Fitch Affirms Ford & Related Entities Ratings at 'BBB+', Outlook Remains Negative

NEW YORK--Nov. 1, 20034, 2003--Fitch Ratings affirms the senior debt ratings of Ford Motor Company (Ford), Ford Motor Credit Company (FMCC), Hertz Corporation (Hertz) and their respective subsidiaries at BBB+ and commercial paper at 'F2'. The Rating Outlook for all entities remains Negative.

This affirmation reflects Ford's very high level of liquidity, offset by relentless competitive pressures which continue to affect pricing and margins. Recent factors include progress to date under the company's cost reduction plan, the settlement with the United Automobile Workers (UAW) and the launch of the new F-150 truck. Over the near term, Fitch's concerns center on the ability of Ford to enhance North American margins and cash flow, the restoration of profitability at its European operations, Ford's current and future pension/healthcare obligations, and the affect of any potential disruptions in funding capability at Ford Motor Credit.

Despite $3 billion in cost reductions in 2003, automotive margins showed virtually no improvement due to competitive pressures and weak economic conditions that impacted pricing, as opposed to volumes. The year 2004 will be a pivotal year for the Ford recovery, as Ford will introduce products that were created under the auspices of the revitalization plan and as cost reductions continue. The success of these future new products, defined by sales volumes and profitability, will be a key factor in determining Ford's capacity to generate cash from automotive operations over the short term, as the pace of cost cutting will certainly slow. In particular, several launches in the car segment will be critical to restoring Ford's competitiveness and the elimination of operating losses in this sector. Factors that will affect Fitch's ratings over the near term include, but are not limited to, a failure to demonstrate steadily improving automotive and group operating margins and free cash flow in 2004 and 2005, lack of progress in Europe, significant weakness in the new F-150, or any substantial recall (from a cost or customer perception perspective) of one of Ford's 2004 new significant products (Mustang, Freestar, 500, etc.). Longer term, margins are expected to be improved to sustainably higher levels in order to ensure maintenance of the rating.

Ford's overall performance against its original plan has been somewhat mixed over the last two years. On the positive side, Ford's liquidity is stronger than initially anticipated, due principally to working capital efficiencies, tax refunds and other unsustainable items. Cost cutting has exceeded initial expectations, and most of the new product launches (XC-90/Expedition/Navigator/F-150) have met market expectations while increasing year-over-year sales figures. On the cost side, much of the improvement has been in warranty costs, which have decreased as a result of both improved product quality (as externally recognized by sources such as J.D. Power and Associates and Consumer Reports) and as a result of more successful new product launches. The improvement in quality, as reflected in reduced warranty and recall expenditures, has improved cash flows in this area and follows a string of quality issues and problematic program launches. On the downside, industry pricing has moved against Ford (led principally by cross-town competitor General Motors) while market share has been disappointing. Over the near term, Ford will continue to have comparatively large levels of capital expenditures as it transitions its North American manufacturing base to more flexible manufacturing capabilities and shorter product cycles.

The ratings for Ford remain strongly influenced by the company's liquidity position, with Ford Motor having almost $27 billion of cash on hand against approximately $20 billion of debt outstanding, with an average maturity of 26 years. At Ford Motor Credit the position is similarly strong with $20 billion of cash on hand. Ford Motor Credit's balance sheet is strong positioned over the next several years, with assets rolling off more quickly than the debt, resulting in the ability to continue to shrink the balance sheet should current operating trends change. Beyond gross cash on hand, Ford also has access to additional committed credit facilities in excess of $40 billion.

The UAW contract negotiations were successful in that the escalation in wages and benefits has been significantly reduced. Nevertheless, the contract does result in further cost increases in this area. The contract was an important milestone in two regards. First, the contract clearly demonstrated that the unions recognize the cost pressures faced by the Big Three and will work with them in an attempt to restore cost competitiveness versus the transplants. Second, the contract also began the process of re-examining the wage/benefit structures in place at Ford and former parts subsidiary Visteon. However, progress in the area of health care was very limited, and the significant pace of health care cost increases, combined with Ford's legacy base (including coverage of Visteon workers) will continue to represent a major and increasing claim on Ford's cash flow and a large concern in the rating going forward. Ford's OPEB obligation could exceed $30 billion at yearend 2003. Over the long-term, any changes in national health care systems could relieve some of this burden, and Ford still retains the capacity to make major changes in the health care benefits it currently provides.

The F-150 launch appears to have met its initial targets of being on time, launching with acceptable product quality, and bringing about a general lowering of the incentives on the product line. It remains far too early to tell, however, how successful the product will be in the long run. Fitch anticipates that this should be clearer by the end of the 2nd quarter of 2004, as the product passes the initial excitement phase and moves into a more normalized sales environment. The high volume of this product and the initial margins are likely to benefit consolidated margins for the next several quarters.

Fitch continues to be concerned with the progress at Ford of Europe. Although there has been deterioration at Ford of Europe in 2003, it is important to make the comparison on a post accounting change basis (Ford modified its reporting structure in 2003). A comparison on an adjusted basis (including differences in one-time items), shows that the prior recovery was not as successful as previously reported, but also that the deterioration in 2003 is not as bad as it might first appear. Regardless of these changes, Ford of Europe will be challenged, given its current product portfolio and the rapid changes taking place in the European marketplace, to restore significant profitability. Further rationalization of its cost structure, its product plans, and all future investment are underway and should produce tangible results in the next 12-24 months. Fitch's long-term view is that although Ford of Europe could contribute to consolidated profits, it is unlikely that profitability will return to levels seen in the past.

With very healthy pension asset returns to date in 2003 and a FY2003 contribution of to its pension plans of $1 billion, Ford has taken steps to address its $16 billion worldwide pension shortfall. Although this has improved its pension position, much of this improvement, on an accounting basis, will be consumed by a projected decrease in the discount rate of 50bps and an amendment for the recent UAW contract. Fitch anticipates that any substantive rise in interest rates over the next several years and the achievement of long-term mean equity returns could significantly reduce or eliminate the pension shortfall in Ford's U.S. plans, (assuming Ford continues to make contributions in 2004 and 2005 at the same pace as in 2003). With a high degree of flexibility in terms of the timing of required payments, combined with the company's current liquidity level, make the pension obligation very manageable. Nevertheless, these obligations will continue to utilize cash flow that could otherwise be invested in the business or further improve the balance sheet.

Ford also benefits from improvement in its Mazda holdings and an improving business environment at Hertz.

Ratings Affirmed with Negative Rating Outlook:

Ford Motor Co.

-- Senior debt 'BBB+';

-- Preferred stock 'BBB-';

-- Commercial paper 'F2'.

Ford Motor Credit Co.

-- Senior debt 'BBB+';

-- Commercial paper 'F2'.

FCE Bank PLC

-- Senior debt 'BBB+';

-- Short-term 'F2'.

Ford Credit Canada Ltd.

-- Senior debt 'BBB+';

-- Commercial paper 'F2'.

Ford Credit Australia Ltd.

-- Senior debt 'BBB+';

-- Commercial paper 'F2'.

Ford Credit Co. of New Zealand Ltd.

-- Senior debt 'BBB+';

-- Commercial paper 'F2'.

Ford Capital B.V.

-- Senior debt 'BBB+'.

Ford Motor Credit Co. of Puerto Rico, Inc.

-- Commercial paper 'F2'.

Ford Holdings Inc.

-- Senior debt 'BBB+'.

Ford Motor Co. S.A. de C.V.

-- Senior debt 'BBB+';

-- Short-term 'F2'.

PRIMUS Financial Services (Japan)

-- Senior debt 'BBB+';

-- Short-term 'F2'.

The Hertz Corp

-- Senior debt 'BBB+';

-- Commercial paper 'F2'.

Hertz Canada Ltd.

-- Commercial paper 'F2'.

Hertz Australia Pty. Ltd.

-- Commercial paper 'F2'.

Hertz Finance Centre Plc

-- Commercial paper 'F2'.