Ford Motor Credit Company

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K(Mark One)

≤ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

n Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 1-6368

Ford Motor Credit Company(Exact name of registrant as specified in its charter)

Delaware 38-1612444(State of incorporation) (I.R.S. employer identification no.)

One American Road, Dearborn, Michigan 48126(Address of principal executive offices) (Zip code)

(313) 322-3000Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each Exchange on which registered

63/8% Notes due November 5, 2008 New York Stock Exchange

73/8% Notes due October 15, 2031 New York Stock Exchange

7.60% Notes due March 1, 2032 New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days.Yes ¥ No n

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. Yes ¥

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2).Yes n No ¥

As of March 10, 2004, the registrant had outstanding 250,000 shares of Common Stock. No voting stock ofthe registrant is held by non-affiliates of the registrant.

REDUCED DISCLOSURE FORMAT

The registrant meets the condition set forth in General Instruction I(1)(a) and (b) of Form 10-K andis therefore filing this Form with the reduced disclosure format.

PART I

ITEM 1. BUSINESS

Overview

Ford Motor Credit Company (referred to herein as ‘‘Ford Credit’’, ‘‘we’’, ‘‘our’’ or ‘‘us’’) wasincorporated in Delaware in 1959. We are an indirect, wholly-owned subsidiary of Ford MotorCompany (‘‘Ford’’). We provide vehicle and dealer financing in 36 countries to more than 11 millioncustomers and more than 12,500 automotive dealers. Our principal executive offices are located atOne American Road, Dearborn, Michigan 48126, and our telephone number is (313) 322-3000.

Our annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securitiesand Exchange Commission (‘‘SEC’’) pursuant to Section 13(a) or 15(d) of the Securities ExchangeAct of 1934, as amended, are available free of charge through our website located atwww.fordcredit.com/investorcenter/. These reports and our current reports on Form 8-K can befound on the SEC’s website located at www.sec.gov.

Products and Services. We offer a wide variety of automotive financing products to andthrough automotive dealers throughout the world. Our primary financing products fall into threecategories:

) Retail financing — purchasing retail installment sale contracts and retail lease contracts fromdealers, and offering financing to commercial customers, primarily vehicle leasing companiesand fleet purchasers, to lease or purchase vehicle fleets;

) Wholesale financing — making loans to dealers to finance the purchase of vehicle inventory,also known as floorplan financing; and

) Other financing — making loans to dealers for working capital, improvements to dealershipfacilities, and to purchase and finance dealership real estate.

We also service the finance receivables and leases we originate and purchase, make loans toFord affiliates, purchase certain receivables of Ford and its subsidiaries and provide insuranceservices related to our financing programs.

We earn our revenue primarily from:

) Payments made under retail installment sale contracts and retail lease contracts that wepurchase, including interest supplements and other support payments from Ford on special-rate retail financing programs;

) Investment and other income related to sold receivables; and

) Payments made under wholesale and other dealer loan financing programs.

See Item 6 for quantitative information regarding the amount of revenue generated by the differenttypes of services we provide.

Geographic Scope of Operations and Segment Information. We conduct our financingoperations directly or through our subsidiaries and affiliates. We offer substantially similar productsand services throughout many different regions, subject to local legal restrictions and marketconditions. We divide our business segments based on geographic regions: Ford Credit NorthAmerica (‘‘North America Segment’’) and Ford Credit International (‘‘International Segment’’). TheNorth America Segment includes our operations in the United States and Canada. The InternationalSegment includes our operations in all other countries in which we do business directly andindirectly. Additional financial information regarding our operations by business segments andoperations by geographic regions is shown in Note 18 of our Notes to Financial Statements.

ITEM 1. BUSINESS (Continued)

North America Segment

We do business in all 50 states of the United States through about 160 dealer automotivefinancing branches and seven regional service centers. We do business in all provinces in Canadathrough 16 dealer automotive financing branches and two regional service centers. Our UnitedStates operations accounted for 72% and 76% of our total managed receivables (i.e., receivablesrecorded on our balance sheet and receivables we have sold in off-balance sheet securitizationtransactions that we continue to service) at year-end 2003 and 2002, respectively, and our Canadianoperations accounted for about 6% and 5% of our total managed receivables at year-end 2003 and2002, respectively.

In the United States and Canada, under the Ford Credit brand name, we provide financingservices to and through dealers of Ford, Lincoln and Mercury brand vehicles and non-Ford vehiclesalso sold by these dealers and their affiliates. We provide similar financial services under the Jaguar,Land Rover, Mazda and Volvo brand names to and through Jaguar, Land Rover, Mazda and Volvodealers, respectively. Under the PRIMUS label, we provide financing services to Aston Martindealers and non-Ford dealers in the United States and Canada.

Our wholly-owned subsidiary, Fairlane Credit, LLC (‘‘Fairlane Credit’’), offered non-primefinancing (financing to customers who are in the lower levels of creditworthiness and typically havelimited access to traditional financing sources) primarily through Ford, Lincoln and Mercury dealersby purchasing retail installment sale contracts, mainly for used vehicles. Consistent with our renewedfocus on supporting primarily new vehicle financing of Ford’s brands, Fairlane Credit ceasedpurchasing retail installment sale contracts in 2002 and its portfolio of approximately $900 million istherefore liquidating. Fairlane Credit’s subsidiary, Triad Financial Corporation (‘‘Triad’’), offers similarservices primarily to non-Ford dealers. At December 31, 2003, Triad had $3.5 billion in managedreceivables, representing 2% of our total managed receivables.

International Segment

Our International Segment includes operations in three main regions: Europe, Asia-Pacific andLatin America. Our Europe region is our largest international operation, accounting for 18% and 14%of our total managed receivables at year-end 2003 and 2002, respectively. Within the InternationalSegment, our Europe region accounted for 77% and 74% of our managed receivables at year-end2003 and 2002, respectively. Most of our European operations are managed through a U.K.-basedsubsidiary, FCE Bank plc (‘‘FCE’’), which operates in the United Kingdom and on a branch basis inall member states of the European Union and in Norway and Switzerland. In addition, FCE hassubsidiaries in the United Kingdom, Finland, Italy, the Netherlands, Hungary, Poland and the CzechRepublic that provide wholesale, leasing and retail vehicle financing. In our largest Europeanmarkets, Germany and the United Kingdom, FCE offers most of our products and services under theFord Credit/Bank, Volvo Car Finance, Land Rover Financial Services, Jaguar Financial Services andMazda Credit/Bank brands. FCE generates most of our European revenue and contract volume fromFord Credit/Bank brand products and services. FCE also has entered into cooperation agreementswith financial institutions to permit dealers to offer financing under a variety of our brands in Croatia,Hungary and Slovenia, and other outsourcing arrangements in various central European marketsprimarily in relation to full service leasing products. Through the Worldwide Trade Financing Divisionof FCE, we also manage Ford’s vehicle financing operations in countries where Ford and Ford Credithave no local operations but still sell vehicles to dealers and offer other financing services. FordCredit also offers financing in Germany and Sweden for Volvo brand vehicles through Volvo AutoFinanz Service Deutschland GmbH and Volvo Finans (a joint venture with Swedish Volvo dealers).We also have joint ventures in South Africa and Saudi Arabia that provide wholesale, leasing andretail vehicle financing.

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In the Asia/Pacific region, we operate in Australia, Japan, Taiwan, Thailand and New Zealand.We have joint ventures with local financial institutions and other third parties in India and Indonesia.We maintain a presence in China through a representative office. In the Latin America region, wepresently operate in Mexico, Puerto Rico, Brazil and Chile, and, after suspending new financingactivities in 2002, we have recommenced full operations in Venezuela and Argentina.

Competition

The automotive financing business is highly competitive. Our principal competitors for retail andwholesale financing are:

Retail Wholesale

) Credit unions and savings and loan associations ) Other automobile manufacturers’ affiliated finance companies

) Banks ) Independent commercial finance companies

) Independent commercial finance companies ) Banks

) Leasing companies

) Other automobile manufacturers’ affiliated financecompanies

We compete mainly on the basis of service and financing rates. A key foundation of our serviceis providing broad and consistent purchasing policies for retail installment sale and lease contractsand consistent support for dealer financing requirements across economic cycles. Through thesepolicies we have built strong relationships with Ford’s dealer network that enhance our competitive-ness. Our ability to provide competitive financing rates depends on effectively and efficientlyoriginating, purchasing and servicing our receivables and leases, and accessing the capital markets.We routinely monitor the capital markets and develop funding alternatives to maximize ourcompetitive position. The integration of our financing services with Ford’s vehicle production andmarketing plans gives us a competitive advantage in providing financing to Ford dealers and theircustomers. In addition, our size allows us to take advantage of economies of scale in bothpurchasing and servicing our receivables and leases.

No single company is a dominant force in the industry. Recently, some of our bank competitorshave developed credit aggregation systems that permit dealers to send, through a single standardsystem, retail credit applications to multiple finance sources and to evaluate different financingoptions offered by these finance sources. This process has resulted in greater competition based onfinancing rates. We, along with other automobile manufacturers’ affiliated finance companies, haveformed a joint venture, RouteOne LLC, that is developing a similar credit application managementsystem. RouteOne LLC will also provide special rate and other incentive program information onlyoffered by automobile manufacturers.

Seasonal Variations. As a finance company, we own and manage a large portfolio of financereceivables and operating leases that are generated throughout the year and are collected over anumber of years, primarily in fixed monthly payments. As a result, our overall financing revenues donot exhibit seasonal variations. However, throughout the automotive financing industry, credit lossesare typically higher in the first and fourth quarters of the year due to competing financial demandson customers and lower vehicle resale values.

Dependence on Ford

The predominant share of our business consists of financing Ford vehicles and supporting Forddealers. Any extended reduction or suspension of Ford’s production or sale of vehicles due to adecline in consumer demand, work stoppage, governmental action, negative publicity or other event,or significant changes to marketing programs sponsored by Ford, would likely have an adverse effecton our business. Additional information about Ford’s business, operations, production, sales and

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risks can be found in Ford’s Annual Report on Form 10-K for the year ended December 31, 2003(‘‘Ford’s 2003 10-K Report’’), filed separately with the SEC and included as an exhibit to this report(without financial statements and exhibits).

Ford periodically has sponsored special-rate financing programs available only through us.Similar programs may be offered in the future. Under these programs, Ford makes interestsupplement or other support payments to us. These programs may increase our financing volumeand share of financing sales of Ford vehicles. Worldwide payments from Ford for interestsupplements and other support costs totaled about $4.7 billion in 2003 and 2002. We recorded asfinancing revenue $3.5 billion and $3.7 billion in interest supplements and other support paymentsfrom Ford in 2003 and 2002, respectively. As of December 31, 2003, Ford has accruedapproximately $4.1 billion of interest supplements and other support payments for receivables andleases in the United States and Canada, down from approximately $4.7 billion as of December 31,2002. We will receive this amount over the term of the related contracts. For further discussionregarding interest supplement and other support payments, see Note 14 of our Notes to FinancialStatements.

Retail Financing

Overview and Purchasing Process

We provide financing services to retail customers through automotive dealers that haveestablished relationships with us. Our primary business consists of purchasing retail installment saleand lease contracts for new and used vehicles mainly from dealers of Ford vehicles. Worldwide in2003, we financed about 3.0 million vehicles through retail installment sale contracts, and wefinanced about 487,000 vehicles through operating and finance leases. We report in our financialstatements the receivables from customers under retail installment sale contracts and certain leaseswith fleet customers as finance receivables. We report in our financial statements most of our retailleases as operating leases with the capitalized cost of the vehicles recorded as depreciable assets,and we report these assets in our financial statements as net investment in operating leases. AtDecember 31, 2003, worldwide, our retail finance receivables net of allowances for credit lossestotaled $77.8 billion and our net investment in operating leases was $23.2 billion.

In general, we purchase from dealers retail installment sale contracts and lease contracts thatmeet our credit standards. These contracts primarily relate to the purchase or lease of new vehicles,but some are for used vehicles. Dealers typically submit customer applications electronically to oneof our branch offices. Some of the applications are automatically evaluated and either approved orrejected based on our origination scorecard and credit policy criteria. In other cases, our creditanalysts evaluate applications using our written guidelines. As part of this evaluation, we generallyconduct a credit investigation that includes a review of the applicant’s credit report supplied from anational credit bureau, if available, and an internal review and verification process. Typically, we areable to determine whether or not we will purchase a retail installment sale contract or lease contractwithin two hours of receipt of an application. In evaluating loan applications from commercialcustomers, we consider the borrower’s financial condition, collateral, debt servicing capacity, andother financial and qualitative factors.

Retail Installment Sale Contracts

The amount we pay for a retail installment sale contract is based on a negotiated vehiclepurchase price agreed to between the dealer and the retail customer, plus any additional products,such as insurance and extended service plans, that are included in the contract, less any vehicletrade-in allowance or down payment from the customer applied to the purchase price. The netpurchase price owed by the customer typically is paid over a specified number of months with

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interest at a fixed rate negotiated between the dealer and the retail customer. The dealer may retaina portion of the finance charge.

We offer a variety of retail installment sale financing products. We generally purchase retailinstallment sale contracts with terms ranging from 12 to 72 months. The average original term of ourretail installment sale contracts was 59 months in the United States in 2003, compared with55 months in 2002.

In the United States, the average amount financed for new Ford, Lincoln, and Mercury brandvehicles under retail installment sale contracts was $24,721 in 2003, compared with $25,130 in 2002and $23,595 in 2001. The corresponding average monthly payment was about $495 in 2003, $520 in2002, and $505 in 2001.

Some of our retail installment sale contracts have non-uniform payment periods and paymentamounts to accommodate special cash flow situations such as those of recent college graduates.We also offer a Red Carpet Option (‘‘RCO’’) program under which the retail customer may financetheir vehicle with a retail installment sale contract with a series of relatively lower monthly paymentsfollowed by paying the amount owed in a single balloon payment. The RCO customer can satisfy theballoon payment obligation by payment in full of the amount owed, by refinancing the amount owed,or by returning the vehicle to us and paying additional charges for excess mileage and excess wearand use, if any. Customers who choose our RCO program may also qualify for special-rate financingoffers from Ford. Through the end of 2002, our United States RCO program was only available inTexas. During 2003, we expanded our United States RCO program to Connecticut, New Jersey, NewYork, Rhode Island, Massachusetts and Pennsylvania, and we will consider offering this productinstead of lease financing in other states.

We hold a security interest in the vehicles purchased through retail installment sale contracts.This security interest provides us certain rights and protections. As a result, if our collection effortsfail to bring a delinquent customer’s payments current, we generally can repossess the customer’svehicle, after satisfying local legal requirements, and sell it. The customer typically remains liable forany deficiency between net sale proceeds and the defaulted contract obligations, including anyrepossession-related expenses. We require retail customers to carry fire, theft and collisioninsurance on financed vehicles.

Retail Lease Plans

We offer leasing plans to retail customers through our dealers. Our highest volume retail leasingplan is called Red Carpet Lease, which is offered in the United States and Canada through dealersof Ford, Lincoln and Mercury brands. We offer similar lease plans through dealers of other Fordbrands (Jaguar, Land Rover, Mazda and Volvo) and through a limited number of non-Ford dealersunder the PRIMUS brand. Under these plans, dealers originate the leases and offer them to us forpurchase. Upon our purchase of a lease, we take ownership of the lease and title to the leasedvehicle from the dealer. After we purchase a lease from a dealer, that dealer generally has nofurther obligation to us in connection with the lease. The customer is responsible for properlymaintaining the vehicle and is obligated to pay for excess wear and use as well as excess mileage, ifany. At the end of the lease, the customer has the option to purchase the vehicle for the customerpurchase option price specified in the lease contract or return the vehicle to the dealer. If thecustomer returns the vehicle to the dealer, the dealer may buy the vehicle from us for the specifiedlease-end value or return it to us. In March of 2003, we announced a change to the dealer purchaseoption for contracts dated May 1, 2003 and beyond. This change provides the dealer the option topurchase the lease vehicle for a price to be determined by us. We sell vehicles returned to us toother Ford and non-Ford dealers through the same process that we use for repossessed vehicles.

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The amount we pay to a dealer for a retail lease, also called the acquisition cost, is based onthe negotiated price for the vehicle plus any additional products, such as insurance and extendedservice plans, that are included in the contract, less any vehicle trade-in allowance or down paymentfrom the customer. The customer makes monthly lease payments based on the acquisition cost lessthe estimated residual value of the vehicle at the lease end, plus lease charges. Some of our leaseprograms, such as our Red Carpet Lease Advance Payment Plan, provide certain pricingadvantages to customers who make all or some monthly payments at lease inception or purchaserefundable higher mileage allowances. We require lease customers to carry fire, theft, liability andcollision insurance on leased vehicles.

In the United States, retail operating lease terms for new Ford, Lincoln and Mercury brandvehicles range primarily from 12 to 48 months. In 2003, the average original lease term was35 months compared with 33 months in 2002. The average monthly payment was about $470 in2003, $445 in 2002, and $420 in 2001.

Several states have vicarious liability laws that hold the lessor, as the owner of a vehicle, liablefor accidents involving the leased vehicle. Partly in response to these laws, we are expanding ourRCO program and discontinuing our purchase of lease contracts in some of these states. As a retailinstallment sale, the RCO program eliminates the risk of vicarious liability for us, while providingcustomers many of the payment benefits associated with leasing.

Other Retail Financing

We also offer vehicle financing programs to commercial customers including leasing companies,daily rental companies, government entities and fleet customers. These financings include both leaseplans and installment purchase plans and are generally for terms of 12 to 84 months. The financingobligations are collateralized by perfected security interests on financed vehicles in almost allinstances and, where appropriate, an assignment of rentals under any related leases. At the end ofthe finance term, a lease customer may be required to pay us any shortfall between the fair marketvalue and the specified end of term value of the vehicle. If the fair market value of the vehicle at theend of the finance term exceeds the specified end of term value, we may pay the lease customerthe excess amount. In the United States, these financings totaled about $2.5 billion as ofDecember 31, 2003, and are included in retail finance receivables and net investment in operatingleases in our financial statements.

Wholesale Financing

We offer a wholesale financing program for qualifying dealers to finance new and used vehiclesheld in inventory. We generally finance the vehicle’s wholesale invoice price for new vehicles and upto 100% of the dealer’s purchase price for used vehicles. Dealers generally pay a floating interestrate on wholesale loans based on the prime rate. The dealer pays off each wholesale receivable asthe related vehicle is sold or leased. In the United States in 2003, the average wholesale receivablewas outstanding for 84 days, excluding the time the vehicle was in transit from the assembly plant tothe dealership. In 2003, we financed about 5 million vehicles worldwide through wholesale financing.At December 31, 2003, our wholesale portfolio totaled $22.5 billion net of allowance for creditlosses. Our wholesale financing program includes financing of large multi-brand national dealergroups that are some of our largest wholesale customers based on the amount financed.

When a dealer uses our wholesale financing program to purchase vehicles, we obtain a securityinterest in the vehicles and, in many instances, other assets of the dealer. Our subsidiary, TheAmerican Road Insurance Company, provides insurance for vehicle damage and theft of vehiclesheld in dealer inventory and financed by us.

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For each year since 1999, we have provided more than 82% of the wholesale financing on newFord, Lincoln and Mercury brand vehicles acquired by dealers in the United States and more than96% of the wholesale financing on new Ford brand vehicles acquired by dealers in Europe.

Other Financing

We make loans to vehicle dealers for facilities improvements, working capital and to enablethem to purchase and finance dealership real estate. For dealers in the United States and Canada,these loans totaled about $2.9 billion at December 31, 2003 and were included in other financereceivables in our financial statements. These loans typically are secured by mortgages on realestate, security interests in other dealership assets and sometimes personal guarantees of theindividual owners of the dealership.

We also purchase certain receivables generated by divisions and affiliates of Ford, primarily inconnection with the delivery of vehicle inventories from Ford vehicle assembly plants in the UnitedStates to dealers and the sale of parts and accessories by Ford to dealers. At December 31, 2003,these purchased receivables totaled about $2.9 billion, of which about $950 million was included inwholesale finance receivables and about $2.0 billion was included in other finance receivables.

Marketing and Special Programs

We actively market our financing products and services to automotive dealers and customers.Through personal sales contacts, targeted advertisements in trade publications, participation indealer-focused conventions and organizations and support from manufacturers, we seek todemonstrate to dealers the value of entering into a business relationship with us. We base ourmarketing strategy on our belief that we can better assist dealers in achieving their sales, financialand customer satisfaction goals by being a stable, committed finance source with knowledgeableautomotive and financial professionals offering personal attention and interaction. We demonstrateour commitment to dealer relationships with a variety of materials, measurements and analysesshowing the advantages of a full range of automotive financing products that allows consistent andpredictable single source financing. In addition, from time to time, we promote increased dealertransactions through incentives, bonuses, contests and selected program and rate adjustments.

We promote our retail financing products primarily through pre-approved credit offers toprospective customers, point-of-sale information, ongoing communications and contacts with existingcustomers and sponsorships of selected racing teams. Our communications to these customerspromote the advantages of our financing products, the availability of special plans and programs andthe benefits of affiliated products, such as extended warranties, service plans, insurance coveragegap protection and excess wear and use waivers. In addition, we emphasize the quality of ourcustomer service and the ease of making payments and transacting business with us. For example,through the Ford Credit North America web site, a customer can make inquiries, review an accountbalance, examine current incentives, schedule an electronic payment or qualify for a pre-approvedcredit offer.

We also market our non-consumer financial services described above in ‘‘Other RetailFinancing’’ with a specialized group of employees who make direct sales calls on dealers, and, oftenat the request of such dealers, on potential high-volume commercial customers. This group alsouses various materials to explain our flexible programs and services specifically directed at theneeds of commercial and fleet vehicle customers.

Servicing

General. After we purchase retail installment sale contracts and leases from dealers and othercustomers, we manage the receivables during their contract terms. This management process is

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called servicing. We service all contracts that we originate or acquire. Our servicing duties includethe following:

) applying monthly payments from customers,

) contacting delinquent customers for payment,

) maintaining the security interest in the financed vehicle,

) monitoring insurance coverage for lease vehicles,

) providing billing statements to customers,

) responding to customer inquiries,

) releasing security interests on paid-off finance contracts,

) arranging for the repossession of vehicles, and

) selling repossessed and returned vehicles at auction.

Service Center Locations. We have 9 regional service centers in North America and 3 regionalservice centers in Europe that conduct customer service and collection activities.

Our North American regional service centers are located in:

United States: Colorado Springs, Colorado Greenville, South CarolinaTampa, Florida Nashville, TennesseeBaltimore, Maryland Irving, TexasHenderson, Nevada

Canada: Edmonton, Alberta Ottawa, Ontario

Each of these service centers generally services customers located in their region, but all of ourNorth American service centers are electronically linked and workload can be allocated acrossservice centers.

We also have four specialty service centers in North America that focus on specific servicingactivities:

) Customer Service Center — Omaha, Nebraska;

) Volvo Customer Service Center — Richardson, Texas;

) National Bankruptcy Service Center — Livonia, Michigan; and

) National Recovery Center — Mesa, Arizona.

Within Europe, we have centralized customer servicing activities in St. Albans and Watford,England to support our U.K. operations and customers, and in Cologne, Germany to support ourGerman operations and customers. In smaller countries, we provide servicing through our localbranches.

Customer Payment Operations. In the United States and Canada, customers are directed intheir monthly billing statements to mail payments to a bank for deposit in a lockbox account.Customers may also make payments through electronic payment services, a direct debit program ora telephonic payment system.

Servicing Activities — Consumer Credit. We design our collection strategies and procedures tokeep accounts current and to collect on delinquent accounts. We employ a combination ofproprietary and non-proprietary tools to assess the probability and severity of default for all of ourreceivables and leases and implement our collection efforts based on our determination of the credit

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risk associated with each customer. As each customer develops a payment history, we use aninternally developed behavioral scoring model to assist in determining the best collection strategies.Based on data from this scoring model, we group contracts by risk category for collection. Ourcentralized collection operations are supported by state-of-the-art auto-dialing technology andproprietary collection and workflow operating systems. Our U.S. systems also employ a web-basednetwork of outside contractors who support the repossession process. Through our auto-dialerprogram and our monitoring and call log systems, we target our efforts to contact customers aboutmissed payments and developing satisfactory solutions to bring accounts current.

Outsourced Operations. We engage vendors to perform many of our servicing processes.These processes include applying monthly payments from customers, monitoring the perfection ofsecurity interests in financed vehicles, monitoring insurance coverage on lease vehicles, imaging ofcontracts and electronic data file maintenance, generation of retail and lease billing statements,telephonic payment systems for retail customers, the handling of some inbound customer servicecalls and the recovery of deficiencies in selected accounts. In addition, certain collection activitiesrelated to contracts purchased by Fairlane Credit are handled by vendors.

Payment Extensions. At times, we offer payment extensions to customers who haveencountered temporary financial difficulty that limits their ability to pay as contracted. A paymentextension allows the customer to extend the term of the contract, usually by paying a fee that iscalculated in a manner specified by law. Following a payment extension, the customer’s account isno longer delinquent. Before agreeing to a payment extension, the service representative reviews thecustomer’s payment history, current financial situation and assesses the customer’s desire andcapacity to make future payments. The service representative considers whether the proposedpayment extension complies with our policies and guidelines. Service center managers review, andgenerally must approve, payment extensions outside these guidelines.

Repossessions and Auctions. We view repossession of a financed or leased vehicle as a finalstep that we undertake only after all other collection efforts have failed. We sell repossessedvehicles and apply the proceeds to the amount owed on the customer’s account. At our NationalRecovery Center, we continue to attempt collection of any deficient amounts until the account is paidin full, we obtain mutually satisfactory payment arrangements with the debtor or we determine thatthe account is uncollectible.

Ford’s Vehicle Remarketing Department, in conjunction with our regional service centers and ourNational Recovery Center, manages the sale of repossessed vehicles and returned leased vehicles.We attempt to maximize net auction proceeds by selling vehicles in geographic markets that willresult in the highest resale value, net of transportation, reconditioning and auction costs. Thedetermination of the sale location is based on an analysis of historical auction price data and markettrends. We inspect and recondition the vehicle to maximize the net auction value of the vehicle.Vehicles are then offered for sale through open auctions, in which any licensed dealer canparticipate, and closed auctions, in which only Ford, Lincoln and Mercury dealers may participate.Our open auctions are mainly physical auctions, while our closed auctions are both physical auctionsand on-line auctions. We decide to use an open or closed auction based upon factors such asvehicle age, mileage, and condition. In 2003, two-thirds of all of the vehicles we sold throughauctions were returned leased vehicles and one-third of all vehicles sold through auctions wererepossessed vehicles. In 2003, we took, on average, 39 days to dispose of vehicles sold at auction,the same as in 2002. Repossessed vehicles are reported in other assets on our balance sheet atvalues that approximate expected auction proceeds.

We generally are able to repossess wholesale financed vehicles if the dealer does not maketimely payments or meet its obligations under the financing program. However, once a vehicle is soldor leased to a retail customer, we can no longer repossess the vehicle to satisfy the dealer’swholesale obligations.

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Wholesale and Commercial. We require dealers to submit monthly financial statements, andwe monitor for potential credit deterioration. We assign an evaluation rating to each dealer and weperform physical audits of vehicle inventory periodically, with more frequent audits for higher riskdealers. In addition, we monitor dealer inventory financing payoffs daily to detect deviations fromtypical repayment patterns, in which case we take appropriate actions. Within the United States andCanada, eight commercial lending offices provide services to fleet purchasers, leasing companiesand daily rental companies. We generally review our exposure under these credit arrangements atleast annually. In our international markets, this business is managed within the head office of thelocal market area.

Insurance

We conduct insurance operations primarily through The American Road Insurance Company(‘‘TARIC’’) and its subsidiaries in the United States and Canada and through various other insurancesubsidiaries outside the United States and Canada. TARIC offers a variety of products and services,including:

) Insurance for extended service plan contracts, mainly through Ford dealers for new and usedvehicles,

) Physical damage insurance covering vehicles at dealers’ locations and vehicles in-transitbetween final assembly plants and dealers’ locations, and

) Physical damage/liability coverage on Ford dealer daily rental vehicles.

We also offer various Ford-branded insurance products throughout the world underwritten bynon-affiliated insurance companies from which we receive fee income but the underwriting riskremains with the non-affiliated insurance companies. In addition, in December 2002, TARIC beganproviding to Ford and its subsidiaries various types of surety bonds, including bonds generallyrequired as part of any appeals of litigation, financial guarantee bonds and self-insurance workers’compensation bonds. Previously, Ford had met all of its surety bond requirements with bonds issuedby third party insurance companies. Our insurance business generated approximately 1% of our totalrevenues in 2003 and 2002.

EMPLOYEE RELATIONS

At December 31, 2003, we had about 19,000 full-time employees, and 2,000 part-time andagency personnel. Most of our employees are salaried, and most are not represented by a union.We consider employee relations to be satisfactory.

GOVERNMENTAL REGULATIONS

As a finance company, we are highly regulated by the governmental authorities in the locationswhere we operate.

United States

Within the United States, our operations are subject to regulation, supervision and licensingunder various federal, state and local laws and regulations.

Federal Regulation. We are subject to extensive federal regulation, including the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These laws requireus to provide certain disclosures to prospective borrowers and lessees in consumer retail and leasefinancing transactions and prohibit discriminatory credit practices. The principal disclosures requiredunder the Truth-in-Lending Act for retail finance transactions include the terms of repayment, theamount financed, the total finance charge and the annual percentage rate. For retail lease

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transactions, we are required to disclose the amount of payments at consummation of the lease, theterms for payment, and information about lease charges, insurance, excess mileage and liability onearly termination. The Equal Credit Opportunity Act prohibits creditors from discriminating againstcredit applicants on a variety of factors, including race, color, sex, age or marital status. Pursuant toRegulation B promulgated under the Equal Credit Opportunity Act, creditors are required to makecertain disclosures regarding consumer rights and advise consumers whose credit applications arenot approved of the reasons for being denied. In addition, any of the credit scoring systems we useduring the application process or other processes must comply with the requirements for suchsystems under the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Actrequires us to provide certain information to consumers whose credit applications are not approvedon the basis of a consumer credit report obtained from a national credit bureau. We are also subjectto the Soldiers’ and Sailors’ Civil Relief Act that requires us to reduce the interest rate on retailinstallment contracts and limits our ability to pursue collection and enforcement remedies oncontracts with eligible military personnel. In addition, we are subject to other federal regulation,including the Gramm-Leach-Bliley Act, that requires us to maintain privacy with respect to certainconsumer data in our possession and to communicate periodically with consumers on privacymatters.

State Regulation — Licensing. In most states, a consumer credit regulatory agency regulatesand enforces laws relating to finance companies. Rules and regulations generally provide forlicensing of finance companies, limitations on the amount, duration and charges, including interestrates, that can be included in finance contracts, requirements as to the form and content of financecontracts and other documentation, and restrictions on collection practices and creditors’ rights. Wemust renew these licenses periodically. In certain states, we are subject to periodic examination bystate regulatory authorities. Moreover, several states have laws that limit interest rates on consumerfinancing generally. In periods of high interest rates, these rate limitations could have an adverseeffect on our operations if we were unable to purchase retail installment sale contracts with financecharges that reflect our increased costs.

State Regulation — Repossessions. To mitigate our credit losses, sometimes we repossess afinanced or leased vehicle. Repossessions are subject to prescribed legal procedures, includingpeaceful repossession, one or more customer notifications, a prescribed waiting period prior todisposition of the repossessed vehicle and return of personal items to the customer. Some statesprovide the customer with reinstatement or redemption rights that require us to return a repossessedvehicle to the customer in certain circumstances. Our ability to sell a repossessed vehicle isrestricted if a customer declares bankruptcy. The independent repossession firms we use torepossess vehicles for us also are subject to regulatory requirements.

International

In some countries outside the United States, some of our subsidiaries, including FCE, areregulated banking institutions and are required, among other things, to maintain minimum capitalreserves. FCE is authorized as a deposit taking business under the Financial Services and MarketsAct of 2000 and is regulated by the U.K. Financial Services Authority (‘‘FSA’’). FCE also holds astandard license under the U.K. Consumer Credit Act of 1974. Since 1993, FCE has obtainedauthorizations from the Bank of England (which role is now undertaken by the FSA) pursuant to theSecond Banking Consolidation Directive entitling it to operate on a branch basis in all member statesof the European Union. In many other locations where we operate, governmental authorities requireus to obtain licenses to conduct our financing business.

11


Our Regulatory Compliance Status

We believe that we maintain all material licenses and permits required for our current operationsand are in substantial compliance with all applicable U.S. local, state and federal laws andregulations, as well as regulations in non-U.S. jurisdictions. However, we can provide no assurancethat we, dealers who sell us contracts, or repossession firms that we engage, will be able tomaintain all requisite licenses and permits. Failure to satisfy those and other regulatory requirementscould have a material adverse effect on our operations, financial condition and liquidity. Further, theadoption of new laws or regulations, or the revision of existing laws and regulations, could have amaterial adverse effect on our operations, financial condition and liquidity.

We actively monitor proposed changes to relevant legal and regulatory requirements in order tomaintain our compliance. Through our governmental relations efforts, we also attempt to participatein the legislative and administrative rule-making process on regulatory initiatives that impact financecompanies. Our ongoing compliance efforts have not had a material adverse effect on ouroperations, financial condition or liquidity.

TRANSACTIONS WITH FORD AND AFFILIATES

We have a profit maintenance agreement with Ford that requires Ford to make payments to usto maintain our earnings at specified minimum levels. In addition, we have an agreement to maintaina minimum control interest in FCE and to maintain FCE’s net worth above a minimum level. Nopayments were made under either of these agreements during the 2001 through 2003 periods.

We formally documented our long-standing business practices with Ford in an agreement datedOctober 18, 2001, a copy of which was filed with the SEC on that date. The principal terms of thisagreement include the following:

) Any extension of credit from us to Ford and any of Ford’s automotive affiliates will be on arm’slength terms and will be enforced in a commercially reasonable manner.

) We will not be required to guarantee the indebtedness or make equity investments in Ford orany of Ford’s automotive affiliates.

) We and Ford agree to maintain our stockholder’s equity at a commercially reasonable level tosupport the amount, quality and type of receivables in light of prevailing economiccircumstances.

) We will not be required to accept credit or residual risk beyond what we would be willing toaccept acting in a prudent and commercially reasonable manner (taking into consideration anyinterest rate or residual subvention payments, guarantees, or other subsidies that are providedto us by Ford or any of Ford’s automotive affiliates).

) We and Ford are separate, legally distinct companies and will continue to maintain separatebooks, accounts, assets and liabilities.

More information about transactions between us and Ford and other affiliates is contained inNote 14 of our Notes to Financial Statements, ‘‘Business — Overview’’, ‘‘Business — RetailFinancing’’; ‘‘Business — Other Financing’’ and the description of Ford’s business in Ford’s 200310-K Report included as an exhibit to this report.

ITEM 2. PROPERTIES

We own our world headquarters in Dearborn, Michigan and our PRIMUS offices in Nashville,Tennessee. FCE leases its corporate offices in Brentwood, England from an affiliate of Ford. Most ofour automotive finance branches and service centers are located in leased properties. The continueduse of any of these leased properties is not material to our operations. At December 31, 2003, ourtotal obligation under leases of real property was about $240 million.

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ITEM 3. LEGAL PROCEEDINGS

We are subject to legal actions, governmental investigations and other proceedings and claimsrelating to state and federal laws concerning finance and insurance, employment-related matters andother contractual relationships. Some of these matters are class actions or are seeking class actionstatus. Some of these matters may involve compensatory, punitive or treble damage claims andattorneys’ fees in very large amounts, or other requested relief which, if granted, would require verylarge expenditures. Our significant pending matters are summarized below:

Fair Lending Class Action. A putative class action in federal court in New York, Jones v. FordMotor Credit Company, alleges that our pricing practices discriminate against African-Americans.Specifically, plaintiffs allege, ‘‘although Ford Credit’s initial analysis applies objective criteria tocalculate the risk-related ’buy rate’, Ford Credit then authorizes a subjective component in its creditpricing system — the Mark-up Policy — to impose additional non-risk charges.’’ A second case,pending in federal court in Tennessee, Claybrook v. PRIMUS, contains similar allegations concerningPRIMUS accounts. Plaintiffs in both cases have recently filed motions for class certification.

Litigation is subject to many uncertainties and the outcome is not predictable. It is reasonablypossible that the matters described above could be decided unfavorably to us. Although the amountof liability at December 31, 2003 with respect to these matters cannot be ascertained, we believethat any resulting liability should not materially affect our consolidated financial position or results ofoperations.

In addition, any litigation, investigation, proceeding or claim against Ford that results in Fordincurring significant liability, expenditures or costs could also have a material adverse affect on ourbusiness, results of operations and financial condition. For a discussion of pending cases againstFord, see Item 3 in Ford’s 2003 10-K Report.

PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

At December 31, 2003, all shares of our common stock were owned by Ford and Ford Holdings,LLC (a wholly-owned subsidiary of Ford). Ford plans to transfer its shares to Ford Holdings, LLC in 2004and we would then become a wholly-owned subsidiary of Ford Holdings, LLC. We did not issue or sellany equity securities during 2003, and there is no market for our stock. We paid cash dividends of$3.7 billion and $1.15 billion in 2003 and 2002, respectively. We may pay additional dividends from timeto time consistent with our leverage strategy, depending on the amount and mix of our receivables,capital requirements and profitability.

13

ITEM 6. SELECTED FINANCIAL DATA

FORD MOTOR CREDIT COMPANY AND SUBSIDIARIESFIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

2003 2002 2001 2000 1999

Selected Income StatementFinancing revenue (in millions)

Operating leases ************************************************ $ 6,946 $ 8,648 $ 9,088 $ 8,683 $ 7,750Retail*********************************************************** 4,752 5,962 6,900 6,352 5,433Interest supplements and other support costs earned from affiliated

companies **************************************************** 3,517 3,658 4,125 3,523 3,293Wholesale ****************************************************** 877 728 1,909 2,580 1,548Other*********************************************************** 247 294 359 376 301

Total financing revenue ***************************************** 16,339 19,290 22,381 21,514 18,325Depreciation on operating leases ************************************ (7,009) (8,435) (8,397) (7,433) (7,216)Interest expense*************************************************** (5,831) (6,929) (8,922) (8,910) (7,140)

Net financing margin ******************************************* 3,499 3,926 5,062 5,171 3,969Investment and other income related to sales of receivables************ 2,765 2,610 1,433 557 433Insurance premiums earned **************************************** 232 261 231 226 237Other income ***************************************************** 1,105 649 658 648 787

Total financing margin and revenue ****************************** 7,601 7,446 7,384 6,602 5,426Operating expenses************************************************ (2,357) (2,307) (2,333) (2,223) (1,972)Provision for credit losses ****************************************** (1,998) (2,971) (3,351) (1,664) (1,162)Insurance expenses************************************************ (211) (203) (206) (208) (207)

Total expenses ************************************************ (4,566) (5,481) (5,890) (4,095) (3,341)

Income from continuing operations before income taxes**************** 3,035 1,965 1,494 2,507 2,085Provision for income taxes ****************************************** (1,164) (730) (663) (930) (789)Minority interests in net income of subsidiaries ************************ (2) (3) (1) (33) (52)

Income from continuing operations ****************************** 1,869 1,232 830 1,544 1,244Income/(loss) from discontinued/held-for-sale operations *************** 3 33 9 (8) 17Loss on disposal of discontinued/held-for-sale operations ************** (55) (31) — — —

Net income *************************************************** $ 1,817 $ 1,234 $ 839 $ 1,536 $ 1,261

Cash dividends **************************************************** $ 3,700 $ 1,150 $ 400 $ 120 $ 2,317Return on equity*************************************************** 14% 9% 7% 13% 11%Earnings-to-fixed charges ratio ************************************** 1.52 1.28 1.17 1.28 1.29Selected Balance SheetFinance receivables (in billions)Retail installment ************************************************** $ 77.8 $ 68.4 $ 83.4 $ 79.9 $ 75.3

Wholesale ****************************************************** 22.5 16.4 15.4 33.7 26.1Other*********************************************************** 8.6 9.8 9.1 8.4 7.1

Total finance receivables, net *********************************** 108.9 94.6 107.9 122.0 108.5Net investment in operating leases ********************************** 23.2 31.3 37.2 36.5 31.3

Total net finance receivables and operating leases **************** 132.1 125.9 145.1 158.5 139.8All other ********************************************************** 46.7 44.3 28.0 15.8 16.8

Total assets *************************************************** $ 178.8 $ 170.2 $ 173.1 $ 174.3 $ 156.6

Memo: Total managed receivables* ********************************** $ 181.5 $ 197.3 $ 203.8 $ 186.9 $ 159.4Memo: Allowance for credit losses*********************************** 3.0 3.2 2.8 1.6 1.5CapitalizationShort-term debt (in billions)Commercial paper ************************************************* $ 15.1 $ 8.2 $ 15.7 $ 42.3 $ 43.1

All other ******************************************************** 9.6 8.0 6.9 7.6 6.7

Total short-term debt ******************************************* 24.7 16.2 22.6 49.9 49.8Long-term debt Notes payable within one year ************************ 29.5 22.8 21.1 12.6 19.3

Notes payable after one year ************************************* 95.5 101.3 102.1 83.1 63.0

Total long-term debt******************************************** 125.0 124.1 123.2 95.7 82.3

Total debt ***************************************************** 149.7 140.3 145.8 145.6 132.1Stockholder’s equity************************************************ 12.5 13.6 12.0 12.2 10.9

Total capital *************************************************** $ 162.2 $ 153.9 $ 157.8 $ 157.8 $ 143.0

Debt-to-equity ratio (to 1) ******************************************* 12.0 10.3 12.2 11.9 12.1Short-term debt and notes payable within one year as percent of total

capital ********************************************************** 33% 25% 28% 40% 48%Memo: Debt-to-equity ratio on a managed basis (to 1) as defined in the

MD&A (see explanation of calculation) ***************************** 13.0 12.8 14.8 13.9 13.0

* Managed receivables include receivables sold in off-balance sheet securitizations and exclude receivables sold in whole-loan sale transactions.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

Overview

Generation of Revenue, Income and Cash

As an indirect, wholly-owned subsidiary of Ford, our primary focus is to profitably support thesale of Ford vehicles. The principal factors that influence our earnings are the amount and mix ofdifferent types of finance receivables and net investment in operating leases and financing margins.The performance of these receivables and leases over time, mainly through the impact of creditlosses and variations in the residual value of leased vehicles, also affects our earnings.

The amount of our finance receivables and net investment in operating leases depends on manyfactors; some of the key factors are:

) The volume of new and used vehicle sales and leases,

) The extent to which we purchase retail installment sale and lease contracts and the extent towhich we provide wholesale financing,

) The sale prices of the vehicles financed,

) The level of dealer inventories,

) Ford-sponsored special financing programs available exclusively through us, and

) The availability of cost-effective funding for the purchase of retail installment sale and leasecontracts and to provide wholesale financing.

For finance receivables, financing margins equal the difference between revenue earned onfinance receivables and the cost of borrowed funds. For operating leases, financing margins equalrevenue earned on operating leases, less depreciation expense and the cost of borrowed funds.Interest rates earned on most receivables and rental charges on operating leases generally are fixedat the time the contracts are originated. On some receivables, primarily wholesale financing, wecharge interest at a floating rate that varies with changes in short-term interest rates.

Business Performance

We review our business performance from several perspectives, including:

) On-balance sheet basis — includes receivables we own and receivables sold for legalpurposes that remain on our balance sheet,

) Securitized off-balance sheet basis — includes receivables sold in securitization transactionsthat are not reflected on our balance sheet,

) Managed basis — includes on-balance sheet and securitized off-balance sheet receivablesthat we continue to service, and

) Serviced basis — includes managed receivables and receivables sold in whole-loan saletransactions where we retain no interest in the sold receivables, but which we continue toservice.

We analyze our financial performance primarily on an on-balance sheet and managed basis. Weretain interests in receivables sold in off-balance sheet securitizations, and with respect tosubordinated retained interests, we have credit risk. As a result, we evaluate credit losses,receivables and leverage on a managed basis as well as on an on-balance sheet basis. In contrast,we do not have the same financial interest in the performance of receivables sold in whole-loan saletransactions. As a result, we generally review the performance of our serviced portfolio only toevaluate the effectiveness of our origination and collection activities. To evaluate the performance of

15

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS (Continued)

these activities, we monitor a number of serviced performance measures, such as repossessionstatistics, losses on repossessions and the number of bankruptcy filings.

We measure the performance of our North America Segment and our International Segmentprimarily on an income before income taxes basis, after excluding the impact to earnings from hedgeineffectiveness and the results of discontinued and held for sale operations. Hedge ineffectiveness isexcluded in assessing our segment performance because our risk management activities are carriedout on a centralized basis at the corporate level. For further discussion regarding our segments, seeNote 18 of our Notes to Financial Statements.

Trends and Strategies

Origination: Buy it Right, Price it Right

In 2003, our origination strategy, which includes the purchase of retail installment sale contractsand lease contracts from dealers, continued to focus on financing new Ford vehicles and late-modelused vehicles. In 2002 and 2003, we increased the quality of our retail installment sale andoperating lease portfolios by reducing the number of new, non-Ford and older-model used vehiclesfinanced. We reduced new, non-Ford financing because of adverse selection (i.e., the customers withrelatively higher creditworthiness took advantage of other manufacturers’ incentive programs). Wereduced the number of older-model used vehicles financed because the creditworthiness ofcustomers who finance those vehicles generally is lower. Also during 2003, we continued toimplement a number of enhancements to our credit-risk scoring models and risk-pricing structuresthat support our origination strategy.

Servicing: Operate Efficiently, Collect Effectively, Enhance Owner Loyalty

Our servicing strategy is to improve efficiency and collections effectiveness by continuallyupgrading our processes, while at the same time enhancing customer satisfaction and loyalty. During2003, we further increased the commonality of our business processes and information technologyplatforms and introduced other enhancements to increase efficiency and effectiveness. In NorthAmerica, for example, we enhanced our collection modeling capabilities to allow for more focusedcollection activity on high-risk accounts and developed a risk-based staffing model to ensurecollection resources are aligned with portfolio risk. These and other process improvements, andgradual improvement in the U.S. economy, resulted in favorable trends in credit loss indicators,including delinquencies which improved toward year-end 2003.

Funding: Fund it Efficiently, Manage Risk

Our funding strategy is to maintain liquidity and access to diverse funding sources that are costeffective. We continue to meet a significant portion of our funding requirements throughsecuritizations because of the stability of the market for asset-backed securities, their lower costscompared with unsecured debt (at our present credit ratings) and the diversity of funding sourcesthat they provide. In recent years, our lower credit ratings generally have resulted in higherborrowing costs and reduced access to capital markets. The decline in our credit ratings over thepast several years primarily reflected the credit rating agencies’ opinions of Ford, including concernsregarding Ford’s automotive cash flow and profitability, declining market share, excess industrycapacity, industry pricing pressure and rising healthcare costs.

Results of Operations

Discontinued Operations. Consistent with our focus on the core business of supporting Ford’sbrands, during the fourth quarter of 2003 we committed to a plan to sell AMI Leasing and Fleet

16


Management Services, our operation in the United States that offers full-service car and truckleasing. We expect to complete the sale during 2004. In addition, we completed the sale of Axus,our all-makes fleet leasing operations in Europe, New Zealand and Australia initiated in 2002. Thefollowing discussion of our results in Item 7 and 7A excludes the results of these discontinued andheld-for-sale operations, as defined by Statement of Financial Accounting Standards (‘‘SFAS’’)No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The discontinuedoperations are described in Note 10 of our Notes to Financial Statements.

FCAR Owner Trust Consolidation. We use a special purpose trust, FCAR Owner Trust(‘‘FCAR’’), as a source of funds for our operations. FCAR’s activities are limited to issuing asset-backed commercial paper and other securities, borrowing from banks and buying highly-rated asset-backed securities issued by securitization special purpose entities (‘‘SPEs’’) sponsored by us.

In the second quarter of 2003, we purchased a portion of the equity interests in FCAR fromunaffiliated parties for $175 million. As a result of this transaction, FCAR’s assets, liabilities andresults of operations were consolidated into our financial statements. In addition, the accountingconsolidation of FCAR also caused certain of the Ford Credit sponsored securitization SPEs that sellasset-backed securities to FCAR to lose their status as qualifying SPEs under SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities(‘‘SFAS No. 140’’). Consequently, the receivables previously sold by us to these SPEs were deemedto be reacquired by us in accordance with SFAS No. 140 requirements. These receivables arereferred to as ‘‘reacquired receivables’’ and are now reported on our balance sheet at fair value.Following the accounting consolidation of FCAR, most sales of receivables to Ford Credit sponsoredSPEs that sell asset-backed securities to FCAR will not qualify as an accounting sale and will bereported on our balance sheet.

The accounting consolidation of FCAR and related securitization SPEs did not change thebankruptcy-remote status of these entities and the isolation of assets achieved in these transactionswas not changed. The receivables sold to the SPEs and the asset-backed securities held by FCARare available only for the SPEs, FCAR and their investors, and other participants, and are notavailable to pay our obligations or the claims of our creditors. The accounting consolidation did nothave a material impact on our earnings, back-up credit facilities, unsecured debt funding programsor other securitization programs. The accounting consolidation of FCAR increased our financialstatement debt-to-equity ratio because the asset-backed commercial paper issued by FCAR is nowincluded in our debt. No gain or loss was recorded upon consolidation.

We took the actions that resulted in FCAR’s consolidation because we believed it was the bestway to maintain our near term liquidity, funding flexibility and program economics that FCARprovides us. Many of the other alternatives considered would have required further modifications toFCAR in the near future due to possible changes to SFAS No. 140 as well as the uncertaintysurrounding the interpretation of Financial Accounting Standards Board Interpretation No. 46,Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.

Fourth Quarter 2003 Compared with Fourth Quarter 2002

We earned $470 million in the fourth quarter of 2003, up $116 million or 33% compared withearnings of $354 million a year ago. Our consolidated pre-tax income from continuing operations inthe fourth quarter of 2003 was $839 million, up $245 million or 41% from earnings of $594 million ayear ago. The increase in earnings primarily reflected a lower provision for credit losses and the netfavorable market valuation of derivative instruments and associated exposures, offset partially bylower sales of receivables.

17


Results of our operations by business segment for the fourth quarter of 2003 and 2002 areshown below:

Fourth Quarter

2003 Over/(Under) 2002

2003 2002 Amount Percentage

(in millions)

Income before income taxes

North America Segment ******************************** $ 559 $ 486 $ 73 15%

International Segment ********************************** 156 149 7 5

Eliminations/other ************************************** 124 (41) 165

Pre-tax income from continuing operations ************** $ 839 $ 594 $245 41%

Provision for income taxes and minority interests ************ (316) (223) (93)

Loss from discontinued/held-for sale operations ************* (53) (17) (36)

Total net income ************************************* $ 470 $ 354 $116 33%

North America Segment income before income taxes in the fourth quarter of 2003 was up$73 million from the fourth quarter of 2002. This increase primarily reflected a lower provision forcredit losses, offset partially by lower income related to off-balance sheet securitizations. The lowerprovision for credit losses primarily reflected the non-recurrence of an increase in our allowance forcredit losses in the fourth quarter of 2002. Lower income related to off-balance sheet securitizationsresulted from lower issuances during the year and lower outstanding off-balance sheet receivables.

International Segment income before income taxes in the fourth quarter of 2003 was up$7 million from the fourth quarter of 2002. This increase primarily reflected a lower provision forcredit losses because of lower receivables and higher recoveries, mostly in Latin America, offsetpartially by higher borrowing costs in Europe.

Income before income taxes in the eliminations/other category in the fourth quarter of 2003 wasup $165 million compared with the fourth quarter of 2002. The improvement primarily reflected thenet favorable market valuation of derivative instruments and associated exposures, which is includedin ‘‘Other income’’ and ‘‘Investment and other income related to sales of receivables’’ on our incomestatement.

Full Year 2003 Compared with Full Year 2002

We earned $1,817 million in 2003, up $583 million or 47% compared with earnings of$1,234 million a year ago. Our consolidated pre-tax income from continuing operations in 2003 was$3,035 million, up $1,070 million or 54% from a year ago. The increase in earnings primarilyreflected a lower provision for credit losses and the net favorable market valuation of derivativeinstruments and associated exposures, offset partially by the impact of lower average netreceivables.

18


Results of our operations by business segment for 2003 and 2002 are shown below:

Full Year



(in millions)


North America Segment****************************** $ 2,076 $1,665 $ 411 25%

International Segment ******************************* 657 541 116 21

Eliminations/other *********************************** 302 (241) 543

Pre-tax income from continuing operations *********** $ 3,035 $1,965 $1,070 54%

Provision for income taxes and minority interests********** (1,166) (733) (433)

Income/(loss) from discontinued/held-for-sale operations *** (52) 2 (54)

Total net income ********************************** $ 1,817 $1,234 $ 583 47%

North America Segment income before income taxes in 2003 was up $411 million comparedwith 2002. This increase primarily reflected a lower provision for credit losses, offset partially by theimpact of lower average net receivables. The lower provision for credit losses primarily reflected thenon-recurrence of an increase in our allowance for credit losses in 2002, and lower credit losses.The impact of lower average net receivables reflected lower financing volumes.

International Segment income before income taxes in 2003 was up $116 million compared with2002. This increase primarily reflected a lower provision for credit losses, the favorable impact ofcurrency exchange rates and higher wholesale volume. The lower provision for credit losses primarilyreflected lower retail receivables levels and higher recoveries in Latin America. The favorablecurrency exchange rates primarily reflected the stronger euro and pound sterling compared with theU.S. dollar. Higher wholesale volume primarily reflected the growth of wholesale financing providedto Mazda dealers in Europe. Higher borrowing costs in Europe were a partial offset.

Income before income taxes in the eliminations/other category in 2003 was up $543 millioncompared with 2002. The improvement primarily reflected the net favorable market valuation ofderivative instruments and associated exposures.


We earned $1,234 million in 2002, up $395 million or 47% compared with earnings of$839 million in 2001. Our consolidated pre-tax income from continuing operations in 2002 was$1,965 million, up $471 million or 32% from 2001.

19


Results of our operations by business segments for 2002 and 2001 are shown below:

Full Year



(in millions)


North America Segment ****************************** $1,665 $1,525 $140 9%

International Segment ******************************** 541 390 151 39

Eliminations/other ************************************ (241) (421) 180

Pre-tax income from continuing operations************ $1,965 $1,494 $471 32%

Provision for income taxes and minority interests ********** (733) (664) (69)

Income from discontinued/held-for-sale operations ********* 2 9 (7)

Total net income *********************************** $1,234 $ 839 $395 47%

North America Segment income before income taxes in 2002 was up $140 million comparedwith 2001. This increase primarily reflected a lower provision for credit losses due to the non-recurrence of a substantial increase in our allowance for credit losses late in 2001, offset partially bythe impact of lower net financing margins.

International Segment income before income taxes in 2002 was up $151 million compared with2001. This increase resulted primarily from higher net financing margins, due to our reduced focuson relatively lower margin fleet financing products, as well as a lower provision for credit losses, andthe favorable impact of higher amounts of receivables.

Loss before income taxes in the eliminations/other category in 2002 improved $180 millioncompared with 2001. The improvement primarily reflected the decrease in the net unfavorablemarket valuation of derivative instruments and associated exposures and the non-recurrence of theRevitalization Plan charges taken in 2001.

Placement Volume and Financing Share

Total worldwide financing contract placement volumes for new and used vehicles are shownbelow:

FourthQuarter Full Year

2003 2002 2003 2002 2001 2000 1999

(in thousands)

Worldwide

Retail installment ************************ 672 710 2,960 3,322 4,495 3,777 3,428

Operating and finance leases ************* 98 148 487 775 1,050 1,228 1,065

Total financing volume****************** 770 858 3,447 4,097 5,545 5,005 4,493


United States *************************** 429 490 1,980 2,512 3,819 3,525 3,139

Canada********************************* 41 47 197 212 227 210 198

Total North America Segment *********** 470 537 2,177 2,724 4,046 3,735 3,337


Europe ********************************* 187 211 836 917 988 795 829

Other international *********************** 113 110 434 456 511 475 327

Total International Segment ************* 300 321 1,270 1,373 1,499 1,270 1,156

Total financing volume****************** 770 858 3,447 4,097 5,545 5,005 4,493

20


Shown below are our financing shares of new Ford, Lincoln and Mercury brand vehicles sold bydealers in the United States and Ford brand vehicles sold by dealers in Europe. Also shown beloware our wholesale financing shares of new Ford, Lincoln and Mercury brand vehicles acquired bydealers in the United States and of new Ford brand vehicles acquired by dealers in Europe:

FourthQuarter Full Year

2003 2002 2003 2002 2001 2000 1999

United States

Financing share — Ford, Lincoln and Mercury

Retail installment and lease**************** 39% 36% 39% 41% 54% 51% 47%

Wholesale ******************************* 82 86 82 85 84 84 84

Europe

Financing share — Ford

Retail installment and lease**************** 33% 34% 31% 34% 37% 32% 33%

Wholesale ******************************* 99 99 97 97 97 97 96


Our total financing contract placement volumes were 470,000 contracts in the fourth quarter of2003, down 67,000 contracts or 12% compared with a year ago. The decline in the fourth quartercompared with the year ago period reflected our reduction of used and non-Ford retail installmentfinancing as a result of our renewed focus on supporting Ford’s brands. For the full year of 2003, ourfinancing contract placement volumes were 2.2 million, down 547,000 contracts or 20% comparedwith a year ago. The full year decline resulted primarily from the same factors discussed above forthe fourth quarter of 2003. Additional factors in the full year decline include Ford’s increased use ofcash rebate marketing programs that do not require use of our financing products. Financing shareof new Ford, Lincoln and Mercury brand cars and light trucks sold by dealers in the United Stateswas 39% in the fourth quarter of 2003 compared with 36% a year ago. For the full year of 2003, ourfinancing share was 39% compared with 41% a year ago. This decline resulted primarily from thesame factors described above.


In the fourth quarter of 2003, our total financing contract placement volumes were 300,000,down 21,000 contracts or 7% compared with a year ago. This decrease is more than explained byfactors in Europe, primarily the United Kingdom and Germany. In the United Kingdom, Ford usedfewer financing-based marketing programs. In Germany, daily rental volume was lower because ofcompetitive pressures. Our financing share of all new Ford brand vehicles sold by dealers in Europewas 33% in the fourth quarter of 2003, compared with 34% in the prior year.

For the full year of 2003, our financing contract placement volumes were 1.3 million contracts,down 103,000 contracts or 8% compared with a year ago. The majority of this decrease occurred inEurope, which resulted primarily from the same factors discussed above for the fourth quarter of2003 as well as fewer low-rate financing programs in Germany and lower fleet financing volume inboth the United Kingdom and Germany. The remaining decrease occurred in Asia-Pacific, primarilyJapan, resulting from reduced levels of low-rate financing programs. Our financing share for the fullyear of 2003 in Europe was 31%, compared with 34% in the prior year.

21


Financial Condition

Finance Receivables and Operating Leases

Our financial condition is impacted significantly by the performance of our receivables as shownbelow.

December 31,

2003 2002 2001 2000 1999

(in billions)

Receivables

On-Balance Sheet(including on-balance sheet securitizations)

Finance receivables

Retail installment********************************** $ 77.8 $ 68.4 $ 83.4 $ 79.9 $ 75.3

Wholesale**************************************** 22.5 16.4 15.4 33.7 26.1

Other ******************************************** 8.6 9.8 9.1 8.4 7.1

Total finance receivables, net********************* $108.9 $ 94.6 $107.9 $122.0 $108.5

Net investment in operating leases******************** 23.2 31.3 37.2 36.5 31.3

Total on-balance sheet*************************** $132.1 $125.9 $145.1 $158.5 $139.8

Memo: Allowance for credit losses included above ****** $ 3.0 $ 3.2 $ 2.8 $ 1.6 $ 1.5

Securitized Off-Balance Sheet

Finance receivables

Retail installment********************************** $ 29.1 $ 48.9 $ 41.2 $ 26.0 $ 14.5

Wholesale**************************************** 20.3 22.5 17.5 2.3 5.0

Other ******************************************** — — — — —

Total finance receivables************************* $ 49.4 $ 71.4 $ 58.7 $ 28.3 $ 19.5

Net investment in operating leases******************** — — — 0.1 0.1

Total securitized off-balance sheet **************** $ 49.4 $ 71.4 $ 58.7 $ 28.4 $ 19.6

Managed

Finance receivables

Retail installment********************************** $106.9 $117.3 $124.6 $105.9 $ 89.8

Wholesale**************************************** 42.8 38.9 32.9 36.0 31.1

Other ******************************************** 8.6 9.8 9.1 8.4 7.1

Total finance receivables************************* $158.3 $166.0 $166.6 $150.3 $128.0

Net investment in operating leases******************** 23.2 31.3 37.2 36.6 31.4

Total managed********************************** $181.5 $197.3 $203.8 $186.9 $159.4

Serviced******************************************* $188.8 $202.3 $203.8 $186.9 $159.4

On-Balance Sheet Receivables. On-balance sheet finance receivables and net investment inoperating leases, net of allowance for credit losses, at December 31, 2003 were $132.1 billion, up$6.2 billion or 5% from a year ago. The increase primarily reflected the accounting consolidation ofFCAR in May 2003 and the impact related to changes in currency exchange rates, offset partially bythe impact of lower lease and retail placement volumes, and receivables sold in off-balance sheetsecuritizations and whole-loan sale transactions.

At December 31, 2003, on-balance sheet retail receivables included $14.3 billion that have beensold for legal purposes to Ford Credit-sponsored securitization SPEs that sell asset-backedsecurities to FCAR and are available only for repayment of asset-backed commercial paper issuedby FCAR, other securitization investors and other participants. These receivables are not available topay the obligations of Ford Credit or the claims of Ford Credit’s creditors.

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Securitized Off-Balance Sheet Receivables. Total securitized off-balance sheet receivables atDecember 31, 2003 were $49.4 billion, down $22 billion or 31% from a year ago. This decreaseprimarily reflected the reacquired receivables resulting from the consolidation of FCAR, now reportedon our balance sheet, the slower pace of securitizations and the increased use of whole-loan saletransactions.

Managed Receivables. Total managed receivables at December 31, 2003 were $181.5 billion,down $15.8 billion or 8% from December 31, 2002, primarily reflecting lower retail installment salecontracts resulting from lower placement volumes, lower net investment in operating leases, and thesale of U.S. retail finance receivables in whole-loan sale transactions. Net investment in operatingleases was lower resulting from Ford’s marketing programs, including Ford-sponsored special-rateretail installment financing and cash rebates that caused leasing to be a less attractive financingalternative for our customers.

Serviced Receivables. Serviced receivables includes our managed receivables and receivablesthat we sold in whole-loan sale transactions. We continue to service the receivables sold in whole-loan sale transactions. We retain no interest in the receivables, however, and all credit riskassociated with the receivables is transferred to the buyer.

Credit Risk

Credit risk is the possibility of loss from a customer’s failure to make payments according tocontract terms. Credit risk has a significant impact on our business. As discussed in Item 1, weactively manage the credit risk of our consumer and non-consumer portfolios to balance our level ofrisk and return. The allowance for credit losses reflected on our balance sheets is our estimate ofthe probable credit losses for receivables and leases that are impaired at the points in time shownon our balance sheet.

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Credit Loss Experience

Worldwide

The following table shows actual credit losses net of recoveries (‘‘credit losses’’) for ourworldwide on-balance sheet, reacquired, securitized off-balance sheet and managed receivables, forthe various categories of financing during the periods indicated. The loss-to-receivables ratios, whichequal credit losses divided by the average amount of net receivables outstanding for the period, areshown for our on-balance sheet and managed portfolios.

Full Year

2003 2002 2001

(in millions)

Credit Losses

On-Balance Sheet

Retail installment and lease **************************************** $1,871 $2,292 $2,052

Wholesale ******************************************************** 148 40 33

Other ************************************************************ 25 30 24

Total on-balance sheet******************************************* $2,044 $2,362 $2,109

Reacquired Receivables (retail) ************************************* 92 — —

Total on-balance sheet (including reacquired receivables) ************ $2,136 $2,362 $2,109


Retail installment and lease **************************************** $ 677 $ 448 $ 218

Wholesale ******************************************************** — 6 1

Other ************************************************************ — — —

Total securitized off-balance sheet ******************************** $ 677 $ 454 $ 219

Managed

Retail installment and lease **************************************** $2,640 $2,740 $2,270

Wholesale ******************************************************** 148 46 34

Other ************************************************************ 25 30 24

Total managed ************************************************** $2,813 $2,816 $2,328

Loss-to-Receivables Ratios

On-Balance Sheet (including reacquired receivables)*

Retail installment and lease **************************************** 1.97% 2.05% 1.74%

Wholesale ******************************************************** 0.79 0.25 0.12

Total including other ********************************************* 1.67% 1.72% 1.36%

Memo: On-Balance Sheet (excluding reacquired receivables)*********** 1.60% 1.72% 1.36%

Managed

Retail installment and lease **************************************** 1.91% 1.73% 1.43%

Wholesale ******************************************************** 0.37 0.13 0.10

Total including other ********************************************* 1.50% 1.39% 1.19%

* We believe that the use of the on-balance sheet loss-to-receivables ratio that includes the credit losses onreacquired receivables is useful to our investors because it provides a more complete presentation of our on-balance sheet credit loss performance.

Most of our credit losses are related to retail installment sale and lease contracts. Credit lossesdepend on the number of vehicle repossessions, the unpaid balance outstanding at the time ofrepossession, and the net resale price of repossessed vehicles and other losses associated withimpaired accounts and unrecoverable vehicles. We also incur credit losses on our wholesale loans,but default rates for these receivables historically have been substantially lower than those for retailinstallment sale and lease contracts.

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In the fourth quarter of 2003, we recognized credit losses (‘‘charge-offs’’) totaling $106 millionprimarily related to impaired accounts over 120 days delinquent in our European wholesale portfolio.This resulted from our International operations adopting the practice used in our North Americanoperations of charging off accounts more than 120 days delinquent. There was no impact onearnings in the fourth quarter because these accounts were reserved fully at the time of impairment.We have not changed our collection efforts with respect to these accounts. The increase inwholesale losses increased the full year on-balance sheet and managed loss-to-receivables ratios by8 and 5 basis points, respectively.


Credit Losses — On-Balance Sheet. In 2003, credit losses for our on-balance sheet portfoliodeclined $318 million, or 13% from a year ago reflecting improved performance in our U.S.commercial receivables and lower on-balance sheet receivables at Triad and Fairlane Credit. Triadcontinues to securitize its new loan placements, reducing the size of its on-balance sheetreceivables. Fairlane Credit ceased purchasing retail installment sale contracts in 2002 and itsreceivables are liquidating. These declines were offset partially by the charge-off of 120-daydelinquent accounts, which resulted in recognition of $106 million of credit losses, primarily in ourwholesale receivables in Europe. As a result of lower on-balance sheet credit losses and ourretention of securitized receivables on our balance sheet, which exhibit lower loss-to-receivable ratiosthan the average portfolio, our on-balance sheet loss-to-receivables ratio in 2003 was 1.67%, downfrom 1.72% in 2002.

Credit Losses — Securitized Off-Balance Sheet. In 2003, credit losses for our securitized off-balance sheet portfolio increased $223 million, or 49% from a year ago, reflecting an increase in theaverage age of our securitized off-balance sheet receivables.

Credit Losses — Managed. The loss-to-receivables ratio for our managed portfolio was 1.50%in 2003, up from 1.39% a year ago, reflecting primarily lower retail receivables and net investment inoperating leases resulting from lower placement volumes and whole-loan sale transactions.


Credit losses for our on-balance sheet portfolio were $2,362 million in 2002, up $253 millionfrom 2001, resulting largely from a continuation of a weak economy in the United States and growthin both retail consumer prime and non-prime receivables and retail commercial receivables duringprevious years. Higher unemployment and an increase in bankruptcy filings in the United Statesincreased the number of vehicle repossessions. At the same time, a decline in used vehicle valuesand an increase in the average amount financed increased the average loss per unit repossessed.The loss-to-receivables ratio for our on-balance sheet portfolio was 1.72% in 2002, up from 1.36% in2001 as a result of the increase in credit losses and an increase in securitization of wholesalereceivables. Credit losses and loss-to-receivables ratios on wholesale receivables are substantiallylower than those for retail installment sale and lease contracts. Securitization of these receivablesremoves them from our balance sheet and increases our on-balance sheet loss-to-receivables ratio.

Credit losses for our managed portfolio were $2,816 million in 2002, up $488 million from 2001.The loss-to-receivables ratio for our managed portfolio was 1.39% in 2002, up from 1.19% in 2001,reflecting an increase in credit losses, for reasons discussed above.

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Ford Credit U.S. Retail and Operating Lease

The following table shows the loss-to-receivables, repossession, bankruptcy and delinquencystatistics for our Ford, Lincoln and Mercury brand U.S. retail installment sale and lease portfolio,which was approximately 60% of our worldwide managed portfolio of retail receivables and netinvestment in operating leases at December 31, 2003.

Full Year

2003 2002 2001 2000

On-Balance Sheet

Credit losses (in millions) ***************************** $1,088 $1,180 $1,135 $ 806

Loss-to-receivables ratios ***************************** 2.04% 1.87% 1.61% 1.12%

Managed

Credit losses (in millions) ***************************** $1,530 $1,520 $1,304 $ 865

Loss-to-receivables ratios ***************************** 1.89% 1.50% 1.31% 0.98%

Other Metrics — Serviced

Repossessions (in thousands) ************************* 200 199 174 141

Repossession ratios ********************************** 3.27% 2.79% 2.45% 2.19%

Average loss per repossession ************************ $7,350 $6,960 $6,600 $5,800

New bankruptcy filings (in thousands) ****************** 107 118 91 71

Over-60-day delinquency ratios ************************ 0.35% 0.36% 0.40% 0.30%

On-Balance Sheet. Although credit losses declined by $92 million in 2003 compared with 2002,the loss-to-receivables ratio increased in 2003 reflecting a decline in our U.S. retail installment saleand lease portfolio from a year ago as a result of lower placement volumes and whole-loan saletransactions.

Managed. In 2003, credit losses were $1,530 million compared with $1,520 million in 2002.The loss-to-receivables ratio for our managed receivables was 1.89%, compared with 1.50% a yearago, reflecting the slight increase in credit losses and a decrease in the average receivables.

Other Metrics — Serviced. Repossessions are shown in aggregate and as a percent of theaverage number of accounts outstanding during the relevant periods, defined as the repossessionratio. While our total number of repossessions has increased slightly compared with a year ago, ourrepossession ratio increased 48 basis points reflecting about a 15% reduction in the number ofoutstanding contracts compared with 2002.

In 2003, our average loss per repossession, which we refer to as severity, was $7,350, up $390per unit or 6% reflecting a decline in auction prices, particularly in the first half of 2003.

In 2003, the over-60-day delinquency ratio was 0.35%, down from 0.36% a year ago. Full yeardelinquency ratios are expressed as an average of the quarterly ratios for non-bankrupt accounts.

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Allowance for Credit Losses

Our allowance for credit losses and our allowance for credit losses as a percentage of end-of-period net receivables for our on-balance sheet portfolio are shown below:

December 31,

2003 2002 2001 2000 1999

(in billions)


Retail installment and lease**************************** $ 2.8 $ 2.9 $ 2.5 $ 1.5 $ 1.4

Wholesale ******************************************* 0.1 0.2 0.2 0.1 0.1

Other************************************************ 0.1 0.1 0.1 0.0 0.0

Total allowance for credit losses********************** $ 3.0 $ 3.2 $ 2.8 $ 1.6 $ 1.5

As a Percentage of End-of-Period Net Receivables

Retail installment and lease**************************** 2.76% 2.92% 2.10% 1.28% 1.25%

Wholesale ******************************************* 0.71 1.36 1.03 0.37 0.41

Other************************************************ 0.67 0.62 0.66 0.24 0.29

Total ********************************************** 2.28% 2.52% 1.89% 1.03% 1.05%

At December 31, 2003, our allowance for credit losses was down $168 million compared withyear-end 2002, reflecting primarily the charge-off of $106 million of 120-day delinquent accounts,primarily related to wholesale receivables in our European portfolio, which reduced the correspond-ing allowance for credit losses. Other factors contributing to this reduction were lower credit lossesand lower receivables in our commercial portfolio and lower receivables in our liquidating FairlaneCredit portfolio.

A description of our process for setting this allowance is provided below in ‘‘Critical AccountingEstimates — Allowance for Credit Losses.’’ Our allowance for credit losses does not include anyallowance for receivables that we have sold in off-balance sheet securitizations and whole-loan saletransactions.

Residual Risk

We are exposed to residual risk on operating leases, RCO contracts and similar balloonpayment products where the customer has the right to return the financed vehicle to us. Our residualrisk on retail lease and other contracts is composed of two types of risk: residual value risk andreturn rate risk. Residual value risk is the possibility that the actual net proceeds we realize upon thesale of returned vehicles at contract termination, which is referred to as the residual value of thesevehicles, will be lower than our projection of these values. Return rate risk is the possibility that thepercentage of vehicles returned to us at contract termination will be higher than we expect. Residualrisk on operating leases is discussed in more detail below in ‘‘Critical Accounting Estimates —Accumulated Depreciation on Vehicles Subject to Operating Leases’’.

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Retail Operating Lease Experience

We use various statistics to monitor our residual value risk and return rate risk. Placementvolume measures the number of leases we purchase each year. Termination volume measures thenumber of vehicles for which the lease has ended in each year. Return rates are the percentage ofvehicles that are returned to us at the end of the terminated lease and not purchased by either thecustomer or the dealer. The following table shows placement volumes, termination volumes andreturn rates for our North America Segment, which accounted for 90% of our total net investment inoperating leases at December 31, 2003:

2003 2002 2001 2000 1999

Placement Volumes (in thousands)

Ford, Lincoln and Mercury Cars***************************** 57 104 163 205 187

Ford, Lincoln and Mercury Trucks *************************** 144 261 408 538 493

Jaguar, Land Rover and Volvo* ***************************** 48 95 90 53 39

Other **************************************************** 25 9 17 23 32

Total North America Segment***************************** 274 469 678 819 751

Termination Volumes (in thousands)

Ford, Lincoln and Mercury Cars***************************** 167 169 151 154 244



Other **************************************************** 20 34 80 87 107

Total North America Segment***************************** 654 737 631 629 864

Return Rates

Ford, Lincoln and Mercury Cars***************************** 78% 62% 58% 62% 70%



Other **************************************************** 55 50 60 69 67

Total North America Segment***************************** 69% 63% 62% 63% 70%

* We first reported placement volumes for Land Rover in 2001.

In 2003, termination volumes were down 83,000 units compared with 2002, largely related tolower contract placement volumes in 2001. In 2004, we expect termination volumes to continue todecline because of lower contract placement volumes in 2001 and 2002. In 2003, return rates wereup 6 percentage points compared with 2002, reflecting lower residual values. Although residualvalues were lower in 2003, compared with 2002, they improved in the second half of the year,resulting from the economic recovery and lower lease termination volumes. Correspondingly, returnrates reached a peak of 71% in the first quarter of 2003 but declined through the remainder of theyear. As the economy continues to improve and termination volumes continue to decline, we expectresidual values will stabilize and may even increase. As a result, we expect return rates to remainconstant or decline further.

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Credit Ratings

Our short- and long-term debt is rated by four credit rating agencies designated as nationallyrecognized statistical rating organizations (‘‘NRSROs’’) by the SEC:

) Dominion Bond Rating Service Limited (‘‘DBRS’’);

) Fitch, Inc. (‘‘Fitch’’);

) Moody’s Investors Service, Inc. (‘‘Moody’s’’); and

) Standard & Poor’s Rating Services, a division of McGraw-Hill Companies, Inc. (‘‘S&P’’).

In several markets, locally recognized rating agencies also rate us. A credit rating reflects anassessment by the rating agency of the credit risk associated with particular securities we issue,based on information provided by Ford, us and other sources. Credit ratings are not recommenda-tions to buy, sell or hold securities and are subject to revision or withdrawal at any time by theassigning rating agency. Each rating agency may have different criteria for evaluating company risk,and therefore ratings should be evaluated independently for each rating agency. Lower credit ratingsgenerally result in higher borrowing costs and reduced access to capital markets. Our credit ratingsfrom all of the NRSROs are closely associated with their opinions on Ford. Our lower ratings overthe past several years are primarily a reflection of those opinions, including concerns regardingFord’s automotive cash flow and profitability, declining market share, excess industry capacity,industry pricing pressure and rising healthcare costs.

DBRS Ratings. On April 22, 2003, DBRS lowered our long-term corporate credit rating to‘‘BBB (high)’’ with a stable trend from ‘‘A (low)’’ with a negative trend, and confirmed our short-termcredit rating at ‘‘R-1 (low)’’ with a stable trend. On December 22, 2003, DBRS confirmed these long-and short-term ratings and trends.

Fitch Ratings. On November 14, 2003, Fitch affirmed our long- and short-term credit ratings at‘‘BBB+’’ and ‘‘F2’’, respectively, with a negative outlook.

Moody’s Ratings. On November 14, 2003, Moody’s confirmed our long- and short-term creditratings at ‘‘A3’’ and ‘‘P-2’’, respectively, with a negative outlook.

S&P Ratings. On November 12, 2003, S&P lowered our long-term corporate credit rating to‘‘BBB-’’ with a stable outlook from ‘‘BBB’’ with a negative outlook, and lowered our short-term creditrating to ‘‘A-3’’ from ‘‘A-2’’.

The following chart summarizes our credit ratings and the outlook assigned by the NRSROssince 2000:

DBRS* Fitch Moody’s S&P

Long- Short- Long- Short- Long- Short- Long- Short-Date Term Term Trend Term Term Outlook Term Term Outlook Term Term Outlook

Apr. 2000 A (high) R-1 (low) Stable A+ F1 Stable A2 P-1 Stable A A-1 Stable

Aug. 2001 A R-1 (low) Stable A+ F1 Negative A2 P-1 Negative A A-1 Negative

Sep. 2001 A R-1 (low) Stable A- F2 Negative A2 P-1 Negative A A-1 Negative

Oct. 2001 A (low) R-1 (low) Stable A- F2 Negative A2 P-1 Negative BBB+ A-2 Stable

Jan. 2002 A (low) R-1 (low) Stable BBB+ F2 Negative A3 P-2 Negative BBB+ A-2 Negative

Oct. 2002 A (low) R-1 (low) Negative BBB+ F2 Negative A3 P-2 Negative BBB A-2 Negative

Apr. 2003 BBB (high) R-1 (low) Stable BBB+ F2 Negative A3 P-2 Negative BBB A-2 Negative

Nov. 2003 BBB (high) R-1 (low) Stable BBB+ F2 Negative A3 P-2 Negative BBB- A-3 Stable

* NRSRO designation granted on February 27, 2003

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Funding

Funding Sources

Our funding sources include debt and sales of receivables in securitizations and other structuredfinancings.

Debt consists of short- and long-term unsecured debt, placed directly by us or through securitiesdealers or underwriters, and bank borrowings. We consider any debt with an original maturity of12 months or less to be short-term debt. We issue short-term debt through commercial paperprograms in the United States, Europe, Canada and other international markets, with sales mostly toqualified institutional investors. Rule 2a-7 under the Investment Company Act of 1940, as amended,limits money market mutual funds subject to that Act to investments only in securities that havereceived a ‘‘1’’ or ‘‘2’’ rating from at least two NRSROs. In particular, money market mutual fundsmay hold no more than 5% of their assets in the ‘‘Tier-1’’ securities of any issuer and no more than1% of their assets in the ‘‘Tier-2’’ securities of any issuer (with no more than 5% of assets permittedin Tier-2 securities from all issuers combined). Tier-1 securities are those receiving a ‘‘1’’ rating fromat least two NRSROs. Tier-2 securities are securities that do not qualify as Tier-1 securities butreceive a ‘‘2’’ rating from at least two NRSROs.

In 2001 and 2002, S&P, Moody’s and Fitch lowered our short-term ratings from their respective‘‘1’’ rating category (A-1/P-1/F1) to their ‘‘2’’ rating category (A-2/P-2/F2), while DBRS maintainedour short-term rating (R-1 (low)) in their ‘‘1’’ rating category. In 2003, S&P further lowered our short-term rating to A-3. Consequently, since October 2001 we have been a Tier-2 commercial paperissuer and remain so at present. The U.S. market for Tier-2 commercial paper (i.e., that having thesecond highest rating from at least two NRSROs) is only approximately 5% of the size of the U.S.Tier-1 commercial paper market ($54 billion outstanding for Tier-2 compared with $1.2 trillionoutstanding for Tier-1 at December 31, 2003). In addition, during 2003 the U.S. Tier-2 marketdeclined from $65 billion outstanding at the end of 2002 to $54 billion outstanding at the end of2003. As a result, our outstanding U.S. commercial paper declined from $29.6 billion at the end of2000 to $5.1 billion at the end of 2002, and further declined to $3.2 billion at the end of 2003. Thisdecline in our U.S. commercial paper balance was the largest contributor to the decline in our globalcommercial paper balance, discussed in ‘‘Funding Portfolio’’ below.

We also obtain short-term funding from the sale of floating rate demand notes, which may beredeemed at any time at the option of the holder thereof without restriction. At December 31, 2003,the principal amount outstanding of such notes was $7.3 billion. We do not hold reserves specificallyto fund the payment of the demand notes or any other short-term funding obligation. Our policy is tohave sufficient cash and cash equivalents, unused committed bank-sponsored asset-backedcommercial paper issuer (‘‘conduit’’) capacity, securitizable assets, and back-up credit facilities toprovide liquidity for all of our short-term funding obligations. FCE also issues certificates of depositprimarily to a broad range of institutional investors in various markets to obtain short-term funding.Bank borrowings by several of our international affiliates in the ordinary course of business are anadditional source of short-term funding.

We issue a variety of long-term debt securities in the United States and international capitalmarkets to both retail and institutional investors. Long-term debt is debt with an original maturity ofmore than 12 months. We use several long-term funding programs, including notes offered with avariety of maturities of two years and longer, and medium-term notes sold through sales agents insmaller amounts in various currencies.

As part of maintaining a diverse global funding strategy, we also issue long-term debt securitiesto retail investors. We access retail investors in the United States through our Continuously OfferedBonds for Retail Accounts program. We launched the Term Bonds in Retail Distribution program inCanada in December 2002 and the Internotes retail bond program in select European markets

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during the second quarter of 2003. We issue debt to retail investors at various maturities rangingfrom 1.5 years to 10 years. Total outstanding balances in our long-term retail programs were$6.1 billion at year-end 2003 (U.S. $4.9 billion, Canada $1 billion, FCE $200 million), up $3.3 billioncompared with year-end 2002.

We also sell receivables in securitizations and other structured financings to obtain funding. Wesecuritize because of the lower cost compared with unsecured funding at our present credit ratings.These transactions can be structured to provide both short- and long-term funding. Securitizationinvolves the sale of receivables to a SPE, typically a trust. The SPE issues interest-bearingsecurities, commonly called asset-backed securities, that are secured by the sold receivables. TheSPE uses proceeds from the sale of these securities to pay the purchase price for the soldreceivables. Generally, the asset-backed securities are rated by credit rating agencies and sold inpublic offerings or in private transactions. We offer asset-backed securities primarily to institutionalinvestors in a number of different markets, including the United States, Canada, Australia, Japan andEurope. We use both amortizing and revolving structures in our securitizations, and retain interestsin the securitized receivables. For a more complete discussion of securitization and other structuredfinancings, see ‘‘Off-Balance Sheet Arrangements’’ below.

Funding Strategy

Our funding strategy is to maintain liquidity and access to diverse funding sources that are costeffective. In December 1988, we began selling a portion of our receivables in securitizations to fundour operations, and we have been a regular participant in the securitization market since then.During 2003, we continued to meet a significant portion of our funding requirements throughsecuritizations because of the stability of the market for asset-backed securities, their lower relativecosts (as described below) and the diversity of funding sources that they provide.

Beginning in 2001, as a result of the decline in our credit ratings, we focused our efforts onfurther diversification of funding sources and reduced our reliance on short-term funding, especiallyunsecured commercial paper. We launched new asset-backed commercial paper and retailunsecured bond programs, and we expanded our securitization and other structured financingchannels, including transactions by foreign affiliates and expansion of our conduit program. As ourshort-term debt ratings have declined, asset-backed commercial paper programs have become morecost-effective compared with unsecured commercial paper, and allow us access to a larger investorbase as discussed in ‘‘Funding Sources’’ above.

As a result of our funding strategy and the reduction in our managed receivables, the loweringof our credit ratings in each of the past three years has not had a material impact on our ability tofund our operations, although our lower credit ratings have contributed to an increase in our overallborrowing costs. Any further lowering of our credit ratings may increase our borrowing costs andpotentially constrain our funding sources. This could cause us to increase our use of securitization orother sources of liquidity or to reduce our managed receivables.

Cost of Funding Sources

The cost of both debt and funding in securitizations is based on a margin or spread over abenchmark interest rate. Spreads are typically measured in basis points. Our unsecured commercialpaper and floating rate demand notes funding costs are based on spreads over the LondonInterbank Offered Rate (‘‘LIBOR’’), a commonly used benchmark interest rate. Our unsecured long-term debt and securitized funding costs are based on spreads over United States Treasury securities(‘‘U.S. Treasury’’) of similar maturities, LIBOR or other benchmark rates.

In addition to enhancing our liquidity, one of the main reasons that we increased our use ofsecuritizations as a funding source over the last few years has been that spreads on our securitizedfunding have been more stable and lower than those on our unsecured term-debt funding. Our

31


unsecured spreads have been very volatile since 2000, as a result of our lower credit ratings,whereas our securitized funding spreads (which are based on the underlying finance receivables andcredit enhancements) have not. Prior to 2000, overall costs for securitization were not significantlylower than unsecured term-debt, and as recently as 1998 they were actually higher. Over the lasttwo years, our unsecured long-term debt funding spreads have fluctuated between 186 and 662basis points above comparable U.S. Treasury securities, while our spreads on securitized fundinghave fluctuated between 35 and 86 basis points above comparable U.S. Treasury securities. Thefollowing chart shows our spreads at the end of each quarter, and the average, high and lowspreads in 2003, and at each year-end in the 1999 through 2002 periods:

Funding Spreads Compared with 3-Year U.S. Treasury*

2003 December 31,

Avg. High Low Dec. 31 Sept. 30 June 30 Mar. 31 2002 2001 2000 1999

(basis points)

Unsecureddebt funding********* 341 638 186 186 306 294 549 447 264 157 86

Securitized funding **** 50 63 35 53 61 42 50 62 84 97 70

Unsecured over/(under)securitized ********** 291 575 151 133 245 252 499 385 180 60 16

* The spreads listed are indicative only and do not reflect specific transactions.

Funding Portfolio

Our outstanding debt and securitized off-balance sheet funding was as follows at December 31:

2003 2002 2001 2000 1999

(in billions)

Debt

Commercial paper — unsecured ************************************** $ 6.1 $ 8.2 $ 15.7 $ 42.3 $ 43.1

Asset-backed commercial paper (FCAR)******************************* 9.0 — — — —

Floating rate demand notes ****************************************** 7.3 5.1 4.0 3.7 2.8

Other short-term debt *********************************************** 2.3 2.9 2.9 3.9 3.9

Total short-term debt ********************************************** $ 24.7 $ 16.2 $ 22.6 $ 49.9 $ 49.8

Long-term debt (including notes payable within one year)**************** 125.0 124.1 123.2 95.7 82.3

Total debt **************************************************** $149.7 $140.3 $145.8 $145.6 $132.1

Securitized Off-Balance Sheet Funding

Securitized off-balance sheet portfolio ********************************* $ 49.4 $ 71.4 $ 58.7 $ 28.4 $ 19.5

Retained interest**************************************************** (13.0) (17.6) (12.5) (3.7) (3.5)

Total securitized off-balance sheet funding *************************** $ 36.4 $ 53.8 $ 46.2 $ 24.7 $ 16.0

Total debt plus securitized off-balance sheet funding ************** $186.1 $194.1 $192.0 $170.3 $148.1

Memo: Asset-backed commercial paper (FCAR) previously reported assecuritized off-balance sheet funding ********************************** — $ 11.9 $ 12.1 $ 0.7 $ 0.5

Ratios

Credit lines to total unsecured commercial paper *********************** H 100% H 100% H 100% 57% 54%

Securitized funding to managed receivables**************************** 25 27 23 13 10

Short-term debt and notes payable within one year to total debt********** 36 28 30 43 52

Short-term debt and notes payable within one year to total capitalization ** 33 25 28 40 48

At December 31, 2003, our global unsecured commercial paper balance had declined by$36.2 billion from the balance at year-end 2000, as our short-term credit ratings were lowered overthe past three years. This made our commercial paper largely ineligible for investment by moneymarket mutual funds under Rule 2a-7 of the Investment Company Act of 1940, as amended. Topartially offset this reduction in our unsecured commercial paper balance, asset-backed commercialpaper issued through our FCAR and Motown NotesSM programs (which is rated as Tier 1commercial paper) increased substantially beginning in 2001. Total debt plus securitized off-balance

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sheet funding was $186.1 billion, down $8 billion compared with a year ago, reflecting lower assetlevels (including whole-loan sales) which reduced our funding needs, offset partially by pre-funding aportion of our 2004 debt maturities. Long-term debt was $125 billion, up about $900 millioncompared with a year ago, reflecting additional debt issued to pre-fund a portion of our 2004 debtmaturities, which supports our liquidity objectives, and the effects of the weaker U.S. dollar on thevalue of our foreign-denominated debt. For additional information regarding the terms of the variouscategories of our debt, see Note 9 of our Notes to Financial Statements.

The ratio of credit lines to total unsecured commercial paper has increased to more than 100%beginning at year-end 2001, primarily due to a reduction in our unsecured commercial paperbalance. As a Tier-2 commercial paper issuer, investors generally expect at least 100% credit linecoverage. The reduction in unsecured commercial paper was offset partially by an increase in asset-backed commercial paper, with an associated movement of credit lines to support those programs(discussed further in ‘‘Liquidity’’ below). The increase in 2003 of the ratio of our short-term debt andnotes payable within one year to total capitalization compared with 2002 reflected asset-backedcommercial paper that was previously off-balance sheet debt of FCAR. For a more completediscussion of changes in our securitization funding, see ‘‘Off-Balance Sheet Arrangements.’’

Term Public Funding Plan

The following table shows our term public funding issuance for 2002 and 2003 and our plannedissuance for 2004:

2004Forecast 2003 2002

(in billions)

Unsecured Term Debt

Institutional ********************************************************** $ 4 - 6 $16 $11

Retail *************************************************************** 4 - 6 4 3

Total unsecured term debt******************************************* $ 8 - 12 $20 $14

Term Public Securitization* ******************************************** 10 - 15 11 17

Total term public funding ******************************************** $20 - 25 $31 $31

* Reflects new issuance; excludes asset sales to conduits, whole-loan sales, and other structured financings.

During 2003, we issued $19.7 billion of long-term debt with maturities of one to thirty years,including $7.7 billion of Eurodollar bonds, $4.2 billion under our retail bond programs, $4.1 billion ofU.S. dollar bonds, and $3.7 billion in other transactions denominated in various currencies.

Because we expect to further reduce our managed receivables in 2004, our term public fundingrequirements are lower than the combined obligations of term debt maturities and amortization ofasset-backed securities (combined total of about $57 billion). In addition, we plan to decrease ourcash and cash equivalents and increase our use of asset-backed commercial paper programs. Anyadditional whole-loan sale transactions could further reduce our funding requirements. We can offerno assurance that we will not change our funding plan, and our funding plan and ability to meet ourfunding plan are subject to risks and uncertainties, many of which are beyond our control (see‘‘Liquidity Risks’’ below).

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Liquidity

Maintaining liquidity through access to diverse funding sources has always been a key factor inour funding strategy. We define liquidity as our ability to meet our funding needs, which includepurchasing retail installment sale and lease contracts, funding other financing programs and repayingour debt obligations as they become due. In addition to unsecured debt offerings (discussed above)and sales of receivables (discussed below), we have access to the following other sources ofliquidity:

Cash and Cash Equivalents. At December 31, 2003, our cash and cash equivalents totaled$15.7 billion, compared with $6.8 billion at the end of 2002. In the normal course of our fundingtransactions, we may generate more proceeds than are necessary for our immediate funding needs.We increased long-term debt issuances beyond our immediate needs in 2003 for liquidity purposesand to pre-fund a portion of our $29.5 billion of debt maturing in 2004. These excess amounts aremaintained primarily as highly liquid investments, provide liquidity for our short-term fundingobligations and give us flexibility in the use of our other funding programs. Our cash and cashequivalents include short-term U.S. Treasury bills, federal agency discount notes, A-1/P-1 (or higher)rated commercial paper, and bank time deposits with investment grade institutions. The averageterm of these investments is typically less than 60 days. We monitor our cash levels daily and adjustthem as necessary to support our short-term liquidity needs.

Conduit Program. We have entered into agreements with several conduits under which suchconduits are contractually committed to purchase from us, at our option, up to $12.8 billion ofreceivables in the aggregate. This is an extremely liquid funding source, as we are able to accessfunds in two days. These agreements have varying maturity dates between June 24, 2004 andOctober 29, 2004 and, in the past, have been renewed on an annual basis. As of December 31,2003, we had utilized approximately $4.4 billion of these commitments. These agreements do notcontain restrictive financial covenants (for example, debt-to-equity limitations or minimum net worthrequirements) or material adverse change clauses that would relieve the conduit of its obligation topurchase receivables. However, they do contain provisions that could terminate the unused portionof the purchase commitments if the performance of the sold receivables deteriorates beyondspecified levels. Based on our experience, we do not expect any commitments to be terminated dueto these performance levels. None of these arrangements may be terminated based on a change inour credit rating.

Whole-Loan Sale Transactions. During 2002, we began a program to sell retail installment salecontracts in transactions where we retain no interest and thus no exposure to the sold contracts.These transactions, which we refer to as ‘‘whole-loan sale transactions,’’ provide liquidity by enablingus to reduce our managed receivables and our need for funding to support those receivables. In2003, we sold $5.5 billion of retail finance receivables through whole-loan sales. Total outstandingreceivables sold in whole-loan transactions at December 31, 2003 were $7.3 billion.

Back-up Credit Facilities

Our back-up credit facilities were as follows at December 31:2003 2002 2001 2000 1999

(in billions)Back-up Credit Facilities

Ford Credit ******************************************** $ 4.3 $ 8.6 $ 9.0 $20.0 $18.5FCE*************************************************** 3.4 5.3 4.6 4.7 4.9Ford bank lines (available at Ford’s option) **************** 6.8 7.6 8.4 8.4 8.6Asset-backed commercial paper lines ********************* 18.6 13.6 12.5 1.4 1.4

Total back-up facilities********************************* $33.1 $35.1 $34.5 $34.5 $33.4Drawn amounts **************************************** (1.0) (0.9) (0.7) (0.9) (0.5)

Total available back-up facilities ************************ $32.1 $34.2 $33.8 $33.6 $32.9

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For additional funding and to maintain liquidity, we and our majority-owned subsidiaries includingFCE have contractually committed credit facilities with financial institutions that totaled approximately$7.7 billion at December 31, 2003. This includes $3.3 billion and $3.2 billion of global credit facilitiesat Ford Credit and FCE, respectively, and $1.2 billion of non-global credit facilities with varying termsthat support local financing needs. Approximately $1.0 billion of our total facilities were in use atDecember 31, 2003. These facilities have various maturity dates. Of the $7.7 billion, about 47% ofthese facilities are committed through June 30, 2008. Our global credit facilities may be used at ouroption by any of our direct or indirect majority-owned subsidiaries. FCE’s global credit facilities maybe used at its option by any of its direct or indirect majority-owned subsidiaries. We or FCE, as thecase may be, will guarantee any such borrowings. All of the global credit facilities have substantiallyidentical contract terms (other than commitment amounts) and are free of material adverse changeclauses and restrictive financial covenants (for example, debt-to-equity limitations, minimum networth requirements and credit rating triggers) that would limit our ability to borrow.

At Ford’s option, approximately $6.8 billion of Ford’s global lines of credit may be used by any ofits direct or indirect majority-owned subsidiaries on a guaranteed basis. Ford also has the ability totransfer, on a non-guaranteed basis, $2.5 billion of such credit lines to us and $543 million to FCE.

As discussed in ‘‘Funding Portfolio’’ above, the reduction in our unsecured commercial papersince 2000 has been offset partially by an increase in asset-backed commercial paper, with anassociated movement of credit lines to support those programs. At December 31, 2003, banksprovided $18.6 billion of contractually committed liquidity facilities that supported two asset-backedcommercial paper programs; $18.2 billion supported FCAR and $425 million supported our MotownNotesSM program. Unlike our other credit facilities described above, these facilities provide liquidityexclusively to each individual asset-backed commercial paper program. Utilization of these facilitiesis not at our discretion but is determined by and subject to conditions specific to each program. AtDecember 31, 2003, about $16.3 billion of FCAR’s bank credit facilities were available to supportFCAR’s asset-backed commercial paper or subordinated debt. Although not eligible to supportcommercial paper, the remaining $1.9 billion of available credit lines could be accessed for additionalfunding assuming additional subordinated debt is issued.

Liquidity Risks

Despite our diverse sources of liquidity, our ability to maintain our liquidity may be affected bythe following factors:

) Our credit rating,

) Disruption of financial markets,

) Market capacity for Ford- and Ford Credit-sponsored investments,

) General demand for the type of securities we offer,

) Our ability to sell receivables,

) Performance of receivables in our previous receivables sale transactions,

) Accounting and regulatory changes, and

) Our ability to maintain back-up credit facilities.

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Off-Balance Sheet Arrangements

Overview

We sell receivables in securitizations and other structured financings and in whole-loan saletransactions. Most of these arrangements satisfy accounting sale treatment and are not reflected onour balance sheet in the same way as debt funding, but could have an effect on our financialcondition, operating results and liquidity. Some of these arrangements do not satisfy therequirements for accounting sale treatment and the sold receivables are not removed from ourbalance sheet (see ‘‘Other Sales of Receivables Transactions — On-Balance Sheet Securitizations’’below).

Because of the similarity between securitizations and structured financings, we includestructured financings and refer to them as securitizations in our analysis of off-balance sheetarrangements and elsewhere in this report.

Securitization

Securitization involves the sale of securities backed by a pool of receivables. The United Statessecuritization market is well developed and highly liquid with more than $1.6 trillion of asset-backedsecurities outstanding at December 31, 2003. The securitization market is also well developed in anumber of other countries, including Canada, the United Kingdom, Germany, Australia and Japanand is developing and expanding in a number of other countries.

We actively participate in the securitization market and have been a frequent participant sinceDecember 1988. Automobile finance receivables are one of the largest classes of assets that aresecuritized in the United States market and we are regularly one of the largest securitizers ofautomobile finance receivables. We securitize our receivables because the highly liquid and efficientmarket for securitization of financial assets provides us with a lower cost source of funding,compared with issuing unsecured debt given our present credit ratings.

We securitize retail installment sale contracts and wholesale receivables. In the past, wesecuritized retail operating leases and may do so again in the future.

Use of Special Purpose Entities

Securitization involves the sale of a pool of receivables to a SPE, typically a trust. The SPEissues interest-bearing securities, commonly called asset-backed securities, that are secured by thesold receivables. The SPE uses proceeds from the sale of these securities to pay the purchase pricefor the sold receivables. Our use of SPEs in our securitizations is consistent with conventionalpractices in the securitization industry. The sale to the SPE achieves isolation of the sold receivablesfor the benefit of securitization investors and protects them from the claims of our creditors.Assuming accounting rules are met, the sold receivables are removed from our balance sheet. Theuse of SPEs combined with the structure of these transactions means that the payment of the asset-backed securities is based on the creditworthiness of the underlying finance receivables and anyenhancements (as discussed below), and not our own creditworthiness. As a result, the seniorasset-backed securities issued by the SPEs generally receive the highest short-term debt ratingsand among the highest long-term debt ratings from the credit rating agencies that rate them and aresold to securitization investors at cost-effective pricing.

We sponsor the SPEs used in all but one of our securitization programs. None of our officers,directors or employees holds any equity interests in our SPEs or receives any direct or indirectcompensation from the SPEs. These SPEs do not own our stock or stock of any of our affiliates.

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Most of our SPEs are classified as qualifying SPEs consistent with the requirements of SFASNo. 140 because of the nature of the assets held by these entities, the limited nature of theiractivities and the structure of the securitizations. Basically, the activities of a qualifying SPE must belimited to passive investment in financial assets and issuing beneficial interests in those assets.When the accounting rules are met, the receivables sold to the SPE are removed from our balancesheet.

We also sponsor one securitization program, FCAR, that does not use qualifying SPEs. Formore information about FCAR, see ‘‘Other Sales of Receivables Transactions — On-Balance SheetSecuritizations’’ below and Note 6 of our Notes to Financial Statements.

Finally, third-party banking institutions sponsor the SPEs that we use in one of our securitizationprograms as described in ‘‘Securitization Programs — Conduit Program.’’

Typical Securitization Structure

Our typical U.S. securitization is a two-step transaction. We sell a pool of retail installment salecontracts to a wholly-owned, bankruptcy-remote special purpose subsidiary that establishes aseparate SPE, usually a trust, and transfers the receivables to the SPE in exchange for theproceeds from securities issued by the SPE. Following the transfer of the sold receivables to theSPE, the receivables are no longer our assets and they no longer appear on our balance sheet. Thesecurities issued by the trust, usually notes or certificates of various maturities and interest rates,are paid by the SPE from collections on the pool of receivables it owns. These securities are usuallystructured into senior and subordinated classes. The senior classes have priority over thesubordinated classes in receiving collections from the sold receivables. The asset-backed securitiesissued by the SPE are obligations of the SPE and do not appear as debt on our balance sheet.

The following flow chart diagrams our typical securitization transaction:

Bankruptcy

Receivables Receivables

Proceeds Proceeds

Securities

Investors

Proceeds

Off-BalanceSheet Transaction

Ford Credit

RemoteTransaction

Special PurposeSubsidiary

SecuritizationTrust

(Qualifying SpecialPurpose Entity)

We select receivables at random for our securitization transactions using selection criteriadesigned for the specific transaction. For securitizations of retail installment sale contracts, theselection criteria are based on factors such as location of the obligor, contract term, paymentschedule, interest rate, financing program and the type of financed vehicle. In general, the criteriaalso require receivables to be active and in good standing. In our Ford Credit and PRIMUS retailtransactions, we typically exclude receivables where the obligor is having a credit problem that isevidenced by more than 30-day delinquency, bankruptcy or payment extensions. We makerepresentations and warranties to the SPE about some of the selection criteria as well as othereligibility requirements of the receivables relating to the legal status and enforceability of thereceivable, security interest in the financed vehicle, and its origination in compliance with law. Wealso make representations and warranties to the SPE about the accuracy of data provided on thereceivables and characteristics of the overall pool of receivables. In wholesale securitizations, theeligibility criteria include concentration limits on large dealer groups, used vehicles and vehicles soldby certain manufacturers.

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We provide various forms of credit enhancements and payment enhancements to reduce therisk of loss for senior classes of securities and enhance the likelihood of timely payment of interestand principal when due. These enhancements include the following:

) Over-collateralization. Over-collateralization occurs when the principal balance of receivablesowned by the SPE exceeds the principal amount of asset-backed securities issued by theSPE. Over-collateralization levels are established by independent credit rating agencies atlevels necessary to support the credit ratings for the asset-backed securities issued by theSPE. Many of our securitizations of retail installment sale contracts require payments ofprincipal on the asset-backed securities in excess of principal collections on the receivablesresulting in increasing amounts of over-collateralization. The SPE makes these payments untila targeted level of over-collateralization is reached and continues to the extent necessary tomaintain this level. If the pool of receivables contains low interest rate contracts, the targetedover-collateralization level is set higher to compensate for such contracts. After the targetedlevel of over-collateralization is reached, we have the right to receive ‘‘excess spread,’’ or thecollections on the sold receivables in excess of amounts needed to make required paymentsof principal and interest to investors, servicing fees and interest rate swap payments, if any.Excess spread is recorded as an interest-only strip asset on our balance sheet.

) Turbo feature. Many of our securitization structures have a ‘‘turbo’’ feature that requiresexcess spread to be used to make principal payments on certain senior securities until theyare paid in full.

) Cash reserve funds or restricted cash. A portion of proceeds from the sale of asset-backedsecurities are held in segregated reserve funds and may be used to pay principal and interestto investors and other obligations of the SPE if collections on the sold receivables areinsufficient.

) Subordinated securities. The SPE typically issues subordinated securities that generally donot receive payments of principal until more senior securities are paid in full.

) Interest rate swaps. If the SPE issues floating rate securities, it enters into an interest rateswap with a highly rated swap counterparty to hedge the interest rate risk between the fixedrate (or floating rate with a different market index) paid on the receivables and the floatingrate paid on the securities. This swap ensures that the SPE will have sufficient funds over thelife of the securitization transaction to make timely payments of interest on the asset-backedsecurities, regardless of changes in interest rates.

We retain interests in receivables sold through securitizations. The retained interests mayinclude senior and subordinated securities issued by the SPE, undivided interests in wholesalereceivables, restricted cash held for the benefit of the SPE (for example, a reserve fund) and aninterest-only strip. Retained interests, including a portion of our undivided interest in wholesalereceivables, are subordinated and serve as credit enhancements for the more senior securitiesissued by the SPE to help ensure that adequate funds will be available to pay investors that holdsenior securities. Our ability to realize the carrying amount of our retained interests depends onactual credit losses and prepayment speeds on the sold receivables. Because we typically retain themost subordinated interests in the SPE, including subordinated securities, the right to receive excessspread (interest-only strip) and any residual or remainder interests of the SPE after all asset-backedsecurities are repaid in full, our retained interests will be the first to absorb credit losses on the soldreceivables. Because the credit enhancements are structured to protect the holders of the seniorasset-backed securities in highly stressed receivables performance scenarios, the impact of creditlosses in the pool of sold receivables will likely be limited to our retained interests in terms of thetiming and total amount of excess spread we receive. Therefore, related to receivables sold in

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securitizations, we retain credit risk up to the amount of subordinated interests we retain in suchtransactions.

The asset-backed securities are rated by independent credit rating agencies and sold in publicofferings or in private transactions. The holders of asset-backed securities have no recourse to us orour assets for credit losses on the sold receivables and have no ability to require us to repurchasetheir securities. We do not guarantee any securities issued by the SPE.

We use both amortizing and revolving structures in our securitizations. In most amortizingstructures, the SPE issues securities that receive monthly payments of principal and thereforeamortize down as collections on the sold receivables are received. In some ‘‘bullet’’ structures, theSPE may issue a variable pay term note at the targeted maturity of a class of securities. Theproceeds of this note are applied to pay the maturing securities in full in a single lump-sum paymentand the new note receives the amortizing payments. In revolving structures, the SPE issuessecurities that receive only monthly interest payments for a set period of time, called the revolvingperiod, before receiving repayments of principal. During the revolving period, the SPEs use principalcollections on the sold receivables to purchase additional receivables. At the end of the revolvingperiod, investors may receive principal payments in a number of monthly payments or in a singlelump sum payment following a period of cash accumulation. In the U.S., our use of revolvingstructures has declined in recent years.

The SPE engages us as servicer to collect and service the sold receivables for a servicing feeof generally 1% of the principal amount of receivables plus fees such as late charges and extensionfees collected from obligors. Our servicing duties include collecting payments on receivables andgenerally paying them to the SPE within two business days of receipt. We also prepare monthlyinvestor reports on the performance of the sold receivables, including collections, delinquencies andcredit losses, and payment reports that are used by the trustee of the SPE to distribute monthlyinterest and/or principal payments to investors. While servicing the sold receivables for the SPE weapply the same servicing policies and procedures that we apply to our owned receivables andmaintain our normal relationship with our financing customers. We also perform administrativeservices for most of the SPEs, including filing periodic reports, preparing notices and tax reporting.

The SPE has limited purposes and may only be used to purchase the receivables, issue asset-backed securities and make payments on the securities. The SPE has a limited duration andgenerally terminates when investors holding the asset-backed securities have been paid all amountsowed to them. As servicer, we have a ‘‘clean-up call’’ option allowing us to purchase the receivablesfrom the SPE at their principal balance plus accrued interest when the receivables balance declinesto 10% or less of the original receivables balance so long as such amount is sufficient to pay in fullof all the outstanding asset-backed securities issued by the SPE.

We may also enter into derivative transactions to facilitate our securitizations. Generally, weenter into a back-end swap with the swap counterparty to the SPE that puts us in the sameeconomic position as if we were the swap counterparty directly with the SPE, less an intermediationfee. Since January 2002, in our Ford Credit and PRIMUS retail securitization programs, we enterinto a back-end swap with the swap counterparty to the SPE that protects the counterparty againstthe risk that the sold receivables will prepay faster or slower than an assumed rate.

Securitization Programs

We sell receivables through the following securitization programs:

Retail Securitization — Ford Credit and PRIMUS. We sell pools of retail installment salecontracts originated through Ford Credit and PRIMUS to SPEs that issue securities, most of whichare sold to investors in public offerings or private transactions. These transaction structures are

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similar to the typical securitization structure described above. All of the asset-backed securitiesissued in these transactions are generally repaid in about three years with the weighted average lifeof about one and a half years.

Retail Securitization — Triad. We sell pools of non-prime credit quality retail installment salecontracts originated through Triad to SPEs that issue securities, most of which are sold to investorsin public offerings or private transactions. These transaction structures are similar to the typicalsecuritization structure described above. We typically purchase a financial guaranty insurance policyfrom a highly rated insurance company that insures the payment of scheduled interest and certainprincipal payments on the senior securities in these transactions. Because of the more intensiveservicing duties required for non-prime credit quality receivables, the servicing fees on thesetransactions are generally 2.25% of the principal amount of receivables. As servicer, we have noobligation to advance any shortfall of obligor interest payments.

Wholesale Securitization. We sell wholesale finance receivables from specified dealer accountsto SPEs that issue notes that are sold to investors in public offerings. We continue to own the dealeraccounts, but we are required to sell to the SPE all eligible receivables generated under thesedealer accounts as the dealers acquire vehicles that are financed by us. The SPE issues notes thatare secured by an undivided proportionate interest in the receivables and we retain the remainingundivided interest. Part of our retained interest is subordinated to senior investors and serves ascredit enhancement. The other part has the same priority to the collections on sold receivables asthe senior noteholders. Our retained interest fluctuates as the amount of receivables held by theSPE increases or decreases over time due to changes in levels of dealer floorplan inventories andas additional series of notes are issued by the SPE and notes are paid off. Our retained interestmust be maintained at a minimum required level for credit enhancement. The asset-backedsecurities issued in these transactions typically have a fixed maturity date, generally 3 to 5 yearsafter issuance.

Motown NotesSM Program. The Motown Notes program is an asset-backed commercial paperprogram we administer. The Motown Notes are issued by an SPE that owns a pool of wholesalereceivables and are secured by an undivided proportionate interest in these receivables. The SPE isalso used for wholesale securitization as described above. The Motown Notes program is supportedby a bank liquidity facility equal to at least 5% of the principal amount of the Motown Notes.

Conduit Program. We sell pools of retail installment sale contracts to conduits that are SPEs ofthe sponsoring bank and that are committed to purchase such receivables. These conduits purchasefinance receivables and other assets from numerous other sellers and issue commercial paperbacked by these assets to investors. We retain interests in the receivables we have sold includingrestricted cash held in reserve funds and interest-only strips. The funding received from the sale ofeach pool of receivables is generally repaid in about three years.

Foreign Affiliate Securitization. Our foreign subsidiaries in Canada, Australia and Japan andforeign branches of FCE in Germany, the United Kingdom, Spain and Italy all have securitizationprograms. The transaction structures used in these programs are substantially similar to thetransaction structures discussed above, with appropriate adjustments principally for local marketconditions, product differences and local laws, especially related to bankruptcy, tax and accountingconsiderations. We use both public securitizations and conduits in our foreign affiliate securitizations.

Extended Contracts Program. We sell to large financial institutions pools of U.S. retailinstallment sale contracts in respect of which the obligor has been granted one or more paymentextensions. These receivables are not eligible to be sold in our retail securitization programs. Thesetransactions are structured in a manner similar to our conduit program except that the purchasers ofthese receivables are not committed to purchase additional receivables.

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Other Structured Financings. In addition, our Latin America subsidiaries sell pools of retailreceivables to large financial institutions from time to time in transactions where we retainsubordinated interests in the sold receivables.

In the U.S., we generally are able to access the securitization markets in two days, in the caseof our unutilized capacity in our conduit program and Motown Notes program, and generally two tothree weeks for repeat transactions in our retail and wholesale securitization programs. Newprograms and new transaction structures typically require substantial development time beforecoming to market.

Our Continuing Obligations

We have no obligation to repurchase or replace any receivable sold to a SPE that subsequentlybecomes delinquent in payment or otherwise is in default. Investors holding securities issued by aSPE have no recourse to us or our other assets for credit losses on the sold receivables and haveno right to require us to repurchase the securities. We do not guarantee any asset-backed securitiesand have no obligation to provide liquidity or make monetary contributions or contributions ofadditional receivables to our SPEs either due to the performance of the sold receivables or the creditrating of our short-term or long-term debt. However, as the seller and servicer of the financereceivables to the SPE, we are obligated to provide certain kinds of support to our securitizations.These support obligations are customary in the securitization industry and consist of the following:

As Seller

) Indemnification. In most of our securitization programs, we provide indemnification to SPEs,the trustees for the SPEs and other parties, including the banks that sponsor SPEs used inour conduit program. We are obligated to indemnify the SPE for certain tax liabilities relatedto the receivables and for any liabilities related to our use as servicer of a financed vehicle.We are obligated to indemnify the SPEs and the trustees for losses incurred if any soldreceivable did not meet the eligibility criteria at the time of sale. We are also obligated toindemnify the trustees for the SPEs with respect to any liabilities they may incur in theperformance of their duties other than through their own negligence or willful misconduct. Inaddition, as is customary in all capital markets transactions, we indemnify the underwriters onthe accuracy of the disclosures made in the offering documents for the asset-backedsecurities. Based on our experience, we do not expect to make any indemnification payments.

) Receivable Repurchase Obligations. We make representations and warranties to the SPEthat the sold receivables meet certain eligibility criteria at the time the receivables are sold.For example, we make representations and warranties about standard legal requirementsincluding that each receivable is properly secured by a financed vehicle and originated incompliance with law. We also make representations and warranties about the primaryeconomic eligibility criteria. In the case of retail securitizations, the primary eligibility criteriaare that the receivable is not delinquent more than 30 days and has never been extended andthat the obligor is not in bankruptcy. We also make representations and warranties on theaccuracy of data about the receivables and the characteristics of the pool of receivables. If abreach of any of our representations and warranties is later discovered, the SPE may requireus to repurchase any affected receivable. The repurchase price is the principal balance of thereceivable plus a full month of accrued interest. In 2003, no sold receivables wererepurchased for eligibility breaches.

) Mandatory Sale of Additional Receivables. In revolving structures, the SPE issues securitiesthat receive only monthly interest payments for a fixed period of time, called the revolvingperiod, before receiving repayment of principal. Because the principal amount of the issued

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securities remains constant during the revolving period while the principal balance of theunderlying finance receivables are declining as monthly payments on the receivables arecollected, we replenish or ‘‘top-up’’ the SPE with new eligible receivables each month duringthe revolving period and receive additional proceeds. In our wholesale securitizations, we arerequired to sell all eligible receivables from certain dealer accounts to the SPE on a dailybasis in exchange for an increased undivided interest in the SPE. We expect to meet allrequirements to sell additional receivables in our securitizations.

As Servicer

) Receivable Repurchase Obligations. As servicer of the sold receivables, we are entitled togrant extensions to the obligor and make adjustments to receivables if such extensions andadjustments are consistent with our servicing policies and procedures. If we make materialchanges to a receivable including changing the interest rate, amount or number of monthlypayments or extend the final payment date beyond a specified number of months, typically weare required to repurchase the receivable from the SPE at the principal balance of thereceivable plus a full month of accrued interest. These servicer repurchase requirements aretypical in securitizations. In 2003, the principal amount of receivables repurchased resultingfrom loan modifications granted by the servicer was $193 million for all retail securitizationprograms. We are also required to repurchase receivables if we fail to use customarycollection practices to collect payments on the receivables, release the security interest on thefinanced vehicle improperly or otherwise impair the rights of the securitization investors in thesold receivables. In 2003, no receivables were repurchased because of these factors. SeeNote 6 of our Notes to Financial Statements for more information about these repurchases.

) Advancing Requirements. As servicer in our prime quality retail installment sale contractsecuritizations, we are required to advance any shortfall of obligor interest payments to theSPE to the extent we believe the advance will be recovered from future collections of thatreceivable. The SPE reimburses us for these advances from collections on all receivablesbefore making other required payments.

) Indemnification. As servicer, we are obligated to indemnify the SPEs, the trustees for theSPEs and bank sponsors of SPEs for any liabilities related to negligence or willful misconductin the performance of our servicing obligations. Based on our experience, we do not expect tomake any indemnification payments.

Risks to Continued Funding under Securitization Programs

Some of our securitization programs contain structural features that could prevent us from usingthese sources of funding if the credit losses or delinquencies on a pool of sold receivables or ouroverall serviced portfolio of receivables exceed specified levels or if payment rates on wholesalereceivables or amount of wholesale receivables are lower than specified levels. These features arediscussed below. Based on our experience, we do not expect that any of these features will have amaterial adverse impact on our ability to use securitization to fund our operations.

Retail Securitization. Most of our retail securitization transactions use fixed pools of receivablesin amortizing structures. In these transactions, no additional receivables are added to the SPEduring the term of the deal and the asset-backed securities begin receiving principal payments ineach subsequent month as collections on the receivables are received. In revolving structures,however, as long as certain conditions are met, we continue to receive incremental funding as wesell additional receivables to the SPE in exchange for proceeds. If the pool of receivables held bythe SPE is experiencing credit losses and delinquencies in excess of specified levels, an earlyamortization event or cash accumulation event will occur. In the case of an early amortization event,

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this means that the revolving period will end, no further receivables may be transferred to the SPEand no further funding will be received. The asset-backed securities issued by the SPE will begin toreceive principal payments and will be paid off earlier than expected. In the case of a cashaccumulation event, the excess spread will be maintained in a special account for the benefit of theSPE and not released to us.

Wholesale Securitization and Motown Notessm Program. In our wholesale receivablessecuritization programs, an early amortization event will occur if the payment rate on the receivablesfalls below a designated level or if the dealer accounts in the SPE do not generate sufficientreceivables to maintain the pool balance at a level necessary to provide required subordinationlevels for the asset-backed securities. If these events occur, collections on the receivables no longerwill be applied to purchase additional receivables and instead will be used to pay off the asset-backed securities.

Conduit Program. Our conduit program contains provisions that terminate a sponsor bank’scommitment to purchase additional receivables from us if the credit losses or delinquencies on thesold receivables exceed specified levels. This event would eliminate a funding source for futurereceivables.

General. In addition to the specific transaction-related structural features discussed above, ourability to sell receivables in securitizations may be affected by the following factors:

) Amount and credit quality of receivables available to sell — lower overall receivables levels ora higher proportion of low credit quality receivables could decrease the amount of receivablesavailable to securitize;

) Performance of receivables in our previous receivables sales — if the receivables in ourexisting securitization transactions experience higher than expected credit losses, we may notbe able to access the market, particularly in public transactions where receivablesperformance is publicly available, and/or the costs to securitize may increase;

) General demand for the type of receivables supporting the asset-backed securities — investordesire for securities with different risk and/or yield characteristics could result in reduceddemand for these types of investments;

) Market capacity on Ford Credit and Ford Credit-sponsored investments — investors may reachexposure limits and/or wish to diversify away from Ford Credit risk;

) Accounting and regulatory changes — may result in temporary disruption or termination ofone or more of our present programs which may or may not be able to be restructured orreplaced;

) Our credit rating — may impact investors’ acceptance of our asset-backed securities,especially on certain asset classes such as wholesale where the structural elements of thetransaction are more closely correlated to the impact of Ford and Ford Credit’s credit rating;and

) Our ability to maintain back-up liquidity facilities for our FCAR and Motown NotesSM programs.

If as a result of any of these or other factors the cost of securitized funding were to increasesignificantly or funding through securitizations were no longer available to us, it would have amaterial adverse impact on our operations, financial condition and liquidity. However, given thediversity of our securitization programs, it is not likely that these risk factors would impact allprograms simultaneously. Additionally, new structures could be developed, recognizing thatsubstantial time is required for the development, launch, and market acceptance of new programs.

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Other Sales of Receivables Transactions

On-Balance Sheet Securitizations

We use a special purpose on-balance sheet trust, FCAR, as a source of funds for ouroperations. FCAR’s activities are limited to issuing asset-backed commercial paper and othersecurities, borrowing from banks and buying highly-rated asset-backed securities issued bysecuritization SPEs sponsored by us.

Although FCAR may hold asset-backed securities secured by retail installment sale contracts,wholesale receivables and lease receivables, as of December 31, 2003, FCAR held only asset-backed securities secured by retail installment sale contracts. At December 31, 2003, FCAR heldabout $14.3 billion of retail installment receivables that had been sold for legal purposes to SPEsand about $9 billion of asset-backed commercial paper outstanding. In addition, FCAR has about$505 million of subordinated debt outstanding of which $324 million, or about 64%, is owned byinvestors not affiliated with us but who have business relationships with us and Ford. We act asadministrator for FCAR and oversee its limited operations.

We could be prevented from using FCAR as a source of funding in certain circumstances. Ifcredit losses or delinquencies in our serviced portfolio of retail, wholesale or lease receivablesexceed specified levels, FCAR is not permitted to purchase additional asset-backed securities of theaffected type for so long as such levels are exceeded. FCAR is permitted to purchase only highlyrated asset-backed securities, and if the credit enhancement on any asset-backed securitypurchased by FCAR is reduced to zero, FCAR may not purchase any additional asset-backedsecurities and would wind down its operations as principal payments on the securities previouslypurchased are applied to pay its maturing commercial paper and any loans drawn to provide liquidityto the program.

Whole-Loan Sale Transactions

We sell pools of retail installment sale contracts in whole-loan sale transactions. Unlike oursecuritizations, in whole-loan sale transactions we do not retain any interests in the sold receivablesand do not have any risk of loss related to the sold receivables. The sold receivables are no longerour assets, and they no longer appear on our balance sheet. Similar to securitizations, in whole-loansale transactions, the purchaser has no recourse to us or our other assets for credit losses on thesold receivables and has no right to require us to repurchase the sold receivables and we do notguarantee the performance of the receivables. We continue to service the receivables sold in whole-loan sale transactions and earn a servicing fee. Our servicing standard for receivables sold in whole-loan sale transactions is similar to that used for securitizations and our owned portfolio. We use thesame selection criteria used in securitizations to choose retail installment sale contracts for whole-loan sales. We generally have the same indemnification and other continuing obligations in whole-loan sale transactions as we have in securitizations. We do not use SPEs in our whole-loan saletransactions.

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Sales of Receivables Activity

The following table illustrates our worldwide off-balance sheet receivables sales activity for theperiods indicated:

Full Year

2003 2002 2001 2000 1999

(in billions)

Net Proceeds from Receivable Sales


Public retail ************************************************************ $ 5.7 $15.5 $16.6 $18.8 $ 8.9

Conduit**************************************************************** 1.8 2.5 6.2 — —

Triad ****************************************************************** 1.7 1.1 — — 0.4

Motown NotesSM program *********************************************** 1.0 4.8 — — —

FCAR ***************************************************************** — 8.3 12.1 — —

Public wholesale ******************************************************* — — 5.0 — —

Canada and other ****************************************************** 1.4 1.2 — — —

Total North America Segment **************************************** $11.6 $33.4 $39.9 $18.8 $ 9.3


Europe

Public *************************************************************** $ 1.5 $ 2.2 $ 0.7 $ 0.7 $ 0.0

Conduit************************************************************** 1.1 0.3 — — —

Total Europe ******************************************************* $ 2.6 $ 2.5 $ 0.7 $ 0.7 $ 0.0

Asia Pacific ************************************************************ 0.9 0.5 0.2 — 0.6

Latin America ********************************************************** 0.6 — — — —

Total International Segment ****************************************** $ 4.1 $ 3.0 $ 0.9 $ 0.7 $ 0.6

Net proceeds **************************************************** $15.7 $36.4 $40.8 $19.5 $ 9.9

Whole-loan sales ******************************************************* 5.4 4.9 — — —

Total net proceeds ************************************************ $21.1 $41.3 $40.8 $19.5 $ 9.9

Retained interest and other ************************************************** 0.2 (0.6) 11.7 2.1 3.0

Total receivables sold ********************************************* $21.3 $40.7 $52.5 $21.6 $12.9

Prior period sold receivables, net of paydown activity *************************** 35.4 35.6 6.2 6.8 6.6

Total sold receivables outstanding at the end of the relevant period **** $56.7 $76.3 $58.7 $28.4 $19.5

At December 31, 2003, outstanding sold receivables totaled $56.7 billion, down $19.6 billion or26% compared with December 31, 2002. This decrease primarily reflected the on-balance sheetreporting of receivables, beginning in the second quarter of 2003, that support FCAR, a loweramount of public retail securitizations, particularly in the United States, and lower levels of dealerfloorplan inventories. The amount of receivables sold in 2003 was $21.3 billion, down $19.4 billionfrom 2002, reflecting our lower funding requirements.

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Our worldwide proceeds from the sale of retail and wholesale finance receivables through off-balance sheet securitizations and whole-loan sale transactions are shown below for the periodsindicated:

Full Year

Receivable Type 2003 2002 2001 2000 1999

(in billions)

Retail ************************************************************** $14.7 $31.6 $32.3 $19.2 $9.4

Wholesale********************************************************** 1.0 4.8 8.5 0.3 0.5

Net proceeds ***************************************************** $15.7 $36.4 $40.8 $19.5 $9.9

Whole-loan ********************************************************* 5.4 4.9 — — —

Total net proceeds ********************************************** $21.1 $41.3 $40.8 $19.5 $9.9

The tables above do not include retail installment sale contracts sold in 2003 to SPEssponsored by us that sold asset-backed securities to FCAR. Because of the accountingconsolidation of FCAR, these receivables were reported on-balance sheet.

The Effect of Receivables Sales Activity on Financial Reporting

We report the following items in Investment and other income related to sales of receivables onour income statement:

) Gain or loss on sales of finance receivables,

) Servicing fee income from sold receivables that we continue to service,

) Interest income from retained securities, including from our undivided interest in wholesalereceivables, and

) Excess spread and other income.

The following table summarizes the activity related to the off-balance sheet sales of receivablesreported in Investment and other income related to sales of receivables for the periods indicated:

Full-Year

2003 2002 2001 2000 1999

(in millions)

Net gain on sales of receivables **************** $ 436 $ 529 $ 412 $ 14 $ 83

Servicing fees********************************* 677 700 456 190 136

Interest income from retained securities ********** 679 606 379 152 173

Excess spread and other *********************** 973 775 186 201 41

Investment and other income related to sales ofreceivables ******************************* $ 2,765 $ 2,610 $ 1,433 $ 557 $ 433

Less: Whole-loan income*********************** (234) (79) — — —

Income related to off-balance sheetsecuritizations***************************** $ 2,531 $ 2,531 $ 1,433 $ 557 $ 433

Memo:

Finance receivables sold ********************* $21,321 $40,712 $52,533 $21,618 $12,910

Servicing portfolio as of period-end************ 56,705 76,346 58,748 28,366 19,471

Pre-tax gain per dollar of retail receivables sold *** 2.0% 1.4% 1.2% 0.1% 0.6%

Investment and other income related to sales of receivables increased $155 million or 6%compared with 2002, reflecting higher excess spread and other income offset partially by lower netgains. Higher excess spread and other income resulted from higher levels of outstanding securitizedreceivables in 2002. Lower gains in 2003 resulted from lower amounts of finance receivables sold,

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down about $19 billion compared with 2002, reflecting our lower funding requirements. Excluding theeffects of the whole-loan sale transactions, which totaled $10.4 billion in the 2002-2003 period, off-balance sheet securitization income was unchanged compared with 2002.

Sales of finance receivables through off-balance sheet securitizations have the impact onearnings of recalendarizing and reclassifying net financing margin (financing revenue less interestexpense) and credit losses related to the sold receivables, compared with how they would havebeen reported if we continued to report the sold receivables on our balance sheet and funded themthrough asset-backed financing. Recalendarization effects occur initially when the gain or loss on thesale of the receivables is recognized in the period the receivables are sold. Over the life of thesecuritization transactions, we recognize excess spread, interest income from retained securities,servicing fees and other receivable sale income.

In addition, credit losses related to the off-balance sheet securitized receivables are included inour initial and ongoing valuation of our interest-only strip asset (see ‘‘Critical Accounting Estimates —Sales of Receivables in Off-Balance Sheet Securitizations and Other Off-Balance Sheet Transac-tions’’ below for definition) and neither impact the Provision for credit losses line on our incomestatement nor influence our assessment of the adequacy of our allowance for credit losses for ouron-balance sheet receivables.

Over the life of each off-balance sheet securitization transaction, the gain or loss on the sale ofthe receivables, excess spread, interest income from retained securities, servicing fees and otherreceivable sale income is equal to the net financing margin and credit losses that would have beenreported had we reported the receivables on our balance sheet and funded them through asset-backed financings.

The net impact of off-balance sheet securitizations on our earnings in a given period will varydepending on the amount and type of receivables sold and the timing of the transactions in thecurrent period and the preceding two to three year period, as well as the interest rate environment atthe time the finance receivables were originated and securitized.

The following table shows, on an analytical basis, the earnings impact of our off-balance sheetsecuritizations had we reported them as on-balance sheet and funded them through asset-backedfinancings for the periods indicated:

Full-Year

2003 2002 2001 2000 1999

(in millions)

Financing revenue

Retail revenue ********************************** $ 3,580 $ 4,040 $ 2,954 $ 1,622 $ 771

Wholesale revenue ****************************** 1,080 1,101 499 384 169

Total financing revenue************************* $ 4,660 $ 5,141 $ 3,453 $ 2,006 $ 940

Borrowing cost ************************************ (1,491) (2,205) (1,784) (1,242) (564)

Net financing margin*************************** $ 3,169 $ 2,936 $ 1,669 $ 764 $ 376

Credit losses************************************** (677) (454) (221) (92) (74)

Income before income taxes****************** $ 2,492 $ 2,482 $ 1,448 $ 672 $ 302

Memo:

Income related to off-balance sheet securitizations **** $ 2,531 $ 2,531 $ 1,433 $ 557 $ 433

Recalendarization impact of off-balance sheetsecuritizations*********************************** $ 39 $ 49 $ (15) $ (115) $ 131

In 2003, the impact on earnings of off-balance sheet securitizations was $39 million higher thanhad these transactions been structured as on-balance sheet securitizations. This difference resultsfrom recalendarization effects caused by gain-on-sale accounting requirements, as discussed above.

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This effect will fluctuate as the amount of receivables sold in our off-balance sheetsecuritizations increases or decreases over time. In a steady state of securitization activity, thedifference between reporting securitizations on- or off-balance sheet in a particular year approacheszero. While the difference in earnings impact between on- or off-balance sheet securitizations isminimal, this funding source has provided us with significant borrowing cost savings compared withunsecured debt and funding flexibility in a difficult economic environment.

Leverage

We use leverage, or the debt-to-equity ratio, to make various business decisions, includingestablishing pricing for retail, wholesale and lease financing, and determining our appropriate capitalstructure. For a discussion of our capital structure, see ‘‘Capital Adequacy.’’ We calculate leverageon a financial statement basis and on a managed basis using the following formulas:

FinancialTotal DebtStatement

Leverage = EquityRetainedInterest in

Securitized SecuritizedOff-balance Off-balance Cash SFAS No. 133

Total Debt + Sheet – Sheet – and Cash – AdjustmentsReceivables Receivables Equivalents on Total Debt

Managed Leverage =

SFAS No. 133Equity + Minority – Adjustment

Interest on Equity

The following table shows the calculation of our financial statement leverage:

December 31,

2003 2002 2001 2000 1999

(in billions)

Total debt ****************************************** $149.7 $140.3 $145.8 $145.6 $132.1

Total stockholder’s equity **************************** 12.5 13.6 12.0 12.2 10.9

Debt-to-equity ratio (to 1) **************************** 12.0 10.3 12.2 11.9 12.1

At December 31, 2003, our financial statement leverage was 12.0 to 1, compared with 10.3 to 1a year ago. This increase in leverage resulted primarily from the accounting consolidation of FCARresulting in $9.0 billion of FCAR’s debt being reported on our balance sheet at December 31, 2003.

The following table shows the calculation of our managed leverage:

December 31,

2003 2002 2001 2000 1999

(in billions)

Total debt ****************************************** $149.7 $140.3 $145.8 $145.6 $132.1

Securitized off-balance sheet receivables outstanding *** 49.4 71.4 58.7 28.4 19.5

Retained interest in securitized off-balance sheetreceivables *************************************** (13.0) (17.6) (12.5) (3.7) (3.5)

Adjustments for cash and cash equivalents ************ (15.7) (6.8) (2.9) (1.1) (0.9)

Adjustments for SFAS No. 133. *********************** (4.7) (6.2) (2.1) — —

Total adjusted debt ******************************** $165.7 $181.1 $187.0 $169.2 $147.2

Total stockholder’s equity (including minority interest) *** $ 12.5 $ 13.6 $ 12.0 $ 12.2 $ 11.3

Adjustments for SFAS No. 133. *********************** 0.2 0.5 0.6 — —

Total adjusted equity ****************************** $ 12.7 $ 14.1 $ 12.6 $ 12.2 $ 11.3

Managed debt-to-equity ratio (to 1)******************** 13.0 12.8 14.8 13.9 13.0

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We believe that managed leverage is useful to our investors because it reflects the way wemanage our business. We retain interests in receivables sold in off-balance sheet securitizationtransactions and, with respect to subordinated retained interests, are exposed to credit risk.Accordingly, we consider securitization as an alternative source of funding and evaluate creditlosses, receivables and leverage on a managed as well as a financial statement basis. We alsodeduct cash and cash equivalents because they generally correspond to excess debt beyond theamount required to support our operations. In addition, we add our minority interests to our financialstatement equity, because all of the debt of such consolidated entities is included in our total debt.SFAS No. 133 requires us to make fair value adjustments to our assets, debt and equity positions toreflect the impact of interest rate instruments we use in connection with our term debt issuances andsecuritizations. SFAS No. 133 adjustments vary over the term of the underlying debt and securitizedfunding obligations based on changes in market interest rates. We generally repay our debtobligations as they mature. As a result, we exclude the impact of SFAS No. 133 on both thenumerator and denominator in order to exclude the interim effects of changes in market interestrates. For a discussion of our use of interest rate instruments and other derivatives, see Item 7A. Webelieve the managed leverage measure provides our investors with meaningful information regardingmanagement’s decision-making processes.

Our managed leverage strategy involves establishing a leverage level that we believe reflects therisk characteristics of our underlying assets. In establishing a target leverage level, we consider thecharacteristics of the receivables in our managed portfolio and the prevailing market conditions.

At December 31, 2003, our managed leverage was 13.0 to 1, compared with 12.8 to 1 a yearago. Our dividend policy is based in part on our strategy to maintain managed leverage at the lowerend of the 13 - 14 to 1 range. As a result of improved profitability and lower managed receivablelevels, we paid dividends of $3.7 billion in 2003.

Capital Adequacy

Underlying our risk and capital management strategies is the need to leverage capital in a waythat:

) Allows creditors to be repaid even in the event of unexpected losses, and

) Provides adequate shareholder returns by pricing our products and services commensuratewith the level of risk.

We set the amount of our equity in proportion to our risk. We manage our capital structure andmake adjustments as economic conditions and the level of our portfolio risk change. In order to maintainor adjust our capital structure, we may pay dividends to or receive capital contributions from Ford.

Sources of Cash to Meet Contractual Obligations

In evaluating the sources of cash to meet contractual obligations, we look at all of our assets onthe balance sheet and their ability to generate cash.

We evaluate our portfolio semi-annually with statistical models to determine potential losses inextreme circumstances. Potential losses are calculated at a 99.9% confidence level, consistent withbond default levels for single-A rated companies. All identified sources of risk in the portfolio areevaluated, including the limited likelihood that all segments of the portfolio would experience worst-case losses concurrently. Our methodologies for evaluating consumer credit risk and leasing residualvalue risk are as follows:

) Consumer credit risk evaluation is based on our historical experience with nearly 25 millionfully- and partially-liquidated retail installment sale contracts. We divide the historical portfolio

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into segments and we analyze the distribution and correlations of defaults for each segment.Finally, a model is used to simulate potential retail portfolio behavior in worst-case scenarios.

) Leasing residual value risk evaluation is based on our historical experience with vehicledispositions since 1993 and a 20-year history of industry-wide used vehicle price volatility. Weassume that all of the vehicles from non-defaulting leases will be returned to us at the end ofthe lease term. We divide the historical portfolio into segments and use a statistical model toestimate the volatility of vehicle auction values.

In addition to considering borrowing and operating costs, our pricing model includes factorsrelated to credit and residual risks, profits and related income taxes. These factors provide the firstline of defense against losses. Our committed lines of credit facilities from major banks and theavailable conduit capacity described in ‘‘Liquidity’’ provide additional levels of liquidity.

Capital Adequacy Study Conclusions

At December 31, 2003, we believe that our creditors had risk protection of close to 150% ofmodeled potential losses calculated at a 99.9% confidence level. This protection is in addition to thecommitted credit lines and available conduit capacity. This calculation assumes the unlikely eventthat no subvention payments are received from Ford. Including subvention payments from Ford in ouranalysis, we believe creditors have protection close to 180% of potential losses. This reflects a 20%improvement compared with last year.

Aggregate Contractual Obligations

We are party to many contractual obligations involving commitments to make payments toothers. We record these obligations in our financial statements or disclose them in the notes to ourfinancial statements. Our aggregate contractual obligations are shown below:

Payments Due by Period

Less than More thanTotal 1 year 1-3 years 3-5 years 5 years

(in millions)

Long-term debt obligations ************ $124,955 $29,534 $49,812 $17,318 $28,291

Operating lease obligations ************ 309 92 134 57 26

Total ****************************** $125,264 $29,626 $49,946 $17,375 $28,317

Critical Accounting Estimates

We consider an accounting estimate to be critical if:

) The accounting estimate requires us to make assumptions about matters that were highlyuncertain at the time the accounting estimate was made, and

) Changes in the estimate that are reasonably likely to occur from period to period, or use ofdifferent estimates that we reasonably could have used in the current period, would have amaterial impact on our financial condition or results of operations.

The accounting estimates that are most important to our business involve:

) Allowance for credit losses,

) Accumulated depreciation on vehicles subject to operating leases, and

) Sales of receivables in off-balance sheet securitizations and other off-balance sheettransactions.

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Management has discussed the development and selection of these critical accountingestimates with Ford’s and our audit committees, and these audit committees have reviewed theseestimates and disclosures.


The allowance for credit losses is our estimate of the probable credit losses related to impairedfinance receivables and operating leases as of the date of the financial statements. We exercisejudgment in estimating this amount because credit losses vary substantially over time, andestimating probable losses requires a number of assumptions about matters that are uncertain.Note 5 of our Notes to Financial Statements contains additional information regarding our allowancefor credit losses.

Nature of Estimates Required. We estimate the probable credit losses related to impairedfinance receivables and operating leases by evaluating several different factors using econometricmodels. These factors include historical credit loss trends, the credit quality of our present portfolio,trends in historical and projected used vehicle values, and general economic measures.

Assumptions and Approach Used. We use the factors listed above to make projections oftwo key assumptions:

) Frequency — the percentage of finance receivables and operating leases that we expect todefault over a period of time, measured principally by the repossession rate, and

) Loss severity — the expected difference between the amount a customer owes us when wecharge off the finance contract and the amount we receive, net of expenses, from selling therepossessed vehicle, including any recoveries from the customer.

We use these assumptions to assist us in setting our allowance for credit losses.

Sensitivity Analysis. We believe the present level of our allowance for credit losses adequatelyreflects probable losses related to impaired finance receivables and operating leases. However,changes in the assumptions used to derive frequency and severity would have an impact on theallowance for credit losses. Over the past twenty years, repossession rates for our U.S. retail andlease portfolio have varied between 2% and 4%. For Ford, Lincoln and Mercury brand vehicles in theUnited States, a 10 basis point (0.10%) increase or decrease in our assessment of the repossessionrate could increase or decrease our allowance by about $50 million. Similarly, a 1% increase ordecrease in loss severity for the same portfolio could increase or decrease our allowance by about$20 million. Changes in our assumptions affect the provision for credit losses on our incomestatement and the allowance for credit losses on our balance sheet. We monitor credit lossperformance monthly and we assess the adequacy of our allowance for credit losses quarterly.

Accumulated Depreciation on Vehicles Subject to Operating Leases

Accumulated depreciation on vehicles subject to operating leases reflects the cumulative amountof depreciation that has been recorded to date, reducing the value of the leased vehicles in ouroperating lease portfolio from their original acquisition value to their estimated residual value at theend of the lease term. See Note 4 of our Notes to Financial Statements for information on netinvestment in operating leases, including the amount of accumulated depreciation.

Nature of Estimates Required. Each operating lease in our portfolio represents a vehicle weown that has been leased to a customer. When we purchase the lease, we establish an estimatedresidual value for the vehicle at lease end. We exercise judgment in estimating the expected lease-end residual value because future market values of used vehicles are difficult to predict. Wedepreciate leased vehicles on a straight-line basis to estimated residual value.

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We monitor residual value performance by vehicle model each month and we review theadequacy of our accumulated depreciation on a quarterly basis. If we believe that the residualvalues for our vehicles have decreased, we revise depreciation for the affected vehicles to ensurethat our net investment in the operating leases (equal to our acquisition value of the vehicles minusaccumulated depreciation) will be reduced to our revised estimate of residual value at the end of thelease term. Such adjustments to depreciation expense are recorded over the remaining life of theaffected vehicles in our portfolio.

Each lease customer has the option to buy the leased vehicle at the end of the lease or toreturn the vehicle to the dealer. The dealer has the option to purchase the vehicle at the contractuallease-end value or return it to us. For returned vehicles, we face a risk that the amount we obtainfrom the vehicle sold at auction will be less than our most recent estimate of the residual value forthe vehicle. Over the last five years, about 60% to 70% of North America Segment’s operating leasevehicles have been returned to us.

Assumptions and Approach Used. Our accumulated depreciation on vehicles subject tooperating leases is based on our assumptions of:

) Residual value — the market value of the vehicles when we sell them at the end of the lease,and

) Return rates — the percentage of vehicles that will be returned to us at lease end.

We estimate expected residual values and return rates using econometric models. Thesemodels use historical auction values, historical return rates for our leased vehicles, industry-wideused vehicle prices, Ford’s marketing plans and vehicle quality data.

Sensitivity Analysis. If future auction values for all of the Ford, Lincoln and Mercury brandvehicles in our U.S. operating lease portfolio at year-end 2003 were to decrease by $100 per unitfrom our present estimates, the total impact would be to increase our depreciation on these vehiclesby about $55 million, which would be charged to depreciation expense during the 2004 through 2006period so that the net investment in operating leases at the end of the lease term for these vehiclesis equal to the revised residual value. Similarly, if future return rates for our existing portfolio of Ford,Lincoln and Mercury brand vehicles in the U.S. were to increase by one percentage point from ourpresent estimates, the total impact would be to increase our depreciation on these vehicles by about$10 million, which would be charged to depreciation expense during the 2004 through 2006 period.Adjustments to our accumulated depreciation on vehicles subject to operating leases will be reflectedon our income statement in depreciation expense. Accumulated depreciation is included in ourbalance sheet in net investment in operating leases.

Sales of Receivables in Off-Balance Sheet Securitizations and Other Off-Balance Sheet Transactions

In a securitization, we sell finance receivables to an SPE in exchange for the proceeds from thesale of securities backed by the receivables that the SPE sells to investors. For off-balance sheetsecuritizations, we are required to recognize a gain or loss on the sale of receivables in the periodthe sale occurs. We also record our retained interests in these securitizations as assets on ourbalance sheet at fair value. These retained interests include interest-only strips, also referred to asexcess spread, which represent our right to receive collections on sold receivables in excess ofamounts needed to pay principal and interest payments to investors, servicing fees and otherrequired amounts. Retained interests may also include senior and subordinated securities, undividedinterests in wholesale receivables and restricted cash held for the benefit of the SPE.

Nature of Estimates Required. In determining the gain or loss on each sale of financereceivables and the amount of our retained interests, we allocate the carrying amount of the sold

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receivables between the portion sold and the portion retained based on their relative fair value at thedate of sale.

Assumptions and Approach Used. The most significant factors affecting the fair value of assetsretained related to the sale of receivables through securitizations that requires us to make estimatesand judgments are:

) Expected credit losses over the life of the sold receivables, called lifetime credit losses;

) Prepayments of sold receivables occurring earlier than scheduled maturities, called prepay-ment speeds; and

) Discount rates used to estimate the present value of interest-only strips.

To estimate expected lifetime credit losses on the sold receivables, we use statistical modelsthat divide receivables into segments by credit risk quality, contractual term and whether the vehiclefinanced is new or used. Prepayment speeds and discount rates are subject to less variation, andwe make estimates based on our historical experience and other factors. These estimates are madeseparately for each securitization transaction.

We evaluate the fair value of our retained interests on a quarterly basis and adjust theestimated market value as necessary. These fair value adjustments are reflected, net of tax, as aseparate component of other comprehensive income included in stockholder’s equity. The fair valueanalysis for our interest-only strips largely depends on updating our estimate of lifetime credit lossesand prepayment speeds. We adjust the fair value of securities we retain based on quoted marketprices of securities with similar characteristics. If we determine, based on this updated information,these retained interests are other than temporarily impaired, we would record fair value adjustmentsin earnings and not stockholder’s equity. The recorded amount of our restricted cash retainedinterest normally does not have to be adjusted.

Sensitivity Analysis. The fair value of the interest-only strip is sensitive to variation in ourassumptions of lifetime credit losses, estimated prepayments and discount rates. Note 6 of ourNotes to Financial Statements identifies the sensitivity of this asset to changes in each of theseassumptions. Changes in these assumptions will also result in a similar change in the gain or lossrecorded in the time period the related receivables are sold.

Changes in Accounting Standards

The Financial Accounting Standards Board is expected to issue an exposure draft of anamendment to SFAS No. 140 that: (1) addresses the conditions under which a qualifying SPE ispermitted to issue beneficial interests with maturities that are shorter than the maturities of theassets held by the qualifying SPE and roll over those beneficial interests at maturity; (2) amendsother requirements related to commitments by transferors to provide additional assets to fulfillobligations to the beneficial interest holders; and (3) addresses other issues related to transfers offinancial assets. We are continuing to assess the impact the expected exposure draft may have onour accounting for qualifying SPEs and certain securitization funding programs.

Outlook

Compared with 2003, we anticipate lower revenues as a result of a lower amount of new retailinstallment sale and lease contracts and a lower impact of a net favorable market valuation ofderivative instruments and associated exposures. Based on our experience to date in 2004, weexpect improvements in credit losses and strengthening used vehicle prices compared with 2003. Atyear-end 2004, we expect managed receivables to be in the $170 to $175 billion range.

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Cautionary Statement Regarding Forward Looking Statements

Statements included in this Report or incorporated by reference into this Report may constitute‘‘forward-looking statements’’ within the meaning of the federal securities laws, including the PrivateSecurities Litigation Reform Act of 1995. The words ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’‘‘intend,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘will,’’ ‘‘project,’’ ‘‘future’’ and ‘‘should’’ and similar expressions are intendedto identify forward-looking statements, and these statements are based on our current expectationsand assumptions concerning future events. These statements involve a number of risks,uncertainties, and other factors that could cause actual results to differ materially from thoseexpressed or implied by such statements, including the following:

Automotive Related:

) Greater price competition resulting from currency fluctuations, industry overcapacity or otherfactors;

) Significant decline in automotive industry sales and our financing of those sales, particularly inthe United States or Europe, resulting from slowing economic growth, geo-political events orother factors;

) Lower-than-anticipated market acceptance of new or existing Ford products;

) Increased safety, emissions, fuel economy or other regulations resulting in higher costs and/orsales restrictions;

) Work stoppages at key Ford or supplier facilities or other interruptions of supplies;

) Discovery of defects in Ford vehicles resulting in delays in new model launches, recallcampaigns, increased warranty costs or litigation;

) Unusual or significant litigation or governmental investigations arising out of alleged defects inFord products or otherwise;

) Reduced availability of or higher prices for fuel;

) Increased price competition in the rental car industry and/or a general decline in business orleisure travel due to terrorist attacks, acts of war or measures taken by governments inresponse thereto that negatively affect the travel industry;

) Market shift from truck sales in the United States;

) Changes in Ford’s requirements under long-term supply arrangements under which Ford isobligated to purchase minimum quantities or pay minimum amounts;

) Change in the nature or mix of automotive marketing programs and incentives;

Ford Credit Related:

) Inability to access debt or securitization markets around the world at competitive rates or insufficient amounts;

) Higher-than-expected credit losses;

) Collection and servicing problems related to our finance receivables and net investment inoperating leases;

) Lower-than-anticipated residual values and higher-than-expected lease return rates;

54


) New or increased credit, consumer protection or other regulations resulting in higher costsand/or additional financing restrictions;

) Changes in Ford’s marketing programs that de-emphasize financing incentives, which couldresult in a decline in our share of financing Ford vehicles;

General:

) Ford’s or our inability to implement the Revitalization Plan;

) A further credit rating downgrade;

) Major capital market disruptions that could prevent Ford or us from having access to thecapital markets or that would limit our liquidity;

) Availability of securitization as a source of funding;

) Labor or other constraints on Ford’s or our ability to restructure Ford’s or our business;

) Worse-than-assumed economic and demographic experience for our post-retirement benefitplans (e.g., investment returns, interest rates, health care trends, benefit improvements);

) Economic difficulties in any significant market; and

) Currency, commodity or interest rate fluctuations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview

We are exposed to a variety of risks in the normal course of our business. The extent to whichwe effectively identify, assess, monitor and manage these risks is critical to our financial conditionand profitability. The principal types of risk to our business include:

) Market risk — the possibility that changes in interest and currency exchange rates willadversely impact our income;

) Counterparty risk — the possibility that a counterparty may default on a derivative contract;

) Credit risk — the possibility of loss from a customer’s failure to make payments according tocontract terms;

) Residual risk — the possibility that the actual proceeds we receive at lease termination will belower than our projections or return rates will be higher than our projections;

) Liquidity risk — the possibility that we may be unable to meet all of our current and futureobligations in a timely manner; and

) Operating risk — the possibility of fraud by our employees or outside persons, errors relatingto transaction processing and systems and actions that could result in compliance deficiencieswith regulatory standards or contractual obligations.

We manage each of these types of risk in the context of its contribution to our overall globalrisk. We make business decisions on a risk-adjusted basis and price our services consistent withthese risks.

Credit, residual, and liquidity risks are discussed in Items 1 and 7. A discussion of market risk,counterparty risk, and operating risk follows.

Market Risk Overview

Given the unpredictability of financial markets, we seek to reduce volatility in our operatingresults from changes in interest rates and currency exchange rates. We use various financialinstruments, commonly referred to as derivatives, to manage market risks. We do not engage in anytrading, market-making, or other speculative activities in the derivative markets.

Our strategies to manage market risks are established by the Ford Global Risk ManagementCommittee (‘‘GRMC’’). The GRMC is chaired by the Chief Financial Officer of Ford, and its membersinclude the Treasurer of Ford and our Chief Financial Officer.

Direct responsibility for the execution of our market risk management strategies resides withFord’s Treasurer’s Office and is governed by written policies and procedures. Separation of duties ismaintained between the development and authorization of derivative trades, the transaction ofderivatives, and the settlement of cash flows. Regular audits are conducted to ensure thatappropriate controls are in place and that they remain effective. In addition, the GRMC and the auditcommittee of Ford and Ford Credit’s Boards of Directors review our market risk exposures and useof derivatives to manage these exposures.

Currency Exchange Rate Risk

Our policy is to minimize exposure to our operating results from changes in currency exchangerates. To meet funding objectives, we borrow in a variety of currencies, principally U.S. dollars andeuros. We face exposure to currency exchange rates if a mismatch exists between the currency ofour receivables and the currency of the debt funding those receivables. When possible, we fundreceivables with debt in the same currency, minimizing exposure to exchange rate movements.When a different currency is used, we execute the following foreign currency derivatives to convert

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(Continued)

substantially all of our foreign currency debt obligations to the local country currency of thereceivables:

) Cross-currency swaps — an agreement to convert non-U.S. dollar long-term debt toU.S. dollar denominated payments or non-local market debt to local market debt for ourinternational affiliates; or

) Foreign currency forwards — an agreement to buy or sell an amount of funds in an agreedcurrency at a certain time in the future for a certain price.

As a result of this policy, we believe our market risk exposure relating to changes in currencyexchange rates is immaterial. For additional information on our derivatives, please refer to thesections ‘‘Derivative Notional Values’’ and ‘‘Derivative Fair Values’’, and Notes 1 and 16 of our Notesto Financial Statements.

Interest Rate Risk

Nature of Exposure

Our primary market risk exposure is interest rate risk, and the particular market to which we aremost exposed is U.S. dollar LIBOR. Our interest rate risk exposure results principally from ‘‘re-pricingrisk’’ or differences in the re-pricing characteristics of assets and liabilities. An instrument’s re-pricingperiod is a term used to describe how an interest rate-sensitive instrument responds to changes ininterest rates. It refers to the time it takes an instrument’s interest rate to reflect a change in marketinterest rates. For fixed-rate instruments, the re-pricing period is equal to the maturity of theinstrument’s principal, because the principal is considered to re-price only when re-invested in a newinstrument. For a floating-rate instrument, the re-pricing period is the period of time before theinterest rate adjusts to the market rate. For instance, a floating-rate loan whose interest rate is resetto a market index annually on December 31st would have a re-pricing period of one year onJanuary 1st, regardless of the instrument’s maturity.

Re-pricing risk arises when assets and the debt funding those assets have different re-pricingperiods, and consequently, respond differently to changes in interest rates. As an example, considera hypothetical portfolio of fixed-rate assets that is funded with floating-rate debt. If interest ratesincrease, the interest paid on debt increases while the interest received on assets remains fixed. Inthis case, the hypothetical portfolio’s pre-tax net interest income is exposed to changes in interestrates because its assets and debt have a re-pricing mismatch.

Our receivables consist primarily of fixed-rate retail installment sale and lease contracts andfloating-rate wholesale receivables. Fixed-rate retail installment sale and lease contracts areoriginated principally with maturities ranging between two and six years and generally requirecustomers to make equal monthly payments over the life of the contract. Wholesale receivables areoriginated to finance new and used vehicles held in dealers’ inventory and generally require dealersto pay a floating rate.

Funding sources consist primarily of short- and long-term unsecured debt and sales ofreceivables in securitizations. In the case of unsecured term debt, and in an effort to have fundsavailable throughout business cycles, we may borrow at terms longer than the terms of our assets,with five to ten year maturities. These debt instruments are principally fixed-rate and require fixedand equal interest payments over the life of the instrument and a single principal payment atmaturity.

We are exposed to interest rate risk to the extent that a difference exists between the re-pricingprofile of our assets and our debt. Specifically, without derivatives, our assets would re-price morequickly than our debt.

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Risk Management Objective

Our interest rate risk management objective is to maximize our financing income while limitingthe impact of changes in interest rates. We achieve this objective by setting an established risktolerance range and staying within the tolerance through the following risk management process.

Risk Management Process

Our risk management process involves a short-term and a long-term evaluation of interest raterisk by considering potential impacts on our pre-tax net interest income as well as the economicvalue of our portfolio of interest rate-sensitive assets and liabilities (our economic value). Oureconomic value is a measure of the present value of all future expected cash flows, discounted bymarket interest rates, and is equal to the present value of our interest rate-sensitive assets minusthe present value of our interest rate-sensitive liabilities. Measuring the impact on our economicvalue is important because it captures the potential long-term effects of interest rate changes.

The financial instruments used in our interest rate risk management process are called interestrate swaps; interest rate swaps are agreements to convert fixed-rate interest payments to floating orfloating-rate interest payments to fixed. Interest rate swaps are a common tool used by financialinstitutions to manage interest rate risk. For additional information on our derivatives, please refer tothe sections ‘‘Derivative Notional Values’’ and ‘‘Derivative Fair Values’’, and Notes 1 and 16 of ourNotes to Financial Statements.

On a monthly basis, we determine the sensitivity of our economic value to hypothetical changesin interest rates. We then enter into interest rate swaps, effectively converting portions of ourfloating-rate debt or assets to fixed or our fixed-rate debt or assets to floating, to ensure that thesensitivity of our economic value falls within an established target. As part of our monthly process,we also monitor the sensitivity of our pre-tax net interest income to interest rates by using pre-taxnet interest income simulation techniques. These simulations estimate the one-year pre-tax netinterest income of our portfolio of interest rate-sensitive assets and liabilities under various interestrate scenarios, including both parallel and non-parallel shifts in the yield curve. These quantificationsof interest rate risk are reported to the Treasurer each month.

The process described above is used to measure and manage the interest rate risk of ouroperations in the United States, Canada and the United Kingdom, which together representedapproximately 85% of our total on-balance sheet finance receivables at December 31, 2003. For ourother international affiliates we use a technique, commonly referred to as ‘‘gap analysis,’’ to measurere-pricing mismatch. This process uses re-pricing schedules that group assets, debt, and swaps intotime-bands based on their re-pricing period. Under this process we enter into interest rate swaps,effectively changing the re-pricing profile of our assets and debt, to ensure that any re-pricingmismatch existing in a particular time-band falls within an established tolerance.

Quantitative Disclosure

As a result of our interest rate risk management process, including derivatives, our debt re-prices faster than our assets. Other things equal, this means that during a period of rising interestrates, the interest rates paid on our debt will increase more rapidly than the interest rates earned onour assets, thereby initially reducing our pre-tax net interest income. Correspondingly, during aperiod of falling interest rates, we would expect our pre-tax net interest income to initially increase.To provide a quantitative measure of the sensitivity of our pre-tax net interest income to changes ininterest rates, we use interest rate scenarios that assume a hypothetical, instantaneous increase ordecrease in interest rates of 100 basis points (or 1%) across all maturities, as well as a base casethat assumes that interest rates remain constant at existing levels. These interest rate scenarios are

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purely hypothetical and do not represent our view of future interest rate movements. The differencesin pre-tax net interest income between these scenarios and the base case over a twelve-monthperiod represent an estimate of the sensitivity of our pre-tax net interest income. This sensitivity asof year-end 2003 and 2002 is as follows:

Pre-Tax Net Interest IncomeImpact Given 100 Basis Point

Instantaneous Changein Interest Rates

Increase Decrease

(in millions)

December 31, 2003*********************************************** $(179) $179

December 31, 2002*********************************************** (153) 156

The sensitivity analysis presented assumes interest rate changes are instantaneous, parallelshifts in the yield curve. In reality, interest rate changes are rarely instantaneous or parallel. Had theanalysis assumed a gradual change in interest rates of 100 basis points, it would have resulted in alower pre-tax net interest income impact.

Methodology Applied to International Operations

For the disclosures presented above, we calculated the sensitivity of our Canadian operationsusing the same pre-tax net interest income simulation technique that is used for the United States.We calculated the sensitivity of our other international operations using re-pricing schedules. Underthis process we assume the instruments in the various time-bands re-price given the specifiedinterest rate scenarios. This technique is commonly used to measure sensitivity to interest ratechanges but incorporates less precision compared with our simulation technique primarily becauseall instruments grouped in a particular time-band are expected to re-price on the same date ratherthan at their actual re-pricing date.

Additional Model Assumptions

While the sensitivity analysis presented is our best estimate of the impacts of the specifiedassumed interest rate scenarios, our actual results could differ from those projected. The model weuse to conduct this analysis is heavily dependent on assumptions. Embedded in the model areassumptions regarding the reinvestment of maturing asset principal, refinancing of maturing debt,and predicted repayment of retail installment sale and lease contracts ahead of contractual maturity.We base our projections of repayment of retail installment sale contracts and lease contracts aheadof contractual maturity on historical experience. If interest rates change, actual prepayments coulddeviate from assumptions used in the model. Additionally, as noted previously, the sensitivityanalysis presented assumes interest rate changes are instantaneous, parallel shifts in the yieldcurve. In reality, changes are rarely instantaneous or parallel. We have presented our sensitivityanalysis in this Report using the methodology applied to international operations discussed aboveand on a pre-tax rather than an after-tax basis, to exclude the potentially distorting impact atassumed tax rates.

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Derivative Notional Values

The outstanding notional value of our derivatives at the end of each of the years indicated wasas follows:

December 31,

2003 2002

(in billions)

Interest rate swaps

Pay-fixed, receive-floating ***************************************************** $ 32.5 $ 65.6

Pay-floating, receive-fixed, excluding securitization swaps ************************* 64.9 60.2

Pay-floating, receive-floating (basis), excluding securitization swaps **************** 0.3 0.6

Securitization swaps ********************************************************** 56.9 43.1

Total interest rate swaps ************************************************** $154.6 $169.5

Other Derivatives

Cross-currency swaps ******************************************************** 28.9 30.0

Foreign currency forwards ***************************************************** 8.1 8.5

Total notional value ******************************************************* $191.6 $208.0

The derivatives identified above as securitization swaps are interest rate swaps we entered intoto facilitate certain of our securitization transactions. Under these swap agreements, we pay afloating-rate interest payment and, depending on the related securitization transaction, receive eithera fixed-rate interest payment or a floating rate interest payment with a different market index. Thesensitivity analysis presented above includes all derivatives, including our securitization swaps.

At December 31, 2003, our total derivative notional value was $191.6 billion, approximately$16.4 billion lower than a year ago. The notional value of our pay-fixed, receive-floating swapsdecreased as swaps matured and were replaced with term funding from our retail debt issuanceprogram. This decrease was offset by an increase in the notional value of securitization swaps,reflecting our increased use of securitization as a funding source. In addition, there was an increasein the notional value of our receive-fixed, pay-floating interest rate swaps, reflecting long-term fixedrate funding issued in 2003.

Derivative Fair Values

The fair value of net derivative financial instruments (derivative assets less derivative liabilities)as reported on our balance sheet as of December 31, 2003 was $8.9 billion, approximately$1.3 billion higher than a year ago. This increase primarily reflects the strengthening of the euroagainst the U.S. dollar which increases the value of receive-euro / pay-U.S. dollar cross currencyswaps and the decrease in U.S. interest rates which increases the value of our pay-floating /receive-fixed rate swaps. For additional information on our derivatives, please refer to Notes 1 and16 of our Notes to Financial Statements.

Counterparty Risk

The use of derivatives to manage market risk results in counterparty risk, or the risk of acounterparty defaulting on a derivative contract. We and Ford enter into master agreements withcounterparties that usually allow for netting of certain exposures in order to manage this risk. We, ona combined basis with Ford, establish exposure limits for each counterparty to minimize risk andprovide counterparty diversification. We monitor our exposures on a regular basis and report them tothe GRMC monthly.

Our approach to managing counterparty risk is forward-looking and proactive, allowing us totake risk mitigation actions before risks become losses. We establish exposure limits for both mark-

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to-market and future potential exposure, based on our overall risk tolerance and ratings-basedhistorical default probabilities. The exposure limits are lower for lower-rated counterparties and forlonger-dated exposures. We use a Monte Carlo simulation technique to assess our potentialexposure by tenor, defined at 95% confidence level.

Substantially all of our counterparty exposures are with counterparties that have long-term debtratings of single-A or better. Our guideline for counterparty minimum long-term debt ratings is BBB-.Exceptions to these guidelines require prior approval by management.

Operating Risk

We operate in many locations and rely on the abilities of our employees and computer systemsto process a large number of transactions. Improper employee actions or improper operation ofsystems could result in financial loss, regulatory action and damage to our reputation, and breech ofcontractual obligations. To address this risk, we maintain internal control processes that identifytransaction authorization requirements, safeguard assets from misuse or theft, and protect thereliability of financial and other data. We also maintain system controls to maintain the accuracy ofinformation about our operations. These controls are designed to manage operating risk throughoutour operation.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Financial Statements, the accompanying Notes and the Report of Independent Auditors thatare filed as part of this Report are listed under Item 15. ‘‘Exhibits, Financial Statement Schedules,and Reports on Form 8-K’’ and are set forth on pages FC-1 through FC-37 immediately following thesignature pages of this report.

Selected quarterly financial data for us and our consolidated subsidiaries for 2003 and 2002 isin Note 19 of our Notes to Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE

Not required.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Gregory C. Smith., our Chief Executive Officer, and David P. Cosper, our Chief FinancialOfficer, have performed an evaluation of the Company’s disclosure controls and procedures, as thatterm is defined in Rule 13a-14 (c) of the Securities Exchange Act of 1934, as amended (the‘‘Exchange Act’’), as of December 31, 2003 and each has concluded that such disclosure controlsand procedures are effective to ensure that information required to be disclosed in our periodicreports filed under the Exchange Act is recorded, processed, summarized and reported, within thetime periods specified by the Securities and Exchange Commission’s rules and regulations.

Changes in Internal Controls

No changes in the Company’s internal controls over financial reporting occurred during thequarter ended December 31, 2003 that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

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PART III.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed by PricewaterhouseCoopers, LLP (‘‘PwC’’), our principal auditor, forauditing our financial statements were $3.6 million and $3.2 million in 2003 and 2002, respectively.

Audit-Related Fees

The aggregate fees billed by PwC for other audit-related services were $4.6 million and$2.2 million in 2003 and 2002, respectively.

Tax Fees

The aggregate fees billed by PwC for tax services were $2.2 million and $2.1 million in 2003and 2002, respectively.

Total Fees

PwC served as the Company’s principal auditor in 2003 and 2002. The total fees paid by theCompany to PwC were $10.4 million and $7.5 million in 2003 and 2002, respectively. The Companypaid no fees to PwC in 2003 and 2002 for services other than audit, review or attest services.

Pre-Approval Policies and Procedures

Ford’s audit committee has established pre-approval policies and procedures that govern theengagement of PwC and the services provided by PwC to Ford Credit are pre-approved inaccordance with Ford’s policies and procedures. The policies and procedures are detailed as to theparticular services and our audit committee is informed of the services provided to us by PwC,including the audit fee requests for these services that have been submitted to and approved byFord’s audit committee. The pre-approval policies and procedures do not include delegation of theFord or Ford Credit audit committees’ responsibilities under the Securities Exchange Act of 1934, asamended, to management.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

Report of Independent Auditors

Ford Motor Credit Company and Subsidiaries

Consolidated Statement of Income for the Years Ended December 31, 2003, 2002 and2001

Consolidated Balance Sheet, December 31, 2003 and 2002

Consolidated Statement of Stockholder’s Equity, December 31, 2003, 2002 and 2001

Consolidated Statement of Cash Flows from Continuing Operations for the Years EndedDecember 31, 2003, 2002 and 2001

Notes to Financial Statements

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K(Continued)

The Consolidated Financial Statements, the Notes to Financial Statements and the Report ofIndependent Auditors listed above are filed as part of this Report and are set forth on pages FC-1through FC-37 immediately following the signatures pages of this Report.

(a) 2. Financial Statement Schedules

Schedules have been omitted because the information required to be contained in them isdisclosed elsewhere in the Financial Statements or the amounts involved are not sufficient to requiresubmission.

(a) 3. Exhibits

Designation Description Method of Filing

Exhibit 3-A Restated Certificate of Incorporation of Filed as Exhibit 3-A to Ford Motor CreditFord Motor Credit Company. Company Report on Form 10-K for the

year ended December 31, 1987 andincorporated herein by reference. FileNo. 1-6368.

Exhibit 3-B By-Laws of Ford Motor Credit Company Filed as Exhibit 3-B to Ford Motor Creditas amended through March 2, 1988. Company Report on Form 10-K for the

year ended December 31, 1987 andincorporated herein by reference. FileNo. 1-6368.

Exhibit 4-A Form of Indenture dated as of Filed as Exhibit 4-A to Ford Motor CreditFebruary 1, 1985 between Ford Motor Company Registration StatementCredit Company and Manufacturers No. 2-95568 and incorporated herein byHanover Trust Company relating to Debt reference.Securities.

Exhibit 4-A-1 Form of First Supplemental Indenture Filed as Exhibit 4-B to Ford Motor Creditdated as of April 1, 1986 between Ford Company Current Report on Form 8-KMotor Credit Company and dated April 29, 1986 and incorporatedManufacturers Hanover Trust Company herein by reference. File No. 1-6368.supplementing the Indenture designatedas Exhibit 4-A.

Exhibit 4-A-2 Form of Second Supplemental Indenture Filed as Exhibit 4-B to Ford Motor Creditdated as of September 1, 1986 between Company Current Report on Form 8-KFord Motor Credit Company and dated August 28, 1986 and incorporatedManufacturers Hanover Trust Company herein by reference. File No. 1-6368.supplementing the Indenture designatedas Exhibit 4-A.

Exhibit 4-A-3 Form of Third Supplemental Indenture Filed as Exhibit 4-E to Ford Motor Creditdated as of March 15, 1987 between Company Registration StatementFord Motor Credit Company and No. 33-12928 and incorporated herein byManufacturers Hanover Trust Company reference.supplementing the Indenture designatedas Exhibit 4-A.

Exhibit 4-A-4 Form of Fourth Supplemental Indenture Filed as Exhibit 4-F to Post-Effectivedated as of April 15, 1988 between Ford Amendment No. 1 to Ford Motor CreditMotor Credit Company and Company Registration StatementManufacturers Hanover Trust Company No. 33-20081 and incorporated herein bysupplementing the Indenture designated reference.as Exhibit 4-A.

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Exhibit 4-A-5 Form of Fifth Supplemental Indenture Filed as Exhibit 4-G to Ford Motor Creditdated as of September 1, 1990 between Company Registration StatementFord Motor Credit Company and No. 33-36946 and incorporated herebyManufacturers Hanover Trust Company by reference.supplementing the Indenture designatedas Exhibit 4-A.

Exhibit 4-A-6 Form of Sixth Supplemental Indenture Filed as Exhibit 4.1 to Ford Motor Creditdated as of June 1, 1998 between Ford Company Current Report on Form 8-KMotor Credit Company and The Chase dated June 15, 1998 and incorporatedManhattan Bank supplementing the herein by reference. File No. 1-6368.Indenture designated as Exhibit 4-A.

Exhibit 4-A-7 Form of Seventh Supplemental Indenture Filed as Exhibit 4-I to Amendment No. 1dated as of January 15, 2002 between to Ford Motor Credit CompanyFord Motor Credit Company and Registration Statement No. 333-75274JPMorgan Chase Bank supplementing and incorporated herein by reference.the Indenture.

Exhibit 4-B Indenture dated as of November 1, 1987 Filed as Exhibit 4-A to Ford Motor Creditbetween Ford Motor Credit Company Company Current Report on Form 8-Kand Continental Bank, National dated December 10, 1990 andAssociation relating to Debt Securities. incorporated herein by reference. File

No. 1-6368.

Exhibit 4-C Indenture dated as of August 1, 1994 Filed as Exhibit 4-A to Ford Motor Creditbetween Ford Motor Credit Company Company Registration Statementand First Union National Bank relating to No. 33-55237.Debt Securities.

Exhibit 10-A Copy of Amended and Restated Profit Filed as Exhibit 10-A to Ford MotorMaintenance Agreement dated as of Credit Company Report on Form 10-KJanuary 1, 2002 between Ford Motor for the year ended December 31, 2001Credit Company and Ford Motor and incorporated herein by reference.Company. File No. 1-6368.

Exhibit 10-B Copy of Agreement dated as of Filed as Exhibit 10-X to Ford MotorFebruary 1, 1980 between Ford Motor Credit Company Report on Form 10-KCompany and Ford Motor Credit for the year ended December 31, 1980Company. and incorporated herein by reference.

File No. 1-6368.

Exhibit 10-C Copy of Agreement dated as of Filed as Exhibit 10 to Ford Motor CreditOctober 18, 2001 between Ford Motor Company Current Report on Form 8-KCredit Company and Ford Motor dated October 18, 2001 andCompany. incorporated by reference. File

No. 1-6368.

Exhibit 10-D Copy of Support Agreement as of Filed as Exhibit 10-D to Ford MotorAugust 13, 2002 between Ford Motor Credit Company Report on Form 10-KCredit Company and FCE Bank plc. for the year ended December 31, 2002

and incorporated herein by reference.File No. 1-6368.

Exhibit 12 Ford Motor Credit Company and Filed with this Report.Subsidiaries Calculation of Ratio ofEarnings to Fixed Charges

Exhibit 23 Consent of Independent Auditors Filed with this Report.

Exhibit 24 Powers of Attorney Filed with this Report.

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Exhibit 31.1 Rule 15d-14(a) Certification of CEO Filed with this Report.

Exhibit 31.2 Rule 15d-14(a) Certification of CFO Filed with this Report.

Exhibit 32.1 Section 1350 Certification of CEO Filed with this Report.

Exhibit 32.2 Section 1350 Certification of CFO Filed with this Report.

Exhibit 99.1 Ford Motor Company’s Annual Report on Filed with this Report.Form 10-K for 2003 (without Exhibits orFinancial Statements)

Instruments defining the rights of holders of certain issues of long-term debt of Ford Credit havenot been filed as exhibits to this Report because the authorized principal amount of any one of suchissues does not exceed 10% of the total assets of Ford Credit. Ford Credit agrees to furnish a copyof each of such instruments to the Commission upon request.

(b) Reports on Form 8-K

Ford Credit filed or furnished the following Current Reports on Form 8-K during the quarterended December 31, 2003:

Current Report on Form 8-K dated October 1, 2003 included information relating to Ford’sSeptember 2003 U.S. sales results.

Current Report on Form 8-K dated October 2, 2003 included information relating to Ford’s 2003collective bargaining agreement with the United Automobile Workers (UAW) Union.

Current Report on Form 8-K dated October 16, 2003 included information relating to FordCredit’s and Ford’s third quarter 2003 financial results.

Current Report on Form 8-K dated November 3, 2003 included information relating to Ford’sOctober 2003 U.S. sales results.

Current Report on Form 8-K dated December 2, 2003 included information relating to Ford’sNovember 2003 U.S. sales results.

Current Report on Form 8-K dated December 16, 2003 included information relating to Ford’snegotiations with Visteon Corporation.

Current Report on Form 8-K dated December 22, 2003 included information relating to Ford’snew agreements with Visteon Corporation.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,Ford Motor Credit Company has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.

FORD MOTOR CREDIT COMPANY

By: /s/ DAVID P. COSPER*

David P. CosperExecutive Vice President,

Chief Financial Officer and Treasurer

Date: March 12, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has beensigned below by the following persons on behalf of Ford Credit and in the capacities on the dateindicated.

Signature Title Date

/s/ GREGORY C. SMITH Director, Chairman of the Board March 12, 2004and Chief Executive OfficerGregory C. Smith(principal executive officer)

/s/ DAVID P. COSPER Director, Executive Vice President, March 12, 2004Chief Financial Officer andDavid P. Cosper

Treasurer (principal financial officerand principal accounting officer)

/s/ MICHAEL E. BANNISTER Director, President and Chief March 12, 2004Operating OfficerMichael E. Bannister

/s/ TERRY D. CHENAULT Director and Executive Vice March 12, 2004President — President, GlobalTerry D. Chenault

Operations

/s/ ALLAN D. GILMOUR Director and Audit Committee March 12, 2004ChairmanAllan D. Gilmour

/s/ DONAT R. LECLAIR Director and Audit Committee March 12, 2004MemberDonat R. Leclair

/s/ MALCOLM S. MACDONALD Director and Audit Committee March 12, 2004MemberMalcolm S. Macdonald

/s/ JOHN T. NOONE Director and Executive Vice March 12, 2004President — President, Ford CreditJohn T. Noone

International

67


/s/ CARL E. REICHARDT Director and Audit Committee March 12, 2004MemberCarl E. Reichardt

/s/ RICHARD C. VAN LEEUWEN Director and Executive Vice March 12, 2004President — Risk ManagementRichard C. Van Leeuwen

/s/ A.J. WAGNER Director and Executive Vice March 12, 2004President — President, Ford CreditA. J. Wagner

North America

*By: /s/ COREY M. MACGILLIVRAY Attorney-in-Fact March 12, 2004

Corey M. MacGillivray

68

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholder ofFord Motor Credit Company:

In our opinion, the accompanying consolidated balance sheets and the related consolidatedstatements of income, stockholder’s equity and cash flows present fairly, in all material respects, thefinancial position of Ford Motor Credit Company and its subsidiaries at December 31, 2003 and2002, and the results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2003 in conformity with accounting principles generally accepted in theUnited States of America. These financial statements are the responsibility of the Company’smanagement; our responsibility is to express an opinion on these financial statements based on ouraudits. We conducted our audits of these statements in accordance with auditing standards generallyaccepted in the United States of America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

As discussed in Note 10, effective January 1, 2002, the Company changed its method ofaccounting for discontinued operations in accordance with Statement of Financial AccountingStandards No. 144, Accounting for the Impairment of Long-lived Assets.

/s/ PRICEWATERHOUSECOOPERS LLP

Detroit, MichiganJanuary 21, 2004

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FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME(in millions)

For the Years EndedDecember 31,

2003 2002 2001

Financing revenue

Operating leases ******************************************************************* $ 6,946 $ 8,648 $ 9,088

Retail****************************************************************************** 4,752 5,962 6,900

Interest supplements and other support costs earned from affiliated companies (Note 14) ** 3,517 3,658 4,125

Wholesale ************************************************************************* 877 728 1,909

Other****************************************************************************** 247 294 359

Total financing revenue ******************************************************** 16,339 19,290 22,381

Depreciation on operating leases ******************************************************* (7,009) (8,435) (8,397)

Interest expense ********************************************************************** (5,831) (6,929) (8,922)

Net financing margin **************************************************************** 3,499 3,926 5,062

Other revenue

Investment and other income related to sales of receivables (Note 6) ********************* 2,765 2,610 1,433

Insurance premiums earned, net ***************************************************** 232 261 231

Other income*********************************************************************** 1,105 649 658

Total financing margin and revenue ********************************************* 7,601 7,446 7,384

Expenses

Operating expenses***************************************************************** 2,357 2,307 2,333

Provision for credit losses (Note 5) *************************************************** 1,998 2,971 3,351

Insurance expenses***************************************************************** 211 203 206

Total expenses *************************************************************** 4,566 5,481 5,890

Income from continuing operations before income taxes*********************************** 3,035 1,965 1,494

Provision for income taxes (Note 12)**************************************************** 1,164 730 663

Income from continuing operations before minority interests ***************************** 1,871 1,235 831

Minority interests in net income of subsidiaries ******************************************* 2 3 1

Income from continuing operations**************************************************** 1,869 1,232 830

Income from discontinued/held-for-sale operations (Note 10)******************************* 3 33 9

Loss on disposal of discontinued/held-for-sale operations (Note 10) ************************ (55) (31) —

Net income ************************************************************************ $ 1,817 $ 1,234 $ 839

The accompanying notes are an integral part of the financial statements.

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CONSOLIDATED BALANCE SHEET(in millions)

December 31,

2003 2002

ASSETS

Cash and cash equivalents ***************************************************************** $ 15,688 $ 6,793

Investments in securities (Note 2)************************************************************ 611 655

Finance receivables, net (Note 3) ************************************************************ 108,912 94,613

Net investment in operating leases (Note 4)*************************************************** 23,164 31,303

Retained interest in securitized assets (Note 6)************************************************ 13,017 17,618

Notes and accounts receivable from affiliated companies*************************************** 1,653 1,672

Derivative financial instruments (Note 16)***************************************************** 9,866 8,365

Assets of discontinued and held-for-sale operations (Note 10) ********************************** 388 2,776

Other assets (Note 8) ********************************************************************** 5,530 6,374

Total assets ************************************************************************* $178,829 $170,169

LIABILITIES AND STOCKHOLDER’S EQUITY

Liabilities

Accounts payable

Trade, customer deposits, and dealer reserves ********************************************** $ 1,535 $ 1,431

Affiliated companies********************************************************************** 1,258 783

Total accounts payable *************************************************************** 2,793 2,214

Debt (Note 9)****************************************************************************** 149,652 140,259

Deferred income taxes, net (Note 12) ******************************************************** 6,334 5,395

Derivative financial instruments (Note 16)***************************************************** 987 772

Liabilities of discontinued and held-for-sale operations (Note 10) ******************************** 37 851

Other liabilities and deferred income (Note 8) ************************************************* 6,533 7,109

Total liabilities *********************************************************************** 166,336 156,600

Minority interests in net assets of subsidiaries*************************************************** 19 19

Stockholder’s equity

Capital stock, par value $100 a share, 250,000 shares authorized, issued and outstanding********* 25 25

Paid-in surplus (contributions by stockholder) ************************************************* 5,117 5,117

Accumulated other comprehensive income/(loss) ********************************************** 420 (387)

Retained earnings ************************************************************************* 6,912 8,795

Total stockholder’s equity ************************************************************* 12,474 13,550

Total liabilities and stockholder’s equity ************************************************* $178,829 $170,169


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CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY(in millions)

Accumulated OtherComprehensive Income/(Loss)

Unrealized ForeignCapital Paid-in Retained Gain/(Loss) Currency DerivativeStock Surplus Earnings on Assets Translation Instruments Total

Balance at January 1, 2001 *********************** $25 $4,273 $ 8,272 $ 194 $(578) $ — $12,186

Comprehensive income

Net income ************************************* — — 839 — — — 839

Transition adjustment (net of tax of $126) ********** — — — — — (215) (215)

Net loss on derivative instruments(net of tax of $223)**************************** — — — — — (380) (380)

Less: reclassification adjustment for losses realizedin net income (net of tax of $68) **************** — — — — — 116 116

Retained interest in securitized assets(net of tax of $104)**************************** — — — (177) — — (177)

Foreign currency translation ********************** — — — — (165) — (165)

Unrealized gain (net of tax of $11) **************** — — — 19 — — 19

Less: reclassification adjustment for gains realized innet income (net of tax of $14) ****************** — — — (24) — — (24)

Total comprehensive income, net of tax ****** — — 839 (182) (165) (479) 13

Paid-in surplus********************************** — 185 — — — — 185

Cash dividends ********************************* — — (400) — — — (400)

Year ended December 31, 2001 *************** $25 $4,458 $ 8,711 $ 12 $(743) $(479) $11,984


Net income ************************************* — — 1,234 — — — 1,234

Net loss on derivative instruments(net of tax of $48) ***************************** — — — — — (82) (82)

Less: reclassification adjustment for losses realizedin net income (net of tax of $203) *************** — — — — — 344 344

Retained interest in securitized assets(net of tax of $130)**************************** — — — 220 — — 220

Foreign currency translation ********************** — — — — 335 — 335

Unrealized gain (net of tax of $15) **************** — — — 25 — — 25

Less: reclassification adjustment for gains realized innet income (net of tax of $11) ****************** — — — (19) — — (19)

Total comprehensive income, net of tax ****** — — 1,234 226 335 262 2,057

Paid-in surplus********************************** — 659 — — — — 659

Cash dividends ********************************* — — (1,150) — — — (1,150)

Year ended December 31, 2002 *************** $25 $5,117 $ 8,795 $ 238 $(408) $(217) $13,550


Net income ************************************* — — 1,817 — — — 1,817

Net gain on derivative instruments(net of tax of $135)**************************** — — — — (15) 232 217

Less: reclassification adjustment for gains realized innet income (net of tax of $59) ****************** — — — — — (94) (94)

Retained interest in securitized assets(net of tax of $24) ***************************** — — — (39) — — (39)

Foreign currency translation ********************** — — — — 721 — 721

Unrealized gain (net of tax of $6) ***************** — — — 10 — — 10

Less: reclassification adjustment for gains realized innet income (net of tax of $5) ******************* — — — (8) — — (8)

Total comprehensive income, net of tax ****** — — 1,817 (37) 706 138 2,624

Cash dividends *********************************** — — (3,700) — — — (3,700)

Year ended December 31, 2003 *************** $25 $5,117 $ 6,912 $ 201 $ 298 $ (79) $12,474


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CONSOLIDATED STATEMENT OF CASH FLOWS FROM CONTINUING OPERATIONS(in millions)

For the Years EndedDecember 31,

2003 2002 2001

Cash flows from operating activities

Income from continuing operations*************************************************** $ 1,869 $ 1,232 $ 830

Adjustments to reconcile income from continuing operations to net cash provided byoperating activities:

Provision for credit losses********************************************************* 1,998 2,971 3,351

Depreciation and amortization***************************************************** 7,427 8,812 8,470

Gain on sales of finance receivables (Note 6) *************************************** (436) (529) (412)

Increase in deferred income taxes ************************************************* 798 675 278

Decrease/(increase) in other assets ************************************************ 1,643 (492) (522)

Increase/(decrease) in other liabilities ********************************************** 1,235 1,796 (1,672)

All other operating activities ******************************************************* (72) 64 116

Net cash provided by operating activities ***************************************** 14,462 14,529 10,439

Cash flows from investing activities

Purchase of finance receivables (other than wholesale) ****************************** (50,365) (53,567) (71,077)

Collection of finance receivables (other than wholesale) ****************************** 31,204 28,310 28,474

Purchase of operating lease vehicles*********************************************** (9,924) (19,634) (26,228)

Liquidation of operating lease vehicles ********************************************* 11,214 16,049 16,466

Increase in wholesale receivables************************************************** (4,673) (2,825) (2,112)

Net change in retained interest **************************************************** 2,125 (5,340) 5,648

Decrease in note receivable with affiliate ******************************************* 279 347 600

Proceeds from sales of receivables (Note 6) **************************************** 21,115 41,289 40,831

Purchase of investment securities************************************************** (636) (604) (726)

Proceeds from sale/maturity of investment securities ********************************* 698 475 747

Proceeds from debt repayments related to discontinued operations******************** 1,421 — —

All other investing activities******************************************************** 31 58 (230)

Net cash provided by/(used in) investing activities ********************************* 2,489 4,558 (7,607)

Cash flows from financing activities

Proceeds from issuance of long-term debt ****************************************** 19,710 13,479 41,111

Principal payments on long-term debt ********************************************** (25,493) (22,133) (15,705)

Change in short-term debt, net **************************************************** 946 (6,377) (26,134)

Cash dividends paid************************************************************** (3,700) (1,150) (400)

All other financing activities ******************************************************* — 659 306

Net cash used in financing activities ********************************************* (8,537) (15,522) (822)

Effect of exchange rate changes on cash and cash equivalents ************************* 481 291 (135)

Net change in cash and cash equivalents***************************************** 8,895 3,856 1,875

Cash and cash equivalents, beginning of year***************************************** 6,793 2,937 1,062

Cash and cash equivalents, end of year ********************************************** $ 15,688 $ 6,793 $ 2,937

Supplementary cash flow information

Interest paid********************************************************************* $ 5,726 $ 6,891 $ 8,146

Taxes paid ********************************************************************** 164 242 177

Supplementary non-cash flow information

Consolidation of FCAR Owner Trust *********************************************** $ 1,419 $ — $ —


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NOTES TO FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include Ford Motor Credit Company and its controlleddomestic and foreign subsidiaries and joint ventures (referred to herein as ‘‘Ford Credit’’, ‘‘we’’, ‘‘our’’or ‘‘us’’). Effective July 1, 2003, our financial statements also include consolidated Variable InterestEntities (‘‘VIEs’’) of which we are the primary beneficiary (see Note 7). Affiliates that we do notconsolidate, but have significant influence over operating and financial policies, are accounted forusing the equity method. We are an indirect wholly-owned subsidiary of Ford Motor Company(‘‘Ford’’). Use of estimates, as determined by management, is required in the preparation ofconsolidated financial statements in conformity with generally accepted accounting principles.Because of the inherent uncertainty involved in making estimates, actual results reported in futureperiods may be based upon amounts that differ from those estimates. For additional discussion onour use of estimates, see Management’s Discussion and Analysis of Financial Condition and Resultsof Operation — Critical Accounting Estimates. Certain amounts in prior years’ financial statementshave been reclassified to conform with current year presentation.

Nature of Operations

We operate in many locations around the world, the most significant of which are the UnitedStates and Europe. Our reportable operating segments include Ford Credit North America and FordCredit International. Ford Credit North America consists of the United States and Canada. FordCredit International consists of all other countries.

Our financing operations primarily consist of: the purchase of retail installment sale contractsand retail leases from franchised Ford vehicle dealers; wholesale financing and capital loans tofranchised Ford vehicle dealers and other franchises associated with such dealers; and loans tovehicle leasing companies. We conduct insurance operations through The American Road InsuranceCompany and its subsidiaries (‘‘TARIC’’). TARIC is our wholly-owned subsidiary.

Our business is substantially dependent on Ford. Any protracted reduction or suspension ofFord’s production or sale of vehicles, resulting from a decline in demand, a work stoppage,governmental action, negative publicity or other event, or significant changes to marketing programssponsored by Ford could have an effect on us.

The majority of our finance receivables are geographically diversified throughout the UnitedStates. Outside the United States finance receivables are concentrated in Europe, Canada andMexico. We control our credit risk through credit standards, limits on exposure and by monitoring thefinancial condition of counterparties. TARIC has credit risk related to receivables from reinsurers thatare collateralized by trust funds, letters of credit or custodial accounts.

Revenue Recognition

Revenue from finance receivables including direct financing leases is recognized using theinterest method. Certain origination costs on receivables are deferred and amortized, using theinterest method, over the term of the related receivable as a reduction in financing revenue. Rentalrevenue on operating leases is recognized on a straight-line basis over the term of the lease. Initialdirect costs related to leases are deferred and amortized over the term of the lease. The accrual ofinterest on receivables is discontinued at the time a receivable is determined to be uncollectible.Subsequent payments are applied as a reduction of principal until such time the receivable becomescontractually current.

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NOTES TO FINANCIAL STATEMENTS — Continued

NOTE 1. ACCOUNTING POLICIES — Continued

Agreements with Ford and other affiliates provide for interest supplements and other supportpayments to us on certain financing and leasing transactions. These payments are collected andrecognized as income over the period that the related finance receivables and leases areoutstanding.

Insurance premiums earned are reported net of reinsurance. These premiums are earned overtheir respective policy periods. Premiums from extended service plan contracts and other contractualliability coverages are earned over the life of the policy based on historical loss experience. Physicaldamage insurance premiums, including vehicles financed at wholesale by us and our financesubsidiaries, are recognized as income on a monthly basis as billed. Credit life and credit disabilitypremiums are earned over the life of the related policies in proportion to the amount of the insuranceprotection provided. Certain costs of acquiring new business are deferred and amortized over theterm of the related policies on the same basis on which premiums are earned.

Sales of Receivables

We periodically sell finance receivables in securitization and whole-loan sale transactions to fundour operations and to maintain liquidity, respectively. Securitization transactions generally involvesurrendering control over these assets by selling finance receivables to off-balance sheetsecuritization entities. Securitization entities are a common, required element of securitizationtransactions to meet certain legal and transaction requirements that assure that the sold assets havebeen isolated from us and our creditors. The securitization entities issue interest-bearing securitiescollateralized by future collections on the sold receivables.

We record our off-balance sheet sales of receivables in accordance with Statement of FinancialAccounting Standards No. 140 (‘‘SFAS No. 140’’), Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities. To qualify for a sale, the transfer must complywith the following accounting criteria:

) Assets must be isolated from transferor — our assets are transferred to a bankruptcy-remoteentity.

) Transfer to a qualifying special purpose entity or an entity that has the right to pledge orexchange the assets — we generally use a qualifying special purpose entity in ourtransactions, or we sell the assets to an outside entity. In either case, we do not restrict thetransferee from pledging or exchanging the assets.

) Transferor does not maintain control over the assets — we are not permitted to regain controlover the transferred assets or cause the return of specific assets, other than through acleanup call.

For off-balance sheet sales of receivables, estimated gains or losses are recognized in theperiod in which the sale occurs. We retain certain interests in receivables sold in securitizationtransactions. In determining the gain or loss on each sale of finance receivables, the investment inthe sold receivables pool is allocated between the portion sold and the portion retained based ontheir relative fair values at the date of sale. Retained interests include senior and subordinatedsecurities, undivided interests in wholesale receivables, interest only strips and restricted cash heldfor the benefit of securitization entities. These interests are recorded at fair value with unrealizedgains or losses recorded, net of tax, as a separate component of accumulated other comprehensiveincome in stockholder’s equity. In securitization transactions, we retain the servicing rights andreceive a servicing fee, which is recognized as collected over the remaining term of the related soldfinance receivables. Interest supplement payments we receive from affiliates related to receivables

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that were sold in securitizations or whole-loan sale transactions are reflected, on a present valuebasis, as a receivable on our balance sheet at the time the receivables are sold. Present valueaccretion is recognized in investment and other income related to sales of receivables.

Whole-loan sale transactions involve selling retail installment sale contracts to a buyer whoeither retains them or sells them in a subsequent asset-backed securitization. We do not retain anyinterests in the sold receivables but continue to service such receivables for a fee.

Certain sales of receivables do not qualify for off-balance sheet treatment and, as a result, nogain or loss is recorded for these transactions.

Depreciation

Depreciation expense on operating leases is provided on a straight-line basis over the term ofthe lease in an amount necessary to reduce the leased vehicle to its estimated residual(salvage) value at the end of the lease term. Our policy is to promptly sell returned off-leasevehicles. We evaluate our depreciation policy for leased vehicles on a regular basis taking intoconsideration various assumptions, which include estimated residual values at lease termination andthe estimated number of vehicles that will be returned to us. Adjustments to reflect revised estimatesof residual values at the end of the lease terms are included in depreciation expense on a straight-line basis over the remaining terms of the leases. We also monitor our portfolio of vehicles subject tooperating leases for impairment indicators.


The allowance for credit losses is our estimate of probable credit losses related to impairedreceivables and operating leases as of the date of the financial statements. This allowance is basedon factors including historical credit loss trends, the credit quality of our present portfolio, trends inhistorical and projected used vehicle values and general economic measures. Additions to theallowance for credit losses are made by recording charges to the provision for credit losses on ourincome statement. Finance receivables and lease investments are charged to the allowance forcredit losses at the earlier of when an account is deemed to be uncollectible or when an account is120 days delinquent, taking into consideration the financial condition of the borrower or lessee, thevalue of the collateral, recourse to guarantors and other factors. Recoveries on finance receivablesand lease investments previously charged off as uncollectible are credited to the allowance for creditlosses.

Cash Equivalents

We consider investments purchased with a maturity of three months or less to be cashequivalents. The book value of these instruments approximates fair value because of the shortmaturity. As of December 31, 2003, approximately $850 million of our cash balance is legallyisolated of which approximately $800 million of this balance supports our FCAR Owner Trust(‘‘FCAR’’) asset-backed commercial paper program. Of the $800 million that supports FCAR,approximately $200 million of this legally isolated cash will become unrestricted as servicing feesand cash in excess of commercial paper requirements are released to us.

Derivative Financial Instruments

We operate in many countries, and are exposed to various market risks, including the effects ofchanges in interest rates and foreign currency exchange rates. Interest rate and currency exposures

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are monitored and managed by us as an integral part of our overall risk management program,which recognizes the unpredictability of financial markets and seeks to reduce potential adverseeffects on our operating results. Risk is reduced in two ways: 1) through the use of fundinginstruments that have interest and maturity profiles similar to the assets they are funding, and2) through the use of interest rate and foreign exchange derivatives. Our derivatives strategy isdefensive; derivatives are not used for speculative purposes. Interest rate swaps are used to managethe effects of interest rate fluctuations. Foreign currency exchange agreements, including forwardcontracts and swaps are used to manage foreign exchange exposure. The differential paid orreceived on swap agreements is recognized on an accrual basis as an adjustment to interestexpense.

We adopted Statement of Financial Accounting Standards No. 133 (‘‘SFAS No. 133’’),Accounting for Derivative Instruments and Hedging Activities, as amended, on January 1, 2001. Allderivatives are recognized on the balance sheet at fair value. We designate derivatives as a hedgeof the fair value of a recognized asset or liability (‘‘fair value’’ hedge) or of the variability of cashflows to be received or paid related to a recognized asset or liability (‘‘cash flow’’ hedge). We alsoenter into derivatives that economically hedge certain of our risks, even though hedge accounting isnot allowed by SFAS No. 133 or is not applied by us.

Changes in the value of a derivative that is designated as a fair value hedge, along withoffsetting changes in the fair value of the underlying hedged exposure, are recorded in earnings.Changes in the value of a derivative that is designated as a cash flow hedge are recorded inaccumulated other comprehensive income, a component of stockholder’s equity. The fair value ofinterest rate swaps is calculated using current market rates for similar instruments with the sameremaining maturities. Unrealized gains and losses are netted for individual counterparties wherelegally permissible.

When the terms of an underlying transaction are modified, or when the underlying hedged itemis settled prior to maturity, all changes in the fair value of the derivative instrument are marked-to-market with changes in the fair value included in earnings each period until the instrument matures,unless the derivative is subsequently included in another hedge relationship. In situations whereassets that were included in fair value hedging relationships have been sold in securitization orwhole-loan sale transactions, the accumulated basis adjustments related to the sold assets arereversed and included in earnings in the same period in which the assets were sold.

We manage our foreign currency and interest rate counterparty credit risks by establishing limitsand by monitoring the financial condition of counterparties. The amount of exposure we may have toa single counterparty on a worldwide basis is limited by company policy. In the unlikely event that acounterparty fails to meet the terms of a foreign currency or an interest rate instrument, risk islimited to the fair value of the instrument.

Foreign Currency Translation

Revenues, costs and expenses of foreign subsidiaries are translated to U.S. dollars at average-period exchange rates. Assets and liabilities of foreign subsidiaries are translated to U.S. dollars atyear-end exchange rates and the effects of these translation adjustments are reported as a separatecomponent of accumulated other comprehensive income in stockholder’s equity. Gains and lossesarising from transactions denominated in a currency other than the functional currency of thesubsidiary involved are included in income.

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Paid-In Surplus

Changes to paid-in surplus represent investing activity with Ford related to us.

Insurance Expenses and Liabilities

Insurance underwriting losses and expenses are reported as insurance expenses. Thecomponents of insurance expenses are as follows for the years ended December 31:

2003 2002 2001

(in millions)

Insurance claims *********************************************************** $163 $137 $159

Amortization of deferred acquisition costs ************************************* 35 56 34

Claim adjustment expenses ************************************************* 13 10 13

Insurance expenses **************************************************** $211 $203 $206

A liability for reported insurance claims and an estimate of unreported insurance claims, basedon past experience, is included in other liabilities and related charges.

Reinsurance

TARIC cedes a majority of its automotive service contracts, all of the warranty contract business,and a portion of its credit life and disability contracts for a ceding commission. Amounts recoverablefrom reinsurers on unpaid losses, including incurred but not reported losses, and amounts paid toreinsurers relating to the unexpired portion of reinsurance contracts are reported as other assets.Ceded insurance-related expenses deducted from insurance expenses were $498 million,$488 million and $442 million in 2003, 2002 and 2001, respectively.

The effect of reinsurance on premiums written and earned is as follows:

2003 2002 2001

Written Earned Written Earned Written Earned

(in millions)

Direct ******************************** $ 725 $ 851 $ 946 $ 825 $ 974 $ 734

Assumed ***************************** 32 63 70 88 89 98

Ceded******************************** (553) (682) (758) (652) (842) (601)

Net premiums ********************* $ 204 $ 232 $ 258 $ 261 $ 221 $ 231

Commissions on reinsurance ceded are earned on the same basis as related premiums.

Reinsurance contracts do not relieve TARIC from its obligations to its policyholders. Failure ofreinsurers to honor their obligations could result in losses to TARIC. Therefore, TARIC evaluates thefinancial condition of its reinsurers and monitors concentrations of credit risk arising from similargeographic regions, activities or economic characteristics of the reinsurers to manage its exposure tosignificant losses from reinsurance solvencies.

NOTE 2. INVESTMENTS IN SECURITIES

Investments in securities, which substantially relate to our insurance activities, consist ofmortgage-backed, corporate, U.S. government and other securities. Available-for-sale securities arerecorded at fair value with unrealized gains and losses excluded from income and reported, net oftax, as a separate component of accumulated other comprehensive income in stockholder’s equity.

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NOTE 2. INVESTMENTS IN SECURITIES — Continued

Held-to-maturity securities are recorded at amortized cost. Equity securities that do not have readilydeterminable fair values are recorded at cost. The basis of cost used in determining realized gainsand losses is specific identification.

The fair value of substantially all securities was estimated based on quoted market prices. Forsecurities for which quoted market prices were not available, the estimate of fair value was based onsimilar types of securities that are traded in the market.

Balance at December 31, 2003:

Gross GrossAmortized Unrealized Unrealized Fair

Cost Gains Losses Value

(in millions)

Available-for-sale securities

U.S. government and agency ********************* $113 $ 3 $(1) $115

Municipal*************************************** 13 — — 13

Government — non U.S. ************************* 63 3 — 66

Corporate debt********************************** 148 6 — 154

Mortgage-backed******************************** 177 5 (1) 181

Equity****************************************** 47 31 (3) 75

Held-to-maturity securities************************** 7 — — 7

Total investments in securities ****************** $568 $48 $(5) $611


Gross GrossAmortized Unrealized Unrealized Fair

Cost Gains Losses Value

(in millions)

Available-for-sale securities

U.S. government and agency ********************* $163 $ 9 $— $172

Municipal*************************************** — — — —

Government — non U.S. ************************* 17 1 — 18

Corporate debt********************************** 167 9 — 176

Mortgage-backed******************************** 215 9 — 224

Equity****************************************** 46 20 (7) 59

Held-to-maturity securities************************** 6 — — 6

Total investments in securities ****************** $614 $48 $(7) $655

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NOTE 2. INVESTMENTS IN SECURITIES — Continued

The amortized cost and fair value of investments in available-for-sale securities and held-to-maturity securities at December 31, by contractual maturity, were as follows:


Available-for-Sale Held-to-Maturity

Amortized Fair Amortized FairCost Value Cost Value

(in millions)

Due in one year or less ********************************* $ 50 $ 50 $— $—

Due after one year through five years********************* 137 141 5 5

Due after five years through ten years ******************** 86 92 — —

Due after ten years ************************************* 64 65 2 2

Mortgage-backed securities****************************** 177 181 — —

Equity securities**************************************** 47 75 — —

Total ********************************************** $561 $604 $ 7 $ 7


Available-for-Sale Held-to-Maturity

Amortized Fair Amortized FairCost Value Cost Value

(in millions)

Due in one year or less ********************************* $ 6 $ 6 $— $—

Due after one year through five years********************* 161 166 3 3

Due after five years through ten years ******************** 95 101 1 1

Due after ten years ************************************* 85 93 2 2

Mortgage-backed securities****************************** 215 224 — —

Equity securities**************************************** 46 59 — —

Total ********************************************** $608 $649 $ 6 $ 6

Included in the above contractual maturities are investments on deposit with regulatoryauthorities (at amortized cost), as required by law, totaling $19 million and $16 million atDecember 31, 2003 and 2002, respectively.

Proceeds from sales of available-for-sale securities were $693 million and $475 million in 2003and 2002, respectively. Gross realized gains and losses were $16 million and $2 million, respectivelyin 2003, $10 million and $4 million, respectively in 2002, and $14 million and $4 million, respectivelyin 2001.

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NOTE 3. FINANCE RECEIVABLES

Net finance receivables at December 31 were as follows:

2003 2002

(in millions)

Retail (a)******************************************************************* $ 80,015 $70,833

Wholesale (b) ************************************************************** 22,618 16,571

Other (b) ******************************************************************* 8,661 9,821

Total finance receivables, net of unearned income **************************** 111,294 97,225

Less: Allowance for credit losses ********************************************* (2,382) (2,612)

Finance receivables, net *************************************************** $108,912 $94,613

Net finance receivables subject to fair value (c) ******************************** $100,947 $86,694

Fair value ****************************************************************** 102,814 88,221

(a) At December 31, 2003, includes about $14.3 billion of retail receivables that have been sold for legal purposes to oursponsored securitization special purpose entities (‘‘SPEs’’) that sell asset-backed securities to FCAR Owner Trust(‘‘FCAR’’) and are available only for repayment of asset-backed commercial paper issued by FCAR and othersecuritization investors and other participants. These receivables are not available to pay our obligations or the claims ofour creditors.

(b) At December 31, 2003, includes approximately $800 million of wholesale receivables and $100 million of otherreceivables with dealers that are reported as consolidated subsidiaries of Ford effective July 1, 2003. These receivablesgenerally are not guaranteed by Ford.

(c) Excludes certain leases that are not financial instruments of $7,965 million and $7,919 million at December 31, 2003and 2002, respectively.

The fair value of most finance receivables is calculated by discounting future cash flows usingan estimated discount rate that reflects the current credit, interest rate and prepayment risksassociated with similar types of instruments. For receivables with short maturities, the book valueapproximates fair value.

At December 31, 2003, finance receivables included $936 million owed by three customers withthe largest receivables balances.

The contractual maturities of total finance receivables outstanding at December 31, 2003, net ofunearned income, were as follows (excludes $525 million related to SFAS No. 133 fair valueadjustments included in Retail):

Due in Year EndingDecember 31, Due After

2004 2005 2006 2006 Total

(in millions)

Retail ************************************* $36,258 $22,311 $12,176 $ 8,745 $ 79,490

Wholesale ********************************* 21,746 608 251 13 22,618

Other ************************************* 4,137 747 577 3,200 8,661

Total ************************************ $62,141 $23,666 $13,004 $11,958 $110,769

It is our experience that a substantial portion of finance receivables are repaid beforecontractual maturity dates. The above table, therefore, is not to be regarded as a forecast of futurecash collections.

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NOTE 3. FINANCE RECEIVABLES — Continued

The aggregate receivables balances related to accounts past due more than 60 days atDecember 31 were as follows:

2003 2002

(in millions)

Retail ************************************************************************* $1,046 $1,091

Wholesale ********************************************************************* 186 211

Other ************************************************************************* 69 66

Total ************************************************************************ $1,301 $1,368

Included in retail receivables are investments in direct financing leases related to the leasing ofmotor vehicles:

2003 2002

(in millions)

Investment in direct financing leases:

Minimum lease rentals to be received********************************************* $4,874 $5,153

Estimated residual values ******************************************************* 4,017 3,689

Less: Unearned income ********************************************************* (896) (988)

Origination costs *************************************************************** 46 44

Less: Allowance for credit losses************************************************* (128) (72)

Net investment in direct financing leases **************************************** $7,913 $7,826

Minimum direct financing lease rentals for each of the five succeeding years are as follows (inmillions): 2004 — $1,930; 2005 — $1,468; 2006 — $1,009; 2007 — $368; 2008 — $95; thereafter —$4.

NOTE 4. NET INVESTMENT IN OPERATING LEASES

Operating leases at December 31 were as follows:

2003 2002

(in millions)

Investment in operating leases:

Vehicles, at cost ************************************************************* $33,419 $42,888

Lease initial direct costs ****************************************************** 141 158

Less: Accumulated depreciation *********************************************** (9,772) (11,182)

Allowance for credit losses ********************************************** (624) (561)

Net investment in operating leases ******************************************* $23,164 $31,303

Future minimum rentals on operating leases are as follows (in millions): 2004 — $5,806; 2005 —$3,946; 2006 — $2,041; 2007 — $572; 2008 — $143.

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NOTE 5. ALLOWANCE FOR CREDIT LOSSES

Following is an analysis of the allowance for credit losses related to finance receivables andoperating leases for the years ended December 31:

2003 2002 2001

(in millions)

Balance, beginning of year ********************************************* $3,173 $2,755 $1,635

Provision charged to operations*************************************** 1,998 2,971 3,351

Deductions

Losses *********************************************************** 2,538 2,848 2,483

Recoveries ******************************************************* (494) (486) (374)

Net losses****************************************************** 2,044 2,362 2,109

Other changes, principally amounts related to finance receivables sold andtranslation adjustments ******************************************** 121 191 122

Net deductions************************************************** 2,165 2,553 2,231

Balance, end of year ************************************************** $3,006 $3,173 $2,755

NOTE 6. SALES OF RECEIVABLES

Servicing Portfolio

We retain servicing rights for receivables sold in off-balance sheet securitization and whole-loansale transactions. The servicing portfolio is summarized in the following table:

Retail Wholesale Total

(in millions)

Servicing portfolio at December 31, 2001************************* $ 41,312 $17,436 $ 58,748

2002 activity:

Receivables sales******************************************** 38,857 1,855 40,712

(Collections)/net financings************************************ (26,277) 3,163 (23,114)


2003 activity:

Receivables sales******************************************** 21,321 — 21,321

Collections and re-acquired receivables ************************ (38,757) (2,205) (40,962)


Retained Interest

Components of retained interest in securitized assets for the years ended December 31 include:

2003 2002

(in millions)

Wholesale receivables sold to securitization entities****************************** $ 9,249 $12,454

Subordinated securities ******************************************************* 1,568 2,845

Interest only strips************************************************************ 1,169 1,696

Senior securities ************************************************************* 520 —

Restricted cash held for benefit of securitization entities ************************** 511 623

Total ******************************************************************** $13,017 $17,618

Most of the retained interest in sold wholesale receivables ($8.0 billion and $11.4 billion atDecember 31, 2003 and December 31, 2002, respectively) represents our undivided interest inwholesale receivables that are available to support the issuance of additional securities by a

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NOTE 6. SALES OF RECEIVABLES — Continued

securitization entity; the balance represents credit enhancements. Interest only strips represent thepresent value of monthly collections on the sold finance receivables in excess of amounts needed bythe SPE (securitization trust) to pay principal and interest to investors and servicing fees that will berealized by us. Investments in subordinated securities and restricted cash are senior to interest onlystrips for credit enhancement purposes.

Retained interests are recorded at fair value. For wholesale receivables, book valueapproximates fair value because of their short-term maturities. The fair value of senior notes andsubordinated certificates are estimated based on market prices. In determining the fair value ofinterest only strips, we discount the present value of the projected cash flows retained at variousdiscount rates based on economic factors in individual countries.

Investment and Other Income

The following table summarizes the activity related to off-balance sheet sales of receivablesreported in investment and other income for the years ended December 31:

2003 2002 2001

(in millions)

Net gain on sales of receivables **************************************** $ 436 $ 529 $ 412

Servicing fees ******************************************************** 677 700 456

Interest income on sold wholesale receivables and retained securities******* 679 606 379

Excess spread and other*********************************************** 973 775 186

Total investment income related to sales of receivables **************** $2,765 $2,610 $1,433

For the year ended December 31, 2003, we utilized certain point-of-sale assumptions in ourretail transactions, which included a discount rate of 12%, a prepayment speed of 1.0% to 1.5%(which represents expected payments earlier than scheduled maturity dates) and credit losses of1.4% to 4.9% over the life of sold receivables. These assumptions do not include those utilized byTriad Financial Corporation (‘‘Triad’’), our subsidiary, which offers non-prime financing throughdealers to consumers. For the year ended December 31, 2003, Triad utilized certain point-of-saleassumptions, which included a discount rate of 16%, a prepayment speed of 1.6% to 1.7% andcredit losses of 13% to 14% over the life of sold receivables.

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Cash Flow

The following table summarizes the cash flow movements between us and the transferees forthe years ended December 31:

2003 2002 2001

(in millions)

Proceeds from sales of retail receivables ***************************** $17,539 $32,843 $28,562

Proceeds from revolving-period securitizations ************************ 2,610 3,629 2,790

Proceeds from sales of wholesale receivables************************* 966 4,817 8,486

Proceeds from sales of retained notes and certificates ***************** — — 993

Total proceeds from sales of receivables *********************** $21,115 $41,289 $40,831

Cash flows related to retained interests

Retail receivables ************************************************ $ 985 $ 2,489 $ 1,511

Wholesale receivables******************************************** 1,140 (7,829) 4,137

Total principal *********************************************** $ 2,125 $ (5,340) $ 5,648

Servicing fees

Retail********************************************************* $ 468 $ 475 $ 333

Wholesale **************************************************** 209 225 123

Total servicing fees **************************************** $ 677 $ 700 $ 456

Interest income and excess spread

Retail********************************************************* $ 735 $ 505 $ 205

Wholesale **************************************************** 810 645 396

Total interest income and excess spread********************** $ 1,545 $ 1,150 $ 601

Repurchased retail receivables ************************************** $ (193) $ (340) $ (224)

Other Disclosures

The following table summarizes key assumptions used in estimating cash flows from sold retailreceivables and the corresponding sensitivity of the current fair values to 10% and 20% adversechanges:

Impact on Fair ValueBased on Adverse ChangeAssumption

Percentage 10% Change 20% Change

(annual rate) (in millions)

Cash flow discount rate ***************************** 12.0% - 16.0% $(13) $ (26)

Estimated net credit loss rate************************ 1.0% - 14.0% (65) (132)

Prepayment speed ********************************* 1.0% - 2.0% (35) (70)

The effect of a variation in a particular assumption on the fair value of the interest only stripswas calculated without changing any other assumptions and changes in one factor may result inchanges in another.

Outstanding delinquencies over 30 days on our securitized portfolio were $957 million and$1,297 million at December 31, 2003 and 2002, respectively. Credit losses, net of recoveries, were$677 million and $454 million for the years ended December 31, 2003 and 2002, respectively.Expected static pool credit losses related to outstanding securitized retail receivables were 2.35% atDecember 31, 2003, excluding Triad. To calculate the static pool credit losses, actual and projectedfuture credit losses are added together and divided by the original balance of each pool of assets.

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FCAR Owner Trust

We use a special purpose trust, FCAR, as a source of funds for our operations. FCAR’sactivities are limited to issuing asset-backed commercial paper and other securities, borrowings frombanks, and buying highly-rated asset-backed securities issued by securitization SPEs sponsored byus.

In the second quarter of 2003, we purchased a portion of equity interests in FCAR fromunaffiliated parties. As a result of this transaction, FCAR’s assets, liabilities and results of operationswere consolidated into our financial statements as of that date. In addition, the accountingconsolidation of FCAR also caused certain of our sponsored securitization SPEs that sell asset-backed securities to FCAR to lose their status as qualifying SPEs under SFAS No. 140.Consequently, the receivables previously sold by us to these SPEs were deemed to be reacquired(‘‘reacquired receivables’’) by us in accordance with SFAS No. 140 requirements and were alsoconsolidated in the second quarter at fair value. Following the accounting consolidation of FCAR,most sales of receivables to our sponsored SPEs that sell asset-back securities to FCAR will notqualify as an accounting sale and will be reported on-balance sheet.

The accounting consolidation of FCAR and related securitization SPEs did not change thebankruptcy-remote status of FCAR or our sponsored securitization SPEs. The accountingconsolidation did not have a material impact on our earnings, back-up credit facilities, unsecureddebt funding programs or other securitization programs. No gain or loss was recorded uponconsolidation.

At December 31, 2003, about $14.3 billion of retail installment receivables reported on ourbalance sheet have been sold for legal purposes to our sponsored securitization SPEs that sellasset-backed securities to FCAR and are available only to pay securitization investors and otherparticipants and are not available to pay our obligations or the claims of our creditors. As ofDecember 31, 2003, these finance receivables supported $9.0 billion of asset-backed commercialpaper issued by FCAR, which is payable solely out of collections on these receivables and is not ourlegal obligation. At December 31, 2003, FCAR had capacity to issue externally an additional$3.9 billion of asset-backed commercial paper, based on the existing amount of retail installmentreceivables that supported the program.

NOTE 7. VARIABLE INTEREST ENTITIES

In January 2003, the Financial Accounting Standards Board (‘‘FASB’’) issued InterpretationNo. 46 (‘‘FIN 46’’), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, whichexpands upon and strengthens existing accounting guidance concerning when a company shouldinclude in its financial statement the assets, liabilities and activities of another entity. VIEs do notshare economic risk and rewards through typical equity ownership arrangements; instead,contractual or other relationships re-distribute economic risks and rewards among equity holders andother parties. Once an entity is determined to be a VIE, the party with the controlling financialinterest, the primary beneficiary, is required to consolidate it. FIN 46 also requires disclosures aboutVIEs that the company is not required to consolidate but of which it has a significant variableinterest. Effective July 1, 2003, we adopted FIN 46 for VIEs formed prior to February 1, 2003. Ouradoption, on December 15, 2003, of the Revised Interpretation (‘‘FIN46-R’’) did not impact ourfinancial reporting.

We have investments in certain joint ventures deemed to be VIEs of which we are not theprimary beneficiary. The risks and rewards associated with our interest in these entities are based

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NOTE 7. VARIABLE INTEREST ENTITIES — Continued

primarily on ownership percentages. Our maximum exposure to any potential losses, should theyoccur, associated with these VIEs is limited to our equity investments, which at December 31, 2003totaled approximately $125 million.

FCAR is also considered a VIE under FIN 46-R. Refer to Note 6 for further description of FCAR.

We also sell receivables to bank-sponsored asset-backed commercial paper issuers that areSPEs of the sponsor bank and are not consolidated by us. At December 31, 2003, these SPEs heldabout $5.5 billion of retail installment sale contracts previously owned by us.

NOTE 8. OTHER ASSETS AND OTHER LIABILITIES AND DEFERRED INCOME

Other assets at December 31 were as follows:

2003 2002

(in millions)

Deferred charges and other assets *********************************************** $1,672 $1,791

Prepaid reinsurance premiums and other reinsurance receivables******************** 1,516 1,644

Investment in used vehicles held for resale, at estimated fair value ****************** 1,161 1,502

Collateral held for resale ******************************************************** 796 1,040

Property and equipment, net of accumulated depreciation of $286 in 2003 and$213 in 2002 **************************************************************** 385 397

Total other assets ********************************************************** $5,530 $6,374

Other liabilities and deferred income at December 31 were as follows:

2003 2002

(in millions)

Interest payable **************************************************************** $2,526 $2,232

Deferred income and other liabilities********************************************** 1,863 2,614

Unearned premiums ************************************************************ 1,646 1,800

Post retirement health care obligation********************************************* 498 463

Total other liabilities and deferred income ************************************* $6,533 $7,109

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NOTE 9. DEBT

Debt at December 31 was as follows:

Weighted-Average Average(b)

Contractual(a) InterestInterest Rates Rates

2003 2002 2003 2002 2003 2002

(in millions)

Short-term debt

Commercial paper ************************ 1.93% 2.84% $ 6,095 $ 8,180

Asset-backed commercial paper(c) ********* 1.19% — 8,984 —

Floating rate demand notes**************** 2.80% 3.39% 7,328 5,079

Other short-term debt(d)******************* 3.05% 6.96% 2,290 2,931

Total short-term debt******************** 2.02% 3.75% 2.29% 4.32% 24,697 16,190

Long-term debt

Senior indebtedness

Notes payable within one year(e) *********** 29,534 22,841

Notes payable after one year(f)************* 95,474 101,299

Unamortized discount ********************* (53) (71)

Total long-term debt(g) ****************** 5.84% 5.61% 4.27% 4.76% 124,955 124,069

Total debt****************************** 5.15% 5.38% 3.91% 4.70% $149,652 $140,259

Estimated fair value of debt

Net short-term debt subject to fair value **** $ 24,697 $ 16,190

Short-term debt fair value ***************** 24,697 16,190

Net long-term debt subject to fair value(h) *** 120,265 117,829

Long-term debt fair value ****************** 128,244 121,052

Total estimated fair value of debt ********* 152,941 137,242

Interest rate characteristics of debt payableafter one year(i)

Fixed interest rates *********************** $ 83,120 $ 84,953

Variable interest rates (generally based onLIBOR or other short-term rates) ********* 12,301 16,275

Total payable after one year ************* $ 95,421 $101,228

(a) Fourth quarter average contractual interest rates excluding the effect of interest rate swap agreements.

(b) Fourth quarter rates including the effect of interest rate swap agreements.

(c) Amounts represent asset-backed commercial paper issued by FCAR which is payable solely out of collections on thereceivables supporting FCAR’s assets and is not our legal obligation.

(d) Includes $54 million and $520 million with affiliated companies at December 31, 2003 and 2002, respectively.

(e) Includes $2 million and $645 million with affiliated companies at December 31, 2003 and 2002, respectively.

(f) Includes $133 million and $208 million with affiliated companies at December 31, 2003 and 2002, respectively. Also,includes $324 million of subordinated debt related to FCAR which is payable solely out of collections on the receivablessupporting FCAR’s assets and is not our legal obligation.

(g) The average contractual and weighted-average interest rates for total long-term debt represent the rates for both notespayable within one year and notes payable after one year.

(h) Excludes adjustments related to SFAS No. 133 of $4,690 million and $6,240 million at December 31, 2003 and 2002,respectively.

(i) Excludes the effect of interest rate swap agreements.

Debt consists of short-term and long-term unsecured debt, placed directly by us or throughsecurities dealers or underwriters, and bank borrowings. We consider any debt with an originalmaturity of 12 months or less to be short-term debt. We have commercial paper programs in the

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NOTE 9. DEBT — Continued

United States, Europe, Canada and other international markets, with sales mostly to qualifiedinstitutional investors. We also obtain short-term funding from the sale of demand notes to retailinvestors through our floating rate demand notes program. FCE Bank plc (‘‘FCE’’) also issuescertificates of deposit primarily to a broad range of institutional investors in various markets to obtainshort-term funding. Bank borrowings by several of our international affiliates in the ordinary courseof business are an additional source of short-term funding.

We obtain long-term debt funding through the issuance of a variety of debt securities in theUnited States and international capital markets. Long-term debt is debt with an original maturity ofmore than 12 months. We use several long-term funding programs, including notes offered with avariety of maturities of two years and longer, and medium-term notes sold through sales agents insmaller amounts in various currencies. We reach both retail and institutional investors in our long-term funding programs. We access retail investors in the United States through our ContinuouslyOffered Bonds for Retail Accounts program. We launched the Term Bonds in Retail Distributionprogram in Canada in December 2002 and expanded our Internotes retail bond offerings in selectEuropean markets during the second quarter of 2003.

Our floating rate demand notes program consists of variable denomination floating rate demandnotes issued and offered by us. Interest is accrued daily at a rate at least 1/4 point higher than theaverage yield for all taxable money funds as reported weekly in the Money Fund ReportTM andpublished in the Wall Street Journal. The nominal interest rate as of December 31, 2003 rangedfrom 2.5% to 2.8% depending on the amount invested.

Our overall weighted-average effective interest rate (borrowing cost), including the effect ofinterest rate swap agreements, for full year 2003 and 2002 was 4.19% and 5.06%, respectively.

The average remaining maturities of our commercial paper was 42 days at December 31, 2003and 34 days at December 31, 2002 for our U.S., Canada and Europe programs. Senior notesmature at various dates through 2078 (about $1.5 billion matures between 2031 and 2078).Maturities are as follows (in millions): 2004 — $29,534; 2005 — $30,265; 2006 — $19,547; 2007 —$11,260; 2008 — $6,058; thereafter — $28,291. Certain of these obligations are denominated incurrencies other than the currency of the issuing country. Foreign currency swap and forwardagreements are used to hedge exposure to changes in exchange rates of these obligations.

The fair value of debt is estimated based upon quoted market prices or current rates for similardebt with the same remaining maturities. For short-term debt, the book value approximates fair valuebecause of the short maturities of these instruments.

NOTE 10. DISCONTINUED AND HELD-FOR-SALE OPERATIONS

During 2003, we completed the sale of Axus, our all-makes vehicle fleet leasing operations inEurope, New Zealand and Australia initiated in 2002. We recognized an after-tax charge of$31 million in 2002, reflected in loss on disposal of discontinued/held-for-sale operations. Thisamount represents the difference between the selling price of these assets, less costs to sell them,and their recorded book value.

During the fourth quarter of 2003, management committed to a plan to sell AMI Leasing andFleet Management Services, our operation in the U.S. that offers full service car and truck leasing.We expect to complete the sale of this business during 2004 and have reported this business asheld-for-sale under Statement of Financial Accounting Standards No. 144 (‘‘SFAS No. 144’’),Accounting for the Impairment or Disposal of Long-lived Assets, for all periods shown. We

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NOTE 10. DISCONTINUED AND HELD-FOR-SALE OPERATIONS — Continued

recognized an after-tax charge of $55 million in 2003 on the anticipated loss on sale of these assets,reflected in loss on disposal of discontinued/held-for-sale operations. This amount represents thedifference between the anticipated selling price of these assets, less costs to sell them, and theirrecorded book value.

The operating results of the discontinued/held-for-sale operations are as follows:

2003 2002 2001

(in millions)

Total financing margin and revenue******************************************* $95 $293 $254

Income before income taxes************************************************* $ 4 $ 41 $ 14

Provision for income taxes ************************************************** 1 8 5

Income from discontinued/held-for-sale operations ***************************** $ 3 $ 33 $ 9

NOTE 11. SUPPORT FACILITIES

For additional funding and to maintain liquidity, we and our majority-owned subsidiaries includingFCE have contractually committed credit facilities with financial institutions that totaled approximately$7.7 billion at December 31, 2003 (including $3.3 billion and $3.2 billion of global credit facilities atFord Credit and FCE, respectively, and $1.2 billion of non-global credit facilities with varying termsand conditions that support local financing needs). Approximately $1.0 billion of our total facilitieswere in use at December 31, 2003. Of the $7.7 billion, about 47% of these facilities, which havevarious maturity dates, are committed through June 30, 2008. Our global credit facilities may beused, at our option by any of our direct or indirect majority-owned subsidiaries. FCE’s global creditfacilities may be used at its option by any of its direct or indirect majority-owned subsidiaries. We orFCE, as the case may be, will guarantee any such borrowings. All of the global credit facilities areon common contract terms and are free of material adverse change clauses and restrictive financialcovenants (for example, debt-to-equity limitations, minimum net worth requirements and credit ratingtriggers) that would limit our ability to borrow.

At Ford’s option, approximately $6.8 billion of Ford’s global lines of credit may be used by any ofits direct or indirect majority-owned subsidiaries on a guaranteed basis. Ford also has the ability totransfer, on a non-guaranteed basis, $2.5 billion of such credit lines to us and $543 million to FCE.

Additionally, banks provide $18.6 billion of contractually committed liquidity facilities supportingtwo asset-backed commercial paper programs; $18.2 billion support FCAR and $425 million supportour Motown NotesSM program as of December 31, 2003.

In addition, we have entered into agreements with several bank-sponsored, asset-backedcommercial paper issuers under which such issuers are contractually committed to purchase fromus, at our option, up to an aggregate of approximately $12.8 billion of receivables. The agreementshave varying maturity dates between June 24, 2004 and October 29, 2004. As ofDecember 31, 2003, approximately $4.4 billion of these commitments have been utilized.

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NOTE 12. INCOME TAXES

Ford’s consolidated United States federal and state income tax returns include us and certain ofour domestic subsidiaries. In accordance with our intercompany tax sharing agreement with Ford,United States income tax liabilities or credits are allocated to us generally on a separate returnbasis. The provision for income taxes was estimated as follows:

2003 2002 2001

(in millions)

Currently payable

U.S. federal ************************************************************ $ — $ — $ —

Foreign **************************************************************** 198 132 184

State and local ********************************************************* 21 — —

Total currently payable ************************************************ 219 132 184

Deferred tax liability

U.S. federal ************************************************************ 683 436 416

Foreign **************************************************************** 118 85 44

State and local ********************************************************* 144 77 19

Total deferred ******************************************************** 945 598 479

Total provision******************************************************** $1,164 $730 $663

A reconciliation of the provision for income taxes with the United States statutory tax rate as apercentage of income before income taxes, excluding equity in net income of affiliated companies,minority interest in net income of a joint venture and discontinued/held-for-sale operations, for thelast three years is shown below:

2003 2002 2001

U.S. statutory tax rate ****************************************************** 35.0% 35.0% 35.0%

Effect of (in percentage points):

Taxes attributable to foreign source income ********************************* — — 7.2

State and local income taxes ********************************************** 3.5 2.5 2.2

Investment income not subject to tax or subject to tax at reduced rates ******** (0.2) (0.3) (0.5)

Other ******************************************************************* 0.1 (0.1) 0.5

Effective tax rate ******************************************************* 38.4% 37.1% 44.4%

In 2001, included in taxes attributable to foreign source income was the write-off of deferred taxassets related to strategic partnering actions in Brazil.

Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporarydifferences between assets and liabilities for financial reporting purposes and those amounts as

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NOTE 12. INCOME TAXES — Continued

measured by tax laws and regulations. The components of deferred tax assets and liabilities atDecember 31 were as follows:

2003 2002

(in millions)

Deferred tax assets

Net operating losses and foreign tax credits*********************************** $ 3,513 $ 5,000

Provision for credit losses *************************************************** 1,909 1,871

Alternative minimum tax **************************************************** 313 309

Employee benefit plans ***************************************************** 206 188

Other ********************************************************************* 134 80

Total deferred tax assets ************************************************** 6,075 7,448

Deferred tax liabilities

Leasing transactions******************************************************** 7,965 8,600

Finance receivables ******************************************************** 2,953 2,837

Sales of receivables ******************************************************** 1,040 820

Purchased tax benefits ***************************************************** 250 255

Other ********************************************************************* 201 331

Total deferred tax liabilities ************************************************ 12,409 12,843

Net deferred tax liabilities ************************************************* $ 6,334 $ 5,395

We have an intercompany tax sharing agreement with Ford. Under this agreement, UnitedStates income tax liabilities or credits are allocated to us, generally on a separate return basis. Inthis regard, the deferred tax assets related to net operating losses and foreign tax credits representamounts primarily due from Ford.

NOTE 13. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

We, and certain of our subsidiaries, provide selected health care and life insurance benefits forretired salaried employees under unfunded plans sponsored by Ford and certain of its subsidiaries.Our U.S. and Canadian salaried employees may become eligible for those benefits if they retirewhile working for us; however, benefits and eligibility rules may be modified from time to time. Theestimated cost for post-retirement health care benefits is accrued on an actuarial basis over theperiod of employee’s service.

Increasing the assumed health care cost trend rate by one percentage point is estimated toincrease the aggregate service and interest cost components of net post-retirement benefit expensefor 2003 by about $6 million and the accumulated post-retirement benefit obligation at December 31,2003 by about $70 million. A decrease of one percentage point would reduce service and interestcosts by about $5 million and decrease the December 31, 2003 post-retirement benefit obligation byabout $60 million.

On December 8, 2003, the U.S. President signed into law the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003. The law provides for a federal subsidy tosponsors of retiree healthcare benefit plans that provide a benefit at least actuarially equivalent tothe benefit established by the law. We provide retiree drug benefits that exceed the value of thebenefits that will be provided by Medicare Part D, and our retirees’ out-of-pocket costs are less thanthey would be under Medicare Part D. Therefore, we have concluded that our plan is at least‘‘actuarially equivalent’’ to the Medicare Part D plan and that we will be eligible for the subsidy. Wehave reflected the impact of the subsidy as an unrecognized gain, which reduced our benefit

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NOTE 13. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS — Continued

obligation by $35 million at December 31, 2003. Final authoritative guidance, when issued by theFASB, could require us to re-determine the impact of this legislation.

Net post-retirement benefit expense for U.S. and Canadian salaried employees included thefollowing as of January 1:

2003 2002 2001

(in millions)

Costs recognized in income

Service cost *********************************************************** $ 26 $ 20 $ 19

Interest cost *********************************************************** 33 30 33

Curtailments *********************************************************** — — 5

Amortization of prior service cost***************************************** (19) (17) (7)

Amortization of losses ************************************************** 10 7 2

Net post-retirement benefit expense ************************************ $ 50 $ 40 $ 52

Discount rate for expense ************************************************* 6.75% 7.25% 7.50%

The status of these plans were as follows for the years ended December 31:

2003 2002

(in millions)

Change in benefit obligation

Benefit obligation at January 1*************************************************** $ 490 $ 417

Service cost ***************************************************************** 26 20

Interest cost ***************************************************************** 33 30

Amendments***************************************************************** (4) (15)

Plan participant contributions ************************************************** 1 1

Benefits paid***************************************************************** (19) (17)

Actuarial (gain)/loss*********************************************************** (62) 54

Benefit obligation at December 31************************************************ $ 465 $ 490

Status of plan

Projected benefit obligation ****************************************************** $(465) $(490)

Unamortized prior service cost*************************************************** (93) (107)

Unamortized net losses ********************************************************* 69 143

Net amount recognized ***************************************************** $(489) $(454)

Amounts recognized in the Balance Sheet consist of:

Accrued liabilities*************************************************************** $(489) $(454)

Assumptions as of December 31

Discount rate ****************************************************************** 6.25% 6.75%

Initial health care cost trend rate ************************************************* 9% 11%

Ultimate health care cost trend rate ********************************************** 5% 5%

Year ultimate trend rate is reached *********************************************** 2010 2008

NOTE 14. TRANSACTIONS WITH AFFILIATED COMPANIES

An agreement with Ford provides for payments by Ford to us that would maintain ourconsolidated income before income taxes and net income at specified minimum levels. No paymentswere made under the agreement during 2003, 2002, or 2001. We formally documented our long-standing business practices with Ford in an Agreement dated October 18, 2001, a copy of which

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NOTE 14. TRANSACTIONS WITH AFFILIATED COMPANIES — Continued

was filed with the SEC on that date. Identified below are transactions that we undertook with Ford(and other affiliates) within the framework of the Agreement.

Income Statement

The effect of transactions with affiliated companies included in our income statement were asfollows for the years ended December 31:

2003 2002 2001

(In millions)

Interest supplements and other support costs earned from Ford and otheraffiliates (a)*********************************************************** $3,517 $3,658 $4,125

Earned insurance premiums ceded to a Ford-owned affiliate ***************** (643) (618) (581)

Loss and loss adjustment expenses recovered from a Ford-owned affiliate***** 378 378 339

Interest income earned from tax sharing agreement with Ford (b) ************* 89 130 140

Cost of Ford provided advice and services (c) ****************************** (172) (115) (136)

Interest expense on debt with Ford and affiliated companies ***************** (58) (76) (114)

Interest income earned on loans to Ford and affiliates*********************** 23 34 49

Employee retirement plan costs allocated to Ford Credit from Ford (d)********* 25 — (1)

Interest income earned on receivables with Ford-owned dealers (e) *********** 3 — —

(a) We charge Ford for interest supplements and other support costs as they are earned and are recorded in financingrevenue. In addition to the amounts shown above, we received about $1.2 billion in 2003, $1.0 billion in 2002, and$0.7 billion in 2001, related to receivables that were sold in securitizations or whole-loan sale transactions. Thesepayments are reflected, on a present value basis, as a receivable on our balance sheet at the time the receivables aresold. Present value accretion is recognized in investment and other income related to sales of receivables. AtDecember 31, 2003, in the United States and Canada, approximately $4.1 billion of interest supplements were accrued byFord and will be received by us over the terms of the related finance contracts.

(b) We and Ford revised our intercompany tax sharing agreement in 1997 effective for years ended after December 31, 1994.We recorded a deferred tax asset for amounts due from Ford under the revised agreement. Ford compensates us for thetemporary use of these funds. The interest income earned by us is included in other income.

(c) We receive technical and administrative advice and services from Ford and its subsidiaries, occupy office space furnishedby Ford and its subsidiaries and utilize data processing facilities maintained by Ford. The costs for such advice andservices are charged to operating expenses.

(d) Retirement benefits are provided under defined benefit plans for our employees and our subsidiaries in the United Statesby the Ford General Retirement Plan and for employees of certain foreign subsidiaries by other Ford retirement plans.Employee retirement plan costs allocated to us and our subsidiaries from Ford are charged to operating expenses.

(e) Certain dealers are reported as consolidated subsidiaries of Ford effective July 1, 2003. Revenue from providing financingto these dealers is included in financing revenue.

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NOTE 14. TRANSACTIONS WITH AFFILIATED COMPANIES — Continued

Balance Sheet

The effect of transactions with affiliated companies included in our balance sheet were asfollows at December 31:

2003 2002

(in millions)

Receivables purchased from certain divisions and subsidiaries of Ford (a)************ $2,917 $ 2,466

Investment in vehicles leased to employees of Ford and other affiliates (b) *********** 939 989

Outstanding loans to Ford and other affiliates ************************************* 344 623

Outstanding loans from Ford and other affiliates*********************************** (189) (1,373)

Fair values of vehicles held for resale that were purchased from Ford and itssubsidiaries (c) ************************************************************** 1,161 1,502

Receivables with Ford-owned dealers (d) ***************************************** 920 —

Additionally, Ford and other affiliates provide guarantees to us and our subsidiaries of$133 million and $347 million at December 31, 2003 and 2002, respectively, for certain financereceivables.

(a) We purchase certain receivables generated by divisions and affiliates of Ford, primarily in connection with the delivery ofvehicle inventories from Ford vehicle assembly plants in the United States to dealers and the sale of parts andaccessories by Ford to dealers. These receivables are included in net finance receivables.

(b) We have entered into a sale-leaseback agreement with Ford for vehicles leased to employees of Ford and its subsidiaries.The net investment in these vehicles is included in operating leases.

(c) We purchase from Ford and its affiliates certain vehicles that were previously acquired by Ford principally from its fleetand rental car customers. The fair values of these vehicles held for resale are included in other assets.

(d) Certain dealers are reported as consolidated subsidiaries of Ford effective July 1, 2003. Receivables from these dealersare included in net finance receivables.

NOTE 15. COMMITMENTS AND CONTINGENCIES

Various legal actions, governmental investigations and other proceedings and claims relating tostate and federal laws concerning finance and insurance, employment-related matters and othercontractual relationships are pending or may be instituted or asserted in the future against us andour subsidiaries. Some of these matters are class actions or seeking class action status. Some ofthese matters may involve compensatory, punitive or treble damage claims and attorneys’ fees invery large amounts, or other relief which, if granted, would require very large expenditures.

Litigation is subject to many uncertainties, the outcome of individual litigated matters is notpredictable with assurance and it is reasonably possible that some of the foregoing matters could bedecided unfavorably to us or the subsidiary involved. Although the amount of liability atDecember 31, 2003 with respect to these matters cannot be ascertained, we believe that anyresulting liability should not materially affect our and our subsidiaries consolidated financial positionor results of operations.

Certain subsidiaries are subject to regulatory capital requirements requiring maintenance ofcertain minimum capital levels that limit the abilities of the subsidiaries to pay dividends.

At December 31, 2003, we had the following minimum rental commitments under non-cancelable operating leases (in millions): 2004 — $92; 2005 — $74; 2006 — $60; 2007 — $32;2008 — $25; thereafter — $26. These amounts include rental commitments for certain land,buildings, machinery and equipment. Our rental expense was $108 million for the period endedDecember 31, 2003.

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NOTE 15. COMMITMENTS AND CONTINGENCIES — Continued

Guarantees

On November 26, 2002, the FASB issued Interpretation No. 45 (‘‘FIN 45’’), Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others. FIN 45 clarifies the requirements of SFAS No. 5, Accounting forContingencies, related to a guarantor’s accounting for, and disclosure of, the issuance of certaintypes of guarantees. For certain guarantees issued after December 31, 2002, FIN 45 requires aguarantor to recognize, upon issuance of a guarantee, a liability for the fair value of the obligations itassumes under the guarantee. During 2003, we issued new guarantees and indemnifications, whichare included in the disclosures below and are recorded in the financial statements at amounts thatwere not material. Guarantees issued prior to January 1, 2003 are not subject to liability recognitionbut are subject to expanded disclosure requirements.

At December 31, 2003, the following guarantees and indemnifications were issued andoutstanding:

Guarantees of certain obligations of unconsolidated and other affiliates: In some cases, wehave guaranteed debt and other financial obligations of unconsolidated affiliates, including jointventures and Ford. Expiration dates vary or guarantees will terminate on payment or cancellation ofthe obligation. A payment under these guarantees would be triggered by failure of the guaranteedparty to fulfill its guaranteed obligations. Generally, we are entitled to collect from the guaranteedparty amounts it would have to pay pursuant to a guarantee. However, our ability to collect theseamounts is sometimes deferred until the third party is paid in full. The maximum potential futurepayment under these guarantees is approximately $129 million.

Indemnifications: In the ordinary course of business, we execute contracts that includeindemnifications typical in the industry, which are related to several types of transactions, such asdebt funding, derivatives, the sale of receivables and the sale of businesses. These indemnificationsmight include any of the following matters: intellectual property and privacy rights; governmentalregulations and employment-related issues; dealer, supplier, and other commercial contractualrelationships; financial status; tax related issues; securities law; and environmental related issues.Performance under these indemnities would generally be triggered by breach of terms of a contractor by a third party claim. We regularly evaluate the probability of having to incur costs for others andappropriately accrued for expected losses that are probable. We are party to numerousindemnifications and many of these indemnities do not limit potential payments; therefore, we areunable to estimate a maximum potential amount of future payments that could result from claimsmade under these indemnities.

NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS

We adopted SFAS No. 133, as amended and interpreted on January 1, 2001. SFAS No. 133establishes accounting and reporting standards for derivative instruments and requires that allderivatives be recorded at fair value on the balance sheet, including embedded derivatives.

To protect our operations from global market risks, including the effects of changes in foreigncurrency exchange rates and interest rates we use various financial instruments, commonly referredto as derivatives. We have elected to apply hedge accounting to a portion of these derivatives. Toqualify for hedge accounting treatment, each derivative is designated as a hedge at inception andevaluated for effectiveness throughout the hedge period. We have thorough hedge documentation,which outlines our hedging policy and practices. Some derivatives either do not qualify for hedgeaccounting under SFAS No. 133 or we elect not to apply hedge accounting and report the mark to

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NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS — Continued

fair value in earnings. Regardless of hedge accounting treatment, we only enter into transactionswith a high correlation with the underlying risk. Our interest rate risk management objective is tomaximize our financing income while limiting the effect of changes in interest rates. We achieve thisobjective by setting an established risk tolerance range and staying within the tolerance through ourrisk management process. Our hedging program adheres to a strict risk management policy and theprogram is reviewed on a regular basis by our management. We do not engage in any trading ormarket-making.

Nature of Exposure

Currency Exchange Rate Risk

We face exposure to currency exchange rates if a mismatch exists between the currency of ourreceivables and the currency of the debt funding those receivables. When possible, we fundreceivables with debt in the same currency, minimizing exposure to exchange rate movements.When funding is in a different currency, we execute the following foreign currency derivatives toconvert substantially all of our foreign currency debt obligations to the currency of the receivables:

) Cross-currency swaps — an agreement to convert non-U.S. dollar long-term debt toU.S. dollar denominated payments or non-local market debt to local market debt for ourinternational affiliates; or

) Foreign currency forwards — an agreement to buy or sell an amount of funds in an agreedcurrency at a certain time in the future for a certain price.

Interest Rate Risk

Re-pricing risk arises when assets and the related debt have different re-pricing periods, andconsequently, respond differently to changes in interest rates. The financial instruments used in ourinterest rate risk management process are called interest rate swaps.

) Interest rate swaps — an agreement to convert fixed-rate interest payments to floating orfloating-rate interest payments to fixed.

Net Investment in Foreign Operations

We use foreign currency forward exchange contracts and options to hedge the net assets ofcertain foreign entities to offset the translation and economic exposures related to our investment inthese entities.

Balance Sheet Impact

The fair value of derivatives reflects the price that a third party would be willing to pay or receivein an arm’s length transaction and includes mark-to-market adjustments to reflect the effect ofchanges in interest rates, accrued interest, and for derivatives with a foreign currency component, arevaluation adjustment. The following table summarizes the estimated net fair value of Ford Credit’sderivative financial instruments, taking into consideration the effects of legally enforceable netting

FC-29




agreements, which allow us to settle positive and negative positions with the same counterparty on anet basis, at December 31:

2003 2002

Fair FairFair Value Value Fair Value Value

Notional Assets Liabilities Notional Assets Liabilities

(in billions) (in millions) (in billions) (in millions)

Foreign currency swaps*** $ 29 $6,257 $1,119 $ 30 $3,653 $819

Interest rate swaps ******* 155 3,930 213 169 5,081 341

Foreign currency forwardsand options************ 8 24 — 9 19 —

Impact of nettingagreements *********** — (345) (345) — (388) (388)

Total derivative financialinstruments********** $192 $9,866 $ 987 $208 $8,365 $772

In 2003, the increase in the fair value of derivative assets compared with 2002, primarily reflectsthe strengthening of the euro against the dollar, which increases the value of receive euro/pay USdollar cross currency swaps.

Income Statement Impact

Changes in derivative fair values are recognized in current earnings or accumulated othercomprehensive income depending on whether the derivative has been designated and qualifies forhedge accounting and if so, the type of hedge designation.

Cash Flow Hedges

Changes in the fair value of derivatives designated as cash flow hedges are included in othercomprehensive income/(loss), a component of stockholder’s equity, and are reclassified to earningsat the time the associated hedged transaction affects net income. The impact to earnings fromhedge ineffectiveness was a gain of $3 million in 2003, and a gain of $1 million in 2002, which wasrecorded in other income. In assessing hedge effectiveness for cash flow hedges related to interestrates, we use the variability of cash flows method and exclude accrued interest. Net interestsettlements and accruals excluded from the assessment of hedge effectiveness were expenses of$482 million in 2003 and $765 million in 2002 and were recorded in interest expense. While netinterest settlements and accruals are excluded from our hedge effectiveness testing, they areincluded in evaluating our overall risk management objective to maximize our financing income whilelimiting the effect of changes in interest rates.

We expect to reclassify losses of approximately $162 million ($112 million after tax) fromstockholder’s equity to net income during the next twelve months. Events that may causereclassification of amounts from other comprehensive income to net income include changes ininterest rates, interest settlements on the associated hedged transaction, and initiation ordiscontinuation of cash flow hedge accounting. Consistent with our comprehensive risk-managementpractices, neither these nor future reclassifications are anticipated to have a material effect on netincome.

Our designated cash flow hedges include hedges of revolving commercial paper balances. AtDecember 31, 2003, the maximum length of time over which forecasted transactions are hedged is30 months.

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Fair Value Hedges

Changes in the fair value of derivatives designated as fair value hedges, along with the changesin the fair value of the underlying hedged exposure, are recognized in income. The impact toearnings from hedge ineffectiveness was a gain of $255 million in 2003 and a charge of $193 millionin 2002, which was recorded in other income. In assessing hedge effectiveness, we exclude certaincomponents, representing accrued interest on the receive and pay legs of the swap. Net interestsettlements and accruals reflecting income of $1,830 million in 2003 and $1,534 million in 2002 wererecorded as a reduction in interest expense. We also exclude from the assessment of hedgeeffectiveness foreign exchange adjustments, representing the portion of the derivative’s fair valueattributable to the change in foreign currency exchange rates for the reporting period, which werefavorable adjustments totaling $1,325 million in 2003 and $1,471 million in 2002 and were recordedin other income. While net interest settlements and accruals and foreign currency adjustments areexcluded from our hedge effectiveness testing, they are included in evaluating our overall riskmanagement objective to offset the economic impact of changes in interest rates and foreigncurrency exchange rates. The favorable adjustments related to foreign currency derivatives reportedabove were offset by net unfavorable revaluation impacts on debt denominated in a currency otherthan the location’s functional currency, which was also recorded in other income.

Net Investment Hedges

We use foreign currency forward exchange contracts and options to hedge the net assets ofcertain foreign entities to offset the translation and economic exposures related to our investment inthese entities. Changes in the value of these derivative instruments are included in othercomprehensive income as a foreign currency translation adjustment. Ineffectiveness, which isrecognized in other income, was a loss of $17 million in 2003 and an amount that was not significantin 2002.

Other Derivative Instruments

In accordance with our corporate risk management policies, we use derivative instruments, suchas swaps and forward contracts that economically hedge certain exposures (foreign currency andinterest rates). In certain instances, these economic hedges do not qualify for hedge accountingtreatment or we elect not to apply hedge accounting. For non-designated hedges, this resulted inreflecting unrealized gains and losses from the effect of changes in interest rates currently inearnings, which was a gain of $58 million in 2003 and was a loss of $33 million in 2002. In addition,net interest settlements and accruals related to non-designated swaps resulted in income of$105 million in 2003 and expense of $251 million in 2002. These net interest settlement and accrualamounts were included in evaluating our overall risk management objective to maximize ourfinancing income while limiting the effect of changes in interest rates. Unrealized and realized gainsand losses related to certain non-designated foreign currency derivatives that economically hedge aforeign currency exposure resulted in favorable adjustments totaling $1,890 million in 2003 and$1,554 million in 2002. The favorable adjustments related to our foreign currency derivativesreported above were offset by net unfavorable revaluation impacts on debt denominated in acurrency other than the location’s functional currency. Earnings impacts related to non-designatedhedging activity are reported in other income.

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NOTE 17. STOCK OPTIONS

Effective January 1, 2003, Ford adopted the fair value recognition provisions of Statement ofFinancial Accounting Standards No. 123 (‘‘SFAS No. 123’’), Accounting for Stock-Based Compensa-tion, for stock-based employee compensation. Under the modified prospective method of adoptionselected by Ford under the provisions of Statement of Financial Accounting Standards No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure, stock-based employeecompensation expense recognized by Ford in 2003 is the same as that which would have beenrecognized had the fair value recognition provisions of SFAS No. 123 been applied to all awardsfrom its original effective date. Results of prior years have not been restated. Certain of ouremployees are included in the Ford stock compensation plan and costs of this plan are allocated tous based on the total number of employees at Ford Credit that are eligible for stock options. Ouremployees may be allowed to transfer employment status with Ford Credit and Ford which couldimpact the number of our employees eligible for stock options. Employee stock option expense was$13 million for the period ended December 31, 2003 and is charged to operating expenses. The totalnumber of shares outstanding for our employees participating in the Ford plan at December 31,2003 was approximately 11.8 million, with a weighted average exercise price of $19.46.

The remainder of this Note, including the tables on stock option activity, option exercise priceranges, and estimated fair value of options, provides supplementary information related to Ford’sstock compensation plan:

Ford has stock options outstanding under two Long-term Incentive Plans (‘‘LTIP’’), the 1990 LTIPand the 1998 LTIP. No further grants may be made under the 1990 LTIP and all outstanding optionsare exercisable. Grants may be made under the 1998 LTIP through April 2008. All outstandingoptions under the 1990 LTIP continue to be governed by the terms and conditions of the existingoption agreements for those grants. Under the 1998 LTIP, 33% of the options are generallyexercisable after the first anniversary of the date of grant, 66% after the second anniversary, and100% after the third anniversary. Stock options expire ten years from the grant date and, beginningin 2003, are expensed. Additionally, Ford has outstanding performance stock rights, restricted stockunits, restricted stock grants and equivalents, and stock appreciation rights.

Under the 1998 LTIP, 2% of Ford’s issued common stock as of December 31 becomes availablefor granting plan awards in the succeeding calendar year. Any unused portion is available for lateryears. The limit may be increased up to 3% in any year, with a corresponding reduction in shares

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NOTE 17. STOCK OPTIONS — Continued

available for grants in future years. At December 31, 2003, the number of unused shares carriedforward aggregated to 36.2 million shares.

2003 2002 2001

Weighted- Weighted- Weighted-Average Average Average

Shares Exercise Shares Exercise Shares Exercise(millions) Price (millions) Price (millions) Price

Stock option activity:

Outstanding, beginningof year************* 212.9 $20.88 172.1 $22.01 153.7 $19.16

Granted************** 31.3 7.93 50.6 16.29 35.3 30.49

Exercised(a)********** (4.2) 11.06 (4.3) 7.63 (14.0) 12.07

Terminated/expired orsurrendered ******** (5.3) 19.90 (5.5) 24.37 (2.9) 25.91

Outstanding, end ofyear *************** 234.7 19.34 212.9 20.88 172.1 22.01

Exercisable, end ofyear *************** 161.7 $21.44 134.0 $21.02 113.2 $18.74

(a) Exercised at option prices ranging from $10.99 to $13.54 during 2003, $7.09 to $12.53 during 2002, and $5.75 to$26.59 during 2001.

Details on various stock option exercise price ranges are as follows:

Outstanding Options Exercisable Options

Weighted- Weighted- Weighted-Range of Average Average AverageExercise Shares Life Exercise Shares Exercise

Prices (millions) (years) Price (millions) Price

$ 7.09 — 10.58 *************** 33.7 9.2 $ 8.10 1.2 $ 9.75

10.62 — 15.81 *************** 51.9 2.7 12.40 48.9 12.25

15.91 — 23.88 *************** 91.5 6.5 20.11 64.5 21.45

23.97 — 35.79 *************** 56.9 6.2 30.88 46.4 31.13

41.03 — 42.52 *************** 0.7 4.3 $41.42 0.7 $41.42

Total options ************** 234.7 161.7

The estimated fair value of stock options at the time of grant using the Black-Scholes optionpricing model was as follows:

2003 2002 2001*

Fair value per option****************************************************** $2.07 $5.76 $7.86

Assumptions:

Annualized dividend yield************************************************ 5.1% 2.5% 4.0%

Expected volatility ****************************************************** 39.3% 35.0% 32.7%

Risk-free interest rate *************************************************** 3.7% 5.1% 4.9%

Expected option term (in years) ****************************************** 7 7 6

* Previously disclosed values adjusted to conform with SFAS 123 requirements.

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NOTE 18. SEGMENT INFORMATION

We divide our operating segments based on geographic regions: the North America Segmentand the International Segment. We measure the performance of our segments primarily on anincome before income taxes basis, after excluding the impact to earnings from hedge ineffectivenessin applying SFAS No. 133, and results of discontinued/held-for-sale operations. Hedge ineffective-ness, which is included in eliminations/other, is excluded in assessing segment performancebecause our risk management activities are carried out on a centralized basis at the corporate level.

Key operating data for our operating segments for the years ended or at December 31 were asfollows:

Ford Credit Ford CreditNorth Ford Credit Eliminations/ Financial

America International Other Statements

(in millions)

2003

Revenue (a)*************************** $19,535 $3,552 $(2,646) $20,441

Income (b)

Income before income taxes************* 2,076 657 302 3,035

Provision for income taxes ************** 818 230 116 1,164

Income from continuing operations ******* 1,259 427 183 1,869

Other disclosures (a)

Depreciation on operating leases ******** 6,452 557 — 7,009

Interest expense *********************** 5,539 1,739 (1,447) 5,831

Finance receivables (including netinvestment in operating leases) ******** 141,602 42,245 (51,771) 132,076

Total assets *************************** 165,985 46,632 (33,788) 178,829

2002

Revenue (a)*************************** $23,007 $3,571 $(3,768) $22,810

Income (b)

Income before income taxes************* 1,665 541 (241) 1,965

Provision for income taxes ************** 644 189 (103) 730

Income from continuing operations ******* 1,022 351 (141) 1,232


Depreciation on operating leases ******** 7,887 548 — 8,435



Total assets *************************** 175,974 41,802 (47,607) 170,169

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NOTE 18. SEGMENT INFORMATION — Continued

Ford Credit Ford CreditNorth Ford Credit Eliminations/ Financial

America International Other Statements

(in millions)

2001

Revenue (a)*************************** $24,382 $3,578 $(3,257) $24,703

Income (b)

Income before income taxes************* 1,525 390 (421) 1,494

Provision for income taxes ************** 568 137 (42) 663

Income from continuing operations ******* 957 254 (381) 830


Depreciation on operating leases ******** 7,899 497 1 8,397



Total assets *************************** 183,278 34,277 (44,459) 173,096

(a) Operating segments are presented on a managed asset basis (managed assets include on-balance sheet receivablesand securitized off-balance sheet receivables) for these items; therefore, eliminations/other include adjustments toreconcile to financial statement results.

(b) Eliminations/other largely reflects the impact of the net market valuation of derivative instruments and associatedexposures (hedge ineffectiveness) because our risk management activities are carried out on a centralized basis at thecorporate level. In addition, included in 2001 in eliminations/other are Revitalization Plan charges related to strategicpartnering actions in Brazil, government initiatives in Argentina related to currency devaluation and consumer debt, andvoluntary employee separation costs in North America. These items are included in eliminations/other because thedecision-making related to undertaking these actions was performed at the corporate level, or because the events wereoutside the control of operating management. Therefore, these charges were not reflected in segment results.

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NOTE 18. SEGMENT INFORMATION — Continued

Total revenue, income before income taxes, income from continuing operations, financereceivables, and assets identifiable with operations in the United States, Europe, and other foreignlocations were as follows:

2003 2002 2001

(in millions)

Revenue

United States operations ************************************** $ 15,547 $ 18,052 $ 20,021

European operations****************************************** 2,453 2,228 2,058

Other foreign operations*************************************** 2,441 2,530 2,624

Total revenue ********************************************** $ 20,441 $ 22,810 $ 24,703


United States operations ************************************** $ 2,217 $ 1,240 $ 1,111

European operations****************************************** 434 338 297

Other foreign operations*************************************** 384 387 86

Total income before income taxes **************************** $ 3,035 $ 1,965 $ 1,494

Income from continuing operations

United States operations ************************************** $ 1,338 $ 745 $ 719

European operations****************************************** 320 214 156

Other foreign operations*************************************** 211 273 (45)

Total income from continuing operations*********************** $ 1,869 $ 1,232 $ 830

Finance receivables at December 31 (including net investment inoperating leases)

United States operations ************************************** $ 88,439 $ 85,659 $107,588



Total finance receivables ************************************ $132,076 $125,916 $145,106

Assets at December 31

United States operations ************************************** $130,302 $124,544 $130,078



Total assets ************************************************ $178,829 $170,169 $173,096

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NOTE 19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected financial data by calendar quarter were as follows:

First Second Third Fourth FullQuarter Quarter Quarter Quarter Year

(in millions)

2003

Total revenue ********************************* $5,522 $5,138 $4,943 $4,838 $20,441

Depreciation on operating leases**************** 2,128 1,822 1,615 1,444 7,009

Interest expense******************************* 1,519 1,479 1,430 1,403 5,831

Total financing margin and revenue ************** 1,875 1,837 1,898 1,991 7,601

Provision for credit losses ********************** 521 542 446 489 1,998

Income from continuing operations ************** 442 401 503 523 1,869

2002

Total revenue ********************************* $5,918 $5,693 $5,575 $5,624 $22,810

Depreciation on operating leases**************** 2,140 2,093 2,069 2,133 8,435

Interest expense******************************* 1,874 1,742 1,737 1,576 6,929

Total financing margin and revenue ************** 1,904 1,858 1,769 1,915 7,446

Provision for credit losses ********************** 891 660 711 709 2,971

Income from continuing operations ************** 249 325 287 371 1,232

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Exhibit 12

FORD MOTOR CREDIT COMPANY AND SUBSIDIARIESCALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES

For the Years Ended December 31,

2003 2002 2001 2000 1999

(in millions)

Earnings

Income before income taxes ********************* $3,035 $1,965 $ 1,494 $ 2,507 $2,085

Less equity in net income/(loss) of affiliatedcompanies *********************************** 12 13 5 (22) (25)

Fixed charges ********************************** 5,867 6,967 8,959 8,940 7,165

Earnings before fixed charges********************** $8,890 $8,919 $10,448 $11,469 $9,275

Fixed charges

Interest expense ******************************** $5,831 $6,929 $ 8,922 $ 8,910 $7,140

Rents****************************************** 36 38 37 30 25

Total fixed charges ******************************** $5,867 $6,967 $ 8,959 $ 8,940 $7,165

Ratio of earnings to fixed charges ****************** 1.52 1.28 1.17 1.28 1.29

For purposes of our ratio, earnings consist of the sum of pre-tax income from continuingoperations before adjustment for minority interests in consolidated subsidiaries, less equity in netincome/(loss) of affiliated companies, plus fixed charges. Fixed charges consist of interest onborrowed funds, amortization of debt discount, premium, and issuance expense, and one-third of allrental expense (the proportion deemed representative of the interest factor).

12-1

Exhibit 23

CONSENT OF INDEPENDENT ACCOUNTANTS

Re: Ford Motor Credit Company Registration StatementNos. 333-91953, 333-92595, 333-45015, 333-86832 and 333-107955 on Form S-3

We hereby consent to the incorporation by reference in the aforementioned RegistrationStatements of Ford Motor Credit Company and Subsidiaries of our report dated January 21, 2004relating to the financial statements, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Detroit, MichiganMarch 12, 2004

23-1

Exhibit 24


CERTIFICATE OF SECRETARY

The undersigned, Susan J. Thomas, Secretary of FORD MOTOR CREDIT COMPANY, aDelaware corporation (the ‘‘Company’’), DOES HEREBY CERTIFY that the following resolutionswere duly adopted by the Board of Directors of the Company on March 11, 2004 at a regularmeeting of the Board of Directors, and such resolutions have not been amended, modified,rescinded or revoked and are in full force and effect on the date hereof.

WITNESS my hand and the seal of the Company this 12th day of March 2004.

/s/ Susan J. Thomas

Susan J. ThomasSecretary

[Corporate Seal]

24-1


RESOLUTIONS

RESOLVED, That preparation of an annual report of the Company on Form 10-K for the year2003, including exhibits or financial statements and schedules and other documents in connectiontherewith (collectively, the ‘‘Annual Report’’), to be filed with the Securities and ExchangeCommission (the ‘‘Commission’’) under the Securities Exchange Act of 1934, as amended, be and ithereby is in all respects authorized and approved; that the directors and appropriate officers of theCompany, and each of them, be and hereby are authorized to sign and execute on their own behalf,or in the name and on behalf of the Company, or both, as the case may be, such Annual Report,and any and all amendments thereto, with such changes therein as such directors and officers maydeem necessary, appropriate or desirable, as conclusively evidenced by their execution thereof; andthat the appropriate officers of the Company, and each of them, be and hereby are authorized tocause such Annual Report and any such amendments, so executed, to be filed with theCommission.

RESOLVED, That each officer and director who may be required to sign and execute suchAnnual Report or any amendment thereto or document in connection therewith (whether in the nameand on behalf of the Company, or as an officer or director of the Company, or otherwise), be andhereby is authorized to execute a power of attorney appointing G. C. Smith, D. P. Cosper,T. J. Kuehn, D. L. Korman, S. J. Thomas, and C. MacGillivray, and each of them, severally, his orher true and lawful attorney or attorneys to sign in his or her name, place and stead in any suchcapacity such Annual Report and any and all amendments thereto, and to file the same with theCommission, each of said attorneys to have power to act with or without the other, and to have fullpower and authority to do and perform in the name and on behalf of each of said officers anddirectors who shall have executed such power of attorney, every act whatsoever which suchattorneys, or any of them, may deem necessary, appropriate or desirable to be done in connectiontherewith as fully and to all intents and purposes as such officers or directors might or could do inperson.

24-2

POWER OF ATTORNEY WITH RESPECT TO

ANNUAL REPORT ON FORM 10-K OF FORD MOTOR CREDIT COMPANY

KNOW ALL MEN BY THESE PRESENTS that each person that is a director of FORD MOTORCREDIT COMPANY, does hereby constitute and appoint G.C. Smith, D.P. Cosper, T.J. Kuehn,D.L. Korman, S.J. Thomas, and C. MacGillivray, and each of them, severally, his or her true andlawful attorney and agent at any time and from time to time to do any and all acts and things andexecute, in his or her name (whether on behalf of FORD MOTOR CREDIT COMPANY, or as anofficer or director of FORD MOTOR CREDIT COMPANY, or by attesting the seal of FORD MOTORCREDIT COMPANY, or otherwise) any and all instruments which said attorney and agent may deemnecessary or advisable in order to enable FORD MOTOR CREDIT COMPANY to comply with theSecurities Exchange Act of 1934, as amended, and any requirements of the Securities andExchange Commission in respect thereof, in connection with the Annual Report of FORD MOTORCREDIT COMPANY on Form 10-K for the year 2003 and any and all amendments thereto, asheretofore duly authorized by the Board of Directors of FORD MOTOR CREDIT COMPANY,including specifically but without limitation thereto, power and authority to sign his name (whether onbehalf of FORD MOTOR CREDIT COMPANY, or as an officer or director of FORD MOTOR CREDITCOMPANY, or by attesting the seal of FORD MOTOR CREDIT COMPANY, or otherwise) to suchAnnual Report and to any such amendments to be filed with the Securities and ExchangeCommission, or any of the exhibits or financial statements and schedules filed therewith, and to filethe same with the Securities and Exchange Commission; and such Director does hereby ratify andconfirm all that said attorneys and agents, and each of them, shall do or cause to be done by virtuehereof. Any one of said attorneys and agents shall have, and may exercise, all the powers herebyconferred.

IN WITNESS WHEREOF, each of the undersigned has signed his name hereto as of the11th day of March 2004.

/s/ MICHAEL E. BANNISTER /s/ JOHN T. NOONE

M. E. Bannister J. T. Noone

/s/ TERRY D. CHENAULT /s/ CARL E. REICHARDT

T. D. Chenault C. E. Reichardt

/s/ DAVID P. COSPER /s/ GREGORY C. SMITH

D. P. Cosper G. C. Smith

/s/ ALLAN D. GILMOUR /s/ RICHARD C. VAN LEEUWEN

A. D. Gilmour R. C. Van Leeuwen

/s/ DONAT R. LECLAIR /s/ A.J. WAGNER

D. R. Leclair A. J. Wagner

/s/ MALCOLM S. MACDONALD

M. S. Macdonald

24-3

Exhibit 31.1

CERTIFICATION

I, Gregory C. Smith, Chairman of the Board and Chief Executive Officer of Ford Motor CreditCompany, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2003 ofFord Motor Credit Company;

2. Based on my knowledge, this report does not contain any untrue statement of a materialfact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to theperiod covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included inthis report, fairly present in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating tothe registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controlsand procedures, as of the end of the period covered by this report based on suchevaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financialreporting that occurred during the registrant’s most recent fiscal quarter (the registrant’sfourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting;and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recentevaluation of internal control over financial reporting, to the registrant’s auditors and the auditcommittee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation ofinternal control over financial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal control over financial reporting.


/s/ GREGORY C. SMITH

Gregory C. SmithChairman of the Board andChief Executive Officer

31.1-1

Exhibit 31.2

CERTIFICATION

I, David P. Cosper, Executive Vice President, Chief Financial Officer and Treasurer of FordMotor Credit Company, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2003 ofFord Motor Credit Company;

2. Based on my knowledge, this report does not contain any untrue statement of a materialfact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to theperiod covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included inthis report, fairly present in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating tothe registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controlsand procedures, as of the end of the period covered by this report based on suchevaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financialreporting that occurred during the registrant’s most recent fiscal quarter (the registrant’sfourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting;and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recentevaluation of internal control over financial reporting, to the registrant’s auditors and the auditcommittee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation ofinternal control over financial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal control over financial reporting.


/s/ DAVID P. COSPER

David P. CosperExecutive Vice President,Chief Financial Officer and Treasurer

31.2-1

Exhibit 32.1


CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Gregory C. Smith, Chairman of the Board and Chief Executive Officer of Ford Motor CreditCompany (the ‘‘Company’’), hereby certify pursuant to Rule 15d-14(b) of the Securities ExchangeAct of 1934, as amended, and Section 1350 of Chapter 63 of title 18 of the United States Code that:

1. the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, towhich this statement is filed as an exhibit (the ‘‘Report’’), fully complies with the requirementsof section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.

/s/ GREGORY C. SMITH

Gregory C. SmithChairman of the Board andChief Executive Officer

Dated: March 12, 2004

32.1-1

Exhibit 32.2


CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David P. Cosper, Executive Vice President, Chief Financial Officer and Treasurer of FordMotor Credit Company (the ‘‘Company’’), hereby certify pursuant to Rule 15d-14(b) of the SecuritiesExchange Act of 1934, as amended, and Section 1350 of Chapter 63 of title 18 of the United StatesCode that:

1. the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, towhich this statement is filed as an exhibit (the ‘‘Report’’), fully complies with the requirementsof section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company.

/s/ DAVID P. COSPER

David P. CosperExecutive Vice President,Chief Financial Officer and Treasurer

Dated: March 12, 2004

32.2-1

Exhibit 99.1

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K(Mark One)

≤ Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

or

n Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 1-3950

Ford Motor Company(Exact name of registrant as specified in its charter)

Delaware 38-0549190(State of incorporation) (I.R.S. employer identification no.)

One American Road, Dearborn, Michigan 48126(Address of principal executive offices) (Zip code)

313-322-3000(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered(a)

Common Stock, par value $.01 per share New York Stock ExchangePacific Coast Stock Exchange

7.50% Notes Due June 10, 2043 New York Stock Exchange

Ford Motor Company Capital Trust II New York Stock Exchange6.50% Cumulative Convertible Trust PreferredSecurities, liquidation preference $50 per share

(a) In addition, shares of Common Stock of Ford are listed on certain stock exchanges in Europe.

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. Yes $ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. $

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes $ No

As of June 30, 2003, Ford had outstanding 1,762,162,479 shares of Common Stock and 70,852,076 shares of Class B Stock. Based onthe New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($10.99 a share), the aggregatemarket value of such Common Stock was $19,366,165,644. Although there is no quoted market for our Class B Stock, shares of Class BStock may be converted at any time into an equal number of shares of Common Stock for the purpose of effecting the sale or otherdisposition of such shares of Common Stock. The shares of Common Stock and Class B Stock outstanding at June 30, 2003 includedshares owned by persons who may be deemed to be ‘‘affiliates’’ of Ford. We do not believe, however, that any such person should beconsidered to be an affiliate. For information concerning ownership of outstanding Common Stock and Class B Stock, see the ProxyStatement for Ford’s Annual Meeting of Stockholders to be held on May 13, 2004 (our ‘‘Proxy Statement’’), which is incorporated byreference under various Items of this Report.

As of February 27, 2004, Ford had outstanding 1,760,536,756 shares of Common Stock and 70,852,076 shares of Class B Stock.Based on the New York Stock Exchange Composite Transaction closing price of the Common Stock on that date ($13.75 a share), theaggregate market value of such Common Stock was $24,207,380,395.

DOCUMENT INCORPORATED BY REFERENCE*Document Where Incorporated

Proxy Statement Part III (Items 10, 11, 12, 13 and 14)

* As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference in this Report.

PART I

ITEM 1. BUSINESS

Ford Motor Company (referred to herein as ‘‘Ford’’, the ‘‘Company’’, ‘‘we’’, ‘‘our’’ or ‘‘us’’) wasincorporated in Delaware in 1919. We acquired the business of a Michigan company, also known asFord Motor Company, incorporated in 1903 to produce and sell automobiles designed andengineered by Henry Ford. We are one of the world’s largest producers of cars and truckscombined. We and our subsidiaries also engage in other businesses, including financing and rentingvehicles and equipment.

In addition to the information about Ford and its subsidiaries contained in this Report, extensiveinformation about our Company can be found throughout our website located at www.ford.com,including information about our management team, our brands and products, and our corporategovernance principles.

The corporate governance information on our website includes our Corporate GovernancePrinciples, our Code of Ethics for Senior Financial Personnel, our Code of Ethics for Directors, ourStandards of Corporate Conduct for all employees, and the Charters for each of our BoardCommittees. In addition, amendments to, and waivers granted to our directors and executive officersunder, our Codes of Ethics, if any, will be posted in this area of our website. These corporategovernance documents can be accessed by logging onto our website and clicking on the ‘‘CorporateGovernance’’ link.

You will then see a list of corporate governance documents. Click on the document you desireto access. In addition, printed versions of our Corporate Governance Principles, our Code of Ethicsfor Senior Financial Personnel, our Standards of Corporate Conduct and the Charters for each ofour Board Committees can be obtained, free of charge, by writing to our Shareholder RelationsDepartment, Ford Motor Company, One American Road, P.O. Box 1899, Dearborn, Michigan48126-1899.

In addition to the Company information discussed above provided on our website, all of ourperiodic report filings with the Securities and Exchange Commission (‘‘SEC’’) pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available,free of charge, through our website, including our annual report on Form 10-K, quarterly reports onForm 10-Q, and current reports on Form 8-K, and any amendments to those reports. Also, eachSection 16 filing made with the SEC by the Company or any of its executive officers or directors withrespect to our common stock are made available, free of charge, through our website. The periodicreports and amendments and the Section 16 filings are available through our website as soon asreasonably practicable after such report or amendment is electronically filed with the SEC.

To access our SEC reports or amendments or the Section 16 filings, log onto our website andclick on the following link on each successive screen.

) ‘‘Investor Information’’) ‘‘Company Reports’’) ‘‘U.S. S.E.C. EDGAR’’) ‘‘Click here to continue to view SEC Filings’’

You will then see a list of reports filed with the SEC. Click on the report you desire to access.

The foregoing information regarding our website and its content is for your convenience only.The content of our website is not deemed to be incorporated by reference in this report or filed withthe SEC.

Item 1. Business (Continued)

Overview

Segments. Our business is divided into two business sectors: the Automotive sector and theFinancial Services sector. We manage these sectors as four primary operating segments asdescribed below.

Business Sectors Operating Segments Description

Automotive:Americas primarily includes the sale of Ford, Lincoln

and Mercury brand vehicles and relatedservice parts in North America (United States,Canada and Mexico) and the sale of Ford-brand vehicles and related service parts inSouth America, together with the associatedcosts to design, develop, manufacture andservice these vehicles and parts

International primarily includes the sale of Ford-brandvehicles and related service parts outside ofthe Americas and the sale of PremierAutomotive Group brand vehicles (i.e., Volvo,Jaguar, Land Rover and Aston Martin) andrelated service parts throughout the world(including the Americas), together with theassociated costs to design, develop,manufacture and service these vehicles andparts

Financial Services:Ford Motor Credit Company primarily includes vehicle-related financing,

leasing and insurance

The Hertz Corporation primarily includes the renting of cars and lighttrucks and renting of industrial andconstruction equipment

We provide financial information (such as, revenues, income, and assets) for each of thesebusiness sectors and operating segments in three areas of this Report: (1) Item 6. ‘‘SelectedFinancial Data’’ on page 32; (2) Item 7. ‘‘Management’s Discussion and Analysis of FinancialCondition and Results of Operations’’ on pages 33 through 67, and (3) Notes 2, 20 and 21 of theNotes to Financial Statements located at the end of this Report. Financial information relating tocertain geographic areas is also included in the above-mentioned Notes.

Revitalization Plan. Following an extensive review of all of our operations, in particular those inNorth and South America, on January 11, 2002, we announced a revitalization plan (the‘‘Revitalization Plan’’) that included the following elements:

) New products: A product-led revitalization program that will result in the introduction of 20new or freshened products in the United States annually between January 2002 and mid-decade.

) Plant capacity: Reduction of North American installed final assembly capacity by about onemillion vehicles by mid-decade to realign capacity with market conditions.

) Hourly workforce: Reduction of about 12,000 hourly employees in North America by mid-decade.

2


) Salaried workforce: Our 2001 voluntary separation program for salaried employees and otherrelated actions resulted in a 3,500-person workforce reduction in North America. An additional1,500-person salaried workforce reduction was achieved in 2002 to reach the goal of 5,000.

) Global workforce: Reduction of more than 35,000 employees by combined actions around theworld by mid-decade, including selected actions prior to 2002. These include: 21,500 in NorthAmerica — 15,000 hourly, 5,000 salaried and 1,500 agency employees — and 13,500 in therest of the world.

) Cost Reductions: A total of $6 billion of cost reductions related to material costs, overheadreductions and improvements in capacity utilization by mid-decade.

) Discontinued low-margin models: Discontinuance of the Mercury Cougar, Mercury Villager,Lincoln Continental and most models of the Ford Escort, which occurred in 2002.

) Beyond North America: Revitalization plans beyond North American automotive operationsincluded the continued implementation of the European transformation strategy, the PremierAutomotive Group strategy, the turnaround in South America and a revised direction for FordMotor Credit Company.

) Divestitures: Disposition of non-core assets and businesses.

Progress on Revitalization Plan. Overall, we are on track to achieve the objectives contained inour Revitalization Plan. For a discussion of our progress with respect to the Revitalization Plan, seeItem 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —Overview’’.

Automotive Sector

General

We sell cars and trucks throughout the world. In 2003, we sold 6,724,000 vehicles throughoutthe world. Our automotive vehicle brands include Ford, Mercury, Lincoln, Volvo, Jaguar, Land Rover,and Aston Martin.

Substantially all of our cars, trucks and parts are marketed through retail dealers in NorthAmerica, and through distributors and dealers outside of North America. At December 31, 2003, theapproximate number of dealers and distributors worldwide distributing our vehicle brands was asfollows: Ford, 10,651; Mercury, 2,016; Lincoln, 1,544; Volvo, 2,277; Jaguar, 814; Land Rover, 1,524;Aston Martin, 104. Because many of these dealerships distribute more than one of our brands fromthe same sales location, a single dealership may be counted under more than one brand. In additionto the products we sell to our dealers for retail sale, we also sell cars and trucks to our dealers forsale to fleet customers, including daily rental car companies, commercial fleet customers, leasingcompanies and governments. Sales to all of our fleet customers in the United States in theaggregate have represented between 22% and 23% of our total United States car and truck salesfor the last five years. We do not depend on any single customer or small group of customers to theextent that the loss of such customer or group of customers would have a material adverse effect onour business.

In addition to producing and selling cars and trucks, we also provide retail customers with awide range of after-the-sale vehicle services and products through our dealer network, in areas suchas maintenance and light repair, heavy repair, collision, vehicle accessories and extended servicewarranty. In North America, we market these products and services under several brands includingGenuine Ford and Lincoln-Mercury Parts and ServiceSM, Ford Extended Service PlanSM (ESP), andMotorcraftSM.

3


The worldwide automotive industry, Ford included, is affected significantly by a number offactors over which we have little control, including general economic conditions. The automotiveindustry is a highly-competitive, cyclical business that has a wide variety of product offerings. Thenumber of cars and trucks sold (commonly referred to as ‘‘industry demand’’) can vary substantiallyfrom year to year. In any year, industry demand depends largely on general economic conditions,the cost of purchasing and operating cars and trucks, and the availability and cost of credit and fuel.Industry demand also reflects the fact that cars and trucks are durable items that people generallycan wait to replace.

Our unit sales vary with the level of total industry demand and our share of that industrydemand. Our share is influenced by how our products compare with those offered by othermanufacturers based on many factors, including price, quality, styling, reliability, safety, andfunctionality. Our share also is affected by our timing of new model introductions and manufacturingcapacity limitations. Our ability to satisfy changing consumer preferences with respect to type or sizeof vehicle, as well as design and performance characteristics, can impact our sales and earningssignificantly.

The profitability of vehicle sales is affected by many factors, including the following:

) unit sales volume

) the mix of vehicles and options sold

) the margin of profit on each vehicle sold

) the level of ‘‘incentives’’ (price discounts) and other marketing costs

) the costs for customer warranty claims and additional service actions

) the costs for safety, emission and fuel economy technology and equipment

) the ability to manage costs

Further, because Ford and other manufacturers have a high proportion of costs that are fixed(including relatively fixed labor costs), small changes in unit sales volumes can significantly affectoverall profitability.

In addition, the automobile industry continues to face a very competitive pricing environment,driven in part by industry excess capacity. For the past several decades, manufacturers typicallyhave given price discounts and other marketing incentives to purchasers to maintain productionlevels and market shares. A discussion of our revenue management strategy to compete in thispricing environment is set forth below in Item 7. ‘‘Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Overview’’.

Competitive Position. The worldwide automotive industry consists of many producers, with nosingle dominant producer. Certain manufacturers, however, account for the major percentage of totalsales within particular countries, especially their countries of origin. Detailed information regardingour competitive position in the principal markets where we compete can be found below as part ofthe overall discussion of the automotive industry in those markets.

Seasonality. We generally record the sale of a vehicle (and recognize sales proceeds inrevenue) when it is produced and shipped to our customer (i.e., our dealer or distributor). Wemanage our vehicle production schedule based on a number of factors, including dealer stock levels(i.e., number of units held in inventory by our dealers and distributors for sale to retail and fleetcustomers) and retail sales (i.e., units sold by our dealers and distributors to their customers atretail). There generally is no material seasonal impact on our production levels or the overallbusiness. To the extent that we do experience some fluctuation in the business of a seasonal nature,it has generally occurred in the second and third quarters and primarily is the result of the annual

4


two to three week summer shutdown of our manufacturing facilities during the third quarter. Thisdowntime is used to prepare our manufacturing facilities for the annual new model year changeover.Typically, production is higher in the second quarter in anticipation of the shutdown and lower in thethird quarter due to the two to three weeks of downtime. As a result, operating results for the thirdquarter typically are less favorable than those of the other quarters.

Raw Materials. We purchase a wide variety of raw materials for use in the production of ourvehicles from numerous suppliers around the world. These raw materials include non-ferrous metals(e.g., aluminum), precious metals (e.g., palladium, platinum and rhodium), ferrous alloys (e.g., steel),energy (e.g., natural gas) and resins (e.g., polypropylene). We believe that we have adequatesupplies or sources of availability of the raw materials necessary to meet our needs. However, thereare risks and uncertainties with respect to the supply of certain of these raw materials that couldimpact their availability in sufficient quantities to meet our needs.

Backlog Orders. We generally produce and ship our products on average within approximately20 days after an order is deemed to become firm. Therefore, no significant amount of backlog ordersaccumulates during any period.

Intellectual Property. We own, or hold licenses to use, numerous patents, copyrights andtrademarks on a global basis. Our policy is to protect our competitive position by, among othermethods, filing U.S. and international patent applications to protect technology and improvementsthat we consider important to the development of our business. As such, we have generated a largenumber of patents related to the operation of our business and expect this portfolio to continue togrow as we actively pursue additional technological innovation. We currently have over 11,000 activepatents and pending patent applications globally, with an average age for patents in our activepatent portfolio being 5 years. In addition to this intellectual property, we also rely on our proprietaryknowledge and ongoing technological innovation to develop and maintain our competitive position.While we believe these patents, patent applications and know-how, in the aggregate, to be importantto the conduct of our business, and we obtain licenses to use certain intellectual property owned byothers, none is individually considered material to our business. Similarly, we own numeroustrademarks and service marks that contribute to the identity and recognition of our company and itsproducts and services globally. Certain of these marks are integral to the conduct of our business,the loss of which could have a material adverse effect on our business.

United States

Sales Data. The following table shows U.S. industry sales of cars and trucks for the yearsindicated:

U. S. Industry Sales

Years Ended December 31,

2003 2002 2001 2000 1999

(millions of units)

Cars ******************************************************* 7.6 8.1 8.4 8.8 8.7

Trucks ***************************************************** 9.4 9.0 9.1 9.0 8.7

Total ******************************************************* 17.0 17.1 17.5 17.8 17.4

We classify cars by small, medium, large and premium segments and trucks by compact pickup,bus/van (including minivans), full-size pickup, sport utility vehicles and medium/heavy segments.However, with the introduction of crossover or hybrid vehicle lines, the distinction between traditionalcars and trucks has become more difficult to draw and these vehicles are not consistently classifiedas either by the various manufacturers. In the tables below, crossover vehicles have been classifiedas sport utility vehicles. The term ‘‘bus’’ as used in this discussion refers to vans designed to carry

5


passengers. The following tables show the proportion of United States car and truck unit sales bysegment for the industry (including both domestic and foreign-based manufacturers) and Ford(including all of our brands sold in the U.S.) for the years indicated:

U. S. Industry Vehicle Salesby Segment


2003 2002 2001 2000 1999

CARS

Small********************************************************************** 14.9% 16.0% 16.7% 16.7% 16.1%

Medium ******************************************************************* 19.9 21.4 21.6 22.9 23.8

Large ********************************************************************* 2.1 2.2 2.7 2.9 3.2

Premium******************************************************************* 8.0 7.7 7.2 7.2 6.8

Total U.S. Industry Car Sales ************************************************ 44.9 47.3 48.2 49.7 49.9

TRUCKS

Compact Pickup************************************************************ 4.4% 4.6% 5.2% 5.9% 6.2%

Bus/Van ******************************************************************* 8.0 8.6 8.8 10.0 10.1

Full-Size Pickup ************************************************************ 14.0 12.7 13.2 12.4 12.7

Sport Utility Vehicles ******************************************************** 27.0 25.2 23.0 19.8 18.5

Medium/Heavy ************************************************************* 1.7 1.6 1.6 2.2 2.6

Total U.S. Industry Truck Sales*********************************************** 55.1 52.7 51.8 50.3 50.1

Total U.S. Industry Vehicle Sales ********************************************* 100.0% 100.0% 100.0% 100.0% 100.0%

Ford Vehicle Sales by Segmentin U.S.


2003 2002 2001 2000 1999

CARS

Small********************************************************************** 11.4% 12.5% 14.0% 14.5% 13.5%

Medium ******************************************************************* 10.4 11.9 11.5 13.0 15.5

Large ********************************************************************* 4.8 4.4 5.2 5.1 5.7

Premium******************************************************************* 7.0 7.8 7.0 7.5 6.2

Total Ford U.S. Car Sales *************************************************** 33.6 36.6 37.7 40.1 40.9

TRUCKS

Compact Pickup************************************************************ 6.0% 6.2% 6.9% 7.9% 8.4%

Bus/Van ******************************************************************* 8.4 9.1 9.1 10.5 11.0

Full-Size Pickup ************************************************************ 24.3 22.5 22.9 20.9 20.9

Sport Utility Vehicles ******************************************************** 27.5 25.4 23.2 20.4 18.5

Medium/Heavy ************************************************************* 0.2 0.2 0.2 0.2 0.3

Total Ford U.S. Truck Sales************************************************** 66.4 63.4 62.3 59.9 59.1

Total Ford U.S. Vehicle Sales ************************************************ 100.0% 100.0% 100.0% 100.0% 100.0%

As the tables above indicate, there has been a general shift from cars to trucks for both industrysales and Ford sales. This shift has been occurring gradually over a number of years. Ford’s sales oftrucks as a percentage of its total vehicle sales has also increased since 1999 because of highersales of sport utility vehicles and full-size pickups. Ford’s sales of the small and medium carsegment as a percentage of its total sales has deteriorated more than the general decline of theindustry sales in these segments because of the discontinuance of certain product offerings (e.g.,Ford Escort, Mercury Cougar, Ford Contour and Mercury Mystique) and reduction in low-margindaily rental car business. Ford’s sales of the premium car segment as a percentage of total Ford

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U.S. car sales has increased since 1998 because of the addition of Volvo vehicles as a result of ourpurchase of Volvo Car Corporation on March 31, 1999 and expansion of our Jaguar car productofferings. The decline in premium car sales in 2003 primarily reflects the discontinuance of certainproduct offerings (e.g. Lincoln Continental).

Market Share Data. Our principal competitors in the United States include General MotorsCorporation, DaimlerChrysler Corporation, Toyota Corporation, and Honda Motor Corporation. Thefollowing tables show changes in car and truck United States market shares for Ford (including all ofour brands sold in the U.S.) and the other four leading vehicle manufacturers for the years indicated.The percentages in each of the following tables represent the percentage of the combined car andtruck industry.

U.S. Car Market Shares*


2003 2002 2001 2000 1999

Ford** ********************************************************* 6.9% 7.7% 8.6% 9.5% 9.9%

General Motors************************************************* 11.5 12.1 13.0 14.2 14.9

DaimlerChrysler ************************************************ 3.8 4.1 4.1 4.5 5.1

Toyota********************************************************* 5.9 5.8 5.5 5.5 5.1

Honda********************************************************* 4.8 4.9 5.1 5.0 4.9

All Other*** **************************************************** 12.0 12.7 11.9 11.0 10.0

Total U.S. Car Retail Deliveries********************************* 44.9% 47.3% 48.2% 49.7% 49.9%

U.S. Truck Market Shares*


2003 2002 2001 2000 1999

Ford** ********************************************************* 13.6% 13.4% 14.2% 14.2% 14.3%

General Motors************************************************* 16.4 16.2 15.0 13.6 13.9


Toyota********************************************************* 5.1 4.5 4.5 3.6 3.4

Honda********************************************************* 3.1 2.4 1.8 1.6 1.3

All Other*** **************************************************** 6.9 6.2 6.2 6.5 6.1

Total U.S. Truck Retail Deliveries ******************************* 55.1% 52.7% 51.8% 50.3% 50.1%

U.S. Combined Car andTruck Market Shares*


2003 2002 2001 2000 1999

Ford** ********************************************************* 20.5% 21.1% 22.8% 23.7% 24.2%

General Motors************************************************* 27.9 28.3 28.0 27.8 28.8


Toyota********************************************************* 11.0 10.3 10.0 9.1 8.5

Honda********************************************************* 7.9 7.3 6.9 6.6 6.2

All Other*** **************************************************** 18.9 18.9 18.1 17.5 16.1

Total U.S. Car and Truck Retail Deliveries *********************** 100.0% 100.0% 100.0% 100.0% 100.0%

* All U.S. retail sales data are based on publicly available information from the media and trade publications.

** Ford purchased Volvo Car on March 31, 1999 and Land Rover on June 30, 2000. The figures shown here include VolvoCar and Land Rover on a pro forma basis for the periods prior to their acquisition by Ford. In 1999, Land Roverrepresented less than 0.2 percentage points of total market share.

*** ‘‘All Other’’ includes primarily companies based in various European countries, Korea and other Japanese manufacturersand, with respect to the U.S. Truck Market Shares table and U.S. Combined Car and Truck Market Shares table, includesheavy truck manufacturers.

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The decline in overall market share for Ford since 1999 is primarily the result of increasedcompetition and, in particular, an increased number of new competitive truck product offerings. Inaddition, this decline also reflects actions we have taken to improve our profitability, including thediscontinuance of a number of vehicles and a planned reduction in low-margin daily rental car sales.

Fleet Sales. The sales data and market share information provided above include both retailand fleet sales. Fleet sales include sales to daily rental car companies, commercial fleet customers,leasing companies and governments. Fleet sales generally are less profitable than retail sales and,within the fleet sales category, sales to daily rental car companies generally are less profitable thansales to other fleet purchasers.

The table below shows our fleet sales in the United States, and the amount of those sales as apercentage of our total United States car and truck sales, for the last five years.

Ford Fleet Sales


2003 2002 2001 2000 1999

Daily Rental Units sold ******************************************* 429,000 446,000 452,000 472,000 469,000

Commercial and Other Units sold ********************************* 222,000 247,000 290,000 335,000 337,000

Government Units sold ******************************************* 124,000 123,000 143,000 170,000 134,000

Total Fleet Units sold ****************************************** 775,000 816,000 885,000 977,000 940,000

Percent of Ford’s total U.S. car and truck sales ********************* 22% 23% 22% 23% 23%

As the table above indicates, sales to daily rental car companies are down for the thirdconsecutive year. This decline reflects primarily the continued execution of our strategy of reducingsales to daily rental car companies to improve our overall profitability. The decline in Commercialand Other Units Sold reflects, in part, a broad weakness in this segment driven by difficult economicconditions.

Warranty Coverage and Additional Service Actions. We presently provide warranty coveragefor defects in factory-supplied materials and workmanship on all vehicles in the United States. Thewarranty coverage for Ford/Mercury vehicles generally extends for 36 months or 36,000 miles(whichever occurs first) and covers components of the vehicle, including tires beginning January 1,2001 for 2001 and later model years. Prior to January 1, 2001, tires were warranted only by the tiremanufacturers. The United States warranty coverage for luxury vehicles (Lincoln, Jaguar, Volvo andLand Rover) extends for 48 months or 50,000 miles (whichever occurs first) but, except for 2001 orlater model year Lincoln and Volvo vehicles, does not include tires, which are warranted by the tiremanufacturers. Warranty coverage for safety restraint systems (safety belts, air bags and relatedcomponents) extends for 60 months or 50,000 miles (whichever occurs first), except on Volvovehicles, which is 60 months/unlimited mileage. Also, corrosion damage resulting in perforation(holes) in body sheet metal panels is covered on 1995 and newer models for 60 months/unlimitedmileage, with 72 months/unlimited mileage on Jaguar/Land Rover products and 96 months/unlimitedmileage on Volvo vehicles. In addition, the Federal Clean Air Act requires warranty coverage for8 years or 80,000 miles (whichever occurs first) for emissions equipment (e.g., catalytic converterand powertrain control module) on most light duty vehicles sold in the United States. As a result ofthese warranties, costs for warranty repairs can be substantial.

In addition to the costs associated with the contractual warranty coverage provided on ourvehicles, we also incur costs as a result of additional service actions not covered by our warranties,including product recalls and customer satisfaction actions.

Estimated warranty costs and additional service action costs for each vehicle sold by us areaccrued at the time of sale. Accruals for estimated warranty costs and additional service actioncosts are subject to adjustment from time to time depending on actual experience.

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For additional information with respect to costs for warranty and additional service actions, seeItem 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Estimates’’ and Note 23 of the Notes to Financial Statements.

Europe

Market Share Information. Outside of the United States, Europe is our largest market for thesale of cars and trucks. We consider Europe to consist of the following 19 markets: Britain,Germany, France, Italy, Spain, Austria, Belgium, Ireland, Netherlands, Portugal, Switzerland, Finland,Sweden, Denmark, Norway, Czech Republic, Greece, Hungary and Poland. The automotive industryin Europe is intensely competitive. Our principal competitors in Europe include General MotorsCorporation, DaimlerChrysler Corporation, Volkswagen A.G., PSA, Renault Group, Fiat SPA andToyota Corporation. For the past 10 years, the top six manufacturers have collectively held between72% and 78% of the total car market. This competitive environment is expected to intensify furtheras Japanese manufacturers increase their production capacity in Europe, and all of the other (non-Ford) manufacturers of premium brands (e.g., BMW, Mercedes Benz and Audi) continue to broadentheir product offerings. For a discussion of restructuring actions taken in Europe in 2003, see Item 7.‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

In 2003, vehicle manufacturers sold approximately 17.1 million cars and trucks in Europe, down1% from 2002 levels. Our combined car and truck market share in Europe (including all of ourbrands sold in Europe) in 2003 was 10.7%, down about 0.2 percentage points from 2002.

Britain and Germany are our most important markets within Europe, although the SouthernEuropean countries are becoming increasingly significant. Any adverse change in the British orGerman market has a significant effect on our total European automotive profits. For 2003 comparedwith 2002, total industry sales were up 2.0% in Britain and down 0.6% in Germany. Our combinedcar and truck market share in these markets (including all of our brands sold in these markets) in2003 was 19.7% in Britain (down 0.9 percentage points from last year) and 8.6% in Germany (down1.1 percentage points from a year ago).

Marketing Incentives. The automotive industry in Europe continues to be intensely competitive.In Europe in 2003, increased competition resulted in substantial retail and fleet incentive spending onthe part of Ford and most manufacturers, particularly in our key European market of Britain. Similarto the United States, marketing costs in Europe include primarily (i) marketing incentives on vehicles,such as rebates and costs for special financing and lease programs, (ii) accruals for costs and/orlosses associated with our required repurchase of certain vehicles sold to daily rental carcompanies, and (iii) costs for advertising and sales promotions for vehicles. We utilize revenuemanagement strategies in Europe consistent with those in the United States. A discussion of ourrevenue management strategy is set forth below in Item 7. ‘‘Management’s Discussion and Analysisof Financial Condition and Results of Operations — Overview’’.

Motor Vehicle Distribution in Europe. On October 1, 2002, the Commission of the EuropeanUnion adopted a new regulation that changes the way motor vehicles are sold and repairedthroughout the European Community (the ‘‘Block Exemption Regulation’’). Under the BlockExemption Regulation, manufacturers had the choice to either operate an ‘‘exclusive’’ distributionsystem with exclusive dealer sales territories, but possible sales to any reseller (e.g., supermarketchains, internet agencies and other resellers not authorized by the manufacturer), who in turn couldsell to end customers both within and outside of the dealer’s exclusive sales territory, or a‘‘selective’’ distribution system.

We, as well as the vast majority of the other automotive manufacturers, have elected toestablish a ‘‘selective’’ distribution system, allowing us to restrict the dealer’s ability to sell ourvehicles to unauthorized resellers. In addition, under the ‘‘selective’’ distribution system, we are

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entitled to determine the number of our dealers, but beginning in October 2005, not their location.Under either system, the new rules make it easier for a dealer to display and sell multiple brands inone store without the need to maintain separate facilities. Within this new regulation, theCommission also has adopted sweeping changes to the repair industry. Dealers can no longer berequired by the manufacturer to perform repair work themselves. Instead, dealers can subcontractthe work to independent repair shops that meet reasonable criteria set by the manufacturer. Theseauthorized repair facilities can perform warranty and recall work, in addition to other repair andmaintenance work. While a manufacturer can continue to require the use of its parts in warranty andrecall work, the repair facility can use parts made by others that are of comparable quality for allother repair work. We have negotiated and implemented new Dealer, Authorized Repairer and SparePart Supply contracts on a country-by-country level and, therefore, the Block Exemption Regulationnow applies with respect to all of our dealers.

With these new rules, the Commission intends to increase competition and narrow car pricedifferences from country to country. At this time it is difficult to quantify the full impact of thesechanges on our European operations. However, in the first year of its existence, the Block ExemptionRegulation has contributed to an even more competitive environment in Europe, which, in turn, hascontributed to a significant increase in marketing incentives, thus adversely affecting our profitabilityin Europe.

Warranty Coverage and Additional Service Actions. Beginning in January 2002, warrantycoverage provided by volume manufacturers (including Ford) in most of our European marketsincreased from one year with unlimited mileage to two years with unlimited mileage. This increase inwarranty coverage was prompted by new consumer laws in eleven of the 19 European markets thatgranted private buyers a two-year period in which to pursue defects in goods (including vehicles andsubstantial components). Prior to January 2002, Ford provided warranty coverage on Jaguar andVolvo brand (only in Britain) vehicles that extended for 36 months or 60,000+ miles and will continueto provide such warranty coverage. In Britain, Ford provides a warranty package on Ford-brandvehicles that includes a 36 month warranty composed of a 12 month/unlimited mileage basewarranty and free of charge OEW (Extended Service Plan) covering up to a further 24 months and60,000 miles. Commercial vehicles (e.g., Ford Transit and Ford Transit Connect) carry a 24 month/unlimited mileage warranty except in Britain where Ford currently provides a 36 month or 100,000miles base warranty. In Britain, Jaguar and Land Rover provide 36 month/unlimited mileagewarranty, enhanced in January 2002 to unlimited mileage from the previous 60,000 mile warranty. Inmainland Europe, Jaguar provides 36 month/unlimited mileage warranty, enhanced in January 2002to unlimited mileage from the previous 100,000 km limit; Land Rover provides 36 month 100,000 kmwarranty, enhanced in November 2001 from the previous 12 month warranty; and Volvo provides24 month/unlimited mileage warranty. In addition to the base warranties discussed above, Fordwarrants the bodywork of all of its brands against rust perforation for periods between 6 years and12 years.

In addition to the costs associated with the contractual warranty coverage provided on ourvehicles, we also incur costs as a result of additional service actions not covered by our warranties,including product recalls and customer satisfaction actions.

Estimated warranty costs and additional service action costs for each vehicle sold by us areaccrued at the time of sale. Accruals for estimated warranty costs and additional service actioncosts are subject to adjustment from time to time depending on actual experience.

For additional information with respect to costs for warranty and additional service actions, seeItem 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Estimates’’ and Note 23 of the Notes to Financial Statements.

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Other Markets

Canada and Mexico. Canada and Mexico also are important markets for us. In Canada,industry sales of new cars and trucks in 2003 were approximately 1.6 million units, down 6% from2002 levels. In 2003, industry sales of new cars and trucks in Mexico were approximately 1 millionunits, about the same as 2002 levels. Our combined car and truck market share in these markets(including all of our brands sold in these markets) in 2003 was 15.8% in Canada (about the same aslast year) and 16.5% in Mexico (about the same as last year).

South America. Brazil and Argentina are our principal markets in South America. Theeconomic environment in those countries has been volatile in recent years, particularly in 2002,leading to large variations in industry sales. Results have also been influenced by continued weakeconomic conditions, political uncertainty, and government actions to reduce inflation and publicdeficits. Industry sales in 2003 were approximately 1.4 million units in Brazil, down about 5% from2002, and approximately 140,000 units in Argentina, up 46% from 2002. Our combined car and truckmarket share in these markets (including all of our brands sold in these markets) in 2003 was 12.1%in Brazil (up 1.8 percentage points from last year) and 21.8% in Argentina (up 5.3 percentage pointsfrom a year ago).

Ford has undertaken restructuring actions in recent years to improve its competitiveness inSouth America. In addition, we built a new assembly plant in Brazil, which manufactures a newfamily of vehicles for the South American markets and other markets.

Asia Pacific. In the Asia Pacific region, Australia, Taiwan, Thailand and Japan are our principalmarkets. Details of the industry volumes and our combined car and truck market share for thesecountries (including all of our brands sold in a particular country) are shown below.

Industry Volumes Corporate Market Share

20032003Over/(Under)Over/(Under)

2003 2002 2003 2002 20022002

(in thousands)

Australia ****************************************** 910 824 86 10.4% 14.8% 14.4% 0.4 pts.

Taiwan ******************************************* 414 399 15 3.7% 17.3% 16.4% 0.9 pts.

Thailand ****************************************** 532 415 117 28.1% 5.0% 5.7% (0.7) pts.

Japan ******************************************** 5,828 5,792 36 0.6% * * *

* Our combined car and truck market share in Japan has been less than 1% in recent years.

In addition, we own a 33.4% interest in Mazda Motor Corporation (‘‘Mazda’’) and account forMazda on an equity basis. Mazda’s market share in Japan has been in the 5% range in recentyears. Our principal competition in the Asia Pacific region has been the Japanese manufacturers. Weanticipate that the ongoing relaxation of import restrictions (including duty reductions) will continue tointensify competition in the region.

We began operations in India in 1999, launching an all-new small car (the Ikon) designedspecifically for that market. In addition, Ford India sells components to other Ford affiliates.

We also are in the process of increasing our presence in China. During 2002, a new purchasingoffice was established in China to take advantage of sourcing opportunities for global markets fromthat country. Changan Ford is our 50/50 joint venture operation with Chongqing Changan AutomobileCo, Ltd. The Changan Ford assembly plant located in Chongqing became operational and beganproducing the Fiesta model in January 2003 and the Mondeo model in mid-2003. We have alsoannounced that more than $1 billion would be invested over the next several years to expandmanufacturing capacity, introduce new products and expand distribution channels in the Chineseautomotive market. The investment will initially support the addition of new products and expansionof production capacity at Changan Ford from 20,000 units a year to 150,000 units per year. It will

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also support the establishment of a second assembly plant and a new engine plant. In addition, wehave a 30% interest in Jiangling Motors Corporation with operations located in Nanchang. We alsoimport Jaguar, Volvo, Land Rover, and selected Ford vehicles into China.

Financial Services Sector

Ford Motor Credit Company

Ford Motor Credit Company (‘‘Ford Credit’’) provides vehicle and dealer financing in 36 countriesto more than 11 million customers and more than 12,500 automotive dealers. Ford Credit is anindirect, wholly-owned subsidiary of Ford.

Ford Credit offers a wide variety of automotive financial services to and through automotivedealers throughout the world. Ford Credit’s primary financial products fall into three categories:

) Retail financing — purchasing retail installment sale contracts and retail leases from dealers,and offering financing to commercial customers, primarily vehicle leasing companies and fleetpurchasers, to purchase or lease vehicle fleets.

) Wholesale financing — making loans to dealers to finance the purchase of vehicle inventory,also known as floorplan financing.

) Other financing — making loans to dealers for working capital, improvements to dealershipfacilities, and the acquisition and refinancing of dealership real estate.

Ford Credit also services the finance receivables and leases it originates and purchases, makesloans to Ford affiliates, purchases certain receivables of Ford and its subsidiaries and providesinsurance services related to its financing programs. Ford Credit’s revenues are earned primarilyfrom retail installment sale contracts and retail leases, including interest supplements and othersupport payments it receives from Ford on special-rate retail financing programs, from investmentand other income related to sold receivables, and from payments made under wholesale and otherdealer loan financing programs.

Ford Credit does business in all 50 states of the United States through about 160 dealerautomotive financing branches and seven regional service centers, and does business in allprovinces in Canada through 16 dealer automotive financing branches and two regional servicecenters. Outside the United States, FCE Bank plc (‘‘FCE’’) is Ford Credit’s largest operation. FCE’sprimary business is to support the sale of Ford vehicles in Europe through the Ford dealer network.A variety of retail, leasing and wholesale finance plans are provided in most countries in which itoperates. FCE does business in the United Kingdom, Germany and most other European countries.Ford Credit, through its subsidiaries, also operates in Mexico, Puerto Rico, Brazil, Chile, Venezuela,Argentina, Australia, Japan, Taiwan, Thailand and New Zealand. Ford Credit also operates throughjoint ventures with local financial institutions and other third parties in India, Indonesia, South Africaand Saudi Arabia. In addition, Ford Credit manages Ford’s vehicle financing operations in othercountries where Ford Credit does not have operations.

Ford Credit’s share of retail financing for new Ford, Lincoln and Mercury brand vehicles sold bydealers in the United States and new Ford-brand vehicles sold by dealers in Europe and Ford

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Credit’s share of wholesale financing for those brands of vehicles acquired by dealers in the UnitedStates and Europe were as follows during the last three years:

Years EndedDecember 31,

2003 2002 2001

United States

Financing share — Ford, Lincoln and Mercury

Retail installment and lease *********************************************** 39% 41% 54%

Wholesale *************************************************************** 82 85 84

Europe

Financing share — Ford

Retail installment and lease *********************************************** 31% 34% 37%

Wholesale *************************************************************** 97 97 97

For a detailed discussion of Ford Credit’s on-balance sheet receivables, managed receivables,receivables sold through securitizations and whole-loan sale transactions, credit losses, allowancefor credit losses, loss-to-receivables ratios, funding sources and funding strategies, see Item 7.‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. For adiscussion of how Ford Credit manages its financial market risks, see Item 7A. ‘‘Quantitative andQualitative Disclosure About Market Risk’’.

The predominant share of Ford Credit’s business consists of financing our vehicles andsupporting our dealers. Any extended reduction or suspension of the production or sale of ourvehicles due to a decline in consumer demand, work stoppage, governmental action, negativepublicity or other event, or significant changes to marketing programs sponsored by us, would likelyhave an adverse effect on Ford Credit’s business.

We periodically sponsor special-rate financing programs available only through Ford Credit.Under these programs, we make interest supplement or other support payments to Ford Credit.These programs may increase Ford Credit’s financing volume and share of financing sales of Fordvehicles. See Note 1 of the Notes to Financial Statements for more information about these supportpayments.

Under a profit maintenance agreement with Ford Credit, we have agreed to make payments tomaintain Ford Credit’s earnings at certain levels. In addition, under a support agreement with FCE,Ford Credit has agreed to maintain FCE’s net worth above a minimum level. No payments weremade under either of these agreements during the 2001 through 2003 periods.

The Hertz Corporation

The Hertz Corporation (‘‘Hertz’’) and its affiliates, associates and independent licenseesrepresent what Hertz believes is the largest worldwide general use car rental brand based uponrevenues. Hertz maintains a substantial network of company-owned car rental locations both in theUnited States and in Europe, and what it believes to be the largest number of on-airport car rentallocations in the world, enabling Hertz to provide consistent quality, pricing and service worldwide.Hertz derives approximately 74% of its car rental revenues from on-airport locations. The Hertz #1Club GoldTM service provides an expedited rental service to members worldwide. Through its manytravel industry relationships with airlines and hotels, Hertz has targeted the most frequent travelersto become Hertz #1 Club GoldTM members.

Hertz, through its wholly owned subsidiary, Hertz Equipment Rental Corporation (‘‘HERC’’), alsooperates one of the largest industrial and construction equipment rental businesses in North Americabased upon revenues and maintains a significant market share in the North American industrial andconstruction equipment rental market. HERC rents a broad range of earthmoving equipment,

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material handling equipment, aerial and electrical equipment, air compressors, pumps, small tools,compaction equipment and construction-related trucks.

Other activities of Hertz include self-insurance operations for both its car rental and industrialand construction equipment rental businesses, the sale of its used cars and equipment andthird-party claim management services.

Hertz operates its businesses from approximately 7,200 locations throughout the United Statesand in over 150 foreign countries and jurisdictions. Hertz is an indirect, wholly-owned subsidiary ofFord.

Below are some financial highlights for Hertz as consolidated in our Statement of Income(in millions):

Years EndedDecember 31,

2003 2002

Revenue ********************************************************************** $5,200 $4,945

Pre-Tax Income **************************************************************** 228 200

Income from continuing operations *********************************************** 149 128

Net Income/(Loss) ************************************************************** 149 (166)

Governmental Standards

A number of governmental standards and regulations relating to safety, corporate average fueleconomy (‘‘CAFE’’), emissions control, noise control, damageability, and theft prevention areapplicable to new motor vehicles, engines, and equipment manufactured for sale in the UnitedStates, Europe and elsewhere. In addition, manufacturing and assembly facilities in the UnitedStates, Europe and elsewhere are subject to stringent standards regulating air emissions, waterdischarges, and the handling and disposal of hazardous substances. Such facilities in the UnitedStates and Europe also are subject to comprehensive national, regional, and/or local permitprograms with respect to such matters.

Mobile Source Emissions Control — U.S. Requirements. The Federal Clean Air Act imposesstringent limits on the amount of regulated pollutants that lawfully may be emitted by new motorvehicles and engines produced for sale in the United States. Currently, most light duty vehicles soldin the United States must comply with these standards for 10 years or 100,000 miles, whichever firstoccurs. The U.S. Environmental Protection Agency (‘‘EPA’’) has promulgated post-2004 model yearstandards that are more stringent than the default standards contained in the Clean Air Act. Thesenew regulations will require most light duty trucks to meet the same emissions standards aspassenger cars by the 2007 model year. The stringency of the new standards presents compliancechallenges and is likely to hinder efforts to employ light-duty diesel technology, which couldnegatively impact our ability to meet CAFE standards. The EPA also has promulgated post-2004emission standards for ‘‘heavy-duty’’ trucks (8,500-14,000 lbs. gross vehicle weight). Thesestandards are likely to pose technical challenges and may affect the competitive position of full-linevehicle manufacturers such as Ford.

Pursuant to the Clean Air Act, California has received a waiver from the EPA to establish itsown unique emissions control standards. New vehicles and engines sold in California must becertified by the California Air Resources Board (‘‘CARB’’). CARB has adopted stringent vehicleemissions standards that started phasing in with the 2004 model year. These new standards treatmost light duty trucks the same as passenger cars and require both types of vehicles to meet newstringent emissions requirements. As with the EPA’s post-2004 standards, CARB’s vehicle standardspresent a difficult engineering challenge, and will essentially rule out the use of light-duty dieseltechnology.

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Since 1990, the California program has included requirements for manufacturers to produce anddeliver for sale zero-emission vehicles, which produce no emissions of regulated pollutants (‘‘ZEV’’).Currently available ZEVs are typically battery-powered vehicles with narrow consumer appeal due totheir limited range, reduced functionality, and high cost. The ZEV mandate initially required that aspecified percentage of each manufacturer’s vehicles produced for sale in California, beginning at2% in 1998 and increasing to 10% in 2003, must be ZEVs. In 1996, CARB eliminated the ZEVmandate for the 1998-2002 model years, but retained the 10% mandate in a modified formbeginning with the 2003 model year. Around the same time, vehicle manufacturers voluntarilyentered into agreements with CARB to conduct ZEV demonstration programs.

In 2001, CARB proposed a number of changes to the ZEV mandate that were ultimatelywithdrawn, in part as a result of litigation by some manufacturers. In April 2003, CARB voted toadopt new amendments to the ZEV mandate that shift the near-term focus of the regulation awayfrom battery-electric vehicles to advanced-technology vehicles (e.g., hybrid electric vehicles orcompressed natural gas vehicles) with extremely low — but not zero — tailpipe emissions. The rulesalso give some credit for so-called ‘‘partial zero emission vehicles’’ (‘‘PZEVs’’), which can be internalcombustion engine vehicles certified to very low tailpipe emissions and zero evaporative emissions.In addition, the rules call on the industry to ramp up production of zero-emission fuel cell vehiclesover the longer term. In the aggregate, the industry must produce 250 zero-emission fuel cellvehicles by the 2008 model year, and 2,500 more in the 2009-2011 model year period. A panel ofindependent experts will review the feasibility of these requirements in 2006. While the changesappear to reflect a recognition that battery-electric vehicles simply do not have the potential toachieve widespread customer acceptance, there are substantial questions about the feasibility ofproducing the required number of fuel-cell vehicles due to the substantial engineering challengesand high costs associated with this technology.

The Clean Air Act permits other states that do not meet national ambient air quality standards toadopt California’s motor vehicle emission standards no later than two years before the affectedmodel year. New York, Massachusetts, Vermont, and Maine adopted the California standardseffective with the 2001 model year or before. New York and Massachusetts have adopted theCalifornia ZEV mandate along with alternative ZEV compliance programs. In January 2004, the NewJersey legislature voted to adopt California standards, including the ZEV mandate. Other states,including Maryland and Connecticut, are currently considering the adoption of California standards.There are problems with transferring California standards to northeast states, including the following:1) the driving range of ZEVs is greatly diminished in cold weather, thereby limiting their marketappeal; and 2) the northeast states have refused to adopt the California reformulated gasolineregulations, which may impair the ability of vehicles to meet California’s in-use standards.

Ford has accumulated ZEV credits in California, New York and Massachusetts through sales ofTH!NK brand electric vehicles, and it has plans to accumulate more credits by selling future PZEVmodels. In the longer term, however, it is doubtful whether the market will support the number ofbattery electric vehicles called for by the modified ZEV mandate. Fuel cell technology may in thefuture enable production of ZEVs with widespread consumer appeal. However, due to theengineering challenges, the high cost of the technology, infrastructure needs, and other issues, itdoes not appear that mass production of fuel cell vehicles will be commercially feasible for years tocome. Compliance with the ZEV mandate may eventually require costly actions that would have asubstantial adverse effect on Ford’s sales volume and profits. For example, Ford could be required tocurtail the sale of non-electric vehicles and/or offer to sell electric vehicles well below cost. Otherstates may seek to adopt CARB’s ZEV mandate pursuant to the Clean Air Act, thereby increasingthe costs to Ford.

Under the Clean Air Act, the EPA and CARB can require manufacturers to recall and repairnon-conforming vehicles. The EPA, through its testing of production vehicles, also can halt the

15


shipment of non-conforming vehicles. Ford may be required to recall, or may voluntarily recall,vehicles for such purposes in the future. The costs of related repairs or inspections associated withsuch recalls, or the cost of a stop-shipment order, could be substantial.

European Requirements. European Union (‘‘EU’’) directives and related legislation limit theamount of regulated pollutants that may be emitted by new motor vehicles and engines sold in theEU. In 1998, the EU adopted a new directive on emissions from passenger cars and lightcommercial trucks. More stringent emissions standards applied to new car certifications beginningJanuary 1, 2000 and to new car registrations beginning January 1, 2001 (‘‘Stage III Standards’’). Asecond level of even more stringent emission standards will apply to new car certifications beginningJanuary 1, 2005 and to new car registrations beginning January 1, 2006 (‘‘Stage IV Standards’’).The comparable light commercial truck Stage III Standards and Stage IV Standards come into effectone year later than the passenger car requirements. The directive includes a framework that permitsEU member states to introduce fiscal incentives to promote early compliance with these standards.The directive also introduced on-board diagnostic requirements, more stringent evaporative emissionrequirements, and in-service compliance testing and recall provisions for emissions-related defectsthat occur in the first five years or 80,000 kilometers of vehicle life (extended to 100,000 kilometersin 2005). Failures of in-service compliance tests could lead to vehicle recalls with substantial costsfor related inspections or repairs. The Stage IV Standards for diesel engines have proven technicallydifficult and have precluded manufacturers from offering some products in time to be eligible forgovernment incentive programs. A related EU directive was adopted, also in 1998, which establishesstandards for cleaner fuels beginning in 2000 and even cleaner fuels in 2005. A further change tothe Fuels Directive was agreed in 2003, which reduced the maximum sulphur limit in gasoline anddiesel to 10 ppm — widespread market availability is required from 2005 and mandated in 2009. TheEU is commencing a program in 2004 to determine the specifics for further changes to vehicleemission standards. These are expected to concentrate on diesel particulates and NOx from 2010.

Stationary Source Emissions Control — U.S. Requirements. In the United States, the FederalClean Air Act also requires the EPA to identify ‘‘hazardous air pollutants’’ from various industries andpromulgate rules restricting their emission. The EPA has issued proposed or final rules for a varietyof industrial categories, several of which would further regulate emissions from our U.S. operations,including engine testing, automobile surface coating and iron casting. These technology-basedstandards could require certain of our facilities to significantly reduce their air emissions. Additionalprograms under the Clean Air Act, including Compliance Assurance Monitoring and periodicmonitoring could require our facilities to install additional emission monitoring equipment. The cost tous, in the aggregate, to comply with these requirements could be substantial.

Motor Vehicle Safety — U.S. Requirements. The National Traffic and Motor Vehicle Safety Actof 1966 (the ‘‘Safety Act’’) regulates motor vehicles and motor vehicle equipment in the UnitedStates in two primary ways. First, the Safety Act prohibits the sale in the United States of any newvehicle or equipment that does not conform to applicable motor vehicle safety standards establishedby the National Highway Traffic Safety Administration (the ‘‘Safety Administration’’). Meeting orexceeding many safety standards is costly because the standards tend to conflict with the need toreduce vehicle weight in order to meet emissions and fuel economy standards. Second, the SafetyAct requires that defects related to motor vehicle safety be remedied through safety recallcampaigns. A manufacturer also is obligated to recall vehicles if it determines that they do notcomply with a safety standard. Should Ford or the Safety Administration determine that either asafety defect or a noncompliance exists with respect to certain of Ford’s vehicles, the costs of suchrecall campaigns could be substantial. There were pending before the Safety Administrationapproximately 10 investigations relating to alleged safety defects or potential compliance issues inFord vehicles as of February 18, 2004.

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The Transportation Recall Enhancement, Accountability, and Documentation Act (the ‘‘TREADAct’’) was signed into law in November 2000. The TREAD Act mandates that the SafetyAdministration establish several new regulations including reporting requirements for motor vehiclemanufacturers on foreign recalls and certain information received by the manufacturer that mayassist the agency in the identification of safety defects.

Foreign Requirements. Canada, the EU, individual member countries within the EU, and othercountries in Europe, South America and the Asia Pacific markets also have safety standardsapplicable to motor vehicles and are likely to adopt additional or more stringent standards in thefuture. In addition, the European Automobile Manufacturers Association (of which Ford is a member)(‘‘EAMA’’) made a voluntary commitment in June 2001 to introduce a range of safety measures toimprove pedestrian protection with the first phase starting in 2005 and a second phase starting in2010. Similar commitments were subsequently made by the Japanese and Korean automobilemanufacturers associations. As a result, over 99% of cars and small vans sold in Europe arecovered by industry safety commitments. The European Council of Ministers and the EuropeanParliament published a directive in December 2003 and a decision in February 2004, which togetherlay down detailed technical provisions for enforcement of the industry commitments (i.e., theapplication dates, the types of tests to be conducted the test procedures to be used and the limitvalues to be achieved).

Motor Vehicle Fuel Economy — U.S. Requirements. Under federal law, vehicles must meetminimum corporate average fuel economy (‘‘CAFE’’) standards set by the Safety Administration. Amanufacturer is subject to potentially substantial civil penalties if it fails to meet the CAFE standardin any model year, after taking into account all available credits for the preceding three model yearsand expected credits for the three succeeding model years.

The law established a passenger car CAFE standard of 27.5 mpg for 1985 and later modelyears, which the Safety Administration believes it has the authority to amend to a level it determinesto be the maximum feasible level. The current CAFE standard applicable to light trucks is 20.7 mpg.In April 2003, the Safety Administration issued a final rule increasing the CAFE standard for lighttrucks to 21.0 mpg for model year 2005; 21.6 mpg for model year 2006; and 22.2 mpg for modelyear 2007. The Safety Administration is currently seeking public comment on the possibility ofchanging the framework of the light truck CAFE standards and/or creating a new vehicleclassification scheme. It is anticipated that the Safety Administration will also start a rulemakingprocess to increase CAFE standards for passenger cars in the near future. There is renewed interestin CAFE in Congress, and there is some potential for new legislation that avoids the regulatoryprocess and establishes new standards by statute.

Pressure to increase CAFE standards stems in part from concerns over greenhouse gasemissions (‘‘GHGs’’), which may affect the global climate. With respect to greenhouse gasemissions, the Bush administration released a climate change policy initiative in February 2002. TheBush administration plan stresses voluntary measures and a cap-and-trade program to stem thegrowth of greenhouse gas emissions. The Bush administration also has launched the Freedom Carinitiative, which supports research for fuel cell-powered vehicles. Other nations continue to press forUnited States ratification of the so-called ‘‘Kyoto Protocol’’, which would require the United States toreduce greenhouse gas emissions by 7% below its 1990 levels. The Kyoto Protocol does notcurrently have the support of either the Bush administration or Congress. Separately, a petition wasfiled with the EPA requesting that it regulate carbon dioxide (CO2, a greenhouse gas) emissions frommotor vehicles under the Clean Air Act. The petitioners filed suit in an effort to compel a formalresponse from the EPA. In August 2003, EPA denied the petition on the grounds that 1) the CleanAir Act does not authorize EPA to regulate GHGs, and 2) only the Safety Administration isauthorized to regulate fuel economy under the CAFE law. A number of states, cities, andenvironmental groups have filed for review of EPA’s decision in the United States Court of Appeals

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for the District of Columbia Circuit. We anticipate that a coalition of states and industry trade groups,including the Alliance of Automobile Manufacturers, will seek to intervene in support of EPA’sdecision.

In 2002, California enacted legislation authorizing CARB to regulate greenhouse gas emissionsfrom new motor vehicles beginning in the 2009 model year. Other states are considering similarlegislation. CO2 is the primary greenhouse gas emitted from motor vehicles, and the amount ofCO2 emissions is proportional to the amount of fuel used. It is possible that CARB may attempt toimplement the law by setting fleet average standards for vehicle CO2 emissions, although we believethis would be prohibited by the federal fuel economy law. CARB is expected to promulgateregulations in this area during the 2005 calendar year.

In general, a continued increase in demand for larger vehicles, coupled with a decline indemand for small and middle-size vehicles, could jeopardize our long-term ability to comply withCAFE standards. In addition, if significant increases in CAFE standards for upcoming model yearsare imposed beyond those presently in effect or proposed, or if the EPA or other agencies regulateCO2 emissions from motor vehicles, we might find it necessary to take various costly actions thatcould have substantial adverse effects on our sales volume and profits. For example, we might haveto curtail production of larger, family-size and luxury cars and full-size light trucks, restrict offeringsof engines and popular options, and increase market support programs for our most fuel-efficientcars and light trucks.

Foreign Requirements. The EU also is a party to the Kyoto Protocol and has agreed to reducegreenhouse gas emissions by 8% below their 1990 levels during the 2008-2012 period. In December1997, the European Council of Environment Ministers (the ‘‘Environment Council’’) reaffirmed its goalto reduce average CO2 emissions from new cars to 120 grams per kilometer by 2010 (at the latest)and invited European motor vehicle manufacturers to negotiate further with the EuropeanCommission on a satisfactory voluntary environmental agreement to help achieve this goal. InOctober 1998, the EU agreed to support an environmental agreement with EAMA (of which Ford is amember) on CO2 emission reductions from new passenger cars (the ‘‘Agreement’’). The Agreementestablishes an emission target of 140 grams of CO2 per kilometer for the average of new cars soldin the EU by the Association’s members in 2008. In addition, the Agreement established an interimestimated target range of 165-170 grams of CO2 per kilometer for the average of new cars sold in2003. In 2004, EAMA and the European Commission will review the potential for additional CO2

reductions, with a view to moving further toward the EU’s objective. The Agreement assumes(among other things) that no negative measures will be implemented against diesel-fueled cars andthe full availability of improved fuels with low sulfur content in 2005. Average CO2 emissions of140 grams per kilometer for new passenger cars corresponds to a 25% reduction in averageCO2 emissions compared to 1995.

The Environment Council requested the European Commission to review in 2004 the EU’sprogress toward reaching the 120 gram target by 2010, and to implement annual monitoring of theaverage CO2 emissions from new passenger cars and progress toward achievement of theobjectives for 2003. To date, the industry has made very good progress and has met the interimtarget for 2003 (170-165g CO2/km). The CO2 target to be achieved for 2008 is 140g CO2/km.

In 1995, members of the German Automobile Manufacturers Association (including Ford WerkeAG) made a voluntary pledge to increase by 2005 the average fuel economy of new cars sold inGermany by 25% from 1990 levels, to make regular reports on fuel consumption, and to increaseindustry research and development efforts toward this end. The German Automobile ManufacturersAssociation has reported that the industry is on track to meet the pledge.

Other European countries are considering other initiatives for reducing CO2 emissions frommotor vehicles, including fiscal measures. For example, the UK introduced vehicle excise duty and

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company car taxation based on CO2 emissions in 2001. Taken together, such proposals could havesubstantial adverse effects on our sales volumes and profits in Europe.

End-of-Life Vehicle Directive — The European Parliament has published a directive imposing anobligation on motor vehicle manufacturers to take back end-of-life vehicles with zero or negativevalue registered after July 1, 2002, and to take back all other end-of-life vehicles with zero ornegative value as of January 1, 2007, with no cost to the last owner. The directive also imposesrequirements on the proportion of the vehicle that may be disposed of in landfills and the proportionthat must be reused or recycled beginning in 2006, and bans the use of certain substances invehicles beginning with vehicles registered after July 2003. Member states may apply theseprovisions prior to the dates mentioned above.

Presently, there are numerous uncertainties surrounding the form and implementation of thelegislation in different member states, especially regarding manufacturers’ responsibilities and theresultant expenses that may be incurred. As of December 31, 2003, the following member stateshave adopted legislation to implement the directive: The Netherlands, Germany, Belgium, Austria,Spain, Luxemburg, Italy, France, Ireland, Portugal and Sweden. On April 16, 2003, ten countriessigned an accession agreement with the European Union to become new members of the EuropeanUnion on May 1, 2004. Of those states, only Slovenia has implemented the ELV Directive and theothers are expected to implement the ELV Directive during 2004. Based on the legislation that hasbeen enacted to date, we have accrued $103 million at December 31, 2003 for compliance costs weexpect to incur in respect of our existing vehicle populations in those and other countries. Dependingon the legislation implemented in the ten member states that have not yet enacted legislation andother circumstances, we may be required to make additional accruals for the expected costs tocomply with these regulations. Although all of the member states were required to enact legislationto implement the directive by April 21, 2002, implementation of the directive has been delayed insome countries and is now expected to be substantially finalized during 2004. The directive shouldnot, however, result in significant cash expenditures before 2007.

Mobile Air Conditioning — The European Commission adopted a draft regulation in August 2003to phase out the use of HFC-134a as a refrigerant in mobile air conditioning units. The regulationwould phase out the use of this refrigerant between 2009 and 2013 and provide credits for the earlyintroduction of more leak-resistant air conditioning systems and alternative refrigerants. Theserequirements may increase the cost of vehicle air conditioning. This proposed regulation has beenreferred to the European Council and the European Parliament for their consideration.

European Chemicals Policy — The European Commission adopted a draft regulation in October2003 for a single system to register, evaluate, and authorize the use of certain chemicals(‘‘REACH’’). Final adoption of the regulation is anticipated in 2005 to 2006 with compliance requiredone to two years later. The regulation may accelerate the ban or restriction on use of certainchemicals and materials, which could increase the costs of certain products and processes used tomanufacture vehicles and parts.

Pollution Control Costs — During the period 2004 through 2008, we expect to spendapproximately $430 million on our North American and European facilities to comply with air andwater pollution and hazardous waste control standards, which are now in effect or are scheduled tocome into effect. Of this total, we estimate spending approximately $122 million in 2004 and$120 million in 2005. Specific environmental expenses are difficult to isolate because expendituresmay be made for more than one purpose, making precise classification difficult.

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Employment Data

The number of on-roll employees we employed at December 31, 2003 and 2002 was:

2003 2002

Operating Sector

Automotive

Americas

North America ********************************************************* 122,201 128,094

South America ********************************************************* 10,102 9,882

International

Ford Europe *********************************************************** 61,685 65,872

Ford Asia Pacific ******************************************************* 15,302 14,952

Premier Automotive Group ********************************************** 52,347 52,678

Other International Automotive******************************************* 2,644 2,445

Financial Services

Ford Motor Credit Company *********************************************** 19,270 19,751

The Hertz Corporation **************************************************** 29,347 28,924

Other Financial Services ************************************************** 5 1,215

Total Before FIN 46 **************************************************** 312,903 323,813

Employees Added Under FIN 46* ********************************************** 14,628 —

Total ****************************************************************** 327,531 323,813

* Includes 7,973 in North America and 6,655 in Ford Europe

Our labor cost per hour worked for hourly employees of Ford Motor Company (includingemployees assigned to Visteon Corporation), excluding subsidiaries, for the following years was:

2003 2002

Earnings ********************************************************************** $30.27 $29.34

Benefits *********************************************************************** 31.15 23.31

Total ************************************************************************ $61.42 $52.65

The increase in benefits for our hourly employees in 2003 over 2002 primarily reflectedincreased health care costs, a one-time $3,000 lump sum payment to each of our U.S. hourlyemployees upon the ratification of our new collective bargaining agreement with the UAW (discussedbelow) and increased pension expense.

As shown in the table above, from December 31, 2002 to December 31, 2003, the number ofpeople we employ increased approximately one percent. The 2003 number includes 14,628employees that were added to our on-roll employment numbers as a result of the consolidation ofseveral joint ventures that were deemed variable interest entities of which we are the primarybeneficiary under Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 46,Consolidation of Variable Interest Entities (‘‘FIN 46’’). Excluding the effects of the consolidation ofthese entities, the number of employees on-roll would have declined 10,910 (or approximately threepercent).

The employment numbers in the table above exclude approximately 20,000 hourly employees ofFord who are assigned to Visteon Corporation (‘‘Visteon’’), and, pursuant to our collective bargainingagreement with the International Union, United Automobile, Aerospace and Agricultural ImplementWorkers of America (the ‘‘UAW’’), remain Ford employees. Visteon reimburses us for most of thecosts associated with these employees. For information regarding agreements entered into withVisteon in December 2003 relating to these employees and other matters, see Item 7.‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’.

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Substantially all of the hourly employees in our Automotive operations in the United States arerepresented by unions and covered by collective bargaining agreements. Approximately 99% ofthese unionized hourly employees in our Automotive segment are represented by the UAW.Approximately 3% of our salaried employees are represented by unions. Most hourly employees andmany non-management salaried employees of our subsidiaries outside the United States also arerepresented by unions.

We have entered into collective bargaining agreements with the UAW and the NationalAutomobile, Aerospace, Transportation and General Workers Union of Canada (‘‘CAW’’). Theagreement with the UAW is scheduled to expire on September 14, 2007 and the agreement with theCAW is scheduled to expire on September 20, 2005. Among other things, our agreements with theUAW and CAW provide for guaranteed wage and benefit levels throughout their terms and providefor significant employment security. As a practical matter, these agreements may restrict our abilityto eliminate product lines, close plants, and divest businesses.

Our new collective bargaining agreements are consistent with our Revitalization Plan andprovide us the flexibility necessary to achieve the goals of that plan. This flexibility includes theability to reduce manufacturing capacity by one million units in North America by closing fourassembly plants, improvement in our ability to bring Ford employees assigned to Visteon back to fillplant openings for which we otherwise would have to hire new employees and increased operatingflexibility. The return of Ford employees will provide us the opportunity to fill labor requirements froman experienced pool of UAW-represented employees.

In 2003, we negotiated new agreements with labor unions in Mexico, France, Britain, Sweden,Australia, Taiwan, Thailand, New Zealand, Belgium, and Brazil.

We are or will be negotiating new collective bargaining agreements with labor unions in Mexico,Germany, Vietnam, South Africa, Taiwan, Britain, Brazil and Venezuela where current agreementswill expire in 2004. We will also be negotiating new collective bargaining agreements to coveremployees at our Volvo and Jaguar affiliates in 2004.

In recent years, we have not had significant work stoppages at our facilities, but they haveoccurred in some of our suppliers’ facilities. A work stoppage could occur as a result of disputesunder our collective bargaining agreements with labor unions or in connection with negotiations ofnew collective bargaining agreements, which, if protracted, could adversely affect our business andresults of operation. Work stoppages at supplier facilities for labor or other reasons could havesimilar consequences if alternate sources of components are not readily available.

In addition to our collective bargaining agreement with the UAW, in 1989 we entered into aseparate agreement with the UAW in connection with the sale of our Dearborn steel-makingoperations to Rouge Industries, Inc., then known as Marico Acquisition Corp. As part of the sale,employees of our former steel-making operations became employees of Rouge Steel Company, awholly-owned subsidiary of Rouge Industries, Inc. (‘‘Rouge’’). Pursuant to the UAW agreement, weagreed that Rouge hourly employees who, at the time of the sale, were represented by the UAWand met certain seniority requirements would be allowed to return to Ford to work in one of ourRouge area plants if they were laid off by Rouge in the future as a result of a layoff of unknownduration, a permanent discontinuance of operations by Rouge or a sale of the assets of Rouge. Theright to return remains in effect with respect to each eligible employee for a period equal to theemployee’s Ford seniority as of the date of the sale by Ford. Approximately 700 former Fordemployees are covered by this agreement. On October 23, 2003, Rouge filed a voluntary petitionunder Chapter 11 of the Bankruptcy Code. On December 30, 2003, the bankruptcy court approvedthe sale of substantially all of Rouge’s assets to Severstal North America, Inc. (‘‘Severstal’’), whichsale closed on January 30, 2004. On February 23, 2004, Ford entered into an agreement with theUAW to provide opportunities to the employees of Rouge who would have had the right to return to

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Ford under the circumstances described above. These employees were provided an option to(i) continue employment with Severstal, begin receipt of Ford-UAW retirement benefits if otherwiseeligible, and waive any claims against Ford relating to the prior agreement, (ii) continue inemployment with Severstal for a retention period before termination, begin receipt of Ford-UAWretirement benefits while employed by Severstal if otherwise eligible, and at termination be eligiblefor an incentive benefit funded by Ford and waive any claims against Ford relating to the prioragreement, or (iii) terminate employment with Severstal, immediately transfer to Ford employment,and waive any claims against Ford relating to the prior agreement.

Engineering, Research and Development

We conduct engineering, research and development primarily to improve the performance(including fuel efficiency), safety and customer satisfaction of our products, and to develop newproducts. We also have staffs of scientists who engage in basic research. We maintain extensiveengineering, research and design centers for these purposes, including large centers in Dearborn,Michigan; Dunton, Gaydon and Whitley, England; Gothenburg, Sweden; and Aachen and Merkenich,Germany. Most of our engineering research and development relates to our Automotive operatingsegment. In general, our engineering activities that do not involve basic research or productdevelopment, such as manufacturing engineering, are excluded from our engineering, research anddevelopment charges discussed below.

During the last three years, we recorded charges to our consolidated income for engineering,research and development we sponsored in the following amounts: $7.5 billion (2003), $7.7 billion(2002), and $7.3 billion (2001). Any customer-sponsored research and development activities that weconduct are not material.

ITEM 2. PROPERTIES

Our principal properties include manufacturing and assembly facilities, distribution centers,warehouses, sales or administrative offices and engineering centers.

We own substantially all of our U.S. manufacturing and assembly facilities. These facilities aresituated in various sections of the country and include assembly plants, engine plants, castingplants, metal stamping plants, and transmission plants. Most of our distribution centers are leased(approximately 40% of our total square footage is owned). A substantial amount of our warehousingis provided by third party providers under service contracts. All of the warehouses that continue tobe operated by us are leased, although many of our manufacturing and assembly facilities containsome warehousing space. Substantially all of our sales offices are being leased. Approximately 90%of the total square footage of our engineering centers and our supplementary research anddevelopment space is owned by us.

In addition, we maintain and operate manufacturing plants, assembly facilities, parts distributioncenters, and engineering centers outside the United States. We own substantially all of themanufacturing plants, assembly facilities, and engineering centers. The majority of our partsdistribution centers outside of the United States are either leased or provided by vendors underservice contracts.

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Item 2. Properties (Continued)

The total number plants, distribution centers/warehouses, engineering and research anddevelopment sites, and sales offices used by the Americas and International segments of ourAutomotive sector are shown below.

Distribution Engineering,Segment Plants Centers/Warehouses Research/Development Sales Offices

Americas ********************************* 56 51 42 43

International ****************************** 46 16 9 28

Total *********************************** 102 67 51 71

Included in the number of plants used by the International segment shown above are severalplants that are not operated directly by us, but rather by consolidated joint ventures that operateplants that support our Automotive sector. The following are the most significant of theseconsolidated joint ventures and the number of plants they own.

) Ford Otosan — a joint venture in Turkey between Ford (41% partner), the Koc Group of Turkey(41% partner) and public investors (18%) that is our single source supplier of the new FordTransit Connect vehicle. In addition, we have announced that production of the Ford TransitVan in Europe will increase at the Kocaeli Plant owned by Ford Otosan to effectively replacethe production that ceased at our Genk Plant in Belgium. Ford Otosan currently assembles alimited number of Transit Vans for selected markets. Once production of the Ford Transit Vanis increased, Ford Otosan will assemble Transit as a major supplier to Ford Europe.Production of the Transit Van in Southampton, England will continue. This joint ventureoperates two plants.

) Getrag Ford Transmissions GmbH — a 50/50 joint venture with Getrag Deutsche VentureGmbH & Co. Kg i.G., a German company, to which we transferred our European manualtransmission operations in Halewood, England, Cologne, Germany and Bordeaux, France. In2004, Volvo Car Corporation (‘‘Volvo Cars’’) agreed to transfer its manual transmissionoperations from its Koping, Sweden plant to this joint venture. The Getrag joint ventureproduces manual transmissions for our operations in Europe (Ford Europe and PAG). Fordcurrently supplies most of the hourly and salaried labor requirements of the operationstransferred to the Getrag joint venture. Ford employees who worked at the manualtransmission operations that were transferred at the time of the formation of the joint ventureare assigned to the joint venture by Ford. In the event of surplus labor at the joint venture,Ford employees assigned to the joint venture may return to Ford. Employees hired in thefuture to work in these operations will be employed directly by the joint venture. Getrag FordTransmissions GmbH reimburses Ford for the full cost of the hourly and salaried laborsupplied by Ford. This joint venture operates or will operate three plants.

) Getrag All Wheel Drive AB — a joint venture in Sweden between Getrag Dana Holding GmbH(‘‘Getrag/Dana’’) (60 % partner) and Volvo Cars (40% partner). In January 2004, Volvo Carsentered into agreements with Getrag/Dana to transfer Volvo Cars’ plant in Koping, Sweden tothis joint venture. The joint venture will produce all wheel drive components and, for a time,chassis components as well. The manual transmission operations at the Koping plant will betransferred to Getrag Ford Transmissions GmbH. The hourly and salaried employees at theplant have become employees of the joint venture.

) TEKFOR Cologne GmbH — a 50/50 joint venture with Neumayer Holding GmbH, a Germancompany, to which Ford-Werke AG transferred the operations of the Ford forge in Cologne.The joint venture produces forged components, primarily for transmissions and chassis, foruse in Ford vehicles and sale to third parties. Those Ford employees that worked at theCologne Forge Plant at the time of the formation of the joint venture are assigned to the jointventure by Ford and remain employees of Ford. All new employees hired to work at the forge

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will be hired as employees of the joint venture. In the event of surplus labor at the jointventure, Ford employees assigned to the joint venture may return to Ford. TEKFOR CologneGmbH reimburses Ford for full cost of the Ford employees assigned to the joint venture. Thisjoint venture operates one plant.

) Pininfarina Sverige, AB — a joint venture between Volvo Cars (40% partner) and Pininfarina,S.p.A. (60% partner). In September 2003, Volvo Cars entered into agreements withPininfarina to establish this joint venture for the engineering and manufacture of nichevehicles, starting with a new, small convertible. Volvo Cars will outsource the design andengineering to Pininfarina with the manufacturing performed by the joint venture. The jointventure will produce the car at the Uddevalla Plant in Sweden, which was transferred fromVolvo Cars to the joint venture and is the joint venture’s only plant.

) Ford Vietnam Limited — a joint venture between Ford (75% partner) and Song Kong Diesel(25% partner). Ford Vietnam assembles and distributes several Ford vehicles in Vietnam,including Transit, Laser, Ranger and Escape. This joint venture operates one plant.

) Ford India Private Limited — a joint venture between Ford (84% partner) and Mahindra &Mahindra Limited (16% partner). Ford India assembles and distributes the Ford Ikon andEndeavour in India, Nepal and Bangladesh. Ford India also imports and distributes theMondeo. Ikon kits are exported to Mexico, South Africa and China. This joint venture operatesone plant.

) Ford Lio Ho Motor Company Ltd. (‘‘FLH’’) — a joint venture in Taiwan among Ford (70%partner), the Lio Ho Group (25% partner) and individual shareholders (5% ownership inaggregate) that assembles a variety of Ford and Mazda vehicles sourced from North America,Europe, Mazda, and Suzuki, including Escape, Tribute, Mondeo, Tierra, Mazda Protege,Econovan, Mazda Bongo, and Suzuki Pronto. In addition to domestic assembly, FLH alsoimports/distributes built-up vehicles from North America and Europe. This joint ventureoperates one plant.

In addition to the plants that we operate directly or that are operated by consolidated jointventures, additional plants that support our Automotive sector are operated by other, non-consolidatedjoint ventures of which we are a partner. These additional plants are not included in the number ofplants shown in the table above. The most significant of these joint ventures are:

) AutoAlliance International (‘‘AAI’’) — a 50/50 joint venture with Mazda (of which we own33.4%), which owns and operates as its principal business an automobile vehicle assemblyplant in Flat Rock, Michigan. AAI currently produces the Mazda6 vehicle and will produce thenext-generation Ford Mustang beginning later this year for the 2005 model year. Ford suppliesall of the hourly and substantially all of the salaried labor requirements to AAI and AAIreimburses Ford for the full cost of that labor.

) AutoAlliance (Thailand) (‘‘AAT’’) — a 50/50 joint venture with Mazda, which owns and operatesa manufacturing plant in Rayong, Thailand. AAT produces the Ford Ranger, Ford Everest andMazda B-Series pickup trucks for the Thai market and for export to over 100 countriesworldwide (other than North America), in both built up and kit form.

) Blue Diamond Truck, S de RL de CV — a joint venture between Ford (49% partner) andInternational Truck and Engine Corporation (51% partner), a subsidiary of NavistarInternational Corporation (‘‘Navistar’’). Blue Diamond Truck develops and manufacturesselected medium and light commercial trucks in Mexico and sells the vehicles to Fordand Navistar for their own independent distribution. Blue Diamond Truck commencedmanufacturing operations in December 2002, with its first products, the Ford F-650/750 trucks,being shipped in February 2003.

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) Blue Diamond Parts, LLC — a joint venture between Ford (51% partner) and Navistar (49%partner). Blue Diamond Parts manages sourcing, merchandising, and distribution of variousreplacement parts.

) Tenedora Nemak, S.A. de C.V. — a joint venture between Ford (20% partner) and asubsidiary of Alfa S.A. de C.V., a Mexican conglomerate (80% partner), that owns andoperates, among other facilities, our former Canadian castings operations and supplies engineblocks and heads to several of our engine plants. Ford supplies a portion of the hourly laborrequirements for the Canadian plants, for which it is fully reimbursed by the joint venture.

) Changan Ford Automobile Corporation (‘‘Changan Ford’’) — a 50/50 joint venture betweenFord and the Chongqing Changan Automobile Co, Ltd. Changan Ford produces anddistributes in China a compact family sedan vehicle, the Ford Fiesta, and is planning to launchthe Ford Mondeo model in 2003.

) Jiangling Motors Corporation — a joint venture in China between Ford (30% partner), theJiangling Motors Company Group of China (41% partner) and public investors (29%) thatassembles the Ford Transit Van and other non-Ford vehicles for distribution in China.

) Ford Malaysia Sdn. Bhd. — a joint venture between Ford (49% partner) and Tractors Malaysia,a publicly-traded subsidiary of Sime Darby (51% partner). Ford Malaysia distributes Fordvehicles assembled by its wholly-owned subsidiary AMI, an assembly company, includingLaser, Ranger, Everest, Escape and Econovan.

The furniture, equipment and other physical property owned by our Financial Servicesoperations are not material in relation to their total assets.

The facilities owned or leased by us or our subsidiaries and joint ventures described above are,in the opinion of management, suitable and adequate for the manufacture and assembly of ourproducts.

ITEM 3. LEGAL PROCEEDINGS

Overview

Various legal actions, governmental investigations and proceedings and claims are pending ormay be instituted or asserted in the future against us and our subsidiaries, including, but not limitedto, those arising out of the following: alleged defects in our products; governmental regulationscovering safety, emissions, and fuel economy; financial services; employment-related matters;dealer, supplier, and other contractual relationships; intellectual property rights; product warranties;environmental matters; and shareholder matters. Some of the pending legal actions are, or purportto be, class actions. Some of the foregoing matters involve or may involve compensatory, punitive orantitrust or other multiplied damage claims in very large amounts, or demands for recall campaigns,environmental remediation programs, sanctions or other relief that, if granted, would require verylarge expenditures. We regularly evaluate the expected outcome of product liability litigation andother litigation matters. We have accrued expenses for probable losses on product liability matters,in the aggregate, based on an analysis of historical litigation payouts and trends. Expenses alsohave been accrued for other litigation where losses are deemed probable. These accruals arereflected in our financial statements.

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Item 3. Legal Proceedings (Continued)

Following is a discussion of our significant pending legal proceedings:

Product Liability Matters

Asbestos Matters. Asbestos was used in brakes, clutches and other automotive componentsdating from the early 1900s. Along with other vehicle manufacturers, we have been the target ofasbestos litigation and, as a result, we are a defendant in various actions for injuries claimed to haveresulted from alleged contact with certain Ford parts and other products containing asbestos.Plaintiffs in these personal injury cases allege various health problems as a result of asbestosexposure either from (i) component parts found in older vehicles (ii) insulation or other asbestosproducts in our facilities or (iii) asbestos aboard our former maritime fleet. The majority of thesecases have been filed in the state courts.

Most of the asbestos litigation we face involves mechanics or other individuals who have workedon the brakes of our vehicles over the years. Also, in most asbestos litigation we are not the soledefendant. We believe we are being more aggressively targeted in asbestos suits because manypreviously targeted companies have filed for bankruptcy. We are prepared to defend these asbestosrelated cases and, with respect to the cases alleging exposure from our brakes, believe that thescientific evidence confirms our long-standing position that mechanics and others are not at anincreased risk of asbestos related disease as a result of exposure to the type of asbestos formerlyused in the brakes on our vehicles.

The extent of our financial exposure to asbestos litigation remains very difficult to estimate. Themajority of our asbestos cases do not specify a dollar amount for damages, and in many of the othercases the dollar amount specified is the jurisdictional minimum. The vast majority of these casesinvolve multiple defendants, with the number in some cases exceeding 100. Our annual payout andrelated defense costs in asbestos cases are increasing and may become substantial in the future.The total number of claims pending against us as of February 3, 2004 is approximately 41,500,compared with approximately 25,000 as of February 2003. This, together with the trends in civillitigation toward larger jury verdicts and punitive damages awards, is expected to result in increasedpayouts and defense costs in 2004.

The United States Congress continues to consider proposals to reform asbestos litigation. Thelead proposal would create a trust fund from which eligible asbestos claimants would becompensated and would preclude, during the life of the trust, litigation in the United States based onexposure to asbestos. The trust fund would be funded by asbestos defendants (including us) and theinsurance industry. These funds would be used to pay eligible claimants (i.e., those who satisfyspecific medical criteria and can adequately demonstrate occupational exposure to asbestos)according to a specified schedule. If legislation is enacted creating such a trust fund, we would likelybe required to make substantial contributions to the fund over a specified period of time, resulting inour incurring a charge in the amount of the present value of such anticipated contributions in theperiod in which the legislation becomes effective. We cannot predict whether or in what form thelegislation will be enacted or the costs associated with such enactment.

Romo v. Ford. During December, 1994, an action was filed in Superior Court in StanislausCounty, California, alleging that manufacturing and design defects in a 1978 Bronco caused thedeaths of three members of the plaintiff’s family. The trial in July 1999 resulted in a jury verdictordering us to pay $290 million in punitive damages and $5 million in compensatory damages. OnMay 19, 2003, the United States Supreme Court granted our petition for certiorari and remanded thecase for reconsideration in light of the Supreme Court’s decision in State Farm v. Campbell, whichheld that punitive awards generally cannot exceed nine times the compensatory award and thatpunitive awards cannot be based on out-of-state or dissimilar conduct. On remand, the Californiaappeals court gave the plaintiffs the choice of either accepting a reduced punitive damages award in

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the amount of approximately $24 million (slightly less than five times the $5 million compensatorydamage award) or a new trial. The plaintiffs elected to accept the reduced punitive damages award,which, with interest, amounted to approximately $34.5 million.

Environmental Matters

General. We have received notices under various federal and state environmental laws that we(along with others) may be a potentially responsible party for the costs associated with remediatingnumerous hazardous substance storage, recycling or disposal sites in many states and, in someinstances, for natural resource damages. We also may have been a generator of hazardoussubstances at a number of other sites. The amount of any such costs or damages for which we maybe held responsible could be substantial. The contingent losses that we expect to incur in connectionwith many of these sites have been accrued and those losses are reflected in our financialstatements in accordance with generally accepted accounting principles. However, for many sites,the remediation costs and other damages for which we ultimately may be responsible are notreasonably estimable because of uncertainties with respect to factors such as our connection to thesite or to materials there, the involvement of other potentially responsible parties, the application oflaws and other standards or regulations, site conditions, and the nature and scope of investigations,studies, and remediation to be undertaken (including the technologies to be required and the extent,duration, and success of remediation). As a result, we are unable to determine or reasonablyestimate the amount of costs or other damages for which we are potentially responsible inconnection with these sites, although that total could be substantial.

Cleveland Engine Plant Notice of Violation. Following an inspection by the Cleveland Local AirAgency (which has been delegated enforcement authority by the Ohio Environmental ProtectionAgency (‘‘Ohio EPA’’)) our Cleveland Engine Plant received a notice of violation in July 2003. TheNOV alleged violations of permit limitations for a maintenance paint spray booth and engine testingoperations. The potential violations associated with the engine testing operations previously hadbeen reported to Ohio EPA. In December 2003, Ford resolved the matter with Ohio EPA through anadministrative settlement that included a nominal penalty.

Cleveland Casting Plant Notice of Violation. Following an inspection by the Cleveland Local AirAgency, our Cleveland Casting Plant received a notice of violation in July 2002. The NOV allegedthat the Plant exceeded a number of its permit limitations, modified its emission sources without firstobtaining a permit to install, did not operate certain process equipment according to permitrequirements, and did not conduct required emission testing. In December 2003, Ford resolved thematter with Ohio EPA through an administrative settlement that included a nominal penalty.

Wixom Assembly Plant Notice of Violation Regarding Air Emissions. In September 2003, theDepartment of Environmental Quality (the ‘‘DEQ’’) notified Ford that it is commencing anenforcement action related to several abatement equipment malfunctions at our Wixom, MichiganAssembly Plant over the last few years. The DEQ alleges that the plant did not properly follow stateair rules governing abatement equipment malfunction. We are negotiating the terms of a malfunctionabatement plan with the DEQ that will be included in the Plant’s operating permit. It is reasonablypossible that the DEQ could seek monetary sanctions of $100,000 or more for these allegedviolations.

Class Actions

The following are actions filed against us on behalf of individual plaintiffs and all others similarlysituated (i.e., purported class actions). In light of the fact that very few of the purported class actionsfiled against us in the past have ever been certified by the courts as class actions, the actions listedbelow are limited to those that (i) have been certified as a class action by a court of competent

27


jurisdiction (and any additional purported class actions that raise allegations substantially similar to acertified case) and (ii) if resolved unfavorably to the Company, would likely involve a significant cost.

Firestone Class Actions. Over 100 Firestone-related class actions have been filed against us,but many have been consolidated into a single case now pending in federal court in Indianapolis.Plaintiffs in these cases have never been injured in an accident involving Firestone tires, but theyseek to recover, on behalf of all purchasers of Ford Explorers with Firestone tires, the allegeddiminution in vehicle value caused by the use of those tires or by the alleged instability of Explorers.Plaintiffs also seek punitive damages.

In the case pending in Indianapolis, the United States Court of Appeals for the Seventh Circuithas ruled that the case cannot be maintained as a nationwide or statewide class action. Plaintiffsare now focusing on some of the 23 cases that have not yet been transferred to Indianapolis. Thesecases were filed in state courts in Illinois, Pennsylvania, South Carolina (2 cases), Wisconsin,Arkansas (2 cases), California (5 cases), Louisiana, Ohio, Texas (2 cases), Connecticut (5 cases),Florida, and Tennessee. Some of these cases have been removed to federal court and are likely tobe transferred to the court in Indianapolis, where they will be subject to the Seventh Circuit’s orderdenying class certification. Some of these cases, however, will remain in state court where the trialcourts will be free to reconsider the issue of class certification. A state trial judge in Arkansas hasdismissed one of the cases pending in that state because plaintiffs suffered no injury.

In the case filed in Illinois, and in one of the cases filed in South Carolina, the trial courts havealready certified statewide classes. In those cases, however, plaintiffs are not relying on any allegeddefects in the Ford Explorer; rather, they allege only that Firestone ATX and Wilderness AT tiresinstalled on Ford Explorers and Mercury Mountaineers are defective. Since we have already agreedto replace all of these tires, we are seeking to have these cases dismissed as moot. We will also beseeking appellate review of these rulings.

On June 20, 2003, the U.S. Court of Appeals enjoined the prosecutions of state cases thatpurport to represent a nationwide class on the basis that the court’s prior decisions establishconclusively that these cases cannot be tried as nationwide class actions. State cases that involveonly statewide classes are unaffected by the June 20 decision, but are likely to be stayed pendingcompletion of a settlement that Firestone has tentatively negotiated with the plaintiffs. The proposedsettlement would require plaintiffs to dismiss all class action claims against Ford that are based onalleged tire defects.

Paint Class Actions. A purported class action in state court in Illinois asserts claims on behalfof residents of all states except Texas who have experienced paint peeling on most 1988 through1997 model year Ford vehicles. Plaintiffs allege fraud, breach of warranty, and violations ofconsumer protection statutes, contending that their paint is defective and susceptible to peelingbecause we did not use spray primer between the high-build electrocoat (‘‘HBEC’’) and the colorcoat. The lack of spray primer allegedly causes the adhesion of the color coat to the HBEC todeteriorate after extended exposure to ultraviolet radiation from sunlight. Plaintiffs seek unspecifiedcompensatory damages (in an amount to cover the cost of repainting their vehicles and tocompensate for alleged diminution in value), punitive damages, attorneys’ fees and interest. OnSeptember 15, 2003, the court certified the class of owners of 1989-96 model year vehicles thathave experienced paint peeling (all states except Texas). We will seek leave to appeal this order.

A second purported class action, filed in Texas state court, involving essentially the sameallegations was settled for a nominal amount following reversal by the Texas Court of Appeals of thetrial court’s order certifying a class.

Ford/Citibank Visa Class Action. Four purported nationwide class actions and two purportedstatewide class actions are pending against us in connection with the June 1997 announcement ofthe termination of the Ford/Citibank credit card rebate program; Citibank is also a defendant in some

28


of these actions. The actions allege damages in an amount up to $3,500 for each cardholder whoobtained a Ford/Citibank credit card in reliance on the rebate program and who is precluded fromaccumulating discounts toward the purchase or lease of new Ford vehicles after December 1997 asa result of the termination of the rebate program. Plaintiffs contend that defendants deceptivelybreached their contract by unilaterally terminating the program, that defendants have been unjustlyenriched as a result of the interest charges and fees collected from cardholders, and further, thatdefendants conspired to deprive plaintiffs of the benefits of their credit card agreement. Plaintiffsseek compensatory damages, or alternatively, reinstatement of the rebate program, and punitivedamages, costs, expenses and attorneys’ fees.

The four purported nationwide class actions are pending in state courts in Alabama, Illinois,New York, and Washington, and the purported statewide class actions are pending in Californiastate courts. The Alabama court has conditionally certified a class consisting of Alabama residents.

Crown Victoria Police Interceptor Class Actions. A total of 23 purported class actions havebeen filed on behalf of government entities that own Ford Crown Victoria Police Interceptors, allegingthat the vehicles are susceptible to fuel leaks and fires when struck from the rear at high speed.Twenty of the actions have been consolidated into a Multi District Litigation (‘‘MDL’’) proceeding inthe U.S. District Court, Northern District of Ohio. The remaining actions are pending in Illinois (2cases) and California. Five of the cases purport to represent a nationwide class; the other casespurport to represent statewide classes. The complaints seek a recall of the affected vehicles, aninjunction, compensatory and punitive damages and other relief. A state court in Illinois has certifieda state-wide class of all municipalities in the state of Illinois that own 1992-2002 Police Interceptorvehicles.

Six additional purported class actions relating to non-police Ford Crown Victoria vehicles, withsimilar allegations and demands for relief, have been filed in Arkansas, Illinois, Ohio, California,Florida, and Texas. The Arkansas and Ohio cases purport to represent a nationwide class; theothers purport to represent owners in the relevant state.

F-150 Radiator Class Actions. Three purported class actions are pending alleging that theCompany defrauded purchasers of approximately 400,000 1999-2001 F-150 trucks by falselyrepresenting that certain option packages included ‘‘upgraded’’ radiators. In one case, in state courtin Texas, the trial court has certified a nationwide class of all purchasers of 2000 and 2001 F-150trucks with heavy duty or trailer packages. We are appealing that ruling to the Texas Court ofAppeals. Cases in South Carolina and California purport to represent statewide classes. Prior to thefiling of these suits, we implemented a program that gives affected customers a choice of $100cash, a $500 coupon, or installation of an upgraded radiator. However, plaintiffs’ are alleging that theprogram should cover additional vehicles, that they should be reimbursed for loss of use of thevehicle while the radiators are being replaced, and that they are entitled to attorney fees.

Hydroboost Truck Brake Class Action. A purported class action was filed on August 2, 2002 instate court in Oklahoma on behalf of all purchasers of 1999 through 2002 model year F-250, F-350,F-450, and F-550 Ford Super Duty Trucks and 2002 Excursions with hydroboost hydraulic brakingsystems. The complaint alleges that these trucks are unsafe because they suffer diminished powerassist to the steering when the driver is simultaneously braking and steering. The complaint allegesbreach of warranty and fraud, and seeks the cost of retrofitting the trucks to eliminate the allegeddanger, compensation for diminished resale value, and other relief. On January 19, 2004, the courtgranted plaintiff’s motion to certify a nationwide class, and agreed to stay proceedings while weappeal. The Safety Administration investigated a similar issue and closed the investigation, findingthat ‘‘diminished steering assist while braking is present’’ in these trucks, but that the ‘‘associatedinjury and property damage incidents are so rare that they do not present a risk to vehicle safety.’’

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not required.

ITEM 4A. EXECUTIVE OFFICERS OF FORD

Our executive officers and their positions and ages at March 1, 2004 unless otherwise noted,are shown in the table below:

Present PositionName Position Held Since Age

William Clay Ford, Jr.* Chairman of the Board and Chief Executive Officer October 2001 46

Nicholas V. Scheele** President and Chief Operating Officer (also a Director) October 2001 60

Allan D. Gilmour Vice Chairman May 2002 69

James J. Padilla Executive Vice President and President, The Americas December 2002 57

David W. Thursfield Executive Vice President — International Operations and December 2002 58Global Purchasing (Chairman & CEO, Ford of Europe)

Bruce L. Blythe Chief Strategy Officer September 2003 59

Lewis W. K. Booth Group Vice President (President & COO, Ford of September 2003 55Europe)

Mark Fields Group Vice President — Premier Automotive Group July 2002 43

Roman J. Krygier Group Vice President — Manufacturing and Quality November 2001 61

Joe W. Laymon Group Vice President — Corporate Human Resources October 2003 51

Donat R. Leclair Group Vice President and Chief Financial Officer August 2003 52

Philip R. Martens Group Vice President — Product Creation October 2003 43

J C. Mays Group Vice President — Design August 2003 49

James G. O’Connor Group Vice President — North America Marketing, Sales May 2002 61and Service

Ziad S. Ojakli Group Vice President — Corporate Affairs January 2004 36

Richard Parry-Jones Group Vice President, Product Development and Chief August 2001 52Technical Officer

Mark A. Schulz Group Vice President — Asia Pacific October 2003 51

Greg C. Smith Group Vice President — (Chairman & Chief Executive October 2002 52Officer, Ford Motor Credit Company)

Anne Stevens Group Vice President — Canada, Mexico and South October 2003 55America

James C. Gouin Vice President and Controller August 2003 44

Dennis E. Ross Vice President and General Counsel October 2000 53

* Also Chair of the Environmental and Public Policy Committee and the Office of the Chairman and Chief ExecutiveCommittee and a member of the Finance Committee of the Board of Directors.

** Also a member of the Office of the Chairman and Chief Executive Committee of the Board of Directors.

All of the above officers, except those noted below, have been employed by Ford or itssubsidiaries in one or more capacities during the past five years. Described below are the positions(other than those with Ford or its subsidiaries) held by those officers who have not been with Ford orits subsidiaries for five years:

) Mr. Gilmour previously served as Ford’s Chief Financial Officer from 1986 to 1987 and as aVice Chairman from 1993 until his retirement after 34 years with Ford in 1995. Mr. Gilmouralso owns a Ford-franchised automotive dealership.

) Mr. Blythe previously served in a number of senior strategic and financial positions with Fordfrom 1968 until he left the Company in 1993. From 1993 until he rejoined Ford in his current

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Item 4A. Executive Officers of Ford (Continued)

position in 2003, Mr. Blythe served as a consultant to various clients, including the Fordfamily.

) Mr. Laymon was Vice President, US and Canada Region and Director, Human Resources,Worldwide Regions, for Eastman Kodak Company from 1996 to 2000.

) Mr. Ojakli served as Principal Deputy for Legislative Affairs for President Bush from December2002 to 2003, and was Deputy Assistant to the President from 2001 to 2002. Prior to that,from 1998 to 2000, he was the Policy Director and Chief of Staff to the Senate RepublicanConference Secretary.

Under Ford’s By-Laws, the executive officers are elected by the Board of Directors at the AnnualMeeting of the Board of Directors held for this purpose. Each officer is elected to hold office until hisor her successor is chosen or as otherwise provided in the By-Laws.

PART II

ITEM 5. MARKET FOR FORD’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our Common Stock is listed on the New York and Pacific Coast Stock Exchanges in the UnitedStates and on certain stock exchanges in Belgium, France, Germany, Switzerland and the UnitedKingdom.

The table below shows the high and low sales prices for our Common Stock and the dividendswe paid per share of Common and Class B Stock for each quarterly period in 2003 and 2002.

2003 2002

First Second Third Fourth First Second Third FourthQuarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter

Common Stock price per share*

High********************************** $10.80 $11.71 $12.53 $17.33 $17.29 $18.23 $16.24 $11.91

Low ********************************** 6.58 7.30 10.43 10.41 13.90 14.88 9.24 6.90

Dividends per share of Common andClass B Stock ************************* $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10

* New York Stock Exchange composite interday prices as listed in the price history database available at www.NYSEnet.com.

As of February 27, 2004, stockholders of record of Ford included 192,725 holders of CommonStock (which number does not include 19,834 former holders of old Ford Common Stock who havenot yet tendered their shares pursuant to our recapitalization, known as the Value EnhancementPlan, which became effective on August 9, 2000) and 103 holders of Class B Stock.

We sold or issued shares of our Common Stock during the past three years in privatetransactions that were not registered with the Securities and Exchange Commission as follows:

2003 2002 2001

1,451,859 shares 2,131,411 shares 188,919 shares

These shares were sold or issued in transactions that were exempt from registrationrequirements because they were private placements under Section 4(2) of the Securities Act of1933, as amended. All of the shares issued in 2003, 2002 and 2001 were issued to variousdirectors, officers and other executives of the Company pursuant to their compensation plans oragreements. The consideration we received for these shares was determined to be at least equal tothe market value of the shares at the time of the transactions.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data concerning Ford for each of the last fiveyears (dollar amounts in millions, except per share amounts). The data have been reclassified forheld-for-sale operations in 2003, which are described in Note 3 of the Notes to Financial Statements.

2003 2002 2001 2000 1999

Total CompanySales and revenues **************************************** $164,196 $162,256 $160,504 $168,930 $160,053

Income/(loss) before income taxes *************************** 1,370 951 (7,419) 8,311 9,856Provision/(credit) for income taxes *************************** 135 301 (2,096) 2,722 3,247Minority interests in net income of subsidiaries **************** 314 367 24 127 112

Income/(loss) from continuing operations ********************* 921 283 (5,347) 5,462 6,497Income/(loss) from discontinued/held-for-sale operations ******* (8) (62) (106) 257 740Loss on disposal of discontinued/held-for-sale operations******* (154) (199) — (2,252) —Cumulative effects of change in accounting principle *********** (264) (1,002) — — —

Net income/(loss) ****************************************** $ 495 $ (980) $ (5,453) $ 3,467 $ 7,237

Automotive sectorSales ***************************************************** $138,442 $134,273 $130,736 $140,765 $135,022Operating income/(loss) ************************************ (1,531) (528) (7,390) 5,298 7,190Income/(loss) before income taxes *************************** (1,957) (1,153) (8,857) 5,333 7,296Financial Services SectorRevenues ************************************************* $ 25,754 $ 27,983 $ 29,768 $ 28,165 $ 25,031Income/(loss) before income taxes *************************** 3,327 2,104 1,438 2,978 2,560Total Company Data Per Share of Common and Class B

Stock(a)Basic:Income/(loss) from continuing operations ********************* $ 0.50 $ 0.15 $ (2.96) $ 3.69 $ 5.38Income/(loss) from discontinued/held-for-sale operations ******* — (0.04) (0.06) 0.18 0.61Loss on disposal of discontinued/held-for-sale operations******* (0.09) (0.11) — (1.53) —Cumulative effects of change in accounting principle *********** (0.14) (0.55) — — —

Net income/(loss) ****************************************** $ 0.27 $ (0.55) $ (3.02) $ 2.34 $ 5.99

Diluted:Income/(loss) from continuing operations ********************* $ 0.50 $ 0.15 $ (2.96) $ 3.62 $ 5.26Income/(loss) from discontinued/held-for-sale operations ******* — (0.03) (0.06) 0.17 0.60Loss on disposal of discontinued/held-for-sale operations******* (0.09) (0.11) — (1.49) —Cumulative effects of change in accounting principle *********** (0.14) (0.55) — — —

Net income/(loss) ****************************************** $ 0.27 $ (0.54) $ (3.02) $ 2.30 $ 5.86

Cash dividends(b)****************************************** $ 0.40 $ 0.40 $ 1.05 $ 1.80 $ 1.88Common stock price range (NYSE Composite)

High**************************************************** 17.33 18.23 31.42 31.46 37.30Low **************************************************** 6.58 6.90 14.70 21.69 25.42

Average number of shares of Common and Class B stockoutstanding (in millions)*********************************** 1,832 1,819 1,820 1,483 1,210

Total Company Balance Sheet Data at Year-EndAssets

Automotive sector **************************************** $120,641 $107,790 $ 88,319 $ 94,312 $ 99,201Financial Services sector ********************************* 195,279 187,432 188,224 189,078 171,048

Total assets ******************************************* $315,920 $295,222 $276,543 $283,390 $270,249

Long-term DebtAutomotive ********************************************** $ 18,987 $ 13,607 $ 13,467 $ 11,769 $ 10,398Financial Services *************************************** 100,764 106,525 107,024 86,865 67,170

Total long-term debt ************************************ $119,751 $120,132 $120,491 $ 98,634 $ 77,568

Stockholders’ Equity************************************** $ 11,651 $ 5,590 $ 7,786 $ 18,610 $ 27,604

(a) Share data have been adjusted to reflect stock dividends and stock splits. Common stock price range (NYSEComposite) has been adjusted to reflect the spin-offs of Visteon and The Associates, and a recapitalization known asour Value Enhancement Plan.

(b) Adjusted for the Value Enhancement Plan effected in August 2000, cash dividends were $1.16 per share in 2000.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

OVERVIEW

Generation of Revenue, Income and Cash

Our Automotive sector’s revenue, income and cash are generated primarily from sales ofvehicles to our dealers and distributors (i.e., our customers). Vehicles we produce generally aresubject to firm orders from our customers and generally are deemed sold (with the proceeds fromsuch sale recognized in revenue) immediately after they are produced and shipped to our customers.This is not the case, however, with respect to vehicles produced for sale to daily rental carcompanies that are subject to a guaranteed repurchase option or vehicles produced for use in ourown fleet (including management evaluation vehicles). Vehicles sold to daily rental car companiesthat are subject to a guaranteed repurchase option are accounted for as operating leases, with leaserevenue and profits recognized over the term of the lease. When we sell the vehicle at auction, werecognize a gain or loss on the difference, if any, between actual auction value and the projectedauction value. Therefore, except for the impact of the daily rental units sold subject to a guaranteedrepurchase option and those units placed into our own fleet, vehicle production is closely linked withunit sales and revenue from such sales.

Our Financial Services sector’s revenue is generated primarily from interest on financereceivables, including interest, net of certain deferred loan origination costs that are included as areduction of financing revenue, and such revenue is recognized over the term of the receivable usingthe interest method. Also, revenue from operating leases, net of certain deferred origination costs, isrecognized on a straight-line basis over the term of the lease. Income is generated to the extentrevenues exceed expenses, most of which are interest and operating expenses.

Transactions between the Automotive and Financial Services sectors occur in the ordinarycourse of business. For example, Ford Credit receives interest supplements and other support costpayments from the Automotive sector in connection with special vehicle financing and leasingprograms that it sponsors. Ford Credit records these payments as revenue over the term of therelated finance receivable or operating lease. The Automotive sector records the estimated costs ofmarketing incentives, including dealer and retail customer cash payments (e.g., rebates) and costs ofspecial financing and leasing programs, as a reduction to revenue at the later of the date the relatedvehicle sales are recorded or at the date the incentive program is both approved and communicated.

Key Economic Factors and Trends Affecting Automotive Industry

Excess Capacity. According to CSM Worldwide, an automotive research firm, in 2003, theautomotive industry’s estimated global production capacity for light vehicles (about 65 million units)significantly exceeded global production of cars and trucks (about 53 million units). In North Americaand Europe, the two regions where the majority of revenue and profits are earned in the industry,excess capacity was an estimated 14% and 17%, respectively, in 2003. We expect that this conditionwill continue for many years.

Pricing Pressure. Excess capacity coupled with a proliferation of new products beingintroduced in key segments by the industry will keep pressure on manufacturers’ ability to increaseprices on their products. In addition, in recent years, Korean-based manufacturers have beenincreasing the number of vehicles they export for sale in the United States and other key markets,and this has contributed, and is expected to continue to contribute, to pricing pressure. In the UnitedStates, the reduction of real prices for similarly contented vehicles accelerated in recent years, andwe expect that a challenging pricing environment will continue for some time to come. In Europe, theautomotive industry has experienced intense pricing pressure for several years; in 2003, net pricingdeclined more in Europe than in the United States. Net pricing is a measure of the combined effect

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

of changes in wholesale prices for vehicles sold and marketing incentives incurred on those vehicles,while excluding the effects of changes in unit sales volume and foreign currency exchange rates.

Consumer Spending Trends. We expect, however, that a decline in, or the inability to increase,vehicle prices could be offset by the spending habits of consumers and their propensity to purchaseover time higher-end, more expensive vehicles and/or vehicles with more features. Over the nextdecade, in the United States, we expect that growth in spending on vehicle mix and content willgenerally track the increase in real GDP per capita. The benefits of this to revenue growth in theautomotive industry are significant. In the United States, for example, consumers in the highestincome bracket are buying more often and more frequently buying upscale. We believe the share ofthe premium brand segment in the U.S. automotive industry will approach 13% by the end of thisdecade, compared with about 10% to 11% presently. With our luxury brands (i.e., Lincoln, Volvo,Jaguar, Land Rover and Aston Martin), we believe we are positioned well to take advantage of thistrend.

Although growth in vehicle unit sales (i.e., volume) will be greatest in emerging markets in thenext decade, we expect that the mature automotive markets (e.g., North America, Western Europeand Japan) will continue to be the source of a substantial majority of global industry revenues overthe next decade. We also expect that the North American market will continue as the single largestsource of revenue for the automotive industry in the world in the next decade.

Health Care Expenses. In the United States, the average annual percentage increase in healthcare prices we have experienced in the last few years has been in the double digits. In 2003, ourhealth care expenses for United States employees and retirees were $3.2 billion, with about$2.2 billion attributable to retirees and the balance attributable to active employees. Prescription drugcosts is the fastest growing segment of our health care expenses and accounted for about one-thirdof our total United States health care expenses in 2003.

Although we have taken measures to have employees and retirees bear a higher portion of thecosts of their health care benefits, we expect our health care costs to continue to increase. For 2004,our trend assumptions for U.S. health care expenses include an initial trend rate of 9% and a steadystate trend rate of 5% reached in 2010. These assumptions include the effect of actions we aretaking and expect to take to offset health care inflation, including further employee cost sharing,administrative improvements and other efficiencies.

Trends and Strategies

Revenue Management. To address the pricing pressure that exists in the automotive industry,we have employed a customer-focused revenue management strategy to maximize per unit revenue.This strategy is focused on a disciplined approach to utilizing customer demand data — availablefrom many sources, including internet hits, transaction data, customer leads, and research — to helpus develop and sell vehicles that more closely match customer desires.

We believe our revenue management strategy has contributed significantly to increases in ourrevenue per vehicle sold for our Ford North America business unit of $724 and $284 for 2003 and2002, respectively. (These amounts exclude the incremental effect on revenue from the consolidationof certain dealerships in 2003 related to FIN 46, discussed in Note 13 of the Notes to FinancialStatements).

Cost Reduction. Given the difficult economic and operating environment described herein, wecontinue to focus on reducing our cost structure. During 2003, we reduced our costs by over$3 billion (at constant volume, mix and exchange and excluding special items). Cost reductions wererealized in quality-related costs resulting from fewer warranty claims, recalls and customer serviceactions, as well as reduced manufacturing, engineering and overhead costs. Lower product costs(which are comprised of material and component costs for our vehicles) on carryover vehicles

34


partially offset higher product costs for newly introduced vehicles. Further cost efficiencies will berealized as we continue to implement our Revitalization Plan.

Shared Technologies. One of the strategies we are employing to realize efficiencies inmanufacturing, engineering and product costs for new vehicles is the sharing of vehicle platformsand components among various models and the re-use of those platforms and components fromone generation of a vehicle model to the next.

Revitalization Plan Progress

In January 2002, we announced that through the implementation of our Revitalization Plan, weexpected to improve our pre-tax profit excluding special items to $7 billion by mid-decade, which wehave defined as 2006. We do not expect a linear progression to the target of $7 billion of pre-taxprofit excluding special items.

In 2004, we expect that the rate of profit improvement will be less than what we haveexperienced over the past couple of years. We are still about a year away from introducing newproducts that are designed in a manner such that the cost to produce them is appropriate in thecurrent pricing environment, and we are about two years away from having those products insignificant volume. In addition, as indicated above, rising health care costs remain a concern for us.

We expect, however, to make progress in 2004, as we will focus on significantly improving theperformance of our Ford Europe business unit, and filling our global product pipeline with newproduct introductions, particularly in the passenger car area. Further, as indicated above, we arecontinuing our efforts to improve quality and our cost structure. Overall, while conditions may slowour rate of improvement in 2004, we believe we are on track to achieve our goal of $7 billion in pre-tax profits, excluding special items, by year-end 2006.

FULL-YEAR 2003 RESULTS OF OPERATIONS

The results of our continuing operations below exclude the results of discontinued and held-for-sale operations, which are described in Note 3 of the Notes to Financial Statements.

Our worldwide net income was $495 million or $0.27 per share of Common and Class B stockin 2003, up $1.5 billion from a loss of $980 million or $0.55 per share in 2002.

Results by business sector for 2003, 2002, and 2001 are shown below (in millions):

2003 2002 2001

Income/(loss) before income taxes

Automotive sector ************************************************* $(1,957) $(1,153) $(8,857)

Financial Services sector******************************************* 3,327 2,104 1,438

Total Company************************************************** 1,370 951 (7,419)

Provision for/(benefit from) income taxes ***************************** 135 301 (2,096)

Minority interests in net income/(loss) of subsidiaries ****************** 314 367 24

Income/(loss) from continuing operations******************************* 921 283 (5,347)

Income/(loss) from discontinued/held-for-sale operations *************** (8) (62) (106)

Loss on disposal of discontinued/held-for-sale operations ************** (154) (199) —

Cumulative effect of change in accounting principle* ****************** (264) (1,002) —

Net income/(loss) *************************************************** $ 495 $ (980) $(5,453)

* Related to adoption of FIN 46 in 2003 and the adoption of Statement of Financial Accounting Standards No. 142(see Notes 13 and 7, respectively, of the Notes to Financial Statements).

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We established and communicated milestones for 2003. Our results against these milestones arelisted below:

Industry Volume Planning Assumptions Actual

U.S. 16.5 million units 17.0

Europe 17.0 million units 17.0

Net Pricing

U.S. Zero (0.6)%

Europe 1% (1.7)%

Physicals 2003 Milestone Results

Automotive

Quality Improve in all regions Improved

Market share Improve in all regions Mixed

Cost performance(a) Improve by at least $500 million $3.2 Bils.

Capital spending $8 billion $7.4 Bils.

Financial Results

Automotive

Income before income taxes(b) Breakeven $0.1 Bils.

Operating related cash flow(c) Breakeven $0.1 Bils.

Ford Credit

Cash contribution to parent Improve Up $3.3 Bils.

Managed leverage(d) Maintain in low end of 13-14 to 1 range 13.0 to 1

(a) Calculated at constant volume, mix and exchange, excluding special items (see chart below for additional information oncost performance).

(b) Excluding special items (see GAAP equivalent measure and reconciliation below).

(c) We have redefined this milestone to exclude pension and long-term VEBA contributions in addition to the exclusion of taxrefunds. For the calculation of this non-GAAP measure and reconciliation to its GAAP equivalent (Automotive cash flowsfrom operating activities before securities trading of $1.3 billion) see ‘‘Liquidity and Capital Resources — Gross Cash’’.

(d) See ‘‘Liquidity and Capital Resources, Financial Services Sector, Ford Credit — Leverage’’ for the calculation andreconciliation of this non-GAAP measure.

In the table above, we disclose our Automotive income before income taxes excluding specialitems, which is not a financial measure calculated and presented in accordance with generallyaccepted accounting principles in the United States (‘‘GAAP’’). We believe, however, that thismeasure is useful to our investors because it excludes elements that we do not consider to beindicative of our ongoing Automotive operating activities. This income before income taxes excludingspecial items measure is one of the metrics by which our management evaluates the business and itprovides investors with a more relevant measure of the results generated by our ongoing operations.

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The following table reconciles Automotive income before income taxes excluding special items toAutomotive Income/(loss) before income taxes (which includes special items), the most directlycomparable financial measure presented in accordance with GAAP (in millions):

2003 2002 2001

Automotive sector

Income/(loss) before income taxes excluding special items************* $ 104 $ (253) $(2,855)

Special items*:

Revitalization Plan and other charges****************************** — — (5,593)

European restructuring******************************************* (513) (173) —

Premier Automotive Group restructuring *************************** — (157) —

Mazda restructuring actions ************************************** — — (114)

Visteon agreement ********************************************** (1,597) — —

Disposition of non-core businesses******************************** 49 (570) (295)

Total special items********************************************* (2,061) (900) (6,002)

Income/(loss) before income taxes ********************************** $(1,957) $(1,153) $(8,857)

* See Automotive Sector Results from Operations — 2003 Compared with 2002 for a discussion of special items.

The table below shows how we were able to significantly exceed our 2003 cost performancemilestone (in billions):

Costs*2003

Better/(Worse)2002

Quality related******************************************************************* $ 1.6

Manufacturing and engineering **************************************************** 1.2

Overhead *********************************************************************** 1.4

Net product costs **************************************************************** 0.4

Depreciation and amortization***************************************************** (0.2)

Pension and healthcare*********************************************************** (1.2)

Total************************************************************************** $ 3.2

* At constant volume, mix and exchange and excluding special items.

The $1.6 billion in quality related cost reductions resulted from fewer warranty claims, primarilyon 2002 model year vehicles, as well as sharply lower recalls and customers service actions. The$1.2 billion reduction in manufacturing and engineering reflected ongoing efficiencies and an intenseeffort to identify and eliminate waste. The $1.4 billion reduction in overhead resulted from intensivecost cutting and elimination of waste in areas such as advertising and sales promotion, personnelcosts, consulting, travel and office supplies. Net product costs, which improved by $400 million,include the net impact of higher costs on newly introduced vehicles and the effect of ongoing costreductions on carryover vehicles.

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AUTOMOTIVE SECTOR RESULTS OF OPERATIONS

2003 Compared with 2002

Details of Automotive sector income/(loss) before income taxes and income/(loss) before incometaxes excluding special items for 2003 and 2002 are shown below (in millions):

Income/(Loss) Before TaxesIncome/(Loss) Before Taxes Excluding Special Items

2003 2003Over/ Over/

(Under) (Under)2003 2002 2002 2003 2002 2002

Americas

Ford North America ************************** $ 165 $ 2,490 $(2,325) $ 1,762 $ 2,490 $ (728)

Ford South America ************************** (130) (622) 492 (130) (622) 492

Total Americas***************************** 35 1,868 (1,833) 1,632 1,868 (236)

International

Ford Europe ********************************* (1,626) (722) (904) (1,113) (549) (564)

Ford Asia Pacific ***************************** (25) (176) 151 (25) (176) 151

Premier Automotive Group ******************** 164 (897) 1,061 164 (740) 904

Other International *************************** 69 (15) 84 69 (15) 84

Total International ************************** (1,418) (1,810) 392 (905) (1,480) 575

Other Automotive ****************************** (574) (1,211) 637 (623) (641) 18

Total excluding special items **************** 104 (253) 357

Less: special items***************************** (2,061) (900) (1,161)

Total Automotive *************************** $(1,957) $(1,153) $ (804) $(1,957) $(1,153) $ (804)

Details of Automotive sector sales and vehicle unit sales for 2003 and 2002 are shown below:

Sales Vehicle Unit Sales*(in billions) (in thousands)

2003 2003Over/(Under) Over/(Under)

2003 2002 2002 2003 2002 2002

Americas

Ford North America *************************** $ 83.6 $ 87.1 $(3.5) (4)% 3,811 4,146 (335) (8)%

Ford South America *************************** 1.9 1.5 0.4 27 209 195 14 7

Total Americas****************************** 85.5 88.6 (3.1) (3) 4,020 4,341 (321) (7)

International

Ford Europe ********************************** 22.2 18.9 3.3 17 1,595 1,561 34 2

Ford Asia Pacific ****************************** 5.8 4.4 1.4 32 353 300 53 18

Premier Automotive Group ********************* 24.9 21.3 3.6 17 752 771 (19) (2)

Other International **************************** — — — — — — — —

Total International *************************** 52.9 44.6 8.3 19 2,700 2,632 68 3

Other Automotive ******************************* — 1.1 (1.1) — — — — —

Total Automotive **************************** $138.4 $134.3 $ 4.1 3% 6,720 6,973 (253) (4)%

* Includes rental repurchase and Company vehicles sold at auction and excludes new and used vehicle sales by ourconsolidated dealerships (consolidated beginning third quarter of 2003).

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Details of Automotive sector market share for selected markets for 2003 and 2002 are shownbelow:

2003Over/(Under)

2003 2002 2002 Market

Americas

Ford North America ********************************************* 19.2% 19.9% (0.7) pts. U.S.*

Ford South America ********************************************* 11.5 9.9 1.6 Brazil*

International

Ford Europe **************************************************** 8.6 8.6 — Europe*

Ford Asia Pacific ************************************************ 13.9 13.2 0.7 Australia*

Premier Automotive Group *************************************** 1.3/2.2 1.2/2.2 0.1/— U.S./Europe

* Excludes market share of our Premier Automotive Group brand vehicles (i.e. Volvo, Jaguar, Land Rover and Aston Martin).

Americas Automotive Segment

Ford North America. The decrease in income before income taxes for Ford North Americaincluded a charge of $1.6 billion related to agreements reached with Visteon Corporation(‘‘Visteon’’) in the fourth quarter of 2003. Visteon is our largest supplier and is the primarysupplier of many critical components for several of our vehicle lines. The agreements primarilyaddress pricing and sourcing arrangements between Ford and Visteon, as well as costs relatedto approximately 20,000 UAW-represented Ford employees assigned to Visteon.

The principal terms of these agreements include:

) Our assumption of approximately $1.65 billion of Visteon’s responsibility for the postretirementhealth care and life insurance benefit obligations for our UAW-represented employeesassigned to Visteon.*

) Extending the term for Visteon to complete pre-funding of its remaining hourly and salariedpostretirement health care and life insurance liabilities to 2049, rather than 2020 as wasagreed at the time of our spin-off of Visteon.*

) Visteon’s agreement to pay us $150 million in lieu of further price reductions for 2003business in North America. In addition, Visteon has committed to a schedule of annual pricereductions over the next four years for North American business.

) All new Ford business sourced to Visteon will be at competitive prices and terms and we aregenerally obligated to source to Visteon in North America when it is competitive. In addition,we will subsidize part of Visteon’s costs of paying higher wages to our UAW-representedemployees assigned to Visteon, assuming industry-competitive manning levels, beginning withany new Ford business sourced to Visteon.

) We and Visteon will share equally up to $200 million in costs to upgrade Visteon’s informationtechnology systems as it completes its separation from our information technology systems.

* See Note 19 of the Notes to Financial Statements for more information regarding this aspectof the agreement with Visteon.

In addition to the impact of the Visteon agreements, the reduction in income reflected lowervehicle unit sales, unfavorable net pricing and unfavorable exchange rates partially offset by costreductions and favorable product mix. Lower vehicle unit sales reflected the absence of a dealerstock change in 2003 compared with a dealer stock build in 2002 and lower market share.Lower market share reflected the discontinuation of low-margin models (Mercury Cougar, Ford

39


Escort, Mercury Villager, Lincoln Continental and Ford Explorer Sport) and a planned reductionin sales to daily rental car companies.

Ford South America. The improvement in earnings reflected the non-recurrence of the adverseeffects of currency devaluation in Brazil and Argentina, increased market share primarily due tomarket acceptance of two new models, the Ford Fiesta and EcoSport, and continuingimprovement in the business structure.

International Automotive Segment

Ford Europe. The increased loss before income taxes for Ford Europe included a charge of$513 million in 2003 compared to a charge of $173 million in 2002 related to restructuringactions. The 2003 charges related to personnel reductions in Germany and the United Kingdom,a shift removal at our plant in Genk, Belgium, and other manufacturing efficiencies. We expectto incur additional charges of about $160 million in the first half of 2004 related to these actionsand expect most of the related cash outlay will take place in 2004. We anticipate these actionswill result in personnel reductions of about 6,700 and will reduce costs in our Ford Europebusiness unit by about $450 million in 2004, excluding the expected additional charges relatedto the restructuring actions described above, and about $550 million annually thereafter.

In addition to the impact of the restructuring actions, the increased loss for Ford Europereflected unfavorable net pricing, a less favorable product mix, unfavorable exchange rates anda larger reduction in dealer stocks, partially offset by cost reductions and improved results atFord Otosan, our joint venture in Turkey. The increase in sales reflected primarily strongerEuropean currencies.

Ford Asia Pacific. The improvement in sales and the loss before income taxes for Ford AsiaPacific reflected primarily favorable exchange rates, favorable net pricing, higher industryvolumes and improved market share.

Premier Automotive Group. The improvement in income before income taxes for PremierAutomotive Group reflected primarily cost reductions and improved product mix, partially offsetby unfavorable exchange rates. The improved product mix reflected the introduction of theJaguar XJ model in the first quarter of 2003 and a full year of sales of the Volvo XC90 and theLand Rover Range Rover models. The increase in revenues reflected stronger Europeancurrencies and favorable product mix.

Other International. The improvement in Other International profits reflected primarily our shareof Mazda’s improved operating results.

Other Automotive

The improvement in loss before income taxes for Other Automotive (which in 2003 representsprimarily interest income and expense including realized and unrealized gains and losses on cashand marketable securities) reflected primarily the non-recurrence of a charge of $570 million in 2002related to the sale of non-core businesses, primarily Kwik-Fit Holdings Ltd (‘‘Kwik-Fit’’). Theimprovement was partially offset by the non-recurrence of gains in cash and marketable securities in2002, which reflected declining interest rates in 2002.

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Details of Automotive sector income/(loss) before income taxes and income/(loss) before incometaxes excluding special items for 2002 and 2001 are shown below (in millions):

Income/(Loss) Before TaxesIncome/(Loss) Before Taxes Excluding Special Items


2002 2001 2001 2002 2001 2001

Americas

Ford North America ************************** $ 2,490 $(5,278) $ 7,768 $ 2,490 $ (750) $3,240

Ford South America************************** (622) (1,358) 736 (622) (510) (112)

Total Americas **************************** 1,868 (6,636) 8,504 1,868 (1,260) 3,128

International

Ford Europe********************************* (722) (306) (416) (549) (306) (243)

Ford Asia Pacific***************************** (176) (351) 175 (176) (351) 175

Premier Automotive Group ******************** (897) 8 (905) (740) 8 (748)

Other International *************************** (15) (606) 591 (15) (111) 96

Total International************************** (1,810) (1,255) (555) (1,480) (760) (720)

Other Automotive ****************************** (1,211) (966) (245) (641) (835) 194

Total excluding special items **************** (253) (2,855) 2,602

Less: special items***************************** (900) (6,002) 5,102

Total Automotive *************************** $(1,153) $(8,857) $ 7,704 $(1,153) $(8,857) $7,704

Details of Automotive sector sales and vehicle unit sales for 2002 and 2001 are shown below:

Sales Vehicle Unit Sales*(in billions) (in thousands)


2002 2001 2001 2002 2001 2001

Americas

Ford North America ***************************** $ 87.1 $ 83.9 $ 3.2 4% 4,146 4,051 95 2%

Ford South America***************************** 1.5 2.1 (0.6) (29) 195 195 — —

Total Americas ******************************* 88.6 86.0 2.6 3 4,341 4,246 95 2

International

Ford Europe *********************************** 18.9 19.4 (0.5) (3) 1,561 1,698 (137) (8)

Ford Asia Pacific ******************************* 4.4 3.8 0.6 16 300 274 26 9

Premier Automotive Group*********************** 21.3 20.4 0.9 4 771 790 (19) (2)

Other International****************************** — — — — — — — —

Total International***************************** 44.6 43.6 1.0 2 2,632 2,762 (130) (5)

Other Automotive ********************************* 1.1 1.1 — — — — — —

Total Automotive****************************** $134.3 $130.7 $ 3.6 3% 6,973 7,008 (35) —%

* Includes rental repurchase and Company vehicles sold at auction.

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Details of Automotive sector market share for selected markets for 2002 and 2001 are shownbelow:

2002Over/(Under)

2002 2001 2001 Market

Americas

Ford North America 19.9% 21.6% (1.7) pts. U.S.*

Ford South America ********************************************* 9.9 7.8 2.1 Brazil*

International

Ford Europe **************************************************** 8.6 8.6 — Europe*

Ford Asia Pacific ************************************************ 13.2 13.8 (0.6) Australia*

Premier Automotive Group *************************************** 1.2/2.2 1.2/2.0 —/0.2 U.S./Europe

* Excludes market share of our Premier Automotive Group brand vehicles (i.e. Volvo, Jaguar, Land Rover and Aston Martin).

Americas Automotive Segment

Ford North America. The improvement in earnings reflected primarily the non-recurrence of the2001 asset impairments and other charges ($4.5 billion) largely related to our RevitalizationPlan, as well as the non-recurrence of costs related to our 2001 Firestone tire replacementaction (about $2 billion). Additionally, profits improved due to achievement of our 2002 milestoneto reduce non-product costs by $2 billion and the replenishment of dealer stocks in the UnitedStates, which were unusually low at year-end 2001. These improvements were partially offset byincreased product-related costs and lower market share. The decline in market share reflected anumber of factors, including an increase in the number of new competitive product offerings andour discontinuation of four vehicle lines (Mercury Cougar, Mercury Villager, Lincoln Continentaland most models of the Ford Escort) in the second half of 2002.

Ford South America. The reduced loss reflected primarily the non-recurrence of the 2001 assetimpairments and other one-time charges ($848 million) largely related to our Revitalization Plan.The results also reflected the adverse effects of currency devaluation, partially offset bycontinuing improvement in operating costs. The increase in our market share in Brazil reflectedmarket acceptance of our new Ford Fiesta model and strong sales performance.

International Automotive Segment

Ford Europe. The increased loss reflected primarily the charges ($173 million) related torestructuring actions involving our Ford-brand Europe operations. The reduction in profitabilityexcluding restructuring charges reflected lower vehicle unit volume, including a reduction inEuropean industry sales volume and the non-recurrence of a 2001 dealer stock build. Costreductions and higher net pricing were partial offsets.

Ford Asia Pacific. The year-over-year improvements in 2002 resulted primarily from net pricingimprovements and favorable vehicle mix.

Premier Automotive Group. The loss reflected primarily charges ($157 million) related torestructuring actions involving our Premier Automotive Group operations, as well as a lessfavorable vehicle mix primarily at Jaguar, unfavorable net pricing and lower production to reducedealer stocks.

Other International. The improvement in 2002 reflected primarily the absence of restructuringcharges ($495 million) incurred in 2001 and improved operating results at Mazda.

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Other Automotive

The increased loss reflected primarily the loss on sale of Kwik-fit and other non-corebusinesses, offset partially by improved net interest costs.

FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS


Details of the full year Financial Services Sector income/(loss) before income taxes for 2003 and2002 are shown below (in millions):

Income/(Loss) BeforeIncome Taxes

2003Over/(Under)

2003 2002 2002

Ford Credit *********************************************************************** $3,035 $1,965 $1,070

Hertz* *************************************************************************** 228 200 28

Other Financial Services *********************************************************** 64 (61) 125

Total Financial Services sector****************************************************** $3,327 $2,104 $1,223

* Includes amortization expense related to intangibles recognized upon consolidation of Hertz.

Ford Credit

The increase in income before income taxes of $1.1 billion primarily reflected a lower provisionfor credit losses and the net favorable market valuation of derivative instruments and associatedexposures. The impact of lower average net receivables was a partial offset.

The provision for credit losses for the full year of 2003 was $2.0 billion, down $1.0 billion from ayear ago, reflecting primarily the non-recurrence of an increase in Ford Credit’s allowance for creditlosses in 2002 and lower credit losses.

Ford Credit reviews its business performance from several perspectives, including:

) On-balance sheet basis — includes receivables Ford Credit owns and receivables sold forlegal purposes that remain on Ford Credit’s balance sheet.

) Securitized off-balance sheet basis — includes receivables sold in securitization transactionsthat are not reflected on Ford Credit’s balance sheet.

) Managed basis — includes on-balance sheet and securitized off-balance sheet receivablesthat Ford Credit continues to service.

) Serviced basis — includes managed receivables and receivables that Ford Credit sold inwhole-loan sale transactions where Ford Credit retains no interest in the sold receivables, butwhich it continues to service.

Ford Credit analyzes its financial performance primarily on an on-balance sheet and managedbasis. It retains interests in receivables sold in off-balance sheet securitization transactions, and withrespect to subordinated retained interests, has credit risk. As a result, it evaluates credit losses,receivables and leverage on a managed, as well as an on-balance sheet basis. In contrast, FordCredit does not have the same financial interest in the performance of receivables sold throughwhole-loan sale transactions because it retains no interests in those receivables and, therefore, hasno credit risk with respect to them. Accordingly, Ford Credit generally reviews the performance of itsserviced portfolio only to evaluate the effectiveness of its origination and collection activities.

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Ford Credit’s finance receivables, net of allowance for credit losses, and net investment inoperating leases for our on-balance sheet, securitized off-balance sheet, managed and servicedportfolios are shown below (in billions):

December 31,

2003 2002

On-Balance Sheet (including on-balance sheet securitizations)

Finance receivables

Retail installment ************************************************************* $ 77.8 $ 68.4

Wholesale ******************************************************************* 22.5 16.4

Other *********************************************************************** 8.6 9.8

Total finance receivables, net ************************************************ 108.9 94.6

Net investment in operating leases *********************************************** 23.2 31.3

Total on-balance sheet ****************************************************** $132.1 $125.9

Memo: Allowance for credit losses included above ********************************* $ 3.0 $ 3.2


Finance receivables

Retail installment ************************************************************* $ 29.1 $ 48.9

Wholesale ******************************************************************* 20.3 22.5

Other *********************************************************************** — —


Net investment in operating leases *********************************************** — —

Total securitized off-balance sheet******************************************** $ 49.4 $ 71.4

Managed

Finance receivables

Retail installment ************************************************************* $106.9 $117.3

Wholesale ******************************************************************* 42.8 38.9

Other *********************************************************************** 8.6 9.8


Net investment in operating leases *********************************************** 23.2 31.3

Total managed* ************************************************************ $181.5 $197.3

Serviced ********************************************************************** $188.8 $202.3

* At December 31, 2003 and 2002, Ford Credit’s retained interests in sold receivables were $13.0 billion and$17.6 billion, respectively. For more information regarding these retained interests, see ‘‘Liquidity and CapitalResources — Financial Services Sector’’.

On-Balance Sheet Receivables. On-balance sheet finance receivables and net investment inoperating leases, net of allowance for credit losses, increased $6.2 billion or 5% from a year ago.The increase primarily reflected the receivables that were recorded on our balance sheet(‘‘reacquired receivables’’) as a result of the accounting consolidation of FCAR Owner Trust(‘‘FCAR’’) in May 2003 (discussed in Note 8 of the Notes to Financial Statements) and the impactrelated to changes in currency exchange rates. The increase was offset partially by the impact oflower lease and retail placement volumes and receivables sold in off-balance sheet securitizationsand whole-loan sale transactions.

At December 31, 2003, on-balance sheet retail receivables included $14.3 billion that were soldfor legal purposes to Ford Credit-sponsored special purpose entities (‘‘SPE’’) that sell asset-backedsecurities to FCAR and are available only for repayment of asset-backed commercial paper issuedby FCAR, other securitization investors and other participants. These receivables are not available topay the obligations of Ford Credit or the claims of Ford Credit’s creditors.

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Securitized Off-Balance Sheet Receivables. Total securitized off-balance sheet receivablesdecreased $22 billion or 31% from a year ago. This decrease primarily reflected the reacquiredreceivables resulting from the consolidation of FCAR, now reported on our balance sheet, the slowerpace of securitizations and the increased use of whole-loan sale transactions.

Managed Receivables. Total managed receivables decreased $15.8 billion or 8% from a yearago, the decrease primarily reflected lower retail installment finance receivables resulting from lowerplacement volumes, lower net investment in operating leases, and the sale of U.S. retail financereceivables in whole-loan sale transactions. Net investment in operating leases was lower, reflectinga de-emphasis of leasing in Ford’s marketing programs.

The following table shows actual credit losses net of recoveries, which are referred to as netcredit losses, for Ford Credit’s worldwide on-balance sheet, reacquired, securitized off-balance sheetand managed receivables, for the various categories of financing during the periods indicated. Theloss-to-receivables ratios, which equal net credit losses divided by the average amount of netreceivables outstanding for the period, are shown for the on-balance sheet and managed portfolios.

2003 2002

Net Credit Losses (in millions)

On-Balance Sheet

Retail installment and lease ************************************************* $1,871 $2,292

Wholesale ***************************************************************** 148 40

Other ********************************************************************* 25 30

Total on-balance sheet (excluding reacquired receivables)********************* 2,044 2,362

Reacquired Receivables (retail) ********************************************** 92 —

Total on-balance sheet (including reacquired receivables) ********************* $2,136 $2,362


Retail installment and lease ************************************************* $ 677 $ 448

Wholesale ***************************************************************** — 6

Other ********************************************************************* — —

Total securitized off-balance sheet****************************************** $ 677 $ 454

Managed

Retail installment and lease ************************************************* $2,640 $2,740

Wholesale ***************************************************************** 148 46

Other ********************************************************************* 25 30

Total managed *********************************************************** $2,813 $2,816

Loss-to-Receivables Ratios

On-Balance Sheet (including reacquired receivables)*

Retail installment and lease ************************************************* 1.97% 2.05%

Wholesale ***************************************************************** 0.79 0.25

Total including other ****************************************************** 1.67% 1.72%

Memo: On-Balance Sheet (excluding reacquired receivables)********************** 1.60% 1.72%

Managed

Retail installment and lease ************************************************* 1.91% 1.73%

Wholesale ***************************************************************** 0.37 0.13

Total including other ****************************************************** 1.50% 1.39%

* Ford Credit believes that the use of the on-balance sheet loss-to-receivables ratio that includes the net creditlosses on reacquired receivables is useful to investors because it provides a more complete presentation of FordCredit’s on-balance sheet credit loss performance.

The decrease in net credit losses for our on-balance sheet portfolio primarily reflected improvedperformance in our U.S. commercial receivables and lower on-balance sheet receivables at Ford

45


Credit’s subsidiaries Triad Financial Corporation and Fairlane Credit, LLC. These declines wereoffset partially by a charge-off of accounts delinquent for over 120 days, which resulted inrecognition of $106 million of credit losses, primarily in our European wholesale receivables portfolio.The charge off was a result of our European operations adopting the practice of our North Americanoperations of charging off all accounts more than 120 days delinquent. The on-balance sheet loss-to-receivables ratio of 1.67% was down from 1.72%. The improvement in the loss-to-receivables ratioreflected lower credit losses and the retention of securitized receivables on Ford Credit’s balancesheet.

Shown below is an analysis of Ford Credit’s allowance for credit losses related to financereceivables and operating leases for the years ended December 31 (dollar amounts in billions):

2003 2002


Balance, beginning of year********************************************************** $3.2 $2.8

Provision charged to operations *************************************************** 2.0 3.0

Deductions

Losses *********************************************************************** 2.5 2.9

Recoveries******************************************************************** (0.5) (0.5)

Net losses ****************************************************************** 2.0 2.4

Other changes, principally amounts relating to finance receivables sold and translation adjustments************************************ 0.2 0.2

Net deductions ************************************************************** 2.2 2.6

Balance, end of year *************************************************************** $3.0 $3.2

Allowance for credit losses as a percentage of end-of-period net receivables* ************ 2.28% 2.52%

* Includes net investment in operating leases.

The decrease in the allowance for credit losses of $200 million reflected primarily the charge-offof $106 million for accounts delinquent over 120 days primarily in our European wholesalereceivables portfolio and lower losses in the commercial and liquidating Fairlane Credit portfolios.

The following table summarizes the activity related to off-balance sheet sales of receivablesreported as revenues for the periods indicated (in millions except for ratios):

2003 2002

Net gain on sales of receivables *********************************************** $ 436 $ 529

Servicing fees *************************************************************** 677 700

Interest income from retained securities **************************************** 679 606

Excess spread and other****************************************************** 973 775

Investment and other income related to sales of receivables ******************** 2,765 2,610

Less: Whole-loan income ***************************************************** (234) (79)

Income related to off-balance sheet securitizations***************************** $ 2,531 $ 2,531

Memo:

Finance receivables sold**************************************************** $21,321 $40,712

Servicing portfolio as of period-end ****************************************** 56,705 76,346

Pre-tax gain per dollar of retail receivables sold ******************************* 2.0% 1.4%

The increase in investment and other income related to sales of receivables of $155 million or6% compared with 2002, reflected higher excess spread and other income offset partially by lowernet gains. Higher excess spread and other income resulted from higher levels of outstandingsecuritized receivables in 2002. Lower gains in 2003 resulted from lower amounts of financereceivables sold, down about $19 billion compared with 2002, reflecting lower funding requirements.

46


Excluding the effects of the whole-loan sale transactions, which totaled $10.4 billion in the 2002-2003 period, off-balance sheet securitization income was unchanged compared with 2002.

Sales of finance receivables through off-balance sheet securitizations have the impact onearnings of recalendarizing and reclassifying net financing margin (i.e., financing revenue lessinterest expense) and credit losses related to the sold receivables, compared with how they wouldhave been reported if Ford Credit continued to report the sold receivables on-balance sheet andfunded them through asset-backed financings. Recalendarization effects occur initially when the gainor loss on sales of receivables is recognized in the period the receivables are sold. Over the life ofthe securitization transaction, Ford Credit recognizes excess spread, interest income from retainedsecurities, servicing fees and other receivable sale income.

In addition, credit losses related to the off-balance sheet securitized receivables are included inthe initial and ongoing valuation of Ford Credit’s interest-only strip asset (see ‘‘Off-balance SheetArrangements — Sales of Receivables by Ford Credit’’ for definition) and do not impact the Provisionfor credit and insurance losses on the income statement and they do not influence the assessmentof the adequacy of the Allowance for credit losses for Ford Credit’s on-balance sheet receivables.

Therefore, over the life of each off-balance sheet securitization transaction, the gain or loss onsale of receivables, excess spread, interest income from retained securities, servicing fees and otherreceivable sale income is equal to the net financing margin and credit losses that would have beenreported had Ford Credit reported the receivables on its balance sheet and funded them throughasset-backed financings.

The net impact of off-balance sheet securitizations on Ford Credit’s earnings in a given periodwill vary depending on the amount and type of receivables sold and the timing of the transactions inthe current period and the preceding two to three year period, as well as the interest rateenvironment at the time the finance receivables were originated and securitized.

The following table shows, on an analytical basis, the earnings impact of receivables sold in off-balance sheet securitizations had Ford Credit reported them as on-balance sheet and funded themthrough asset-backed financing for the periods indicated (in millions):

2003 2002

Financing revenue

Retail revenue *************************************************************** $3,580 $4,040

Wholesale revenue *********************************************************** 1,080 1,101

Total financing revenue****************************************************** 4,660 5,141

Borrowing cost ***************************************************************** (1,491) (2,205)

Net financing margin********************************************************** 3,169 2,936

Credit losses******************************************************************* (677) (454)

Income before income taxes************************************************* $2,492 $2,482

Memo:

Income related to off-balance sheet securitizations ********************************* $2,531 $2,531

Recalendarization impact of off-balance sheet securitizations************************ 39 49

In 2003, the impact on earnings of reporting the sold receivables as off-balance sheetsecuritizations was $39 million higher than had these transactions been structured as on-balancesheet securitizations. This difference results from recalendarization effects caused by gain-on-saleaccounting requirements, as discussed above.

This effect will fluctuate as the amount of receivables sold in Ford Credit’s off-balance sheetsecuritizations increases or decreases over time. In a steady state of securitization activity, thedifference between reporting securtitizations on- or off-balance sheet in a particular year approaches

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zero. While the difference in earnings impact between on- or off-balance sheet securitizations isminimal, this funding source has provided us with significant borrowing cost savings compared withunsecured debt and funding flexibility in a difficult economic environment.

Hertz

The improvement of $28 million in income before income taxes reflected strong costperformance and improved leisure vehicle rental demand, partially offset by lower pricing.

Other Financial Services

The improvement of $125 million in income before income taxes reflected primarily thenon-recurrence of a charge incurred in 2002 related to the write-down of our investment in severalairplane and telecommunications equipment leases.


Details of the full year Financial Services Sector income/(loss) before income taxes for 2002 and2001 are shown below (in millions):

Income/(Loss)Before Income Taxes

2002Over/(Under)

2002 2001 2001

Ford Credit ***************************************************** $1,965 $1,494 $471

Hertz* ********************************************************* 200 3 197

Other Financial Services ***************************************** (61) (59) (2)

Total Financial Services sector********************************** $2,104 $1,438 $666

* Includes amortization expense related to intangibles recognized upon consolidation of Hertz.

Ford Credit

The increase in income before income taxes of $471 million reflected primarily a lower provisionfor credit losses and the decrease in the net unfavorable market valuation of derivative instrumentsand associated exposures. The impact of lower net financing margins was a partial offset.

Hertz

The improvement in income before income taxes reflected primarily an improved car rentalpricing environment and lower costs.

LIQUIDITY AND CAPITAL RESOURCES

Automotive Sector

Our strategy is to ensure we have sufficient funding available with a high degree of certaintythroughout the business cycle. The key elements of this strategy include maintaining large grosscash balances, generating cash from operating-related activities, having a long-dated debt maturityprofile, and maintaining committed credit facilities.

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Gross Cash. Automotive gross cash includes cash and cash equivalents, marketable andloaned securities and assets contained in a short-term Voluntary Employee Beneficiary Associationtrust (‘‘VEBA’’) (see below). Gross cash as of December 31, 2003, 2002 and 2001 is detailed below(in billions):

December 31,

2003 2002 2001

Cash and cash equivalents ************************************************ $ 5.4 $ 5.2 $ 4.1

Marketable securities ***************************************************** 10.8 17.4 10.9

Loaned securities* ******************************************************** 5.7 — —

Total cash, marketable securities and loaned securities *********************** 21.9 22.6 15.0

Short-term VEBA assets ************************************************** 4.0 2.7 2.7

Gross cash ********************************************************** $25.9 $25.3 $17.7

* As part of our investment strategy, we engage in securities lending to improve the returns on our cash portfolios.See Note 4 of the Notes to Financial Statements for additional discussion on securities lending.

In managing our business, we classify changes in gross cash into four categories: operating-related(both including and excluding pension/long-term VEBA contributions and tax refunds), capitaltransactions with the Financial Services sector, acquisitions and divestitures and other (primarilyfinancing related). Our key metric for operating-related cash flow is cash flow before pension and long-term VEBA contributions and tax refunds. This metric best represents the ability of our Automotiveoperations to generate cash. We believe the cash flow analysis reflected in the table below, which differsfrom a cash flow statement presented in accordance with GAAP, is useful to investors because itincludes cash flow elements that we consider to be related to our operating activities (e.g., capitalspending) that are not included in Cash flows from operating activities before securities trading, the mostdirectly comparable GAAP financial measure. Changes in Automotive gross cash for the last three yearsare summarized below (in billions):

2003 2002 2001

Gross cash at end of period *********************************************** $25.9 $25.3 $17.7

Gross cash at beginning of period ****************************************** 25.3 17.7 20.2

Total change in gross cash ********************************************** $ 0.6 $ 7.6 $ (2.5)

Operating-related cash flows

Automotive income/(loss) before income taxes excluding special items******** $ 0.1 $ (0.3) $ (2.9)

Capital expenditures **************************************************** (7.4) (6.8) (6.3)

Depreciation and special tools amortization******************************** 5.5 4.9 5.0

Changes in receivables, inventory and trade payables ********************** (1.0) (1.8) 4.4

Other****************************************************************** 2.9 4.3 1.1

Total operating-related cash flows before pension/long-term VEBAcontributions and tax refunds **************************************** 0.1 0.3 1.3

Funded pension plans/long-term VEBA contributions *********************** (4.8) (0.5) (0.3)

Tax refunds ************************************************************ 1.7 2.6 —

Total operating-related cash flows ********************************** (3.0) 2.4 1.0

Capital transactions with Financial Services sector(a) ************************* 3.6 0.4 0.4

Acquisitions and divestitures *********************************************** 0.5 0.6 (2.3)

Other

Dividends paid to shareholders******************************************* (0.7) (0.7) (1.9)

Convertible preferred securities ****************************************** — 4.9 —

Changes in total Automotive sector debt ********************************** (0.1) (0.1) 1.7

Cash from FIN 46 consolidations(b) ************************************** 0.3 — —

Other — Primarily net issuance/(purchase) of stock************************* — 0.1 (1.4)

Total change in gross cash **************************************** $ 0.6 $ 7.6 $ (2.5)

(a) Primarily dividends, capital contributions, loans, and loan repayments.

(b) See Note 13 of the Notes to Financial Statements for a discussion of the adoption of FIN 46.

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Total 2003 operating-related cash flows before funded pension plan and long-term VEBAcontributions and tax refunds was $100 million positive reflecting profits and other operating-relatedchanges, offset partially by increased net capital spending and growth in year-end inventory. The$600 million increase in capital expenditures in 2003 from 2002, reflected primarily increasedspending on new products consistent with our product-led revitalization plan. Other operating-relatedchanges, primarily cash tax payments and timing differences between expense or revenuerecognition and the corresponding cash payments for costs such as health care, pension, marketing,and warranty, improved our cash flows by $2.9 billion in 2003.

Including funded pension plan and long-term VEBA contributions and tax refunds, operating-relatedcash flows were an outflow of $3.0 billion. Contributions to our worldwide funded pension plans totaled$2.8 billion in 2003, compared to approximately $500 million in 2002. In 2003, we also contributed$2 billion to a long-term VEBA trust used to pre-fund a portion of Ford’s other postretirement benefitsliability. This contribution is in addition to the $4 billion contributed to our short-term VEBA, which weinclude in gross cash. These are assets invested similar to our cash portfolio and are available to fundcertain employee benefit obligations in the near term. The $2 billion of long-term VEBA assets areinvested similar to our pension fund assets. The assets of the long-term VEBA are not included in ourgross cash, but are dedicated to pay longer-term healthcare obligations.

Capital transactions with the Financial Services sector of $3.6 billion in 2003 reflected primarilyhigher dividends paid by Ford Credit, which in turn reflected improved profitability and assetreductions at Ford Credit. In addition, dividends of $204 million from the Financial Services sector in2003 are reflected in the table above as divestitures because they resulted from the sale by FordCredit of its Axus vehicle fleet leasing unit.

Shown in the table below is a reconciliation between financial statement Cash flows fromoperating activities before securities trading and operating-related cash flows, (calculated as shownin the table above), for the last three years (in billions):

2003 2002 2001

Cash flows from operating activities before securities trading(a) ***************** $ 1.3 $ 9.5 $ 7.4

Items included in operating-related cash flow

Capital expenditures****************************************************** (7.4) (6.8) (6.3)

Net transactions between Automotive and Financial Services sectors(b)******** 1.2 (0.1) 0.6

Other, primarily exclusion of cash flow from short-term VEBA contribution/(draw-down)*********************************************************** 1.9 (0.2) (0.7)

Operating-related cash flows ************************************************ $(3.0) $ 2.4 $ 1.0

(a) As shown in our Sector Statement of Cash Flows for the Automotive sector.

(b) Primarily payables and receivables between the sectors in the normal course of business, as shown in ourSector Statement of Cash Flows for the Automotive sector.

Debt and Net Cash. At December 31, 2003, our Automotive sector had total senior debt of$15.0 billion compared with $14.2 billion a year ago. The debt increase primarily reflects theadoption of Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 46 (‘‘FIN 46’’), whichrequires the consolidation of certain entities. For a discussion of the adoption of FIN 46, see Note 13of the Notes to Financial Statements. At December 31, 2003, our Automotive sector had net cash(defined as gross cash less total senior debt) of $10.9 billion, compared with $11.1 billion and$3.9 billion at the end of 2002 and 2001, respectively.

In 2003, we retired about $900 million of relatively high-cost debt through open-marketrepurchases and through redemptions. We expect to repurchase a similar amount in 2004.

At December 31, 2003, Ford Motor Company Capital Trust I and Ford Motor Company CapitalTrust II (the ‘‘Trusts’’) together had outstanding an aggregate $5.7 billion of trust preferred securities.The dividend and liquidation preferences on these securities are paid from interest and principal

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payments on our junior subordinated debentures held by the Trusts in an aggregate principal amountof $5.8 billion. Effective July 1, 2003, the junior subordinated debentures are classified asSubordinated debt on our balance sheet as the result of the adoption of FIN 46. This reclassificationdid not impact the status of the holders of our senior debt relative to holders of the subordinateddebentures or the trust preferred securities. For additional discussions related to the Trusts, seeNotes 12 and 15 of the Notes to Financial Statements.

On January 2, 2004, we redeemed our outstanding junior subordinated debentures held byTrust I. This had the effect of reducing total Automotive subordinated debt by $688 million. The debtis classified as Debt payable within one year on our balance sheet as of December 31, 2003.

The weighted average maturity of our total long-term debt (including subordinated debt),substantially all of which is fixed-rate debt, is approximately 26 years with about $2.7 billion maturingby December 31, 2008. The weighted average maturity of total debt (long-term and short-termincluding subordinated debt) is approximately 25 years. For additional information on debt, seeNote 12 of the Notes to Financial Statements.

Credit Facilities. At December 31, 2003, the Automotive sector had $7.0 billion of contractuallycommitted credit agreements with various banks, of which $6.9 billion were available for use. Forfurther discussion of our committed credit facilities, see Note 12 of the Notes to FinancialStatements.

Financial Services Sector

Ford Credit

Debt and Cash. Ford Credit’s total debt was $149.7 billion at December 31, 2003, up$9.4 billion compared with a year ago, reflecting primarily asset-backed commercial paper that waspreviously off-balance sheet debt of FCAR. Ford Credit’s outstanding unsecured commercial paperat December 31, 2003 totaled $6.1 billion, down $2.1 billion compared with a year ago and down$36.2 billion compared with year-end 2000. The reduction since 2000 primarily reflects the loweringof Ford Credit’s short-term credit ratings over that time period as discussed below under ‘‘DebtRatings’’. The lower short-term credit rating has made Ford Credit’s commercial paper largelyineligible for investment by money market mutual funds under Rule 2a-7 of the Investment CompanyAct of 1940, as amended. To partially offset this reduction in Ford Credit’s outstanding unsecuredcommercial paper, asset-backed commercial paper issued through Ford Credit’s FCAR and MotownNotesSM programs increased substantially beginning in 2001.

At December 31, 2003, Ford Credit had cash and cash equivalents of $15.7 billion. In thenormal course of its funding activities, Ford Credit may generate more proceeds than are necessaryfor its immediate funding needs. These excess amounts are maintained primarily as highly liquidinvestments, provide liquidity for Ford Credit’s short-term funding obligations and give it flexibility inthe use of its other funding programs.

Funding. Ford Credit requires substantial funding in the normal course of business. FordCredit’s funding requirements are driven mainly by the need to (i) purchase retail installment salecontracts and vehicle leases to support the sale of Ford products, which are influenced byFord-sponsored special financing and leasing programs that are available exclusively through FordCredit, (ii) provide vehicle inventory and capital financing for Ford dealers, and (iii) repay its debtobligations.

Ford Credit’s funding sources include debt issuances, sales of receivables in securitizations, andbank borrowings. Debt issuance consists of short- and long-term unsecured debt, placed directly byFord Credit or through securities dealers or underwriters in the United States and internationalcapital markets, and reaches both retail and institutional investors. Ford Credit issues commercial

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paper in the United States, Europe, Canada and other international markets. In addition to itscommercial paper programs, Ford Credit also obtains short-term funding from the sale of floatingrate demand notes, which may be redeemed at any time at the option of the holder thereof withoutrestriction. At December 31, 2003, the principal amount outstanding of such notes was $7.3 billion.Ford Credit does not hold reserves specifically to fund the payment of the demand notes or anyother short-term funding obligation. Ford Credit’s policy is to have sufficient cash and cashequivalents, unused committed bank-sponsored asset-backed commercial paper issuer capacity,securitizable assets, and back-up credit facilities to provide liquidity for all of its short-term fundingobligations.

During 2003, Ford Credit continued to meet a significant portion of its funding requirements byselling receivables in securitizations because of the stability of the market for asset-backedsecurities, their lower relative costs given our credit ratings (as described below), and the diversity offunding sources that they provide. Securitized funding (both on- and off-balance sheet, net ofretained interests) as a percent of total managed receivables was as follows as of the end of each ofthe last three years: 2003 — 25%, 2002 — 27%, 2001 — 23%.

The following table illustrates Ford Credit’s term public funding issuances for 2002 and 2003and its planned issuances for 2004 (in billions):

2004Forecast 2003 2002

Unsecured Term Debt

Institutional ********************************************************** $ 4 - 6 $16 $11

Retail *************************************************************** 4 - 6 4 3

Total unsecured term debt******************************************* 8 - 12 20 14

Term Public Securitization* ********************************************** 10 - 15 11 17

Total term public funding ******************************************** $20 - 25 $31 $31

* Reflects new issuance; excludes asset sales to bank-sponsored asset-backed commercial paper issuers,whole-loan sales, and other structured financings.

The cost of both debt and funding in securitizations is based on a margin or spread over abenchmark interest rate, such as interest rates paid on U. S. Treasury securities of similarmaturities. Over the last two years, spreads on Ford Credit’s securitized funding have fluctuatedbetween 35 and 86 basis points above comparable U.S. Treasury securities, while Ford Credit’sunsecured long-term debt funding spreads have fluctuated between 186 and 662 basis points abovecomparable U.S. Treasury securities. In 2003, Ford Credit’s unsecured term-debt spreads fluctuatedbetween 186 and 638 basis points above comparable U.S. Treasury securities, with an averagespread of 341 basis points and a year-end spread of 186 basis points above comparableU.S. Treasury securities.

Ford Credit also continued its program to sell retail installment sale contracts in transactionswhere it retains no interest and thus no exposure to the sold contracts. These transactions, whichwe refer to as ‘‘whole-loan sale transactions,’’ provide liquidity by enabling Ford Credit to reduce itsmanaged receivables and its need for funding to support those receivables. In 2003, Ford Creditsold $5.5 billion of retail finance receivables through whole-loan sales.

As a result of Ford Credit’s funding strategy and the reduction in its managed receivables, thelowering of its credit ratings over the past three years has not had a material impact on Ford Credit’sability to fund its operations, although lower credit ratings have contributed to an increase in itsoverall borrowing costs. In 2003, its funding strategy continued to focus on maintaining liquidity andaccess to diversified funding sources that are cost effective. Any further lowering of its credit ratingsmay increase Ford Credit’s borrowing costs and potentially constrain its funding sources. This couldlikely cause Ford Credit to increase its use of securitization or other sources of liquidity or to reduce

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its managed receivables. Ford Credit’s ability to sell its receivables may be affected by the followingfactors: the amount and credit quality of receivables available to sell, the performance of receivablessold in previous transactions, general demand for the type of receivables Ford Credit offers, marketcapacity for Ford Credit-sponsored investments, accounting and regulatory changes, Ford Credit’sdebt ratings and Ford Credit’s ability to maintain back-up liquidity facilities for certain securitizationprograms. If as a result of any of these or other factors, the cost of securitized funding significantlyincreased or securitized funding were no longer available to Ford Credit, its liquidity would beadversely impacted.

For additional funding and to maintain liquidity, Ford Credit and its majority-owned subsidiaries(including FCE) have contractually committed credit facilities with financial institutions that totaledapproximately $7.7 billion at December 31, 2003. Approximately $1.0 billion of the total facilitieswere in use at December 31, 2003. Additionally, at December 31, 2003, banks provided $18.6 billionof contractually committed liquidity facilities that supported two asset-backed commercial paperprograms established by Ford Credit. Ford Credit also has entered into agreements with severalbank-sponsored asset-backed commercial paper issuers under which such issuers in the aggregateare committed to purchase from Ford Credit, at Ford Credit’s option, up to $12.8 billion ofreceivables. For further discussion of these facilities and agreements, see Note 12 of the Notes toFinancial Statements.

Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various businessdecisions, including establishing pricing for retail, wholesale and lease financing, and assessing itsappropriate capital structure. Ford Credit calculates leverage on a financial statement basis and on amanaged basis using the following formulas:

Total DebtFinancial Statement Leverage =

Equity

RetainedInterest in

Securitized SecuritizedOff-balance Off-balance Cash SFAS No. 133

Sheet Sheet and Cash AdjustmentsTotal Debt + Receivables – Receivables – Equivalents – on Total DebtManaged Leverage =

Equity + Minority – SFAS No. 133Interest Adjustment

on Equity

The following table illustrates the calculation of Ford Credit’s financial statement leverage(in billions):

December 31,

2003 2002 2001

Total debt ************************************************************ $149.7 $140.3 $145.8

Total stockholder’s equity*********************************************** 12.5 13.6 12.0

Debt-to-equity ratio (to 1) ********************************************** 12.0 10.3 12.2

At December 31, 2003, Ford Credit’s financial statement leverage was 12.0 to 1, compared with10.3 to 1 a year ago. This increase in leverage resulted primarily from the accounting consolidationof FCAR resulting in $9.0 billion of FCAR’s debt reported on Ford Credit’s balance sheet atDecember 31, 2003.

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The following table illustrates the calculation of Ford Credit’s managed leverage (in billions):

December 31,

2003 2002 2001

Total debt ************************************************************ $149.7 $140.3 $145.8

Securitized off-balance sheet receivables outstanding ********************* 49.4 71.4 58.7

Retained interest in securitized off-balance sheet receivables ************** (13.0) (17.6) (12.5)

Adjustments for cash and cash equivalents ****************************** (15.7) (6.8) (2.9)

Adjustments for SFAS No. 133****************************************** (4.7) (6.2) (2.1)

Total adjusted debt ************************************************ $165.7 $181.1 $187.0

Total stockholder’s equity (including minority interest)********************** $ 12.5 $ 13.6 $ 12.0

Adjustments for SFAS No. 133****************************************** 0.2 0.5 0.6

Total adjusted equity*********************************************** $ 12.7 $ 14.1 $ 12.6

Managed debt-to-equity ratio (to 1)************************************** 13.0 12.8 14.8

Ford Credit believes that managed leverage, which is the result of adjustments to its financialstatement leverage, is useful to its investors because it reflects the way Ford Credit manages itsbusiness. Ford Credit retains interests in receivables sold in off-balance sheet securitizationtransactions, and with respect to subordinated retained interests, is exposed to credit risk.Accordingly, Ford Credit considers securitization as an alternative source of funding and evaluatescredit losses, receivables and leverage on a managed as well as a financial statement basis. FordCredit also deducts cash and cash equivalents because they generally correspond to excess debtbeyond the amount required to support its operations. In addition, Ford Credit adds its minorityinterests to its financial statement equity, because all of the debt of such consolidated entities isincluded in its total debt. SFAS No. 133 requires Ford Credit to make fair value adjustments to itsassets, debt and equity positions to reflect the impact of interest rate instruments Ford Credit uses inconnection with its term debt issuances and securitizations. SFAS No. 133 adjustments vary over theterm of the underlying debt and securitized funding obligations based on changes in market interestrates. Ford Credit generally repays its debt funding obligations as they mature. As a result, FordCredit excludes the impact of SFAS No. 133 on both the numerator and denominator in order toexclude the interim effects of changes in market interest rates. Accordingly, the managed leveragemeasure provides Ford Credit’s investors with meaningful information regarding management’sdecision-making processes.

Ford Credit’s managed leverage strategy involves establishing a leverage level that it believesreflects the risk characteristics of its underlying assets. In establishing a target leverage level, FordCredit considers the characteristics of the receivables in its managed portfolio and the prevailingmarket conditions.

At December 31, 2003, Ford Credit’s managed leverage was 13.0 to 1, compared with 12.8 to 1a year ago. Ford Credit’s dividend policy is based in part on its strategy to maintain managedleverage at the lower end of the 13-14 to 1 range. As a result of improved profitability and lowermanaged receivable levels, Ford Credit paid dividends of $3.7 billion in 2003.

Hertz

Hertz requires funding for the acquisition of revenue earning equipment, which consists ofvehicles and industrial and construction equipment. Hertz purchases this equipment in accordancewith the terms of agreements negotiated with automobile and equipment manufacturers. Thefinancing requirements of Hertz are seasonal and are mainly explained by the seasonality of thetravel industry. Hertz’ fleet size, and its related financing requirements, generally peak in the summer

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months, and decline during the winter months. Hertz accesses the global capital markets to meet itsfunding needs.

Hertz maintains unsecured domestic and foreign commercial paper programs and a secureddomestic commercial paper program to cover short-term funding needs, and also draws from banklines, as a normal business practice, to fund international needs. Hertz also is active in the domesticmedium-term and long-term debt markets.

Hertz has an asset-backed securitization program for its domestic car rental fleet to reduce itsborrowing costs and enhance its financing resources. As of December 31, 2003, $723 million wasoutstanding under this program.

At December 31, 2003, Hertz had committed credit facilities totaling $2.8 billion. Of this amount,$1.3 billion represented global and other committed credit facilities ($810 million of which areavailable through June 30, 2008 and $488 million of which have various maturities of up to fouryears); $500 million consisted of a revolving credit line provided by Ford, which currently expires inJune 2005; $215 million consisted of asset-backed Letters of Credit, and $814 million consisted of364-day asset-backed commercial paper facilities.

Total Company

Stockholders’ Equity. Our stockholders’ equity was $11.7 billion at December 31, 2003, up$6.1 billion compared with the level at December 31, 2002. The increase in stockholders’ equityreflected primarily the impact of foreign currency translation adjustments and a reduction in ourminimum pension liability. For additional discussion of foreign currency translation adjustments, seeNotes 1 and 16 of the Notes to Financial Statements.

Pension. We sponsor defined benefit pension plans throughout the world. Pursuant to ourcollective bargaining agreement with the UAW, under which most of our U.S. hourly employees arecovered, we are contractually committed to provide specified levels of pension benefits to retireescovered by the contract. These obligations give rise to significant expenses that are highlydependent on assumptions discussed in Note 19 of the Notes to our Financial Statements and under‘‘Critical Accounting Estimates’’ below. Based on present assumptions and benefit agreements, weexpect our 2004 worldwide pre-tax pension expense to be about $865 million, which is about$80 million lower than it was in 2003.

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Included in our Stockholders’ Equity was a $3.5 billion adjustment for our worldwide minimumpension liability as of December 31 2003. This was $2.2 billion better than the 2002 adjustment dueto the improvement in the funded status of our worldwide pension plans (i.e., the amount by whichthe present value of projected benefit obligations exceeded the market value of pension plan assets)as of December 31, 2003, compared with December 31, 2002. The primary factor that contributed tothe improvement in the funded status was an increase in the actual return on plan assets for 2003,partially offset by decreases in the discount rates at December 31, 2003 used to calculate thepresent value of benefit obligations, in each case compared with the prior year. These changes areshown in the table below:

December 31,

2003 2002

Current Change from Current Change fromYear Prior Year Year Prior Year

Discount rate

U.S. plans ********************************************** 6.25% (0.50) pts. 6.75% (0.50) pts.

Non-U.S. plans****************************************** 5.61% (0.04) 5.65% (0.45)

Actual return on plan assets (in millions)

U.S. plans ********************************************** $ 7,687 $11,022 $(3,335) $(1,777)

Non-U.S. plans****************************************** 2,070 3,762 (1,692) (761)

Funded status (in millions)

U.S. plans ********************************************** $(3,447) $ 3,829 $(7,276) $(7,872)

Non-U.S. plans****************************************** (8,242) 93 (8,335) (5,279)

Our pension fund assets consist principally of investments in equities and in government andother fixed income securities. For our major U.S. pension funds, the target asset allocation is 70%equities and 30% fixed income securities. On December 31, 2003, the market value of ourU.S. pension fund assets was less than the projected benefit obligation (calculated using a discountrate of 6.25%, which is reduced from 6.75% used at year-end 2002) by $3.4 billion for ourU.S. plans (of which $2 billion relates to our U.S. funded plans). For non-U.S. plans, the shortfall asof December 31, 2003, was $8.2 billion, for a total worldwide shortfall of $11.7 billion. Pensionfunding obligations and strategies are highly dependent on investment returns, discount rates,actuarial assumptions, and benefit levels (which can be contractually specified, such as those underthe Ford-UAW Retirement Plan). If these assumptions were to remain unchanged, we project that wewould not have a legal requirement to fund our major U.S. pension plans before 2009. However, wereview our pension assumptions regularly and we do from time to time make contributions beyondthose legally required. For example, in 2003 we made over $2 billion of discretionary cashcontributions to our U.S. pension funds. Further, after giving effect to these contributions, based oncurrent interest rates and on our return assumptions and assuming no additional contributions, wedo not expect to be required to pay any variable-rate premiums to the Pension Benefit GuarantyCorporation before 2009.

For information related to our expenses and liabilities with respect to health care benefits weprovide to our employees and retirees, see ‘‘Overview — Key Economic Factors and Trends AffectingAutomotive Industry — Health Care Expenses’’ above and ‘‘Critical Accounting Estimates — OtherPostretirement Benefits (Retiree Health Care and Life Insurance)’’ below.

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Debt Ratings. Our short- and long-term debt is rated by four credit rating agencies designatedas nationally recognized statistical rating organizations (‘‘NRSROs’’) by the Securities and ExchangeCommission:

) Dominion Bond Rating Service Limited (‘‘DBRS’’);

) Fitch, Inc. (‘‘Fitch’’);

) Moody’s Investors Service, Inc. (‘‘Moody’s’’); and

) Standard & Poor’s Rating Services, a division of McGraw-Hill Companies, Inc. (‘‘S&P’’).

In several markets, locally recognized rating agencies also rate us. A credit rating reflects anassessment by the rating agency of the credit risk associated with particular securities we issue,based on information provided by us and other sources. Credit ratings are not recommendations tobuy, sell or hold securities and are subject to revision or withdrawal at any time by the assigningrating agency. Each rating agency may have different criteria for evaluating company risk, andtherefore ratings should be evaluated independently for each rating agency. Lower credit ratingsgenerally result in higher borrowing costs and reduced access to capital markets. The NRSROs haveindicated that our lower ratings since 2001 are primarily a reflection of the rating agencies’ concernsregarding our automotive cash flow and profitability, declining market share, excess industrycapacity, industry pricing pressure and rising healthcare costs.

The following chart summarizes Ford’s* credit ratings and the outlook assigned by the NRSROssince 2000:

DBRS** Fitch Moody’s S&P

Long- Short- Long- Short- Long- Short- Long- Short-Date Term Term Trend Term Term Outlook Term Term Outlook Term Term Outlook

Apr. 2000 ***** A (high) R-1 (low) Stable A+ F1 Stable A2 P-1 Stable A A-1 Stable

Aug. 2001 ***** A R-1 (low) Stable A+ F1 Negative A2 P-1 Negative A A-1 Negative

Sep. 2001***** A R-1 (low) Stable A– F2 Negative A2 P-1 Negative A A-1 Negative

Oct. 2001 ***** A (low) R-1 (low) Stable A– F2 Negative A3 P-1 Negative BBB+ A-2 Stable

Jan. 2002 ***** A (low) R-1 (low) Stable BBB+ F2 Negative Baa1 P-2 Negative BBB+ A-2 Negative

Oct. 2002 ***** A (low) R-1 (low) Negative BBB+ F2 Negative Baa1 P-2 Negative BBB A-2 Negative

Apr. 2003 ***** BBB (high) R-1 (low) Stable BBB+ F2 Negative Baa1 P-2 Negative BBB A-2 Negative

Nov. 2003 ***** BBB (high) R-1 (low) Stable BBB+ F2 Negative Baa1 P-2 Negative BBB– A-3 Stable

* Moody’s presently rates Ford Credit’s long-term debt at ‘‘A3’’, and Hertz’s long-term debt at ‘‘Baa2’’. DBRS has assignedHertz’s long-term debt a negative trend. All other Nov. 2003 ratings and outlooks shown apply equally to Ford, Ford Credit,and Hertz.

** NRSRO designation granted on February 27, 2003

The ratings and trend assigned by DBRS have been in effect since April 2003 and wereconfirmed by DBRS in December 2003. The ratings and outlooks assigned by Fitch and Moody’shave been in effect since January 2002 and were affirmed or confirmed by each firm in November2003. The ratings and outlook assigned by S&P have been in effect since November 2003, whenS&P lowered the long-term credit ratings on Ford, Ford Credit and Hertz to ‘‘BBB–’’ with a stableoutlook from ‘‘BBB’’ with a negative outlook, and lowered the short-term credit rating to ‘‘A-3’’ from‘‘A-2’’.

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OUTLOOK

2004 Financial Milestones

We have set and communicated certain planning assumptions, operational metrics and financialmilestones for 2004, shown below:

Planning Assumptions

Industry Volume:

U.S. 17.0 million units

Europe 16.9 million units

Industry Net Pricing:

U.S. Down slightly

Europe Down slightly

Operational Metrics

Quality Improve in all regions

Market Share Flat or improve in all regions

Automotive Cost Performance(a) Improve by at least $500 million

Capital Spending $7 billion

Operating-Related Cash Flow(b) $1.2 billion positive

Financial Results (in billions)(c) Milestone

Pre-Tax Profits $3.5 - $3.8

Financial Services 2.6 - 2.7

Automotive 0.9 - 1.1

North America 1.5 - 1.7

South America (0.1) - 0

Europe (0.2) - (0.1)

Asia Pacific 0 - 0.1

P.A.G. 0.5 - 0.6

(a) At constant volume, mix and exchange; excluding special items.

(b) Excluding Pension/Long-Term VEBA contributions and tax refunds. (See ‘‘Liquidity and Capital Resources —Gross Cash’’ for calculation of this non-GAAP measure).

(c) Excluding special items.

2004 is the first year in which we have provided financial milestones for our individualAutomotive business units. Our confidence in achieving the Automotive profit target in total is greaterthan it is for any of the individual business units.

Based on the planning assumptions set forth above and achievement of the foregoingmilestones, we expect 2004 earnings per share from continuing operations excluding special items torange from $1.20 to $1.30 for the full-year. Our present estimate of special items for 2004 is a pre-tax charge of up to $300 million, or about $0.11 per share on an after tax basis, consisting of thebalance of the Ford Europe restructuring charge and future expected losses with respect todispositions of remaining non-core businesses.

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Risk Factors

Statements included or incorporated by reference herein may constitute ‘‘forward lookingstatements’’ within the meaning of the Private Securities Litigation Reform Act of 1995. Thesestatements involve a number of risks, uncertainties, and other factors that could cause actual resultsto differ materially from those stated, including, without limitation:

) greater price competition resulting from currency fluctuations, industry overcapacity or otherfactors;

) a significant decline in industry sales, particularly in the U.S. or Europe, resulting from slowingeconomic growth, geo-political events or other factors;

) lower-than-anticipated market acceptance of new or existing products;

) work stoppages at key Ford or supplier facilities or other interruptions of supplies;

) the discovery of defects in vehicles resulting in delays in new model launches, recallcampaigns or increased warranty costs;

) increased safety, emissions, fuel economy or other regulation resulting in higher costs and/orsales restrictions;

) unusual or significant litigation or governmental investigations arising out of alleged defects inour products or otherwise;

) worse-than-assumed economic and demographic experience for our postretirement benefitplans (e.g., investment returns, interest rates, health care cost trends, benefit improvements);

) currency or commodity price fluctuations;

) a market shift from truck sales in the U.S.;

) economic difficulties in any significant market;

) reduced availability of or higher prices for fuel;

) labor or other constraints on our ability to restructure our business;

) a change in our requirements under long-term supply arrangements under which we areobligated to purchase minimum quantities or pay minimum amounts;

) a further credit rating downgrade;

) inability to access debt or securitization markets around the world at competitive rates or insufficient amounts;

) higher-than-expected credit losses;

) lower-than-anticipated residual values for leased vehicles;

) increased price competition in the rental car industry and/or a general decline in business orleisure travel due to terrorist attacks, acts of war, epidemic disease or measures taken bygovernments in response thereto that negatively affect the travel industry; and

) our inability to implement the Revitalization Plan.

CRITICAL ACCOUNTING ESTIMATES

We consider an accounting estimate to be critical if: 1) the accounting estimate requires us tomake assumptions about matters that were highly uncertain at the time the accounting estimate wasmade, and 2) changes in the estimate that are reasonably likely to occur from period to period, oruse of different estimates that we reasonably could have used in the current period, would have amaterial impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accountingestimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewedthe foregoing disclosure. In addition, there are other items within our financial statements that

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require estimation, but are not deemed critical as defined above. Changes in estimates used inthese and other items could have a material impact on our financial statements.

Warranty and Additional Service Actions

See Notes 1 and 23 of the Notes to our Financial Statements for more information regardingcosts and assumptions for warranties and additional service actions.

Nature of Estimates Required. The estimated warranty and additional service action costs areaccrued for each vehicle at the time of sale. Estimates are principally based on assumptionsregarding the lifetime warranty costs of each vehicle line and each model year of that vehicle line,where little or no claims experience may exist. In addition, the number and magnitude of additionalservice actions expected to be approved, and policies related to additional service actions, are takeninto consideration. Due to the uncertainty and potential volatility of these estimated factors, changesin our assumptions could materially affect net income.

Assumptions and Approach Used. Our estimate of warranty and additional service actionobligations is reevaluated on a quarterly basis. Experience has shown that initial data for any givenmodel year can be volatile; therefore, our process relies upon long-term historical averages untilsufficient data are available. As actual experience becomes available, it is used to modify thehistorical averages to ensure that the forecast is within the range of likely outcomes. Resultingbalances are then compared with present spending rates to ensure that the accruals are adequateto meet expected future obligations.

Pensions

See Note 19 of the Notes to Financial Statements for more information regarding costs andassumptions for employee retirement benefits.

Nature of Estimates Required. The measurement of our pension obligations, costs and liabilitiesis dependent on a variety of assumptions used by our actuaries. These assumptions include estimatesof the present value of projected future pension payments to all plan participants, taking intoconsideration the likelihood of potential future events such as salary increases and demographicexperience. These assumptions may have an effect on the amount and timing of future contributions.The plan trustee conducts an independent valuation of the fair value of pension plan assets.

Assumptions and Approach Used. The assumptions used in developing the required estimatesinclude the following key factors:

) Discount rates ) Inflation

) Salary growth ) Expected return on plan assets

) Retirement rates ) Mortality rates

We base the discount rate assumption on investment yields available at year-end on corporatelong-term bonds rated AA. Our inflation assumption is based on an evaluation of external marketindicators. The salary growth assumption reflects our long-term actual experience, the near-termoutlook and assumed inflation. The expected return on plan assets assumption reflects assetallocation, investment strategy and the views of investment managers and of other large pensionplan sponsors regarding the market. Retirement and mortality rates are based primarily on actualplan experience. The effects of actual results differing from our assumptions are accumulated andamortized over future periods and, therefore, generally affect our recognized expense in such futureperiods.

Sensitivity Analysis. Sensitivity of our worldwide pension funded status and stockholders’equity to the indicated increase/decrease in the discount rate assumption is shown below. Although

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not an estimate, we’ve also included sensitivity around the actual return on pension assets. Notethat these sensitivities may be asymmetric, and are specific to the base conditions at year-end 2003.They also may not be additive, so the impact of changing multiple factors simultaneously cannot becalculated by combining the individual sensitivities shown. The December 31, 2003 funded status isaffected by December 31, 2003 assumptions. Pension expense for 2003 is affected byDecember 31, 2002 assumptions. The impact on our funded status, equity and U.S. pensionexpense from a one percentage point change in these assumptions is shown below (in millions).

Increase/(Decrease) in:

December 31, 2003PercentagePoint U.S. Plans Non-U.S. Plans 2003

Assumption Change Funded Status Funded Status Equity U.S. Expense

Discount rate ********************* +/– 1.0 pt. $4,110/$(4,580) $3,300/$(3,850) $2,870/$(4,910) $(20)/$20

Full year 2003, actual return onassets ************************* +/– 1.0 $290/$(290) $130/$(130) $180/$(180) —

Full year 2003, expected return onassets ************************* +/– 1.0 — — — $(350)/$350

The foregoing indicates that changes in the discount rate and return on assets can have asignificant effect on the funded status of our pension plans and Stockholders’ Equity. As statedabove, we base the discount rate assumption on investment yields available at year-end oncorporate long-term bonds rated AA. We cannot predict these bond yields or investment returns and,therefore, cannot reasonably estimate whether adjustments to our Stockholders’ Equity for minimumpension liability in subsequent years will be significant.

Other Postretirement Benefits (Retiree Health Care and Life Insurance)

See Note 19 of the Notes to Financial Statements for more information regarding costs andassumptions for other postretirement benefits.

Nature of Estimates Required. The measurement of our obligations, costs and liabilitiesassociated with other postretirement benefits (i.e., retiree health care and life insurance) requiresthat we make use of estimates of the present value of the projected future payments to allparticipants, taking into consideration the likelihood of potential future events such as health carecost increases, salary increases and demographic experience, which may have an effect on theamount and timing of future payments.

Assumptions and Approach Used. The assumptions used in developing the required estimatesinclude the following key factors:

) Health care cost trends ) Inflation

) Discount rates ) Expected return on plan assets

) Salary growth ) Mortality rates

) Retirement rates

Our health care cost trend assumptions are developed based on historical cost data, the near-term outlook, efficiencies and other cost-mitigation actions (including further employee cost sharing,administrative improvements and other efficiencies) and an assessment of likely long-term trends.We base the discount rate assumption on investment yields available at year-end on corporate long-term bonds rated AA. Our inflation assumption is based on an evaluation of external marketindicators. The salary growth assumptions reflect our long-term actual experience, the near-termoutlook and assumed inflation. The expected return on plan assets reflects asset allocation,investment strategy and the views of investment managers and of other large pension plan sponsorsregarding the market. Retirement and mortality rates are based primarily on actual plan experience.

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The effects of actual results differing from our assumptions are accumulated and amortized overfuture periods and, therefore, generally affect our recognized expense in such future periods.

Sensitivity Analysis. The December 31, 2003 postretirement obligation is affected byDecember 31, 2003 assumptions. Postretirement benefit expense for 2003 is affected byDecember 31, 2002 assumptions. Note that these sensitivities may be asymmetric, and are specificto the base conditions at year-end 2003. They also may not be additive, so the impact of changingmultiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.The effect of the indicated increase/decrease in selected assumptions is shown below (in millions):

Effect on U.S. and CanadianPlans: Increase/(Decrease)

Percentage December 31, 2003 2003Assumption Point Change Obligation Expense

Discount rate **************************************************** +/– 1.0 pt. $(4,100)/$5,000 $(260)/$280

Health care cost trends — total expense **************************** +/– 1.0 4,600/ (3,800) 560/ (460)

Health care cost trends — service and interest expense ************** +/– 1.0 4,600/ (3,800) 310/ (260)


See Note 10 of the Notes to Financial Statements for more information regarding our allowancefor credit losses.

The allowance for credit losses is our estimate of the probable credit losses related to impairedfinance receivables and operating leases as of the date of the financial statements. We exercisejudgment in estimating this amount because credit losses vary substantially over time, andestimating probable losses requires a number of assumptions about matters that are uncertain.

Nature of Estimates Required. We estimate the probable credit losses related to impairedfinance receivables and operating leases by evaluating several different factors using econometricmodels. These factors include historical credit loss trends, the credit quality of our present portfolio,trends in historical and projected used vehicle values, and general economic measures.

Assumptions and Approach Used. We use the factors listed above to make projections of twokey assumptions:

) Frequency — the percentage of finance receivables and operating leases that we expect todefault over a period of time, measured principally by the repossession rate (the ratio of thenumber of vehicles repossessed in a time period, typically a year, divided by the averagenumber of accounts outstanding in the same time period); and

) Loss severity — the expected difference between the amount a customer owes us when wecharge off the finance contract and the amount we receive, net of expenses, from selling therepossessed vehicle, including any recoveries from the customer.

We use these assumptions to assist us in setting our allowance for credit losses.

Sensitivity Analysis. We believe the present level of our allowance for credit losses adequatelyreflects probable losses related to impaired finance receivables and operating leases. However,changes in the assumptions used to derive frequency and severity would have an impact on theallowance for credit losses. Over the past twenty years, repossession rates for our U.S. retail andlease portfolio have varied between 2% and 4%.

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The effect of the indicated increase/decrease in the assumptions is shown below for Ford,Lincoln, and Mercury brand vehicles in the U.S. (in millions):

Effect on:Increase/(Decrease)

Percentage December 31, 2003Point Allowance for 2003

Assumption Change Credit Losses Expense

Repossession rates*************************************************** +/– 0.1 pts. $50/$(50) $50/$(50)

Loss severity********************************************************* +/– 1.0 20/(20) 20/(20)

Changes in our assumptions affect Provision for credit losses on our income statement and theAllowance for credit and insurance losses on our balance sheet.

Accumulated Depreciation on Vehicles Subject to Operating Leases — Financial Services Sector

See Note 9 of the Notes to Financial Statements for more information regarding accumulateddepreciation on vehicles subject to operating leases.

Accumulated depreciation on vehicles subject to operating leases reflects the cumulative amountof depreciation that has been recorded to date, reducing the value of the leased vehicles in ouroperating lease portfolio from their original acquisition value to their estimated residual value(estimated proceeds from the sale of the vehicle at auction at the end of the lease term).

Nature of Estimates Required. Each operating lease in our portfolio represents a vehicle weown that has been leased to a customer. When we purchase the lease, we establish an estimatedresidual value for the vehicle. We exercise judgment in estimating the residual value because futuremarket values of used vehicles are difficult to predict. We depreciate leased vehicles on a straight-line basis to estimated residual value.

We monitor residual value performance by vehicle line each month and we review the adequacyof our accumulated depreciation on a quarterly basis. If we believe that the residual values for ourvehicles have decreased, we revise depreciation for the affected vehicles to ensure that our netinvestment in the operating leases (equal to our acquisition value of the vehicles minus accumulateddepreciation) will be reduced to our revised estimate of residual value at the end of the lease term.Such adjustments to depreciation expense are recorded over the remaining life of the affectedvehicles in our portfolio.

Each lease customer has the option to buy the leased vehicle at the end of the lease or toreturn the vehicle to the dealer. The dealer has the option to purchase the vehicle at the contractuallease-end value or return it to us. For returned vehicles, we face a risk that the amount we obtainfrom the vehicle sold at auction will be less than our most recent estimate of the residual value forthe vehicle. Over the last five years, about 60% to 70% of Ford Credit North America’s operatinglease vehicles have been returned to us.

Assumptions and Approach Used. Our accumulated depreciation on operating leases is basedon the following assumptions:

) Residual value: the market value of the ) Return rates: the percentage ofvehicles when we sell them at the end vehicles that will be returned to usof the lease. at lease end.

We estimate residual values and return rates using econometric models. These models usehistorical auction values, historical return rates for our leased vehicles, industry-wide used vehicleprices, our marketing plans and vehicle quality data.

Sensitivity Analysis. The largest impact of changes in assumptions is on Ford Credit’sU.S. retail operating leases of Ford, Lincoln and Mercury brand vehicles. If future auction values for

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all of the Ford, Lincoln, and Mercury vehicles in our U.S. operating lease portfolio at year-end 2003were to decrease by $100 per unit from our present estimates, the total impact would be to increaseour depreciation on these vehicles by about $55 million, which would be charged to depreciationexpense during the 2004 through 2006 period so that the net investment in operating leases at theend of the lease term for these vehicles is equal to the revised residual value. Similarly, if futurereturn rates for our existing portfolio of Ford, Lincoln and Mercury vehicles in the U.S. were toincrease by one percentage point from our present estimates, the total impact would be to increaseour depreciation on these vehicles by about $10 million in the 2004 through 2006 period.Adjustments to the amount of accumulated depreciation on operating leases will be reflected on ourbalance sheet as Net investment in operating leases and on the income statement in theDepreciation line, in each case under the Financial Services sector.

OFF-BALANCE SHEET ARRANGEMENTS

We have entered into various arrangements not reflected on our balance sheet that have or arereasonably likely to have a current or future effect on our financial condition, revenues or expenses,results of operations, liquidity, capital expenditures or capital resources. These include guarantees,sales of receivables by Ford Credit, and variable interest entities, each of which is discussed below.

Guarantees (See also Note 23 of the Notes to Financial Statements)

Occasionally, we guarantee debt and lease obligations of joint venture entities and other thirdparties with which we do business to support their growth. As of December 31, 2003, our maximumpotential exposure under these guarantees was $465 million.

In the ordinary course of business, we also execute contracts involving indemnificationsstandard in the industry and indemnifications specific to a transaction. These indemnificationsinclude claims for any of the following: environmental, tax, and shareholder matters; intellectualproperty rights; governmental regulations and employment-related matters; financial matters; anddealer, supplier, and other commercial contractual relationships. Performance under these indemnitieswould generally be triggered by a breach of terms of the contract or by a third party claim.

Sales of Receivables by Ford Credit

Securitizations

Ford Credit regularly uses securitization to fund its operations. Ford Credit securitizes itsreceivables because the highly-liquid and efficient securitization market provides Ford Credit with acost-effective source of funding, compared with unsecured debt given Ford Credit’s present debtratings. In a typical securitization transaction, Ford Credit sells a pool of finance receivables to awholly-owned, bankruptcy-remote special purpose subsidiary that establishes an SPE, usually atrust, and transfers the receivables to the SPE in exchange for proceeds from interest-bearingsecurities, commonly called asset-backed securities, that are issued by the SPE and are secured byfuture collections on the sold receivables. Following the transfer of the sold receivables to the SPE,and assuming compliance with SFAS No. 140 (discussed below), the receivables are no longerassets of Ford Credit and the sold receivables no longer appear on our balance sheet. Thesecurities issued by the SPE are structured into senior and subordinated classes. The senior classeshave priority over the subordinated classes in receiving collections from the receivables and mayalso benefit from other enhancements such as over-collateralization and cash reserve funds. Thesesecurities generally are rated by independent rating agencies and sold in public offerings or inprivate transactions.

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The following chart diagrams Ford Credit’s typical securitization transaction:

Ford Credit InvestorsSpecial Purpose

Subsidiary

SecuritizationTrust

(Qualifying SpecialPurpose Entity)

Securities

Proceeds

Receivables

Proceeds

Receivables

BankruptcyRemoteTransaction

Off-BalanceSheet Transaction

Proceeds

Consistent with conventional practices in the securitization industry, Ford Credit uses SPEs insecuritization transactions to achieve isolation of the sold receivables for the benefit of securitizationinvestors. Most of the SPEs used in Ford Credit’s securitization transactions are classified asqualifying special purpose entities consistent with the requirements of SFAS No. 140, Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities, because of the natureof the assets held by these entities and the limited nature of their activities. When these accountingrules are met, the sold receivables are removed from our balance sheet. The use of SPEs in thetypical securitization structure shown above, along with the use of various forms of credit andpayment enhancements to reduce the risk of loss (as discussed below), allows the SPE to issuesenior asset-backed securities that generally receive the highest short-term debt ratings and amongthe highest long-term debt ratings, thereby providing Ford Credit with a cost-effective source offunding.

Ford Credit also sponsors one securitization program, FCAR Owner Trust (‘‘FCAR’’), which doesnot use qualifying SPEs under SFAS No. 140. In the second quarter of 2003, Ford Credit purchaseda portion of equity interests in FCAR from unaffiliated parties for $175 million. As a result of thistransaction, FCAR’s assets, liabilities and results of operations were consolidated into our financialstatements. The effects of this transaction are more fully described in Note 8 of the Notes toFinancial Statements.

Ford Credit selects receivables at random for securitization transactions using selection criteriadesigned for the specific transaction. The selection criteria are generally based on factors such aslocation of the obligor, contract term, payment schedule, interest rate, financing program, and thetype of financed vehicle. In general, the criteria also require receivables to be active and in goodstanding.

Ford Credit often retains interests in the securitized receivables. The retained interests mayinclude senior and subordinated securities, undivided interests in wholesale receivables, restrictedcash held for the benefit of the SPEs (for example, a reserve fund) and interest-only strips.Subordinated securities represent lower rated classes of securities issued by the SPEs. Restrictedcash is funded initially by a small portion of proceeds from the sale of receivables that may be usedto pay principal and interest to SPE investors and, after investors are fully paid, remaining cash isreturned to Ford Credit. Interest-only strips, also referred to as excess spread, represent the right toreceive collections on the sold finance receivables in excess of amounts needed by the SPE to payinterest and principal to investors, servicing fees and other required payments. Because Ford Credittypically retains the most subordinated interests in the SPE, including subordinated securities, theright to receive excess spread (interest-only strip) and any residual or remainder interests of the SPEafter all asset-backed securities are repaid in full, Ford Credit’s retained interests will be the first toabsorb any credit losses on the sold receivables. Because the credit enhancements are structured toprotect the holders of the senior asset-backed securities in highly stressed receivables performancescenarios, the impact of credit losses in the pool of sold receivables will likely be limited to FordCredit’s retained interests in terms of the timing and total amount of excess spread it receives.Therefore, related to receivables sold in securitizations, Ford Credit retains credit risk up to the

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amount of subordinated interests it retains in securitizations. If the receivables were not securitized,Ford Credit’s risk related to credit losses would not be limited as it is in securitizations.

At December 31, 2003 and 2002, the total outstanding principal amount of receivables sold byFord Credit in securitizations was $49.4 billion and $71.4 billion, respectively. This decrease reflectedprimarily the reacquired receivables following consolidation of FCAR now reported on our balancesheet (as discussed above) and the slower pace of securitizations in 2003. At December 31, 2003and 2002, Ford Credit’s retained interests in such sold receivables were $13.0 billion and$17.6 billion, respectively.

Ford Credit has no obligation to repurchase any sold receivable that becomes delinquent inpayment or otherwise is in default. The holders of the asset-backed securities have no recourse toFord Credit or its other assets for credit losses on the sold receivables and have no ability to requireFord Credit to repurchase their securities. Ford Credit does not guarantee any securities issued bySPEs. However, as is customary in asset-backed securitization transactions, Ford Credit, as theseller of the finance receivables to the SPE and servicer of such receivables, is obligated to providecertain support obligations. These include indemnification of the SPE and its trustees, therequirement to repurchase receivables that do not meet eligibility criteria or that have been materiallymodified by the servicer, the obligation to sell additional receivables in certain transactions and theadvancing of interest payment short falls. Based on its experience, Ford Credit does not expect tomake any indemnification payments. In 2003, Ford Credit was not required to repurchase any soldreceivables due to their failure to meet eligibility criteria and the principal amount of receivablesrepurchased due to servicer modifications was about $193 million for all retail securitizationprograms.

Risks to Future Sales of Receivables

Some of Ford Credit’s securitization programs contain structural features that could preventfurther funding if the credit losses or delinquencies on a pool of sold receivables or on Ford Credit’soverall managed portfolio exceed specified levels or if payment rates on or amounts of wholesalereceivables are lower than specified levels. Ford Credit does not expect that any of these featureswill have a material adverse impact on its ability to securitize receivables. In addition, Ford Credit’sability to sell its receivables may be affected by the following factors: the amount and credit qualityof receivables available to sell, the performance of receivables sold in previous transactions, generaldemand for the type of receivables Ford Credit offers, market capacity for Ford Credit-sponsoredinvestments, accounting and regulatory changes, Ford Credit’s debt ratings and Ford Credit’s abilityto maintain back-up liquidity facilities for certain securitization programs. If as a result of any of theseor other factors, the cost of securitized funding significantly increased or securitized funding were nolonger available to Ford Credit, Ford Credit’s operations, financial condition and liquidity would beadversely impacted.

Variable Interest Entities

Automotive

The Automotive Sector has several investments in other joint ventures deemed to be VIEs wherewe are not the primary beneficiary. The risks and rewards associated with our interests in theseentities are based primarily on ownership percentages. Our maximum exposure to any potentiallosses, should they occur, associated with these VIEs is limited to our equity investments and, whereapplicable, receivables due from the VIEs (approximately $104 million).

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Financial Services

Ford Credit has investments in certain joint ventures deemed to be VIEs where Ford Credit isnot the primary beneficiary. The risks and rewards associated with Ford Credit’s interest in theseentities are based primarily on ownership percentages. Ford Credit’s maximum exposure to anypotential losses, should they occur, associated with these VIEs is limited to Ford Credit’s equityinvestments, which at December 31, 2003 totaled approximately $125 million.

AGGREGATE CONTRACTUAL OBLIGATIONS

We are party to many contractual obligations involving commitments to make payments to thirdparties. Most of these are debt obligations incurred by our Financial Services sector. In addition, aspart of our normal business practices, we enter into contracts with suppliers for purchases of certainraw materials, components and services. These arrangements may contain fixed or minimumquantity purchase requirements. We enter into such arrangements to facilitate adequate supply ofthese materials and services. ‘‘Purchase obligations’’ are defined as off-balance sheet agreementsto purchase goods or services that are enforceable and legally binding on the company and thatspecify all significant terms.

The ‘‘Other long-term liabilities’’ category includes only liabilities on our balance sheet that havea definite pay-out scheme or are not contingent on a subsequent event. Other long-term liabilities atDecember 31, 2003 represent a payment obligation related to a prior acquisition.

The table below summarizes our contractual obligations as of December 31, 2003 (in millions):

Payments Due by Period

Less MoreFinancial Than 1-3 3-5 Than 5

Obligations Automotive Services Total 1 Year Years Years Years

On-balance sheet:

Long-term debt **************************** $20,185 $131,245 $151,430 $31,679 $52,367 $18,698 $48,686

Capital lease ****************************** 328 2 330 37 70 52 171

Other long-term liabilities ******************* 1,202 — 1,202 — 1,202 — —

Off-balance sheet:

Purchase ********************************* 9,220 — 9,220 4,577 2,232 1,368 1,043

Operating lease *************************** 1,809 1,835 3,644 846 1,200 754 844

Total *********************************** $32,744 $133,082 $165,826 $37,139 $57,071 $20,872 $50,744

For additional information to our long-term debt and operating lease obligations, see Notes 12and 23 in the Notes to Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

OVERVIEW

We are exposed to a variety of market and other risks, including the effects of changes inforeign currency exchange rates, commodity prices, interest rates, as well as risks to availability offunding sources, hazard events, and specific asset risks.

These risks affect our Automotive and Financial Services sectors differently. We monitor andmanage these exposures as an integral part of our overall risk management program, whichincludes regular reports to a central management committee, the Global Risk ManagementCommittee (‘‘GRMC’’). The GRMC is chaired by our Chief Financial Officer, and its members includeour Treasurer, our Controller, and the Chief Financial Officer of Ford Credit.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk (Continued)

Our Automotive and Financial Services sectors are exposed to liquidity risk, or the possibility ofhaving to curtail their businesses or being unable to meet present and future financial obligations asthey come due because funding sources may be reduced or become unavailable. We, andparticularly Ford Credit, which comprises substantially all of our Financial Services sector, maintainplans for sources of funding to ensure liquidity through a variety of economic or business cycles. Asdiscussed in greater detail in the Management’s Discussion and Analysis of Financial Condition andResults of Operations, our funding sources include commercial paper, term debt, sales ofreceivables through securitization transactions, committed lines of credit from major banks, and othersources.

We are exposed to a variety of insurable risks, such as loss or damage to property, liabilityclaims, and employee injury. We protect against these risks through a combination of self-insuranceand the purchase of commercial insurance designed to protect against events that could generatesignificant losses.

Direct responsibility for the execution of our market risk management strategies resides with ourTreasurer’s Office and is governed by written polices and procedures. Separation of duties ismaintained between the development and authorization of derivative trades, the transaction ofderivatives, and the settlement of cash flows. Regular audits are conducted to ensure thatappropriate controls are in place and that they remain effective. In addition, our market riskexposures and our use of derivatives to manage these exposures are reviewed by the GRMC andthe Audit Committee of our Board of Directors.

In accordance with corporate risk management policies, we use derivative instruments, such asforward contracts, swaps and options that economically hedge certain exposures (foreign currency,commodity, and interest rates). Derivative positions are used to manage underlying exposures; wedo not use derivative contracts for speculative purposes. In certain instances, we forgo hedgeaccounting, which results in unrealized gains and losses that are recognized currently in net income;examples of economic hedges that do not qualify for hedge accounting include foreign currencyhedges of inter-company loans and dividends and certain transactions that use multiple hedgeinstruments. For additional information on our derivatives, see Note 16 of the Notes to FinancialStatements.

The market and counterparty risks of our Automotive sector and Ford Credit are discussed andquantified below.

AUTOMOTIVE MARKET AND COUNTERPARTY RISK

Our Automotive sector frequently has expenditures and receipts denominated in foreigncurrencies, including the following: purchases and sales of finished vehicles and production parts,debt and other payables, subsidiary dividends, and investments in foreign operations. Theseexpenditures and receipts create exposures to changes in exchange rates. We also are exposed tochanges in prices of commodities used in our Automotive sector and changes in interest rates.

Foreign currency risk and commodity risk are measured and quantified using a model tocalculate the changes in the value of currency and commodity derivative instruments along with theunderlying cash flow exposures being hedged. Our earnings at risk (‘‘EaR’’) methodology is basedon transaction exposure, which is the exposure that results from specific transactions and our relatedhedging activity. The methodology does not attempt to assess the impact on financial statementearnings resulting from non-cash flow risks (e.g., re-measurement of foreign currency-denominatedassets or liabilities through income). EaR at a 95% confidence level is the methodology used tocalculate the potential impact to pre-tax earnings related to cash flows in foreign currency andcommodity price exposure. The calculation of EaR combines current market data with historical dataon volatilities and correlations of the underlying currencies or commodity prices. This creates

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hypothetical prices based on the calculation of historical volatilities. The EaR methodology includesour hedging actions as well as the underlying exposures over a twelve-month period.

Foreign Currency Risk

Foreign currency risk is the possibility that our financial results could be better or worse thanplanned because of changes in foreign currency exchange rates. We use derivative instruments tohedge our economic exposure with respect to assets, liabilities, investments in foreign operations,and firm commitments denominated in foreign currencies. In our hedging actions, we use primarilyinstruments commonly used by corporations to reduce foreign exchange risk (e.g., forward contractsand options).

At December 31, 2003, the EaR from foreign currency exchange movements over the nexttwelve months is projected at less than $350 million, within a 95% confidence level for the unhedgedexposure. When calculated at the end of each quarter throughout the year, the high was$550 million, the low was $350 million and the average was $460 million; the risks impactingfinancial instruments are offset with underlying exposure being hedged. The 2003 year-endprojection is approximately $40 million lower than the EaR projection for 2003 calculated as ofDecember 31, 2002. The decreased exposure results primarily from more diversification benefit dueto lower correlation among major currency pairings. The effect of currency movements on businessunits will vary based on the currency profile of the business unit (including any hedging actionstaken). It can also be affected by competitive responses to currency changes.

Commodity Price Risk

Commodity price risk is the possibility of higher or lower costs due to changes in the prices ofcommodities, such as non-ferrous metals (e.g., aluminum) and precious metals (e.g., palladium,platinum and rhodium), ferrous alloys (e.g., steel), energy (e.g., natural gas and electricity), andplastics/resins (e.g., polypropylene), which we use in the production of motor vehicles.

We use derivative instruments to hedge the price risk associated with the purchase of thosecommodities that we can economically hedge. In our hedging actions, we primarily use instrumentscommonly used by corporations to reduce commodity price risk (e.g., financially settled forwardcontracts, swaps, and options). Based on our financial hedging activities with derivatives and theassociated underlying commodities exposures at December 31, 2003, the EaR from commodity pricemovements over the next twelve months is projected at less than $90 million, within a 95%confidence level (when calculated at the end of each quarter throughout the year, the high was$90 million, the low was $69 million and the average was $80 million); the risks impacting financialinstruments are offset with underlying exposure being hedged. The year-end level is approximately$31 million higher than the EaR projection for 2003 calculated as of December 31, 2002. The driversof this increase are higher commodity price levels, price volatilities and exposures.

Where derivative instruments do not exist or do not provide a highly correlated hedge, ourpurchasing organization negotiates contracts mitigating price risk (e.g., steel and resins) which areapproved by the GRMC.

Interest Rate Risk

Interest rate risk relates to the gain or loss we could incur in our Automotive investment portfolioin the event of a change in interest rates. Our interest rate sensitivity analysis on the investmentportfolio includes cash and cash equivalents, marketable and loaned securities and short-term VEBAAssets. At December 31, 2003, we had $25.9 billion in cash, compared to $25.3 billion atDecember 31, 2002. We invest our cash in securities of various types and maturities, the value ofwhich are subject to fluctuations in interest rates. These securities are generally classified as Trading

69


or Available for Sale. The Trading portfolio gains and losses (unrealized and realized) are reported inthe income statement. The Available for Sale portfolio realized gains or losses are reported in theincome statement, and unrealized gains and losses are reported in the Consolidated Statement ofStockholders’ Equity in other comprehensive income. The investment strategy is based on clearlydefined risk and liquidity guidelines to maintain liquidity, minimize risk, and earn a reasonable returnon the short-term investment.

At any time, a rise in interest rates could have a material adverse impact on the fair value of ourTrading and our Available for Sale portfolios. As of December 31, 2003, the value of our Tradingportfolio was $24.2 billion (including assets contained in a short-term VEBA trust), which is$0.6 billion higher than December 31, 2002. The value of our Available for Sale portfolio was$1.7 billion, which is unchanged from December 31, 2002.

Assuming a hypothetical, instantaneous increase in interest rates of one percentage point, thevalue of our Trading and Available for Sale portfolios would be reduced by $206 million and$29 million, respectively. This compares to $225 million and $29 million, respectively, as calculatedas of December 31, 2002. While this is our best estimate of the impact of the specified interest ratescenario, actual results could differ from those projected. The sensitivity analysis presented assumesinterest rate changes are instantaneous, parallel shifts in the yield curve. In reality, interest ratechanges are rarely instantaneous or parallel.

Counterparty Risk

Counterparty risk relates to the loss we could incur if an obligor or counterparty defaulted on aninvestment or a derivative contract. We enter into master agreements with counterparties that allownetting of certain exposures in order to manage this risk. Exposures primarily relate to investments infixed-income instruments and derivative contracts used for managing interest rate, foreign currencyexchange rates and commodity price risk. We, together with Ford Credit, establish exposure limits foreach counterparty to minimize risk and provide counterparty diversification. Our exposures aremonitored on a regular basis and are included in monthly reporting to the GRMC.

Our approach to managing counterparty risk is forward-looking and proactive, allowing us totake risk mitigation actions. We establish exposure limits for both mark-to-market and future potentialexposure, based on our overall risk tolerance and ratings-based historical default probabilities. Theexposure limits are lower for lower-rated counterparties and for longer-dated exposures. We use aMonte Carlo simulation technique to assess our potential exposure by tenor, defined at a 95%confidence level.

Substantially all of our counterparty and obligor exposures are with counterparties and obligorsthat are rated single-A or better.

FORD CREDIT MARKET RISKS

Overview

Ford Credit is exposed to risks in the normal course of its business activities. In addition tocounterparty risk discussed above, Ford Credit is subject to the following additional types of risksthat it seeks to identify, assess, monitor and manage, in accordance with defined policies andprocedures:

) Market risk — the possibility that changes in future market interest and currency exchangerates or prices will have an adverse impact on operating results.

) Credit risk — the possibility of loss from a customer’s failure to make payments according tocontract terms.

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) Residual risk — the possibility that the actual proceeds received by Ford Credit upon the saleof returned lease vehicles at lease termination will be lower than the depreciated values (i.e.,residual values) of those vehicles.

) Liquidity risk — the possibility of being unable to meet all current and future obligations in atimely manner.

Each form of risk is uniquely managed in the context of its contribution to Ford Credit’s overallglobal risk. Business decisions are evaluated on a risk-adjusted basis and products are pricedconsistent with these risks. Credit and residual risks are discussed above in ‘‘Management’sDiscussion and Analysis of Financial Condition and Results of Operations’’ under the caption‘‘Critical Accounting Estimates’’ and liquidity risk is discussed above in ‘‘Management’s Discussionand Analysis of Financial Condition and Results of Operations’’ under the caption ‘‘Liquidity andCapital Resources — Financial Services Sector — Ford Credit’’. The following discusses Ford Credit’smarket risks:

Foreign Currency Risk. To meet funding objectives, Ford Credit issues debt or, for itsinternational affiliates, draws on local credit lines in a variety of currencies. Ford Credit facesexposure to currency exchange rates if a mismatch exists between the currency of its receivablesand the currency of the debt funding those receivables. When possible, receivables are funded withdebt in the same currency, minimizing exposure to exchange rate movements. When a differentcurrency is used, Ford Credit seeks to minimize the impact of currency exchange rates on operatingresults by executing foreign currency derivatives. These derivatives convert substantially all of itsforeign currency debt obligations to the local country currency of the receivables. As a result, FordCredit’s market risk exposure relating to currency exchange rates is believed to be immaterial.

Interest Rate Risk. Interest rate risk is the primary market risk to which Ford Credit is exposedand consists principally of ‘‘re-pricing risk’’ or differences in the re-pricing characteristics of assetsand liabilities. An instrument’s re-pricing period is a term used by financial institutions to describehow an interest rate-sensitive instrument responds to changes in interest rates. It refers to the time ittakes an instrument’s interest rate to reflect a change in market interest rates. For fixed-rateinstruments, the re-pricing period is equal to the maturity for repayment of the instrument’s principalbecause, with a fixed interest rate, the principal is considered to re-price only when re-invested in anew instrument. For a floating-rate instrument, the re-pricing period is the period of time before theinterest rate adjusts to the market rate. For instance, a floating-rate loan whose interest rate is resetto a market index annually on December 31st would have a re-pricing period of one year onJanuary 1st, regardless of the instrument’s maturity.

Ford Credit’s receivables consist primarily of fixed-rate retail installment sale and lease contractsand floating-rate wholesale receivables. Fixed-rate retail installment sale and lease contracts areoriginated principally with maturities ranging between two and six years and generally requirecustomers to make equal monthly payments over the life of the contract. Ford Credit’s fundingsources consist primarily of short- and long-term unsecured debt and sales of receivables insecuritizations. In the case of unsecured term debt, and in an effort to have funds availablethroughout the business cycles, Ford Credit may borrow at terms longer than the term of its assets,with five to ten year maturities. These debt instruments are principally fixed-rate and require fixedand equal interest payments over the life of the instrument and a single principal payment atmaturity.

Ford Credit is exposed to interest rate risk to the extent that a difference exists between the re-pricing profile of its assets and debt. Specifically, without derivatives, Ford Credit’s assets would re-price more quickly than its debt.

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Ford Credit’s interest rate risk management objective is to maximize its financing margin whilelimiting fluctuations caused by changes in interest rates. Ford Credit achieves this objective bysetting an established risk tolerance range and staying within this tolerance range through an interestrate risk management program that includes entering into derivatives commonly known as interestrate swaps.

On a monthly basis, Ford Credit determines the sensitivity of the economic value of its portfolioof interest rate-sensitive assets and liabilities (its economic value) to hypothetical changes in interestrates. Economic value is a measure of the present value of all future expected cash flows,discounted by market interest rates, and is equal to the present value of interest rate-sensitiveassets minus the present value of interest rate-sensitive liabilities. Ford Credit then enters intointerest rate swaps, effectively converting portions of its floating-rate debt or assets to fixed or itsfixed-rate debt or assets to floating, to ensure that the sensitivity of its economic value falls within anestablished target range. Ford Credit also monitors the sensitivity of its earnings to interest ratesusing pre-tax net interest income simulation techniques. These simulations calculate the projectedpre-tax net interest income of its portfolio of interest rate-sensitive assets and liabilities under variousinterest rate scenarios, including both parallel and non-parallel shifts in the yield curve. Thesequantifications of interest rate risk are included in monthly reporting to the Treasurer.

The process described above is used to measure and manage the interest rate risk of FordCredit’s operations in the United States, Canada and the United Kingdom, which togetherrepresented approximately 85% of its total on-balance sheet finance receivables at December 31,2003. For its international affiliates, Ford Credit uses a technique commonly referred to as ‘‘gapanalysis,’’ to measure re-pricing mismatch. This process uses re-pricing schedules, which groupassets, debt, and swaps into time-bands based on their re-pricing period. Under this process, FordCredit enters into interest rate swaps, effectively changing the re-pricing profile of its assets anddebt, to ensure that any re-pricing mismatch existing in a particular time-band falls within anestablished tolerance.

As a result of its interest rate risk management process, including derivatives, Ford Credit’s debtre-prices faster than its assets. Other things equal, this means that during a period of rising interestrates, the interest rates paid on Ford Credit’s debt will increase more rapidly than the interest ratesearned on assets, thereby initially reducing Ford Credit’s pre-tax net interest income.Correspondingly, during a period of falling interest rates, Ford Credit’s pre-tax net interest incomewould be expected to initially increase. To provide a quantitative measure of the sensitivity of its pre-tax net interest income to changes in interest rates, Ford Credit uses interest rate scenarios thatassume a hypothetical, instantaneous increase or decrease in interest rates of one percentage pointacross all maturities, as well as a base case that assumes that interest rates remain constant atexisting levels. The differences between these scenarios and the base case over a twelve-monthperiod represent an estimate of the sensitivity of Ford Credit’s pre-tax net interest income. Thissensitivity as of year-end 2003 and 2002 is as follows:

Pre-tax Net InterestPre-tax Net Interest Income impact given a

Income impact given a one percentage pointone percentage point instantaneous

instantaneous increase decreasein interest rates in interest rates

(in millions) (in millions)

December 31, 2003 *************************** $(179) $179

December 31, 2002 *************************** $(153) $156

While the sensitivity analysis presented is Ford Credit’s best estimate of the impacts of specifiedassumed interest rate scenarios, actual results could differ from those projected. The sensitivityanalysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield

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curve. In reality, interest rate changes are rarely instantaneous or parallel. Had the analysisassumed a gradual change in interest rates of 100 basis points, it would have resulted in a lowerpre-tax net interest income impact. The model used to conduct this analysis is heavily dependent onassumptions, particularly those regarding the reinvestment of maturing asset principal, refinancing ofmaturing debt, and predicted repayment of sale and lease contracts ahead of contractual maturity.

The fair value of net derivative financial instruments (derivative assets less derivative liabilities)as of December 31, 2003 as reported in Note 16 of the Notes to Financial Statements was$8.9 billion, approximately $1.3 billion higher than a year ago. This increase primarily reflects thestrengthening of the Euro against the U.S. dollar which increases the value of receive-Euro/pay-U.S. dollar cross currency swaps and the decrease in U.S. interest rates which increases the valueof our pay-floating/receive-fixed rate swaps. For additional information on our derivatives, please referto the ‘‘Financial Services Sector’’ of Note 16 of the Notes to Financial Statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Financial Statements, the accompanying Notes to Financial Statements, the Report ofIndependent Auditors, the Financial Statement Schedules and the Report of Independent Auditorson Financial Statement Schedule that are filed as part of this Report are listed under Item 15.‘‘Exhibits, Financial Statement Schedules, and Reports on Form 8-K’’ and are set forth onpages FS-1 through FS-44 and FSS-1 and FSS-2 immediately following the signature pages of thisReport.

Selected quarterly financial data for us and our consolidated subsidiaries for 2003 and 2002 isin Note 22 of the Notes to Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE

Not required.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

William Clay Ford, Jr., our Chief Executive Officer, and Don R. Leclair, our Chief FinancialOfficer, have performed an evaluation of the Company’s disclosure controls and procedures, as thatterm is defined in Rule 13a-14 (c) of the Securities Exchange Act of 1934, as amended (the‘‘Exchange Act’’), as of December 31, 2003 and each has concluded that such disclosure controlsand procedures are effective to ensure that information required to be disclosed in our periodicreports filed under the Exchange Act is recorded, processed, summarized and reported, within thetime periods specified by the Securities and Exchange Commission’s rules and regulations.

CHANGES IN INTERNAL CONTROLS

No changes in the Company’s internal controls over financial reporting occurred during thequarter ended December 31, 2003 that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF FORD

The information required by Item 10 regarding our directors is incorporated by reference fromthe information under the captions ‘‘Election of Directors’’, ‘‘Section 16(a) Beneficial OwnershipReporting Compliance’’ and ‘‘Management Stock Ownership’’ in our Proxy Statement. Theinformation required by Item 10 regarding our executive officers appears as Item 4A under Part I ofthis Report. The information required by Item 10 regarding an audit committee financial expert isincorporated by reference from the information under the caption ‘‘Corporate Governance’’ in ourProxy Statement The information required by Item 10 regarding the members of our AuditCommittee of the Board of Directors is incorporated by reference from the information under thecaption ‘‘Committees of the Board of Directors’’ in our Proxy Statement. The information required byItem 10 regarding our codes of ethics is incorporated by reference from the information under thecaption ‘‘Corporate Governance’’ in our Proxy Statement. In addition, we have included in Item 1 tothis Report instructions for how to access our codes of ethics on our website and our Internetaddress. Amendments to, and waivers granted under, our Code of Ethics for Senior FinancialPersonnel, if any, will be posted to our website as well.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from the information under thefollowing captions in our Proxy Statement: ‘‘Compensation of Directors’’, ‘‘Compensation CommitteeReport on Executive Compensation’’, ‘‘Compensation Committee Interlocks and Insider Participation’’‘‘Compensation of Executive Officers’’, ‘‘Stock Options’’, ‘‘Performance Stock Rights’’, ‘‘StockPerformance Graphs’’ and ‘‘Retirement Plans’’.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated by reference from the information under thecaptions ‘‘Stock Options — Equity Compensation Plan Information’’ and ‘‘Management StockOwnership’’ in our Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated by reference from the information under thecaption ‘‘Certain Relationships and Related Transactions’’ in our Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is incorporated by reference from the information under thecaption ‘‘Audit Committee Report’’ in our Proxy Statement.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements — Ford Motor Company and Subsidiaries

Sector Statement of Income and Consolidated Statement of Income for the years endedDecember 31, 2003, 2002, and 2001.

Sector Balance Sheet and Consolidated Balance Sheet at December 31, 2003 and 2002.

Sector Statement of Cash Flows and Consolidated Statement of Cash Flows for the yearsended December 31, 2003, 2002, and 2001.

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2003, 2002,and 2001.

Notes to Financial Statements

Report of Independent Auditors

The Sector and Consolidated Financial Statements, the Notes to Financial Statements and theReport of Independent Auditors listed above are filed as part of this Report and are set forth onpages FS-1 through FS-44 immediately following the signatures pages of this Report.

(a) 2. Financial Statement Schedules

Designation Description

Schedule II ******************************** Valuation and Qualifying Accounts

Schedule II and the Report of Independent Auditors on Financial Statement Schedule are filedas part of this Report and are set forth on page FSS-1 and FSS-2 immediately following the Notesto Financial Statements referred to above. The other schedules are omitted because either they arenot applicable or the information required to be contained in them is disclosed elsewhere in ourSector and Consolidated Financial Statements or the amounts involved are not sufficient to requiresubmission.

(a) 3. Exhibits


Exhibit 3-A Restated Certificate of Filed as Exhibit 3-A to Ford’s Annual ReportIncorporation, dated August 2, on Form 10- K for the year ended2000. December 31, 2000.*

Exhibit 3-B By-Laws as amended through Filed with this Report.February 12, 2004.

Exhibit 10-A Amended and Restated Profit Filed as Exhibit 10-A to Ford’s Annual ReportMaintenance Agreement, dated as on Form 10-K for the year endedof January 1, 2002, between Ford December 31, 2001.*and Ford Credit.

Exhibit 10-B Executive Separation Allowance Filed as Exhibit 10-B to Ford’s Annual ReportPlan as amended and restated on Form 10-K for the year endedthrough December 18, 2000 for December 31, 2000.*separations on or after January 1,1981.**

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Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued)


Exhibit 10-C Description of Ford practices Filed as Exhibit 10-J to Ford’s Annual Reportregarding travel expenses of on Form 10-K for the year endedspouses of certain executives.** December 31, 1980.*

Exhibit 10-D Deferred Compensation Plan for Filed as Exhibit 10-H-1 to Ford’s AnnualNon-Employee Directors, as Report on Form 10-K for the year endedamended on July 11, 1991.** December 31, 1991.*

Exhibit 10-D-1 Amendments to Deferred Filed as Exhibit 10-G-1 to Ford’s AnnualCompensation Plan for Non- Report on Form 10-K for the year endedEmployee Directors, effective as December 31, 1995.*of January 1, 1996.**

Exhibit 10-D-2 Amendment to Deferred Filed as Exhibit 10-G-2 to Ford’s AnnualCompensation Plan for Non- Report on Form 10-K for the year endedEmployee Directors, effective as December 31, 1996.*of November 14, 1996.**

Exhibit 10-E Benefit Equalization Plan, as Filed as Exhibit 10-F to Ford’s Annual Reportamended and restated as of on Form 10-K for the year endedDecember 18, 2000.** December 31, 2000.*

Exhibit 10-E-1 Description of an Amendment to Filed with this Reportthe Benefit Equalization Plan.**

Exhibit 10-F Description of financial counseling Filed as Exhibit 10-F to Ford’s Annual Reportservices provided to certain on Form 10-K for the year endedexecutives.** December 31, 2002.*

Exhibit 10-G Supplemental Executive Filed as Exhibit 10-H to Ford’s Annual ReportRetirement Plan, as restated and on Form 10-K for the year endedincorporating amendments December 31, 2000.*through December 18, 2000.**

Exhibit 10-H Restricted Stock Plan for Non- Filed as Exhibit 10-P to Ford’s Annual ReportEmployee Directors adopted by on Form 10-K for the year endedthe Board of Directors on December 31, 1988.*November 10, 1988.**

Exhibit 10-H-1 Amendment to Restricted Stock Filed as Exhibit 10.1 to Ford’s QuarterlyPlan for Non-Employee Directors, Report on Form 10-Q for the quarter endedeffective as of August 1, 1996.** September 30, 1996.*

Exhibit 10-I 1990 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford’s Annual Reportamended as of June 1, 1990.** on Form 10-K for the year ended

December 31, 1990.*

Exhibit 10-I-1 Amendment to 1990 Long-Term Filed as Exhibit 10-P-1 to Ford’s AnnualIncentive Plan, effective as of Report on Form 10-K for the year endedOctober 1, 1990.** December 31, 1991.*

Exhibit 10-I-2 Amendment to 1990 Long-Term Filed as Exhibit 10.2 to Ford’s QuarterlyIncentive Plan, effective as of Report on Form 10-Q for the quarter endedMarch 8, 1995.** March 31, 1995.*

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Exhibit 10-I-3 Amendment to 1990 Long-Term Filed as Exhibit 10-M-3 to Ford’s AnnualIncentive Plan, effective as of Report on Form 10-K for the year endedOctober 1, 1997.** December 31, 1997.*

Exhibit 10-I-4 Amendment to 1990 Long-Term Filed as Exhibit 10-M-4 to Ford’s AnnualIncentive Plan, effective as of Report on Form 10-K for the year endedJanuary 1, 1998.** December 31, 1997.*

Exhibit 10-J Description of Matching Gift Filed as Exhibit 10-Q to Ford’s AnnualProgram for Non-Employee Report on Form 10-K for the year endedDirectors.** December 31, 1991.*

Exhibit 10-K Non-Employee Directors Life Filed as Exhibit 10-O to Ford’s AnnualInsurance and Optional Report on Form 10-K for the year endedRetirement Plan (as amended as December 31, 1994.*of January 1, 1993).**

Exhibit 10-L Description of Non-Employee Filed as Exhibit 10-S to Ford’s Annual ReportDirectors Accidental Death, on Form 10-K for the year endedDismemberment and Permanent December 31, 1992.*Total Disablement Indemnity.**

Exhibit 10-M Agreement dated December 10, Filed as Exhibit 10-T to Ford’s Annual Report1992 between Ford and William on Form 10-K for the year endedC. Ford.** December 31, 1992.*

Exhibit 10-N Support Agreement dated as of Filed as Exhibit 10-T to Ford’s Annual ReportOctober 1, 1993 between Ford on Form 10-K for the year endedand FCE Bank. December 31, 1993.*

Exhibit 10-N-1 Amendment No. 1 dated as of Filed as Exhibit 10-R-1 to Ford’s AnnualNovember 15, 1995 to Support Report on Form 10-K for the year endedAgreement between Ford and December 31, 1995.*FCE Bank.

Exhibit 10-O Select Retirement Plan as Filed as Exhibit 10-P to Ford’s Annual Reportamended and restated through on Form 10-K for the year endedJanuary 1, 2000.** December 31, 2000.*

Exhibit 10-P Deferred Compensation Plan, as Filed as Exhibit 10-R to Ford’s Annual Reportamended and restated as of on Form 10-K for the year endedJanuary 1, 2000.** December 31, 1999.*

Exhibit 10-P-1 Amendment to Deferred Filed as Exhibit 4.2 to Ford’s RegistrationCompensation Plan effective as of Statement No. 333-56660.*April 12, 2000.**

Exhibit 10-P-2 Amendment to Deferred Filed as Exhibit 4.3 to Ford’s RegistrationCompensation Plan effective as of Statement No. 333-56660.*June 1, 2000.**

Exhibit 10-P-3 Amendment to Deferred Filed with this Report.Compensation Plan effective as ofMarch 10, 2004.**

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Exhibit 10-Q Annual Incentive Compensation Filed as Exhibit 10-T to Ford’s Annual ReportPlan, as amended and restated on Form 10-K for the year endedas of January 1, 2000.** December 31, 1999.*

Exhibit 10-R 1998 Long-Term Incentive Plan, Filed as Exhibit 10-R to Ford’s Annual Reportas amended and restated on Form 10-K for the year endedeffective as of January 1, 2003.** December 31, 2002.*

Exhibit 10-S Agreement dated January 13, Filed as Exhibit 10-X to Ford’s Annual Report1999 between Ford and Edsel B. on Form 10-K for the year endedFord II.** December 31, 1998.*

Exhibit 10-T Agreement between Ford Motor Filed as Exhibit 10 to Ford’s Current ReportCompany and Ford Motor Credit on Form 8-K dated October 18, 2001.*Company dated as of October 18,2001.

Exhibit 10-U Agreement between Ford and Carl Filed as Exhibit 10.2 to Ford’s QuarterlyReichardt, entered into in June, Report on Form 10-Q for the quarter ended2002.** June 30, 2002.*

Exhibit 10-V Form of Trade Secrets/Non- Filed with this Report.Compete Statement between Fordand certain of its ExecutiveOfficers.**

Exhibit 10-W Amendment to Benefit Filed as Exhibit 10 to Ford’s Quarterly ReportEqualization Plan, adopted in on Form 10-Q for the quarter endedOctober, 2002 and effective as of September 30, 2002.*November 1, 2001.**

Exhibit 10-X Description of Special 2003 Filed as Exhibit 10 to Ford’s Quarterly ReportPerformance Incentive on Form 10-Q for the quarter endedArrangement.** September 30, 2003.*

Exhibit 10-Y Arrangement between Ford Motor Filed as Exhibit 10 to Ford’s Quarterly ReportCompany and John M. Rintamaki on Form 10-Q for the quarter endeddated February 28, 2003.** March 31, 2003.*

Exhibit 12 Calculation of Ratio of Earnings to Filed with this Report.Combined Fixed Charges andPreferred Stock Dividends.

Exhibit 21 List of Subsidiaries of Ford as of Filed with this Report.March 10, 2004.

Exhibit 23 Consent of Independent Filed with this Report.Accountants.

Exhibit 24 Powers of Attorney. Filed with this Report.

Exhibit 31.1 Rule 15d-14(a) Certification of Filed with this Report.CEO

Exhibit 31.2 Rule 15d-14(a) Certification of Filed with this Report.CFO

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Exhibit 32.1 Section 1350 Certification of CEO Filed with this Report.

Exhibit 32.2 Section 1350 Certification of CFO Filed with this Report.

* Incorporated by reference as an exhibit to this Report (file number reference 1-3950, unlessotherwise indicated)

** Management contract or compensatory plan or arrangement

Instruments defining the rights of holders of certain issues of long-term debt of Ford and ofcertain consolidated subsidiaries and of any unconsolidated subsidiary, for which financialstatements are required to be filed with this Report, have not been filed as exhibits to this Reportbecause the authorized principal amount of any one of such issues does not exceed 10% of the totalassets of Ford and our subsidiaries on a consolidated basis. Ford agrees to furnish a copy of eachof such instruments to the Commission upon request.

(b) Reports on Form 8-K

Ford filed the following Current Reports on Form 8-K during the quarter ended December 31,2003:

Current Report on Form 8-K dated October 1, 2003 included information relating to Ford’sSeptember 2003 U.S. sales results.

Current Report on Form 8-K dated October 2, 2003 included information relating to Ford’s 2003collective bargaining agreement with the International Union, United Automobile, Aerospace andAgricultural Implement Workers of America (UAW).

Current Report on Form 8-K dated October 16, 2003 included information relating to Ford’s thirdquarter 2003 financial results.

Current Report on Form 8-K dated November 3, 2003 included information relating to Ford’sOctober 2003 U.S. sales results.

Current Report on Form 8-K dated December 2, 2003 included information relating to Ford’sNovember 2003 U.S. sales results.

Current Report on Form 8-K dated December 16, 2003 included information relating to Ford’snegotiations with Visteon Corporation.

Current Report on Form 8-K dated December 22, 2003 included information relating to Ford’snew agreements with Visteon Corporation.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,Ford has duly caused this Report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

FORD MOTOR COMPANY

By: /s/ DON R. LECLAIR*

(Don R. Leclair)Group Vice President and

Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has beensigned below by the following persons on behalf of Ford and in the capacities on the date indicated.


WILLIAM CLAY FORD, JR.* Director, Chairman of the Board E

and Chief Executive Officer and(William Clay Ford, Jr.)Chair of the Environmental andPublic Policy Committee andOffice of the Chairman andChief Executive Committee(principal executive officer)

JOHN R. H. BOND* Director

(John R. H. Bond)

STEPHEN G. BUTLER* Director

(Stephen G. Butler)

KIMBERLY A. CASIANO* Director

(Kimberly A. Casiano)F March 12, 2004

EDSEL B. FORD II* Director

(Edsel B. Ford II)

WILLIAM CLAY FORD* Director

(William Clay Ford)

IRVINE O. HOCKADAY, JR.* Director and Chair of the AuditCommittee(Irvine O. Hockaday, Jr.)

MARIE-JOSEE KRAVIS* Director and Chair of theCompensation Committee(Marie-Josee Kravis)

RICHARD A. MANOOGIAN* Director

(Richard A. Manoogian) H

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ELLEN R. MARRAM* Director and Chair of the E

Nominating and Governance(Ellen R. Marram)Committee

HOMER A. NEAL* Director

(Homer A. Neal)

JORMA OLLILA* Director

(Jorma Ollila)

CARL E. REICHARDT* Director, Chair of the FinanceCommittee(Carl E. Reichardt)

ROBERT E. RUBIN* Director

(Robert E. Rubin)

NICHOLAS V. SCHEELE* Director and President andChief Operating Officer(Nicholas V. Scheele)

F March 12, 2004

JOHN L. THORNTON* Director

(John L. Thornton)

DON R. LECLAIR* Group Vice President andChief Financial Officer(Don R. Leclair)(principal financial officer)

JAMES C. GOUIN* Vice President and Controller(principal accounting officer)(James C. Gouin)

*By: /s/ PETER J. SHERRY, JR.

(Peter J. Sherry, Jr.)Attorney-in-Fact H

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Ford Motor Credit Company