Edgar Filing: FORD MOTOR CO

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

£	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: 1-3950

FORD MOTOR COMPANY

(Exact name of registrant as specified in its charter)

1-3950	38-0549190
(Commission File Number)	(IRS Employer Identification No.)

One American Road, Dearborn, Michigan	48126
(Address of principal executive offices)	(Zip Code)

(313) 322-3000

(Registrant's telephone number, including area code)

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.

T Yes £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer T

Accelerated filer £

Non-accelerated filer £

Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

£ Yes T No

As of May 1 2008, the registrant had outstanding 2,171,147,986 shares of Common Stock and 70,852,076 shares of Class B Stock.

Exhibit index located on page number 46.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

For the Periods Ended March 31, 2008 and 2007

(in millions, except per share amounts)

	First Quarter
	2008			2007
	(unaudited)
Sales and revenues
Automotive sales	$	39,117		$	38,630
Financial Services revenues		4,396			4,375
Total sales and revenues		43,513			43,005

Costs and expenses
Automotive cost of sales		35,455			34,716
Selling, administrative and other expenses		5,081			5,964
Interest expense		2,542			2,714
Financial Services provision for credit and insurance losses		343			58
Total costs and expenses		43,421			43,452

Automotive interest income and other non-operating income/(expense), net		92			329
Automotive equity in net income/(loss) of affiliated companies		136			72
Income/(Loss) before income taxes		320			(46	)
Provision for/(benefit from) income taxes		97			181
Income/(Loss) before minority interests		223			(227	)
Minority interests in net income/(loss) of subsidiaries		122			58
Income/(Loss) from continuing operations		101			(285	)
Income/(Loss) from discontinued operations (Note 8)		(1	)		3
Net income/(loss)	$	100		$	(282	)

AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
Basic income/(loss)
Income/(Loss) from continuing operations	$	0.05		$	(0.15	)
Income/(Loss) from discontinued operations		—			—
Net income/(loss)	$	0.05		$	(0.15	)
Diluted income/(loss)
Income/(Loss) from continuing operations	$	0.05		$	(0.15	)
Income/(Loss) from discontinued operations		—			—
Net income/(loss)	$	0.05		$	(0.15	)

Cash dividends	$	—		$	—

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR STATEMENT OF INCOME

For the Periods Ended March 31, 2008 and 2007

(in millions, except per share amounts)

	First Quarter
	2008			2007
	(unaudited)
AUTOMOTIVE
Sales	$	39,117		$	38,630
Costs and expenses
Cost of sales		35,455			34,716
Selling, administrative and other expenses		3,109			4,074
Total costs and expenses		38,564			38,790
Operating income/(loss)		553			(160	)

Interest expense		528			580

Interest income and other non-operating income/(expense), net		92			329
Equity in net income/(loss) of affiliated companies		136			72
Income/(Loss) before income taxes — Automotive		253			(339	)

FINANCIAL SERVICES
Revenues		4,396			4,375
Costs and expenses
Interest expense		2,014			2,134
Depreciation		1,836			1,500
Operating and other expenses		136			390
Provision for credit and insurance losses		343			58
Total costs and expenses		4,329			4,082
Income/(Loss) before income taxes — Financial Services		67			293

TOTAL COMPANY
Income/(Loss) before income taxes		320			(46	)
Provision for/(Benefit from) income taxes		97			181
Income/(Loss) before minority interests		223			(227	)
Minority interests in net income/(loss) of subsidiaries		122			58
Income/(Loss) from continuing operations		101			(285	)
Income/(Loss) from discontinued operations (Note 8)		(1	)		3
Net income/(loss)	$	100		$	(282	)

AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK (Note 9)
Basic income/(loss)
Income/(Loss) from continuing operations	$	0.05		$	(0.15	)
Income/(Loss) from discontinued operations		—			—
Net income/(loss)	$	0.05		$	(0.15	)
Diluted income/(loss)
Income/(Loss) from continuing operations	$	0.05		$	(0.15	)
Income/(Loss) from discontinued operations		—			—
Net income/(loss)	$	0.05		$	(0.15	)

Cash dividends	$	—		$	—

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(in millions)

	March 31, 2008			December 31, 2007
	(unaudited)
ASSETS
Cash and cash equivalents	$	33,751		$	35,283
Marketable securities		8,593			5,248
Loaned securities		6,746			10,267
Finance receivables, net		108,858			107,454
Other receivables, net		8,089			8,210
Net investment in operating leases		32,493			33,255
Retained interest in sold receivables		474			593
Inventories (Note 2)		11,721			10,121
Equity in net assets of affiliated companies		3,120			2,853
Net property		37,007			36,238
Deferred income taxes		3,331			3,489
Goodwill and other net intangible assets (Note 4)		2,064			2,060
Assets of discontinued/held-for-sale operations (Note 9)		10,002			9,221
Other assets		16,664			14,972
Total assets	$	282,913		$	279,264

LIABILITIES AND STOCKHOLDERS’ EQUITY
Payables	$	23,964		$	20,794
Accrued liabilities and deferred revenue		72,858			74,722
Debt		169,205			168,217
Deferred income taxes		2,901			3,034
Liabilities of discontinued/held-for-sale operations (Note 9)		5,408			5,448
Total liabilities		274,336			272,215

Minority interests		1,466			1,421

Stockholders’ equity
Capital stock
Common Stock, par value $0.01 per share (2,148 million shares issued)		21			21
Class B Stock, par value $0.01 per share (71 million shares issued)		1			1
Capital in excess of par value of stock		7,988			7,834
Accumulated other comprehensive income/(loss)		657			(558	)
Treasury stock		(184	)		(185	)
Retained earnings/(Accumulated deficit)		(1,372	)		(1,485	)
Total stockholders’ equity		7,111			5,628
Total liabilities and stockholders’ equity	$	282,913		$	279,264

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

SECTOR BALANCE SHEET

(in millions)

	March 31, 2008			December 31, 2007
	(unaudited)
ASSETS
Automotive
Cash and cash equivalents	$	18,663		$	20,678
Marketable securities		6,602			2,092
Loaned securities		6,746			10,267
Total cash, marketable and loaned securities		32,011			33,037
Receivables, net		4,164			4,530
Inventories (Note 2)		11,721			10,121
Deferred income taxes		562			532
Other current assets		6,206			5,514
Current receivable from Financial Services		225			509
Total current assets		54,889			54,243
Equity in net assets of affiliated companies		2,558			2,283
Net property		36,757			35,979
Deferred income taxes		8,557			9,268
Goodwill and other net intangible assets (Note 4)		2,054			2,051
Assets of discontinued/held-for-sale operations (Note 8)		8,054			7,537
Other assets		5,966			5,614
Non-current receivable from Financial Services		2,003			1,514
Total Automotive assets		120,838			118,489
Financial Services
Cash and cash equivalents		15,088			14,605
Marketable securities		1,991			3,156
Finance receivables, net		112,783			111,134
Net investment in operating leases		29,962			30,309
Retained interest in sold receivables		474			593
Equity in net assets of affiliated companies		562			570
Goodwill and other net intangible assets (Note 4)		10			9
Assets of discontinued/held-for-sale operations (Note 8)		1,948			1,684
Other assets		7,441			7,201
Total Financial Services assets		170,259			169,261
Intersector elimination		(2,228	)		(2,023	)
Total assets	$	288,869		$	285,727

LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive
Trade payables	$	17,692		$	15,718
Other payables		4,248			3,237
Accrued liabilities and deferred revenue		26,533			27,672
Deferred income taxes		2,567			2,671
Debt payable within one year		1,445			1,175
Total current liabilities		52,485			50,473
Long-term debt		25,608			25,779
Other liabilities		40,714			41,676
Deferred income taxes		846			783
Liabilities of discontinued/held-for-sale operations (Note 8)		5,064			4,824
Total Automotive liabilities		124,717			123,535
Financial Services
Payables		2,024			1,839
Debt		142,152			141,263
Deferred income taxes		5,444			6,043
Other liabilities and deferred income		5,611			5,374
Liabilities of discontinued/held-for-sale operations (Note 8)		344			624
Payable to Automotive		2,228			2,023
Total Financial Services liabilities		157,803			157,166

Minority interests		1,466			1,421

Stockholders' equity
Capital stock
Common Stock, par value $0.01 per share (2,148 million shares issued)		21			21
Class B Stock, par value $0.01 per share (71 million shares issued)		1			1
Capital in excess of par value of stock		7,988			7,834
Accumulated other comprehensive income/(loss)		657			(558	)
Treasury stock		(184	)		(185	)
Retained earnings/(Accumulated deficit)		(1,372	)		(1,485	)
Total stockholders' equity		7,111			5,628
Intersector elimination		(2,228	)		(2,023	)
Total liabilities and stockholders' equity	$	288,869		$	285,727

The accompanying notes are part of the financial statements.

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Periods Ended March 31, 2008 and 2007

(in millions)

	First Quarter
	2008			2007
	(unaudited)

Cash flows from operating activities of continuing operations
Net cash (used in)/provided by operating activities	$	1,027		$	979

Cash flows from investing activities of continuing operations
Capital expenditures		(1,490	)		(1,296	)
Acquisitions of retail and other finance receivables and operating leases		(11,872	)		(12,519	)
Collections of retail and other finance receivables and operating leases		10,936			10,885
Purchases of securities		(13,531	)		(2,229	)
Sales and maturities of securities		13,527			6,768
Proceeds from sales of retail and other finance receivables and operating leases		—			697
Proceeds from sale of businesses		44			35
Cash paid for acquisitions		(14	)		(2	)
Transfer of cash balances upon disposition of discontinued/held-for-sale operations		—			—
Other		621			256
Net cash (used in)/provided by investing activities		(1,779	)		2,595

Cash flows from financing activities of continuing operations
Cash dividends		—			—
Sales of Common Stock		63			27
Purchases of Common Stock		—			(31	)
Changes in short-term debt		(678	)		389
Proceeds from issuance of other debt		11,150			4,270
Principal payments on other debt		(11,107	)		(9,748	)
Other		(115	)		(51	)
Net cash (used in)/provided by financing activities		(687	)		(5,144	)

Effect of exchange rate changes on cash		316			(91	)

Net increase/(decrease) in cash and cash equivalents from continuing operations		(1,123	)		(1,661	)

Cash flows from discontinued operations
Cash flows from operating activities of discontinued operations		29			(18	)
Cash flows from investing activities of discontinued operations		(94	)		(94	)
Cash flows from financing activities of discontinued operations		(344	)		(243	)

Net increase/(decrease) in cash and cash equivalents	$	(1,532	)	$	(2,016	)

Cash and cash equivalents at January 1	$	35,283		$	28,896
Cash and cash equivalents of discontinued/held-for-sale operations at January 1		—			(2	)
Net increase/(decrease) in cash and cash equivalents		(1,532	)		(2,016	)
Less: cash and cash equivalents of discontinued/held-for-sale operations at March 31		—			(19	)
Cash and cash equivalents at March 31	$	33,751		$	26,859

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

CONDENSED SECTOR STATEMENT OF CASH FLOWS

For the Periods Ended March 31, 2008 and 2007

(in millions)

	First Quarter 2008						First Quarter 2007
	Automotive			Financial Services			Automotive			Financial Services
	(unaudited)						(unaudited)
Cash flows from operating activities of continuing operations
Net cash (used in)/provided by operating activities	$	685		$	2,482		$	1,466		$	642

Cash flows from investing activities
Capital expenditures		(1,449	)		(41	)		(1,286	)		(10	)
Acquisitions of retail and other finance receivables and operating leases		—			(12,166	)		—			(12,519	)
Collections of retail and other finance receivables and operating leases		—			10,936			—			10,900
Net (increase)/decrease of wholesale receivables		—			(1,846	)		—			(1,144	)
Purchases of securities		(12,509	)		(1,022	)		(480	)		(1,749	)
Sales and maturities of securities		11,329			2,198			463			6,305
Proceeds from sales of retail and other finance receivables and operating leases		—			—			—			697
Proceeds from sale of businesses		44			—			35			—
Cash paid for acquisitions		(14	)		—			(2	)		—
Transfer of cash balances upon disposition of discontinued/held-for-sale operations		—			—			—			—
Investing activity from Financial Services		—			—			—			—
Investing activity to Financial Services		—			—			(4	)		—
Other		297			324			177			79
Net cash (used in)/provided by investing activities		(2,302	)		(1,617	)		(1,097	)		2,559

Cash flows from financing activities
Cash dividends		—			—			—			—
Sales of Common Stock		63			—			27			—
Purchases of Common Stock		—			—			(31	)		—
Changes in short-term debt		93			(771	)		(118	)		507
Proceeds from issuance of other debt		57			11,093			102			4,168
Principal payments on other debt		(90	)		(11,017	)		(150	)		(9,598	)
Financing activity from Automotive		—			—			—			4
Financing activity to Automotive		—			—			—			—
Other		(77	)		(38	)		(17	)		(34	)
Net cash (used in)/provided by financing activities		46			(733	)		(187	)		(4,953	)

Effect of exchange rate changes on cash		235			81			15			(106	)
Net change in intersector receivables/payables and other liabilities		(679	)		679			(519	)		519
Net increase/(decrease) in cash and cash equivalents from continuing operations		(2,015	)		892			(322	)		(1,339	)

Cash flows from discontinued operations
Cash flows from operating activities of discontinued operations		—			29			5			(23	)
Cash flows from investing activities of discontinued operations		—			(94	)		—			(94	)
Cash flows from financing activities of discontinued operations		—			(344	)		—			(243	)

Net increase/(decrease) in cash and cash equivalents	$	(2,015	)	$	483		$	(317	)	$	(1,699	)

Cash and cash equivalents at January 1	$	20,678		$	14,605		$	16,022		$	12,874
Cash and cash equivalents of discontinued/held-for-sale operations at January 1		—			—			(2	)		—
Net increase/(decrease) in cash and cash equivalents		(2,015	)		483			(317	)		(1,699	)
Less: cash and cash equivalents of discontinued/held-for-sale operations at March 31		—			—			(19	)		—
Cash and cash equivalents at March 31	$	18,663		$	15,088		$	15,684		$	11,175

The accompanying notes are part of the financial statements

Item 1. Financial Statements (Continued)

FORD MOTOR COMPANY AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States 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 reflect a fair statement of the results of operations and financial condition of Ford Motor Company and its consolidated subsidiaries and consolidated variable interest entities ("VIEs") of which we are the primary beneficiary for the periods and at the dates presented. The operating results for interim periods are not necessarily indicative of results that may be expected 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 Form 10-K Report"). For purposes of this report, "Ford," the "Company," "we," "our," "us" or similar references mean Ford Motor Company and our consolidated subsidiaries and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise.

Presentation of Cash Flows

Beginning with our statement of cash flows for the period ended March 31, 2008, we changed the presentation of cash flows to separately disclose the purchases of trading securities and the sale and maturities of trading securities as gross amounts within Cash flows from investing activities instead of Cash flows from operating activities of continuing operations. This change is in response to our election to apply the fair value option to our available-for-sale and held-to-maturity securities upon adoption of Statement of Financial Accounting Standards ("SFAS") No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 ("SFAS No. 159") on January 1, 2008.

NOTE 2. INVENTORIES

Inventories are summarized as follows (in millions)*:

	March 31,			December 31,
	2008			2007
Raw materials, work-in-process and supplies	$	4,475		$	4,360
Finished products		8,327			6,861
Total inventories under first-in, first-out method ("FIFO")		12,802			11,221
Less: Last-in, first-out method ("LIFO") adjustment		(1,081	)		(1,100	)
Total inventories	$	11,721		$	10,121

__________

* Excludes divested and held-for-sale operations.

Inventories are stated at lower of cost or market. About one-fourth of inventories were valued under the LIFO method.

NOTE 3. SIGNIFICANT UNCONSOLIDATED AFFILIATES

Presented below is summarized financial information for Mazda Motor Corporation ("Mazda"). Mazda is considered to be a significant unconsolidated affiliate in the first quarter of 2008. Mazda is accounted for under the equity method.

Mazda-Related Investments. Included in our Automotive equity in net assets of affiliated companies at March 31, 2008 and December 31, 2007 was $1.4 billion and $1.3 billion, respectively, associated with our investment in Mazda. Our investment in Mazda has $207 million of goodwill included in Automotive equity in net assets of affiliated companies at both March 31, 2008 and December 31, 2007. Dividends received from Mazda for the three-month period ended March 31, 2008 and the twelve-month period ended December 31, 2007 were $0 and $36 million, respectively.

Item 1. Financial Statements (Continued)

NOTE 3. SIGNIFICANT UNCONSOLIDATED AFFILIATES (Continued)

Summarized income statement information from Mazda's published financial statements, prepared in accordance with Japanese GAAP, for the quarters ended December 31, 2007 and 2006 was as follows (in millions):

	2007		2006
Net sales	$	7,369	$	6,507
Cost and expenses		7,063		6,189
Income from continuing operations		139		151
Net income		138		126

Summarized balance sheet information from Mazda's published financial statements at December 31, 2007 was as follows (in millions):

	December 31, 2007
Total assets	$	17,761
Total liabilities		13,238

Included in our Automotive equity in net income/(loss) of affiliated companies was the following income for the first quarter (in millions):

		2008				2007
Ford's share of Mazda's net income/(loss)		$	52			$	22

Ford's share of Mazda's net income/(loss) in the table above represents our share of Mazda's results on a U.S. GAAP basis. We are not aware of any events at Mazda subsequent to March 31, 2008 that would materially affect our balance sheet or income statement.

NOTE 4. GOODWILL AND OTHER INTANGIBLES

Changes in the carrying amount of goodwill are as follows (in millions):

	Automotive Sector (a)										Financial Services Sector (a)

	Ford North America			Ford Europe		Volvo		Total			Ford Credit		Total Company
Balances at December 31, 2007	$	89		$	37	$	1,360	$	1,486		$	9	$	1,495
Changes in goodwill:
Goodwill acquired		—			—		—		—			—		—
Other disposals		(1	)		—		—		(1	)		—		(1	)
Dealer goodwill impairment (b)		(88	)		—		—		(88	)		—		(88	)
Effect of foreign currency translation and other		—			1		94		95			1		96
Balances at March 31, 2008	$	—		$	38	$	1,454	$	1,492		$	10	$	1,502

__________

(a)	Excludes divested and held-for-sale operations.

(b)

Based on our planned reduction of our Ford North America dealership base, we recorded an other-than-temporary impairment of our investment in our consolidated dealerships. We recorded the $88 million impairment of our investment in the first quarter of 2008 by writing down the related goodwill to its fair value of $0.

Item 1. Financial Statements (Continued)

NOTE 4. GOODWILL AND OTHER INTANGIBLES (Continued)

Other Net Intangibles

The components of net identifiable intangible assets are as follows (in millions)*:

	March 31, 2008							December 31, 2007
	Gross Carrying Amount		Less: Accumulated Amortization			Net Intangible Assets		Gross Carrying Amount		Less: Accumulated Amortization			Net Intangible Assets
Automotive Sector
Distribution networks	$	358	$	(112	)	$	246	$	335	$	(103	)	$	232
Manufacturing and production incentive rights		306		(95	)		211		297		(74	)		223
Other		197		(92	)		105		199		(89	)		110
Total Automotive sector		861		(299	)		562		831		(266	)		565
Total Financial Services Sector		4		(4	)		—		4		(4	)		—
Total	$	865	$	(303	)	$	562	$	835	$	(270	)	$	565

__________

* Excludes divested and held-for-sale operations.

Our identifiable intangible assets are comprised of distribution networks with a useful life of 40 years, manufacturing and production incentive rights acquired in 2006 with a useful life of 4 years, and other intangibles with various amortization periods (primarily patents, customer contracts, technology, and land rights). Pre-tax amortization expense, excluding the effects of foreign currency translation related to these intangible assets, was as follows (in millions)*:

	First Quarter
	2008		2007
Pre-tax amortization expense	$	24	$	21

__________

* Excludes divested and held-for-sale operations.

Excluding the impact of foreign currency translation, intangible asset amortization is forecasted to range from $95 million to $105 million per year for the next three years, and $20 million to $30 million per year thereafter.

NOTE 5. VARIABLE INTEREST ENTITIES

We consolidate VIEs of which we are the primary beneficiary. The liabilities recognized as a result of consolidating these VIEs do not necessarily represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs. Conversely, assets recognized as a result of consolidating these VIEs do not necessarily represent additional assets that could be used to satisfy claims against our general assets.

The total consolidated VIE assets reflected on our March 31, 2008 and December 31, 2007 balance sheets are as follows (in millions):

	March 31,		December 31,
	2008		2007
Automotive Sector
Cash and cash equivalents	$	896	$	742
Other assets		5,242		5,599
Total assets	$	6,138	$	6,341

Financial Services Sector
Cash and cash equivalents	$	5,482	$	4,605
Finance receivables		65,926		60,361
Net investment in operating leases		17,824		17,461
Total assets	$	89,232	$	82,427

We have several investments in other 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. Our maximum exposure was $374 million and $357 million for our Automotive sector and $75 million and $76 million for our Financial Services sector at March 31, 2008 and December 31, 2007, respectively. Any potential losses associated with these VIEs would be limited to the value of our invested capital or equity rights and, where applicable, receivables due from the VIEs.

Item 1. Financial Statements (Continued)

NOTE 5. VARIABLE INTEREST ENTITIES (Continued)

Ford Motor Credit Company LLC ("Ford Credit") uses special purpose entities ("SPEs") that are considered VIEs for most of its on-balance sheet securitizations. Ford Credit also sells finance receivables to bank-sponsored asset-backed commercial paper issuers that are SPEs of the sponsor bank; these SPEs are not consolidated by Ford Credit. All of these sales constitute sales for legal purposes, but some of the sales do not satisfy the requirements for accounting sale treatment. The outstanding balance of these finance receivables was approximately $3.5 billion and $3.4 billion at March 31, 2008 and December 31, 2007, respectively.

NOTE 6. EMPLOYEE SEPARATION ACTIONS

Automotive Sector

Job Security Benefits Reserve

We are required to pay most idled unionized hourly employees in North America who meet certain conditions a portion of their wages and benefits for a specified period of time ("Job Security Benefits") (previously referred to as Jobs Bank Benefits). We expense Job Security Benefits expected to be provided to our hourly employees at facilities that will be closed, or, in the case of some Automotive Components Holdings, LLC ("ACH") plants, sold (see Note 18 of the Notes to the Financial Statements in our 2007 Form 10-K Report).

The Job Security Benefits reserve includes an amount for benefits expected to be provided in their present form under the current International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") and National Automobile, Aerospace, Transportation and General Workers Union of Canada ("CAW") collective bargaining agreements. The Job Security Benefits provided to our hourly employees are expensed when it becomes probable that employees will be permanently idled. We have recorded an expense in Automotive cost of sales, and the following table summarizes the activity in the related Job Security Benefits reserve:

	Reserve (in millions)						Number of Employees
	First Quarter 2008			Full Year 2007			First Quarter 2008			Full Year 2007
Beginning balance	$	817		$	1,036			8,316			10,728
Additions to Job Security Benefits reserve/Transfers from voluntary separation program (i.e., rescissions)		36			232			435			2,220
Voluntary separations and relocations		(131	)		(311	)		(1,314	)		(4,632	)
Benefit payments and other adjustments		—			(140	)		—			—
Ending balance	$	722		$	817			7,437			8,316

The reserve balance above takes into account several factors: the demographics of the population at each affected facility, redeployment alternatives, and recent experience relative to voluntary redeployments. Due to the complexities inherent in estimating this reserve, our actual costs could differ materially. We continue to expense costs associated with the small number of employees who are temporarily idled on an as-incurred basis.

Separation Actions

The cost of voluntary employee separation actions is recorded at the time of an employee's acceptance, unless the acceptance requires explicit approval by the Company. The costs of conditional voluntary separations are accrued when all conditions are satisfied. The costs of involuntary separation programs are accrued when management has approved the program and the affected employees are identified.

UAW Voluntary Separations. During 2006, and in the first quarter of 2008, we offered voluntary separation packages to our entire UAW hourly workforce, established a reserve for the costs associated with these actions, and recorded an expense in Automotive cost of sales. The following table summarizes the activity in the related separation reserve:

	Reserve (in millions)						Number of Employees
	First Quarter 2008			Full Year 2007			First Quarter 2008			Full Year 2007
Beginning balance	$	225		$	2,435			1,374			26,351
Voluntary acceptances		140			—			1,141			—
Payments/Terminations		(85	)		(1,912	)		(448	)		(21,587	)
Rescissions and other adjustments		8			(298	)		(56	)		(3,390	)
Ending balance	$	288		$	225			2,011			1,374

Item 1. Financial Statements (Continued)

NOTE 6. EMPLOYEE SEPARATION ACTIONS (Continued)

The 2008 ending balances shown above represent the cost of separation packages for employees who accepted packages in the first quarter of 2008 but have not yet left the Company, as well as employees who accepted a retirement package and ceased duties, but who will remain on our employment rolls until they reach retirement eligibility. Excluded from the table above are 2,518 voluntary acceptances of retirement incentive packages during the first quarter of 2008 that are included in pension and other postretirement employee benefits ("OPEB") separation program costs. See Note 12 for employee separation costs related to pension and OPEB. In addition, 535 ACH employees voluntarily accepted offers during the first quarter of 2008 that were contingent upon the sale of the glass business. At March 31, 2008, these employees were still included in the Job Security Benefits reserve. See Note 8 for further discussion of the sale of the glass business.

Other Employee Separation Actions. Most salaried employee separations within the United States were completed by the end of the first quarter of 2007 and were achieved through early retirements, voluntary separations, and involuntary separations where necessary. These actions resulted in pre-tax charges of $152 million during the first quarter of 2007, reported in Automotive cost of sales and Selling, administrative and other expenses.

The following table shows pre-tax charges for other hourly and salaried employee separation actions for the first quarter of 2008 and 2007, respectively (in millions). These charges are reported in Automotive cost of sales and Selling, administrative and other expenses.

	First Quarter
	2008		2007
Ford Canada	$	1	$	168
Ford Europe		4		6
Volvo		—		4
Ford Asia Pacific Africa		—		2
Jaguar Land Rover		2		3

The charges above exclude costs for pension and OPEB. See Note 12 for employee separation costs related to pension and OPEB.

Financial Services Sector

Separation Actions

In 2007, we recognized pre-tax charges of $45 million in Selling, administrative and other expenses for employee separation actions. The majority of these actions were associated with Ford Credit's North American business transformation initiative (i.e., the consolidation of its North American branches into its seven existing business centers). In the first quarter of 2008, we released $1 million of the reserve.

These charges exclude costs for pension and OPEB. See Note 12 for employee separation costs related to pension and OPEB.

NOTE 7. INCOME TAXES

Generally, for interim tax reporting, one single tax rate is estimated for tax jurisdictions not subject to a valuation allowance, which is applied to the year-to-date ordinary income/loss. However, we manage our operations by multi-jurisdictional business units and thus are unable to reasonably compute one overall effective tax rate. Accordingly, our worldwide tax provision is calculated pursuant to Financial Accounting Standards Board ("FASB") Interpretation No. 18, Accounting for Income Taxes in Interim Periods, which provides that tax (or benefit) in each foreign jurisdiction, not subject to valuation allowance, be separately computed as ordinary income/(loss) occurs within the jurisdiction.

Item 1. Financial Statements (Continued)

NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS

Automotive Sector

Discontinued Operations

Automotive Protection Corporation ("APCO"). Our North American operation APCO was sold in the second quarter of 2007. First quarter results for this discontinued operation are shown in the table below (in millions):

	First Quarter
	2008		2007
Sales and revenues	$	—	$	14

Operating income/(loss) from discontinued operations	$	—	$	3
Gain/(Loss) on discontinued operations		—		—
(Provision for)/Benefit from income taxes		—		(1	)
Income/(Loss) from discontinued operations	$	—	$	2

Held-for-Sale Operations

Jaguar Land Rover. During 2007, management committed to sell our Jaguar Land Rover operations in order to focus on our core Automotive operations and to build liquidity. At December 31, 2007, we classified the assets and liabilities of these operations as held for sale in our balance sheet and ceased depreciating the long-lived assets. On March 25, 2008, we entered into a definitive agreement with Tata Motors Limited (filed as Exhibit 10.2 hereto) pursuant to which we will sell all of our interest in the Jaguar Land Rover operations for approximately $2.3 billion in cash, subject to customary purchase price adjustments upon completion (e.g., relating to working capital, cash, and debt), and have agreed to contribute up to about $600 million to the Jaguar Land Rover pension plans. In the first quarter of 2008, we recorded a pre-tax impairment charge of $421 million reported in Automotive cost of sales related to the disposal of these operations. The impairment charge reflects the impact on expected proceeds of the purchase price adjustments based on March 31, 2008 conditions and Jaguar Land Rover's first quarter pre-tax earnings of $421 million on the held-for-sale assets and liabilities. We expect to complete the sale in the second quarter of 2008.

As part of the transaction, we will continue to supply Jaguar Land Rover for differing periods with powertrains, stampings and other vehicle components. We also committed to provide engineering support, including research and development, information technology, accounting and other services. Ford Credit will provide financing for Jaguar Land Rover dealers and customers during a transition period, which can vary by market, for up to 12 months.

The assets and liabilities of our Jaguar Land Rover operations classified as held for sale are summarized as follows (in millions):

	March 31, 2008			December 31, 2007
Assets
Receivables	$	1,327		$	758
Inventories		1,822			1,530
Net property		2,256			2,246
Goodwill and other net intangibles		1,986			2,010
Pension assets		753			696
Other assets		331			297
Impairment of carrying value		(421	)		—
Total assets of the held-for-sale operations	$	8,054		$	7,537

Liabilities
Payables	$	2,534		$	2,395
Pension liabilities		21			19
Warranty liabilities		592			645
Other liabilities		1,917			1,765
Total liabilities of the held-for-sale operations	$	5,064		$	4,824

Item 1. Financial Statements (Continued)

NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS (Continued)

Other Dispositions

ACH. As of March 31, 2008, ACH had entered into non-binding or conditional agreements for the sale of five of its businesses. The following table lists the businesses and their primary products:

Sheldon Road plant	Heating, ventilating and cooling assemblies; heat exchangers; and manual control panel components

Milan plant	Fuel tanks and bumper fascias

Nashville, Tulsa, and VidrioCar (Mexico) plants	Automotive and architectural glass products

Sandusky plant	Lighting components

Saline plant	Cockpit module, instrument panel, door trim and floor console products

Each of these sales is conditional upon reaching agreement on a variety of issues, including successful negotiation by the prospective buyer of labor terms with the UAW. As of March 31, 2008, only Zeledyne, LLC., the buyer of the glass operations, had reached an agreement with the UAW. None of the businesses were classified as held for sale at March 31, 2008.

On April 14, 2008, ACH completed the sale of its glass business to Zeledyne, LLC. The sale includes the Nashville, Tulsa, and VidrioCar plants, along with the research and development, engineering, sales and aftermarket operations in Tennessee and Michigan. As a result of this transaction, we expect to realize a pre-tax loss of about $285 million in the second quarter of 2008. Because financing was not in place on March 31, 2008, our assessment was that a sale was not probable, and, therefore, we did not classify the glass business as held for sale on our balance sheet.

Ballard Power Systems Inc. ("Ballard"). On January 25, 2008, we reached an agreement with Ballard to exchange our entire ownership interest of 12.9 million shares of Ballard stock for a 30% equity interest in Automotive Fuel Cell Corporation ("AFCC") along with $22 million in cash. AFCC is a joint venture between Ford (30%), Daimler AG (50.1%) and Ballard (19.9%). It was created for the development of automotive fuel cells. We have also agreed to purchase from Ballard its 19.9% equity interest for $65 million plus interest after five years. As a result of the exchange, we recognized in Automotive cost of sales a pre-tax loss of $70 million. Our investment in AFCC is reported in Automotive equity in net assets of affiliated companies.

Acquisitions

Automobile Craiova SA ("ACSA"). In March 2008, we acquired 72.4% of the shares of ACSA, a Romanian carmaker which will be fully integrated into Ford production systems, from Romania's Authority for State Assets Recovery ("AVAS") for $87 million. Over the next four years, we are required pursuant to the sale agreement with AVAS to invest €675 million into the operations of the business. We also plan to acquire the minority shareholder's equity interest. Based on the continuing significance of AVAS' control and participation in the operations of ACSA during the four-year investment period, our investment is reflected in Automotive equity in net assets of affiliated companies. We anticipate that we will consolidate the operations upon the cessation of AVAS' control and participation in the operations.

Financial Services Sector

Discontinued Operations

PRIMUS Financial Services Inc. ("PRIMUS"). Prior to the end of the first quarter of 2008, Ford Credit committed to a plan to sell 96% of its ownership interest in PRIMUS, its operation in Japan that offers automotive retail and wholesale financing of Ford and Mazda vehicles. The sale was completed in April 2008. Under the terms of the sale, Ford Credit will continue to provide certain information technology and risk management services for a four-year period. The resulting cash flows related to these services are insignificant.

Item 1. Financial Statements (Continued)

NOTE 8. DISCONTINUED OPERATIONS, HELD-FOR-SALE OPERATIONS, OTHER DISPOSITIONS, AND ACQUISITIONS (Continued)

The assets and liabilities of PRIMUS classified as discontinued operations are summarized as follows (in millions):

	March 31, 2008		December 31, 2007
Assets
Finance receivables, net	$	1,827	$	1,535
Retained interest in securitized assets		66		60
Derivative financial instruments		1		3
Other assets		21		49
Total assets of discontinued operations	$	1,915	$	1,647

Liabilities
Total accounts payable	$	50	$	37
Debt		252		540
Derivative financial instruments		6		5
Other liabilities		13		12
Total liabilities of discontinued operations	$	321	$	594

Primus Finance and Leasing, Inc. ("Primus"). Prior to the end of the first quarter of 2008, Ford Credit committed to a plan to sell its 60% ownership interest in Primus, its operation in the Philippines that offers automotive retail and wholesale financing of Ford and Mazda vehicles. The sale was completed in April 2008.

The assets and liabilities of Primus classified as discontinued operations are summarized as follows (in millions):

	March 31, 2008		December 31, 2007
Assets
Finance receivables, net	$	32	$	36
Notes and accounts receivable from affiliated companies		—		1
Other assets		1		—
Total assets of discontinued operations	$	33	$	37

Liabilities
Debt	$	23	$	29
Other liabilities		—		1
Total liabilities of discontinued operations	$	23	$	30

The results of these discontinued operations for the Financial Services sector are as follows (in millions):

	First Quarter
	2008			2007
Sales and revenues	$	16		$	14

Operating income/(loss) from discontinued operations	$	(3	)	$	1
Gain/(Loss) on discontinued operations		1			—
(Provision for)/Benefit from income taxes		1			—
Income/(Loss) from discontinued operations	$	(1	)	$	1

Item 1. Financial Statements (Continued)

NOTE 9. AMOUNTS PER SHARE OF COMMON AND CLASS B STOCK

The calculation of diluted income per share of Common and Class B Stock takes into account the effect of common stock equivalents, such as stock options and convertible securities, considered to be potentially dilutive. Basic and diluted income/(loss) per share were calculated using the following (in millions):

	First Quarter
	2008			2007
Basic and Diluted Income/(Loss)
Basic income/(loss) from continuing operations	$	101		$	(285	)
Effect of dilutive senior convertible notes		—	(a)		—	(a)
Effect of dilutive 6.50% Cumulative Convertible Trust Preferred Securities ("Trust Preferred Securities")		—	(b)		—	(b)
Diluted income/(loss) from continuing operations	$	101		$	(285	)

Basic and Diluted Shares
Average shares outstanding		2,189			1,894
Restricted and uncommitted-ESOP shares		(1	)		(2	)
Basic shares		2,188			1,892

Net dilutive options and restricted and uncommitted-ESOP shares		20			—	(c)
Dilutive senior convertible notes		—	(a)		—	(a)
Dilutive convertible Trust Preferred Securities		—	(b)		—	(b)
Diluted shares		2,208			1,892

__________

Not included in calculation of diluted earnings per share due to their antidilutive effect:

(a)

538 million shares and the related income effect for senior convertible notes.

(b)

282 million shares and the related income effect for Trust Preferred Securities through August 2, 2007. As of August 3, 2007, following the conversion of about 43 million of our Trust Preferred Securities, 162 million shares and the related income effect are not included in the calculation. For further discussion of the conversion, see Note 16 of the Notes to the Financial Statements in our 2007 Form 10-K Report.

(c)

9 million contingently-issuable shares for the first quarter of 2007.

NOTE 10. FAIR VALUE MEASUREMENTS

We adopted SFAS 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, as required by SFAS No. 157, 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. The hierarchy indicates 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, commodity rates, and yield curves. Level 3 inputs are not observable in the market and include management's own 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.

Item 1. Financial Statements (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

On January 1, 2008, we adopted SFAS No. 159. 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.

We elected to apply the fair value option to our marketable securities as described below. This election resulted in a cumulative after-tax increase of approximately $12 million to the opening balance of Retained earnings. Prior to the election of SFAS No, 159, the unrealized gains and losses for available-for-sale securities were recorded in Accumulated other comprehensive income/(loss) and the unrealized gains and losses for held-to-maturity securities were not recognized.

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 A-1 / P-1 (or higher) rated commercial paper 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. Concurrent with our adoption of SFAS No. 157, we elected to apply the fair value option under SFAS No. 159 to our marketable securities. Prior to the adoption, we classified our marketable securities as trading, available-for-sale, or held-to-maturity.

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 may contact securities dealers and obtain dealer quotes.

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, currency and commodity forwards, currency and commodity options, and currency futures. The vast majority of 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 measure derivative fair values assuming that the unit of account is an individual derivative transaction and that derivatives are sold or transferred on a stand-alone basis. Therefore, derivative assets and derivative liabilities are presented on a gross basis, without consideration of master netting agreements. We estimate the fair value of our derivatives using industry standard valuation models, including Black-Scholes and Curran's Approximation. 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 commodity prices, and the contractual terms of the derivative instruments.

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 commodity, or for longer-dated instruments. For longer-dated instruments for 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. For certain commodity contracts, observable market data may be limited and, in those cases, we generally survey brokers and use the average of the surveyed prices in estimating fair value.

Item 1. Financial Statements (Continued)

NOTE 10. FAIR VALUE MEASUREMENTS (Continued)

Retained Interests 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.

The following table summarizes the fair values of financial instruments measured at fair value on a recurring basis at March 31, 2008 (in millions):

	Items Measured at Fair Value on a Recurring Basis
	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2008
Automotive Sector
Assets
Cash equivalents – financial instruments (a) (b)	$	798	$	9,397	$	—	$	10,195
Marketable securities (a)		2,963		10,046		339		13,348
Derivative financial instruments		—		1,796		391		2,187
Total assets at fair value	$	3,761	$	21,239	$	730	$	25,730
Liabilities
Derivative financial instruments	$	2	$	407	$	29	$	438
Total liabilities at fair value	$	2	$	407	$	29	$	438

Financial Services Sector
Assets
Cash equivalents – financial instruments (a) (b)	$	—	$	4,184	$	—	$	4,184
Marketable securities (a)		784		1,207		—		1,991
Derivative financial instruments		—		2,887		825		3,712
Retained interest in securitized assets		—		—		474		474
Total assets at fair value	$	784	$	8,278	$	1,299	$	10,361
Liabilities
Derivative financial instruments	$	—	$	1,105	$	754	$	1,859
Total liabilities at fair value	$	—	$	1,105	$	754	$	1,859

__________

(a)

Approximately 90% of Cash equivalents – financial instruments and Marketable securities presented are U.S. Treasuries, federal agency securities, high-quality corporate bonds, and A-1/P-1 unsecured commercial paper. Instruments presented in Level 1 include U.S. Treasuries and equities. Instruments presented in Level 2 include federal agency securities, corporate obligations and asset-backed securities. Instruments presented in Level 3 include certain corporate obligations and asset-backed securities.

(b)

Cash equivalents – financial instruments excludes time deposits, certificates of deposit, money market accounts, and other cash which are reported at par value.

Item 1. Financial Statements (Continued)

NOTE 10. 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 March 31, 2008 (in millions):

	Fair Value Measurements Using Significant Unobservable Inputs
	Fair Value at January 1, 2008		Total Realized/ Unrealized Gains/ (Losses)		Net Purchases/ (Settlements) (a)			Net Transfers Into/ (Out of) Level 3			Fair Value at March 31, 2008		Change In Unrealized Gains/ (Losses) on Instruments Still Held (b)
Automotive Sector
Marketable securities (c)	$	201	$	—	$	212		$	(74	)	$	339	$	(8	)
Derivative financial instruments, net (d)		257		163		(27	)		(31	)		362		146
Total Level 3 fair value	$	458	$	163	$	185