Ford Motor Co. of Australia Ltd.’s credit arm is being funded through inter-company loans from U.S. parent Ford Motor Credit Co., and says government plans to provide a credit backstop for industry finance will allow it to continue operations.

FCA Holdings Ltd., operating as Ford Credit, tells the Australian Senate’s Economics Legislation Committee that due to tight credit in the country, it ceased offering retail loans and leases in February.

The company still is servicing and collecting on an outstanding loan portfolio of some 67,000 customers with a receival value of A$1.3 billion ($1.03 billion).

Managing Director Greg Cohen testifies at a committee hearing that with the prospect of the government’s industry finance guarantee legislation, the company has decided to continue offering wholesale financing to dealers.

At a peak in 2002, Ford Credit had A$1.1 billion ($875 million) in wholesale loans, he says, but its portfolio now is down to A$350 million ($278.5 million) with 227 dealers across Australia.

Some 95 of these are Ford dealers and 132 are operated by dealers who also hold a Ford or Volvo franchise.

“So we support not only Ford and Volvo dealers but also dealers of other manufacturers’ brands,” Cohen says.

He says the government guarantee is critical to the future of Ford Credit’s operations because international credit markets remain frozen as a result of the global credit crisis. Financiers such as Ford Credit are unable to tap the necessary funds by conventional means, Cohen says.

The government announced the establishment of a special fund, dubbed OzCar, to provide liquidity to car dealer financiers who have encountered problems as a result of the global financial crisis.

It was created after GMAC Financial Services LLC and GE Capital Finance Australasia Pty Ltd. (GE Money) quit vehicle financing in Australia and New Zealand.

Ford Credit will be able to access up to A$550 million ($437.6 million) within the fund over the next 12 months to support its dealer network.

Cohen says the company has been operating in Australia for the past 37 years as a wholly owned subsidiary of Ford Motor Credit, Ford Motor Co.’s wholly owned global captive finance arm.

“Historically, we have funded our business in the local market through securitizations, commercial paper programs, note issues and bank lines,” he says. “More recently, the frozen credit markets have affected our ability to raise local funds. The temporary solution was to borrow from our parent company in the U.S.”

Only a few financiers are in the business of providing wholesale financing, and they have tightened their lending.

“Wholesale financing is a critical part of the smooth flow of vehicles from the manufacturers to the dealers, and makes it possible for dealers to stock a large range of vehicles,” Cohen says.

“It is also important to note that 147 of our dealers, that is 65% of our total dealer body, are located in regional and rural Australia, where little financing is available,” he says. “All this is why the OzCar financing trust is a very welcome initiative to us and to Ford.”

Cohen says it has been the company’s experience that the major financiers remaining in the market have not been very ambitious to service those smaller, rural dealers.

“The OzCar program will provide critical support for Ford Credit and our dealers, and it is our intention to utilize the funding for this program for the whole period,” he says. “We see OzCar as an excellent bridging action until normal credit market activity returns.”

Cohen says if financing were to dry up there would be a very quick flow-through effect on Ford Australia’s manufacturing.

“The extent of the financial crisis affecting manufacturers and the cost of working capital means these manufacturers cannot afford to hold a lot of stock. It is very costly in cash flow for them.

“The philosophy of ‘just-in-time’ is very important so that, when a vehicle is manufactured, it is within a few days invoiced and the manufacturer is paid for that and the vehicle is shipped to a dealer.”

Cohen says Ford Credit is working hard to keep the wholesale business going at the expense of the retail business.

“From a Ford point of view, from a captive finance company point of view, that is probably the most critical for us,” he says.