Ford Motor Company is selling $500 million in stock to retire short-term debt owed by Ford Motor Credit.

"It's a debt for equity swap," Ford spokesman Bill Collins said.

"We're issuing new shares. We're going to take the proceeds and use them to retire some short-term debt for Ford Motor Credit." The transaction will reduce the company's outstanding debt which "strengthens our consolidated balance sheet."

"We also did this back in August when Goldman Sachs sold $500m in equity that was used to retire short-term debt."

Ford Motor Credit Company, which offers loans to consumers and dealers, is a wholly-owned subsidiary of the Ford Motor Company.

Ford Credit lost $1.43 billion in the second quarter, mostly because of writedowns of unprofitable truck leases.

Ford Motor had a record $8.7bn second-quarter loss after balance sheet adjustments that included asset writedowns.

Both Ford Motor Company and Ford Credit have had their credit rating reduced twice in recent months as car sales have plummeted.

The downgrades have driven up Ford's cost of borrowing, which has also been made more difficult by the credit squeeze unfolding in the US. Ford's last month sales fell 34 per cent to 116,734 vehicles while year-to-date sales are down 17.3pc at 1.5 million vehicles.