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DCR Lowers Ford, Ford Motor Credit Debt Ratings

10 October 1997

DCR Lowers Ford, Ford Motor Credit Debt Ratings

    CHICAGO, Oct. 10 -- Duff & Phelps Credit Rating Co. (DCR) has
downgraded the senior, unsecured debt rating of Ford Motor Company (Ford) and
Ford Motor Credit Company (FMCC)  from 'A+' (Single-A-Plus) to 'A' (Single-A)
after Ford announced plans to spin-off its 80.7 percent interest in Associates
First Capital Corporation (The Associates) to Ford shareholders.
    Also, the rating on Ford's preferred stock, FMCC's unsecured subordinated
notes and the preferred securities of Ford Motor Company Capital Trust I was
lowered from 'A' (Single-A) to 'A-' (Single-A-Minus), and FMCC's commercial
paper rating was lowered from 'D-1+' (D-One-Plus) to 'D-1' (D-One).
    In total, approximately $110 billion of debt and preferred securities is
affected.
    The spin-off of The Associates is the last, and at $18 billion in market
value is by far the largest, divestiture of businesses that Ford acquired
during a strategic diversification into non-automotive financial services in
the 1980s.  However, other recent divestitures, including the May 1996 initial
public offering of 19.3 percent of The Associates, have generated net cash
proceeds that largely offset the loss of business diversification and
relatively steady cash flow and earnings of the divested operations.  While
these divestitures strongly focus Ford on its automotive and related
businesses, Ford's consolidated earnings will be more exposed to the cyclical
dynamics of the automotive industry.
    The financial performance of Ford's automotive business is improving in
1997 due to strong new products, broad cost savings efforts and the absence of
the major change-overs that depressed 1995 and 1996 results.  However, the
competitive environment will likely become increasingly fierce in North
America, even in the sport-utility vehicle and pick-up truck segments that are
Ford's strengths.  Also, Ford continues to face significant challenges in
Europe, which has considerable excess capacity industrywide, and in Latin
America, where recent market share gains improve Ford's chances of returning
to profitability in 1998, but major capital projects will require further
investment.  Further improvements in cost and investment productivity are a
major key over the next year or two to Ford bolstering its competitiveness,
and potentially reclaiming an 'A+' (Single-A-Plus) senior debt rating.  The
downgrade of FMCC's securities solely reflects its close marketing and
financial relationship with parent Ford, as FMCC continues to have strong
asset quality and profitability measures.  The linkage between the Ford and
FMCC ratings has increased in recent years with Ford sharing the residual
valuation risk of FMCC's growing retail operating lease portfolio via Ford's
rate subvention and residual support programs.

SOURCE  Duff & Phelps Credit Rating Co.