form10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
FORM
10-K
(Mark
One)
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R
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Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the fiscal year ended December 31, 2008
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or
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£
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the transition period from __________ to
__________
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Commission
file number 1-3950
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Ford
Motor Company
(Exact
name of Registrant as specified in its charter)
Delaware
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38-0549190
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(State
of incorporation)
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(I.R.S.
employer identification no.)
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One
American Road, Dearborn, Michigan
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48126
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(Address
of principal executive offices)
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(Zip
code)
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313-322-3000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered (a)
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Common
Stock, par value $.01 per share
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New
York Stock Exchange
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7.50%
Notes Due June 10, 2043
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New
York Stock Exchange
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Ford
Motor Company Capital Trust II
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New
York Stock Exchange
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6.50%
Cumulative Convertible Trust Preferred
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Securities,
liquidation preference $50 per share
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__________
(a)
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In
addition, shares of Common Stock of Ford are listed on certain stock
exchanges in Europe.
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Securities registered pursuant to
Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes R No £
Indicate
by check mark if the registrant is not required to file reports pursuant to
section 13 or Section 15(d) of the Act.
Yes £ No R
Indicate
by check mark if 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. Yes R No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. R
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. (Check one)
Large
accelerated filer R Accelerated
filer £ Non-accelerated
filer £
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £ No R
As of
June 30, 2008, Ford had outstanding 2,182,758,311 shares of Common Stock
and 70,852,076 shares of Class B Stock. Based on the New York Stock
Exchange Composite Transaction closing price of the Common Stock on that date
($4.81 per share), the aggregate market value of such Common Stock was
$10,499,067,476. Although there is no quoted market for our Class B
Stock, shares of Class B Stock may be converted at any time into an equal number
of shares of Common Stock for the purpose of effecting the sale or other
disposition of such shares of Common Stock. The shares of Common
Stock and Class B Stock outstanding at June 30, 2008 included shares
owned by persons who may be deemed to be "affiliates" of Ford. We do
not believe, however, that any such person should be considered to be an
affiliate. For information concerning ownership of outstanding Common
Stock and Class B Stock, see the Proxy Statement for Ford’s Annual Meeting of
Stockholders currently scheduled to be held on May 14, 2009 (our
"Proxy Statement"), which is incorporated by reference under various Items of
this Report as indicated below.
As of
February 13, 2009, Ford had outstanding 2,325,468,761 shares of Common
Stock and 70,852,076 shares of Class B Stock. Based on the New York
Stock Exchange Composite Transaction closing price of the Common Stock on that
date ($1.76 per share), the aggregate market value of such Common Stock was
$4,092,825,019.
DOCUMENTS
INCORPORATED BY REFERENCE
Document
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Where
Incorporated
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Proxy
Statement*
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Part
III (Items 10, 11, 12, 13 and
14)
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__________
*
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As
stated under various Items of this Report, only certain specified portions
of such document are incorporated by reference in this
Report.
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Exhibit
Index begins on page 95.
PART
I
ITEM
1.
Business
Ford
Motor Company (referred to herein as "Ford", the "Company", "we", "our" or "us")
was incorporated in Delaware in 1919. We acquired the business of a
Michigan company, also known as Ford Motor Company, that had been incorporated
in 1903 to produce and sell automobiles designed and engineered by Henry
Ford. We are one of the world’s largest producers of cars and
trucks. We and our subsidiaries also engage in other businesses,
including financing vehicles.
In
addition to the information about Ford and its subsidiaries contained in this
Annual Report on Form 10-K for the year ended December 31, 2008 ("2008
Form 10-K Report" or "Report"), extensive information about our Company can be
found at www.ford.com,
including information about our management team, our brands and products, and
our corporate governance principles.
The
corporate governance information on our website includes our Corporate
Governance Principles, Code of Ethics for Senior Financial Personnel, Code of
Ethics for Directors, Standards of Corporate Conduct for all employees, and the
Charters for each of our Board Committees. In addition, any
amendments to our Code of Ethics or waivers granted to our directors and
executive officers will be posted in this area of our website. All of
these documents can be accessed by logging onto our website and clicking on the
"Investors," then "Company Information," and then "Corporate Governance" links,
and may be obtained free of charge by writing to our Shareholder Relations
Department, Ford Motor Company, One American Road, P.O. Box 1899, Dearborn,
Michigan 48126-1899.
In
addition, all of our recent periodic report filings with the Securities and
Exchange Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are available free of charge through our
website. This includes recent Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any
amendments to those Reports. Recent Section 16 filings made with
the SEC by the Company or any of its executive officers or directors with
respect to our Common Stock are made available free of charge through our
website. We post each of these documents on our website as soon as
reasonably practicable after it is electronically filed with the
SEC.
To access
our SEC reports or amendments or the Section 16 filings, log onto our website
and click "Investors," then "Company Reports," and then "View S.E.C. Filings"
which links to a list of reports filed with the SEC.
The
foregoing information regarding our website and its content is for convenience
only. The content of our website is not deemed to be incorporated by
reference into this report nor should it be deemed to have been filed with the
SEC.
ITEM
1. Business (continued)
OVERVIEW
Segments. We
review and present our business results in two sectors: Automotive
and Financial Services. Within these sectors, our business is divided
into reportable segments based upon the organizational structure that we use to
evaluate performance and make decisions on resource allocation, as well as
availability and materiality of separate financial results consistent with that
structure.
Our
Automotive and Financial Services segments as of December 31, 2008 are
described in the table below:
Business Sector
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Reportable
Segments*
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Description
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Automotive:
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Ford
North America
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Primarily
includes the sale of Ford, Lincoln and Mercury brand vehicles and related
service parts in North America (the United States, Canada and Mexico),
together with the associated costs to design, develop, manufacture and
service these vehicles and parts, as well as the sale
of Mazda6 vehicles produced by our consolidated subsidiary AutoAlliance
International, Inc. ("AAI").
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Ford
South America
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Primarily
includes the sale of Ford-brand vehicles and related service parts in
South America, together with the associated costs to design, develop,
manufacture and service these vehicles and parts.
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Ford
Europe
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Primarily
includes the sale of Ford-brand vehicles and related service parts in
Europe, Turkey and Russia, together with the associated costs to design,
develop, manufacture and service these vehicles and
parts.
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Volvo
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Primarily
includes the sale of Volvo brand vehicles and related service parts
throughout the world (including Europe, North and South America, and Asia
Pacific Africa), together with the associated costs to design, develop,
manufacture and service these vehicles and parts.
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Ford
Asia Pacific Africa
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Primarily
includes the sale of Ford-brand vehicles and related service parts in the
Asia Pacific region and South Africa, together with the associated costs
to design, develop, manufacture and service these vehicles and
parts.
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Financial
Services:
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Ford
Motor Credit Company
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Primarily
includes vehicle-related financing, leasing, and
insurance.
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Other
Financial Services
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Includes
a variety of businesses including holding companies, real estate, and the
financing and leasing of some Volvo vehicles in
Europe.
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__________
*
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As
reported in our Quarterly Report on Form 10-Q for the period ended
June 30, 2008, we sold Jaguar and Land Rover effective
June 2, 2008. Also, during the fourth quarter of
2008, we sold a portion of our equity in Mazda, reducing our ownership percentage
from approximately 33.4% to 13.78%. As a result, beginning with
the fourth quarter of 2008, we account for our interest in Mazda as
marketable securities and no longer report Mazda as an operating
segment.
|
We
provide financial information (such as revenues, income, and assets) for each of
these business sectors and reportable segments in three areas of this
Report: (1) "Item 6. Selected Financial Data," (2) "Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations," and (3) Note 26 of the Notes to the Financial Statements located at
the end of this Report. Financial information relating to certain
geographic areas also is included in the Notes.
ITEM
1. Business (continued)
AUTOMOTIVE
SECTOR
General
We sell
cars and trucks throughout the world. In 2008, our total ongoing
Automotive operations sold approximately 5,407,000 vehicles at wholesale
throughout the world. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
discussion of wholesale unit volumes.
As of
December 31, 2008, our vehicle brands include Ford, Mercury, Lincoln,
and Volvo. Substantially all of our cars, trucks and parts are
marketed through retail dealers in North America, and through distributors and
dealers (collectively, "dealerships") outside of North America, the substantial
majority of which are independently owned. At
December 31, 2008, the approximate number of dealerships worldwide
distributing our vehicle brands was as follows:
Brand
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Number
of Dealerships at December 31,
2008*
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Ford
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11,827 |
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Mercury
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1,871 |
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Lincoln
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1,427 |
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Volvo
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2,341 |
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__________
*
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Because
many of these dealerships distribute more than one of our brands from the
same sales location, a single dealership may be counted under more than
one brand.
|
In
addition to the products we sell to our dealerships for retail sale, we also
sell cars and trucks to our dealerships for sale to fleet customers, including
daily rental car companies, commercial fleet customers, leasing companies, and
governments. We do not depend on any single customer or small group
of customers to the extent that the loss of such customer or group of customers
would have a material adverse effect on our business.
Through
our dealer network and other channels, we also provide retail customers with a
wide range of after-sale vehicle services and products, including maintenance
and light repair, heavy repair, collision, vehicle accessories and extended
service warranty. In North America, we market these products and
services under several brands, including Genuine Ford and Lincoln-Mercury Parts
and ServiceSM, Ford
Custom AccessoriesTM, Ford
Extended Service PlanSM, and
MotorcraftSM.
The
worldwide automotive industry, Ford included, is affected significantly by
general economic conditions (among other factors) over which we have little
control. This is especially so because vehicles are durable goods,
which provide consumers latitude to determine whether and when to replace an
existing vehicle, as evidenced by the recent sudden and dramatic drop in
industry sales volume with the current economic crisis. That decision
may be affected significantly by slowing economic growth, geo-political events,
and other factors (including the cost of purchasing and operating cars and
trucks and the availability and cost of credit and
fuel). Accordingly, the number of cars and trucks sold may vary
substantially from year to year. The automotive industry is also a
highly competitive, cyclical business that has a wide and growing variety of
product offerings from a growing number of manufacturers. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations – Overview" for discussion of the impact of the current global credit
and economic crisis on our worldwide vehicle sales.
Our
wholesale unit volumes vary with the level of total industry demand and our
share of that industry demand. In the short term, our wholesale unit
volumes also are influenced by the level of dealer inventory. Our
share is influenced by how our products are perceived in comparison to those
offered by other manufacturers based on many factors, including price, quality,
styling, reliability, safety, fuel efficiency, functionality, and
reputation. Our share also is affected by the timing and frequency of
new model introductions. Our ability to satisfy changing consumer
preferences with respect to type or size of vehicle, as well as design and
performance characteristics, impacts our sales and earnings
significantly.
ITEM
1. Business (continued)
The
profitability of our business is affected by many factors,
including:
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▪
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Wholesale
unit volumes;
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▪
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Margin
of profit on each vehicle sold; which in turn is affected by many factors,
including:
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·
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Mix
of vehicles and options sold;
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·
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Costs
of components and raw materials necessary for production of
vehicles;
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·
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Level
of "incentives" (e.g., price discounts) and other marketing
costs;
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·
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Costs
for customer warranty claims and additional service actions;
and
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·
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Costs
for safety, emission and fuel economy technology and equipment;
and
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▪
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As
with other manufacturers, a high proportion of relatively fixed costs,
including labor costs, such that small changes in wholesale unit volumes
can significantly affect overall
profitability.
|
In
addition, our industry continues to face a very competitive pricing environment,
driven in part by industry excess capacity. For the past several
decades, manufacturers typically have given price discounts and other marketing
incentives to maintain market share and production levels. A
discussion of our strategies to compete in this pricing environment is set forth
in "Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Overview."
Competitive
Position. The worldwide automotive industry consists of many
producers, with no single dominant producer. Certain manufacturers,
however, account for the major percentage of total sales within particular
countries, especially their countries of origin. Detailed information
regarding our competitive position in the principal markets where we compete may
be found below as part of the overall discussion of the automotive industry in
those markets.
Seasonality. We
generally record the sale of a vehicle (and recognize sales proceeds in revenue)
when it is produced and shipped or delivered to our customer (i.e., our dealer
or distributor). See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations – Overview" for
additional discussion of revenue recognition practices. We manage our
vehicle production schedule based on a number of factors, including dealer stock
levels (i.e., the number of units held in inventory by our dealers and
distributors for sale to retail and fleet customers) and retail sales
(i.e., units sold by our dealers and distributors to their customers at
retail). We also experience some seasonal fluctuation in the
business. Generally, production in many markets is higher in the
first half of the year to meet demand in the spring and summer, which are
usually the strongest sales months of the year. Third quarter
production is typically the lowest of the year, generally reflecting the annual
vacation shutdown of our manufacturing facilities during this
quarter. As a result, operating results for the third quarter
typically are less favorable than those of other quarters.
Raw Materials. We
purchase a wide variety of raw materials from numerous suppliers around the
world for use in production of our vehicles. These materials include
non-ferrous metals (e.g., aluminum), precious metals (e.g., palladium), ferrous
metals (e.g., steel and iron castings), energy (e.g., natural gas), and resins
(e.g., polypropylene). We believe that we have adequate
supplies or sources of availability of the raw materials necessary to meet our
needs. There are always risks and uncertainties, however, with
respect to the supply of raw materials that could impact their availability in
sufficient quantities to meet our needs. See
"Item 7. Management Discussion and Analysis of Financial Condition and
Results of Operations – Overview" for a discussion of commodity and energy price
trends, and "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk – Commodity Price Risk" for a discussion of commodity price
risks.
Backlog Orders. We
generally produce and ship our products on average within approximately 20 days
after an order is deemed to become firm. Therefore, no significant
amount of backlog orders accumulates during any period.
Intellectual
Property. We own or hold licenses to use numerous patents,
copyrights and trademarks on a global basis. Our policy is to protect
our competitive position by, among other methods, filing U.S. and international
patent applications to protect technology and improvements that we consider
important to the development of our business. We have generated a
large number of patents, and expect this portfolio to continue to grow as we
actively pursue additional technological innovation. We currently
have approximately 15,000 active patents and pending patent applications
globally, with an average age for patents in our active patent portfolio of just
over 5 years. In addition to this intellectual property, we also rely
on our proprietary knowledge and ongoing technological innovation to develop and
maintain our competitive position. Although we believe that these
patents, patent applications, and know-how, in the aggregate, are important to
the conduct of our business, and we obtain licenses to use certain intellectual
property owned by others, none is individually considered material to our
business. We also own numerous trademarks and service marks that
contribute to the identity and recognition of our Company and its products and
services globally. Certain of these marks are integral to the conduct
of our business, a loss of any of which could have a material adverse effect on
our business.
ITEM
1. Business (continued)
Warranty Coverage and Additional
Service Actions. We currently provide warranties on vehicles
we sell. Warranties are offered for specific periods of time and/or
mileage, and vary depending upon the type of product, usage of the product and
the geographic location of its sale. Types of warranty coverage
offered include base coverage (e.g., "bumper-to-bumper" coverage in the United
States on Ford-brand vehicles for 36 months or 36,000 miles, whichever occurs
first), safety restraint coverage, and corrosion coverage. Beginning
with 2007 model-year passenger cars and light trucks, Ford extended the
powertrain warranty coverage offered on Ford, Lincoln and Mercury vehicles sold
in the United States, Canada, and select U.S. export markets (e.g., powertrain
coverage for certain vehicles sold in the United States from three years or
36,000 miles to five years or 60,000 miles on Ford and Mercury brands and from
four years or 50,000 miles to six years or 70,000 miles on the Lincoln
brand). In compliance with regulatory requirements, we also provide
emissions-defects and emissions-performance warranty
coverage. Pursuant to these warranties, Ford will repair, replace, or
adjust all parts on a vehicle that are defective in factory-supplied materials
or workmanship during the specified warranty period.
In
addition to the costs associated with the warranty coverage provided on our
vehicles, we also incur costs as a result of additional service actions not
covered by our warranties, including product recalls and customer satisfaction
actions.
Estimated
warranty and service action costs for each vehicle sold by us are accrued for at
the time of sale. Accruals for estimated warranty and service action
costs are based on historical experience and subject to adjustment from time to
time depending on actual experience. Warranty accrual adjustments
required when actual warranty claim experience differs from our estimates may
have a material impact on our results.
For
additional information with respect to costs for warranty and additional service
actions, see "Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Estimates" and
Note 29 of the Notes to the Financial Statements.
Industry
Sales Volume
During
2008, the global economic crisis dramatically reduced industry sales volume in
the United States and Europe, and began to slow growth in other markets around
the world. The following chart shows industry sales volume for the
United States, and for the markets we track in Europe, South America and Asia
Pacific Africa for the last five years (in millions of units):
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United
States
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13.5 |
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16.5 |
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17.1 |
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17.5 |
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17.3 |
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Ford
Europe
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16.7 |
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18.1 |
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17.9 |
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17.6 |
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17.6 |
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Ford
South America
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4.3 |
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4.1 |
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3.2 |
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2.7 |
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2.2 |
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Ford
Asia Pacific Africa
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20.9 |
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20.4 |
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18.6 |
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17.3 |
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16.1 |
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__________
*
|
Throughout this
section, industry sales volume includes sales of medium and heavy
trucks. See discussion of each market
below for definition of the markets we
track.
|
Much of the decline in industry sales
volume in 2008 occurred toward the end of the year, with the seasonally adjusted
annual rate of sales in the fourth quarter of 2008 reaching 10.7 million
units and 14.8 million units in the United States and the markets we track
in Europe, respectively. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations – Overview" for
discussion of the impact of declining industry sales volume.
United
States
Industry Sales
Data. The following table shows U.S. industry sales of cars
and trucks (in millions of units):
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U.S.
Industry Sales
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Years
Ended December 31,
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Cars
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7.1 |
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7.9 |
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8.1 |
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7.9 |
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7.7 |
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Trucks
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6.4 |
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8.6 |
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9.0 |
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9.6 |
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9.6 |
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ITEM
1. Business (continued)
We
classify cars by small, medium, large, and premium segments, and trucks by
compact pickup, bus/van (including minivans), full-size pickup, sport utility
vehicles, and medium/heavy segments. With the introduction of
vehicles with sport utility features built on a car platform (crossover utility
vehicles or "CUVs"), however, the distinction between traditional cars and
trucks has become more difficult to draw, and these vehicles are not
consistently classified as either cars or trucks across vehicle
manufacturers. In the tables above and below, we have classified CUVs
(i.e., vehicles with sport utility features built on a car platform) as sport
utility vehicles ("SUVs"). In addition, we have classified all of our
luxury cars as "premium," regardless of size; premium SUVs and CUVs are included
in "trucks." Annually, we conduct a comprehensive review of many
factors to determine the appropriate classification of vehicle segments and the
vehicles within those segments, and this review occasionally results in a change
of classification for certain vehicles.
The
following tables show the proportion of U.S. car and truck unit sales by segment
for the industry (including domestic and foreign-based
manufacturers):
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U.S.
Industry Vehicle Mix of Sales by Segment
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Years
Ended December 31,
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CARS
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Small
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22.9 |
% |
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19.8 |
% |
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19.0 |
% |
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17.1 |
% |
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16.0 |
% |
Medium
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15.5 |
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13.6 |
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13.1 |
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13.1 |
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14.0 |
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Large
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6.1 |
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7.0 |
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7.5 |
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7.4 |
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6.8 |
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Premium
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7.8 |
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7.8 |
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7.6 |
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7.8 |
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7.7 |
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Total
U.S. Industry Car Sales
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52.3 |
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48.2 |
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47.2 |
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45.4 |
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44.5 |
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TRUCKS
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Compact
Pickup
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2.8 |
% |
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3.2 |
% |
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3.5 |
% |
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3.9 |
% |
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4.0 |
% |
Bus/Van
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6.1 |
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6.6 |
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7.8 |
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8.1 |
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8.5 |
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Full-Size
Pickup
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11.9 |
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13.5 |
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13.3 |
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14.6 |
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14.7 |
|
SUV/CUV
|
|
|
24.9 |
|
|
|
26.5 |
|
|
|
25.2 |
|
|
|
25.5 |
|
|
|
26.1 |
|
Medium/Heavy
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
3.0 |
|
|
|
2.5 |
|
|
|
2.2 |
|
Total
U.S. Industry Truck Sales
|
|
|
47.7 |
|
|
|
51.8 |
|
|
|
52.8 |
|
|
|
54.6 |
|
|
|
55.5 |
|
Total
U.S. Industry Vehicle Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
Ford
U.S. Vehicle Mix of Sales by Segment*
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
15.0 |
% |
|
|
12.8 |
% |
|
|
12.5 |
% |
|
|
11.6 |
% |
|
|
10.9 |
% |
Medium
|
|
|
9.3 |
|
|
|
7.8 |
|
|
|
12.9 |
|
|
|
8.2 |
|
|
|
9.4 |
|
Large
|
|
|
7.7 |
|
|
|
8.4 |
|
|
|
8.2 |
|
|
|
8.9 |
|
|
|
5.4 |
|
Premium
|
|
|
3.1 |
|
|
|
2.5 |
|
|
|
3.1 |
|
|
|
2.8 |
|
|
|
2.9 |
|
Total
Ford U.S. Car Sales
|
|
|
35.1 |
|
|
|
31.5 |
|
|
|
36.7 |
|
|
|
31.5 |
|
|
|
28.6 |
|
TRUCKS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact
Pickup
|
|
|
3.4 |
% |
|
|
3.0 |
% |
|
|
3.4 |
% |
|
|
4.1 |
% |
|
|
5.0 |
% |
Bus/Van
|
|
|
6.5 |
|
|
|
7.2 |
|
|
|
8.6 |
|
|
|
8.9 |
|
|
|
9.4 |
|
Full-Size
Pickup
|
|
|
27.2 |
|
|
|
29.1 |
|
|
|
29.6 |
|
|
|
30.7 |
|
|
|
30.2 |
|
SUV/CUV
|
|
|
27.4 |
|
|
|
28.6 |
|
|
|
21.1 |
|
|
|
24.3 |
|
|
|
26.4 |
|
Medium/Heavy
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.4 |
|
Total
Ford U.S. Truck Sales
|
|
|
64.9 |
|
|
|
68.5 |
|
|
|
63.3 |
|
|
|
68.5 |
|
|
|
71.4 |
|
Total
Ford U.S. Vehicle Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
__________
*
|
These
data include sales of Ford, Lincoln, and Mercury
vehicles.
|
As the
tables above indicate, the shift from cars to trucks that began in the 1980s
started to reverse in 2005. Prior to 2005, the proportion of trucks
sold in the industry and by Ford had been increasing, reflecting higher sales of
traditional, truck-based SUVs and full-size pickups. In recent years,
the percentage of cars sold in the overall market and by Ford trended higher,
primarily due to increases in the small car segment. In 2008, Ford's
overall vehicle mix changes in the United States generally mirrored the overall
industry. Gains in our small car segment market share were largely
explained by the strength of our redesigned Focus, with the Fusion and Milan
contributing to our increased medium car mix.
Market Share
Data. The competitive environment in the United States has
intensified and is expected to continue to intensify as Japanese and Korean
manufacturers increase imports to the United States and production capacity in
North America. Our principal competitors in the United States include
General Motors Corporation ("General Motors"), Chrysler LLC ("Chrysler"),
Toyota Motor Corporation ("Toyota"), Honda Motor Company ("Honda"), and Nissan
Motor Company ("Nissan"). The following tables show U.S. car and
truck market share for Ford (Ford, Lincoln, and Mercury brand vehicles only) and
for the other five leading vehicle manufacturers.
ITEM
1. Business (continued)
The
percentages in each of the following tables represent percentages of the
combined car and truck industry:
|
|
U.S.
Car Market Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
5.0 |
% |
|
|
4.6 |
% |
|
|
5.8 |
% |
|
|
5.4 |
% |
|
|
5.1 |
% |
General
Motors
|
|
|
10.0 |
|
|
|
9.8 |
|
|
|
10.0 |
|
|
|
10.2 |
|
|
|
10.7 |
|
Chrysler
|
|
|
3.6 |
|
|
|
4.2 |
|
|
|
4.1 |
|
|
|
4.0 |
|
|
|
3.6 |
|
Toyota
|
|
|
10.0 |
|
|
|
9.2 |
|
|
|
8.6 |
|
|
|
7.4 |
|
|
|
6.3 |
|
Honda
|
|
|
6.6 |
|
|
|
5.3 |
|
|
|
4.9 |
|
|
|
4.8 |
|
|
|
4.9 |
|
Nissan
|
|
|
4.4 |
|
|
|
3.8 |
|
|
|
3.2 |
|
|
|
3.3 |
|
|
|
3.0 |
|
All
Other (b)
|
|
|
12.7 |
|
|
|
11.3 |
|
|
|
10.6 |
|
|
|
10.3 |
|
|
|
10.9 |
|
Total
U.S. Car Deliveries
|
|
|
52.3 |
% |
|
|
48.2 |
% |
|
|
47.2 |
% |
|
|
45.4 |
% |
|
|
44.5 |
% |
|
|
U.S.
Truck Market Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
9.2 |
% |
|
|
10.0 |
% |
|
|
10.2 |
% |
|
|
11.6 |
% |
|
|
12.9 |
% |
General
Motors
|
|
|
12.1 |
|
|
|
13.6 |
|
|
|
14.1 |
|
|
|
15.6 |
|
|
|
16.4 |
|
Chrysler
|
|
|
7.2 |
|
|
|
8.4 |
|
|
|
8.4 |
|
|
|
9.2 |
|
|
|
9.1 |
|
Toyota
|
|
|
6.4 |
|
|
|
6.7 |
|
|
|
6.3 |
|
|
|
5.6 |
|
|
|
5.6 |
|
Honda
|
|
|
4.0 |
|
|
|
4.1 |
|
|
|
3.9 |
|
|
|
3.6 |
|
|
|
3.2 |
|
Nissan
|
|
|
2.7 |
|
|
|
2.7 |
|
|
|
2.8 |
|
|
|
2.9 |
|
|
|
2.7 |
|
All
Other (b)
|
|
|
6.1 |
|
|
|
6.3 |
|
|
|
7.1 |
|
|
|
6.1 |
|
|
|
5.6 |
|
Total
U.S. Truck Deliveries
|
|
|
47.7 |
% |
|
|
51.8 |
% |
|
|
52.8 |
% |
|
|
54.6 |
% |
|
|
55.5 |
% |
|
|
U.S.
Combined Car and Truck
Market
Shares (a)
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford
|
|
|
14.2 |
% |
|
|
14.6 |
% |
|
|
16.0 |
% |
|
|
17.0 |
% |
|
|
18.0 |
% |
General
Motors
|
|
|
22.1 |
|
|
|
23.4 |
|
|
|
24.1 |
|
|
|
25.8 |
|
|
|
27.1 |
|
Chrysler
|
|
|
10.8 |
|
|
|
12.6 |
|
|
|
12.5 |
|
|
|
13.2 |
|
|
|
12.7 |
|
Toyota
|
|
|
16.4 |
|
|
|
15.9 |
|
|
|
14.9 |
|
|
|
13.0 |
|
|
|
11.9 |
|
Honda
|
|
|
10.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
8.4 |
|
|
|
8.1 |
|
Nissan
|
|
|
7.1 |
|
|
|
6.5 |
|
|
|
6.0 |
|
|
|
6.2 |
|
|
|
5.7 |
|
All
Other (b)
|
|
|
18.8 |
|
|
|
17.6 |
|
|
|
17.7 |
|
|
|
16.4 |
|
|
|
16.5 |
|
Total
U.S. Car and Truck Deliveries
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
__________
(a)
|
All
U.S. sales data are based on publicly available information from the media
and trade publications.
|
(b)
|
"All
Other" includes primarily companies based in Korea, other Japanese
manufacturers and various European manufacturers, and, with respect to the
U.S. Truck Market Shares table and U.S. Combined Car and Truck Market
Shares table, includes heavy truck
manufacturers.
|
Our
decline in overall market share is primarily the result of several factors,
including increased competition, an industry shift away from our traditionally
stronger segments (e.g., traditional SUVs and full-size pickups), reduced
vehicle sales to daily rental companies, and the discontinuation of a number of
our vehicle lines over the last several years.
In
addition to the Ford, Lincoln, and Mercury vehicles we sell in the U.S. market,
we also sell a significant number of Volvo vehicles. Our market share
for Volvo vehicles in the United States (which is reflected in "All Other" in
the tables above) was approximately 0.5% in 2008, down 0.1 percentage
points from 2007. This decline in market share primarily reflected
industry shift away from the premium SUV segment.
ITEM
1. Business (continued)
Fleet Sales. The
sales data and market share information provided above include both retail and
fleet sales. Fleet sales include sales to daily rental car companies,
commercial fleet customers, leasing companies, and governments. The
table below shows our fleet sales in the United States, and the amount of those
combined sales as a percentage of our total U.S. car and truck sales for the
last five years (in thousands):
|
|
Ford
Fleet Sales*
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily
Rental Units
|
|
|
237 |
|
|
|
304 |
|
|
|
447 |
|
|
|
440 |
|
|
|
415 |
|
Commercial
and Other Units
|
|
|
217 |
|
|
|
268 |
|
|
|
277 |
|
|
|
256 |
|
|
|
243 |
|
Government
Units
|
|
|
153 |
|
|
|
158 |
|
|
|
162 |
|
|
|
141 |
|
|
|
133 |
|
Total
Fleet Units
|
|
|
607 |
|
|
|
730 |
|
|
|
886 |
|
|
|
837 |
|
|
|
791 |
|
Percent
of Total U.S. Car and Truck Sales
|
|
|
32 |
% |
|
|
30 |
% |
|
|
32 |
% |
|
|
28 |
% |
|
|
25 |
% |
__________
*
|
These
data include sales of Ford, Lincoln, and Mercury
vehicles.
|
Lower
fleet sales in 2008 primarily reflected planned reductions in sales to daily
rental car companies, combined with declines in rental, commercial and
government sectors. Although total fleet industry volume was down for
the year, we improved year-over-year market share in both the commercial and
government segments. We continue to maintain government segment
market share leadership over all brands.
Europe
Industry
Sales Data
Market Share
Information. Outside of the United States, Europe is our
largest market for the sale of cars and trucks. The automotive
industry in Europe is intensely competitive. Our principal
competitors in Europe include General Motors, Volkswagen A.G. Group, PSA Group,
Renault Group, and Fiat SpA. For the past 10 years, the top six
manufacturers have collectively held between 70% and 76% of the total
market. This competitive environment is expected to intensify further
as Japanese and Korean manufacturers increase their production capacity in
Europe, and as other manufacturers of premium brands (e.g., BMW, Mercedes-Benz,
and Audi) continue to broaden their product offerings.
For
purposes of this discussion, 2008 market data are based on estimated
registrations currently available; percentage change is measured from actual
2007 registrations. We track industry sales in Europe for the
following 19 markets: Britain, Germany, France, Italy, Spain, Austria, Belgium,
Ireland, Netherlands, Portugal, Switzerland, Finland, Sweden, Denmark, Norway,
Czech Republic, Greece, Hungary, and Poland. In 2008, vehicle
manufacturers sold approximately 16.7 million cars and trucks in these 19
markets, down 7.7% from 2007 levels. Ford's combined car and truck
market share in Europe (for our Ford and Volvo brands) in 2008 was approximately
10% (about the same as 2007).
Britain
and Germany are our highest-volume markets within Europe. Any change
in the British or German market has a significant effect on our total European
automotive profits. The global economic crisis appears to have
impacted the British market earlier than most, and we do not expect Germany to
experience as great an impact. For 2008 compared with 2007, total
industry sales were down 10.7% in Britain, and down 2.9% in
Germany. Our Ford-brand combined car and truck share in these markets
in 2008 was 16.3% in Britain (up 0.4 percentage points from the previous
year), and 7% in Germany (up 0.3 percentage points from the previous
year). Volvo market share in Europe was 1.3%, down
0.2 percentage points from 2007.
Although
not included in the 19 markets above, several additional markets in the region
contribute to our Ford Europe segment results. In 2008, Ford's share
of the Turkish market decreased by 2.1 percentage points to 14.7%, but was
still the seventh year in a row that the Ford brand led the market in sales in
Turkey. We also are experiencing strong sales in Russia, where sales
of Ford-brand vehicles increased approximately 6% to about 187,000 units in
2008. We believe that the impact of the global economic crisis began
to impact these markets during the fourth quarter of 2008, however, so that
full-year 2009 industry sales volumes are likely to decline from 2008
levels.
Motor Vehicle Distribution in
Europe. The Commission of the European Union ("Commission")
regulates the way motor vehicles are sold and repaired throughout the European
Community through its Block Exemption Regulation. Manufacturers must either
operate an "exclusive" distribution system – with exclusive dealer sales
territories combined with the possibility of sales to any reseller
(e.g., supermarket chains, internet agencies and other resellers not
authorized by the manufacturer), who in turn could sell to end customers both
within and outside of the dealer’s exclusive sales territory – or a "selective"
distribution system. These rules make it easier for a dealer to
display and sell multiple brands in one store without the need to maintain
separate facilities.
ITEM
1. Business (continued)
We, like
most other automotive manufacturers, use a "selective" distribution system,
allowing us to restrict the dealer’s ability to sell our vehicles to
unauthorized resellers. The Block Exemption Regulation also contains
rules concerning the repair industry. These rules permit a
manufacturer to require the use of its parts in warranty and recall work, but
allow repair facilities to use parts made by others that are of comparable
quality for all other repair work. We have negotiated and implemented
Dealer, Authorized Repairer and Spare Part Supply contracts on a
country-by-country level and, therefore, the Block Exemption Regulation applies
with respect to all of our dealers.
The
current Block Exemption Regulation, first adopted in 2002, has contributed and
continues to contribute to an increasingly competitive market for vehicles and
parts and ongoing price convergence. This has contributed to an
increase in marketing expenses, negatively affecting the profitability of our
Ford Europe and Volvo segments. We anticipate that this trend may
continue as dealers and parts suppliers become increasingly organized and
established. The current Block Exemption Regulation expires on
May 31, 2010.
Other Markets
Canada and
Mexico. Canada and Mexico also are important markets for
us. In Canada, industry sales of new cars and trucks in 2008 were
approximately 1.67 million units, down 1% from 2007 levels; industry sales
were better in 2008 than 2007 for the first ten months of the year, with
industry sales beginning to show signs of the impact of the global economic
slowdown in November 2008. Industry sales of new cars and trucks in
Mexico were approximately 1.07 million units in 2008, down about 6.5% from
2007; industry sales were stronger year-over-year for the first three quarters
of 2008, with a steep decline during the fourth quarter of 2008 due to the
global economic slowdown. Our combined car and truck market share
(including all of our brands sold in these markets) in 2008 was 12.6% in Canada
(down 0.7 percentage points from the previous year), and 12.1% in Mexico
(down 1.2 percentage points from the previous year).
South
America. Brazil, Argentina, and Venezuela are our principal
markets in South America. Industry sales in 2008 were approximately
2.8 million units in Brazil (up 14.5% from 2007), approximately
600,000 units in Argentina (up 7.9% from 2007), and approximately
270,000 units in Venezuela (down 44.8% from 2007). Our combined
car and truck share for Ford-brand vehicles in these markets was 10% in Brazil
(down 0.8 percentage points from 2007), 12.4% in Argentina (down
1.3 percentage points from 2007), and 15.7% in Venezuela (up 0.5 percentage
points from 2007). In Brazil and Argentina, 2008 industry sales were
strong in comparison to 2007 for the first nine months of the year; beginning in
October 2008, industry sales in both Brazil and Argentina experienced a steep
decline due to the impact of the global economic slowdown.
Asia
Pacific. Australia, China, India, South Africa, and Taiwan are
our principal markets in this region. Industry sales in 2008 were
approximately 1 million units in Australia (down 3.6% from 2007),
approximately 9.9 million units in China (up 8.5% from 2007), approximately
2 million units in India (about the same as 2007), approximately
490,000 units in South Africa (down 20.2% from 2007), and approximately
230,000 units in Taiwan (down 29.7% from 2007). Our combined car
and truck share in these markets (including sales of Ford-brand vehicles, and
market share for certain unconsolidated affiliates particularly in China) was
10.3% in Australia (about the same as 2007), 1.9% in China (down 0.2 percentage
points from 2007), 1.4% in India (down 0.5 percentage points from 2007), 6.9% in
South Africa (down 0.7 percentage points from 2007) and 5.5% in Taiwan
(down 2.1 percentage points from 2007). Our principal competition in
the Asia Pacific region has been the Japanese manufacturers. We
anticipate that the ongoing relaxation of import restrictions (including duty
reductions) will continue to intensify competition in the region.
We are in
the process of significantly increasing our presence in India with more
investment in manufacturing capacity. As announced in January 2008,
we are investing $500 million to expand our current manufacturing facility
in Chennai to begin production of a new small car and build a fully-integrated
and flexible engine manufacturing plant planned to begin production by
2010. We have also been increasing our presence in China, with
investment in manufacturing capacity, introduction of new products, and
expansion of distribution channels.
We also
have an ownership interest in Mazda, which we reduced during the fourth quarter
of 2008 from approximately 33.4% to 13.78%.
ITEM
1. Business (continued)
FINANCIAL
SERVICES SECTOR
Ford
Motor Credit Company LLC
Ford
Motor Credit Company LLC ("Ford Credit") offers a wide variety of automotive
financing products to and through automotive dealers throughout the
world. The predominant share of Ford Credit’s business consists of
financing our vehicles and supporting our dealers. Ford Credit’s
primary financing products fall into the following three
categories:
|
•
|
Retail
financing. Purchasing retail installment sale contracts
and retail lease contracts from dealers, and offering financing to
commercial customers – primarily vehicle leasing companies and fleet
purchasers – to purchase or lease vehicle
fleets;
|
|
•
|
Wholesale
financing. Making loans to dealers to finance the
purchase of vehicle inventory, also known as floorplan financing;
and
|
|
•
|
Other
financing. Making loans to dealers for working capital,
improvements to dealership facilities, and to purchase or finance
dealership real estate.
|
Ford
Credit also services the finance receivables and leases that it originates and
purchases, makes loans to our affiliates, purchases certain receivables from us
and our subsidiaries, and provides insurance services related to its financing
programs. Ford Credit’s revenues are earned primarily from payments
made under retail installment sale contracts and retail leases (including
interest supplements and other support payments it receives from us on
special-rate financing programs), and from payments made under wholesale and
other dealer loan financing programs.
Ford
Credit does business in all states in the United States and in all provinces in
Canada through automotive dealer financing branches and regional business
centers. Outside of the United States, FCE Bank plc ("FCE")
is Ford Credit’s largest operation. FCE's primary business is to
support the sale of our vehicles in Europe through our dealer
network. FCE offers a variety of retail, leasing and wholesale
finance plans in most countries in which it operates; FCE does business in the
United Kingdom, Germany, and most other European countries. Ford
Credit, through its subsidiaries, also operates in the Asia Pacific and Latin
American regions. In addition, FCE, through its Worldwide Trade
Financing division, provides financing to dealers in countries where typically
we have no established local presence.
Ford
Credit's share of retail financing for new Ford, Lincoln, and Mercury brand
vehicles sold by dealers in the United States and new Ford-brand vehicles sold
by dealers in Europe, as well as Ford Credit's share of wholesale financing for
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, were as follows during the last three years:
United
States
|
|
Years
Ended
December
31,
|
|
Financing
share – Ford, Lincoln, and Mercury
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
39 |
% |
|
|
38 |
% |
|
|
44 |
% |
Wholesale
|
|
|
77 |
|
|
|
78 |
|
|
|
80 |
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
share – Ford
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
installment and lease
|
|
|
28 |
% |
|
|
26 |
% |
|
|
27 |
% |
Wholesale
|
|
|
98 |
|
|
|
96 |
|
|
|
95 |
|
For a
detailed discussion of Ford Credit's receivables, credit losses, allowance for
credit losses, loss-to-receivables ratios, funding sources, and funding
strategies, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." For a discussion of how Ford
Credit manages its financial market risks, see "Item 7A. Quantitative and
Qualitative Disclosures about Market Risk."
We
routinely sponsor special-rate financing programs available only through Ford
Credit. Pursuant to these programs, we make interest supplement or
other support payments to Ford Credit. These programs increase Ford
Credit's financing volume and share of financing sales of our
vehicles. See Note 1 of the Notes to the Financial Statements
and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more information about these support
payments.
ITEM
1. Business (continued)
On
November 6, 2008, we and Ford Credit 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 Ford Credit’s managed leverage for a calendar quarter were to be
higher than 11.5 to 1 (as reported in Ford Credit’s then-most recent
Form 10-Q Report or Form 10-K Report), Ford Credit could require us to
make or cause to be made a capital contribution to Ford Credit in an amount
sufficient to have caused such managed leverage to have been 11.5 to
1. A copy of the Support Agreement was filed as Exhibit 10 to our
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2008. No capital contributions have been made to Ford Credit pursuant
to the Support Agreement. In addition, Ford Credit has an agreement
to maintain FCE’s net worth in excess of $500 million. No
payments have been made by Ford Credit to FCE pursuant to the agreement during
the 2006 through 2008 period.
GOVERNMENTAL
STANDARDS
Many
governmental standards and regulations relating to safety, fuel economy,
emissions control, noise control, vehicle recycling, substances of concern,
vehicle damage, and theft prevention are applicable to new motor vehicles,
engines, and equipment manufactured for sale in the United States, Europe, and
elsewhere. In addition, manufacturing and other automotive assembly
facilities in the United States, Europe, and elsewhere are subject to stringent
standards regulating air emissions, water discharges, and the handling and
disposal of hazardous substances.
Mobile
Source Emissions Control
U.S. Requirements – Federal
Emissions Standards. The federal Clean Air Act imposes
stringent limits on the amount of regulated pollutants that lawfully may be
emitted by new motor vehicles and engines produced for sale in the United
States. The current ("Tier 2") emissions regulations promulgated by
the U.S. Environmental Protection Agency ("EPA") set standards for cars and
light trucks that grow increasingly more stringent through the 2009 model
year. The Tier 2 emissions standards also extend durability
requirements for emissions components to 120,000 or 150,000 miles (depending on
the specific standards to which the vehicle is certified). These
standards present compliance challenges and make it more costly and difficult to
utilize light-duty diesel technology, which in turn restricts our ability to
improve fuel economy for purposes of satisfying Corporate Average Fuel Economy
("CAFE") standards.
The EPA
also has standards and requirements for EPA-defined "heavy-duty" vehicles and
engines (those vehicles with 8,500-14,000 pounds gross vehicle
weight). These standards and requirements include stringent
evaporative hydrocarbon standards for gasoline vehicles, and stringent exhaust
emission standards for all vehicles. In order to meet the diesel
standards, manufacturers must employ after-treatment technologies, such as
diesel particulate filters, which require periodic customer
maintenance. These technologies add significant cost to the emissions
control system, and present potential issues associated with consumer
acceptance. The EPA and manufacturers are engaged in discussions over
the vehicle technologies for maintenance and emissions control and the warning
systems that will be used to alert motorists to the need for maintenance to
these systems.
U.S. Requirements – California and
Other State Emissions Standards. Pursuant to the Clean Air
Act, California may seek a waiver from the EPA to establish unique emissions
control standards; each new or modified proposal requires a new waiver of
preemption from the EPA. California has received a waiver from the
EPA to establish its own unique emissions control standards for certain
regulated pollutants. New vehicles and engines sold in California
must be certified by the California Air Resources Board
("CARB"). CARB's current low emission vehicle or "LEV II" emissions
standards treat most light-duty trucks the same as passenger cars, and require
both types of vehicles to meet stringent new emissions
requirements. Like the EPA's Tier 2 emissions standards, CARB's LEV
II vehicle emissions standards also present a difficult engineering challenge,
and impose even greater barriers to the use of light-duty diesel
technology. Rulemaking action to establish LEV III is expected to
begin in 2009, and is expected to impose increasingly stringent emissions
standards.
ITEM
1. Business (continued)
In 2004,
CARB enacted standards limiting emissions of "greenhouse" gases (e.g., carbon
dioxide) from new motor vehicles. CARB asserts that its vehicle
emissions regulations provide authority for it to adopt such
standards. Vehicle manufacturers are seeking through federal
litigation to invalidate these regulations on the grounds that greenhouse gas
standards are functionally equivalent to fuel economy standards and thus
preempted by the federal fuel economy law and/or the federal Clean Air
Act. Issues associated with greenhouse gas regulation are discussed
more fully in the "Motor Vehicle Fuel Economy" section below.
Since
1990, the California program has included requirements for manufacturers to
produce and deliver for sale zero-emission vehicles ("ZEVs"), which emit no
regulated pollutants. Typically, the only vehicles capable of meeting
these requirements are battery-powered vehicles, which have had narrow consumer
appeal due to their limited range, reduced functionality, and high
cost.
The ZEV
mandate initially required that a specified percentage of each manufacturer's
vehicles produced for sale in California be ZEVs. Over time, the
regulations were modified to reflect the fact that the development of
battery-electric technology progressed at a slower pace than anticipated by
CARB. In 2003, CARB adopted amendments to the ZEV mandate that
shifted the near-term focus of the regulation away from battery-electric
vehicles to advanced-technology vehicles (e.g., hybrid electric vehicles or
natural gas vehicles) with extremely low tailpipe emissions. The
rules also give some credit for so-called "partial zero-emission vehicles"
("PZEVs"), which can be internal combustion engine vehicles certified to very
low tailpipe emissions and zero evaporative emissions. In addition,
the rules provide a compliance path pursuant to which the auto industry would
need to produce specified numbers of zero-emission fuel cell
vehicles. In the aggregate, the rules call for production by the
industry of 250 zero-emission fuel cell vehicles by the 2008 model year, 2,500
more in the 2009-2011 model-year period, and 25,000 more in the 2012-2014
model-year period.
Although
the 2003 amendments appear to reflect a recognition by CARB that
battery-electric vehicles do not currently have the potential to achieve
widespread consumer acceptance, the rules still require manufacturers to produce
a substantial number of either battery-electric or fuel cell vehicles in the
2012 model year and beyond. There are substantial questions about the
feasibility of producing the required number of zero-emission fuel cell
vehicles, due to the substantial engineering challenges and high costs
associated with this technology. It is also doubtful whether the
market will support the number of required ZEVs. Due to the
engineering challenges, the high cost of the technology, infrastructure needs,
and other issues, it does not appear that mass production of fuel cell vehicles
will be commercially feasible for years to come.
In
accordance with CARB's ZEV regulations, a panel of independent experts undertook
a review of the feasibility of the ZEV requirements and issued its findings in
2007. The panel found that both battery-electric and fuel cell
vehicles will be in a pre-commercial stage through 2015, and that they are not
likely to be produced in large volumes in that time frame due to issues of
technology and cost. Partially in response to the panel's findings,
CARB finalized a set of revisions to its ZEV regulations in February
2009. For the 2012-2014 model years, the modifications reduce the
number of fuel cell and/or battery-electric vehicles necessary to satisfy the
regulations, but this reduction must be offset by the production of a
substantial number of plug-in hybrid vehicles or hydrogen internal combustion
vehicles instead. For the 2015 model year and beyond, CARB has
directed a complete overhaul of its ZEV, LEV, and greenhouse gas ("GHG")
regulations. Some current elements of the ZEV program (e.g.,
requirements to build low-emissions vehicles with zero evaporative emissions)
will be transferred to the LEV or GHG programs. The ZEV program will
focus exclusively on battery-electric, fuel cell, plug-in hybrid, and hydrogen
internal combustion engine technologies, and the regulations are likely to
require manufacturers to produce ever-increasing numbers of vehicles with these
technologies. Compliance with the ZEV mandate will require costly
actions that could have a substantial adverse effect on our sales volume and
profits, depending on consumer acceptance of the vehicles and the cost and
availability of ZEV components, among other things.
The Clean
Air Act permits other states that do not meet National Ambient Air Quality
Standards ("NAAQS") to adopt California's motor vehicle emissions standards no
later than two years before the affected model year. In addition to California,
fourteen states, primarily located in the Northeast and Northwest, have adopted
the California standards (including California's greenhouse gas provisions).
Twelve of these states also adopted the ZEV requirements. These fourteen states,
together with California, account for more than 30% of Ford's current light-duty
vehicle sales volume in the United States. More states are in the process of
adopting or considering adoption of the California standards. As a result of
EPA's 2006 NAAQS regulation, many new states are eligible to adopt California
emissions standards (see additional discussion in "Stationary Source Emissions
Control" below). Unfortunately, there are problems inherent in transferring
California standards to other states, including the following: 1) managing fleet
average emissions standards and ZEV
mandate requirements on a state-by-state basis presents a major challenge to
automobile company distribution systems; 2) market acceptance of some ZEVs
varies from state to state, depending on weather and other factors; and 3) the
states adopting the California program have not adopted California's clean fuel
regulations, which may impair the ability of vehicles in other states to meet
California's in-use standards.
ITEM
1. Business (continued)
U.S. Requirements – Warranty,
Recall, and On-Board Diagnostics. The Clean Air Act permits
the EPA and CARB to require manufacturers to recall and repair non-conforming
vehicles (which may be identified by testing or analysis done by the
manufacturer, the EPA or CARB), and we may voluntarily stop shipment of or
recall non-conforming vehicles. The costs of related repairs or
inspections associated with such recalls, or a stop-shipment order, could be
substantial. In December 2007, CARB finalized a new set of
regulations governing warranty reporting and field actions. The new
rules provide for mandatory remedial action (typically either recall or an
extended warranty) if warranty claims and failure rates on emissions-related
components reach specified thresholds, even if the vehicles in the field
continue to comply with all applicable emissions standards. CARB's
decision to disconnect field action decisions from the emissions performance of
the vehicles was unprecedented, and in January 2008 an aftermarket trade
association initiated litigation seeking to overturn certain aspects of the new
regulations. In March 2008, the Engine Manufacturers Association, of
which we are a member, initiated litigation challenging CARB's authority to
disconnect emissions performance from field action decisions and other related
claims. These lawsuits were subsequently merged. In
December 2008, the Superior Court of Los Angeles, California overturned
these regulations, holding that the disconnect between field action and
emissions performance was impermissible. The court also held that
extended warranties could continue to be utilized in lieu of recalls where
appropriate and mutually agreed to by CARB. CARB has until June 2009
to correct its regulations in accordance with the court decision. No
appeal has been filed.
Both CARB
and the EPA also have adopted on-board diagnostic ("OBD") regulations, which
require a vehicle to monitor its emissions control system and notify the vehicle
operator (via the "check engine" light) of any malfunction. These
regulations have become extremely complicated, and require substantial
engineering resources to create compliant systems. CARB's OBD rules
for vehicles under 14,000 pounds gross vehicle weight include a variety of
requirements that phase in between the 2006 and 2010 model
years. CARB also has adopted engine manufacturer diagnostic
requirements for heavy-duty gasoline and diesel engines that apply to the 2007
to 2009 model years, and additional OBD requirements for vehicles over 14,000
pounds gross vehicle weight in model years 2010 and beyond. The EPA's
OBD rules are generally less stringent than CARB's, so manufacturers typically
design for compliance with CARB's requirements in order to avoid designing two
systems. The complexity of the OBD requirements and the difficulties
of meeting all of the monitoring conditions and thresholds make OBD approval one
of the most challenging aspects of certifying vehicles for emissions
compliance. CARB regulations provide for automatic recalls of
vehicles that fail to comply with specified OBD requirements. In
addition, many other states have implemented OBD tests as part of their
inspection and maintenance programs. Failure of in-service compliance
tests could lead to vehicle recalls with substantial costs for related
inspections or repairs.
European
Requirements. European Union ("EU") directives and related
legislation limit the amount of regulated pollutants that may be emitted by new
motor vehicles and engines sold in the EU. Stringent new emissions
standards ("Stage IV Standards") were applied to new passenger car
certifications beginning January 1, 2005, and to new passenger car
registrations beginning January 1, 2006. The comparable
light commercial truck Stage IV Standards went into effect for new
certifications beginning January 1, 2006, and for new registrations
beginning January 1, 2007. This directive on emissions also
introduced OBD requirements, more stringent evaporative emissions requirements,
and in-service compliance testing and recall provisions for emissions-related
defects that occur in the first five years or 80,000 kilometers of vehicle
life (extended to 100,000 kilometers in 2005). Failure of
in-service compliance tests could lead to vehicle recalls with substantial costs
for related inspections or repairs. The Stage IV Standards for diesel
engines have proven technologically difficult and precluded manufacturers from
offering some products in time to be eligible for certain government incentive
programs.
The EU
commenced a program in 2004 to determine the specifics for further changes to
vehicle emission standards, and in 2007 the European Commission published a
proposed law for Stage V/VI emissions. The law would further restrict
the amount of particulate and nitrogen oxide emissions from diesel engines, and
tighten some regulations for gasoline engines. Stage V emissions
requirements will be introduced beginning in September 2009 for vehicle
registrations beginning in 2011, and Stage VI requirements will apply beginning
in September 2014. Both Stages V and VI will require the deployment
of particulate trap technology, and Stage VI will require additional
after-treatment for nitrogen oxides. These technology requirements
will add cost and further erode the fuel economy cost/benefit advantage of
diesel vehicles.
ITEM
1. Business (continued)
Particle
number measurement has been introduced for diesel vehicles beginning with
calendar year 2011, and for gasoline vehicles from Stage V. Stage V
gasoline particle number limit values and all Stage V OBD thresholds have yet to
be established by the Commission; proposed regulations are expected to be
introduced in 2010. Vehicles equipped with Selective Catalyst
Reduction systems require a driver inducement and warning system to prevent the
vehicle being operated for a significant period of time if the reductant (urea)
dosing tank is empty. The Stage V/VI emission legislation also
mandated the internet provision of all repair information (not just
emissions-related).
Other National
Requirements. Many countries, in an effort to address air
quality concerns, are adopting previous versions of European or United Nations
Economic Commission for Europe mobile source emissions
regulations. Some countries have adopted more advanced regulations
based on the most recent version of European or U.S. regulations; for example,
China has adopted the most recent European standards to be implemented in the
2008-2010 timeframe. Korea and Taiwan have adopted very stringent
U.S.-based standards for gasoline vehicles, and European-based standards for
diesel vehicles. Because fleet average requirements do not apply,
some vehicle emissions control systems may have to be redesigned to meet the
requirements in these markets. Furthermore, not all of these
countries have adopted appropriate fuel quality standards to accompany the
stringent emissions standards adopted. This could lead to compliance
problems, particularly if OBD or in-use surveillance requirements are
implemented. Japan has unique standards and test procedures, and is
considering more stringent standards for implementation in 2009. This
may require unique emissions control systems be designed for the Japanese
market. Canadian criteria emissions regulations are aligned with U.S.
federal Tier 2 requirements.
Stationary
Source Emissions Control
U.S.
Requirements. In the United States, the federal Clean Air Act
also requires the EPA to identify "hazardous air pollutants" from various
industries and promulgate rules restricting their emission. The EPA
has issued final rules for a variety of industrial categories, several of which
would further regulate emissions from our U.S. operations, including engine
testing, automobile surface coating, and iron casting. These
technology-based standards require some of our facilities to reduce their air
emissions significantly. Additional programs under the Clean Air Act,
including Compliance Assurance Monitoring and periodic monitoring, could require
our facilities to install additional emission monitoring
equipment. The cost of complying with these requirements could be
substantial.
The Clean
Air Act also requires the EPA to periodically review and update its NAAQS, and
to designate whether counties or other local areas are in compliance with the
new standards. If an area or county does not meet the new standards
("non-attainment areas"), the state must revise its implementation plans to
achieve attainment. In 2006, the EPA issued a final rule revising the
NAAQS for particulate matter increasing the stringency of the standard for fine
particulate matter (particles 2.5 micrometers in diameter or less), while
maintaining the existing standard for coarse particulate matter (particles
between 2.5 and 10 micrometers in diameter). The EPA estimates
that the new standard will put approximately 124 counties into non-attainment
status for fine particulate matter. Various parties filed
petitions for review of the final particulate matter rules in the U.S. Court of
Appeals for the District of Columbia Circuit, in most cases seeking more
stringent standards for both fine and coarse particulate matter. The
Alliance of Automobile Manufacturers (the "Alliance," an industry trade group
including BMW Group, Chrysler, Ford, General Motors, Mazda, Mitsubishi Motors,
Porsche, Toyota, and Volkswagen) intervened to oppose further changes to the
EPA's final rule. The case was argued in September 2008; no ruling
has yet been issued.
In March
2008, the EPA promulgated rules setting a new ozone NAAQS at a level more
stringent than the pre-existing standard. The EPA estimates that as a
result of the new standard, the number of counties out of attainment for the
ozone NAAQS could increase by 300%. A number of states and
environmental groups have filed suit seeking to compel EPA to issue an even more
stringent ozone standard. An industry coalition (not including the
Alliance) has intervened in support of the ozone standard as promulgated by the
EPA.
Even
under the particulate matter and ozone NAAQS as revised by the EPA, the new
non-attainment areas will need to revise their implementation plans to require
additional emissions control equipment and impose more stringent permit
requirements on facilities in those areas. The existence of
additional non-attainment areas can also lead to increased pressure for more
stringent mobile source emissions standards as well. The cost of
complying with the requirements necessary to help bring non-attainment areas
into compliance with the revised NAAQS could be substantial.
ITEM
1. Business (continued)
European
Requirements. In Europe, environmental legislation is driven
by EU law, in most cases in the form of EU directives that must be converted
into national legislation. All of our European plants are located in
the EU region, with the exception of one in St. Petersburg, Russia, and Ford
Otosan. One of the core EU directives is the Directive on Integrated
Pollution Prevention Control ("IPPC"). The IPPC regulates the permit
process for facilities, and thus the allowed emissions from these
facilities. As in the United States, engine testing, surface coating,
casting operations, and boiler houses all fall under this regime. The
Solvent Emission Directive which came into effect in October 2007 primarily
affects vehicle manufacturing plants, which must upgrade their paint shops to
meet the new requirements. The cost of complying with these
requirements could be substantial.
The
European Emission Trading Scheme requires large emitters of carbon dioxide
within the EU to monitor and annually report CO2 emissions,
and each is obliged every year to return an amount of emission allowances to the
government that is equivalent to its CO2 emissions
in that year. The impact of this regulation on Ford Europe primarily
involves our on-site combustion plants, and we expect that compliance with this
regulation may be costly as the system foresees stringent CO2 emission
reductions in progressive stages. Periodic emission reporting also is
required of EU Member States, in most cases defined in the permits of the
facility. The Release and Transfer Register requires more reporting
regarding emissions into air, water and soil than its precursor. The
information required by these reporting systems is publicly available on the
Internet.
Motor
Vehicle Safety
U.S.
Requirements. The National Traffic and Motor Vehicle Safety
Act of 1966 (the "Safety Act") regulates motor vehicles and motor vehicle
equipment in the United States in two primary ways. First, the Safety
Act prohibits the sale in the United States of any new vehicle or equipment that
does not conform to applicable motor vehicle safety standards established by the
National Highway Traffic Safety Administration ("NHTSA"). Meeting or
exceeding many safety standards is costly, in part because the standards tend to
conflict with the need to reduce vehicle weight in order to meet emissions and
fuel economy standards. Second, the Safety Act requires that defects
related to motor vehicle safety be remedied through safety recall
campaigns. A manufacturer is obligated to recall vehicles if it
determines that the vehicles do not comply with a safety
standard. Should we or NHTSA determine that either a safety defect or
a noncompliance exists with respect to any of our vehicles, the cost of such
recall campaigns could be substantial. As of
January 14, 2009, there were pending before NHTSA six investigations
relating to alleged safety defects or potential compliance issues in our
vehicles.
The Safe,
Accountable, Flexible, and Efficient Transportation Equity Act: A Legacy for
Users ("SAFETEA-LU") was signed into law in 2005. SAFETEA-LU
establishes a number of substantive, safety-related rulemaking mandates for
NHTSA which have already resulted in or are to result in new regulations and
product content requirements. Established regulations include window
sticker safety ratings ("Stars on Cars" ratings) and regulations that affect
power window switches, door retention and side-impact
protection. NHTSA has not yet established required regulations that
will affect ejection mitigation, rollover prevention, and roof
strength.
The
Transportation Recall Enhancement, Accountability, and Documentation Act (the
"TREAD Act") was signed into law in November 2000. The TREAD Act
required NHTSA to establish several regulations, including reporting
requirements for motor vehicle manufacturers on foreign recalls and certain
information received by the manufacturer that may assist the agency in the early
identification of safety defects. Various groups have challenged the
categorical determination by NHTSA that certain areas of data, including
warranty claim information, field reports, and consumer complaint information,
were granted a presumption of confidentiality under the TREAD Act early warning
reporting requirements. Since that time, the U.S. District Court for
the District of Columbia has ruled that, while NHTSA had the authority to make
these categorical determinations, it did not provide adequate public notice and
opportunity to comment in so doing. NHTSA addressed this issue in a
final rule published on October 18, 2007 that re-established class
distinctions. In September 2008, NHTSA began publishing
non-confidential TREAD data to the public.
The Cameron Gulbransen Kids
Transportation Safety Act of 2007 (Kids and Cars Safety Act) passed into law in
2008 mandates that NHTSA enact regulations related to rearward visibility and
brake-to-shift interlock, and mandates that NHTSA consider regulations related
to automatic reversal functions on power windows. The cost to comply
with these requirements may be substantial.
Foreign
Requirements. Canada, the EU, and countries in South America,
the Middle East, and Asia Pacific markets also have safety standards and
regulations applicable to motor vehicles, and are likely to adopt additional or
more stringent
requirements in the future. Recent examples of such legislation for
the EU include an increase in the scope and severity of the already existing
pedestrian protection legislation, the introduction of a requirement that all
vehicles include mandatory dedicated daytime running lamps for new vehicle types
as of 2011, and a general trend to extend the scope of passenger car regulations
from 2500 kilograms ("kg") up to 3500 kg gross vehicle
mass. Global Technical Regulations ("GTRs") developed under
the auspices of the United Nations ("UN") continue to have
increasing impact on automotive safety activities. In 2008, GTRs on
Electronic Stability Control, Head Restraints, and Pedestrian Protection were
each adopted by the UN "World Forum for the Harmonisation of Vehicle
Regulations," and are now in different stages of national
implementation. While global harmonization is fundamentally supported
by the auto industry in order to reduce complexity, national implementation yet
may introduce subtle differences into the system. South American
examples of more stringent safety requirements include more severe impact
requirements being developed in Brazil, the planned adoption of mandatory driver
and passenger frontal airbags in Argentina, Brazil and Ecuador, and the
introduction of mandatory antilock braking system in Argentina and
Brazil. Canadian safety legislation and regulations are similar to
those in the United States, and the differences that do exist generally have not
prevented the production of common product for both markets. Recent
amendments to Canadian standards have incorporated United Nations Economic
Commission for Europe standards as a compliance option, where equivalency
exists. The possibility of more stringent or different requirements
exists.
ITEM
1. Business (continued)
Motor
Vehicle Fuel Economy
Ford's
ability to comply with CAFE or greenhouse gas emissions standards depends
heavily on the alignment of those standards with actual consumer demand, as well
as adequate lead time to make the necessary product changes. Ford has
plans to increase the fuel economy of its vehicles through the deployment of
various fuel-saving technologies, some of which have been announced publicly,
and through a shift in its fleet mix toward smaller and lighter
vehicles. Even given these plans, there are limits on Ford's ability
to achieve required fuel economy increases in its vehicles in a given time
frame. These limits relate to the costs and effectiveness of the
available technologies; consumer acceptance of the new technologies and of
changes in fleet mix; the willingness of consumers to absorb the additional
costs of new technologies; the appropriateness (or lack thereof) of certain
technologies for use in particular vehicles; and the human and engineering
resources necessary to deploy new technologies across a wide range of products
and powertrains in a short time.
The
ongoing economic downturn may affect Ford's ability to absorb the costs of
deploying new fuel-efficient technologies. Another variable is
fluctuation in fuel prices. Consumers are more likely to pay for
vehicles with fuel-efficient technologies when fuel prices are relatively high,
as was the case in mid-2008; when fuel prices are relatively low as they were
toward the end of 2008, the extent of consumer demand for such technologies is
less clear. If consumers demand vehicles that are relatively large,
have high performance, and/or are feature-laden, while regulatory standards
require the production of vehicles that are smaller and more economical, the
mismatch of supply and demand would have an adverse effect on both regulatory
compliance and our profitability. Moreover, if regulatory
requirements call for rapid, substantial increases in fleet average fuel economy
(or decreases in fleet average greenhouse gas emissions), we may not have
adequate resources and time to make major product changes across most or all of
our vehicle fleet (assuming the necessary technology can be
developed).
U.S. Requirements – Federal
Standards. Federal law requires that vehicles meet minimum
corporate average fuel economy standards set by NHTSA. A manufacturer
is subject to potentially substantial civil penalties if it fails to meet the
CAFE standard in any model year, after taking into account all available credits
for the preceding three model years and expected credits for the three
succeeding model years.
Federal
law established a passenger car CAFE standard of 27.5 miles per gallon for 1985
and later model years; light truck standards are set by NHTSA under a rulemaking
process. In 2006, NHTSA issued a final rule changing the structure of
the light-truck fuel economy standards for model year 2008 and
beyond. The final rule employs a new "reformed" approach to fuel
economy standards in which each manufacturer's CAFE obligation is based on the
specific mix of vehicles it sells. A manufacturer's light truck CAFE
is now calculated on a basis that relates fuel economy targets to vehicle
size. These fuel economy targets become increasingly stringent with
each new model year. Through 2010, manufacturers have the option of
complying with the "reformed" program or an alternative set of "unreformed"
standards promulgated by NHTSA. Beginning with the 2011 model year,
all manufacturers must comply under the reformed program. Also in
model year 2011 and beyond, the truck CAFE standards will apply for the first
time to certain classes of heavier passenger vehicles (SUVs and passenger vans
with a gross vehicle weight between 8,500 and 10,000 pounds, or with a gross
vehicle weight below 8,500 pounds and a curb weight above 6,000
pounds).
ITEM
1. Business (continued)
In
December 2007, Congress enacted new energy legislation restructuring the CAFE
program and requiring NHTSA to set new CAFE standards beginning with the 2011
model year. The key features of the bill are as
follows: 1) it maintains the current distinction between cars and
trucks; 2) it requires NHTSA to set "reformed" CAFE standards for cars along the
lines of the reformed truck standards described above; 3) it calls for NHTSA to
set car and truck standards such that the combined fleet of cars and trucks in
the United States achieves a 35 mile per gallon fleet average by model year
2020; 4) it allows manufacturers to trade credits among their CAFE fleets;
and 5) it retains CAFE credits for the manufacture of flexible-fuel vehicles,
but phases them out by model year 2020. Domestic passenger cars also
are subject to a minimum fleet average of the greater of 27.5 miles per gallon
or 92% of NHTSA's projected fleet average fuel economy for domestic and imported
passenger cars for that model year.
In April
2008, NHTSA issued a proposed rule setting forth CAFE standards for cars and
light trucks for the 2011-2015 model years. The proposed standards
were based on the "reformed" approach to CAFE as required by
Congress. The proposal entailed a significantly more rapid rate of
increase in fuel economy than past NHTSA rulemakings on CAFE. The
proposed rule also contained new provisions on credit trading, intra-company
credit transfers between fleets, and incentives for the production of flexible
fuel vehicles, among other things. The proposed rule went through a
notice-and-comment process, and NHTSA was expected to issue a final rule at the
end of 2008. However, the Bush Administration ultimately decided not
to issue a final rule and to let the incoming Obama Administration complete the
rulemaking process.
Pressure
to increase CAFE standards stems in part from concerns about the impact of
carbon dioxide and other GHG emissions on the global climate. In
1999, a petition was filed with the EPA requesting that it regulate carbon
dioxide emissions from motor vehicles under the Clean Air Act. This
is functionally equivalent to imposing fuel economy standards, since the amount
of carbon dioxide emitted by a vehicle is directly proportional to the amount of
fuel consumed. The petitioners later filed suit in an effort to
compel a formal response from the EPA. In August 2003, the EPA denied
the petition on the grounds that the Clean Air Act does not authorize the EPA to
regulate greenhouse gas emissions, and only NHTSA is authorized to regulate fuel
economy under the CAFE law. A number of states, cities, and
environmental groups filed for review of the EPA's decision in the U.S. Court of
Appeals for the District of Columbia Circuit. A coalition of states
and industry trade groups, including the Alliance, intervened in support of the
EPA's decision. In July 2005, the Court held that the EPA had
exercised reasonable discretion in determining not to regulate carbon dioxide as
a pollutant.
The
matter was appealed, and in April 2007 the U.S. Supreme Court ruled that GHGs
constitute "air pollutants" subject to regulation pursuant to the Clean Air
Act. The ruling did not specifically require the EPA to regulate
greenhouse gases; rather, it directed the EPA to either issue an "endangerment"
finding pursuant to the Clean Air Act (that greenhouse gases endanger public
health or welfare), or explain why it could not or would not do
so. In the wake of this ruling, the Bush Administration announced its
intention to promulgate new federal rules regulating greenhouse gas emissions
from motor vehicles. President Bush signed an Executive Order
directing the Department of Transportation, the Department of Energy, and the
EPA to cooperate in this effort.
In July
2008, the EPA released an Advance Notice of Proposed Rulemaking ("ANPR") related
to the potential regulation of GHGs under the Clean Air Act. The ANPR
sought public comment on the appropriateness of a finding by EPA that GHGs
"endanger" public health and welfare, and on the ramifications of such a
finding. The ANPR included a lengthy discussion of potential
regulatory programs under the Clean Air Act that EPA might implement to reduce
GHG emissions from both mobile and stationary sources. With
respect to mobile sources, EPA sought comment on the possibility of setting
long-term, fleet-average CO2 standards
for motor vehicles, which would be the functional equivalent of establishing
fuel economy standards. Depending on the level of stringency, motor
vehicle GHG standards could effectively supplant any CAFE standards set by
NHTSA. The ANPR also discussed the possibility of establishing a
cap-and-trade system to reduce mobile source GHG emissions. The ANPR
addressed potential stationary source regulations as well. A wide
range of groups have filed comments on the ANPR; the task of reviewing the
comments and determining what action to take has been left to the Obama
Administration. At the time the ANPR was released, the Bush
Administration made it clear that the regulatory proposals outlined in the ANPR
did not represent Administration policy, primarily because of the burdensome
nature of the proposals and their potential adverse effect on the U.S.
economy.
U.S. Requirements – California and
Other State Standards. In July 2002, California enacted
Assembly Bill 1493 ("AB 1493"), a law mandating that CARB promulgate GHG
standards for light-duty vehicles beginning with model year 2009. In
September 2004, CARB adopted California GHG emissions regulations applicable to
2009-2016 model-year cars and trucks, effectively imposing more stringent fuel
economy standards than those set by NHTSA. These
regulations impose
standards that are equivalent to a CAFE standard of more than 43 miles per
gallon for passenger cars and small trucks, and approximately 27 miles per
gallon for large light trucks and medium-duty passenger vehicles by model year
2016. The Alliance and individual companies (including Ford)
submitted comments opposing the rules and addressing errors in CARB's underlying
economic and technical analyses.
ITEM
1. Business (continued)
Whenever
California adopts new or modified vehicle emissions standards, the state must
apply to the EPA for a waiver of preemption of the new or modified standards
under Section 209 of the Clean Air Act. Since the AB 1493 rules were
adopted by California as "emissions" rules under the Clean Air Act, they require
this waiver of federal preemption. In March 2008, EPA published a
decision formally denying California's request for a waiver of
preemption. California has challenged that decision in the U.S. Court
of Appeals for the District of Columbia Circuit. The court has set a
briefing schedule pursuant to which briefing on the petition will be concluded
by March 2009; no date for oral argument has been set. In January
2009, California submitted a petition for reconsideration of the March 2008
waiver denial, and President Obama issued a memorandum directing the EPA to
revisit the waiver decision. The EPA has initiated a new
notice-and-comment process as part of its reconsideration of the
waiver. It is also likely that the federal government will seek a
stay of the ongoing D.C. Circuit litigation over the March 2008 waiver denial
while it reconsiders the waiver request.
In
addition to the question of Clean Air Act preemption, which is being addressed
through the EPA's waiver decision and the ensuing litigation, there is also the
question of preemption of the AB 1493 standards by the federal CAFE
law. CAFE prohibits states from enacting or enforcing regulations
"related to" fuel economy when federal standards are in effect. In
December 2004, the Alliance and other plaintiffs (several automobile dealers,
two individual automobile manufacturers, and another automotive trade
association) filed suit in federal district court in California, seeking to
overturn the AB 1493 standards. The suit challenges the regulation on
several bases, including preemption under the federal CAFE law. In
2008, the U.S. District Court for the Eastern District of California issued a
final judgment holding that: i) California is enjoined from enforcing
AB 1493 regulations in the absence of an EPA waiver; and ii) the federal CAFE
law does not preempt California from regulating motor vehicle
GHGs. Plaintiffs appealed the second ruling to the U.S. Court of
Appeals for the Ninth Circuit, and briefing on the appeal is
underway.
Other
states have adopted, or are in the process of adopting, CARB's GHG
standards. These states include New York, Massachusetts, Maine,
Vermont, Rhode Island, Connecticut, New Jersey, Pennsylvania, Oregon,
Washington, Maryland, New Mexico, Florida, and Arizona. Several other
states are known to be considering the adoption of such rules.
The
Alliance, along with other plaintiffs, filed suit in federal court in Vermont
and Rhode Island challenging those states' adoption of California's AB 1493
rules. The Vermont case went to trial in April 2007. In
September 2007, the U.S. District Court for the District of Vermont upheld
Vermont's GHG rules, finding that they were not preempted by federal fuel
economy law. Specifically, the court held that the state GHG rules
were insulated from a preemption challenge because they were subject to a waiver
process under the federal Clean Air Act. The court also held that,
even if questions of federal preemption were applicable, the GHG rules should be
upheld because some portions of the regulations give credit for vehicle
modifications that do not relate specifically to improving fleet average fuel
economy. The Alliance is appealing the District Court's decision to
the U.S. Court of Appeals for the Second Circuit; briefing has been completed
and we are awaiting oral argument. In the Rhode Island case, the
District Court recently issued a ruling dismissing the claims of the automobile
trade association and automobile manufacturer plaintiffs on collateral estoppel
grounds; the dealer plaintiffs remain in the case. The trade
associations and manufacturers are seeking an immediate appeal of the collateral
estoppel ruling to the U.S. Court of Appeals for the First Circuit.
In
September 2006, California also enacted the Global Warming Solutions Act of 2006
(also known as Assembly Bill 32 ("AB 32")). This law mandates that
statewide GHG emissions be capped at 1990 levels by the year 2020, which would
represent a significant reduction from current levels. It also
requires the monitoring and annual reporting of GHG emissions by all
"significant" sources,
and delegates authority to CARB to develop and implement GHG emissions reduction
measures. AB 32 also provides that, if the AB 1493 standards do not
take effect, CARB must implement alternative regulations to control mobile
sources of GHG emissions to achieve equivalent or greater reductions than
mandated by AB 1493. Although the full ramifications of AB 32 are not
known, CARB has initiated a rulemaking process under AB 32 to develop so-called
"Cool Car Standards." The program is intended to set minimum
standards for reflectivity of automotive paints and glass. The goal
is to promote lower interior temperatures in vehicles, thereby reducing the air
conditioning load and leading to fewer GHG emissions. The automobile
industry has concerns about the availability
of paints and coatings to meet the reflectivity standards, along with the safety
implications of the standards. CARB is expected to issue a final rule
by the spring of 2009.
ITEM
1. Business (continued)
The
recent developments with respect to anticipated new CAFE standards, potential
EPA GHG standards for motor vehicles, and state-level attempts to impose GHG
standards on automobiles pose very significant concerns for us. These
regulatory initiatives have the potential to impose three different competing
and conflicting regimes of fuel economy standards. Compliance with
all three, or even two, of these regimes would at best add enormous complexity
to our planning processes, and at worst be virtually impossible. The
CAFE standards proposed by NHTSA in 2008 represented a significant challenge in
and of themselves, but if NHTSA builds upon its history of setting tough but
reasonable CAFE standards based on a consideration of technological feasibility
and economic practicability, we believe it is likely that the new
federal CAFE standards can be workable, albeit costly, within our business
limitations. It is highly questionable whether we could accommodate
an additional layer of GHG regulations imposed by EPA under the Clean Air Act,
which has a much more onerous certification and enforcement regime than the CAFE
law. Finally, California's AB 1493 rules seek to impose stringent,
state-specific requirements that are not workable within our current business
limitations.
If any of
one these regulatory regimes, or a combination of them, impose and enforce
extreme fuel economy or GHG standards, we likely would be forced to take various
actions that could have substantial adverse effects on our sales volume and
profits. Such actions likely would include restricting offerings of
selected engines and popular options; increasing market support programs for our
most fuel-efficient cars and light trucks in order to maintain compliance; and
ultimately curtailing the production and sale of certain vehicles such as
family-size, luxury, and high-performance cars, SUVs and "crossover" vehicles,
and full-size light trucks, in order to maintain compliance. These
actions might need to occur on a state-by-state basis, in response to the AB
1493 rules, or they may need to be taken at the national level if either the
CAFE standards or the EPA GHG standards are excessively stringent. We
believe it is critical that policymakers work toward a single, nationwide set of
fuel economy/GHG standards that achieve desired levels of fuel economy
improvement and GHG reductions in a workable fashion.
See "Item
3. Legal Proceedings" for a discussion of the public nuisance litigation filed
by the state of California against automobile manufacturers for alleged global
warming damages. Though that suit has been dismissed by the trial
court, California's Attorney General has filed an appeal. If
California were to prevail in this litigation, it could encourage similar suits
in other states and municipalities. A judgment against defendants
also could result in the imposition of judicially-mandated standards for GHG
emissions that could arguably supersede or augment existing fuel economy
requirements; such a result could compel us to implement product restrictions
and/or other costly actions as outlined above.
European
Requirements. The EU is a party to the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, and has agreed to reduce
greenhouse gas emissions by eight percent below 1990 levels during the 2008-2012
period. In 1998, the EU agreed to support an environmental agreement
with the European Automobile Manufacturers' Association ("ACEA," of which
Ford is a member) on carbon dioxide emission reductions from new passenger cars
(the "ACEA Agreement"). The ACEA Agreement established an emissions
target of 140 grams of carbon dioxide per kilometer ("g/km") for the average of
new cars sold in the EU by the ACEA's members in 2008. It is presumed
that the industry has not achieved the 140 g/km target due to a number of
factors, including consumer demand and the challenges associated with
implementing various fuel-saving technologies.
In
December 2008, the EU approved a regulation of passenger car carbon dioxide
beginning in 2012 which limits the industry fleet average to a maximum of 130
g/km, using a sliding scale based on vehicle weight. This regulation
provides different targets for each manufacturer based on its respective fleet
of vehicles according to vehicle weight and carbon dioxide
output. Limited credits are available for CO2 off-cycle
actions ("eco-innovations"), certain alternative fuels, and vehicles with
CO2
emissions below 50 g/km. For manufacturers failing to meet targets, a
penalty system will apply with fees ranging from €3 to €95 per each g/km
shortfall in the years 2012-18, and €95 for each g/km shortfall for
2019. Manufacturers would be permitted to use a pooling agreement
between wholly-owned brands to share the burden. Further pooling
agreements between different manufacturers are also possible, although it is not
clear that they will be of much practical benefit under the
regulations. For 2020, an industry target of 95 g/km has been
set. This target will be further detailed in a review in
2013.
In
separate legislation, so-called "complementary measures" are
expected. These may include, for example, tire-related requirements,
and requirements related to gearshift indicators, fuel economy indicators, and
more efficient low-CO2 mobile air
conditioning systems. These proposals are likely to be finalized in
2009-10. The European Commission has
indicated that possible targets for commercial light duty vehicles may be around
160 g/km to 175 g/km, with specific legislative proposals expected this
year.
ITEM
1. Business (continued)
Some
European countries have implemented or are still considering other initiatives
for reducing carbon dioxide emissions from motor vehicles, including fiscal
measures. For example, the United Kingdom introduced a vehicle excise
duty and company car taxation based on carbon dioxide emissions in 2001, and
other member states such as France, Portugal and Germany have adopted or
announced their intention to adopt carbon dioxide-based taxes for passenger
cars. The EU CO2
requirements are likely to trigger further measures.
Other National
Requirements. Some Asian countries (such as China, Japan,
South Korea, and Taiwan) also have adopted fuel efficiency
targets. For example, Japan has fuel efficiency targets for 2015
which are even more stringent than the 2010 targets, with incentives for early
adoption. China implemented second-stage fuel economy targets from
2008, and is working on the third stage for 2012 phase-in. All of
these fuel efficiency targets will impact the cost of technology of our models
in the future.
Following
considerable discussion, the Canadian automobile industry signed a Memorandum of
Understanding ("MOU") dated April 5, 2005 with the Canadian government in which
the industry voluntarily committed to reduce the growth in greenhouse gas
emissions from the Canadian vehicle fleet by 5.3 megatons ("Mt") by 2010 (which
slightly exceeds the government's 5.2 Mt target under its Kyoto Protocol Climate
Change Action Plan). The Canadian federal government has issued the
Motor Vehicle Fuel Consumption Standards Act, which calls for new fuel economy
standards beginning with the 2011 model year. The standards are
likely to track the new CAFE standards in the United States, although it is
possible that Canada may consider increasing the stringency of the standards
based on the fleet mix in Canada. Several provinces, including
British Columbia, Quebec, Manitoba, and Prince Edward Island, have publicly
announced their intention to impose greenhouse gas standards at the provincial
level, likely modeled after California's AB 1493 standards. Such
regulations are likely to go into effect if California receives a waiver of
preemption in the United States.
Chemical
Regulation
U.S.
Requirements. Several states are considering moving beyond a
substance-by-substance approach to managing substances of concern, and are
moving towards adopting green chemistry legislation that give state governments
broad regulatory authority to determine, prioritize, and manage toxic
substances. In 2008, California became the first state to enact a
broad Green Chemistry Program, which will commence regulations in
2011. This new law may impose new vehicle end-of-life
responsibilities on vehicle manufacturers, and restrict, ban, or require
labeling of certain substances. This broad authority to regulate
substances could require changes in product chemistry, and greater complication
of fleet mix.
European
Requirements. The European Commission has implemented its
regulatory framework for a single system to register, evaluate, and authorize
the use of chemicals with a production volume above one ton per year
("REACH"). The rules took effect on June 1, 2007, with a
preparatory period through June 1, 2008 followed by a six-month
pre-registration phase. Compliance with the legislation is likely to
be administratively burdensome for all entities in the supply chain, and
research and development resources may be redirected from "market-driven" to
"REACH-driven" activities. We and our suppliers have pre-registered
those chemicals that were identified to fall within this
requirement. The regulation also will accelerate restriction or
banning of certain chemicals and materials, which could increase the costs of
certain products and processes used to manufacture vehicles and
parts. We are implementing and ensuring compliance within Ford and
our suppliers through a common strategy together with the global automotive
industry.
Pollution
Control Costs
During
the period 2009 through 2013, we expect to spend approximately $237 million
on our North American and European facilities to comply with stationary source
air and water pollution and hazardous waste control standards which are now in
effect or are scheduled to come into effect during this period. Of
this total, we currently estimate spending approximately $44 million in
2009 and $48 million in 2010. These amounts exclude projections
for Jaguar Land Rover operations, which were sold as of June 2,
2008. Specific environmental expenses are difficult to isolate
because expenditures may be made for more than one purpose, making precise
classification difficult.
ITEM
1. Business (continued)
EMPLOYMENT DATA
The
approximate number of individuals employed by us and our consolidated entities
(including entities we do not control) at December 31, 2008 and 2007
was as follows (in thousands):
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
Ford
North America
|
|
|
79 |
|
|
|
94 |
|
Ford
South America
|
|
|
15 |
|
|
|
14 |
|
Ford
Europe
|
|
|
70 |
|
|
|
68 |
|
Volvo
|
|
|
24 |
|
|
|
26 |
|
Ford
Asia Pacific Africa
|
|
|
15 |
|
|
|
17 |
|
Jaguar
Land Rover*
|
|
|
– |
|
|
|
16 |
|
Financial
Services
|
|
|
|
|
|
|
|
|
Ford
Credit
|
|
|
10 |
|
|
|
11 |
|
Total
|
|
|
213 |
|
|
|
246 |
|
__________
*
|
As
reported in our Quarterly Report on Form 10-Q for the period ended June
30, 2008, we completed the sale of Jaguar Land Rover operations on June 2,
2008.
|
The
year-over-year decrease in employment levels primarily reflects the sale of
Jaguar Land Rover operations during 2008, as well as our implementation of
personnel-reduction programs in Ford North America.
Substantially
all of the hourly employees in our Automotive operations are represented by
unions and covered by collective bargaining agreements. In the United
States, approximately 99% of these unionized hourly employees in our Automotive
sector are represented by the International Union, United Automobile, Aerospace
and Agricultural Implement Workers of America ("UAW" or "United Auto
Workers"). Approximately two percent of our U.S. salaried employees are
represented by unions. Most hourly employees and many non-management
salaried employees of our subsidiaries outside of the United States also are
represented by unions.
We have
entered into collective bargaining agreements with the UAW, and the National
Automobile, Aerospace, Transportation and General Workers Union of Canada
("CAW"). Among other things, our agreements with the UAW and CAW
provide for guaranteed wage and benefit levels throughout the term of the
respective agreements, and provide for significant employment security, subject
to certain conditions. As a practical matter, these agreements may
restrict our ability to close plants and divest businesses during the terms of
the agreements. Our agreements with the UAW and CAW expire on
September 14, 2011.
In 2008,
we negotiated new Ford collective bargaining agreements with labor unions in
Argentina, Brazil, France, Mexico, New Zealand, Romania, Russia, Taiwan, and
Thailand. We also negotiated a collective bargaining agreement at our
Volvo (U.S.) affiliate. Britain and Germany began negotiations
in the fourth quarter of 2008 which are expected to be completed in
2009.
Additionally,
in 2009 we are or will be negotiating new collective bargaining agreements with
labor unions in Australia, Belgium, Brazil, France, Mexico, New Zealand, Russia,
Spain, Taiwan and Thailand.
ITEM
1. Business (continued)
ENGINEERING,
RESEARCH AND DEVELOPMENT
We engage
in engineering, research and development primarily to improve the performance
(including fuel efficiency), safety, and customer satisfaction of our products,
and to develop new products. We also have staffs of scientists who
engage in basic research. We maintain extensive engineering, research
and design centers for these purposes, including large centers in Dearborn,
Michigan; Dunton, England; Gothenburg, Sweden; and Aachen and Merkenich,
Germany. Most of our engineering, research and development relates to
our Automotive sector. In general, our engineering activities that do
not involve basic research or product development, such as manufacturing
engineering, are excluded from our engineering, research and development charges
discussed below.
During
the last three years, we recorded charges to our consolidated income for
engineering, research and development we sponsored in the following
amounts: $7.3 billion (2008), $7.5 billion (2007), and
$7.2 billion (2006). Any customer-sponsored research and
development activities that we conduct are not material.
ITEM
1A. Risk
Factors
We have
listed below (not necessarily in order of importance or probability of
occurrence) the most significant risk factors applicable to us:
Continued or
worsening financial crisis. The global economy is currently
facing a financial crisis and severe recession, which has led to significant
pressure on Ford and the automotive industry generally. As previously disclosed
in our business plan submission to Congress in December 2008 (filed as an
exhibit to our Current Report on Form 8-K dated December 1, 2008), in
this environment a number of scenarios could put severe pressure on our short-
and long-term Automotive liquidity, including most importantly: (i) a
significant industry event (such as the uncontrolled bankruptcy of a major
competitor or major suppliers) that causes a major disruption to our supply base
or dealers, or (ii) economic decline greater than presently forecast that causes
industry sales volume to decline to levels significantly below our current
planning assumptions (i.e., for 2009, 10.5 million to 12.5 million
units in the United States, and 12.5 million to 13.5 million units for
the 19 markets we track in Europe (each including heavy and medium
trucks)).
In such
an event, or in response to other unanticipated circumstances, we could require
additional financing. Because the global capital and credit markets
have been severely constrained, we may not be able to obtain such financing
other than through government assistance. Although the U.S.
Department of Treasury has outlined an Automotive Industry Financing Program
designed to prevent significant disruption of the American auto industry, we may
be deemed ineligible for funding under that program or any other government
funding program and, even if we did meet eligibility requirements, funding
availability may be exhausted by then. Even if we are able to obtain
such financing, the government likely would impose significant restrictions on
us that could adversely affect our ability to operate efficiently or
effectively. Inability to obtain additional financing in these
circumstances would have a material adverse effect on our financial condition
and results of operations.
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. The government-sponsored programs that are
intended to improve conditions in the credit markets (e.g., the Commercial Paper
Funding Facility, Ford Credit's participation in which is described in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources") may not be successful
in the near term. Moreover, it is possible that the disruption could
continue beyond the conclusion of the government-sponsored
programs. The government has announced additional programs, including
the Federal Reserve’s Term Asset-Backed Securities Loan Facility, but these
facilities have not yet become operational, and may not provide sufficient
assistance to fully reopen the securitization markets. Due to
the present global credit crisis and Ford Credit's limited access to
public and private securitization markets, we expect the majority of Ford
Credit's funding in 2009 will consist of eligible issuances pursuant to
government-sponsored programs. If these
programs are not available or workable and the disruption in the debt and
securitization markets continues, this would result in Ford Credit further
reducing the amount of receivables it purchases or originates. A
significant reduction in the amount of receivables Ford Credit purchases or
originates would significantly reduce its ongoing profits, and could adversely
affect its ability to support the sale of Ford vehicles. To the
extent Ford Credit's ability to provide wholesale financing to our dealers or
retail financing to those dealers' customers is limited, Ford's ability to sell
vehicles would be adversely affected.
ITEM
1A. Risk Factors (continued)
Further declines
in industry sales volume, particularly in the United States or Europe, due to
financial crisis, deepening recession, geo-political events, or other
factors. The global automotive industry is estimated to have
shrunk to 68 million units in 2008, a year-over-year decline of about 3.5
million units. In particular, industry sales volume in the United
States and in the 19 European markets that we track declined suddenly and
substantially in 2008 and continued at historically low levels into
2009. For full-year 2008, industry demand for cars and trucks in the
United States fell to 13.5 million units, compared with 16.5 million units
in 2007, and in the 19 European markets we track fell to 16.6 million
units, compared with 18.1 million units in 2007. These declines
occurred primarily in the second half of 2008, with a seasonally adjusted annual
selling rate in the fourth quarter of 2008 of 10.7 million units and
14.8 million units in the United States and Europe,
respectively. The decline in sales volume in the United States during
2008 was the biggest year-over-year decline since the 1980
recession. These sudden and substantial declines in sales volumes
have contributed to unprecedented Automotive gross cash outflow ($21.2 billion)
and total Company net loss ($14.7 billion) in 2008.
As discussed under the captions
"Overview" and "Outlook" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," we forecast year-over-year
industry sales volume declines in many markets around the world during 2009 as a
result of the ongoing global economic recession. Because we, like
other manufacturers, have a high proportion of fixed costs, relatively small
changes in industry sales volume can have a substantial effect on our cash flow
and overall profitability. If industry vehicle sales were to decline
significantly from our current assumptions, particularly in the United States
and Europe, our financial condition and results of operations would be
substantially adversely affected. For additional discussion of
economic trends, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview."
Decline in market
share. Our overall market share in the United States has
declined in recent years, from 18% in 2004 to 14.2% in 2008. Market
share declines and resulting volume reductions in any of our major markets could
have an adverse impact on our financial condition and results of
operations. Although we are attempting to stabilize our market share
and reduce our capacity over time through the restructuring actions described in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations – Overview," we cannot be certain that we will be
successful. Additional decline in market share could have a
substantial adverse effect on our financial condition and results of
operations.
Continued or
increased price competition resulting from industry overcapacity, currency
fluctuations, or other factors. The global automotive industry
is intensely competitive, with manufacturing capacity far exceeding current
demand. According to CSM Worldwide's January 2009 report, the global
automotive industry is estimated to have had excess capacity of 24 million
units in 2008. Industry overcapacity has resulted in many
manufacturers offering marketing incentives on vehicles in an attempt to
maintain and grow market share. These marketing incentives have
included a combination of subsidized financing or leasing programs, price
rebates, and other incentives. As a result, we are not necessarily
able to set our prices to offset higher costs of marketing incentives or other
cost increases or the impact of adverse currency fluctuations in either the U.S.
or European markets. While we, General Motors and Chrysler each have
announced plans to reduce capacity significantly, successful reductions will
require the cooperation of organized labor, will take several years to complete,
and only partially address the industry's overcapacity problems, particularly as
industry sales volume decreased dramatically in the final months of
2008. A continuation or increase in these trends likely would have a
substantial adverse effect on our financial condition and results of
operations.
A further
increase in or acceleration of market shift away from sales of trucks, SUVs, or
other more profitable vehicles, particularly in the United
States. Trucks and SUVs historically have represented some of
our most profitable vehicle segments, and the segments in which we have had our
highest market share. In recent years, the general shift in consumer
preferences away from medium- and large-sized SUVs and trucks has adversely
affected our overall market share and profitability. A continuation
or acceleration of this general shift in consumer preferences away from SUVs and
trucks, or a similar shift in consumer preferences away from other more
profitable vehicle sales, whether because of fuel prices, declines in the
construction industry, governmental actions or incentives, or other reasons,
could have a substantial adverse effect on our financial condition and results
of operations.
A return to
elevated gasoline prices, as well as the potential for volatile prices or
reduced availability. A return to elevated gas prices, as well
as the potential for volatility in gas prices or reduced availability of fuel,
particularly in the United States, could result in further weakening of demand
for relatively more profitable large and luxury car and truck models, and could
increase demand for relatively less profitable small cars and
trucks. Continuation or acceleration of such a trend could have a
substantial adverse effect on our financial condition and results of
operations.
ITEM
1A. Risk Factors (continued)
Lower-than-anticipated
market acceptance of new or existing products. Although we
conduct extensive market research before launching new or refreshed vehicles,
many factors both within and outside of our control affect the success of new or
existing products in the marketplace. Offering highly desirable
vehicles can mitigate the risks of increasing price competition and declining
demand, but vehicles that are perceived to be less desirable (whether in terms
of price, quality, styling, safety, overall value, fuel efficiency, or other
attributes) can exacerbate these risks. For example, if a new model
were to experience quality issues at the time of launch, the vehicle's perceived
quality could be affected even after the issues had been corrected, resulting in
lower sales volumes, market share, and profitability.
Fluctuations in
foreign currency exchange rates, commodity prices, and interest
rates. As a resource-intensive manufacturing operation, we are
exposed to a variety of market and asset risks, including the effects of changes
in foreign currency exchange rates, commodity prices, and interest
rates. These risks affect our Automotive and Financial Services
sectors. We monitor and manage these exposures as an integral part of
our overall risk management program, which recognizes the unpredictability of
markets and seeks to reduce the potentially adverse effects on our
business. Nevertheless, changes in currency exchange rates, commodity
prices, and interest rates cannot always be predicted or hedged. In
addition, because of intense price competition and our high level of fixed
costs, we may not be able to address such changes even if they are
foreseeable. Further, the global credit crisis and deterioration of
our credit ratings have significantly reduced our ability to obtain derivatives
to manage risks. As a result, substantial unfavorable changes in
foreign currency exchange rates, commodity prices or interest rates could have a
substantial adverse effect on our financial condition and results of
operations. For additional discussion of
currency, commodity price and interest rate risks, see "Item 7A.
Quantitative and Qualitative Disclosures about Market Risk."
Adverse effects
from the bankruptcy, insolvency, or government-funded restructuring of, change
in ownership or control of, or alliances entered into by a major
competitor. We and certain of our competitors have substantial
"legacy" costs (principally related to employee benefits), as well as a
substantial amount of debt, that put each of us at a competitive disadvantage to
other competitors manufacturing in the United States. The bankruptcy,
insolvency, or government-funded restructuring of such a competitor could result
in that competitor gaining a significant cost or pricing advantage (by
eliminating or reducing contractual obligations to unions or other parties),
thereby leaving us at a competitive disadvantage, which could have a substantial
adverse effect on our financial condition and results of
operations. Similarly, we could be adversely affected if one of our
competitors were acquired by, or entered into an alliance with, a stronger
competitor.
In
particular, two of our competitors with substantial legacy costs and debt,
General Motors and Chrysler, currently are engaged in discussions concerning
U.S. government-funded restructurings that, if successful, would reduce their
legacy costs, align their employee benefit costs with those of other
competitors, and substantially reduce their debt. For example, the
government proposal for restructuring would require that a significant portion
of our competitors’ debt and post-retirement benefit obligations be converted
into equity. While we do not anticipate entering into a
government-funded restructuring, we are pursuing similar restructuring
actions to remain competitive. We cannot guarantee that we will be
successful in achieving these actions and, even if we were successful, the
results could be dilutive to our shareholders.
Restriction on
Use of Tax Attributes from Tax Law "Ownership Change." Section
382 of the U.S. Internal Revenue Code restricts the ability of a corporation
that undergoes an ownership change to use its tax attributes, such as net
operating losses and tax credits. An ownership change occurs if 5%
shareholders of an issuer's outstanding common stock, collectively, increase
their ownership percentage by more than fifty percentage points within any
three-year period. As discussed above, we are pursuing further
restructuring actions to remain competitive with General Motors and Chrysler,
which are undergoing U.S. government-funded restructurings that, if successful,
would reduce their legacy costs, align their employee benefit costs with those
of other competitors, and substantially reduce their debt. New shares
of stock that we issue in connection with any restructuring actions we might
take, could contribute to such an ownership change under U.S. tax
law. Moreover, not every event that could contribute to such an
ownership change is within our control. If a tax law ownership change
were to occur, we would be at risk of having to pay cash taxes notwithstanding
the existence of sizeable tax attributes. For discussion of our
financial statement treatment of deferred tax assets, including deferred tax
assets related to these tax attributes, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates" and Note 19 of the Notes to the Financial
Statements.
ITEM
1A. Risk Factors (continued)
Economic distress
of suppliers that may require us to
provide substantial financial support or take other measures to ensure supplies
of components or materials and could
increase our costs, affect our liquidity, or cause production
disruptions. Our
industry is highly interdependent, with broad overlap of supplier and dealer
networks among manufacturers, such that the uncontrolled bankruptcy or
insolvency of a major competitor or major suppliers could threaten our supplier
or dealer network and thus pose a threat to us as well.
Even in
the absence of such an event, our supply base has experienced increased economic
distress due to the sudden and substantial drop in industry sales volumes
affecting all manufacturers. Dramatically lower industry sales volume
has made existing debt obligations and fixed cost levels difficult for many
suppliers to manage, especially with the tight credit markets.
These
factors have increased pressure on the supply base, and, as a result, suppliers
not only have been less willing to reduce prices, but some have requested direct
or indirect price increases, as well as new and shorter payment
terms. Suppliers also are exiting certain lines of business or
closing facilities, which results in additional costs associated with
transitioning to new suppliers and which may cause supply disruptions that could
interfere with our production during any such transitional period. In
addition, in the past we have taken and may continue to take actions to provide
financial assistance to certain suppliers to ensure an uninterrupted supply of
materials and components. For example, in 2005 we reacquired from
Visteon 23 facilities in order to protect our supply of
components. In connection with this transaction, we forgave
$1.1 billion of Visteon's liability to us for employee-related costs, and
incurred a pre-tax loss of $468 million.
Single-source
supply of components or materials. Many components used in our
vehicles are available only from a single supplier and cannot be quickly or
inexpensively re-sourced to another supplier due to long lead times and new
contractual commitments that may be required by another supplier in order to
provide the components or materials. In addition to the risks
described above regarding interruption of supplies, which are exacerbated in the
case of single-source suppliers, the exclusive supplier of a key component
potentially could exert significant bargaining power over price, quality,
warranty claims, or other terms relating to a component.
Labor or other
constraints on our ability to restructure our
business. Substantially all of the hourly employees in our
Automotive operations in the United States and Canada are represented by unions
and covered by collective bargaining agreements. We negotiated a new
agreement with the UAW in 2007 and with the CAW in 2008, each of which expires
in September 2011. These agreements provide for guaranteed wage
and benefit levels throughout their terms and significant employment security,
subject to certain conditions. As a practical matter, these
agreements restrict our ability to close plants and divest businesses during the
terms of the agreements. These and other provisions within the UAW
and CAW agreements may impede our ability to restructure our business
successfully to compete more effectively in today's global
marketplace.
Work stoppages at
Ford or supplier facilities or other interruptions of
supplies. A work stoppage could occur at Ford or supplier
facilities, as a result of disputes under existing collective bargaining
agreements with labor unions, in connection with negotiations of new collective
bargaining agreements, as a result of supplier financial distress, or for other
reasons. For example, many suppliers are experiencing financial
distress due to decreasing production volume and increasing prices for raw
materials, jeopardizing their ability to produce parts for us. A work
stoppage related to collective bargaining agreements or other reasons, at Ford
or its suppliers, or an interruption or shortage of supplies for any other
reason (including but not limited to financial distress, natural disaster, or
production difficulties affecting a supplier) could substantially adversely
affect our financial condition and results of operations.
Substantial
pension and postretirement health care and life insurance liabilities impairing
our liquidity or financial condition. We have two principal
qualified defined benefit retirement plans in the United States. The
Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the
General Retirement Plan covers substantially all other Ford employees in the
United States hired on or before December 31, 2003. The
hourly plan provides noncontributory benefits related to employee
service. The salaried plan provides similar noncontributory benefits
and contributory benefits related to pay and service. In addition, we
and certain of our subsidiaries sponsor plans to provide other postretirement
benefits for retired employees, primarily health care and life insurance
benefits. See Note 23 of the Notes to the Financial Statements
for more information about these plans, including funded
status. These benefit plans impose significant liabilities on us
which are not fully funded and will require additional cash contributions by us,
which could impair our liquidity.
ITEM
1A. Risk Factors (continued)
Our U.S.
defined benefit pension plans are subject to Title IV of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Under Title IV of ERISA, the
Pension Benefit Guaranty Corporation ("PBGC") has the authority under certain
circumstances or upon the occurrence of certain events to terminate an
underfunded pension plan. One such circumstance is the occurrence of
an event that unreasonably increases the risk of unreasonably large losses to
the PBGC. Although we believe that it is not likely that the PBGC
would terminate any of our plans, in the event that our U.S. pension plans were
terminated at a time when the liabilities of the plans exceeded the assets of
the plans, we would incur a liability to the PBGC that could be equal to the
entire amount of the underfunding.
If our
cash flows and capital resources were insufficient to fund our pension or
postretirement health care and life insurance obligations, we could be forced to
reduce or delay investments and capital expenditures, seek additional capital,
or restructure or refinance our indebtedness. In addition, if our
operating results and available cash were insufficient to meet our pension or
postretirement health care and life insurance obligations, we could face
substantial liquidity problems and might be required to dispose of material
assets or operations to meet our pension or postretirement health care and life
insurance obligations. We might not be able to consummate those
dispositions or to obtain the proceeds that we could realize from them, and
these proceeds might not be adequate to meet any pension and postretirement
health care or life insurance obligations then due.
Inability to
implement the Retiree Health Care Settlement Agreement to fund and discharge UAW
hourly retiree health care obligations. We received the
necessary approvals in the third quarter of 2008 to begin implementing our
Retiree Health Care Settlement Agreement (“Settlement”) to fund and discharge
our obligations related to UAW hourly retiree health care through a new,
external Voluntary Employee Benefit Association Trust ("VEBA"). See
Note 23 of the Notes to the Financial Statements for additional discussion of
the Settlement.
As
discussed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations – Overview," we have reached a tentative
agreement with the UAW allowing us, at our option, to convert a portion of our
obligations to the VEBA from a cash obligation to an equity
obligation. This tentative agreement is subject to various
conditions, including ratification by active Ford UAW-represented hourly
employees, court approval of the modification to the Settlement, approval by the
U.S. Securities and Exchange Commission of accounting treatment acceptable to
us, and receipt of a prohibited transaction exemption from the U.S. Department
of Labor. A significant delay or a materially adverse result relating
to any of these conditions that results in our inability to implement, or a
delay in implementation of, the modification to the Settlement or the Settlement
itself would adversely impact our financial condition and results of
operations.
Worse-than-assumed
economic and demographic experience for our postretirement benefit plans (e.g.,
discount rates or investment returns). The measurement of our
obligations, costs, and liabilities associated with benefits pursuant to our
postretirement benefit plans requires that we estimate the present values of
projected future payments to all participants. We use many
assumptions in calculating these estimates, including assumptions related to
discount rates, investment returns on designated plan assets, and demographic
experience (e.g., mortality and retirement rates). To the extent
actual results are less favorable than our assumptions, there could be a
substantial adverse impact on our financial condition and results of
operations. For additional discussion of our assumptions, see
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Estimates" and Note 23 of the
Notes to Financial Statements.
The discovery of
defects in vehicles resulting in delays in new model launches, recall campaigns,
or increased warranty costs. Meeting or exceeding many
government-mandated safety standards is costly and often technologically
challenging, especially where standards may conflict with the need to reduce
vehicle weight in order to meet government-mandated emissions and fuel-economy
standards. Government safety standards also require manufacturers to
remedy defects related to motor vehicle safety through safety recall campaigns,
and a manufacturer is obligated to recall vehicles if it determines that they do
not comply with a safety standard. Should we or government safety
regulators determine that a safety or other defect or a noncompliance exists
with respect to certain of our vehicles prior to the start of production, the
launch of such vehicle could be delayed until such defect is
remedied. The costs associated with any protracted delay in new model
launches necessary to remedy such defect, or the cost of recall campaigns to
remedy such defects in vehicles that have been sold, could be
substantial.
Increased safety,
emissions, fuel economy, or other regulation resulting in higher costs, cash
expenditures, and/or sales restrictions. The worldwide
automotive industry is governed by a substantial number of governmental
regulations, which often differ by state, region, and country. In the
United States, for example, governmental regulation has arisen primarily out of
concern for the environment, greater vehicle safety, and a desire for improved
fuel economy. For discussion of the impact of such standards on our
global business, see "Item 1. Governmental Standards." As a
result of the change in Administration and increased public focus on climate
change, U.S. government regulation has increased recently and this trend may
continue. In its early days, for example, the Obama Administration
announced that it would revisit the decision of the Environmental Protection
Agency to deny a waiver that is necessary to permit California and other states
to regulate fuel economy through greenhouse gas regulations. If those
states are permitted to impose such regulations, we would see a dramatic
increase in the costs and complexity of our business over time and a decrease in
our ability to sell certain vehicles, particularly highly profitable trucks and
SUVs, in many jurisdictions, all of which would have an adverse affect on our
financial condition and results of operations. In addition, many
governments also regulate local product content and/or impose import
requirements as a means of creating jobs, protecting domestic producers, and
influencing their balance of payments. The cost of complying with
these requirements can be substantial, and the requirements could have a
substantial adverse impact on our financial condition and results of
operations.
ITEM
1A. Risk Factors (continued)
Unusual or
significant litigation or governmental investigations arising out of alleged
defects in our products or otherwise. We spend substantial
resources ensuring compliance with governmental safety and other
standards. Compliance with governmental standards, however, does not
necessarily prevent individual or class action lawsuits, which can entail
significant cost and risk. For example, the preemptive effect of the
Federal Motor Vehicle Safety Standards is often a contested issue in litigation,
and some courts have permitted liability findings even where our vehicles comply
with federal law. Furthermore, simply responding to litigation or
government investigations of our compliance with regulatory standards requires
significant expenditures of time and other resources.
A change in our
requirements for parts or materials where we have entered into long-term supply
arrangements that commit us to purchase minimum or fixed quantities of certain
parts or materials, or to pay a minimum amount to the seller ("take-or-pay"
contracts). We have entered into a number of long-term supply
contracts that require us to purchase a fixed quantity of parts to be used in
the production of our vehicles. If our need for any of these parts
were to lessen, we could still be required to purchase a specified quantity of
the part or pay a minimum amount to the seller pursuant to the take-or-pay
contract. We also have entered into a small number of long-term
supply contracts for raw materials (for example, precious metals used in
catalytic converters) that require us to purchase a fixed percentage of mine
output. If our need for any of these raw materials were to lessen, or
if a supplier's output of materials were to increase, we could be required to
purchase more materials than we need.
Adverse effects
on our results from a decrease in or cessation of government
incentives. We receive economic benefits from national, state,
and local governments related to investments we make. These benefits
generally take the form of tax incentives, property tax abatements,
infrastructure development, subsidized training programs, and/or other
operational grants and incentives, and the amounts may be
significant. A decrease in, expiration without renewal of, or other
cessation of such benefits could have a substantial adverse impact on our
financial condition and results of operations, as well as our ability to fund
new investments.
Adverse effects
on our operations resulting from certain geo-political or other
events. We
conduct a significant portion of our business in countries outside of the United
States, and are pursuing growth opportunities in a number of emerging
markets. These activities expose us to, among other things, risks
associated with geo-political events, such as: governmental takeover
(i.e., nationalization) of our manufacturing facilities; disruption of
operations in a particular country as a result of political or economic
instability, outbreak of war or expansion of hostilities; or acts of
terrorism. Such events could have a substantial adverse effect on our
financial condition and results of operations.
Substantial
negative Automotive operating-related cash flows for the near- to medium-term
affecting our ability to meet our obligations, invest in our business, or
refinance our debt.
During the past year we experienced substantial negative
operating-related cash flows, and we expect that trend to continue, at a reduced
rate, for the near-term. As a result of the global financial crisis,
we may not be able to obtain future liquidity in amounts sufficient to enable us
to pay our indebtedness and to fund our other liquidity needs. In
addition, if we are unable to meet certain covenants of our $11.5 billion
secured credit facility established in December 2006 (e.g., if the
borrowing base value of assets pledged does not exceed outstanding borrowings),
we may be required to repay borrowings under the facility prior to their
maturity in December 2011 (for revolver borrowings) and December 2013 (for term
loan borrowings).
ITEM
1A. Risk Factors (continued)
If our
cash flow is worse than expected due to worsening of the economic recession,
work stoppages, supply base disruptions, increased pension contributions, or
other reasons, or if we are unable to find additional liquidity sources for
these purposes, we may need to refinance or restructure all or a portion of our
indebtedness on or before maturity, reduce or delay capital investments, or seek
to raise additional capital. We may not be able to implement one or
more of these alternatives on terms acceptable to us, or at all. The
terms of our existing or future debt agreements may restrict us from pursuing
any of these alternatives. Should our cash flow be worse than
anticipated or we fail to achieve any of these alternatives, this could
materially adversely affect our ability to repay our indebtedness and otherwise
have a substantial adverse effect on our financial condition and results of
operations. For further information on our liquidity and capital
resources, including our secured credit agreement, see the discussion under the
captions "Liquidity and Capital Resources" and "Outlook" in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Note 16 of the Notes to the Financial
Statements.
Substantial
levels of Automotive indebtedness adversely affecting our financial condition or
preventing us from fulfilling our debt obligations (which may grow because we
are able to incur substantially more debt, including additional secured
debt). As a result of our December 2006 financing actions
and our other debt, we are a highly leveraged company. Our
significant Automotive debt service obligations could have important
consequences, including the following: our high level of indebtedness
could make it difficult for us to satisfy our obligations with respect to our
outstanding indebtedness; our ability to obtain additional financing for working
capital, capital expenditures, acquisitions, if any, or general corporate
purposes may be impaired; we must use a substantial portion of our cash flow
from operations to pay interest on our indebtedness, which will reduce the funds
available to us for operations and other purposes; and our high level of
indebtedness makes us more vulnerable to economic downturns and adverse
developments in our business. The more leveraged we become, the more
we become exposed to the risks described herein. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources" and Note 16 of the Notes to
the Financial Statements for additional information regarding our
indebtedness.
Failure of
financial institutions to fulfill commitments under committed credit
facilities. As discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources," when we borrowed the full amount available
under our $11.5 billion revolving credit facility in February 2009,
the $890 million commitment of Lehman Commercial Paper Inc. ("LCPI")
was not fully funded as a result of LCPI having filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in October 2008. To
the extent we repay amounts under our revolving credit facility, we can
re-borrow those amounts. If the financial institutions that provide
these or other committed credit facilities were to default on their obligation
to fund the commitments, these facilities would not be available to us, which
could substantially adversely affect our liquidity and financial
condition.
Ford Credit's
need for substantial liquidity to finance its business. Ford
Credit requires substantial liquidity to finance its operations on a profitable
basis. If Ford Credit is unable to obtain such liquidity, it would
need to curtail its operations, which include providing credit to our dealers
and to retail customers to purchase our cars. This would adversely
affect our automotive operations. As a result of the financial crisis
and the global recession, which has reduced automotive sales, Ford Credit’s
access to liquidity has become more constrained. Ford Credit is
taking a number of steps, as outlined below, to ensure continued access to
liquidity but these steps involve a number of risks.
Inability of Ford
Credit to obtain an industrial bank charter or otherwise obtain competitive
funding. Ford Credit is 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, and we cannot assure that Ford Credit will obtain such
approval. Other institutions that provide automotive financing have
access to relatively low-cost FDIC-insured funding. Access by these
competitors to FDIC-insured or other government funding programs that are not
available to Ford Credit could adversely affect Ford Credit's ability to support
the sale of Ford vehicles at competitive rates. This in turn would
adversely affect the marketability of Ford vehicles in comparison to certain
competitive brands.
Inability of Ford
Credit 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 other
factors. The lower credit ratings assigned to Ford Credit, as
well as the continued financial crisis, have increased its unsecured borrowing
costs and have caused its access to the unsecured debt markets to be more
restricted. In response, Ford Credit has increased its use of
securitization and other sources of liquidity. Ford Credit’s ability
to obtain funding under its committed asset-backed liquidity programs and
certain other asset-backed securitizations is subject to having a sufficient
amount of assets eligible for these programs as well as Ford Credit’s ability to
obtain appropriate credit ratings and 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 other factors, Ford
Credit may need to reduce the amount of receivables it purchases or
originates. A significant reduction in the amount of receivables Ford
Credit purchases or originates would significantly reduce its ongoing profits
and could adversely affect its ability to support the sale of Ford
vehicles.
ITEM
1A. Risk Factors (continued)
Higher-than-expected
credit losses. Credit risk is the
possibility of loss from a customer's or dealer's failure to make payments
according to contract terms. Credit risk (which is heavily dependent
upon economic factors including unemployment, consumer debt service burden,
personal income growth, dealer profitability, and used car prices) has a
significant impact on Ford Credit's business. The level of credit
losses Ford Credit may experience could exceed its expectations and adversely
affect its financial condition and results of operations. For
additional discussion regarding credit losses, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Estimates."
Increased
competition from banks or other financial institutions seeking to increase their
share of financing Ford vehicles. No single company is a
dominant force in the automotive finance industry. Most of Ford
Credit's bank competitors in the United States use credit aggregation systems
that permit dealers to send, through standardized systems, retail credit
applications to multiple finance sources to evaluate financing options offered
by these finance sources. This process has resulted in greater
competition based on financing rates. In addition, Ford Credit may
face increased competition on wholesale financing for Ford
dealers. Competition from such competitors with lower borrowing costs
may increase, which could adversely affect Ford Credit's profitability and the
volume of its business.
Collection and
servicing problems related to finance receivables and net investment in
operating leases. After Ford Credit
purchases retail installment sale contracts and leases from dealers and other
customers, it manages or services the receivables. Any disruption of
its servicing activity, due to inability to access or accurately maintain
customer account records or otherwise, could have a significant negative impact
on its ability to collect on those receivables and/or satisfy its
customers.
Lower-than-anticipated
residual values or higher-than-expected return volumes for leased
vehicles.
Ford Credit projects expected residual values (including residual value support
payments from Ford) and return volumes of the vehicles it
leases. Actual proceeds realized by Ford Credit upon the sale of
returned leased vehicles at lease termination may be lower than the amount
projected, which reduces the profitability of the lease
transaction. Among the factors that can affect the value of returned
lease vehicles are the volume of vehicles returned, economic conditions, and the
quality or perceived quality, safety, or reliability of the
vehicles. Actual return volumes may be higher than expected and can
be influenced by contractual lease end values relative to auction values,
marketing programs for new vehicles, and general economic
conditions. All of these factors, alone or in combination, have the
potential to adversely affect Ford Credit's profitability.
For
example, in the second quarter of 2008, higher fuel prices and the weak economic
environment in North America resulted in a pronounced shift in consumer
preferences from full-size trucks and traditional SUVs to smaller, more
fuel-efficient vehicles. This shift in consumer preferences caused a
significant reduction in auction values. This in turn resulted in
Ford Credit recording a pre-tax impairment charge of $2.1 billion, representing
the amount by which the carrying value of certain vehicle lines in its lease
portfolio exceeded their fair value. For additional discussion of
residual values, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Critical Accounting
Estimates."
New or increased
credit, consumer, or data protection or other regulations resulting in higher
costs and/or additional financing restrictions. As a finance company,
Ford Credit is highly regulated by governmental authorities in the locations
where it operates. In the United States, its operations are subject
to regulation, supervision and licensing under various federal, state and local
laws and regulations, including the federal Truth-in-Lending Act, Equal Credit
Opportunity Act, and Fair Credit Reporting Act. In some countries
outside the United States, Ford Credit's subsidiaries are regulated banking
institutions and are required, among other things, to maintain minimum capital
reserves. In many other locations, governmental authorities require
companies to have licenses in order to conduct financing
businesses. Efforts to comply with these laws and regulations impose
significant costs on Ford Credit, and affect the conduct of its
business. Additional regulation could add significant cost or
operational constraints that might impair its profitability.
ITEM
1A. Risk Factors (continued)
Inability to
implement our plans to further reduce structural costs and increase
liquidity. As discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations –
Overview," we are taking a number of additional actions in executing the four
priorities of our plan in order to address the impact of current economic
conditions, including the deteriorating credit market and automotive
sales. To the extent that we are unable to implement these additional
actions or implement other alternative actions our financial condition and
results of operations would be substantially adversely affected.
ITEM
1B. Unresolved
Staff Comments
None to
report.
ITEM
2. Properties
Our
principal properties include manufacturing and assembly facilities, distribution
centers, warehouses, sales or administrative offices, and engineering
centers.
We own
substantially all of our U.S. manufacturing and assembly facilities, although
many of these properties have been pledged to secure indebtedness or other
obligations. Our facilities are situated in various sections of the
country and include assembly plants, engine plants, casting plants, metal
stamping plants, transmission plants, and other component
plants. Most of our distribution centers are leased (we own
approximately 44% of the total square footage). A substantial amount
of our warehousing is provided by third-party providers under service
contracts. Because the facilities provided pursuant to third-party
service contracts need not be dedicated exclusively or even primarily to our
use, these spaces are not included in the number of distribution
centers/warehouses listed in the table below. All of the warehouses
that we operate are leased, although many of our manufacturing and assembly
facilities contain some warehousing space. Substantially all of our
sales offices are leased space. Approximately 97% of the total square
footage of our engineering centers and our supplementary research and
development space is owned by us.
In
addition, we maintain and operate manufacturing plants, assembly facilities,
parts distribution centers, and engineering centers outside of the United
States. We own substantially all of our non-U.S. manufacturing
plants, assembly facilities, and engineering centers. The majority of
our parts distribution centers outside of the United States are either leased or
provided by vendors under service contracts. As in the United States,
space provided by vendors under service contracts need not be dedicated
exclusively or even primarily to our use, and is not included in the number of
distribution centers/warehouses listed in the table below.
The total
number of plants, distribution centers/warehouses, engineering and research and
development sites, and sales offices used by our Automotive segments are shown
in the table below:
Segment
|
|
|
|
|
Distribution
Centers/Warehouses
|
|
|
Engineering,
Research/Development
|
|
|
|
|
Ford
North America
|
|
|
41 |
* |
|
|
32 |
|
|
|
31 |
|
|
|
55 |
|
Ford
South America
|
|
|
7 |
|
|
|
1 |
|
|
|
– |
|
|
|
8 |
|
Ford
Europe
|
|
|
19 |
|
|
|
9 |
|
|
|
6 |
|
|
|
14 |
|
Volvo
|
|
|
9 |
|
|
|
9 |
|
|
|
2 |
|
|
|
8 |
|
Ford
Asia Pacific Africa
|
|
|
12 |
|
|
|
6 |
|
|
|
2 |
|
|
|
19 |
|
Total
|
|
|
88 |
|
|
|
57 |
|
|
|
41 |
|
|
|
104 |
|
__________
*
|
We
have announced plans to close a number of North American facilities as
part of our restructuring actions; facilities that have been closed to
date are not included in the table. For further discussion of our
restructuring, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations – Overview." The
table includes six facilities operated by Automotive Components Holdings,
LLC ("ACH"), which is controlled by us. We had been
working to sell or close the majority of the 15 ACH component
manufacturing plants by year-end 2008. To date, we have sold
five ACH plants and closed another four. We plan to close a
fifth during 2009, and a sixth in 2011. We are exploring our
options for the remaining ACH plants (Milan, Sheldon Road, Saline and
Sandusky), and intend to transition these businesses to the supply base as
soon as practicable.
|
ITEM
2. Properties (continued)
Included
in the number of plants shown above are several plants that are not operated
directly by us, but rather by consolidated joint ventures that operate plants
that support our Automotive sector. Following are the significant
consolidated joint ventures and the number of plants they own:
|
•
|
AutoAlliance International,
Inc. ("AAI") — a 50/50 joint venture with Mazda (of which we own
approximately 13.78%), which operates as its principal business an
automobile vehicle assembly plant in Flat Rock, Michigan. AAI
currently produces the Mazda6 and Ford Mustang models. Ford
supplies all of the hourly and substantially all of the salaried labor
requirements to AAI, and AAI reimburses Ford for the full cost of that
labor.
|
|
•
|
Ford Otomotiv Sanayi Anonim
Sirketi ("Ford Otosan") — a joint venture in Turkey between Ford
(41% partner), the Koc Group of Turkey (41% partner), and public investors
(18%) that is our single-source supplier of the Ford Transit Connect
vehicle and our sole distributor of Ford vehicles in Turkey. In
addition, Ford Otosan makes the Ford Transit series and the Cargo truck
for the Turkish and export markets, and certain engines and transmissions,
most of which are under license. This joint venture owns and
operates two plants, a parts distribution depot, and a newly opened
Product Development Center in
Turkey.
|
|
•
|
Getrag Ford Transmissions
GmbH ("Getrag
Ford") — a 50/50 joint venture with Getrag Deutsche Venture GmbH
and Co. KG, a German company, to which we transferred our European manual
transmission operations, including plants, from Halewood, England;
Cologne, Germany; and Bordeaux, France. In 2004, Volvo Car
Corporation ("Volvo Cars") transferred its manual transmission business
from its Köping, Sweden plant to Getrag Ford. In 2008, we added
the Kechnec plant in Slovakia. Getrag Ford produces manual
transmissions for Ford Europe and Volvo. We currently supply
most of the hourly and salaried labor requirements of the operations
transferred to this joint venture. Our employees who worked at
the manual transmission operations transferred at the time of formation of
the joint venture are assigned to the joint venture. In the
event of surplus labor at the joint venture, our employees assigned to
Getrag Ford may return to Ford. Employees hired in the future
to work in these operations will be employed directly by Getrag
Ford. Getrag Ford reimburses us for the full cost of the hourly
and salaried labor we supply. This joint venture now operates
four plants.
|
|
•
|
Getrag All Wheel Drive
AB — a joint venture in Sweden between Getrag Dana Holding GmbH
(60% partner) and Volvo Cars (40% partner). In January 2004,
Volvo Cars transferred to this joint venture its All Wheel Drive business
and its plant in Koping, Sweden. The joint venture produces
all-wheel drive components. As noted above, the manual
transmission operations at the Köping plant were transferred to Getrag
Ford. The hourly and salaried employees at the plant have
become employees of the joint
venture.
|
|
•
|
Tekfor Cologne GmbH
("Tekfor") — a
50/50 joint venture of Ford-Werke GmbH ("Ford-Werke") and Neumayer Tekfor
GmbH, a German company, to which joint venture Ford-Werke transferred the
operations of the Ford forge in Cologne. The joint venture
produces forged components, primarily for transmissions and chassis, for
use in Ford vehicles and for sale to third parties. Those Ford
employees who worked at the Cologne Forge Plant at the time of the
formation of the joint venture are assigned to Tekfor by us and remain our
employees. In the event of surplus labor at the joint venture,
Ford employees assigned to Tekfor may return to Ford. New
workers at the joint venture will be hired as employees of the joint
venture. Tekfor reimburses us for the full cost of our
employees assigned to the joint venture. This joint venture
operates one plant.
|
|
•
|
Pininfarina Sverige, AB
— a joint venture between Volvo Cars (40% partner) and Pininfarina, S.p.A.
("Pininfarina") (60% partner). In September 2003, Volvo Cars
and Pininfarina established this joint venture for the engineering and
manufacture of niche vehicles, starting with a new, small convertible
(Volvo C70), which is distributed by Volvo. The joint venture
began production of the new car at the Uddevalla Plant in Sweden, which
was transferred from Volvo Cars to the joint venture in December 2005, and
is the joint venture's only plant.
|
|
•
|
Ford Vietnam Limited —
a joint venture between Ford (75% partner) and Song Cong Diesel (25%
partner). Ford Vietnam assembles and distributes several Ford
vehicles in Vietnam, including Escape, Everest, Focus, Mondeo, Ranger and
Transit models. This joint venture operates one
plant.
|
|
•
|
Ford Lio Ho Motor Company Ltd.
("FLH") — a joint venture in Taiwan among Ford (70% partner), the
Lio Ho Group (25% partner) and individual shareholders (5% ownership in
aggregate) that assembles a variety of Ford and Mazda vehicles sourced
from Ford as well as Mazda. In addition to domestic assembly, FLH also has
local product development capability to modify vehicle designs for local
needs, and imports Ford-brand built-up vehicles from Europe and the United
States. This joint venture operates one
plant.
|
ITEM
2. Properties (continued)
In
addition to the plants that we operate directly or that are operated by
consolidated joint ventures, additional plants that support our Automotive
sector are operated by other, unconsolidated joint ventures of which we are a
partner. These additional plants are not included in the number of
plants shown in the table above. The most significant of these joint
ventures are:
|
•
|
AutoAlliance (Thailand) Co.
Ltd. ("AAT") — a joint venture among Ford (50%), Mazda (45%) and a
Thai affiliate of Mazda's (5%), which owns and operates a manufacturing
plant in Rayong, Thailand. AAT produces the Ford Everest, Ford
Ranger and Mazda B-Series pickup trucks for the Thai market and for export
to over 100 countries worldwide (other than North America), in both
built-up and kit form. AAT has announced plans to build a new,
highly flexible passenger car plant that will utilize state-of-the-art
manufacturing technologies and will produce both Ford and Mazda badged
small cars beginning in 2009.
|
|
•
|
Blue Diamond Truck, S. de R.L.
de C.V. ("Blue
Diamond Truck") — a joint venture between Ford (49% partner) and
Navistar International Corporation (formerly known as International Truck
and Engine Corporation) (51% partner) ("Navistar"). Blue
Diamond Truck develops and manufactures selected medium and light
commercial trucks in Mexico and sells the vehicles to Ford and Navistar
for their own independent distribution. Blue Diamond Truck
manufactures Ford F-650/750 medium-duty commercial trucks that are sold in
the United States and Canada; Navistar medium-duty commercial trucks that
are sold in Mexico; and a low-cab-forward, light-/medium-duty commercial
truck for each of Ford and Navistar. By agreement of the
parties in January 2009, the joint venture will continue and, among other
things, over the next several months, Navistar will acquire additional
equity in the joint venture such that Navistar's percentage interest in
the joint venture will be 75% and Ford's interest will be
25%.
|
|
•
|
Tenedora Nemak, S.A. de
C.V. — a joint venture between Ford (6.75% partner) and a
subsidiary of Mexican conglomerate Alfa S.A. de C.V. (93.25% partner),
which owns and operates, among other facilities, a portion of our former
Canadian castings operations, and supplies engine blocks and heads to
several of our engine plants. Ford supplies a portion of the hourly labor
requirements for the Canadian plant, for which it is fully reimbursed by
the joint venture.
|
|
•
|
Changan Ford Mazda Automobile
Corporation, Ltd. ("CFMA") — a joint venture among Ford (35%
partner), Mazda (15% partner), and the Chongqing Changan Automobile Co.,
Ltd. ("Changan") (50% partner). Through its facility in the
Chinese cities of Chongqing and Nanjing, CFMA produces and distributes in
China the Ford Mondeo, Focus, S-max and Fiesta, the Mazda2, the Mazda3 and
the Volvo S40.
|
|
•
|
Changan Ford Mazda Engine
Company, Ltd. ("CFME") — a joint venture among Ford (25% partner),
Mazda (25% partner), and the Chongqing Changan Automobile Co., Ltd (50%
partner). CFME is located in the City of Nanjing, and produces
the Ford New I4 and Mazda BZ engines in support of the assembly of Ford-
and Mazda-branded vehicles manufactured in
China.
|
|
•
|
Jiangling Motors Corporation,
Ltd. ("JMC") — a publicly-traded company in China with Ford (30%
shareholder) and Jiangxi Jiangling Holdings, Ltd. (41% shareholder) as its
controlling shareholders. Jiangxi Jiangling Holdings, Ltd. is a
50/50 joint venture between Chongqing Changan Automobile Co., Ltd. and
Jiangling Motors Company Group. The public investors of JMC own
29% of its outstanding shares. JMC assembles the Ford Transit
van and other non-Ford-technology-based vehicles for distribution in
China.
|
The
facilities owned or leased by us or our subsidiaries and joint ventures
described above are, in the opinion of management, suitable and more than
adequate for the manufacture and assembly of our products.
The
furniture, equipment and other physical property owned by our Financial Services
operations are not material in relation to their total assets.
ITEM
3. Legal
Proceedings
Various
legal actions, governmental investigations, proceedings, and claims are pending
or may be instituted or asserted in the future against us and our subsidiaries,
including, but not limited to, those arising out of: alleged defects
in our products; governmental regulations covering safety, emissions, and fuel
economy; financial services; employment-related matters; dealer, supplier, and
other contractual relationships; intellectual property rights; product
warranties; environmental matters; shareholder and investor matters; and
financial reporting matters. Some of the pending legal actions are,
or purport to be, class actions, and some involve claims for compensatory,
punitive, or antitrust or other multiplied damage claims in very large amounts,
or demands for recall campaigns, environmental remediation programs, sanctions,
or other relief that, if granted, would require very large
expenditures. We regularly evaluate the expected outcome of product
liability litigation and other legal proceedings. We have accrued
expenses for probable losses on product liability matters, in the aggregate,
based on an analysis of historical litigation payouts and trends. We
also have accrued expenses for other legal proceedings where losses are deemed
probable and reasonably estimable. These accruals are reflected in
our financial statements.
Following
is a discussion of our significant pending legal proceedings:
ASBESTOS
MATTERS
Asbestos
was used in brakes, clutches, and other automotive components from the early
1900s. Along with other vehicle manufacturers, we have been the
target of asbestos litigation and, as a result, are a defendant in various
actions for injuries claimed to have resulted from alleged exposure to Ford
parts and other products containing asbestos. Plaintiffs in these
personal injury cases allege various health problems as a result of asbestos
exposure, either from component parts found in older vehicles, insulation or
other asbestos products in our facilities, or asbestos aboard our former
maritime fleet. We believe that we are being more aggressively
targeted in asbestos suits because many previously targeted companies have filed
for bankruptcy.
Most of
the asbestos litigation we face involves individuals who worked on the brakes of
our vehicles over the years. We are prepared to defend these cases,
and believe that the scientific evidence confirms our long-standing position
that there is no increased risk of asbestos-related disease as a result of
exposure to the type of asbestos formerly used in the brakes on our
vehicles.
The
extent of our financial exposure to asbestos litigation remains very difficult
to estimate. The majority of our asbestos cases do not specify a
dollar amount for damages, and in many of the other cases the dollar amount
specified is the jurisdictional minimum. The vast majority of these
cases involve multiple defendants, with the number in some cases exceeding one
hundred. Many of these cases also involve multiple plaintiffs, and we
are often unable to tell from the pleadings which of the plaintiffs are making
claims against us (as opposed to other defendants). Annual payout and
defense costs may become substantial in the future.
ENVIRONMENTAL
MATTERS
General. We have
received notices under various federal and state environmental laws that we
(along with others) are or may be a potentially responsible party for the costs
associated with remediating numerous hazardous substance storage, recycling, or
disposal sites in many states and, in some instances, for natural resource
damages. We also may have been a generator of hazardous substances at
a number of other sites. The amount of any such costs or damages for
which we may be held responsible could be significant. The contingent
losses that we expect to incur in connection with many of these sites have been
accrued and those accruals are reflected in our financial
statements. For many sites, however, the remediation costs and other
damages for which we ultimately may be responsible are not reasonably estimable
because of uncertainties with respect to factors such as our connection to the
site or to materials there, the involvement of other potentially responsible
parties, the application of laws and other standards or regulations, site
conditions, and the nature and scope of investigations, studies, and remediation
to be undertaken (including the technologies to be required and the extent,
duration, and success of remediation). As a result, we are unable to
determine or reasonably estimate the amount of costs or other damages for which
we are potentially responsible in connection with these sites, although that
total could be significant.
ITEM
3. Legal Proceedings (continued)
Edison Assembly Plant Concrete
Disposal. During demolition of our Edison Assembly Plant, we
discovered very low levels of contaminants in the concrete slab. The
concrete was crushed and reused by several developers as fill material at ten
different off-site locations. The New Jersey Department of
Environmental Protection ("DEP") asserts that some of these locations may not
have been authorized to receive the waste. In March 2006, the DEP
ordered Ford, its supplier MIG-Alberici, Inc., and the developer Edgewood
Properties, Inc., to investigate, and, if appropriate, remove contaminated
materials. Ford has substantially completed the work at a number of
locations, and Edgewood is completing the investigation and remediation at
several locations that it owns. Pursuant to the Administrative
Consent Order, in January 2008 we paid approximately $460,000 for oversight
costs, penalties, and environmental education projects, and donated emissions
reduction credits to the State of New Jersey. After receiving our
payment, the DEP determined that the Consent Order could not be finalized unless
it first was submitted for public comment. It provided public notice
regarding the settlement in April 2008. We expect that after
completing its review of the comments, the DEP will finalize the Consent Order
without any material changes. As previously reported, the New Jersey
Attorney General's office also issued a grand jury subpoena and civil
information request in March 2006. We are fully cooperating with the
Attorney General's office to resolve this matter.
California Environmental
Action. In September 2006, the California Attorney General
filed a complaint in the U.S. District Court for the Northern District of
California against Ford, General Motors, Toyota, Honda, Chrysler and Nissan,
seeking monetary damages on a joint and several basis for economic and
environmental harm to California caused by global warming. The
complaint alleged that cars and trucks sold in the United States constitute an
environmental public nuisance under federal and California state common
law. In September 2007, the U.S. District Court for the Northern
District of California dismissed the case, ruling that the federal claims
constituted nonjusticiable political questions. The Court did not
address the state claims, and indicated that California could refile those
claims in state court if desired. The California Attorney General has
appealed the dismissal to the U.S. Court of Appeals for the Ninth
Circuit.
Sterling Axle
Plant. The Michigan Department of Environmental Quality
("MDEQ") issued four Letters of Violation to the Sterling Axle Plant between
April 17, 2008 and October 7, 2008, and has commenced a
civil administrative enforcement proceeding against the Company. The
Letters of Violation arise from the plant's disclosure of several potential
violations of its air permits. We are working with the MDEQ to
resolve the enforcement proceeding, and the plant has taken steps to correct and
prevent recurrence of the potential violations.
CLASS
ACTIONS
In light
of the fact that very few of the purported class actions filed against us in the
past have ever been certified by the courts as class actions, the actions listed
below are those (i) that have been certified as a class action by a court of
competent jurisdiction (and any additional purported class actions that raise
allegations substantially similar to a certified case), and (ii) that, if
resolved unfavorably to the Company, would likely involve a significant
cost.
Canadian Export Antitrust Class
Actions. Eighty-three purported class actions on behalf of all
purchasers of new motor vehicles in the United States since January 1, 2001 have
been filed in various state and federal courts against numerous defendants,
including Ford, General Motors, Chrysler, Toyota, Honda, Nissan, BMW Group, the
National Automobile Dealers Association, and the Canadian Automobile Dealers
Association. The federal and state complaints allege, among other
things, that the manufacturers, aided by the dealer associations, conspired to
prevent the sale to U.S. citizens of vehicles produced for the Canadian market
and sold by dealers in Canada at lower prices than vehicles sold in the United
States. The complaints seek injunctive relief under federal antitrust
law and treble damages under federal and state antitrust laws. The
federal court actions have been consolidated for coordinated pretrial
proceedings in the U.S. District Court for the District of Maine.
TAX
MATTERS
Government Transfer Pricing
Dispute. As discussed in Note 19 of the Notes to the
Financial Statements, the U.S. and Canadian governments will continue to have
discussions in coming months to resolve issues involving transfer
pricing. While these discussions are pending, we could receive audit
adjustments from Canada that we would have to pay, either in cash or with
collateral acceptable to the government. Any cash payments, which
could be significant, would defease any tax liability ultimately
determined.
ITEM
3. Legal Proceedings (continued)
OTHER
MATTERS
ERISA Fiduciary
Litigation. A purported class action lawsuit is pending in the
U.S. District Court for the Eastern District of Michigan naming as defendants
Ford Motor Company and several of our current or former employees and officers
(Nowak, et al. v. Ford Motor
Company, et al., along with three consolidated cases). The
lawsuit alleges that the defendants violated the Employee Retirement Income
Security Act (“ERISA”) by failing to prudently and loyally manage funds held in
employee savings plans sponsored by Ford. Specifically, the
plaintiffs allege (among other claims) that the defendants violated fiduciary
duties owed to plan participants by continuing to offer Ford Common Stock as an
investment option in the savings plans. In December 2008, the Court
denied Ford's motion to dismiss on the pleadings.
SEC Pension and Post-Employment
Benefit Accounting Inquiry. On October 14, 2004, the Division
of Enforcement of the Securities and Exchange Commission ("SEC") notified us
that it was conducting an inquiry into the methodology used to account for
pensions and other post-employment benefits. We were one of several
companies to receive requests for information as part of this
inquiry. We completed submission of all information requested to date
as of April 2007.
Diesel Engine
Litigation. In 2007, we filed suit against Navistar
International Corporation, formerly known as International Truck and Engine
Corporation ("Navistar"), the supplier of diesel engines for our F-Series Super
Duty and Econoline vehicles. Navistar countersued, and also initiated
its own lawsuit. In January 2009, we reached agreement with Navistar
to restructure our ongoing business relationship, and to settle all existing
litigation between the companies. As part of the agreement, we made a
cash payment to Navistar; Navistar will increase its equity ownership in our
Blue Diamond Truck and Blue Diamond Parts joint ventures that will supply Ford
with new medium-duty trucks and components; and the parties agreed to terminate
effective December 31, 2009 their diesel engine supply agreement originally
scheduled to expire in 2012, under which Navistar was required to be Ford's
sole, exclusive source of diesel truck engines in North America.
Apartheid Litigation. Along
with other prominent multinational companies, we are defendants in purported
class action lawsuits seeking unspecified damages on behalf of South African
citizens who suffered violence and oppression under South Africa's apartheid
regime. The lawsuits allege that, by doing business in South Africa,
the defendant companies “aided and abetted” the apartheid regime and its human
rights violations. These cases, collectively referred to as In re South African Apartheid
Litigation, were initially filed in 2002 and 2003, and are being handled
together as coordinated "multidistrict litigation" in the U.S. District Court
for the Southern District of New York. The District Court dismissed
these cases in 2004, but in 2007 the U.S. Court of Appeals for the Second
Circuit reversed and remanded the cases to the District Court for further
proceedings. Amended complaints were filed during 2008.
ITEM
4. Submission of Matters to a
Vote of Security Holders
Not
required.
ITEM
4A. Executive Officers of
Ford
Our
executive officers and their positions and ages at February 1, 2009 are as
follows:
|
|
|
|
Present
Position
Held
Since
|
|
|
|
|
|
|
|
|
|
William
Clay Ford, Jr. (a)
|
|
Executive
Chairman and Chairman of the Board
|
|
September
2006
|
|
51
|
|
|
|
|
|
|
|
Alan
Mulally (b)
|
|
President
and Chief Executive Officer
|
|
September
2006
|
|
63
|
|
|
|
|
|
|
|
Michael
E. Bannister
|
|
Executive
Vice President – Chairman and Chief Executive Officer, Ford
Motor Credit Company
|
|
October
2007
|
|
59
|
|
|
|
|
|
|
|
Lewis
W. K. Booth
|
|
Executive
Vice President and Chief Financial Officer
|
|
November
2008
|
|
60
|
|
|
|
|
|
|
|
Mark
Fields
|
|
Executive Vice
President – President, The Americas
|
|
October
2005
|
|
48
|
|
|
|
|
|
|
|
John
Fleming
|
|
Executive
Vice President – Chairman, Ford Europe and Volvo
|
|
November
2008
|
|
58
|
|
|
|
|
|
|
|
John
G. Parker
|
|
Executive
Vice President – Asia Pacific Africa
|
|
September
2006
|
|
61
|
|
|
|
|
|
|
|
Tony
Brown
|
|
Group Vice
President – Purchasing
|
|
April
2008
|
|
52
|
|
|
|
|
|
|
|
Mei-Wei
Cheng
|
|
Group
Vice President – Executive Chairman, Ford Motor Company
China
|
|
April
2008
|
|
58
|
|
|
|
|
|
|
|
Sue
Cischke
|
|
Group
Vice President – Sustainability, Environment and Safety
Engineering
|
|
April
2008
|
|
54
|
|
|
|
|
|
|
|
James
D. Farley
|
|
Group
Vice President – Sales, Marketing and Communications
|
|
November
2007
|
|
46
|
|
|
|
|
|
|
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Felicia
Fields
|
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Group
Vice President – Human Resources and Corporate Services
|
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April
2008
|
|
43
|
|
|
|
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Bennie
Fowler
|
|
Group
Vice President – Quality
|
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April
2008
|
|
52
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|
|
|
|
|
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|
Joseph
R. Hinrichs
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Group
Vice President – Manufacturing
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January
2008
|
|
42
|
|
|
|
|
|
|
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Derrick
M. Kuzak
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|
Group
Vice President – Product Development
|
|
December
2006
|
|
57
|
|
|
|
|
|
|
|
David
G. Leitch
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|
Group
Vice President and General Counsel
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April
2005
|
|
48
|
|
|
|
|
|
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J
C. Mays
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|
Group Vice
President – Design and Chief Creative Officer
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August
2003
|
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54
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|
|
|
|
|
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Ziad
S. Ojakli
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|
Group
Vice President – Government and Community Relations
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January
2004
|
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41
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|
|
|
|
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Nick
Smither
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Group
Vice President – Information Technology
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|
April
2008
|
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50
|
|
|
|
|
|
|
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Peter
J. Daniel
|
|
Senior
Vice President and Controller
|
|
September
2006
|
|
61
|
__________
(a)
|
Also
a Director, Chair of the Office of the Chairman and Chief Executive, Chair
of the Finance Committee and a member of the Sustainability Committee of
the Board of Directors.
|
(b)
|
Also a Director and member of the
Office of the Chairman and Chief Executive and the Finance Committee of
the Board of Directors.
|
ITEM
4A. Executive Officers of Ford (continued)
All of
the above officers, except those noted below, have been employed by Ford or its
subsidiaries in one or more capacities during the past five
years. Described below are the recent positions (other than those
with Ford or its subsidiaries) held by those officers who have not yet been with
Ford or its subsidiaries for five years:
|
§
|
Prior
to joining Ford in November 2007, Mr. Farley was Group Vice President and
General Manager of Lexus, responsible for all sales, marketing and
customer satisfaction activities for Toyota’s luxury
brand. Before leading Lexus, he served as group vice president
of Toyota Division marketing and was responsible for all Toyota Division
market planning, advertising, merchandising, sales promotion, incentives
and Internet activities.
|
|
§
|
Prior
to joining Ford in September 2006, Mr. Mulally served as Executive Vice
President of The Boeing Company, and President and Chief Executive Officer
of Boeing Commercial Airplanes. Mr. Mulally also was a member
of Boeing's Executive Council, and served as Boeing's senior executive in
the Pacific Northwest. He was named Boeing's president of
Commercial Airplanes in September 1998; the responsibility of chief
executive officer for the business unit was added in March
2001.
|
|
§
|
Mr.
Leitch served as the Deputy Assistant and Deputy Counsel to President
George W. Bush from December 2002 to March 2005. From
June 2001 until December 2002, he served as Chief Counsel for the Federal
Aviation Administration, overseeing a staff of 290 in Washington and the
agency's 11 regional offices. Prior to June 2001, Mr. Leitch
was a partner at Hogan & Hartson LLP in Washington D.C., where his
practice focused on appellate litigation in state and federal
court.
|
Under our
By-Laws, the executive officers are elected by the Board of Directors at the
Annual Meeting of the Board of Directors held for this purpose. Each
officer is elected to hold office until his or her successor is chosen or as
otherwise provided in the By-Laws.
PART
II
ITEM
5. Market for Ford's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our
Common Stock is listed on the New York Stock Exchange in the United States and
on certain stock exchanges in Belgium, France, Switzerland, and the United
Kingdom.
The table
below shows the high and low sales prices for our Common Stock and the dividends
we paid per share of Common and Class B Stock for each quarterly period in 2007
and 2008:
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Ford
Common Stock price per share (a)
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|
|
|
|
|
|
High
|
|
$ |
8.97 |
|
|
$ |
9.70 |
|
|
$ |
9.64 |
|
|
$ |
9.24 |
|
|
$ |
6.94 |
|
|
$ |
8.79 |
|
|
$ |
6.33 |
|
|
$ |
5.47 |
|
Low
|
|
|
7.43 |
|
|
|
7.67 |
|
|
|
7.49 |
|
|
|
6.65 |
|
|
|
4.95 |
|
|
|
4.46 |
|
|
|
4.17 |
|
|
|
1.01 |
|
Dividends
per share of Ford Common and Class B Stock (b)
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
__________
(a)
|
New
York Stock Exchange composite interday prices as listed in the price
history database available at
www.NYSEnet.com.
|
(b)
|
On
December 15, 2006, we entered into a secured credit facility which
contains a covenant prohibiting us from paying dividends (other than
dividends payable solely in stock) on our Common and Class B Stock,
subject to certain limited exceptions. As a result, it is
unlikely that we will pay any dividends in the foreseeable
future. See Note 16 of the Notes to the Financial Statements
for more information regarding the secured credit facility and related
covenants.
|
As of
February 13, 2009, stockholders of record of Ford included 164,005 holders
of Common Stock (which number does not include 290 former holders of old
Ford Common Stock who have not yet tendered their shares pursuant to our
recapitalization, known as the Value Enhancement Plan, which became effective on
August 9, 2000) and 93 holders of Class B Stock.
During
the fourth quarter of 2008, we purchased shares of our Common Stock as
follows:
Period
|
|
Total
Number of Shares Purchased*
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs**
|
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
Under the Plans or Programs**
|
|
Oct.
1, 2008 through Oct. 31, 2008
|
|
|
98,811 |
|
|
$ |
2.19 |
|
|
|
– |
|
|
|
– |
|
Nov.
1, 2008 through Nov. 30, 2008
|
|
|
9,165 |
|
|
|
1.80 |
|
|
|
– |
|
|
|
– |
|
Dec.
1, 2008 through Dec. 31, 2008
|
|
|
8,807 |
|
|
|
2.41 |
|
|
|
– |
|
|
|
– |
|
Total/Average
|
|
|
116,783 |
|
|
|
2.18 |
|
|
|
– |
|
|
|
– |
|
__________
*
|
The
shares purchased were acquired from our employees or directors in
accordance with our various compensation plans as a result of share
withholdings to pay income taxes with respect to: (i) the lapse
of restrictions on restricted stock; (ii) the issuance of unrestricted
stock, including issuances as a result of the conversion of restricted
stock equivalents; or
(iii) payment of the exercise price and related income taxes with
respect to certain exercises of stock
options.
|
**
|
No
publicly announced repurchase program in
place.
|
ITEM
6. Selected Financial
Data
The
following table sets forth selected financial data for each of the last five
years (dollar amounts in millions, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUMMARY
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and revenues
|
|
$ |
146,277 |
|
|
$ |
172,455 |
|
|
$ |
160,065 |
|
|
$ |
176,835 |
|
|
$ |
172,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
before income taxes
|
|
$ |
(14,404 |
) |
|
$ |
(3,746 |
) |
|
$ |
(15,074 |
) |
|
$ |
1,054 |
|
|
$ |
4,087 |
|
Provision
for/(Benefit from) income taxes
|
|
|
63 |
|
|
|
(1,294 |
) |
|
|
(2,655 |
) |
|
|
(855 |
) |
|
|
634 |
|
Minority
interests in net income/(loss) of subsidiaries
|
|
|
214 |
|
|
|
312 |
|
|
|
210 |
|
|
|
280 |
|
|
|
282 |
|
Income/(Loss)
from continuing operations
|
|
|
(14,681 |
) |
|
|
(2,764 |
) |
|
|
(12,629 |
) |
|
|
1,629 |
|
|
|
3,171 |
|
Income/(Loss)
from discontinued operations
|
|
|
9 |
|
|
|
41 |
|
|
|
16 |
|
|
|
62 |
|
|
|
(133 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(251 |
) |
|
|
— |
|
Net
income/(loss)
|
|
$ |
(14,672 |
) |
|
$ |
(2,723 |
) |
|
$ |
(12,613 |
) |
|
$ |
1,440 |
|
|
$ |
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
129,166 |
|
|
$ |
154,379 |
|
|
$ |
143,249 |
|
|
$ |
153,413 |
|
|
$ |
147,058 |
|
Operating
income/(loss)
|
|
|
(9,293 |
) |
|
|
(4,268 |
) |
|
|
(17,944 |
) |
|
|
(4,211 |
) |
|
|
(221 |
) |
Income/(Loss)
before income taxes
|
|
|
(11,823 |
) |
|
|
(4,970 |
) |
|
|
(17,040 |
) |
|
|
(3,899 |
) |
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
17,111 |
|
|
$ |
18,076 |
|
|
$ |
16,816 |
|
|
$ |
23,422 |
|
|
$ |
25,197 |
|
Income/(Loss)
before income taxes
|
|
|
(2,581 |
) |
|
|
1,224 |
|
|
|
1,966 |
|
|
|
4,953 |
|
|
|
4,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company Data Per Share of Common and Class B Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.88 |
|
|
$ |
1.74 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.04 |
|
|
|
(0.08 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.14 |
) |
|
|
— |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.78 |
|
|
$ |
1.66 |
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss)
from continuing operations
|
|
$ |
(6.46 |
) |
|
$ |
(1.40 |
) |
|
$ |
(6.73 |
) |
|
$ |
0.86 |
|
|
$ |
1.59 |
|
Income/(Loss)
from discontinued operations
|
|
|
— |
|
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
|
(0.07 |
) |
Cumulative
effects of change in accounting principle
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.12 |
) |
|
|
— |
|
Net
income/(loss)
|
|
$ |
(6.46 |
) |
|
$ |
(1.38 |
) |
|
$ |
(6.72 |
) |
|
$ |
0.77 |
|
|
$ |
1.52 |
|
Cash
dividends
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.25 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock price range (NYSE Composite Interday)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
8.79 |
|
|
$ |
9.70 |
|
|
$ |
9.48 |
|
|
$ |
14.75 |
|
|
$ |
17.34 |
|
Low
|
|
|
1.01 |
|
|
|
6.65 |
|
|
|
6.06 |
|
|
|
7.57 |
|
|
|
12.61 |
|
Average
number of shares of Ford Common and Class B Stock outstanding
(in millions)
|
|
|
2,273 |
|
|
|
1,979 |
|
|
|
1,879 |
|
|
|
1,846 |
|
|
|
1,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SECTOR
BALANCE SHEET DATA AT YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
73,845 |
|
|
$ |
118,489 |
|
|
$ |
122,634 |
|
|
$ |
113,825 |
|
|
$ |
113,251 |
|
Financial
Services sector
|
|
|
151,667 |
|
|
|
169,261 |
|
|
|
169,691 |
|
|
|
162,194 |
|
|
|
189,188 |
|
Intersector
elimination
|
|
|
(2,535 |
) |
|
|
(2,023 |
) |
|
|
(1,467 |
) |
|
|
(83 |
) |
|
|
(2,753 |
) |
Total
assets
|
|
$ |
222,977 |
|
|
$ |
285,727 |
|
|
$ |
290,858 |
|
|
$ |
275,936 |
|
|
$ |
299,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
sector
|
|
$ |
25,846 |
|
|
$ |
26,954 |
|
|
$ |
29,796 |
|
|
$ |
17,849 |
|
|
$ |
18,220 |
|
Financial
Services sector
|
|
|
128,842 |
|
|
|
141,833 |
|
|
|
142,036 |
|
|
|
135,400 |
|
|
|
144,198 |
|
Intersector
elimination *
|
|
|
(492 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
debt
|
|
$ |
154,196 |
|
|
$ |
168,787 |
|
|
$ |
171,832 |
|
|
$ |
153,249 |
|
|
$ |
162,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
$ |
(17,311 |
) |
|
$ |
5,628 |
|
|
$ |
(3,465 |
) |
|
$ |
13,442 |
|
|
$ |
17,437 |
|
__________
* Debt
related to Ford's acquisition of Ford Credit debt securities. See
Note 1 of the Notes to the Financial Statements for additional
detail.
ITEM
7. Management's Discussion and
Analysis of Financial Condition and Results of Operations
OVERVIEW
Generation
of Revenue, Income and Cash
Our
Automotive sector's revenue, income, and cash are generated primarily from sales
of vehicles to our dealers and distributors (i.e., our
customers). Vehicles we produce generally are subject to firm orders
from our customers and are deemed sold (with the proceeds from such sale
recognized in revenue) after they are produced and shipped or delivered to our
customers. This is not the case, however, with respect to vehicles
produced for sale to daily rental car companies that are subject to a guaranteed
repurchase option or vehicles produced for use in our own fleet (including
management evaluation vehicles). Vehicles sold to daily rental car
companies that are subject to a guaranteed repurchase option are accounted for
as operating leases, with lease revenue and profits recognized over the term of
the lease. When we sell the returned vehicle at auction, we recognize
a gain or loss on the difference, if any, between actual auction value and the
projected auction value. In addition, revenue for finished vehicles
we sell to customers or vehicle modifiers on consignment is not recognized until
the vehicle is sold to the ultimate customer. Therefore, except for
the impact of the daily rental units sold subject to a guaranteed repurchase
option, those units placed into our own fleet, and those units for which
recognition of revenue is otherwise deferred, wholesale volumes to our customers
and revenue from such sales are closely linked with our production.
Most of
the vehicles sold by us to our dealers and distributors are financed at
wholesale by Ford Credit. Upon Ford Credit originating the wholesale
receivable related to a dealer's purchase of a vehicle, Ford Credit pays cash to
the relevant legal entity in our Automotive sector in payment of the dealer's
obligation for the purchase price of the vehicle. The dealer then
pays the wholesale finance receivable to Ford Credit when it sells the vehicle
to a retail customer.
Our
Financial Services sector's revenue is generated primarily from interest on
finance receivables, net of certain deferred origination costs that are included
as a reduction of financing revenue, and such revenue is recognized over the
term of the receivable using the interest method. Also, revenue from
operating leases, net of certain deferred origination costs, is recognized on a
straight-line basis over the term of the lease. Income is generated
to the extent revenues exceed expenses, most of which are interest,
depreciation, and operating expenses.
Transactions
between our Automotive and Financial Services sectors occur in the ordinary
course of business. For example, Ford Credit receives interest
supplements and other support cost payments from the Automotive sector in
connection with special-rate vehicle financing and leasing programs that we
sponsor. Ford Credit records these payments as revenue, and, for
contracts purchased prior to 2008, our Automotive sector made the related cash
payments, over the expected life of the related finance receivable or operating
lease. Effective January 1, 2008, to reduce ongoing
Automotive obligations to Ford Credit and to be consistent with general industry
practice, we began paying interest supplements and residual value support to
Ford Credit on an upfront, lump-sum basis at the time Ford Credit purchases
eligible contracts from dealers. See Note 1 of the Notes to the
Financial Statements for a more detailed discussion of transactions and payments
between our Automotive and Financial Services sectors. The Automotive
sector records the estimated costs of marketing incentives, including dealer and
retail customer cash payments (e.g., rebates) and costs of special-rate
financing and leasing programs, as a reduction to revenue. These
reductions to revenue are accrued at the later of the date the related vehicle
sales to the dealer are recorded or at the date the incentive program is both
approved and communicated.
Key
Economic Factors and Trends Affecting the Automotive Industry
Global Economic and Financial Market
Crisis. The global economy has entered a period of very weak
economic growth, led by the recession in the United States and followed by
declines in other major markets around the world. The financial
market crisis set off a series of events that generated conditions more severe
than those experienced in several decades. The characteristics of the
financial crisis are unique, in part due to the complex structure of
housing-related securities that were at the epicenter of the financial market
turmoil. A steep housing correction, especially in the U.S. and U.K.
markets, along with downward valuations of mortgage-backed and related
securities, combined to foster a crisis in confidence. Although
several other factors contributed to current economic and financial conditions,
the influence of these financial developments was very prominent. The
interrelationships among financial markets worldwide ultimately resulted in a
synchronous global economic downturn, the effects of which became evident in the
fourth quarter of 2008 as major markets around the world all suffered
setbacks.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The
economic outlook is negative, with a range of possible outcomes due to the
uncertain financial market environment and ongoing policy
responses. In 2009, global industry sales volume is projected to
weaken, with a full-year decline in the range of 15% from 2008
levels. Consumer and business spending has been severely constrained
by credit conditions and economic weakness. The effectiveness of
prior and prospective policy actions to confront the crisis is not clearly
apparent at this juncture; hence, the current outlook is particularly
uncertain.
Excess
Capacity. According to CSM Worldwide, an automotive research
firm, in 2008 the estimated automotive industry global production capacity for
light vehicles (about 90 million units) exceeded global production by about
24 million units. In North America and Europe, the two regions
where the majority of revenue and profits are earned in the industry, excess
capacity was an estimated 44% and 23%, respectively, with North America in
particular driven up from recent rates of around 20% due to the industry
conditions in that market last year. According to production capacity
data projected by CSM Worldwide, significant global excess capacity conditions
could continue for several years at an average of 30.5 million units per
year during the 2009-2011 period.
Pricing
Pressure. Excess capacity, coupled with a proliferation of new
products being introduced in key segments by the industry, will keep pressure on
manufacturers' ability to increase prices on their products. In
addition, the incremental new U.S. manufacturing capacity of Japanese and Korean
manufacturers in recent years has contributed, and is likely to continue to
contribute, to pricing pressure in the U.S. market. The reduction of
real prices for similarly contented vehicles in the United States has become
more pronounced since the late 1990s, and we expect that a challenging pricing
environment will continue for some time to come.
Consumer Spending and
Credit. Limited ability to increase vehicle prices has been
offset in recent years, at least in part, by the long-term trend toward purchase
of higher-end, more expensive vehicles and/or vehicles with more
features. The current retrenchment in consumer spending is likely to
dampen that trend in the near-term, and, even consumers who are willing to spend
often find that availability of automotive loans has been diminished as a result
of the credit crisis. Over the long term, spending on new vehicles is
expected to resume its correlation with growth in per capita
incomes. Emerging markets also will contribute an increasing share of
global industry sales volume and revenue, as growth in wholesales (i.e., volume)
will be greatest in emerging markets in the next decade. We believe,
however, the mature automotive markets (e.g., North America, Western Europe, and
Japan) will retain the largest share of global revenue over the coming
decade.<