Ford Motor Credit 10Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


o		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 LLC

(Exact name of registrant as specified in its charter)


Delaware		38-1612444
(State of organization)		(I.R.S. employer identification no.)
One American Road, Dearborn, Michigan		48126
(Address of principal executive offices)		(Zip code)

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

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.þ Yeso No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large accelerated filero		Accelerated filero		Non-accelerated filerþ(Do not check if a smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yesþ No

All of the limited liability company interests in the registrant (“Shares”) are held by an affiliate of the registrant. None of the Shares are publicly traded.

REDUCED DISCLOSURE FORMAT

The registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

EXHIBIT INDEX APPEARS AT PAGE 47

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED STATEMENT OF INCOME
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO THE FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1A. RISK FACTORS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT INDEX
Exhibit 10
Exhibit 12
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
For the Periods Ended September 30, 2008 and 2007
(in millions)


	Third Quarter						Nine Months
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
Financing revenue
Operating leases	$	1,598		$	1,614		$	5,000		$	4,663
Retail		866			884			2,504			2,580
Interest supplements and other support costs earned from affiliated companies		1,189			1,186			3,682			3,378
Wholesale		425			515			1,340			1,607
Other		32			43			103			133

Total financing revenue		4,110			4,242			12,629			12,361
Depreciation on vehicles subject to operating leases		(1,573	)		(1,596	)		(7,477	)		(4,521	)
Interest expense		(1,888	)		(2,149	)		(5,781	)		(6,464	)

Net financing margin		649			497			(629	)		1,376
Other revenue
Investment and other income related to sales of receivables		69			97			186			308
Insurance premiums earned, net		28			43			110			130
Other income, net		225			546			646			964

Total financing margin and other revenue		971			1,183			313			2,778
Expenses
Operating expenses		415			445			1,161			1,451
Provision for credit losses (Note 4)		377			173			1,249			301
Insurance expenses		18			19			90			74

Total expenses		810			637			2,500			1,826

Income/(Loss) before income taxes		161			546			(2,187	)		952
Provision for/(Benefit from) income taxes		66			212			(870	)		363

Income/(Loss) before minority interests		95			334			(1,317	)		589
Minority interests in net income of subsidiaries		0			0			0			0

Income/(Loss) from continuing operations		95			334			(1,317	)		589
Gain on disposal of discontinued operations		—			—			9			—

Net income/(loss)	$	95		$	334		$	(1,308	)	$	589

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

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(in millions)


	September 30,		December 31,
	2008		2007
	(Unaudited)
ASSETS
Cash and cash equivalents (Note 1)	$	13,918	$	14,137
Marketable securities		5,734		3,155
Finance receivables, net (Note 2)		102,086		111,468
Net investment in operating leases (Note 3)		25,230		29,663
Retained interest in securitized assets		154		653
Notes and accounts receivable from affiliated companies		975		906
Derivative financial instruments (Note 9)		2,187		2,811
Other assets		5,021		6,230

Total assets	$	155,305	$	169,023


LIABILITIES AND SHAREHOLDER’S INTEREST
Liabilities
Accounts payable
Customer deposits, dealer reserves and other	$	1,889	$	1,837
Affiliated companies		1,785		2,308

Total accounts payable		3,674		4,145
Debt (Note 6)		129,060		139,411
Deferred income taxes		2,892		5,380
Derivative financial instruments (Note 9)		961		1,376
Other liabilities and deferred income		7,016		5,314

Total liabilities		143,603		155,626

Minority interests in net assets of subsidiaries		0		3

Shareholder’s interest
Shareholder’s interest		5,149		5,149
Accumulated other comprehensive income		1,340		1,730
Retained earnings (Note 7)		5,213		6,515

Total shareholder’s interest		11,702		13,394

Total liabilities and shareholder’s interest	$	155,305	$	169,023

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

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Ended September 30, 2008 and 2007
(in millions)


	Nine Months
	2008			2007
	(Unaudited)
Cash flows from operating activities
Net income/(loss)	$	(1,308	)	$	589
Income related to discontinued operations		(9	)		—
Adjustments to reconcile net income to net cash provided by operations
Provision for credit losses		1,249			301
Depreciation and amortization		7,032			4,947
Net gain on sales of finance receivables		—			(5	)
Net change in deferred income taxes		(2,461	)		(1,151	)
Net change in other assets		2,391			195
Net change in other liabilities		2,059			790
All other operating activities		(238	)		314

Net cash provided by operating activities		8,715			5,980

Cash flows from investing activities
Purchases of finance receivables (other than wholesale)		(26,837	)		(30,111	)
Collections of finance receivables (other than wholesale)		26,241			28,073
Purchases of operating lease vehicles		(9,889	)		(12,616	)
Liquidations of operating lease vehicles		6,030			6,018
Net change in wholesale receivables		2,569			2,202
Net change in retained interest in securitized assets		243			291
Net change in notes receivable from affiliated companies		49			153
Proceeds from sales of receivables and retained interests		—			697
Purchases of marketable securities		(16,718	)		(7,657	)
Proceeds from sales and maturities of marketable securities		14,173			13,336
Proceeds from sales of businesses		3,699			157
Net change in derivatives not designated as hedging instruments		688			(33	)
All other investing activities		90			24

Net cash provided by investing activities		338			534

Cash flows from financing activities
Proceeds from issuances of long-term debt		27,345			23,393
Principal payments on long-term debt		(31,859	)		(31,633	)
Change in short-term debt, net		(4,370	)		(2,224	)
All other financing activities		(325	)		(48	)

Net cash used in financing activities		(9,209	)		(10,512	)
Effect of exchange rate changes on cash and cash equivalents		(63	)		(300	)


Net decrease in cash and cash equivalents		(219	)		(4,298	)

Cash and cash equivalents, beginning of period		14,137			12,331


Cash and cash equivalents, end of period	$	13,918		$	8,033

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

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, these unaudited financial statements include all adjustments considered necessary for a fair statement of the results of operations and financial conditions for interim periods for Ford Motor Credit Company LLC, its consolidated subsidiaries and consolidated variable interest entities (“VIEs”) in which Ford Motor Credit Company LLC is the primary beneficiary (collectively referred to herein as “Ford Credit”, “we”, “our” or “us”). Results for interim periods should not be considered indicative of results for any other interim period or for the full year. Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007 (“2007 10-K Report”). We are an indirect, wholly owned subsidiary of Ford Motor Company (“Ford”).

Finance Receivables and Net Investment in Operating Leases

As of January 1, 2008, to reduce ongoing obligations to us and to be consistent with general industry practice, Ford began paying interest supplements and residual value support to us at the time we purchase eligible contracts from dealers. Finance receivables are reported at their outstanding balance, including origination cost and late charges, net of unearned income and unearned interest supplements received from Ford and other affiliates. At September 30, 2008, the amount of these unearned interest supplements was $1.3 billion. Net investment in operating leases are recorded at cost and the vehicles are depreciated on a straight-line basis over the lease term to the estimated residual value. Unearned interest supplements and residual support payments received from Ford and other affiliates for investments in operating leases are recorded inOther liabilities and deferred income.At September 30, 2008, the amount of these unearned interest supplements and residual support payments was $1.3 billion.

At September 30, 2008, in the United States and Canada, Ford is obligated to pay us $3.1 billion of interest supplements (including supplements related to sold receivables) and about $550 million of residual value support over the terms of the related finance contracts, compared with $5.4 billion of interest supplements and about $900 million of residual value support at December 31, 2007, in each case for contracts purchased prior to January 1, 2008. The interest supplements and residual value support obligations on these contracts will continue to decline as the contracts liquidate.

Cash and Cash Equivalents and Marketable Securities

The cash balances to be used only to support on-balance sheet securitizations were $4.7 billion at September 30, 2008 and December 31, 2007. These balances are generally held by VIEs of which we are the primary beneficiary and are included inCash and cash equivalents.

We recognized earnings of $169 million and $206 million in the third quarter of 2008 and 2007, respectively, and $405 million and $723 million in the first nine months of 2008 and 2007, respectively, related to interest and investment income on our cash and cash equivalents and marketable securities. These amounts are included inOther income, net.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 1. ACCOUNTING POLICIES (Continued)

Asset Impairments

Held-for-Sale and Discontinued Operations. We perform an impairment test on an asset group to be discontinued, held-for-sale, or otherwise disposed of when management has committed to the action and the action is expected to be completed within one year. We estimate fair value to approximate the expected proceeds to be received, less transaction costs, and compare it to the carrying value of the asset group. An impairment charge is recognized when the carrying value exceeds the estimated fair value.

Held-and-Used Long-Lived Assets.We evaluate the carrying value of held-and-used long-lived asset groups for potential impairment when certain triggering events have occurred. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured in accordance with the fair value measurement framework. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value.

Provision for/(Benefit from) Income Taxes

The provision for/(benefit from) income taxes is computed by applying our estimated annual effective tax rate to year-to-date income/(loss) before taxes.

NOTE 2. FINANCE RECEIVABLES

Net finance receivables at September 30, 2008 and December 31, 2007 were as follows (in millions):


	September 30,			December 31,
	2008			2007
	(Unaudited)
Retail	$	70,972		$	74,203
Wholesale		30,686			34,808
Other		3,005			3,394

Total finance receivables, net of unearned income (a)(b)		104,663			112,405
Less: Unearned interest supplements		(1,271	)		—
Less: Allowance for credit losses		(1,306	)		(937	)

Finance receivables, net	$	102,086		$	111,468


(a)		At September 30, 2008 and December 31, 2007, includes $1.3 billion and $1.8 billion, respectively, of primarily wholesale receivables with entities that are reported as consolidated subsidiaries of Ford. The consolidated subsidiaries include dealerships that are partially owned by Ford and consolidated as VIEs and also certain overseas affiliates. The associated vehicles that are being financed by us are reported as inventory on Ford’s balance sheet.

(b)		At September 30, 2008 and December 31, 2007, includes finance receivables of $72.0 billion and $67.2 billion, respectively, that have been sold for legal purposes in securitizations that do not satisfy the requirements for accounting sale treatment. These receivables are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors until the associated debt or other obligations are satisfied.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 3. NET INVESTMENT IN OPERATING LEASES

During the second quarter of 2008, higher fuel prices and the weak economic climate in North America resulted in a pronounced shift in consumer preferences from full-size trucks and traditional sport utility vehicles to smaller, more fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate caused a significant reduction in auction values and in particular for used full-size trucks and traditional sport utility vehicles. At the end of the second quarter of 2008, we completed our quarterly North America operating lease portfolio adequacy study for accumulated depreciation and projected that lease-end residual values would be significantly lower than previously expected for full-size trucks and traditional sport utility vehicles.

As a result of the market factors and our adequacy study results, we tested the operating leases of our North America Segment for recoverability and in the second quarter of 2008, recorded a pre-tax impairment charge of $2.1 billion inDepreciation on vehicles subject to operating leases representing the amount by which the carrying value of certain vehicle lines in our lease portfolio exceeded the fair value. We continue to depreciate all vehicles subject to operating leases in accordance with our accounting policy. Refer to Note 1 in our 2007 10-K Report for more information on our depreciation accounting policy.

Net investment in operating leases at September 30, 2008 and December 31, 2007 were as follows (in millions):


	September 30,			December 31,
	2008			2007
	(Unaudited)
Vehicles, at cost, including initial direct costs (a)	$	30,250		$	38,000
Less: Accumulated depreciation (a)		(4,779	)		(8,184	)
Less: Allowance for credit losses		(241	)		(153	)

Net investment in operating leases (b)	$	25,230		$	29,663


(a)		Adjusted for accumulated depreciation on impaired assets that has been reclassified to vehicles, at cost.

(b)		At September 30, 2008 and December 31, 2007, includes net investment in operating leases of $12.4 billion and $18.9 billion, respectively, that have been included in securitizations that do not satisfy the requirements for accounting sale treatment. These net investment in operating leases are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors until the associated debt or other obligations are satisfied.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 4. ALLOWANCE FOR CREDIT LOSSES

Following is an analysis of the allowance for credit losses related to finance receivables and net investment in operating leases for the periods ended September 30 (in millions):


	Third Quarter						Nine Months
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)

Balance, beginning of period	$	1,493		$	1,010		$	1,090		$	1,110
Provision for credit losses		377			173			1,249			301
Deductions
Charge-offs before recoveries		402			282			1,094			755
Recoveries		(106	)		(98	)		(323	)		(339	)

Net charge-offs		296			184			771			416
Other changes, principally amounts related to translation adjustments and finance receivables sold		27			(12	)		21			(16	)

Net deductions		323			172			792			400

Balance, end of period	$	1,547		$	1,011		$	1,547		$	1,011

At September 30, 2008, our allowance for credit losses includes about $150 million to reflect higher severities consistent with our second quarter 2008 updated assumptions.

NOTE 5. VARIABLE INTEREST ENTITIES

We consolidate VIEs in which we are the primary beneficiary. We use special purpose entities (“SPEs”) that are considered VIEs for most of our on-balance sheet securitizations. The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather, they represent claims against the specific securitized assets. Conversely, these specific securitized assets do not represent additional assets that could be used to satisfy claims against our general assets. Consolidated assets related to these securitizations of $78.2 billion and $82.4 billion are included in our balance sheet at September 30, 2008 and December 31, 2007, respectively. These consolidated assets include $4.4 billion and $4.6 billion of cash and cash equivalents and $73.8 billion and $77.8 billion of finance receivables and beneficial interests in net investment in operating leases at September 30, 2008 and December 31, 2007, respectively. Our FCAR Owner Trust retail securitization program (“FCAR”) issues commercial paper externally. On occasion, we purchase the debt issued by FCAR. At September 30, 2008, the asset-backed securities of FCAR supported $9.8 billion of FCAR’s asset-backed commercial paper held by external investors and $1.1 billion was held by us. Further, we repurchased $2.5 billion of asset-backed securities from FCAR during the third quarter of 2008 and FCAR used the proceeds to payoff maturing FCAR commercial paper.

In addition, we sell finance receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by us. All of these transactions constitute sales for legal purposes, but some of the transactions do not satisfy the requirements for accounting sale treatment. The outstanding balance of these finance receivables was approximately $5.4 billion and $3.4 billion at September 30, 2008 and December 31, 2007, respectively.

We also have investments in other non-securitization related entities determined to be VIEs of which we are not the primary beneficiary. The risks and rewards associated with our interests in these entities are based primarily on ownership percentages. Therefore, we do not consolidate these entities and we account for them as equity method investments. Our maximum exposure ($148 million and $76 million at September 30, 2008 and December 31, 2007, respectively) to any potential losses associated with these VIEs is limited to our equity investments and, where applicable, receivables due from the VIEs.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 6. DEBT

At September 30, 2008 and December 31, 2007, debt was as follows (in millions):


	Interest Rates
	Average						Weighted-
	Contractual (a)						Average (b)						September 30,			December 31,
	2008			2007			2008			2007			2008			2007
													(Unaudited)
Short-term debt
Asset-backed commercial paper (c)		3.1	%		5.3	%							$	9,809		$	13,518
Other asset-backed short-term debt (c)		5.1	%		5.5	%								6,737			6,196
Ford Interest Advantage (d)		4.3	%		5.6	%								3,682			5,408
Unsecured commercial paper		8.3	%		7.5	%								257			526
Other short-term debt (e)		8.2	%		6.7	%								1,989			1,446

Total short-term debt		4.3	%		5.5	%		4.8	%		5.7	%		22,474			27,094

Long-term debt
Senior indebtedness
Notes payable within one year (f)														12,903			12,600
Notes payable after one year (g)														41,731			50,296
Unamortized discount														(277	)		(86	)
Asset-backed debt (c)
Notes payable within one year														22,588			20,121
Notes payable after one year														29,641			29,386

Total long-term debt (h)		6.0	%		6.5	%		5.9	%		6.3	%		106,586			112,317

Total debt		5.6	%		6.3	%		5.7	%		6.2	%	$	129,060		$	139,411


(a)		Third quarter 2008 and fourth quarter 2007 average contractual rates exclude the effects of derivatives and facility fees.

(b)		Third quarter 2008 and fourth quarter 2007 weighted-average rates include the effects of derivatives and facility fees.

(c)		Obligations issued in securitizations that are payable only out of collections on the underlying securitized assets and related enhancements.

(d)		The Ford Interest Advantage program consists of our floating rate demand notes.

(e)		Includes $56 million and $58 million with affiliated companies at September 30, 2008 and December 31, 2007, respectively.

(f)		Includes $355 million with affiliated companies at September 30, 2008.

(g)		Includes $140 million and $158 million with affiliated companies at September 30, 2008 and December 31, 2007, respectively.

(h)		Average contractual and weighted-average interest rates for total long-term debt reflects the rates for both notes payable within one year and notes payable after one year.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 7. RETAINED EARNINGS AND COMPREHENSIVE INCOME

Retained Earnings

The following table summarizes earnings retained for use in the business for the periods ended September 30 (in millions):


	Third Quarter				Nine Months
	2008		2007		2008			2007
	(Unaudited)				(Unaudited)
Retained earnings, beginning balance	$	5,118	$	5,995	$	6,515		$	5,791
Adjustment for adoption of SFAS No. 159 (a)		—		—		6			—
Adjustment for adoption of FIN 48 (b)		—		—		—			(51	)
Net income/(loss)		95		334		(1,308	)		589

Retained earnings, ending balance	$	5,213	$	6,329	$	5,213		$	6,329


(a)		See Note 8 for additional information on Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities —including an amendment of FASB Statement No. 115(“SFAS No. 159”).

(b)		Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes(“FIN 48”).

Comprehensive Income

The following table summarizes comprehensive income for the periods ended September 30 (in millions):


	Third Quarter						Nine Months
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
Net income/(loss)	$	95		$	334		$	(1,308	)	$	589
Other comprehensive income/(loss)
Foreign currency translation		(686	)		328			(352	)		777
Change in value of retained interest in securitized assets		(12	)		(25	)		(32	)		(27	)
Unrealized loss on marketable securities		—			(12	)		—			(19	)
Less: Reclassification adjustment for losses on marketable securities realized in net income		—			23			—			1
Net loss on derivative instruments		—			(1	)		—			(5	)
Less: Reclassification adjustment for gains on derivative instruments realized in net income		—			(3	)		—			(7	)
Adjustment for adoption of SFAS No. 159		—			—			(6	)		—

Total other comprehensive income/(loss)		(698	)		310			(390	)		720

Total comprehensive income/(loss)	$	(603	)	$	644		$	(1,698	)	$	1,309

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS

We adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS No. 157”), on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value should be based on assumptions that market participants would use including a consideration of non-performance risk.

In determining fair value, we use various valuation techniques and prioritize the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves. Level 3 inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability. The use of observable and unobservable inputs is reflected in our hierarchy assessment disclosed in the tables below.

Our fair value processes include controls that are designed to ensure that fair values are appropriate. Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations and reviews by senior management.

The following section describes the valuation methodologies used to measure fair value, key inputs and significant assumptions:

Cash Equivalents — Financial Instruments.We classify highly liquid investments, with a maturity of 90 days or less at the date of purchase, including U.S. Treasury bills, federal agency securities and commercial paper rated A-1/P-1 (or higher) as cash equivalents. Prior to the adoption of SFAS No. 157, we carried cash equivalents at amortized cost, which approximates fair value. Effective January 1, 2008, we measure financial instruments classified as cash equivalents at fair value. We use quoted prices where available to determine fair value for U.S. Treasury notes and industry-standard valuation models using market-based inputs when quoted prices are unavailable, such as for government agency securities and corporate obligations.

Marketable Securities. Our marketable securities portfolios include investments in U.S. government and non-U.S. government securities, corporate obligations and equities and asset-backed securities with a maturity of greater than 90 days at the date of purchase. Where available, including for U.S. Treasury notes and equities, we use quoted market prices to measure fair value. If quoted market prices are not available, such as for government agency securities, asset-backed securities and corporate obligations, prices for similar assets and matrix pricing models are used. In certain cases, where there is limited transparency to valuation inputs, we contact securities dealers and obtain dealer quotes.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS (Continued)

Concurrent with our adoption of SFAS No. 157, we elected to apply the fair value option under SFAS No. 159 to our financial instruments (including those classified as marketable securities and cash equivalents). SFAS No. 159 permits entities to measure certain financial assets and liabilities at fair value. The fair value option may be elected on an instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are recognized in earnings at each subsequent reporting date. This election resulted in a cumulative after-tax increase of approximately $6 million to the opening balance ofRetained earnings. Prior to the election of SFAS No, 159, we classified our marketable securities as available-for-sale or held-to-maturity. The unrealized gains and losses for available-for-sale securities were recorded inAccumulated other comprehensive incomeand the unrealized gains and losses for held-to-maturity securities were not recognized.

Derivative Financial Instruments. As part of our risk management strategy we enter into derivative transactions to mitigate exposures. Our derivative instruments include interest rate swaps, currency swaps and currency forwards. Our derivatives are not exchange-traded and are over-the-counter customized derivative transactions. Substantially all of our derivative exposures are with counterparties that have long-term credit ratings of single-A or better.

We estimate the fair value of our derivatives using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates and the contractual terms of the derivative instruments.

We include an adjustment for non-performance risk in the recognized measure of fair value of derivative instruments. The adjustment reflects the full credit default spread (“CDS”) applied to a net exposure, by counterparty. We use our counterparty’s CDS when we are in a net asset position and our own CDS when we are in a net liability position. At September 30, 2008, our adjustment for non-performance risk (relative to a measure based on unadjusted LIBOR), reduced our derivative assets by $50 million and our derivative liabilities by $104 million.

In certain cases, market data is not available and we use management judgment to develop assumptions which are used to determine fair value. This includes situations where there is illiquidity for a particular currency or for longer-dated instruments. For longer-dated instruments in which observable interest rates or foreign exchange rates are not available for all periods through maturity, we hold the last available data point constant through maturity.

Retained Interest in Securitized Assets.We retain certain interests in receivables sold in off-balance sheet securitization transactions including residual interest in securitizations and restricted cash. We estimate the fair value of retained interests using internal valuation models, market inputs and our own assumptions. The three key inputs that affect the valuation of the residual interest cash flows include credit losses, prepayment speed and the discount rate. The fair value of residual interest is estimated based on the present value of monthly collections on the sold finance receivables in excess of amounts needed for payment of the debt and other obligations issued or arising in the securitization transactions. The fair value of the residual interest in securitizations and the cash reserve account is determined using a discounted cash flow analysis.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS (Continued)

The following table summarizes the fair values of financial instruments measured at fair value on a recurring basis at September 30, 2008 (in millions):


	Items Measured at Fair Value on a Recurring Basis
	Quoted Price in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Balance as of
	Assets		Inputs		Inputs		September 30,
	(Level 1)		(Level 2)		(Level 3)		2008
	(Unaudited)
Assets
Cash equivalents — financial instruments (a)(b)	$	1,799	$	4,309	$	—	$	6,108
Marketable securities (a)		3,216		2,513		5		5,734
Derivative financial instruments		—		1,833		354		2,187
Retained interest in securitized assets		—		—		154		154

Total assets at fair value	$	5,015	$	8,655	$	513	$	14,183


Liabilities
Derivative financial instruments	$	—	$	656	$	305	$	961

Total liabilities at fair value	$	—	$	656	$	305	$	961


(a)		At September 30, 2008, approximately 93% of our financial instruments (including those classified as marketable securities and cash equivalents) were U.S. Treasury securities or federal agency securities, for which active and liquid markets exist. We rely on observable market data where available through our established pricing processes and believe this data reflects the fair value of our investment assets. Instruments presented in Level 1 include U.S. Treasury securities and equities. Instruments presented in Level 2 include federal agency securities, corporate obligations and asset-backed securities. Instruments presented in Level 3 include certain asset-backed securities.

(b)		Cash equivalents — financial instruments excludes $867 million of time deposits, certificates of deposit and money market accounts which are reported at par value which approximates fair value.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 8. FAIR VALUE MEASUREMENTS (Continued)

The following table summarizes the changes in Level 3 financial instruments measured at fair value on a recurring basis for the period ended September 30, 2008 (in millions):


	Fair Value Measurements Using Significant Unobservable Inputs
													Change in
													Unrealized
	Fair Value at			Total Realized					Net Transfers		Fair Value at		Gains/(Losses)
	January 1,			/Unrealized		Net Purchases/			Into/(Out of)		September 30,		on Instruments
	2008			Gains/(Losses)		(Settlements)			Level 3		2008		Still Held (a)
	(Unaudited)
Marketable securities (b)	$	—		$	0	$	5		$	—	$	5	$	0
Derivative financial instruments, net (c)		(30	)		47		18			14		49		29
Retained interest in securitized assets (d)		653			61		(560	)		—		154		(44	)

Total Level 3 fair value	$	623		$	108	$	(537	)	$	14	$	208	$	(15	)


(a)		For those assets and liabilities still held at September 30, 2008.

(b)		Marketable securities that were previously classified as retained interest in securitized assets at June 30, 2008.

(c)		Reflects fair value of derivative assets, net of liabilities. Realized/Unrealized gains/(losses) on derivative financial instruments for the period presented are recorded toInterest expense($4 million for third quarter 2008 and $11 million for the first nine months of 2008) andOther income, net($26 million for third quarter 2008 and $36 million for the first nine months of 2008) on the income statement. Refer to Note 9 for income statement classification by hedge designation.

(d)		Realized/Unrealized gains/(losses) on the retained interests in securitized assets for the period presented are recorded inInvestment and other income related to sales of receivableson the income statement ($42 million for third quarter 2008 and $105 million for the first nine months of 2008) andAccumulated other comprehensive incomeon the balance sheet ($(28) million for third quarter 2008 and $(44) million for the first nine months of 2008).

There were no items measured at fair value on a nonrecurring basis for the quarter ended September 30, 2008. The total nonrecurring fair value loss for the first nine months of 2008 was $2.1 billion due to the impairment of certain vehicle lines included in our Net investment in operating leases during the second quarter of 2008.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to interest rate changes and foreign currency exchange rate fluctuations in the normal course of business. As part of our risk management strategy we use various derivatives, including interest rate swaps, currency swaps and currency forward contracts to mitigate our risk exposure to interest rates and currency exchange rates. We have elected to apply hedge accounting to certain receive-fixed, pay-float interest rate swaps designated as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in fair value of the hedged item attributable to changes in the benchmark interest rate. Hedges that receive designated hedge accounting treatment are documented and evaluated for effectiveness at the time they are designated as well as throughout the hedge period. We use regression analysis to assess fair value hedge effectiveness under the “long-haul” method. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting. For both of these, the mark to fair value is reported currently through earnings. Refer to our 2007 10-K Report for a more detailed description of our derivative financial instruments and hedge accounting designations.

Income Statement Effect of Derivative Financial Instruments

The following table summarizes the estimated pre-tax gain/(loss) for each type of hedge designation (in millions):


	Third Quarter						Nine Months						Income Statement
	2008			2007			2008			2007			Classification
	(Unaudited)						(Unaudited)
Fair value hedges
Ineffectiveness	$	(2	)	$	—		$	(45	)	$	—		Other income, net
Net interest settlements and accruals excluded from the assessment of hedge effectiveness		12			—			51			—		Interest expense
Derivatives not designated as hedging instruments
Interest rate swaps		(14	)		257			(60	)		35		Other income, net
Foreign currency swaps and forward contracts (a)		312			(47	)		418			(497	)	Other income, net
Other		0			0			0			0		Other income, net


(a)		Gains/(losses) related to foreign currency derivatives were substantially offset by net revaluation impacts on foreign denominated debt, which were also recorded inOther income, net.

Balance Sheet Effect of Derivative Financial Instruments

We do not net our position by counterparty for purposes of balance sheet presentation and disclosure. The following table summarizes the estimated fair value of our derivative financial instruments:


	September 30, 2008						December 31, 2007
			(Unaudited)
			Fair		Fair				Fair		Fair
			Value		Value				Value		Value
	Notional		Assets		Liabilities		Notional		Assets		Liabilities
	(in billions)		(in millions)				(in billions)		(in millions)
Fair value hedges	$	3	$	193	$	—	$	—	$	—	$	—
Derivatives not designated as hedging instruments (a)		156		1,994		961		181		2,811		1,376

Total derivative financial instruments	$	159	$	2,187	$	961	$	181	$	2,811	$	1,376


(a)		Includes internal forward contracts between Ford Credit and an affiliated company.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. DIVESTITURES AND OTHER ACTIONS

International Segment Divestitures

Nordic Operations.During the second quarter of 2008, we completed the creation of a new legal entity and transferred into it the majority of our business and assets from Denmark, Finland, Norway and Sweden. Also in the second quarter, we sold 50% of the new legal entity. As a result of the sale, we reducedFinance receivables, netby approximately $1.7 billion, and recognized a pre-tax gain inOther income, netof approximately $85 million, net of transaction costs and including $35 million of foreign currency translation adjustments. We report our ownership interest in the new legal entity inOther assetsas an equity method investment. The new legal entity will support the sale of Ford vehicles in these markets.

PRIMUS Financial Services Inc. In April 2008, we completed the sale of 96% of our ownership interest in PRIMUS Financial Services Inc., our operation in Japan that offers automotive retail and wholesale financing of Ford and Mazda vehicles. As a result of the sale,Finance receivables, netwere reduced by approximately $1.8 billion,Debtwas reduced by approximately $252 million, and we recognized a pre-tax gain of approximately $22 million, net of transaction costs and including $28 million of foreign currency translation adjustments, inOther income, net.We report our remaining ownership interest inOther assetsas a cost method investment.

Primus Finance and Leasing, Inc. During the second quarter of 2008, we completed the sale of our 60% ownership interest in Primus Finance and Leasing, Inc. (“Primus Philippines”), our operation in the Philippines that offers automotive retail and wholesale financing of Ford and Mazda vehicles. We also completed the sale of our 40% ownership in PFL Holdings, Inc., a holding company in the Philippines that owns the remaining 40% ownership interest in Primus Philippines. As a result of the sale, we recognized a pre-tax gain of approximately $5 million, net of transaction costs and including $1 million of foreign currency translation adjustments, inOther income, net.

AB Volvofinans. During the third quarter of 2007, we sold a majority of our interest in AB Volvofinans, an unconsolidated subsidiary that finances the sale of Volvo and Renault vehicles through Volvo dealers in Sweden. As a result of the transaction, we received $157 million as proceeds from the sale and recognized a pre-tax gain of $51 million reported inOther Income, net.

North America Segment Divestiture

Triad Financial Corporation.In 2005, we completed the sale of Triad Financial Corporation (“Triad”). Triad specialized in automobile retail installment sales contracts with borrowers who generally would not be expected to qualify, based on their credit worthiness, for traditional financing sources such as those provided by commercial banks or automobile manufacturers’ affiliated finance companies primarily through non-Ford dealerships. In 2005, we recognized a $4 million after-tax gain on disposal of discontinued operations. During the second quarter of 2008 and the first nine months of 2008, we received additional proceeds primarily based on better than anticipated securitized portfolio performance, pursuant to a contractual agreement entered into at the closing of the sale, and recognized an additional $8 million after-tax gain and an additional $9 million after-tax gain on disposal of discontinued operations, respectively.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. DIVESTITURES AND OTHER ACTIONS (Continued)

Business Restructuring — Germany

In 2006, FCE Bank plc (“FCE”) announced a plan to restructure its business in Germany that supports the sales activities of automotive financial services of Ford, Jaguar, Land Rover and Mazda vehicles. The plan included the consolidation of branches into district offices; these actions reduced ongoing costs. The costs associated with the business restructuring were charged toOperating expenses. Total estimated charges accrued through September 30, 2008 are $18 million. In the first nine months of 2008, we paid $3 million. The restructuring was completed in 2007.

The table below summarizes the pre-tax charges incurred and the related liability for the periods ended September 30 (in millions):


	Nine Months
	2008			2007
	(Unaudited)
Liability, beginning of period	$	7		$	31
(Released)/Accrued during period		0			(8	)
Paid during period		(3	)		(3	)
Foreign currency translation		0			(1	)

Liability, end of period	$	4		$	19

Business Restructuring — Spain

In 2007, FCE announced a plan to restructure its business in Spain that supports the sales activities of automotive financial services of Ford, Jaguar, Land Rover, Mazda and Volvo vehicles. The plan includes the consolidation of branches; these actions are expected to reduce ongoing costs. The costs associated with the business restructuring are primarily related to employee separations and were charged toOperating expenses. Total estimated charges accrued through September 30, 2008 are $3 million. In the first nine months of 2008, we paid $2 million. The restructuring was completed in July 2008.

Other Restructuring Actions

In the third quarter of 2008, we recognized pre-tax charges of $26 million inOperating expensesfor certain restructuring actions (excluding costs for retirement plan and postretirement health care and life insurance benefits). These restructuring actions are expected to be substantially completed by the end of 2009.

Employee Separation Actions

In 2007, we recognized pre-tax charges of $45 million inOperating expensesfor employee separation actions (excluding costs for retirement plan and postretirement health care and life insurance benefits) announced in 2006 in the United States and in 2007 in non-U.S. locations. In the second quarter of 2008, we released the remaining $2 million of this reserve and no charges were incurred for retirement plan and postretirement health care and life insurance benefits related to these actions. Refer to our 2007 10-K Report for a more detailed description of our employee separation actions.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 10. DIVESTITURES AND OTHER ACTIONS (Continued)

Profit Maintenance Agreement

In the first quarter of 2008, we received a payment of $109 million under the terms of the profit maintenance agreement between Ford and us. The payment was recorded as an increase inCash and cash equivalentsandTotal liabilities. Based on an evaluation of several factors including our present liquidity and leverage ratio, and our forecasted and historical levels of liquidity, leverage, equity, assets, dividends and distributions, and other intercompany obligations, we did not request a payment in the second or third quarter 2008. First nine months of 2008Income/(Loss) before income taxeswas not impacted by these actions.

On November 6, 2008, we and Ford entered into an Amended and Restated Support Agreement (“Support Agreement”) (formerly known as the Amended and Restated Profit Maintenance Agreement). Pursuant to the Support Agreement, if our managed leverage for a calendar quarter were to be higher than 11.5 to 1 (as reported in our then-most recent Form 10-Q Report or Form 10-K Report), we can require Ford to make or cause to be made a capital contribution to us in an amount sufficient to have caused such managed leverage to be 11.5 to 1. A copy of the Support Agreement is filed as Exhibit 10 to this Report.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 11. SEGMENT INFORMATION

We divide our business segments based on geographic regions: the North America Segment (includes operations in the United States and Canada) and the International Segment (includes operations in all other countries). We measure the performance of our segments primarily on an income before income taxes basis, after excluding the impact to earnings from gains and losses related to market valuation adjustments from derivatives primarily related to movements in interest rates. These adjustments are included in Unallocated Risk Management and are excluded in assessing our North America and International segment performance, because our risk management activities are carried out on a centralized basis at the corporate level, with only certain elements allocated to these segments. The North America and International segments are presented on a managed basis. Managed basis includesFinance receivables, netandNet investment in operating leasesreported on our balance sheet, excluding unearned interest supplements related to finance receivables, and receivables we sold in off-balance sheet securitizations and continue to service.

Key operating data for our operating segments for the periods ended September 30 were as follows (in millions):


						Unallocated/Eliminations
												Effect of
	North					Unallocated			Effect of			Unearned
	America		International			Risk			Sales of			Interest
	Segment		Segment			Management			Receivables			Supplements		Total			Total
	(Unaudited)
Third Quarter 2008
Revenue (a)	$	3,460	$	990		$	(24	)	$	6		$	—	$	(18	)	$	4,432
Income
Income/(Loss) before income taxes		114		71			(24	)		—			—		(24	)		161
Provision for /(Benefit from) income taxes		49		25			(8	)		—			—		(8	)		66
Income/(Loss) from continuing operations		65		46	��		(16	)		—			—		(16	)		95
Other disclosures
Depreciation on vehicles subject to operating leases		1,500		73			—			—			—		—			1,573
Interest expense		1,260		654			—			(26	)		—		(26	)		1,888
Provision for credit losses		346		31			—			—			—		—			377

Third Quarter 2007
Revenue (a)	$	3,818	$	978		$	205		$	(73	)	$	—	$	132		$	4,928
Income
Income/(Loss) before income taxes		219		122			205			—			—		205			546
Provision for/(Benefit from) income taxes		98		42			72			—			—		72			212
Income/(Loss) from continuing operations		121		80			133			—			—		133			334
Other disclosures
Depreciation on vehicles subject to operating leases		1,516		80			—			—			—		—			1,596
Interest expense		1,654		586			—			(91	)		—		(91	)		2,149
Provision for credit losses		137		36			—			—			—		—			173


(a)		Total Revenue representsTotal financing revenue, Investment and other income related to sales of receivables, Insurance premiums earned, netandOther income, net.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 11. SEGMENT INFORMATION (Continued)


						Unallocated/Eliminations
												Effect of
	North					Unallocated			Effect of			Unearned
	America			International		Risk			Sales of			Interest
	Segment			Segment		Management			Receivables			Supplements			Total			Total
	(Unaudited)
First Nine Months 2008
Revenue (a)	$	10,655		$	3,166	$	(174	)	$	(76	)	$	—		$	(250	)	$	13,571
Income
Income/(Loss) before income taxes		(2,454	)		441		(174	)		—			—			(174	)		(2,187	)
Provision for /(Benefit from) income taxes		(964	)		155		(61	)		—			—			(61	)		(870	)
Income/(Loss) from continuing operations		(1,490	)		286		(113	)		—			—			(113	)		(1,317	)
Other disclosures
Depreciation on vehicles subject to operating leases		7,258			219		—			—			—			—			7,477
Interest expense		3,983			1,934		—			(136	)		—			(136	)		5,781
Provision for credit losses		1,136			113		—			—			—			—			1,249
Finance receivables and net investment in operating leases		93,392			36,300		—			(1,105	)		(1,271	)		(2,376	)		127,316
Total assets		116,051			41,476		—			(951	)		(1,271	)		(2,222	)		155,305

First Nine Months 2007
Revenue (a)	$	11,325		$	2,880	$	(148	)	$	(294	)	$	—		$	(442	)	$	13,763
Income
Income/(Loss) before income taxes		651			449		(148	)		—			—			(148	)		952
Provision for/(Benefit from) income taxes		258			157		(52	)		—			—			(52	)		363
Income/(Loss) from continuing operations		393			292		(96	)		—			—			(96	)		589
Other disclosures
Depreciation on vehicles subject to operating leases		4,288			233		—			—			—			—			4,521
Interest expense		5,099			1,687		—			(322	)		—			(322	)		6,464
Provision for credit losses		234			67		—			—			—			—			301
Finance receivables and net investment in operating leases		108,383			40,061		1			(7,613	)		—			(7,612	)		140,832
Total assets		123,700			45,397		1			(6,853	)		—			(6,852	)		162,245


(a)		Total Revenue representsTotal financing revenue, Investment and other income related to sales of receivables, Insurance premiums earned, netandOther income, net.

Item 1. Financial Statements (Continued)

FORD MOTOR CREDIT COMPANY LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS (Continued)

NOTE 12. GUARANTEES AND INDEMNIFICATIONS

The fair values of guarantees and indemnifications issued are recorded in the financial statements and are not material. At September 30, 2008, the following guarantees and indemnifications were issued and outstanding:

Guarantees of certain obligations of unconsolidated affiliates and other affiliates. In some cases, we have guaranteed debt and other financial obligations of unconsolidated affiliates, including joint ventures and Ford. Expiration dates vary, and guarantees will terminate on payment and/or cancellation of the obligation. A payment would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from Ford or an affiliate of Ford amounts paid by us under the guarantee. However, our ability to enforce these rights is sometimes stayed until the guaranteed party is paid in full. The maximum potential payments under these guarantees totaled approximately $328 million; of this amount, $118 million was counter-guaranteed by Ford to us. No losses have been recorded for these guarantees.

FCE has also guaranteed obligations of Ford in Romania of which the maximum potential payment of $355 million has been fully collateralized by cash received from Ford Motor Company Limited, a Ford U.K. subsidiary, and is recorded asDebt. The expiration date of the guarantee is August 2009 and could terminate on payment and/or cancellation of the obligation by Ford. A payment to the guaranteed party would be triggered by failure of Ford to fulfill its obligation covered by the guarantee.

Guarantees of obligations to Ford. We have guaranteed $113 million of third-party obligations payable to Ford Brazil. Payment would be triggered in the event of an unfavorable ruling in a certain lawsuit and the failure of the third-parties to repay Ford the obligated amounts. The guarantee will terminate upon the repayment or cancellation of the obligations.

Indemnifications. In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax and shareholder matters; intellectual property rights; governmental regulations and employment-related matters; other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have accrued for expected losses that are probable. We are party to numerous indemnifications and many of these indemnities do not limit potential payment; therefore, we are unable to estimate a maximum amount of potential future payments that could result from claims made under these indemnities.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Consistent with the overall market, we have been impacted by volatility and disruptions in the asset-backed securities markets since August 2007. We now face the increased challenges of the global credit crisis, including reduced access to public and private securitization markets and a significant increase in the credit spreads associated with both asset-backed and unsecured funding. Since September 2008, consistent with the overall market, we have experienced further reductions in demand for the commercial paper issued from our FCAR Owner Trust retail securitization program (“FCAR”), and a greater percentage of such issuance has been on an overnight basis. In September 2008, we decided to reduce the assets of the FCAR program by $2.5 billion which lowered our outstanding FCAR asset-backed commercial paper, and on September 30, 2008 we held $1.1 billion of FCAR asset-backed commercial paper. We were able to fund the reduction of the FCAR assets and, in the second half of September 2008, overnight purchases of FCAR commercial paper by utilizing a portion of our other asset-backed liquidity programs. As a result, compared with the second quarter of 2008, our available capacity has become more heavily weighted in FCAR rather than in bank-sponsored asset-back commercial paper conduits (“conduits”). For our committed capacity renewals in the third quarter of 2008, we had a renewal rate of 73%, down from a first half 2008 renewal rate of 90%. The renewals also required significantly higher spreads.

Despite these challenges, we have increased our liquidity available for use, as defined in the “Liquidity” section of Item 2, from $23.0 billion at June 30, 2008 to $24.8 billion at September 30, 2008. This increase is primarily the result of a reduction in our managed receivables balance from $140 billion to $130 billion. In addition to the $24.8 billion of liquidity available for use, we continue to carry committed capacity in excess of available assets of $5.5 billion that provides us with an alternative to uncommitted sources for funding future purchases. In addition to our traditional liquidity sources, we registered to sell up to $16 billion of asset-backed commercial paper to the U.S. Federal Reserve’s Commercial Paper Funding Facility (“CPFF”). Each sale under the CPFF is for a term of 90 days and sales can be made through April 30, 2009. Through October 31, 2008, we sold to the CPFF about 25% of the total amount of asset-backed commercial paper we are registered to sell under the program. In addition, FCE Bank plc (“FCE”) has accessed short-term European Central Bank (“ECB”) funding under its open market operations program, the obligations of which are backed by either notes or receivables.

To further support our liquidity, we continue to implement asset-related actions while continuing to provide dealer and consumer financing programs focused on supporting the sale of Ford, Lincoln, Mercury, and Volvo vehicles. These actions include: the transition of Jaguar, Land Rover and Mazda originations to other finance sources; divestitures; and alternative business and funding arrangements.

The recent reduction in auction values for used full-size trucks and traditional sport utility vehicles, together with the present credit market conditions, have made leasing vehicles less economical than in the past. As a result, we have reduced our lease originations while still offering leasing to consumers. In the United States and Canada, we continue to focus on retail installment sale financing.

We also continue to apply consistent underwriting and originations, and sound servicing practices. However, a continued weakening U.S. economy has contributed to higher charge-offs in our consumer portfolio. This increase primarily reflects both higher severities and repossessions. While our charge-offs are higher, the third quarter 2008 charge-offs are well below our historical peak in 2002.

We recognize that, among other things, lower industry sales could have a significant adverse effect on dealer profitability and creditworthiness. Dealers are required to submit monthly financial statements that we monitor for potential credit deterioration, which allows us to quickly take risk mitigation actions as necessary.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Results of Operations

Third Quarter 2008 Compared with Third Quarter 2007

In the third quarter of 2008, our net income was $95 million, down $239 million compared with a year ago. On a pre-tax basis, we earned $161 million in the third quarter of 2008, down $385 million compared with a year ago. The decrease in pre-tax earnings primarily reflected:

	•		The non-recurrence of net gains related to market valuation adjustments to derivatives (about $200 million);

	•		A higher provision for credit losses (about $200 million);

	•		Lower volume primarily related to lower average receivables (about $100 million); and

	•		The non-recurrence of the gain related to the sale of a majority of our interest in AB Volvofinans (about $100 million).

These factors were offset partially by:

	•		Higher financing margin primarily attributable to lower borrowing costs (about $100 million); and

	•		Lower expenses including improved operating costs (about $100 million).

In the third quarter of 2008, pre-tax earnings included net losses of $24 million related to market valuation adjustments to derivatives (unallocated risk management in the table below). In the third quarter of 2007, pre-tax earnings included net gains of $205 million related to market valuation adjustments to derivatives.

Results of our operations by business segment and unallocated risk management for the third quarter of 2008 and 2007 are shown below:


	Third Quarter
						2008
						Over/(Under)
	2008			2007		2007
	(in millions)
Income/(Loss) before income taxes
North America Segment	$	114		$	219	$	(105	)
International Segment		71			122		(51	)
Unallocated risk management		(24	)		205		(229	)

Income/(Loss) before income taxes		161			546		(385	)
Provision for/(Benefit from) income taxes, Minority interests in net income of subsidiaries, and Gain on disposal of discontinued operations		66			212		(146	)

Net income/(loss)	$	95		$	334	$	(239	)

The decrease in North America Segment pre-tax earnings primarily reflected a higher provision for credit losses and lower volume. These factors were offset partially by higher financing margin and lower operating costs.

The decrease in International Segment pre-tax earnings primarily reflected the non-recurrence of the gain related to the sale of a majority of our interest in AB Volvofinans, offset partially by a lower provision for credit losses and favorable currency exchange rates.

The change in unallocated risk management reflected the non-recurrence of net gains related to market valuation adjustments to derivatives primarily related to movements in interest rates. For additional information on our unallocated risk management, refer to Note 11 of our Notes to the Financial Statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

First Nine Months 2008 Compared with First Nine Months 2007

In the first nine months of 2008, our net loss was $1.3 billion, compared with $589 million net income a year ago. On a pre-tax basis, we incurred a loss of $2.2 billion in the first nine months of 2008, compared with earnings of $952 million a year ago. The decrease in pre-tax earnings primarily reflected the significant decline in used vehicle auction values during the second quarter of 2008. This decline in auction values contributed to:

	•		An impairment charge to our North America Segment operating lease portfolio for contracts terminating beginning third quarter of 2008 (about $2.1 billion). Refer to Note 3 of our Notes to the Financial Statements and the “Results of Operations — Impairment of Net Investment in Operating Leases” section of Item 2 of our Quarterly Report on Form 10-Q for the period ended June 30, 2008;

	•		A higher provision for credit losses (about $900 million); and

	•		Higher depreciation expense for leased vehicles (about $600 million).

Other factors to explain the decrease in pre-tax earnings included:

	•		Lower volume primarily related to lower average receivables (about $100 million); and

	•		The non-recurrence of the gain related to the sale of a majority of our interest in AB Volvofinans (about $100 million).

These factors were offset partially by:

	•		Higher financing margin primarily attributable to lower borrowing costs (about $300 million);

	•		The non-recurrence of costs associated with our North American business transformation initiative (about $200 million);

	•		Lower expenses primarily reflecting improved operating costs (about $100 million); and

	•		A gain related to the sale of approximately half of our ownership interest in our Nordic operations (about $100 million).

In the first nine months of 2008 and 2007, pre-tax earnings included net losses related to market valuation adjustments to derivatives (unallocated risk management in the table below) of $174 million and $148 million, respectively.

Results of our operations by business segment and unallocated risk management for the first nine months of 2008 and 2007 are shown below:


	First Nine Months
							2008
							Over/(Under)
	2008			2007			2007
	(in millions)
Income/(Loss) before income taxes
North America Segment	$	(2,454	)	$	651		$	(3,105	)
International Segment		441			449			(8	)
Unallocated risk management		(174	)		(148	)		(26	)

Income/(Loss) before income taxes		(2,187	)		952			(3,139	)
Provision for/(Benefit from) income taxes, Minority interests in net income of subsidiaries, and Gain on disposal of discontinued operations		(879	)		363			(1,242	)

Net income/(loss)	$	(1,308	)	$	589		$	(1,897	)

The decrease in North America Segment pre-tax earnings primarily reflected the second quarter 2008 impairment charge for operating leases, a higher provision for credit losses, higher depreciation expense for leased vehicles, and lower contract volume. These factors were offset partially by higher financing margin, the non-recurrence of costs associated with our business transformation initiative, and lower expenses primarily reflecting improved operating costs.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The decrease in International Segment pre-tax earnings primarily reflected the non-recurrence of a gain related to the sale of a majority of our interest in AB Volvofinans, lower financing margin, a higher provision for credit losses and lower volume, offset partially by gains related to the sale of the majority of our ownership interests in several operations and favorable currency exchange rates.

The change in unallocated risk management reflected higher net losses related to market valuation adjustments to derivatives primarily related to movements in interest rates.

Placement Volume and Financing Share

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


	Third Quarter				First Nine Months
	2008		2007		2008		2007
	(in thousands)
North America Segment
United States		277		349		864		1,008
Canada		43		54		122		148

Total North America Segment		320		403		986		1,156

International Segment
Europe		149		170		504		541
Other international		27		53		105		159

Total International Segment		176		223		609		700


Total contract placement volume		496		626		1,595		1,856

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


	Third Quarter						First Nine Months
	2008			2007			2008			2007
United States
Financing share — Ford, Lincoln and Mercury
Retail installment and lease		46	%		45	%		40	%		39	%
Wholesale		77			79			77			79

Europe
Financing share — Ford
Retail installment and lease		31	%		26	%		28	%		26	%
Wholesale		98			95			98			96

North America Segment

In the third quarter of 2008, our total placement volumes were 320,000 contracts, down 83,000 from a year ago. This decrease primarily reflected lower sales of new Ford, Lincoln and Mercury vehicles, due primarily to lower U.S. industry volumes and lower Ford market share.

In the first nine months of 2008, our total placement volumes were 986,000 contracts, down 170,000 from a year ago, reflecting the causal factors described above.

International Segment

In the third quarter of 2008, our total contract placement volumes were 176,000, down 47,000 contracts from a year ago. This decrease primarily reflected the divestiture of our Japanese operation and the sale of approximately half of our ownership interest in our Nordic operations. Lower volumes in Spain and Mexico also contributed to the decrease in contract placement volumes. The increase in retail installment and lease financing share for Europe primarily reflected Ford’s marketing programs in Germany that emphasized the use of financing through us.

In the first nine months of 2008, our total International contract placement volumes were 609,000, down 91,000 contracts from a year ago. This decrease primarily reflected the divestiture of our Japanese operation, and lower volumes in Germany, Mexico, and Spain.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Financial Condition

Finance Receivables and Operating Leases

Our receivable levels are shown below:


	September 30,			December 31,
	2008			2007
	(in billions)
Receivables
On-Balance Sheet
Finance receivables
North America Segment
Retail installment	$	52.1		$	52.2
Wholesale		14.6			18.6
Other		2.3			2.6

Total North America Segment — finance receivables		69.0			73.4
International Segment
Retail installment		18.9			22.0
Wholesale		16.1			16.2
Other		0.7			0.8

Total International Segment — finance receivables		35.7			39.0
Unearned interest supplements		(1.3	)		—
Allowance for credit losses		(1.3	)		(1.0	)

Finance receivables, net		102.1			111.4
Net investment in operating leases		25.2			29.7

Total on-balance sheet (a)(b)	$	127.3		$	141.1


Securitized Off-Balance Sheet — Retail
North America Segment	$	0.8		$	5.0
International Segment		0.3			1.0

Total securitized off-balance sheet — retail	$	1.1		$	6.0


Managed
Finance receivables
North America Segment
Retail installment	$	52.9		$	57.2
Wholesale		14.6			18.6
Other		2.3			2.6

Total North America Segment — finance receivables		69.8			78.4
International Segment
Retail installment		19.2			23.0
Wholesale		16.1			16.2
Other		0.7			0.8

Total International Segment — finance receivables		36.0			40.0
Allowance for credit losses		(1.3	)		(1.0	)

Managed finance receivables, net		104.5			117.4
Net investment in operating leases		25.2			29.7

Total managed (c)	$	129.7		$	147.1


Serviced	$	130.1		$	148.0


(a)		At September 30, 2008 and December 31, 2007, includes finance receivables of $72.0 billion and $67.2 billion, respectively, that have been sold for legal purposes in securitizations that do not satisfy the requirements for accounting sale treatment. In addition, at September 30, 2008 and December 31, 2007, includes net investment in operating leases of $12.4 billion and $18.9 billion, respectively, that have been included in securitizations that do not satisfy the requirements for accounting sale treatment. These underlying securitized assets are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors until the associated debt or other obligations are satisfied. For additional information on our securitizations, refer to the “Funding” section of Item 2.

(b)		Includes allowance for credit losses of $1.5 billion and $1.1 billion at September 30, 2008 and December 31, 2007, respectively.

(c)		Excludes unearned interest supplements related to finance receivables.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Managed receivables decreased from year-end 2007, more than explained by lower North America receivables, the impact of divestitures and alternative business arrangements, changes in currency exchange rates, and the second quarter 2008 impairment charge for North America Segment operating leases.

As of January 1, 2008, Ford began paying interest supplements and residual value support to us at the time we purchase eligible contracts from dealers. At September 30, 2008, our unearned interest supplements for finance receivables were $1.3 billion included inFinance receivables, net and our unearned interest supplements and residual support payments for net investment in operating leases were $1.3 billion included inOther liabilities and deferred income.

At September 30, 2008, in the United States and Canada, Ford is obligated to pay us $3.1 billion of interest supplements (including supplements related to sold receivables) and about $550 million of residual value support payments over the terms of the related finance contracts and operating leases, compared with $5.4 billion of interest supplements and about $900 million of residual value support at December 31, 2007, in each case for contracts purchased prior to January 1, 2008. The interest supplements and residual value support payment obligations on these contracts will continue to decline as the contracts liquidate. For additional information on our finance receivables and net investment in operating leases, refer to Notes 1, 2, and 3 of our Notes to the Financial Statements.

Credit Risk

Credit risk is the possibility of loss from a customer’s or dealer’s failure to make payments according to contract terms. Credit risk has a significant impact on our business. We actively manage the credit risk of our retail installment and lease and wholesale and dealer loan portfolios to balance our level of risk and return. The allowance for credit losses reflected on our balance sheet is our estimate of the probable credit losses inherent in receivables and leases at the date of our balance sheet. Consistent with our normal practices and policies, we assess the adequacy of our allowance for credit losses quarterly and regularly evaluate the assumptions and models used in establishing the allowance.

In purchasing retail finance and lease contracts, we use a proprietary scoring system that classifies contracts using several factors, such as credit bureau information, FICO score, customer characteristics, and contract characteristics. In addition to our proprietary scoring system, we consider other factors in the lending process, such as employment history, income, and capacity to pay. As of September 30, 2008, about 4% of the outstanding U.S. retail finance and lease contracts in our serviced portfolio were classified as high risk at contract inception, about the same as year-end 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Credit Loss Metrics

Worldwide

The following table shows worldwide charge-offs (credit losses, net of recoveries), for the various categories of financing during the periods indicated. The loss-to-receivables ratios, which equal charge-offs on an annualized basis divided by the average amount of receivables outstanding for the period, excluding the allowance for credit losses and unearned interest supplements related to finance receivables, are shown below for our on-balance sheet and managed portfolios.


	Third Quarter						First Nine Months
	2008			2007			2008			2007
	(in millions)
Charge-offs
On-Balance Sheet
Retail installment and lease	$	299		$	170		$	757		$	388
Wholesale		(3	)		13			10			25
Other		—			1			4			3

Total on-balance sheet	$	296		$	184		$	771		$	416


Securitized Off-Balance Sheet
Retail installment and lease	$	7		$	16		$	29		$	48
Wholesale		—			—			—			—
Other		—			—			—			—

Total securitized off-balance sheet	$	7		$	16		$	29		$	48


Managed
Retail installment and lease	$	306		$	186		$	786		$	436
Wholesale		(3	)		13			10			25
Other		—			1			4			3

Total managed	$	303		$	200		$	800		$	464


Loss-to-Receivables Ratios
On-Balance Sheet
Retail installment and lease		1.22	%		0.66	%		1.00	%		0.52	%
Wholesale		(0.04	)		0.16			0.04			0.10
Total including other		0.89	%		0.53	%		0.74	%		0.40	%

Managed
Retail installment and lease		1.22	%		0.67	%		1.00	%		0.53	%
Wholesale		(0.04	)		0.16			0.04			0.10
Total including other		0.89	%		0.54	%		0.75	%		0.42	%

Most of our charge-offs are related to retail installment sale and lease contracts. Charge-offs depend on the number of vehicle repossessions, the unpaid balance outstanding at the time of repossession, the auction price of repossessed vehicles and other losses associated with impaired 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 retail installment sale and lease contracts.

Charge-offs and loss-to-receivables ratios for our on-balance sheet and managed retail installment and lease portfolios increased from a year ago. These increases, principally in the U.S. retail installment and lease portfolio, primarily reflected higher severity and higher repossessions. The higher severity is mainly due to the overall auction value deterioration in the used vehicle market, an increase in the amount financed, and a higher mix of 72-month contracts. Wholesale loan charge-offs decreased from a year ago, primarily reflecting non-recurrence of charge-offs and higher recoveries in the third quarter of 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

U.S. Ford, Lincoln and Mercury Brand Retail Installment and Operating Lease

The following table shows the credit loss metrics for our Ford, Lincoln and Mercury brand U.S. retail installment sale and operating lease portfolio. This portfolio was approximately 60% of our worldwide managed portfolio of retail installment receivables and net investment in operating leases at September 30, 2008. In the third quarter of 2008, on-balance sheet charge-offs were higher compared to the same period a year ago primarily due to higher severity and higher repossessions in the retail and lease portfolio. Severity was higher by $2,700 per unit, mainly due to the overall auction value deterioration in the used vehicle market, along with an increase in amount financed, and a higher mix of 72-month contracts for vehicles repossessed in our portfolio.


	Third Quarter						First Nine Months
	2008			2007			2008			2007
On-Balance Sheet
Charge-offs (in millions)	$	216		$	118		$	531		$	262
Loss-to-receivables ratios		1.53	%		0.79	%		1.23	%		0.60	%

Managed
Charge-offs (in millions)	$	221		$	129		$	553		$	292
Loss-to-receivables ratios		1.52	%		0.78	%		1.23	%		0.60	%

Other Metrics — Serviced
Repossessions (in thousands)		21			19			59			54
Repossession ratios (a)		2.40	%		1.95	%		2.20	%		1.82	%
Severity (average loss per repossession)	$	10,200		$	7,500		$	9,600		$	7,000
New bankruptcy filings (in thousands)		10			7			27			20
Over-60 day delinquency ratio (b)		0.25	%		0.22	%		0.22	%		0.18	%


(a)		Repossessions as a percent of the average number of accounts outstanding during the periods.

(b)		Delinquencies are expressed as a percent of the accounts outstanding for non-bankrupt accounts.

Allowance for Credit Losses

Our allowance for credit losses and our allowance for credit losses as a percentage of end-of-period receivables (finance receivables, excluding unearned interest supplements, and net investment in operating leases, excluding the allowance for credit losses) for our on-balance sheet portfolio are shown below. A description of our allowance setting process is provided in the ''Critical Accounting Estimates — Allowance for Credit Losses’’ section of Item 7 of Part II of our 2007 10-K Report.


	September 30,			December 31,
	2008			2007
	(in millions)
Allowance for Credit Losses
Retail installment and lease	$	1,479		$	1,026
Wholesale		51			58
Other		17			6

Total allowance for credit losses	$	1,547		$	1,090


As a Percentage of End-of-Period Receivables
Retail installment and lease		1.53	%		0.99	%
Wholesale		0.16			0.17
Total including other		1.19	%		0.77	%

At September 30, 2008, our allowance for credit losses includes about $150 million to reflect higher severities consistent with our second quarter 2008 updated assumptions. The increase in allowance for credit losses is consistent with the increase in charge-offs. The allowance for credit losses is primarily a function of portfolio quality, historical loss performance, and receivable levels.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Residual Risk

We are exposed to residual risk on operating leases and similar balloon payment products where the customer may return the financed vehicle to us. Residual risk is the possibility that the amount we obtain from returned vehicles will be less than our estimate of the expected residual value for the vehicle. We estimate the expected residual value by evaluating recent auction values, return volumes for our leased vehicles, industry-wide used vehicle prices, marketing incentive plans, and vehicle quality data. For additional information on our residual risk on operating leases, refer to the “Critical Accounting Estimates — Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2007 10-K Report.

North America Retail Operating Lease Experience

We use various statistics to monitor our residual risk:

	•		Placement volume measures the number of leases we purchase in a given period;

	•		Termination volume measures the number of vehicles for which the lease has ended in the given period; and

	•		Return volume reflects the number of vehicles returned to us by customers at lease-end.

The following table shows operating lease placement, termination, and return volumes for our North America Segment, which accounted for about 97% of our total investment in operating leases at September 30, 2008:


	Third Quarter						First Nine Months
	2008			2007			2008			2007
	(in thousands)
Placements		68			127			287			376
Terminations		97			98			301			297
Returns		84			78			257			235

Memo:
Return rates		86	%		80	%		85	%		79	%

In the third quarter of 2008, placement volumes were down 59,000 units compared with the same period a year ago, primarily reflecting lower industry volumes, lower Ford market share, and changes in Ford’s marketing programs which emphasized retail installment sale contracts. The higher return volumes and rates are consistent with a decrease in auction values relative to our expectations at the time of contract purchase and a shift in consumer preferences from full-size trucks and traditional sport utility vehicles.

In the first nine months of 2008, placement volumes were down 89,000 units compared with the same period a year ago, consistent with the causal factors described above. Return volumes increased 22,000 units compared with the same period a year ago, consistent with the causal factors described above.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

U.S. Ford, Lincoln and Mercury Brand Retail Operating Lease Experience

The following table shows return volumes for our Ford, Lincoln and Mercury brand U.S. operating lease portfolio. Also included are auction values at constant third quarter 2008 vehicle mix for lease terms comprising about 70% of our active Ford, Lincoln and Mercury brand U.S. operating lease portfolio:


	Third Quarter						First Nine Months
	2008			2007			2008			2007
	(in thousands)
Returns
24-Month term		18			18			71			65
36-Month term		15			16			43			46
39-Month/Other term		6			9			16			28

Total returns		39			43			130			139


Memo:
Return rates		88	%		83	%		87	%		83	%

Auction Values at Constant Third Quarter 2008 Vehicle Mix
24-Month term	$	14,715		$	16,995		$	15,085		$	17,075
36-Month term		13,005			14,855			13,175			15,115

In the third quarter of 2008, Ford, Lincoln and Mercury brand U.S. return volumes were down 4,000 units compared with the same period a year ago. However, the return rate increased to 88%, consistent with a decrease in auction values compared to our expectations of lease-end values at the time of contract purchase, and reflecting a shift in consumer preferences from full-size trucks and traditional sport utility vehicles. Auction values at constant third quarter 2008 mix for vehicles under 24-month and 36-month leases were down $2,280 per unit and $1,850 per unit, respectively, from year ago levels, primarily reflecting the overall auction value deterioration in the used vehicle market. Auction values, at constant third quarter 2008 mix, improved compared with the second quarter of 2008 for vehicles under 24-month and 36-month leases by $240 per unit and $190 per unit, respectively.

In the first nine months of 2008, trends and causal factors compared with the same period a year ago were consistent with those described above.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Credit Ratings

Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the Securities and Exchange Commission (“SEC”):

	•		DBRS 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, Inc. (“S&P”).

For the ratings assigned to us, in October 2008, Fitch lowered the long-term senior unsecured rating to B- from B+, the short-term rating to C from B, and the issuer default rating to CCC from B-. Also in October 2008, S&P placed the ratings assigned to us on CreditWatch with negative implications, and Moody’s lowered the long-term senior unsecured rating to B2 from B1. Moody’s also placed the rating on review for further possible downgrade. The following chart summarizes certain of the credit ratings and the outlook presently assigned to us by these four NRSROs:

NRSRO DEBT RATINGS

DBRS

Fitch

Moody’s

S&P

Long-

Short-

Long-

Short-

Long-

Short-

Long-

Short-

Term

Trend

Term

Outlook

Term

Outlook

Term

Outlook

Jan. 2008

R-4

Stable

BB-

Negative

Stable

B-3

Stable

June 2008

R-4

Review Negative

BB-

Negative

B-3

Watch Negative

July 2008

R-4

Review Negative

BB-

Negative

B-*

Negative

Aug. 2008

R-4

Review Negative

B+

Negative

B-*

Negative

Oct. 2008

R-4

Negative

B-

Negative

Review Negative

B-*

Watch Negative


*		S&P assigns FCE a long-term senior unsecured rating of B, maintaining a one notch differential versus Ford Credit.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Funding

Our funding strategy is to maintain liquidity to meet short-term funding obligations by having a substantial cash balance and committed funding capacity. As a result of lower credit ratings over the past few years, our unsecured funding costs have increased over time. While we continue to access the unsecured debt market when it makes sense to do so, we have increased our use of securitization funding as it has been more cost effective than unsecured funding and has allowed us access to a broad investor base. We plan to meet a significant portion of our 2008 funding requirements through securitizations, and to continue to diversify our asset-backed funding by asset class and region. Our securitization transactions continue to perform within expectations. No transactions have been downgraded, and year-to-date, rating agencies have affirmed certain ratings of our rated U.S. lease and wholesale securitizations, and have upgraded some of our rated U.S. retail securitizations. In addition, we have various alternative business arrangements for select products and markets that reduce our funding requirements while allowing us to support Ford (e.g., our partnering in Brazil for retail financing and FCE’s partnering with various institutions in Europe for full service leasing and retail and wholesale financing). We are continuing to explore and execute such alternative business arrangements.

Consistent with the overall market, we have been impacted by volatility and disruptions in the asset-backed securities markets since August 2007. We now face the challenges of the global credit crisis, including higher credit spreads and associated funding costs, higher renewal costs on our committed liquidity programs, higher enhancements resulting in reduced net proceeds from securitizations, and, in certain circumstances, shorter maturities in our public and private securitization issuances. Given present market conditions, we do not expect a significant near-term reduction in our credit spreads or the cost of renewing our committed liquidity programs. About 11% of our committed capacity is up for renewal in the fourth quarter of 2008. Given the nature of many of our asset-backed committed facilities, we have the ability to obtain term funding up to the time that the facilities mature. Any outstanding debt at the maturity of the facilities remains outstanding through the term of the underlying assets. Our ability to obtain funding under our committed asset-backed liquidity programs is subject to having a sufficient amount of assets eligible for these programs as well as our ability to obtain derivatives to manage the interest rate risk. For additional information on our committed capacity programs, refer to the “Liquidity” section of Item 2.

Our funding plan is subject to risks and uncertainties, many of which are beyond our control. If auction values for used vehicles weaken further or there is continued disruption in the market capacity for the types of asset-backed securities used in our asset-backed funding, there will be increased risk to our funding plan. As a result, we may need to further reduce the amount of finance receivables and operating leases we purchase or originate; this reduction could reduce our ongoing profits and adversely affect our ability to support the sale of Ford vehicles.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Funding Portfolio

Our outstanding debt and off-balance sheet securitizations were as follows on the dates indicated:


	September 30,			December 31,
	2008			2007
	(in billions)
Debt
Asset-backed commercial paper*	$	9.8		$	13.5
Other asset-backed short-term debt*		6.7			6.2
Ford Interest Advantage		3.7			5.4
Unsecured commercial paper		0.3			0.5
Other short-term debt		2.0			1.5

Total short-term debt		22.5			27.1
Unsecured long-term debt (including notes payable within one year)		54.3			62.8
Asset-backed long-term debt (including notes payable within one year)*		52.3			49.5

Total debt		129.1			139.4

Off-Balance Sheet Securitizations
Securitized off-balance sheet portfolio		1.1			6.0
Retained interest		(0.2	)		(0.7	)

Total securitized off-balance sheet funding		0.9			5.3


Total debt plus securitized off-balance sheet funding	$	130.0		$	144.7

Ratios
Credit lines to total unsecured commercial paper		>100	%		>100	%
Securitized funding to managed receivables		54			51
Short-term debt and notes payable within one year to total debt		45			43
Short-term debt and notes payable within one year to total capitalization		41			39


*		Obligations issued in securitizations that are payable only out of collections on the underlying securitized assets and related enhancements.

Since June 30, 2008, we have experienced a steady reduction in the balance of Ford Interest Advantage (“FIA”), our unsecured demand notes program. At September 30, 2008, the FIA balance was $3.7 billion and at October 31, 2008, the balance was $2.5 billion.

At September 30, 2008, unsecured long-term debt (including notes payable within one year) was down about $8 billion from year-end 2007, primarily reflecting about $11 billion of debt maturities. These maturities were offset partially by public and private unsecured debt issuances of about $3 billion. Unsecured long-term debt maturities are as follows: fourth quarter of 2008 — $2 billion; 2009 — $17 billion; 2010 — $9 billion; 2011 — $12 billion; and the remainder thereafter. On October 15, 2008, holders of $2 billion of debt with an original maturity date of 2012 exercised their option to sell (put) the bonds back to us and receive full payment of their principal in April 2009. These bonds are reflected in the 2009 maturities.

At September 30, 2008, asset-backed long-term debt (including notes payable within one year) was up about $3 billion from year-end 2007, reflecting asset-backed long-term debt issuances in excess of amortization of asset-backed debt. Securitized off-balance sheet funding was down about $4 billion from year-end 2007, reflecting the amortization of previous securitizations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The following table shows worldwide receivables and related debt by segment and product for our on-balance sheet securitizations:


	September 30, 2008				December 31, 2007
			Related				Related
	Receivables		Debt		Receivables		Debt
	(in billions)
On-Balance Sheet Securitizations (a)
Finance Receivables
North America Segment
Retail installment	$	40.2	$	32.9	$	32.1	$	28.1
Wholesale (b)		13.8		11.5		16.7		11.7

Total North America Segment — finance receivables		54.0		44.4		48.8		39.8
International Segment
Retail installment		8.0		6.9		9.6		8.8
Wholesale (b)		10.0		6.8		8.8		6.3

Total International Segment — finance receivables		18.0		13.7		18.4		15.1

Total finance receivables		72.0		58.1		67.2		54.9
Net investment in operating leases		12.4		10.7		18.9		14.3

Total on-balance sheet arrangements	$	84.4	$	68.8	$	86.1	$	69.2


(a)		Most of our securitization programs do not satisfy the requirements for accounting sale treatment and, therefore, the securitized assets and associated debt are included in our financial statements. Securitized assets are only available to repay the related asset-backed debt and to pay other securitization investors and other participants. These underlying securitized assets are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay our other obligations or the claims of our other creditors until the associated debt or other obligations are satisfied.

(b)		The amount of our participation interest fluctuates based on the outstanding receivable and debt levels of the respective trusts.

Term Funding Plan

The following table shows our public and private term funding issuances in 2007 and through October 31, 2008, and our planned issuances for full year 2008:


	2008
	Full Year		Through		2007
	Forecast		October 31,		Actual
	(in billions)
Public Term Funding
Unsecured	$	2	$	2	$	6
Securitizations (a)		10 – 13		10		6

Total public term funding	$	12 – 15	$	12	$	12


Private Term Funding(b)	$	23 – 26	$	23	$	28


(a)		Reflects new issuance; excludes whole-loan sales and other structured financings.

(b)		Includes private term debt, securitizations, whole-loan sales, and other structured financings; excludes sales to Ford Credit’s on-balance sheet asset-backed commercial paper programs.

Through October 31, 2008, we completed about $12 billion of public term funding transactions, including: about $2 billion of unsecured long-term debt in the United States and Europe; about $9 billion of retail asset-backed securitizations in the United States; and the remainder consisting of a retail asset-backed securitization in Germany. We expect our full year 2008 public term funding to be between $12 billion and $15 billion.

Through October 31, 2008, we completed about $23 billion of private term funding transactions (excluding our on-balance sheet asset-backed commercial paper program) in several markets. These private transactions included retail, wholesale, and lease asset-backed securitizations, and unsecured term debt.

Through October 31, 2008, we completed about $35 billion of public and private term funding, which is about 90% of our full year plan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Liquidity

We define liquidity as cash, cash equivalents, and marketable securities (excluding marketable securities related to insurance activities) and capacity (which includes capacity in our committed liquidity programs, FCAR program and credit facilities), less asset-backed capacity in excess of eligible receivables and cash required to support on-balance sheet securitizations. We maintain multiple sources of liquidity, including committed asset-backed funding capacity beyond our present needs.


	September 30,			December 31,
	2008			2007
	(in billions)

Cash, cash equivalents, and marketable securities *	$	19.1		$	16.7

Committed liquidity programs	$	32.6		$	36.8
Asset-backed commercial paper (“FCAR”)		16.4			16.9
Credit facilities		2.4			3.0

Committed capacity	$	51.4		$	56.7

Committed capacity and cash	$	70.5		$	73.4
Less: Capacity in excess of eligible receivables		(5.5	)		(4.7	)
Less: Cash to support on-balance sheet securitizations		(4.7	)		(4.7	)

Liquidity	$	60.3		$	64.0
Less: Utilization		(35.5	)		(36.1	)

Liquidity available for use	$	24.8		$	27.9


*		Excludes marketable securities related to insurance activities.

At September 30, 2008, the capacity of our liquidity sources and cash totaled $70.5 billion, of which $60.3 billion could be utilized (after adjusting for capacity in excess of eligible receivables of $5.5 billion and cash required to support on-balance sheet securitizations of $4.7 billion). At September 30, 2008, $35.5 billion was utilized, leaving $24.8 billion (including $14.4 billion of cash, cash equivalents, and marketable securities and excluding marketable securities related to insurance activities) available for use. In addition to the $24.8 billion of liquidity available for use, the $5.5 billion of capacity in excess of eligible receivables provides us with an alternative to uncommitted sources for funding future purchases or originations and gives us flexibility to efficiently shift capacity to markets and asset classes where it can be used.

Cash, Cash Equivalents and Marketable Securities.At September 30, 2008, our cash, cash equivalents, and marketable securities (excluding marketable securities related to insurance activities) totaled $19.1 billion, compared with $16.7 billion at year-end 2007. In the normal course of our funding activities, we may generate more proceeds than are required for our immediate funding needs. These excess amounts are maintained primarily as highly liquid investments, which provide liquidity for our short-term funding needs and give us flexibility in the use of our other funding programs. Our cash, cash equivalents, and marketable securities (excluding marketable securities related to insurance activities) primarily include federal agency securities, bank time deposits with investment grade institutions, A-1/P-1 (or higher) rated commercial paper, and U.S. Treasury bills. The average maturity of these investments is typically less than 90 days and is adjusted based on market conditions and liquidity needs. We monitor our cash levels and average maturity on a daily basis. Cash balances include amounts to be used only to support our on-balance sheet securitizations of $4.7 billion at September 30, 2008 and December 31, 2007.

Committed Liquidity Programs.We and our subsidiaries, including FCE, have entered into agreements with a number of bank-sponsored conduits and other financial institutions whereby such parties are contractually committed, at our option, to purchase from us eligible retail or wholesale assets or to purchase or make advances under asset-backed securities backed by retail or wholesale assets for proceeds of up to $26.6 billion at September 30, 2008 ($15.0 billion retail and $11.6 billion wholesale) of which $9.8 billion are commitments to FCE. These committed liquidity programs have varying maturity dates, with $18.4 billion having maturities within the next twelve months (of which $3.1 billion relates to FCE commitments), and the balance having maturities between December 2009 and September 2011. As a result of the continued asset-backed securities market volatility that began in August 2007 and significantly worsened in September 2008, there is a risk to the renewal of some of these committed liquidity programs, which could lead to a reduction in the size of these programs and/or higher costs. Our ability to obtain funding under these programs is subject to having a sufficient amount of assets eligible for these programs as well as our ability to obtain derivatives to manage the interest rate risk. At September 30, 2008, $20.8 billion of these commitments were in use. These programs are extremely liquid funding sources as we are able to obtain funding from available capacity generally within two days. These programs are free of material adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding. However, the unused portion of these commitments may be terminated if the performance of the underlying assets deteriorates beyond specified levels. Based on our experience and knowledge as servicer of the related assets, we do not expect any of these programs to be terminated due to such events.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In addition, we have a committed liquidity program for the purchase of up to $6 billion of multiple asset classes, including U.S. lease, dealer, floorplan, and assets that are more difficult to securitize of which $4 billion is committed through 2009. Our ability to obtain funding under this program is subject to having a sufficient amount of assets available to issue the securities as well as our ability to obtain derivatives to manage the interest rate risk. This program is also free of material adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding. At September 30, 2008, we had $3.9 billion of outstanding funding in this program.

Credit Facilities

Our credit facilities and asset-backed commercial paper lines were as follows on the dates indicated:


	September 30,			December 31,
	2008			2007
	(in billions)
Credit Facilities
Ford Credit bank lines	$	0.3		$	0.5
FCE bank lines		2.1			2.5
Utilized amounts		(0.7	)		(0.9	)

Available credit facilities	$	1.7		$	2.1


Asset-Backed Commercial Paper Lines
FCAR asset-backed commercial paper lines	$	16.4		$	16.9

At September 30, 2008, we and our subsidiaries, including FCE, had $2.4 billion of contractually committed unsecured credit facilities with financial institutions, of which $1.7 billion were available for use. Of the lines available for use, 41% ($698 million) are committed through at least June 30, 2010, including 33% ($553 million) which are committed through December 31, 2011. Of the $2.4 billion, $345 million constitute Ford Credit bank lines (of which $70 million are worldwide) and $2.1 billion are FCE bank lines (of which $2.0 billion are worldwide). Our worldwide credit facilities may be used, at our option, by any of our direct or indirect majority owned subsidiaries. Similarly, the FCE worldwide credit facilities may be used, at FCE’s option, by any of FCE’s direct or indirect, majority owned subsidiaries. We or FCE, as the case may be, will guarantee any such borrowings. All of the worldwide credit facilities are free of material adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding.

In addition, at September 30, 2008, we are reporting $16.4 billion of contractually committed liquidity facilities provided by banks to support our FCAR program. Included in this total is a $238 million contractually committed liquidity facility provided by Lehman Brothers Bank, FSB (“Lehman Brothers Bank”). As disclosed in our Current Report on Form 8-K dated September 16, 2008, the contractually committed liquidity facilities, provided by Lehman Brothers Bank are guaranteed by Lehman Brothers Holdings Inc. (“Lehman”), the parent company of Lehman Brothers Bank. On September 15, 2008, Lehman filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

Of the $16.4 billion of reported contractually committed liquidity facilities at September 30, 2008, 39% ($6.4 billion) are committed through June 29, 2012, and the remainder are committed for a shorter period of time. Utilization of these facilities is subject to conditions specific to the FCAR program and our having a sufficient amount of eligible assets for securitization. The FCAR program must be supported by liquidity facilities equal to at least 100% of its outstanding balance. At September 30, 2008, $16.0 billion of FCAR’s bank liquidity facilities were available to support FCAR’s asset-backed commercial paper, subordinated debt or FCAR’s purchase of our asset-backed securities, and the remaining FCAR bank liquidity facilities of $412 million were available to support FCAR’s purchase of our asset-backed securities. At September 30, 2008, $9.8 billion of FCAR’s asset-backed commercial paper was held by external investors and the remaining $1.1 billion was held by us. Further, we decided to reduce the assets of the FCAR program by $2.5 billion during the third quarter of 2008, and FCAR used the proceeds to pay off maturing FCAR commercial paper.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Liquidity Risks

In addition to the liquidity risks applicable to us that are disclosed in the “Liquidity” section of Item 7 of Part II of our 2007 10-K Report, we have identified the following material change to the reported risks: inability to obtain derivatives to manage the interest rate risk associated with our securitizations.

Off-Balance Sheet Arrangements

In the first nine months of 2008, we did not enter into any off-balance sheet arrangements (off-balance sheet securitization transactions and whole-loan sale transactions), which is consistent with our plan to fund securitizations through on-balance sheet transactions. Net proceeds from off-balance sheet arrangements were about $700 million in the first nine months of 2007.

In the third quarter and first nine months of 2008, income related to off-balance sheet arrangements reported inInvestment and other income related to sales of receivablesdeclined $28 million and $122 million, respectively, compared with a year ago. The declines primarily reflected amortization of the off-balance sheet securitization portfolio.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Leverage

We use leverage, or the debt-to-equity ratio, to make various business decisions, including establishing pricing for retail, wholesale, and lease financing, and assessing our capital structure. We refer to our shareholder’s interest as equity. We calculate leverage on a financial statement basis and on a managed basis using the following formulas:

Financial

Total Debt

Statement

Equity

Leverage

Retained

Interest in

Adjustments for

Securitized

Cash,

Hedge

Off-balance

Cash Equivalents

Accounting

Managed

Total Debt +

Sheet

and Marketable

on Total Debt (b)

Leverage

Receivables

Securities (a)

Adjustments for

Equity

Minority

Hedge

Interest

Accounting

on Equity (b)


(a)		Excludes marketable securities related to insurance activities.

(b)		Primarily related to market valuation adjustments to derivatives due to movements in interest rates.

The following table shows the calculation of our financial statement leverage (in billions, except for ratios):


	September 30,		December 31,
	2008		2007

Total debt	$	129.1	$	139.4
Total equity		11.7		13.4
Financial statement leverage (to 1)		11.0		10.4

The following table shows the calculation of our managed leverage (in billions, except for ratios):


	September 30,			December 31,
	2008			2007

Total debt	$	129.1		$	139.4
Securitized off-balance sheet receivables outstanding		1.1			6.0
Retained interest in securitized off-balance sheet receivables		(0.2	)		(0.7	)
Adjustments for cash, cash equivalents, and marketable securities (a)		(19.1	)		(16.7	)
Adjustments for hedge accounting (b)		(0.2	)		0.0

Total adjusted debt	$	110.7		$	128.0


Total equity (including minority interest)	$	11.7		$	13.4
Adjustments for hedge accounting (b)		(0.2	)		(0.3	)

Total adjusted equity	$	11.5		$	13.1


Managed leverage (to 1)		9.6			9.8


(a)		Excludes marketable securities related to insurance activities.

(b)		Primarily related to market valuation adjustments to derivatives due to movements in interest rates.

We plan our managed leverage by considering prevailing market conditions and the risk characteristics of our business. At September 30, 2008, our managed leverage was 9.6 to 1, compared with 9.8 to 1 at December 31, 2007. We did not pay any distributions in the first nine months of 2008.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Accounting Standards Issued But Not Yet Adopted

We have not yet adopted SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.Refer to “Accounting Standards Issued But Not Yet Adopted” section of Item 2 of our Quarterly Report on Form 10-Q for the period ended March 31, 2008 for additional information on this standard.

We have not yet adopted SFAS No. 141R,Business Combinations,or SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.Refer to “Accounting Standards Issued But Not Yet Adopted” section of Item 7 of Part II of our 2007 10-K Report for additional information on these standards.

Outlook

We expect to incur a pre-tax loss for 2008. The reduction expected in 2008 compared with 2007 primarily reflects the impact of the second quarter 2008 impairment charge to our North America Segment operating lease portfolio, higher provision for credit losses, higher depreciation expense for leased vehicles, lower volume, and higher net losses related to market valuation adjustments to derivatives. We expect these factors to be offset partially by the non-recurrence of costs associated with our North American business transformation initiative, reductions in other operating costs, and higher financing margin. We expect a pre-tax loss for the second half of 2008 that is smaller than our first half 2008 pre-tax loss (excluding the lease impairment charge).

We previously planned to pay regular distributions in 2008, but given the present credit market conditions and to maintain greater flexibility in the execution of our funding plan, we have not reinstated these distributions in 2008. We anticipate our year-end managed leverage to be about the same as September 2008, which is lower than the 11.5 to 1 managed leverage planned at the beginning of 2008.

We expect year-end 2008 managed receivables to be about $125 billion and the funding structure to support these receivables to be the following (in billions, except for percentages).


		December 31, 2008
Funding Structure
Ford Interest Advantage		$ 2
Asset-backed commercial paper		9 – 10
Term asset-backed securities		60 – 62
Term debt and other		58 – 60
Equity		~ 12
Cash, cash equivalents, and marketable securities*		(16) – (18)

Total funding structure		~ $125

Memo:
Securitized funding as a percentage of managed receivables		54 – 56%


*		Excludes marketable securities related to insurance activities.

Beginning in 2009, we expect to make cash distributions of about $3 billion through 2010 to return capital as our receivables portfolio declines. We will balance returns of capital with the successful execution of our funding plan, thereby allowing us to continue to support the sale of Ford, Lincoln, Mercury, and Volvo vehicles. In addition, we will make cash payments to Ford in 2009 and 2010 for settlement of U.S. federal and state income tax liabilities pursuant to our tax sharing agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Cautionary Statement Regarding Forward Looking Statements

Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

Automotive Related:

	•		Continued decline in Ford’s market share;

	•		Continued or increased price competition for Ford vehicles resulting from industry overcapacity, currency fluctuations or other factors;

	•		A further increase in or acceleration of the market shift away from sales of trucks, sport utility vehicles, or other more profitable vehicles, particularly in the United States;

	•		Further significant decline in industry sales, resulting from slowing economic growth, geo-political events or other factors;

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

	•		Further increases in the price for, or reduced availability of, fuel;

	•		Adverse effects from the bankruptcy or insolvency of, change in ownership or control of, or alliances entered into by a major competitor;

	•		Economic distress of suppliers of the type that has in the past or may in the future require Ford to provide financial support or take other measures to ensure supplies of components or materials;

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

	•		Single-source supply of components or materials;

	•		Inability to implement the Retiree Health Care Settlement Agreement to fund and discharge UAW hourly retiree health care obligations;

	•		The discovery of defects in Ford vehicles resulting in delays in new model launches, recall campaigns or increased warranty costs;

	•		Increased safety, emissions, fuel economy or other regulation resulting in higher costs, cash expenditures and/or sales restrictions;

	•		Unusual or significant litigation or governmental investigations arising out of alleged defects in Ford products or otherwise;

	•		A change in Ford’s requirements for parts or materials where it has entered into long-term supply arrangements that commit it to purchase minimum or fixed quantities of certain parts or materials, or to pay a minimum amount to the seller (“take-or-pay contracts”);

	•		Adverse effects on our results from a decrease in or cessation of government incentives;

	•		Adverse effects on Ford’s operations resulting from geo-political or other events;

	•		Substantial negative operating-related cash flows for the near- to medium-term affecting Ford’s ability to meet its obligations, invest in its business or refinance its debt;

	•		Substantial levels of indebtedness adversely affecting Ford’s financial condition or preventing Ford from fulfilling its debt obligations (which may grow because Ford is able to incur substantially more debt, including additional secured debt);

	•		Inability of Ford to implement its plans to further reduce structural costs and increase liquidity;

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Ford Credit Related:

	•		A prolonged disruption of the debt and securitization markets;

	•		Inability to access debt, securitization or derivative markets around the world at competitive rates or in sufficient amounts due to additional credit rating downgrades, market volatility, market disruption or otherwise;

	•		Higher-than-expected credit losses;

	•		Increased competition from banks or other financial institutions seeking to increase their share of financing Ford vehicles;

	•		Collection and servicing problems related to our finance receivables and net investment in operating leases;

	•		Lower-than-anticipated residual values or higher-than-expected return volumes for leased vehicles;

	•		New or increased credit, consumer or data protection or other regulations resulting in higher costs and/or additional financing restrictions;

	•		Changes in Ford’s operations or changes in Ford’s marketing programs could result in a decline in our financing volumes;

•

Inability to obtain an industrial bank charter;

General:

	•		Failure of financial institutions to fulfill commitments under committed credit and liquidity facilities;

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

	•		Substantial pension and postretirement healthcare and life insurance liabilities impairing Ford’s or our liquidity or financial condition;

	•		Worse-than-assumed economic and demographic experience for postretirement benefit plans (e.g., discount rates, investment returns, and health care cost trends);

	•		Currency or commodity price fluctuations; and

	•		Changes in interest rates.

We cannot be certain that any expectations, forecasts or assumptions made by management in preparing these forward-looking statements will prove accurate, or that any projections will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For additional discussion of these risk factors, see Item 1A of Part I of our 2007 10-K Report and Item 1A of Part I of Ford’s 2007 10-K Report, as updated by Ford’s and Ford Credit’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Other Financial Information

PricewaterhouseCoopers LLP (“PwC”) has not audited the interim financial information included in this 10-Q Report. In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Accordingly, you should restrict your reliance on their reports on such information. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their reports on the interim financial information because such reports do not constitute “reports” or “parts” of the registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In our 2007 10-K Report, we discuss in greater detail our market risk, counter-party risk, credit risk, residual risk, liquidity risk, and operating risk. To provide a quantitative measure of the sensitivity of our pre-tax cash flow to changes in interest rates, we use interest rate scenarios that assume a hypothetical, instantaneous increase or decrease in interest rates of 100 basis points (or 1%) across all maturities, as well as a base case that assumes that interest rates remain constant at existing levels. These interest rate scenarios are purely hypothetical and do not represent our view of future interest rate movements. The differences in pre-tax cash flow between these scenarios and the base case over a twelve-month period represent an estimate of the sensitivity of our pre-tax cash flow. Under this model, we estimate that at September 30, 2008, all else constant, such an increase in interest rates would reduce our pre-tax cash flow by $30 million over the next twelve months, compared with $16 million at December 31, 2007. The sensitivity analysis presented above assumes a one-percentage point interest rate change to the yield curve that is both instantaneous and parallel. In reality, interest rate changes are rarely instantaneous or parallel and rates could move more or less than the one percentage point assumed in our analysis. As a result, the actual impact to pre-tax cash flow could be higher or lower than the results detailed above.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Michael E. Bannister, our Chairman of the Board and Chief Executive Officer (“CEO”), and Kenneth R. Kent, our Vice Chairman, Chief Financial Officer (“CFO”) and Treasurer, have performed an evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15 (e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2008 and each has concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the third quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the risk factors applicable to us that are disclosed in “Item 1A. Risk Factors” of our 2007 10-K Report, we have identified the following material changes to the reported risks:

A Prolonged Disruption of the Debt and Securitization Markets— As a result of the global credit crisis, the disruption in the debt and securitization markets that began in August 2007 increased significantly in September 2008 and is continuing. It is possible that this disruption could continue beyond the conclusion of government-sponsored programs that are intended to improve conditions in the credit markets (e.g., the Commercial Paper Funding Facility). Such a sustained disruption in the debt and securitization markets would result in us further reducing the amount of receivables we purchase or originate. A significant reduction in the amount of receivables we purchase or originate would significantly reduce our ongoing profits, and could adversely affect our ability to support the sale of Ford vehicles.

Inability to Access Debt, Securitization or Derivative Markets Around the World at Competitive Rates or in Sufficient Amounts due to Additional Credit Rating Downgrades, Market Volatility, Market Disruption or Otherwise— The lower credit ratings assigned to us have increased our unsecured borrowing costs and have caused our access to the unsecured debt markets to be more restricted. In response, we have increased our use of securitization and other sources of liquidity. Our ability to obtain funding under our committed asset-backed liquidity programs is subject to having a sufficient amount of assets eligible for these programs as well as our ability to obtain derivatives to manage the interest rate risk. Over time, and particularly in the event of any further credit rating downgrades, market volatility, market disruption or otherwise, we may need to reduce the amount of receivables we purchase or originate. In addition, we would need to reduce the amount of receivables we purchase or originate if there is a significant decline in the demand for the types of securities we offer or we are unable to obtain derivatives to manage the interest rate risk associated with our securitizations. A significant reduction in the amount of receivables we purchase or originate would significantly reduce our ongoing profits, and could adversely affect our ability to support the sale of Ford vehicles.

Inability to Obtain an Industrial Bank Charter or Otherwise Obtain Competitive Funding— We are pursuing an industrial bank charter from the State of Utah. Such a charter requires approval from the Federal Deposit Insurance Corporation (“FDIC”) to obtain federal deposit insurance. Other automotive captive finance companies have industrial banks that provide them with access to relatively low-cost FDIC-insured deposit funding. If these finance companies have access to FDIC-insured or other government funding programs and we do not, then our ability to competitively support the sale of Ford vehicles could be adversely affected. This in turn would adversely affect the marketability of Ford vehicles in comparison to certain competitive brands.

Failure of Financial Institutions to Fulfill Commitments Under Committed Credit and Liquidity Facilities— As included in the “Liquidity” section of Item 2, at September 30, 2008, we had $15.9 billion of committed liquidity programs, asset-backed commercial paper, and credit facilities available for use for which we pay commitment fees. To the extent the financial institutions that provide these committed facilities and programs were to default on their obligation to fund the commitments, these facilities and programs would not be available to us.

ITEM 5. OTHER INFORMATION

In September 2008, we and Mazda Motor Corporation (“Mazda”) agreed that Mazda would secure its own financial services sources for customers and dealers in the United States, Canada, and Europe. The Mazda portion of our worldwide portfolio is about $10 billion. In the United States and Canada, other financial services providers began to finance a portion of new Mazda retail installment contracts and operating leases in the third quarter of 2008. By January 2009, other financial services providers will finance all new Mazda retail installment contracts, operating leases, wholesale loans, and other dealer loans in the United States and Canada. In Europe, new financial services providers were announced in Germany and Austria in October 2008 and Italy, the U.K., Spain, and Portugal in November 2008. These financial services providers will offer Mazda financing beginning in 2009. Mazda’s transition timing will vary by country throughout Europe. In Denmark, Finland, Norway and Sweden, Mazda financing will continue through the joint venture we established in 2008, and in Japan, Mazda financing will continue through the joint venture we established in 2008.

Additional information about Ford can be found in Ford’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008, filed separately with the SEC and included as an exhibit to this Report (without Financial Statements or Exhibits).

ITEM 6. EXHIBITS

Exhibits: please refer to the Exhibit Index on page 47.

Instruments defining the rights of holders of certain issues of long-term debt of Ford Credit have not been filed as exhibits to this Report because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Ford Credit. Ford Credit will furnish a copy of each such instrument to the SEC upon request.

SIGNATURES

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

FORD MOTOR CREDIT COMPANY LLC


By:		/s/ Kenneth R. Kent
		Kenneth R. Kent
		Vice Chairman, Chief Financial Officer and Treasurer

Date:		November 7, 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of
Ford Motor Credit Company LLC:

We have reviewed the accompanying consolidated balance sheet of Ford Motor Credit Company LLC and its subsidiaries (the “Company”) as of September 30, 2008 and the related consolidated statement of income for each of the three-month and nine-month periods ended September 30, 2008 and 2007, and the consolidated statement of cash flows for the nine-month periods ended September 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2007, and the related consolidated statements of income, of shareholder’s interest/equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 27, 2008 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2007 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
November 7, 2008

FORD MOTOR CREDIT COMPANY LLC

EXHIBIT INDEX


Designation	Description	Method of Filing

Exhibit 10	Amended and Restated Support Agreement (formerly known as Amended and Restated Profit Maintenance Agreement) dated November 6, 2008 between Ford Motor Company and Ford Motor Credit Company LLC	Filed with this Report

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

Exhibit 15	Letter of PricewaterhouseCoopers LLP, dated November 7, 2008, relating to Unaudited Interim Financial Information	Filed with this Report

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	Furnished with this Report

Exhibit 32.2	Section 1350 Certification of CFO	Furnished with this Report

Exhibit 99	Items 2 — 4 of Part I and Items 1, 1A, 2 and 3 of Part II of Ford Motor Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008	Incorporated herein by reference to Ford Motor Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. File No. 1-3950.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Ford Motor Credit (FCZ) 10-Q2008 Q3 Quarterly report

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