TEXT-S&P revises Ford's outlook to positive

Overview
-- Ford Motor Co.'s (Ford) performance in North America continues to
support good overall automotive cash flow and profitability.
-- We believe Ford will act with increasing decisiveness and commitment
to restructure Europe to profitability in the face of likely several more
years of weak vehicle sales in Europe.
-- We are revising our outlook to positive from stable and affirming our
'BB+' corporate credit rating on Ford.
-- We could raise the rating to investment grade if, among other factors,
Ford demonstrates it can improve the balance of profitability across regions.

Rating Action
On Aug. 10, 2012, Standard & Poor's Ratings Services revised its outlook on
Ford Motor Co. and Ford Motor Credit Co. LLC (Ford Credit) to positive from
stable. We affirmed our corporate credit ratings on the companies at 'BB+'. We
also revised the outlook on the counterparty credit rating on FCE Bank PLC,
Ford Credit's European bank, to positive from stable and affirmed our 'BBB-'
rating.

Rationale
The outlook revision reflects, among other things, our view that Ford will act
with increasing decisiveness and commitment to restructure Europe to
profitability amid prospects for several more years of weak vehicle sales
there. If we believe Ford is on track to be profitable in Europe, this would
improve the balance of profitability across regions and support an
investment-grade rating. Accordingly, we would likely want to have a good
understanding of 2014 prospects for profitability by region before an upgrade
and do not expect to raise our rating on Ford until then. Indeed, we assume
that profits and cash use in Europe will get worse before they get better.

Standard & Poor's rating on Michigan-based Ford reflects our assessment of
Ford's business risk profile as "fair" and its financial risk profile as
"significant," according to our criteria. Factors we consider include Ford's
prospects for generating free cash flow and profits in its automotive
manufacturing business because of improvement in its U.S. competitive
position, the continuing recovery in U.S. industry sales, and its improved
cost base in North America. Our base case assumes improvement for industry
light-vehicle sales in North America in 2012 and 2013. We estimate Ford's
automotive operating cash flow (before separation payments) during 2012 will
be at least $2 billion to $3 billion (roughly equivalent to about 10% of
estimated adjusted automotive and postretirement debt in 2012). We also assume
Ford can sustain its pretax EBIT margin in North America in the
upper-single-digit percentage area and in the mid-single-digit area in total
for automotive operations. We assume Europe will report losses.

We believe Ford's automotive operations in North America would remain
profitable if industry light-vehicle sales fall well below the current level
of 14 million but remain more than 11 million units. But cash flow will be
sensitive to volume and cost headwinds--including commodity prices and other
cost increases--and future production volatility, which could temper
year-over-year cash flow generation. As the inventories of the Japanese
automakers continue to recover, some non-Japanese automakers in the U.S. are
losing market share, as we expected. We assume automakers competing in the
U.S. market will continue to demonstrate the same discipline observed since
late 2009 regarding the level of production and inventories relative to sales
and that they will avoid excess inventories, incentives, and swings in
production.

We believe underlying industry and business risks persist, most notably:
-- Continuing exposure to the weak recovery in vehicle demand in key
global markets, and declining sales in Europe because of economic weakness and
political uncertainty;
-- The eventual return in North America to more typical levels of
industry volatility in sales and production; and
-- Ford's still-high dependence on light trucks, particularly full-size
pickups, for profitability in North America, although new car introductions in
recent years have fared well.

We expect Ford's financial results to remain highly sensitive to future
industry sales and product mix, actions by competitors, and other factors
beyond its direct control (e.g., as higher raw material costs or fuel prices).

Our ratings reflect, among other factors, our expectations that:
-- Ford's profitability in North America will continue;
-- Ford will generate global automotive operating cash flow of $2 billion
to $3 billion in the next few years;
-- Retail market perception of Ford's products will not deteriorate;
-- Ford's adequate liquidity and substantial cash balances will persist;
and
-- Losses and cash use in Europe in relation to the overall company will
be manageable because of continued North American profits and positive cash
flow.

Our economists forecast U.S. light-vehicle sales of about 14.1 million units
in 2012, about 11% higher than 2011. Sales in the first seven months of 2012
have been about this annual rate after being considerably higher earlier in
the year. We expect the rebound in light-vehicle sales to continue next year
with about 14.7 million units.

However, international markets have not performed well so far this year. South
America generated a modest operating profit of $59 million while Asia-Pacific
generated an operating loss of $161 million in the first half of the year. A
variety of factors including industry capacity, competition, political matters
relating to trade and foreign currency access, and product investments are
driving the weaker results. Still, the largest risk factor, in our view,
remains Europe.

Our outlook for the major auto markets in Europe, Ford's second-largest
market, is much less positive than for the U.S. market. We expect 2012 auto
industry sales in Europe to be at least 5% below 2011--EU27 passenger car
registrations were down 6.8% for the first six months of 2012 (but highly
mixed: France was down 14.4%, Germany was up 0.7%). We believe losses in
Europe for many nonluxury volume makers are likely for 2012 and perhaps 2013,
primarily because of the excess capacity and a weak economy. We assume any
losses or cash use in Europe will not become substantial enough to affect the
ratings.

Ford Credit's results continue to be solidly profitable, partly because of
higher sales volumes, industrywide strength in used-vehicle prices (lower
costs related to lease residuals), and reduced credit losses as consumer
credit quality stabilizes at many financial institutions. Ford Credit reported
a pretax profit of $438 million in the second quarter of 2012. We assume
earnings in 2012-2013 will be lower than in past years because of less
favorable developments on used-car residuals and credit reserves, but still
solidly profitable.

Liquidity
We view Ford's liquidity as "adequate" under our criteria. We expect liquidity
in Ford's automotive operations to remain substantial, and we assume Ford will
continue generating positive free cash from automotive operations in 2012 and
2013. But our liquidity assessment also takes into account the automotive
businesses' potentially substantial use of cash from working capital during
periods of production declines.

Sources of liquidity consist of Ford's automotive cash, cash equivalents, and
marketable securities, which totaled $23.7 billion as of June 30, 2012;
approximately $9.2 billion available under the revolving facility, which
expires in 2015 (a small amount in excess of $9.2 billion expires in 2013);
and other automotive credit lines. Availability under the unsecured revolver
is not subject to a borrowing base or material financial maintenance covenants
in this facility, and so we expect Ford to remain in compliance.

Uses of liquidity include capital expenditures of about $5 billion for 2012,
with mid-decade guidance of $6 billion. We believe this is realistic because
spending could increase to support regulations, technology, and new products
during the next few years.

We view automotive-related debt maturities as manageable for the next several
years at $1.3 billion or less each year between 2012 and 2016. Ford plans
pension contributions of about $3.8 billion in 2012, and we assume further
large contributions will occur as part of the pension derisking strategy.

Ford Credit relies heavily on the wholesale funding markets, especially the
securitization markets, to fund its automotive finance business, and we
believe this market has recovered well. But the company has also been issuing
unsecured debt recently, improving its funding mix. We believe securitization
markets for auto-related asset-backed securities will remain much more
available than they were during the last downturn. Nonetheless, we will
closely monitor Ford Credit's ability to continue funding.

Recovery analysis
For the complete recovery analysis, please see our recovery report on Ford to
be published following this report on RatingsDirect.

Outlook
The positive outlook reflects our view that there is a one-in-three chance
that we could raise our corporate credit rating on Ford to investment grade
within 18 months--although this is not likely before late 2013. The most
important factor in an upgrade to investment grade would be Ford's ability to
improve the balance of profitability across regions. For an upgrade, we would
expect Ford to be on track for sustainable profitability outside North
America, particularly Europe--although, as noted, we think results in Europe
will worsen before improving.

We could raise the rating if, in addition to regaining control over its
ability to be profitable in Europe, the gradual improvement in light-vehicle
demand continues in most other global markets and Ford's prospects for
generating free cash flow and profits in its automotive manufacturing business
continue to solidify such that the following factors were met:
-- Ford sustains debt to EBITDA at about 2.5x;
-- Pretax automotive profit margins reach the mid-single-digit area for
total automotive and the high-single-digit area for North America;
-- Liquidity at the automotive parent remains more than $30 billion;
-- Automotive-related operating free cash flow remains at about 15% of
debt;
-- Ford successfully copes with the evolving competitive structure of the
global auto industry, including continued demonstration of the preferences of
the U.S. consumer toward Ford products, and Ford develops reasonable prospects
for profitability in developing markets such as China; and
-- Ford Credit continues to be profitable and demonstrates underwriting
standards consistent with an investment-grade rating.

For the current rating, we assume Ford's revenues will grow at a
low-single-digit pace and pretax margins will remain about 5%, supporting
automotive operating cash flow (as reported) of $2 billion to $3 billion.

We could revise our outlook to stable or lower our rating if adverse economic
or competitive developments (e.g., prolonged sales decline, overproduction,
excess inventory, increased incentives, or unfavorable shifts in customer
demand) reduced the prospects for profitable and cash-positive results, or if
Ford uses a substantial amount of cash in its automotive operations in any
quarter and it seemed likely to continue.

Related Criteria And Research
-- July U.S. Auto Sales Remain In Line With Standard & Poor's 2012
Full-Year Expectation, Aug. 2, 2012
-- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Affirmed; Outlook Action
To From
Ford Motor Co.
Ford Credit Australia Ltd.
Primus Financial Services Ltd.
Ford Motor Co. of Australia Ltd.
Corporate Credit Rating BB+/Positive/-- BB+/Stable/--

FCE Bank PLC
Counterparty Credit Rating BBB-/Positive/-- BBB-/Stable/--

Ford Motor Credit Co. LLC
Counterparty Credit Rating BB+/Positive/-- BB+/Stable/--

Ratings Affirmed

Ford Motor Co.
Senior Secured BB+
Recovery Rating 3
Senior Unsecured BB+
Recovery Rating 3
Senior Unsecured cnBBB+

FCE Bank PLC
Senior Unsecured BBB-

Ford Credit Canada Ltd.
Senior Unsecured BB+

Ford Holdings Inc.
Senior Unsecured BB+
Recovery Rating 3

Ford Motor Co. Capital Trust II
Preferred Stock B+

Ford Motor Credit Co. LLC
Senior Unsecured BB+

U.S. Leasing Corp.
Senior Unsecured BB+

Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
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