
Lease return volume and return rate in the third quarter of 2023 were up from a year ago, reflecting lower auction values. Our third quarter 2023 36-month off-lease auction values were 5% lower year-over-year. Industry auction values are expected to decline as the supply of new and used vehicles improves. We expect return rates to increase as auction values decline.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Ratings
Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the United States Securities and Exchange Commission (“SEC”): DBRS, Fitch, Moody’s, and S&P.
In several markets, locally recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings assigned to us from all of the NRSROs are closely associated with their opinions on Ford. Credit ratings are not recommendations to buy, sell, or hold securities and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency.
The following rating actions were taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023:
•On September 6, 2023, Fitch upgraded the credit ratings to BBB- from BB+ with a stable outlook.
The following table summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | NRSRO RATINGS | |
| | Ford Credit | | | NRSROs | |
| Long-Term Senior Unsecured | | Short -Term Unsecured | | Outlook/Trend | | Minimum
Long-Term Investment Grade Rating |
| DBRS | | BBB (low) | | | | R-2 (low) | | | | Stable | | | | BBB (low) | |
| Fitch | | BBB- | | | | F3 | | | | Stable | | | | BBB- | |
| Moody’s | | Ba1 | | | | NP | | | | Stable | | | | Baa3 | |
| S&P | | BB+ | | | | B | | | | Positive | | | | BBB- | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Funding and Liquidity
We remain well capitalized with a strong balance sheet and funding diversified across platforms and markets, and ended the third quarter of 2023 with $27.0 billion of liquidity, up $5.9 billion from year-end. We continue to have robust access to capital markets, completing $22 billion billion of public term issuances through October 25, 2023.
Key elements of our funding strategy include:
•Maintain strong liquidity and funding diversity;
•Prudently access public markets;
•Continue to leverage retail deposit funding in Europe;
•Flexibility to increase ABS mix as needed; preserving assets and committed capacity;
•Target financial statement leverage of 9:1 to 10:1; and
•Maintain self-liquidating balance sheet.
Our liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet our business and funding requirements. We regularly stress test our balance sheet and liquidity to ensure that we continue to meet our financial obligations through economic cycles.
The following table shows funding for our net receivables (in billions):
| | | | | | | | | | | | | | | | | |
| Funding Structure | September 30,
2022 | | December 31,
2022 | | September 30,
2023 |
| Term unsecured debt | $ | 46.4 | | | $ | 48.3 | | | $ | 50.7 | |
| Term asset-backed securities | 48.9 | | | 56.4 | | | 55.9 | |
| Retail Deposits / Ford Interest Advantage | 12.7 | | | 14.3 | | | 16.3 | |
| Other | 3.6 | | | 2.6 | | | 2.2 | |
| Equity | 11.4 | | | 11.9 | | | 12.6 | |
| Adjustments for cash | (7.5) | | | (11.2) | | | (11.4) | |
| Total Net Receivables | $ | 115.5 | | | $ | 122.3 | | | $ | 126.3 | |
| | | | | |
| Securitized Funding as a percent of Total Debt | 45.3 | % | | 47.4 | % | | 45.5 | % |
Net receivables of $126.3 billion as of September 30, 2023, were funded primarily with term unsecured debt and term asset-backed securities. Securitized funding as a percent of total debt was 45.5% as of September 30, 2023.
Public Term Funding Plan
The following table shows our issuances for full year 2021 and 2022, planned issuances for full year 2023, and our global public term funding issuances through October 25, 2023, excluding short-term funding programs (in billions):
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 Actual | | 2022 Actual | | 2023 Forecast | | Through
October 25 |
| Unsecured | $ | 5 | | | $ | 6 | | | $ 10 - 13 | | $ | 10 | |
| Securitizations | 9 | | | 10 | | | 13 - 14 | | 12 | |
| Total public | $ | 14 | | | $ | 16 | | | $ 23 - 27 | | $ | 22 | |
For 2023, we project full year public term funding in the range of $23 billion to $27 billion.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity
We define gross liquidity as cash, cash equivalents, and marketable securities (excluding amounts related to insurance activities) and committed capacity (which includes our asset-backed facilities and unsecured credit facilities), less utilization of liquidity. Utilization of liquidity is the amount funded under our liquidity sources and also includes the cash required to support securitization transactions and restricted cash. Net liquidity available for use is defined as gross liquidity plus certain adjustments as described in the table below.
The following table shows our liquidity sources and utilization (in billions):
| | | | | | | | | | | | | | | | | |
| September 30,
2022 | | December 31,
2022 | | September 30,
2023 |
| Liquidity Sources | | | | | |
| Cash | $ | 7.6 | | | $ | 11.3 | | | $ | 11.6 | |
| Committed asset-backed facilities | 34.2 | | | 37.4 | | | 42.3 | |
| Other unsecured credit facilities | 2.1 | | | 2.3 | | | 2.4 | |
| Total liquidity sources | $ | 43.9 | | | $ | 51.0 | | | $ | 56.3 | |
| | | | | |
| Utilization of Liquidity | | | | | |
| Securitization and restricted cash | $ | (2.7) | | | $ | (2.9) | | | $ | (2.9) | |
| Committed asset-backed facilities | (20.0) | | | (26.6) | | | (25.8) | |
| Other unsecured credit facilities | (0.5) | | | (0.8) | | | (0.7) | |
| Total utilization of liquidity | $ | (23.2) | | | $ | (30.3) | | | $ | (29.4) | |
| | | | | |
| Gross liquidity | $ | 20.7 | | | $ | 20.7 | | | $ | 26.9 | |
| Other adjustments | 0.3 | | | 0.4 | | | 0.1 | |
| Net liquidity available for use | $ | 21.0 | | | $ | 21.1 | | | $ | 27.0 | |
Our net liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth and decline, and timing of funding transactions. At September 30, 2023, our net liquidity available for use was $27.0 billion, $5.9 billion higher than year-end 2022, reflecting strong access to public funding markets and the addition of $4.9 billion in committed asset-backed capacity. At September 30, 2023, our liquidity sources totaled $56.3 billion, up $5.3 billion from year-end 2022.
Cash. At September 30, 2023, our cash totaled $11.6 billion, compared with $11.3 billion at year-end 2022. In the normal course of our funding activities, we may generate more proceeds than are required for our immediate funding needs. These excess amounts are held primarily in highly liquid investments, which provide liquidity for our anticipated and unanticipated cash needs and give us flexibility in the use of our other funding programs. Our cash primarily includes United States Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, investment-grade commercial paper, debt obligations of a select group of non-U.S. governments, non-U.S. governmental agencies, supranational institutions, non-U.S. central banks, and money market funds that carry the highest possible ratings.
The average maturity of these investments ranges from approximately three to six months and is adjusted based on market conditions and liquidity needs. We monitor our cash levels and average maturity on a daily basis. Cash includes restricted cash and amounts to be used only to support our securitization transactions of $2.9 billion at both December 31, 2022 and September 30, 2023.
Material Cash Requirements. Our material cash requirements include: (1) the purchase of retail financing and operating lease contracts from dealers and providing wholesale financing for dealers to finance new and used vehicles; and (2) debt repayments (for additional information on debt, see the “Aggregate Contractual Obligations” table in Item 7 and Note 9 of the Notes to the Financial Statements in our 2022 Form 10-K Report). In addition, subject to approval by our Board of Directors, shareholder distributions may require the expenditure of a material amount of cash. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters.
We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Committed Capacity. At September 30, 2023, our committed capacity totaled $44.7 billion, compared with $39.7 billion at December 31, 2022. Our committed capacity is primarily comprised of committed ABS facilities from bank-sponsored commercial paper conduits and other financial institutions and committed unsecured credit facilities with financial institutions.
Committed Asset-Backed Facilities. We and our subsidiaries have entered into agreements with a number of bank-sponsored asset-backed commercial paper conduits and other financial institutions. Such counterparties are contractually committed, at our option, to purchase from us eligible retail financing receivables or to purchase or make advances under asset-backed securities backed by retail financing or wholesale finance receivables or operating leases for proceeds of up to $42.3 billion ($25.8 billion of retail financing, $8.4 billion of operating leases, and $8.1 billion of wholesale financing) at September 30, 2023. In the United States, we are able to obtain funding within two days of our unutilized capacity in some of our committed asset-backed facilities. These committed facilities have varying maturity dates, with $17.6 billion having maturities within the next twelve months and the remaining balance having maturities through fourth quarter 2025. We plan capacity renewals to protect our global funding needs and to optimize capacity utilization.
Our ability to obtain funding under these facilities is subject to having a sufficient amount of eligible assets as well as our ability to obtain interest rate hedging arrangements for certain facilities. At September 30, 2023, $25.8 billion of these commitments were in use and we had $0.4 billion of asset-backed capacity that was in excess of eligible receivables. These programs are free of material adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations and minimum net worth requirements), and generally, credit rating triggers that could limit our ability to obtain funding. However, the unused portion of these commitments may be terminated if the performance of the underlying assets deteriorates beyond specified levels. Based on our experience and knowledge as servicer of the related assets, we do not expect any of these programs to be terminated due to such events.
As of September 30, 2023, Ford Bank GmbH (“Ford Bank”) had liquidity of €232 million (equivalent to $245 million) in the form of eligible collateral available for use in the monetary policy programs of the European Central Bank.
Unsecured Credit Facilities. At September 30, 2023, we and our majority-owned subsidiaries had $2.4 billion of contractually committed unsecured credit facilities with financial institutions, including the FCE Credit Agreement and the Ford Bank Credit Agreement. At September 30, 2023, $1.7 billion was available for use.
At September 30, 2023, £462 million (equivalent to $566 million) was available for use under FCE Bank plc’s (“FCE”) £685 million (equivalent to $839 million) syndicated credit facility (the “FCE Credit Agreement”) and all €210 million (equivalent to $222 million) was available for use under Ford Bank’s syndicated credit facility (the “Ford Bank Credit Agreement”). Both the FCE Credit Agreement and Ford Bank Credit Agreement mature in 2026.
Both the FCE Credit Agreement and Ford Bank Credit Agreement contain certain covenants, including an obligation for FCE and Ford Bank to maintain their ratio of regulatory capital to risk-weighted assets at no less than the applicable regulatory minimum. The FCE Credit Agreement requires the support agreement between FCE and Ford Credit to remain in effect (and enforced by FCE to ensure that its net worth is maintained at no less than $500 million). The Ford Bank Credit Agreement requires a guarantee of Ford Bank’s obligations under the agreement, provided by Ford Credit, to remain in effect. In addition, both the FCE Credit Agreement and the Ford Bank Credit Agreement include certain sustainability-linked targets, pursuant to which the applicable margin may be adjusted if Ford Motor Company achieves, or fails to achieve, the specified targets related to global manufacturing facility greenhouse gas emissions, renewable electricity consumption, and Ford Europe CO2 tailpipe emissions. Ford outperformed the 2022 targets for all three of the sustainability-linked metrics, which favorably impacted pricing on the FCE Credit Agreement and Ford Bank Credit Agreement beginning in the third quarter of 2023.
Ford is party to, and Ford Credit is a designated subsidiary borrower under, a 364-Day Revolving Credit Agreement, under which the lenders thereto provided $1.8 billion of commitments maturing on April 24, 2024 (the “364-Day Revolving Credit Agreement”). At September 30, 2023, the 364-Day Revolving Credit Agreement was not utilized by Ford Credit.
Funding and Liquidity Risks
Our funding plan is subject to risks and uncertainties, many of which are beyond our control, including disruption in the capital markets, that could impact both unsecured debt and asset-backed securities issuance and the effects of regulatory changes on the financial markets. Refer to the “Funding and Liquidity Risks” section of Item 7 of Part II of our 2022 Form 10-K Report for more information.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Leverage
We use leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing our capital structure. We refer to our shareholder’s interest as equity.
The following table shows the calculation of our financial statement leverage (in billions):
| | | | | | | | | | | | | | | | | | | |
| September 30,
2022 | | December 31,
2022 | | | | September 30,
2023 |
| Leverage Calculation | | | | | | | |
| Debt | $ | 108.0 | | | $ | 119.0 | | | | | $ | 122.9 | |
| Equity | $ | 11.4 | | | $ | 11.9 | | | | | $ | 12.6 | |
| Financial statement leverage (to 1) | 9.4 | | | 10.0 | | | | | 9.7 | |
We plan our leverage by considering market conditions and the risk characteristics of our business. At September 30, 2023, our financial statement leverage was 9.7:1. We target financial statement leverage in the range of 9:1 to 10:1.
Outlook
Although a tentative agreement has been reached between Ford and the UAW, it is still subject to union ratification. As a result, the impact of the UAW strike remains uncertain; therefore, we are withdrawing our full-year 2023 guidance.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cautionary Note on Forward-Looking Statements
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:
•Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19;
•Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule and specifications, and a shortage of or inability to acquire key components, such as semiconductors, or raw materials, such as lithium, cobalt, nickel, graphite, and manganese, can disrupt Ford’s production of vehicles;
•To facilitate access to the raw materials necessary for the production of electric vehicles, Ford has entered into, and expects to continue to enter into, multi-year commitments to raw material suppliers that subject Ford to risks associated with lower future demand for such materials as well as costs that fluctuate and are difficult to accurately forecast;
•Ford’s long-term competitiveness depends on the successful execution of Ford+;
•Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs;
•Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, restructurings, or new business strategies;
•Operational systems, security systems, vehicles, and services could be affected by cyber incidents, ransomware attacks, and other disruptions and impact Ford and Ford Credit as well as their suppliers and dealers;
•Ford’s production, as well as Ford’s suppliers’ production, and/or the ability to deliver products to consumers could be disrupted by labor issues, natural or man-made disasters, adverse effects of climate change, financial distress, production difficulties, capacity limitations, or other factors;
•Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints;
•Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness;
•Ford’s new and existing products and digital, software, and physical services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and digital and software services industries and its reputation may be harmed if it is unable to achieve the initiatives it has announced;
•Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;
•With a global footprint, Ford’s results could be adversely affected by economic or geopolitical developments, including protectionist trade policies such as tariffs, or other events;
•Industry sales volume can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;
•Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors;
•Inflationary pressure and fluctuations in commodity and energy prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments, including marketable securities, can have a significant effect on results;
•Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;
•The impact of government incentives on Ford’s business could be significant, and Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;
•Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;
•Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed;
•Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition;
•Ford and Ford Credit could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, services, perceived environmental impacts, or otherwise;
•Ford may need to substantially modify its product plans and facilities to comply with safety, emissions, fuel economy, autonomous driving technology, environmental, and other regulations;
•Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and
•Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” in our 2022 Form 10-K Report, as updated by our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Accounting Standards Issued But Not Yet Adopted
For a discussion of recent accounting standards, see Note 2 of our Notes to the Financial Statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
In our 2022 Form 10-K Report, we discuss in greater detail our market risk, counterparty risk, credit risk, residual risk, liquidity risk, and operating risk.
To provide a quantitative measure of the sensitivity of our pre-tax cash flow to changes in interest rates, we use interest rate scenarios that assume a hypothetical, instantaneous increase or decrease of one percentage point in all interest rates across all maturities (a “parallel shift”), as well as a base case that assumes that all interest rates remain constant at existing levels. Maturing assets and liabilities are also instantaneously reinvested, capturing 100% of any hypothetical change in interest rates. The differences in pre-tax cash flow between these scenarios and the base case over a 12 month period represent an estimate of the sensitivity of our pre-tax cash flow. Under this model, we estimate that at September 30, 2023, all else constant, such an increase in interest rates would increase our pre-tax cash flow by $48 million over the next 12 months, compared with an increase of $127 million at December 31, 2022. In reality, new assets and liabilities may not immediately capture changes in interest rates, and interest rate changes are rarely instantaneous, parallel, or move exactly the one percentage point assumed in our analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than the results detailed above.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Marion B. Harris, our President and Chief Executive Officer (“CEO”), and Eliane S. Okamura, our Chief Financial Officer (“CFO”), Treasurer and Executive Vice President, Strategy, 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 (“Exchange Act”), as of September 30, 2023, 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 SEC rules and forms, and that such information is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting. There were no changes in internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
We have no legal proceedings arising under any federal, state, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, in which (i) a governmental authority is a party, and (ii) we believe there is the possibility of monetary sanctions (exclusive of interest and costs) in excess of $1 million.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits.
| | | | | | | | | | | | | | |
| Designation | | Description | | Method of Filing |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | Rule 15d-14(a) Certification of CEO. | | Filed with this Report. |
| | Rule 15d-14(a) Certification of CFO. | | Filed with this Report. |
| | Section 1350 Certification of CEO. | | Furnished with this Report. |
| | Section 1350 Certification of CFO. | | Furnished with this Report. |
| Exhibit 101.INS | | Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”). | | * |
| Exhibit 101.SCH | | XBRL Taxonomy Extension Schema Document. | | * |
| Exhibit 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | * |
| Exhibit 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | | * |
| Exhibit 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | * |
| Exhibit 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | * |
| Exhibit 104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). | | * |
__________
*Submitted electronically with this Report in accordance with the provisions of Regulation S-T.
Instruments defining the rights of holders of certain issues of long-term debt of Ford Credit have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Ford Credit. Ford Credit will furnish a copy of each such instrument to the SEC upon request.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Ford Motor Credit Company LLC has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORD MOTOR CREDIT COMPANY LLC
| | | | | |
| By: | /s/ Eliane S. Okamura |
| | Eliane S. Okamura |
| | Chief Financial Officer, Treasurer, and |
| | Executive Vice President, Strategy |
| |
| Date: | October 26, 2023 |