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Ford Motor Credit Company

ANNUAL REPORT

for the year ended

Filed pursuant to Section 13

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UNITED STATES

FORM 10-K

Ford Motor Credit Company

(313) 322-3000

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

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange 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.

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

    Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

    As of March 10, 2004, the registrant had outstanding 250,000 shares of Common Stock. No voting stock of the 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 and is therefore filing this Form with the reduced disclosure format.

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ITEM 1. BUSINESS

Overview

      Ford Motor Credit Company (referred to herein as “Ford Credit”, “we”, “our” or “us”) was incorporated in Delaware in 1959. We are an indirect, wholly-owned subsidiary of Ford Motor Company (“Ford”). We provide vehicle and dealer financing in 36 countries to more than 11 million customers and more than 12,500 automotive dealers. Our principal executive offices are located at One 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 Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website located at www.fordcredit.com/investorcenter/. These reports and our current reports on Form 8-K can be found on the SEC’s website located at www.sec.gov.

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

	•	Retail financing — purchasing retail installment sale contracts and retail lease contracts from dealers, and offering financing to commercial customers, primarily vehicle leasing companies and 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 dealership facilities, and to purchase and finance dealership real estate.

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

      We earn our revenue primarily from:

	•	Payments made under retail installment sale contracts and retail lease contracts that we purchase, 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 different types of services we provide.

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

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North America Segment

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

      In the United States and Canada, under the Ford Credit brand name, we provide financing services to and through dealers of Ford, Lincoln and Mercury brand vehicles and non-Ford vehicles also 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 Volvo dealers, respectively. Under the PRIMUS label, we provide financing services to Aston Martin dealers and non-Ford dealers in the United States and Canada.

      Our wholly-owned subsidiary, Fairlane Credit, LLC (“Fairlane Credit”), offered non-prime financing (financing to customers who are in the lower levels of creditworthiness and typically have limited access to traditional financing sources) primarily through Ford, Lincoln and Mercury dealers by purchasing retail installment sale contracts, mainly for used vehicles. Consistent with our renewed focus on supporting primarily new vehicle financing of Ford’s brands, Fairlane Credit ceased purchasing retail installment sale contracts in 2002 and its portfolio of approximately $900 million is therefore liquidating. Fairlane Credit’s subsidiary, Triad Financial Corporation (“Triad”), offers similar services primarily to non-Ford dealers. At December 31, 2003, Triad had $3.5 billion in managed receivables, representing 2% of our total managed receivables.

International Segment

      Our International Segment includes operations in three main regions: Europe, Asia-Pacific and Latin 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 International Segment, our Europe region accounted for 77% and 74% of our managed receivables at year-end 2003 and 2002, respectively. Most of our European operations are managed through a U.K.-based subsidiary, FCE Bank plc (“FCE”), which operates in the United Kingdom and on a branch basis in all member states of the European Union and in Norway and Switzerland. In addition, FCE has subsidiaries in the United Kingdom, Finland, Italy, the Netherlands, Hungary, Poland and the Czech Republic that provide wholesale, leasing and retail vehicle financing. In our largest European markets, Germany and the United Kingdom, FCE offers most of our products and services under the Ford Credit/ Bank, Volvo Car Finance, Land Rover Financial Services, Jaguar Financial Services and Mazda Credit/ Bank brands. FCE generates most of our European revenue and contract volume from Ford Credit/ Bank brand products and services. FCE also has entered into cooperation agreements with 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 markets primarily in relation to full service leasing products. Through the Worldwide Trade Financing Division of FCE, we also manage Ford’s vehicle financing operations in countries where Ford and Ford Credit have no local operations but still sell vehicles to dealers and offer other financing services. Ford Credit also offers financing in Germany and Sweden for Volvo brand vehicles through Volvo Auto Finanz 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 and retail 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, we presently operate in Mexico, Puerto Rico, Brazil and Chile, and, after suspending new financing activities in 2002, we have recommenced full operations in Venezuela and Argentina.

Competition

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

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

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

      Seasonal Variations. As a finance company, we own and manage a large portfolio of finance receivables and operating leases that are generated throughout the year and are collected over a number of years, primarily in fixed monthly payments. As a result, our overall financing revenues do not exhibit seasonal variations. However, throughout the automotive financing industry, credit losses are typically higher in the first and fourth quarters of the year due to competing financial demands on customers and lower vehicle resale values.

Dependence on Ford

      The predominant share of our business consists of financing Ford vehicles and supporting Ford dealers. Any extended reduction or suspension of Ford’s production or sale of vehicles due to a decline 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 effect on 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 interest supplement or other support payments to us. These programs may increase our financing volume and share of financing sales of Ford vehicles. Worldwide payments from Ford for interest supplements and other support costs totaled about $4.7 billion in 2003 and 2002. We recorded as financing revenue $3.5 billion and $3.7 billion in interest supplements and other support payments from Ford in 2003 and 2002, respectively. As of December 31, 2003, Ford has accrued approximately $4.1 billion of interest supplements and other support payments for receivables and leases 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 discussion regarding interest supplement and other support payments, see Note 14 of our Notes to Financial Statements.

Retail Financing

Overview and Purchasing Process

      We provide financing services to retail customers through automotive dealers that have established relationships with us. Our primary business consists of purchasing retail installment sale and lease contracts for new and used vehicles mainly from dealers of Ford vehicles. Worldwide in 2003, we financed about 3.0 million vehicles through retail installment sale contracts, and we financed about 487,000 vehicles through operating and finance leases. We report in our financial statements the receivables from customers under retail installment sale contracts and certain leases with fleet customers as finance receivables. We report in our financial statements most of our retail leases 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. At December 31, 2003, worldwide, our retail finance receivables net of allowances for credit losses totaled $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 that meet 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 one of our branch offices. Some of the applications are automatically evaluated and either approved or rejected based on our origination scorecard and credit policy criteria. In other cases, our credit analysts evaluate applications using our written guidelines. As part of this evaluation, we generally conduct a credit investigation that includes a review of the applicant’s credit report supplied from a national credit bureau, if available, and an internal review and verification process. Typically, we are able to determine whether or not we will purchase a retail installment sale contract or lease contract within two hours of receipt of an application. In evaluating loan applications from commercial customers, we consider the borrower’s financial condition, collateral, debt servicing capacity, and other financial and qualitative factors.

Retail Installment Sale Contracts

      The amount we pay for a retail installment sale contract is based on a negotiated vehicle purchase 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 vehicle trade-in allowance or down payment from the customer applied to the purchase price. The net purchase 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 retain a portion of the finance charge.

      We offer a variety of retail installment sale financing products. We generally purchase retail installment sale contracts with terms ranging from 12 to 72 months. The average original term of our retail installment sale contracts was 59 months in the United States in 2003, compared with 55 months in 2002.

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

      Some of our retail installment sale contracts have non-uniform payment periods and payment amounts 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 finance their vehicle with a retail installment sale contract with a series of relatively lower monthly payments followed by paying the amount owed in a single balloon payment. The RCO customer can satisfy the balloon 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 wear and use, if any. Customers who choose our RCO program may also qualify for special-rate financing offers from Ford. Through the end of 2002, our United States RCO program was only available in Texas. During 2003, we expanded our United States RCO program to Connecticut, New Jersey, New York, Rhode Island, Massachusetts and Pennsylvania, and we will consider offering this product instead 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 efforts fail to bring a delinquent customer’s payments current, we generally can repossess the customer’s vehicle, after satisfying local legal requirements, and sell it. The customer typically remains liable for any deficiency between net sale proceeds and the defaulted contract obligations, including any repossession-related expenses. We require retail customers to carry fire, theft and collision insurance on financed vehicles.

Retail Lease Plans

      We offer leasing plans to retail customers through our dealers. Our highest volume retail leasing plan is called Red Carpet Lease, which is offered in the United States and Canada through dealers of Ford, Lincoln and Mercury brands. We offer similar lease plans through dealers of other Ford brands (Jaguar, Land Rover, Mazda and Volvo) and through a limited number of non-Ford dealers under the PRIMUS brand. Under these plans, dealers originate the leases and offer them to us for purchase. Upon our purchase of a lease, we take ownership of the lease and title to the leased vehicle from the dealer. After we purchase a lease from a dealer, that dealer generally has no further obligation to us in connection with the lease. The customer is responsible for properly maintaining the vehicle and is obligated to pay for excess wear and use as well as excess mileage, if any. At the end of the lease, the customer has the option to purchase the vehicle for the customer purchase option price specified in the lease contract or return the vehicle to the dealer. If the customer returns the vehicle to the dealer, the dealer may buy the vehicle from us for the specified lease-end value or return it to us. In March of 2003, we announced a change to the dealer purchase option for contracts dated May 1, 2003 and beyond. This change provides the dealer the option to purchase the lease vehicle for a price to be determined by us. We sell vehicles returned to us to other 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 on the negotiated price for the vehicle plus any additional products, such as insurance and extended service plans, that are included in the contract, less any vehicle trade-in allowance or down payment from the customer. The customer makes monthly lease payments based on the acquisition cost less the estimated residual value of the vehicle at the lease end, plus lease charges. Some of our lease programs, such as our Red Carpet Lease Advance Payment Plan, provide certain pricing advantages to customers who make all or some monthly payments at lease inception or purchase refundable higher mileage allowances. We require lease customers to carry fire, theft, liability and collision insurance on leased vehicles.

      In the United States, retail operating lease terms for new Ford, Lincoln and Mercury brand vehicles range primarily from 12 to 48 months. In 2003, the average original lease term was 35 months compared with 33 months in 2002. The average monthly payment was about $470 in 2003, $445 in 2002, and $420 in 2001.

      Several states have vicarious liability laws that hold the lessor, as the owner of a vehicle, liable for accidents involving the leased vehicle. Partly in response to these laws, we are expanding our RCO program and discontinuing our purchase of lease contracts in some of these states. As a retail installment sale, the RCO program eliminates the risk of vicarious liability for us, while providing customers 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 lease plans and installment purchase plans and are generally for terms of 12 to 84 months. The financing obligations are collateralized by perfected security interests on financed vehicles in almost all instances and, where appropriate, an assignment of rentals under any related leases. At the end of the finance term, a lease customer may be required to pay us any shortfall between the fair market value and the specified end of term value of the vehicle. If the fair market value of the vehicle at the end of the finance term exceeds the specified end of term value, we may pay the lease customer the excess amount. In the United States, these financings totaled about $2.5 billion as of December 31, 2003, and are included in retail finance receivables and net investment in operating leases in our financial statements.

Wholesale Financing

      We offer a wholesale financing program for qualifying dealers to finance new and used vehicles held in inventory. We generally finance the vehicle’s wholesale invoice price for new vehicles and up to 100% of the dealer’s purchase price for used vehicles. Dealers generally pay a floating interest rate on wholesale loans based on the prime rate. The dealer pays off each wholesale receivable as the related vehicle is sold or leased. In the United States in 2003, the average wholesale receivable was outstanding for 84 days, excluding the time the vehicle was in transit from the assembly plant to the 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 credit losses. Our wholesale financing program includes financing of large multi-brand national dealer groups 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 security interest in the vehicles and, in many instances, other assets of the dealer. Our subsidiary, The American Road Insurance Company, provides insurance for vehicle damage and theft of vehicles held 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 new Ford, Lincoln and Mercury brand vehicles acquired by dealers in the United States and more than 96% 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 enable them 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 finance receivables in our financial statements. These loans typically are secured by mortgages on real estate, security interests in other dealership assets and sometimes personal guarantees of the individual owners of the dealership.

      We also purchase certain receivables generated by divisions and affiliates of Ford, primarily in connection with the delivery of vehicle inventories from Ford vehicle assembly plants in the United States 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 in wholesale 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 in dealer-focused conventions and organizations and support from manufacturers, we seek to demonstrate to dealers the value of entering into a business relationship with us. We base our marketing strategy on our belief that we can better assist dealers in achieving their sales, financial and customer satisfaction goals by being a stable, committed finance source with knowledgeable automotive and financial professionals offering personal attention and interaction. We demonstrate our commitment to dealer relationships with a variety of materials, measurements and analyses showing the advantages of a full range of automotive financing products that allows consistent and predictable single source financing. In addition, from time to time, we promote increased dealer transactions through incentives, bonuses, contests and selected program and rate adjustments.

      We promote our retail financing products primarily through pre-approved credit offers to prospective customers, point-of-sale information, ongoing communications and contacts with existing customers and sponsorships of selected racing teams. Our communications to these customers promote the advantages of our financing products, the availability of special plans and programs and the benefits of affiliated products, such as extended warranties, service plans, insurance coverage gap protection and excess wear and use waivers. In addition, we emphasize the quality of our customer 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 account balance, examine current incentives, schedule an electronic payment or qualify for a pre-approved credit offer.

      We also market our non-consumer financial services described above in “Other Retail Financing” with a specialized group of employees who make direct sales calls on dealers, and, often at the request of such dealers, on potential high-volume commercial customers. This group also uses various materials to explain our flexible programs and services specifically directed at the needs of commercial and fleet vehicle customers.

Servicing

      General. After we purchase retail installment sale contracts and leases from dealers and other customers, 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 include the 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 regional service centers in Europe that conduct customer service and collection activities.

      Our North American regional service centers are located in:

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

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

	•	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 our German operations and customers. In smaller countries, we provide servicing through our local branches.

      Customer Payment Operations. In the United States and Canada, customers are directed in their 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 or a telephonic payment system.

      Servicing Activities — Consumer Credit. We design our collection strategies and procedures to keep accounts current and to collect on delinquent accounts. We employ a combination of proprietary and non-proprietary tools to assess the probability and severity of default for all of our receivables 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 an internally 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. Our centralized collection operations are supported by state-of-the-art auto-dialing technology and proprietary collection and workflow operating systems. Our U.S. systems also employ a web-based network of outside contractors who support the repossession process. Through our auto-dialer program and our monitoring and call log systems, we target our efforts to contact customers about missed 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 of security interests in financed vehicles, monitoring insurance coverage on lease vehicles, imaging of contracts and electronic data file maintenance, generation of retail and lease billing statements, telephonic payment systems for retail customers, the handling of some inbound customer service calls and the recovery of deficiencies in selected accounts. In addition, certain collection activities related to contracts purchased by Fairlane Credit are handled by vendors.

      Payment Extensions. At times, we offer payment extensions to customers who have encountered temporary financial difficulty that limits their ability to pay as contracted. A payment extension allows the customer to extend the term of the contract, usually by paying a fee that is calculated in a manner specified by law. Following a payment extension, the customer’s account is no longer delinquent. Before agreeing to a payment extension, the service representative reviews the customer’s payment history, current financial situation and assesses the customer’s desire and capacity to make future payments. The service representative considers whether the proposed payment extension complies with our policies and guidelines. Service center managers review, and generally must approve, payment extensions outside these guidelines.

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

      Ford’s Vehicle Remarketing Department, in conjunction with our regional service centers and our National 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 will result in the highest resale value, net of transportation, reconditioning and auction costs. The determination of the sale location is based on an analysis of historical auction price data and market trends. 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 can participate, 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 auctions and on-line auctions. We decide to use an open or closed auction based upon factors such as vehicle age, mileage, and condition. In 2003, two-thirds of all of the vehicles we sold through auctions were returned leased vehicles and one-third of all vehicles sold through auctions were repossessed 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 at values that approximate expected auction proceeds.

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

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      Wholesale and Commercial. We require dealers to submit monthly financial statements, and we monitor for potential credit deterioration. We assign an evaluation rating to each dealer and we perform physical audits of vehicle inventory periodically, with more frequent audits for higher risk dealers. In addition, we monitor dealer inventory financing payoffs daily to detect deviations from typical repayment patterns, in which case we take appropriate actions. Within the United States and Canada, eight commercial lending offices provide services to fleet purchasers, leasing companies and daily rental companies. We generally review our exposure under these credit arrangements at least annually. In our international markets, this business is managed within the head office of the local 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 insurance subsidiaries 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 used vehicles,
	•	Physical damage insurance covering vehicles at dealers’ locations and vehicles in-transit between 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 by non-affiliated insurance companies from which we receive fee income but the underwriting risk remains with the non-affiliated insurance companies. In addition, in December 2002, TARIC began providing to Ford and its subsidiaries various types of surety bonds, including bonds generally required 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 issued by third party insurance companies. Our insurance business generated approximately 1% of our total revenues in 2003 and 2002.

EMPLOYEE RELATIONS

      At December 31, 2003, we had about 19,000 full-time employees, and 2,000 part-time and agency 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 locations where we operate.

United States

      Within the United States, our operations are subject to regulation, supervision and licensing under 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 require us to provide certain disclosures to prospective borrowers and lessees in consumer retail and lease financing transactions and prohibit discriminatory credit practices. The principal disclosures required under the Truth-in-Lending Act for retail finance transactions include the terms of repayment, the amount 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, the terms for payment, and information about lease charges, insurance, excess mileage and liability on early termination. The Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on a variety of factors, including race, color, sex, age or marital status. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for being denied. In addition, any of the credit scoring systems we use during the application process or other processes must comply with the requirements for such systems under the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a consumer credit report obtained from a national credit bureau. We are also subject to the Soldiers’ and Sailors’ Civil Relief Act that requires us to reduce the interest rate on retail installment contracts and limits our ability to pursue collection and enforcement remedies on contracts 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 certain consumer data in our possession and to communicate periodically with consumers on privacy matters.

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

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

International

      In some countries outside the United States, some of our subsidiaries, including FCE, are regulated banking institutions and are required, among other things, to maintain minimum capital reserves. FCE is authorized as a deposit taking business under the Financial Services and Markets Act of 2000 and is regulated by the U.K. Financial Services Authority (“FSA”). FCE also holds a standard license under the U.K. Consumer Credit Act of 1974. Since 1993, FCE has obtained authorizations from the Bank of England (which role is now undertaken by the FSA) pursuant to the Second Banking Consolidation Directive entitling it to operate on a branch basis in all member states of the European Union. In many other locations where we operate, governmental authorities require us to obtain licenses to conduct our financing business.

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

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

TRANSACTIONS WITH FORD AND AFFILIATES

      We have a profit maintenance agreement with Ford that requires Ford to make payments to us to maintain our earnings at specified minimum levels. In addition, we have an agreement to maintain a minimum control interest in FCE and to maintain FCE’s net worth above a minimum level. No payments 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 dated October 18, 2001, a copy of which was filed with the SEC on that date. The principal terms of this agreement include the following:

	•	Any extension of credit from us to Ford and any of Ford’s automotive affiliates will be on arm’s length 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 or any of Ford’s automotive affiliates.
	•	We and Ford agree to maintain our stockholder’s equity at a commercially reasonable level to support the amount, quality and type of receivables in light of prevailing economic circumstances.
	•	We will not be required to accept credit or residual risk beyond what we would be willing to accept acting in a prudent and commercially reasonable manner (taking into consideration any interest rate or residual subvention payments, guarantees, or other subsidies that are provided to us by Ford or any of Ford’s automotive affiliates).
	•	We and Ford are separate, legally distinct companies and will continue to maintain separate books, accounts, assets and liabilities.

      More information about transactions between us and Ford and other affiliates is contained in Note 14 of our Notes to Financial Statements, “Business — Overview”, “Business — Retail Financing”; “Business — Other Financing” and the description of Ford’s business in Ford’s 2003 10-K Report included as an exhibit to this report.

      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 of our automotive finance branches and service centers are located in leased properties. The continued use of any of these leased properties is not material to our operations. At December 31, 2003, our total obligation under leases of real property was about $240 million.

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

      Fair Lending Class Action. A putative class action in federal court in New York, Jones v. Ford Motor Credit Company, alleges that our pricing practices discriminate against African-Americans. Specifically, plaintiffs allege, “although Ford Credit’s initial analysis applies objective criteria to calculate the risk-related ’buy rate’, Ford Credit then authorizes a subjective component in its credit pricing 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 concerning PRIMUS 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 reasonably possible that the matters described above could be decided unfavorably to us. Although the amount of liability at December 31, 2003 with respect to these matters cannot be ascertained, we believe that any resulting liability should not materially affect our consolidated financial position or results of operations.

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

PART II

      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 2004 and we would then become a wholly-owned subsidiary of Ford Holdings, LLC. We did not issue or sell any 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 time to time consistent with our leverage strategy, depending on the amount and mix of our receivables, capital requirements and profitability.

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FORD MOTOR CREDIT COMPANY AND SUBSIDIARIES

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

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Overview

Generation of Revenue, Income and Cash

      As an indirect, wholly-owned subsidiary of Ford, our primary focus is to profitably support the sale of Ford vehicles. The principal factors that influence our earnings are the amount and mix of different 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 credit losses 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 many factors; 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 to which 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 lease contracts and to provide wholesale financing.

      For finance receivables, financing margins equal the difference between revenue earned on finance receivables and the cost of borrowed funds. For operating leases, financing margins equal revenue 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 fixed at the time the contracts are originated. On some receivables, primarily wholesale financing, we charge 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 legal purposes that remain on our balance sheet,
	•	Securitized off-balance sheet basis — includes receivables sold in securitization transactions that are not reflected on our balance sheet,
	•	Managed basis — includes on-balance sheet and securitized off-balance sheet receivables that we continue to service, and
	•	Serviced basis — includes managed receivables and receivables sold in whole-loan sale transactions where we retain no interest in the sold receivables, but which we continue to service.

      We analyze our financial performance primarily on an on-balance sheet and managed basis. We retain interests in receivables sold in off-balance sheet securitizations, and with respect to subordinated 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 sale transactions. As a result, we generally review the performance of our serviced portfolio only to evaluate the effectiveness of our origination and collection activities. To evaluate the performance of

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

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

      We measure the performance of our North America Segment and our International Segment primarily on an income before income taxes basis, after excluding the impact to earnings from hedge ineffectiveness and the results of discontinued and held for sale operations. Hedge ineffectiveness is excluded in assessing our segment performance because our risk management activities are carried out on a centralized basis at the corporate level. For further discussion regarding our segments, see Note 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 contracts and lease contracts from dealers, continued to focus on financing new Ford vehicles and late-model used vehicles. In 2002 and 2003, we increased the quality of our retail installment sale and operating lease portfolios by reducing the number of new, non-Ford and older-model used vehicles financed. We reduced new, non-Ford financing because of adverse selection (i.e., the customers with relatively higher creditworthiness took advantage of other manufacturers’ incentive programs). We reduced the number of older-model used vehicles financed because the creditworthiness of customers who finance those vehicles generally is lower. Also during 2003, we continued to implement a number of enhancements to our credit-risk scoring models and risk-pricing structures that support our origination strategy.

Servicing: Operate Efficiently, Collect Effectively, Enhance Owner Loyalty

      Our servicing strategy is to improve efficiency and collections effectiveness by continually upgrading our processes, while at the same time enhancing customer satisfaction and loyalty. During 2003, we further increased the commonality of our business processes and information technology platforms and introduced other enhancements to increase efficiency and effectiveness. In North America, for example, we enhanced our collection modeling capabilities to allow for more focused collection activity on high-risk accounts and developed a risk-based staffing model to ensure collection resources are aligned with portfolio risk. These and other process improvements, and gradual 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 cost effective. We continue to meet a significant portion of our funding requirements through securitizations because of the stability of the market for asset-backed securities, their lower costs compared with unsecured debt (at our present credit ratings) and the diversity of funding sources that they provide. In recent years, our lower credit ratings generally have resulted in higher borrowing costs and reduced access to capital markets. The decline in our credit ratings over the past several years primarily reflected the credit rating agencies’ opinions of Ford, including concerns regarding Ford’s automotive cash flow and profitability, declining market share, excess industry capacity, industry pricing pressure and rising healthcare costs.

Results of Operations

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

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Management Services, our operation in the United States that offers full-service car and truck leasing. 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. The following discussion of our results in Item 7 and 7A excludes the results of these discontinued and held-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 discontinued operations 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 from unaffiliated parties for $175 million. As a result of this transaction, FCAR’s assets, liabilities and results of operations were consolidated into our financial statements. In addition, the accounting consolidation of FCAR also caused certain of the Ford Credit sponsored securitization SPEs that sell asset-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 deemed to be reacquired by us in accordance with SFAS No. 140 requirements. These receivables are referred 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 sponsored SPEs that sell asset-backed securities to FCAR will not qualify as an accounting sale and will be reported on our balance sheet.

      The accounting consolidation of FCAR and related securitization SPEs did not change the bankruptcy-remote status of these entities and the isolation of assets achieved in these transactions was not changed. The receivables sold to the SPEs and the asset-backed securities held by FCAR are available only for the SPEs, FCAR and their investors, and other participants, and are not available to pay our obligations or the claims of our creditors. The accounting consolidation did not have a material impact on our earnings, back-up credit facilities, unsecured debt funding programs or other securitization programs. The accounting consolidation of FCAR increased our financial statement debt-to-equity ratio because the asset-backed commercial paper issued by FCAR is now included 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 best way to maintain our near term liquidity, funding flexibility and program economics that FCAR provides us. Many of the other alternatives considered would have required further modifications to FCAR in the near future due to possible changes to SFAS No. 140 as well as the uncertainty surrounding 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 with earnings of $354 million a year ago. Our consolidated pre-tax income from continuing operations in the fourth quarter of 2003 was $839 million, up $245 million or 41% from earnings of $594 million a year ago. The increase in earnings primarily reflected a lower provision for credit losses and the net favorable market valuation of derivative instruments and associated exposures, offset partially by lower sales of receivables.

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

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

      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 for credit losses, offset partially by lower income related to off-balance sheet securitizations. The lower provision for credit losses primarily reflected the non-recurrence of an increase in our allowance for credit losses in the fourth quarter of 2002. Lower income related to off-balance sheet securitizations resulted 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 for credit losses because of lower receivables and higher recoveries, mostly in Latin America, offset partially by higher borrowing costs in Europe.

      Income before income taxes in the eliminations/other category in the fourth quarter of 2003 was up $165 million compared with the fourth quarter of 2002. The improvement primarily reflected the net favorable market valuation of derivative instruments and associated exposures, which is included in “Other income” and “Investment and other income related to sales of receivables” on our income statement.

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 primarily reflected a lower provision for credit losses and the net favorable market valuation of derivative instruments and associated exposures, offset partially by the impact of lower average net receivables.

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

      North America Segment income before income taxes in 2003 was up $411 million compared with 2002. This increase primarily reflected a lower provision for credit losses, offset partially by the impact of lower average net receivables. The lower provision for credit losses primarily reflected the non-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 with 2002. This increase primarily reflected a lower provision for credit losses, the favorable impact of currency exchange rates and higher wholesale volume. The lower provision for credit losses primarily reflected lower retail receivables levels and higher recoveries in Latin America. The favorable currency exchange rates primarily reflected the stronger euro and pound sterling compared with the U.S. dollar. Higher wholesale volume primarily reflected the growth of wholesale financing provided to 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 million compared with 2002. The improvement primarily reflected the net favorable market valuation of derivative instruments and associated exposures.

Full Year 2002 Compared with Full Year 2001

      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.

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

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

      North America Segment income before income taxes in 2002 was up $140 million compared with 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 by the impact of lower net financing margins.

      International Segment income before income taxes in 2002 was up $151 million compared with 2001. This increase resulted primarily from higher net financing margins, due to our reduced focus on relatively lower margin fleet financing products, as well as a lower provision for credit losses, and the favorable impact of higher amounts of receivables.

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

Placement Volume and Financing Share

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