Ford Credit seeks federal aid

Ford Credit has persuaded the Australian government to guarantee up to $550 million of lending to support the short-term trading position of the car maker's financing operations in Australia.

In a media release yesterday the Treasurer, Wayne Swan, disclosed that Ford Credit would be the first vehicle financier to make use of the Australian government's scheme to provide bridging finance to car and truck dealers.

Ford Credit will be able to access up to $550 million within the facility over the next 12 months, Swan said.

The government will need to activate the Car Dealer Financing Special Purpose Vehicle, as it's referred to in his media release, an entity also dubbed OzCar.

Established, at least in principle, in late 2008 to soften the exit from the industry of GMAC and GE Money Motor Solutions, the scheme now needs to be formally activated by the government and enabling legislation passed. In the end GMAC- and GE-funded car and truck dealers found alternative financing options through a few other sources (such as ANZ, Westpac, Orix, BMW and Toyota Finance).

The major banks in theory will invest in financial assets for Ford Credit through the scheme but will do so only with the certainty of an Australian government guarantee.

Ford Credit told its dealer network in January this year that it would cease providing funding to retail buyers of its cars, including Ford, Volvo and Mazda brands.

Now its wholesale or floor plan financing activities are also vulnerable to the requirement of its owner, Ford Credit in the US and in turn Ford Motor Company, to restructure its operations.

The need to turn to the government for help may be recent since financial statements for FCA Holdings Limited (as Ford Credit's operating company is now known in Australia) signed less than two weeks ago, refer only to the decision to withdraw from retail finance.

The financial statement shows that FCA Holdings made an operating profit of $54.9 million in 2008, up from $34.3 million in 2007. However, after revaluing derivative financial instruments and the company's pension plan, FCA reported a statutory loss of $38.6 million in 2008, breaking a long run of consistently profitable operations.

Receivables declined 18 per cent to $2.1 billion over 2008 or about 60 per cent - the size of the finance book in 2004.

Asset quality improved over the year. The doubtful debts expense fell to $9.5 million in 2008 from $12.7 million in 2007. Write-offs, net of recoveries, declined to $9.6 million from $15 million.

Ford Credit in Australia is largely funded by its parent though it still has $363 million funded through three asset-backed trusts.