Ford to Sell $3 Billion of Car Loans

DEARBORN, Mich. November 19, 2002; Reuters reports that the finance arm of Ford Motor Co. said on Tuesday it was selling $3 billion worth of car loans to Bear, Stearns and Co. in a deal that provides the company with cheap financing for its automotive business while lowering its credit risk.

Ford Motor Credit Co. will continue to service the car loan contracts for a fee, the company said in a statement. But, unlike the structuring of an "asset-backed securities" deal, the "whole loan" transaction announced on Tuesday means Ford Credit will retain no direct interest in the contracts and none of the liability.

"We are pleased to have developed this further source of liquidity, which complements the sources of capital already available to Ford Credit," Malcolm Macdonald, Ford's treasurer, said in the statement.

"This transaction is similar to the transactions that have been standard practice in the home mortgage market for years," he added.

Raising expectations for additional "whole loan" sales going forward, the statement said Ford Credit and its financing affiliates intended to sell car loans on a recurring basis to banks, insurance companies and other sophisticated purchasers.

"These purchasers may choose to retain the contracts on their own balance sheet, sell them to other whole loan purchasers or repackage them for sale in the capital markets," the statement said.

Ford and its finance arm are the largest U.S. sellers of corporate debt, with some $63 billion in bonds outstanding.

Ford Credit manages or holds about $204 billion in vehicle loans and leases, with about $138 billion in owed receivables at the end of the third quarter. Company spokeswoman Melinda Wilson said the Bear, Stearns deal would shave about $3 billion off that amount.

"That's the easy or simple balance sheet impact," Wilson said.

Tuesday's announcement comes against the backdrop of the pummeling Ford's stocks and bonds took last month amid investor concerns about a possible credit crunch at the world's second-largest automaker.

As part of its turnaround plan after losing $5.45 billion last year, Ford has pledged to maintain its key U.S. market share and to prop up U.S. sales with aggressive zero-percent loan deals, cash rebates and other incentives used to lure customers into showrooms.

The incentives mean that Ford Credit must be able to raise capital cheaply, and lower costs are the linchpin of Ford's profit projections.

Tuesday's announcement is also in line with Macdonald's recent pledge to get some of Ford's liabilities off its balance sheet and onto the books of investment banks and other financial institutions.