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## MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

The following flow chart diagrams Ford Credit’s typical U.S. retail securitization transaction: 

<img src='content_image/60203.jpg'>

Consistent with conventional practices in the securitization industry, Ford Credit uses SPEs in securitization transactions to achieve isolation of the sold receivables for the benefit of securitization investors. Some of the SPEs used in Ford Credit’s securitization transactions are classified as qualifying special purpose entities consistent with the requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , because of the nature of the assets held by these entities and the limited nature of their activities. When these accounting rules are met, the sold receivables are removed from its balance sheet. The use of SPEs in the typical securitization structure, along with the use of various forms of credit and payment enhancements to reduce the risk of loss, allows the SPE to issue senior asset-backed securities that generally receive the highest short-term credit ratings and among the highest long-term credit ratings, thereby providing Ford Credit with a cost-effective source of funding. 

Ford Credit selects receivables at random for securitization transactions using selection criteria designed for the specific transaction. The selection criteria are generally based on factors such as location of the obligor, contract term, payment schedule, interest rate, financing program, and the type of financed vehicle. In general, the criteria also require receivables to be active and in good standing. 

Ford Credit retains interests in the securitized receivables. The retained interests may include senior and subordinated securities issued by the SPE, undivided interests in wholesale receivables, restricted cash held for the benefit of the SPEs (for example, a reserve fund) and residual interests in securitization transactions. Income from residual interest in securitization transactions represents the right to receive collections on the sold finance receivables in excess of amounts needed by the SPE to pay interest and principal to investors, servicing fees and other required payments. Ford Credit retains credit risk in securitizations. Ford Credit’s retained interests include the most subordinated interests in the SPE, which are the first to absorb credit losses on the sold receivables. The impact of credit losses in the pool of sold receivables will likely be limited to Ford Credit’s retained interests because securitizations are structured to protect the holders of the senior asset-backed securities. 

At December 31, 2004 and 2003, the total outstanding principal amount of receivables sold by Ford Credit in securitizations was $35.6 billion and $46.9 billion, respectively. This decrease primarily reflected lower funding requirements. At December 31, 2004 and 2003, Ford Credit’s retained interests in such sold receivables were $9.2 billion and $12.6 billion, respectively. 

Ford Credit generally has no obligation to repurchase or replace any receivable sold to an SPE that subsequently becomes delinquent in payment or otherwise is in default. Investors holding securities issued by a SPE have no recourse to Ford Credit or its other assets for credit losses on the sold receivables and have no right to require it to repurchase the securities. Ford Credit does not guarantee any asset-backed securities and has no obligation to provide liquidity or make monetary contributions or contributions of additional receivables to its SPEs either due to the performance of the sold receivables or the credit rating of its short-term or long-term debt. However, as the seller and servicer of the finance receivables to the SPE, Ford Credit is obligated to provide certain kinds of support to its securitizations, which are customary in the securitization industry. These obligations consist of indemnifications, receivable repurchase obligations on receivables that do not meet eligibility criteria or that have been materially modified, the mandatory sale of additional receivables in revolving transactions, and servicer advances. 

Risks to Future Sales of Receivables. Some of Ford Credit’s securitization programs contain structural features that could prevent further funding from these sources if: 

• the credit losses or delinquencies in a pool of sold receivables exceed specified levels; 

• the delinquencies on a pool of sold receivables or our overall portfolio of receivables exceeds specified levels; 

• the payment rates on wholesale receivables are lower than specified levels; or 

• the amount of wholesale receivables are lower than specified levels. 

