Fitch Places Ford's 'B+/RR3' Senior Unsecured Debt on Watch Negative; IDR Unaffected

CHICAGO--Fitch Ratings has placed Ford Motor Company's (Ford) 'B+/RR3' senior unsecured debt on Rating Watch Negative reflecting Ford's intent to raise secured financing that would impair the position of unsecured debtholders. Under Fitch's recovery rating scenario it was estimated that unsecured holders would recover approximately 68% in a bankruptcy scenario, equating to a Recovery Rating of 'RR3' (50-70% recovery) (see Fitch's Sept. 13, 2006 report on Ford Motor Company on the Fitch Ratings web site at www.fitchratings.com).

Fitch will review the size, structure and collateral of the secured financing facility to determine the effect on outstanding unsecured debt. Fitch's Issuer Default Ratings (IDRs) of 'B' for both Ford and Ford Motor Credit Company(Ford Credit) are unaffected at this time, but could be reviewed if accounting issues prevent the timely filing of third quarter financial statements.

Secured financing will serve to boost Ford's liquidity and provide incremental resources and time to continue its extended restructuring program. Negative cash flow from operating losses, restructuring costs and working capital outflows in 2006 is expected to exceed $8 billion. Continuing market share and revenue declines in 2007, and the delayed effect of the employee reduction programs indicate that cash outflow could be at a similar level in 2007. Given the very large working capital financing requirements in North America, as well as tax-disadvantaged overseas cash holdings, Fitch believes that consolidated cash holdings below $15 billion could raise the level of concern among suppliers and customers. At the end of the third quarter total cash, marketable securities, loaned securities, and short-term VEBA was approximately $23.6 billion.

Stabilization of Ford's revenue performance in 2007 is unlikely, given production cutbacks, a slowing economy, enhanced competition in the critical pickup segment, and lack of new impact products. Ford has shown some progress in the passenger car market, but this progress will not be sufficient to offset the steep declines in volume and profitability from mid-size and large SUV's, and pickups. Near-term improvement in operating results will need to be driven largely by reductions in Ford's cost structure, which is expected to occur gradually, but steadily throughout 2007. A decline in commodity prices could benefit margin performance over the long-term, but is expected to provide little relief well into 2007.

Severely stressed conditions in the supply base provide little opportunity to reduce supplier costs, but instead present the potential for higher costs, financial support, and supply-chain disruptions. Ford continues to spend aggressively on employee buyout programs, although the completion of the hourly buyout program will extend to the third quarter of 2007, deferring full realization of the cost savings. Ford's relatively young workforce will make buyouts a more expensive proposition than at General Motors, but could also result in a better mix of employees that would exit without retiree pension and health care benefits. A successful buyout program would also accelerate the restructuring, re-sourcing and closure of facilities at uncompetitive ACH facilities. Longer-term, the re-opening of the UAW contract in September 2007 will represent a critical event in establishing Ford's ability to establish a long-term, competitive cost structure.

Asset sales are expected to be limited, and challenging to complete. Recently announced intentions to sell Aston-Martin and APCO, would provide modest proceeds to apply to restructuring efforts.

Fitch places the following debt on Rating Watch Negative:

Ford

--Senior unsecured 'B+/RR3'.

The following ratings are unaffected by Fitch's action and currently maintain a Negative Rating Outlook:

Ford

--Issuer Default Rating (IDR) 'B'.

Ford Credit

--Issuer Default Rating (IDR) 'B'.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.