Fitch Lowers Ford, Ford Credit, Hertz and Related Entities

    NEW YORK--Jan. 11, 2002--Fitch has downgraded the senior debt ratings of Ford Motor Company (Ford), Ford Motor Credit Company (Ford Credit) and Hertz to `BBB+ from `A-`, and the ratings on Ford's preferred securities to `BBB-` from `BBB+'. The commercial paper ratings of both Ford and Ford Credit are affirmed at `F2'. The Rating Outlook for all securities is Negative. A full list of affected ratings is provided at the end of this press release.
    The downgrade is primarily based on the continuing decline in Ford's competitive position, weak operating profitability, a decline in the company's liquidity outlook, as well as deterioration in performance at Ford Credit. Intense competition in the auto industry, potentially augmented by weak economic conditions over the short term, is likely to result in persistent weak cash generation over the near term, and Ford will be required to reverse current operating trends in order to prevent further deterioration in its liquidity position. In addition, a number of Ford-specific issues have impacted the company's operating performance and credit profile.
    Cash generation at Ford has meaningfully weakened due to declining market share and an erosion of profitability. Profitability at Ford has been particularly impacted in certain high-margin SUV categories, where Ford's market position has been significantly affected by GM's revamped lineup and international producers crowding into the category. Across the industry, margins have been driven down by a multi-year escalation in incentive spending, and this trend is unlikely to be reversed in the short term due to persistent industry over-capacity. Over the longer term, Fitch expects that international players, namely Toyota and Honda, will continue to increase production and market share in the United States to the detriment of the `big three' U.S. manufacturers.
    Difficulties resulting from competitive industry conditions have been compounded by Ford-specific problems including cash outlays associated with the Firestone replacement program, management turnover, poor execution of new product introductions and a modest product lineup. New product introductions over the near term are limited, and Ford may be hard-pressed to prevent further share erosion going into a weaker market in 2002.
    Looking forward, Ford will be challenged to reverse recent operating losses. Although the company has announced a further major cost-reduction program, the ability to dramatically reduce the company's cost structure is limited under the company's union contract that extends through September 2003. The bulk of the benefits from the company's cost reduction program will not occur over the next several years, and full realization of the program's benefits will be largely dependent on operating execution and the form of the next union contract - both of which remain uncertain. Over the long-term, Ford's brand strength, research and development capabilities, production assets, strong distribution network and capital investment capacity position the company to remain a viable competitor in the global automotive industry.
    Ford retains a healthy cash position and extended debt maturities, which provide some cushion for the company to reverse current trends. Net liquidity at Sept. 30, 2001 stood at approximately $3.1 billion, but Fitch expects that the company will enter into a net debt position during 2002 (excluding any potential new capital). The high-fixed-cost nature of the auto business means that a further deterioration in operating performance could lead to a rapid decline in the company's liquidity position.
    In addition to issues at the parent company, Ford Motor Credit (FMCC) has also experienced surprising weakness in certain segments of its financing business brought on by both higher default frequency and loss severity given the weakened economic environment. In Fitch's view, the rapid increase in losses in the past few months is potentially an indication that underwriting standards were less conservative than previously believed. Moreover, losses appear to be concentrated in the company's non-Ford brand used car financing. FMCC is expected to incur additional provision expense of around $500 million to boost reserves and address credit quality issues primarily related to the company's retail auto portfolio. To bolster declining capitalization, FMCC has suspended dividend payments to Ford Motor Co. and the parent company is expected to contribute $700 million of new equity into FMCC. FMCC's funding and liquidity profile is appropriate for the current rating and reflects the company's increased use of securitization. Although securitization has become an important alternative funding source, the quality for FMCC's earnings are diluted as a result through the increased recognition of non-cash gain-on-sale revenue as generally required under U.S. GAAP.
    In light of Ford's ownership of Hertz, the ratings of both companies are linked. The linkage is further supported by the various agreements between the two companies. These include the car supply and joint advertising agreements, as well as the corporate, tax-sharing, credit facility and loan agreements. Additionally, Hertz' commercial paper is placed by Ford's commercial paper desk. For its part, Hertz is one of Ford's largest customers, ordering more than 200,000 units a year most of which of are program vehicles with buyback guarantees negotiated with Ford.

    Long-term ratings downgraded:

    Ford Motor Company
    --Senior notes and debentures to 'BBB+' from 'A-'; 
    --Preferred stock to 'BBB-' from `BBB+'.

    Ford Motor Co. of Australia
    --Unsecured notes to 'BBB+' from 'A-'.

    Ford Motor Co. S.A. de C.V. (Mexico)
    --Unsecured notes to 'BBB+' from 'A-'.

    Ford Motor Capital Trust I 
    --Preferred securities to 'BBB-` from 'BBB+'.

    Ford Capital B.V. (The Netherlands)
    --Senior notes and debentures to 'BBB+' from 'A-'.

    Ford Motor Credit Co.
    --Senior notes and debentures to 'BBB+' from 'A-'; 
    --Subordinated notes to 'BBB-' from 'BBB+'.

    FCE Bank Plc
    --Senior notes and debentures to 'BBB+' from 'A-'.

    Ford Motor Credit Co. of New Zealand
    --Unsecured notes to 'BBB+' from 'A-'.

    PRIMUS Financial Services (Japan) 
    --Medium-term notes to 'BBB+' from 'A-'.

    The Hertz Corporation
    --Senior notes and debentures to 'BBB+' from 'A-'.

    Ford Motor Co. Equipment Trust 1991-F
    --Guaranteed notes to 'BBB+' from 'A-'.

    Ford Motor Co. Equipment Trust 1991-H
    --Guaranteed notes to 'BBB+' from 'A-'.

    Ford Holdings Inc.
    --Senior Notes and debentures to 'BBB+' from 'A-'.


    Short-term ratings affirmed:

    Ford Motor Co. S.A. de C.V. (Mexico)
    --Commercial paper 'F2'.

    Ford Motor Credit Co.
    --Commercial paper 'F2'.

    FCE Bank Plc 
    --Certificates of deposit 'F2'; 
    --Commercial paper 'F2'.

    Ford Credit Canada Ltd.
    --Commercial paper 'F2'.

    Ford Credit Australia Ltd.
    --Commercial paper 'F2'.

    Ford Motor Credit Co. of Puerto Rico, Inc.
    --Commercial paper 'F2'.

    Ford Motor Credit Co. of New Zealand
    --Commercial paper 'F2'.

    PRIMUS Financial Services (Japan)
    --Commercial paper 'F2'.

    The Hertz Corporation
    --Commercial paper 'F2'.

    Hertz Canada Ltd.
    --Commercial paper 'F2'.

    Hertz Australia Pty. Ltd.
    --Commercial paper 'F2'.

    Hertz Finance Centre Plc.
    --Commercial paper 'F2'.