Question

Assessing the Effects of Bond Credit RatingChanges

Ford Motor Co. reports the following information from the RiskFactors and the Management

Discussion and Analysis sections of its 2010 10-K report...

Credit Ratings: Our short-term and long-termdebt is rated by four credit rating agencies

designated as nationally recognized statistical ratingorganizations (“NRSROs”) by the

Securities and Exchange Commission:

• 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TheMcGraw-HillCompanies(“S&P”).

Lower credit ratings generally result in higher borrowing costsand reduced access to capital

markets. In 2005 and 2006, the credit ratings assigned to FordCredit were lowered to below

investment grade, which increased its unsecured borrowing costsand restricted its access to the

unsecured debt markets. In response, Ford Credit increased itsuse of securitization transactions

(including other structured financings) and other sources offunding. In 2010, although Ford Credit

experienced several credit rating upgrades and its creditspreads narrowed considerably, its credit

ratings are still below investment grade. Ford Credit’s highercredit ratings have provided it more

economical access to the unsecured debt markets, but it is stillutilizing asset-backed securitization

transactions for a substantial amount of its funding . . . Overtime, and particularly in the event of

any credit rating downgrades, market volatility, marketdisruption, or other factors, Ford Credit may

reduce the amount of receivables it purchases or originatesbecause of funding constraints . . .

A significant reduction in the amount of receivables Ford Creditpurchases or originates would

significantly reduce its ongoing profits and could adverselyaffect its ability to support the sale of

Ford vehicles. The following ratings actions have been taken bythese NRSROs since the filing of

our Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2010:

Ford

- On January 28, 2011, Moody's affirmed Ford Motor Company'sratings and changed the rating outlook to positive from stable.

- On Januaary 28, 2011, Fitch upgraded Ford's corporate ratingto BB from BB-, the senior secured ration to BBB- from BB+ and thesenior unsecured

ration from BB- from B. Fitch also changed the outlook topositive from stable.

- On February 1, 2011, S&P upgraded Ford's corporate ratingto BB- from B+, the senio secured debt rating

to BB+ from BB and the senior unsecured debt rating to B+ fromB. The outlook remains positive.

Ford Credit

- On January 28, 2011, Moody's affirmed Ford Credit's ratingsand changed the rating outlook to positive from stable.

- On January 28, 2011, Fitch upgraded Ford Credit's corporaterating to BB from BB-. Fitch also affirmed the senior unsecuredrating at BB- and the short-term rating at B. Fitch

changed the outlook to positive from stable.

- On February 1, 2011, S&P upgraded Ford Credit's corporaterating to BB- from B+ and its senior unsecured debt rating to BB-from B+. The outlook

remains positive.

Questions:

a. What financial ratios do credit ratingcompanies such as the four NRSROs listed above, use to evaluate therelative riskiness of borrowers?

b. Why might an increase in credit ratingsresult in lower interest costs and increase Ford’s access to creditmarkets?

c. What type of actions can Ford take toimprove its credit ratings?