Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (11-05-08 07:47 AM)

Filed with the SEC from Oct 23 to Oct 29:

Ford Motor (F)
Kirk Kerkorian's Tracinda Corp. cut its stake to about 107.1 million shares (4.89%), by selling about 26.4 million shares from Oct. 21 to 27 at an average price of $2.01. Tracinda previously had said that it intends to further reduce its Ford holding and might sell all of it.

BUSINESS OVERVIEW

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 combined. 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, 2007 ("2007 Form 10-K Report" or "Report"), extensive information about our Company can be found throughout our website located 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, our Code of Ethics for Senior Financial Personnel, our Code of Ethics for Directors, our Standards of Corporate Conduct for all employees, and the Charters for each of our Board Committees. In addition, amendments to, and waivers granted to our directors and executive officers under, our Codes of Ethics, if any, will be posted in this area of our website. These corporate governance documents can be accessed by logging onto our website and clicking on the "Investors," then "Company Information, " and then "Corporate Governance" links.

Upon accessing our website and clicking on the "Corporate Governance" link, viewers will see a list of corporate governance documents and may click on the desired document. In addition, printed versions of our Corporate Governance Principles, our Code of Ethics for Senior Financial Personnel, our Standards of Corporate Conduct, and the Charters for each of our Board Committees 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 to the Company information discussed above that is provided on our website, 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 made 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. Also, 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. The periodic reports and amendments and the Section 16 filings are made available through our website as soon as reasonably practicable after such report or amendment is electronically filed with the SEC.

To access our SEC reports or amendments or the Section 16 filings, log onto our website and click on the following link on each successive screen:





"Investors"





"Company Reports"





"U.S. S.E.C. EDGAR FILINGS"

Viewers will then see a list of reports filed with the SEC and may click on the desired document.

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.


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.


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 25 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 these Notes.


General

We sell cars and trucks throughout the world. In 2007, we sold approximately 6,553,000 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. Our vehicle brands include Ford, Mercury, Lincoln, and Volvo; our Jaguar and Land Rover brands are held for sale as of the fourth quarter of 2007.

Substantially all of our cars, trucks and parts are marketed through retail dealers in North America, and through distributors and dealers outside of North America, the substantial majority of which are independently owned.

In addition to the products we sell to our dealers for retail sale, we also sell cars and trucks to our dealers for sale to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments. Sales to all of our fleet customers in the United States in the aggregate have represented between 23% and 31% of our total U.S. car and truck sales for the last five years. 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.

In addition to producing and selling cars and trucks, we also provide retail customers with a wide range of after-the-sale vehicle services and products through our dealer network and other channels, in areas such as 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 Service SM , Ford Extended Service Plan SM , and Motorcraft SM .

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 in determining whether and when to replace an existing vehicle. The decision whether and when to make a vehicle purchase 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 (commonly referred to as "industry demand") 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.

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, functionality, and corporate 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.

The profitability of our business is affected by many factors, including:



§

Wholesale unit volumes;


§

Margin of profit on each vehicle sold; which in turn is affected by many factors, including:




Mix of vehicles and options sold;




Costs of components and raw materials necessary for production of vehicles;




Level of "incentives" (e.g., price discounts) and other marketing costs;




Costs for customer warranty claims and additional service actions; and




Costs for safety, emission and fuel economy technology and equipment; and, 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 experience some fluctuation in the business of a seasonal nature. 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 two-week 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 for use in production of our vehicles from numerous suppliers around the world. 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. However, there are always risks and uncertainties 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 related to the operation of our business, and expect this portfolio to continue to grow as we actively pursue additional technological innovation. We currently have approximately 14,400 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. While 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.

Warranty Coverage and Additional Service Actions. We presently 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 contractual 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 additional service action costs for each vehicle sold by us are accrued for at the time of sale. Accruals for estimated warranty and additional 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 28 of the Notes to the Financial Statements.

United States


As the tables above indicate, the shift from cars to trucks that began in the 1980's started to reverse in 2005. Prior to 2005, both industry and Ford's truck mix generally had been increasing, reflecting higher sales of traditional, truck-based SUVs and full-size pickups. In 2005 and 2006, however, overall industry as well as Ford's car mix trended higher, primarily due to increases in the small car segment. In 2007, contrary to industry trends, Ford's overall car mix decreased, reflecting reduced sales to daily rental companies. Gains in the SUV/CUV segment, largely explained by the strength of our new Ford Edge and Lincoln MKX CUVs, also contributed to this shift.

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 Corporation ("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 (including all of our brands sold in the United States), and for the other five leading vehicle manufacturers for the years indicated.

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.

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.

Europe

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, 2007 market data are based on estimated registrations currently available; percentage change is measured from actual 2006 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 2007, vehicle manufacturers sold approximately 18 million cars and trucks in the 19 markets we track in Europe, up 1.3% from 2006 levels. Ford's combined car and truck market share in Europe (including all of our brands sold in Europe) in 2007 was 10.9% (up 0.2 percentage points from 2006).

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. For 2007 compared with 2006, total industry sales were up 2.5% in Britain, and down 7.7% in Germany. Our combined car and truck market share in these markets (including all of our brands sold in these markets) in 2007 was 19.5% in Britain (down 0.3 percentage points from the previous year), and 8.0% in Germany (down 0.2 percentage points from the previous year).

Although not included in the primary 19 markets above, several additional markets the region contribute to our Ford Europe segment results. Ford's share of the Turkish market decreased by 0.4 percentage points to 16.7% – nonetheless, the sixth year in a row that the Ford brand has led the market in sales in Turkey. We also are experiencing strong sales in Russia, where sales of Ford-brand vehicles increased approximately 50% to about 175,800 units in 2007.

Motor Vehicle Distribution in Europe. On October 1, 2002, the Commission of the European Union ("Commission") adopted a new regulation that changed the way motor vehicles are sold and repaired throughout the European Community (the "Block Exemption Regulation"). Under the Block Exemption Regulation, manufacturers had the choice to either operate an "exclusive" distribution system with exclusive dealer sales territories, but 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.

We, as well as the vast majority of the other automotive manufacturers, have elected to establish a "selective" distribution system, allowing us to restrict the dealer’s ability to sell our vehicles to unauthorized resellers. Within this regulation, the Commission also has adopted sweeping changes to the repair industry, and while a manufacturer may continue to require the use of its parts in warranty and recall work, repair facilities may 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.

With these rules, the Commission intended to increase competition and narrow price differences from country to country. The Block Exemption Regulation 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, thus negatively affecting the profitability of our Ford Europe and PAG 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.

CEO BACKGROUND


John R. H. Bond
Age: 66 — Director Since: 2000

Principal Occupation: Non-Executive Chairman, Vodafone Group plc, London, England; Retired Group Chairman, HSBC Holdings plc, London, England

Recent Business Experience: Mr. Bond has been a member of the Board of Vodafone since January 2005 and was elected non-executive Chairman on July 25, 2006. Mr. Bond retired as Group Chairman of HSBC Holdings plc on May 26, 2006. He had been associated with The Hongkong Shanghai Banking Corporation for 45 years. Mr. Bond was elected Group Chairman of HSBC Holdings plc in May 1998. He was Group Chief Executive Officer of HSBC Holdings from 1993 to 1998. From 1991 to 1993, he served as President and Chief Executive Officer of HSBC USA Inc., a wholly-owned subsidiary of HSBC Holdings, and which is now HSBC North America Holdings Inc. Mr. Bond was Chairman of the Institute of International Finance from 1998-2003. Additionally, Mr. Bond became a consultant to Ford’s Executive Chairman in September 2006. He also became a senior advisor to Kohlberg Kravis Roberts & Co. in July 2006.

Other Directorships: Vodafone Group plc; Shui On Land Limited, Hong Kong; A.P. Moller Maersk, Denmark



Stephen G. Butler
Age: 60 — Director Since: 2004

Principal Occupation: Retired Chairman and Chief Executive Officer, KPMG, LLP

Recent Business Experience: Mr. Butler served as Chairman and CEO of KPMG, LLP from 1996 until his retirement on June 30, 2002. Mr. Butler held a variety of management positions, both in the United States and internationally, during his 33-year career at KPMG.

Other Directorships: Cooper Industries, Ltd.; ConAgra Foods, Inc.




Kimberly A. Casiano
Age: 50 — Director Since: 2003

Principal Occupation: President and Chief Operating Officer, Casiano Communications, Inc., San Juan, Puerto Rico

Recent Business Experience: Ms. Casiano was appointed President and Chief Operating Officer of Casiano Communications, a publishing and direct marketing company, in 1994. From 1987 to 1994, she held a number of management positions within Casiano Communications in both the periodicals and magazines and the bilingual direct marketing and call center divisions of the company. Ms. Casiano is a member of the Board of Trustees of the Hispanic College Fund, the Access America Committee of the U.S. Chamber of Commerce, the Board of Directors of Mutual of America, and the Board of Advisors of the Moffitt Cancer Center.



Edsel B. Ford II
Age: 59 — Director Since: 1988

Principal Occupation: Director and Consultant, Ford Motor Company

Recent Business Experience: Mr. Ford is a retired Vice President of Ford Motor Company and former President and Chief Operating Officer of Ford Motor Credit Company. He presently serves as a consultant to the Company.

Other Directorships: International Speedway Corporation



William Clay Ford, Jr.
Age: 50 — Director Since: 1988

Principal Occupation: Executive Chairman and Chairman of the Board of Directors, Ford Motor Company

Recent Business Experience: Mr. Ford has held a number of management positions within Ford, including Vice President — Commercial Truck Vehicle Center. From 1995 until October 30, 2001, Mr. Ford was Chair of the Finance Committee. Effective January 1, 1999, he was elected Chairman of the Board of Directors and effective October 30, 2001, he was elected Chief Executive Officer of the Company. Mr. Ford became Executive Chairman of the Company on September 1, 2006 and is the current Chair of the Finance Committee. Mr. Ford also is Vice Chairman of The Detroit Lions, Inc., Chairman of the Detroit Economic Club, and Chairman of the Board of Trustees of The Henry Ford. He also is a Vice Chairman of Detroit Renaissance.

Other Directorships: eBay Inc.



Irvine O. Hockaday, Jr.
Age: 71 — Director Since: 1987

Principal Occupation: Retired President and Chief Executive Officer, Hallmark Cards, Inc., Kansas City, Missouri

Recent Business Experience: Mr. Hockaday was President and CEO of Hallmark Cards, Inc. since January 1, 1986, and a director since 1978. He retired in December 2001.

Other Directorships: Aquila, Inc.; Crown Media Holdings, Inc.; Sprint Corp.; The Estee Lauder Companies, Inc.



Richard A. Manoogian
Age: 71 — Director Since: 2001

Principal Occupation: Chairman of the Board and Executive Chairman, Masco Corporation, Taylor, Michigan

Recent Business Experience: Mr. Manoogian has been with Masco since 1958, became Vice President and a member of the Board in 1964, President in 1968 and, in 1985, became Chairman. Mr. Manoogian transitioned from his role as Chief Executive Officer of Masco to Executive Chairman in July 2007. Mr. Manoogian is a member of the Board of Detroit Renaissance, The Henry Ford, and a member of The American Business Conference.

Other Directorships: Masco Corporation




Ellen R. Marram
Age: 60 — Director Since: 1988

Principal Occupation: President, The Barnegat Group, LLC

Recent Business Experience: Ms. Marram is President of the Barnegat Group, LLC, a business advisory firm. From September 2000 through December 2005, Ms. Marram was Managing Director of North Castle Partners, LLC, a private equity firm. Ms. Marram served as President and CEO of efdex inc. from August 1999 to May 2000. She previously served as President and CEO of Tropicana Beverage Group from September 1997 until November 1998, and had previously served as President of the Group, as well as Executive Vice President of The Seagram Company Ltd. and Joseph E. Seagram & Sons, Inc. Before joining Seagram in 1993, she served as President and CEO of Nabisco Biscuit Company and Senior Vice President of the Nabisco Foods Group from June 1988 until April 1993.

Other Directorships: The New York Times Company; Eli Lilly and Company; Cadbury Schweppes plc




Alan Mulally
Age: 62 — Director Since: 2006

Principal Occupation: President and Chief Executive Officer, Ford Motor Company

Recent Business Experience: Mr. Mulally was elected President and Chief Executive Officer of Ford effective September 1, 2006. Since March 2001, Mr. Mulally had been Executive Vice President of the Boeing Company and President and Chief Executive Officer of Boeing Commercial Airplanes. He also was a member of the Boeing Executive Council. Prior to that time, Mr. Mulally served as President and Chief Executive Officer of Boeing’s space and defense businesses. Mr. Mulally has served as co-chair of the Washington Competitive Council, and has sat on the advisory boards of NASA, the University of Washington, the University of Kansas, the Massachusetts Institute of Technology, and the U.S. Air Force Scientific Advisory Board. He is a member of the U.S. National Academy of Engineering and a fellow of England’s Royal Academy of Engineering.



Homer A. Neal
Age: 65 — Director Since: 1997

Principal Occupation: Director, ATLAS Project, Professor of Physics, Interim President Emeritus, and Vice President for Research Emeritus, University of Michigan, Ann Arbor, Michigan

Recent Business Experience: Dr. Neal is director, University of Michigan ATLAS Project, Samuel A. Goudsmit Distinguished Professor of Physics, Interim President Emeritus and Vice President for Research Emeritus at the University of Michigan. He joined the University as Chairman of its Physics Department in 1987 and in 1993 was named Vice President of Research. Dr. Neal served as Interim President of the University of Michigan from July 1, 1996 to February 1, 1997. He has served as a member of the U.S. National Science Board, the Advisory Board of the Oak Ridge National Laboratory, as a Trustee of the Center for Strategic and International Studies and as a member of the Board of Regents of the Smithsonian Institution. Dr. Neal currently is a member of the Board of Trustees of the Richard Lounsbery Foundation and a member of the Advisory Board for the Lawrence Berkeley National Laboratory. He is also a member of the Board of Physics and Astronomy of the National Academy of Sciences and a member of the Council of the Smithsonian National Museum of African American History and Culture.



Jorma Ollila
Age: 57 — Director Since: 2000

Principal Occupation: Chairman of the Board, Nokia Corporation, Finland; Chairman of the Board, Royal Dutch Shell plc, The Netherlands

Recent Business Experience: Mr. Ollila was Chairman and Chief Executive Officer and Chairman of the Group Executive Board of Nokia until June 1, 2006, and thereafter remains as Chairman of the Board of Directors. Mr. Ollila had been Chairman of the Board and Chief Executive Officer of Nokia since 1999. He also had been Chairman of its Group Executive Board since 1992. He was President and Chief Executive Officer from 1992 to 1999, a member of its Board of Directors since 1995 and a member of its Group Executive Board since 1986. He also held various other positions since joining Nokia in 1985. From 1978 to 1985, Mr. Ollila held various managerial positions with Citibank Oy and Citibank N.A. Additionally, Mr. Ollila became Chairman of Royal Dutch Shell plc on June 1, 2006.

Other Directorships: Nokia Corporation; Royal Dutch Shell plc. Effective March 26, 2008, Mr. Ollila is no longer a member of the Board of UPM-Kymmene Corporation



Gerald L. Shaheen
Age: 63 — Director Since: July 2007

Principal Occupation: Retired Group President, Caterpillar, Inc., Peoria, Illinois

Recent Business Experience: Mr. Shaheen was appointed Group President of Caterpillar in November 1998 and had responsibility for the design, development and production of the company’s large construction and mining equipment, as well as marketing and sales operations in North America, Caterpillar’s components business, and its research and development division. Mr. Shaheen joined Caterpillar in 1967 and held a variety of management positions. Mr. Shaheen retired from Caterpillar effective February 1, 2008. Mr. Shaheen is a board member and past chairman of the U.S. Chamber of Commerce and a board member of the National Chamber Foundation.

Other Directorships: National City Corporation; AGCO Corporation



John L. Thornton
Age: 54 — Director Since: 1996

Principal Occupation: Professor and Director, Global Leadership Program, Tsinghua University, Beijing, China

Recent Business Experience: Mr. Thornton retired as President and Co-Chief Operating Officer of The Goldman Sachs Group, Inc. on June 30, 2003. Mr. Thornton was appointed to that post in 1999 and formerly served as Chairman of Goldman Sachs — Asia from 1996 to 1998. He was previously Co-Chief Executive of Goldman Sachs International, the firm’s business in Europe, the Middle East, and Africa. He also is the Chairman of the Board of Trustees of the Brookings Institution.

Other Directorships: News Corporation; Intel, Inc.; China Netcom Group Corporation (Hong Kong) Limited; Industrial Commercial Bank of China Limited

MANAGEMENT DISCUSSION FROM LATEST 10K

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) immediately 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 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 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

Excess Capacity. According to CSM Worldwide, an automotive research firm, in 2007 the estimated automotive industry global production capacity for light vehicles (about 85.4 million units) exceeded global production by about 16.8 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 17% and 11%, respectively. According to production capacity data projected by CSM Worldwide, significant global excess capacity conditions could continue for several more years at an average of 18.4 million units per year during the 2008-2014 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 the severe pricing pressure in that market. For example, in 2006, Toyota completed construction of an assembly plant in Texas that is capable of producing 150,000 full-size pickup trucks annually as of 2007, and is projected to be able to produce 200,000 full-size pick-up trucks beginning in 2008, according to CSM Worldwide. 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. In addition, the relative weakness of the Japanese yen against the U.S. dollar, and more substantially against the euro, contributes to Japanese vehicle manufacturers' significant cost advantage, especially on exports from Japan to these markets. In Europe, the automotive industry also has experienced intense pricing pressure for several years, exacerbated in recent years by the Block Exemption Regulation discussed in "Item 1. Business - Automotive Sector."


Consumer Spending Trends. We expect, however, that a decline in or the inability to increase vehicle prices could be offset at least in part by the long-term trend of consumers' propensity to purchase higher-end, more expensive vehicles and/or vehicles with more features. In the United States, for example, consumers in the highest income brackets are buying more often and are more frequently buying upscale.

Emerging markets will also contribute an increasing share of global industry 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 continue to be a significant driver of global industry revenue growth.

Health Care Expenses. In 2007, our health care expenses (excluding special items) for U.S. employees, retirees, and their dependents were $2.2 billion, with about $1.2 billion for postretirement health care and the balance for active employee health care and other retiree expense.

For 2008, our trend assumptions for U.S. health care costs include an initial trend rate of three percent. Over the long term, our steady-state trend rate assumption is five percent, reached in 2011; in any given year, however, the rate could be higher or lower. These assumptions reflect our ongoing focus on health care cost control (including eligibility management, employee education and wellness programs, competitive sourcing, and employee cost sharing) and an assessment of likely long-term trends. They do not include the impact of the recent Memorandum of Understanding with the UAW relating to retiree health care, discussed in detail in this Overview.

Commodity and Energy Price Increases. Commodity prices, particularly for steel and resins (which are our two largest commodity exposures and among the most difficult to hedge), have continued to increase during a period of strong global demand for these materials. In addition, energy prices also continued to increase significantly in 2007. In particular, gasoline prices in the United States rose to levels over $3.00 per gallon during 2007. Although prices have moderated somewhat, they are expected to remain at high levels. This has had an adverse effect on the demand for traditional full- and medium-sized SUVs and trucks in the United States.

Currency Exchange Rate Volatility. The U.S. dollar has depreciated against most major currencies since 2002. This created downward margin pressure on auto manufacturers that have U.S. dollar revenue with foreign currency cost. Because we produce vehicles in Europe (e.g., Jaguar, Land Rover, and Volvo models) for sale in the United States and produce components in Europe (e.g., engines) for use in some of our North American vehicles, we experienced margin pressure. Although this pressure was offset partially by gains on foreign exchange derivatives, this offset declines over time due to the expiration of favorable hedges previously put in place. We, like many other automotive manufacturers with sales in the United States and costs in foreign currencies, are not always able to price for depreciation of the U.S. dollar due to the extremely competitive pricing environment in the United States.

Other Economic Factors. Additional factors have recently affected the performance of the automotive industry. In the United States, 2007 was a period of a significant contraction in the housing market. As a result, spending on new residential construction declined by 16.9% (after inflation). This adjustment had two effects on automotive sales and revenue – directly, through its adverse effect on GDP growth, and as a contributing factor to potential softer demand for truck sales. Both of these factors may continue to contribute to lower light vehicle sales in the United States. In addition, during the second half of 2007, the United States experienced a subprime mortgage contraction that resulted in an associated contraction throughout the world in other types of credit market activity, which impacted adversely certain of Ford Credit's capital market funding activities. The contraction of credit market activity appears to be continuing into 2008, which could result in higher costs of capital and generally reduced economic activity.

Emissions Standards for Medium and Heavy Trucks. New, more stringent U.S. regulatory requirements for truck emissions took effect on January 1, 2007, which increased the cost primarily of diesel engines used in medium and heavy trucks. These standards did not apply to vehicles purchased prior to the implementation of the new regulations. As a result, sales of medium and heavy trucks were elevated in 2006 as buyers pulled ahead orders that they would otherwise have made at a later date. The payback from this pull-ahead demand, which may continue into 2008, contributed to a 30% year over year decline in sales of medium and heavy trucks in 2007.

Trends and Strategies

The global automotive marketplace has become increasingly fragmented and crowded, and we anticipate that this trend will continue to accelerate into the future. Anticipating little growth in the overall volume of vehicles sold in North America for the foreseeable future, we expect more manufacturers to offer an increasing number of products in this market. To address this market reality and the factors and trends affecting the automotive industry discussed above, and towards the end of achieving profitable growth in all markets, we have been focusing and continue to focus on the following four key priorities:





Aggressively restructure to operate profitably at the current demand and changing model mix;




Accelerate development of new products our customers want and value;




Finance our plan and improve our balance sheet; and




Work together effectively as one team.

Aggressively Restructure to Operate Profitably at the Current Demand and Changing Model Mix

To compete more effectively in today's global marketplace, and particularly in North America, we have been executing a plan to restructure aggressively our Automotive business to address the realities of lower demand, higher fuel prices and the shifting model mix from trucks and large SUVs to more fuel-efficient vehicles.

On January 23, 2006, we announced a major business improvement plan for our North American Automotive operations, which we referred to as the Way Forward plan. On September 15, 2006, responding to changing facts and circumstances, we announced an acceleration of this plan, including actions designed to further reduce operating costs and increase the flow of new products. Key elements of our plan to restructure aggressively our Automotive business include the following:

Personnel reductions

To contribute to our goal of reducing annual North America operating costs by about $5 billion by the end of 2008 as compared with 2005, over the last two years we have reduced by about 46,300 the employment levels in our Ford North America business unit. At December 31, 2007, our Ford North America business unit had approximately 23,700 salaried employees and 64,000 hourly about employees (including 6,100 working at our ACH facilities), compared with approximately 34,500 salaried employees and 99,500 hourly employees (including 13,900 working at our ACH facilities) at December 31, 2005. Most of these reductions were the result of offers of early retirement or separation packages to U.S. employees, including Ford employees at our ACH plants.

Although we have achieved our previously announced goal to operate with between 55,000 to 60,000 hourly non-ACH employees in North America by the end of 2008, we have embarked on additional personnel reduction actions, as announced on January 24, 2008, to achieve even lower hourly employment levels in North America. With the UAW, we are implementing an additional enterprise-wide buyout program in two phases:





The first phase is applicable to UAW-represented employees at select closed facilities (i.e., the Atlanta, St. Louis, Edison (NJ) and Norfolk Assembly Plants), with buyout offers running from January 22, 2008 to February 25, 2008. Employees who accept these offers generally will be separated by March 1, 2008.





The second phase is applicable to all other UAW-represented employees, with buyout offers being made from February 19, 2008 to March 18, 2008. Employees who accept these offers will be separated beginning April 1, 2008, with most separations completed by June 30, 2008 and all completed by year-end 2008.

Capacity alignment

We also have reduced and realigned our vehicle assembly capacity to bring it more in line with demand and shifting customer preferences. There are several ways to measure our vehicle assembly capacity, two of which are installed capacity and manned capacity. Installed capacity refers to the physical capability of the plant and equipment to assemble vehicles if fully manned. Manned capacity refers to the degree to which the installed capacity has been staffed. In addition, in North America there generally exists the capability to work overtime or schedule downtime to adjust the manned capacity in the short term to match sales.

Since year-end 2005, we have reduced our North American manned capacity from 3.6 million units to 2.9 million units. Reducing our manned capacity in this manner allows us to achieve major cost savings and coordinates plant closures with planned product changes, which we believe is the best economic approach. We plan to reduce our manned capacity in North America by the end of the decade so that it closely matches projected sales of Ford, Lincoln and Mercury units.

As part of this reduction, we have closed or announced plans to close the following North American manufacturing facilities:

CLOSED :





Atlanta Assembly Plant (closed in 2006);




Essex Engine Plant (closed in 2007);




Maumee Stamping Plant (closed in 2007);




Norfolk Assembly Plant (closed in 2007);




St. Louis Assembly Plant (closed in 2006);




Windsor Casting Plant (idled in 2007); and




Wixom Assembly Plant (closed in 2007).



TO BE CLOSED :





Batavia Transmission Plant (to be closed in 2008);




Twin Cities Assembly Plant (to be closed in 2009); and




Cleveland Casting Plant (to be closed in 2010).

Additionally, we have sold or closed the ACH plants listed below, and plan to sell or close essentially all of the 11 remaining ACH plants by the end of 2008:





Chesterfield (Michigan) Trim Plant, which produced seat foam, closed in 2006;




Kansas City Regional Assembly, which performed final assembly of instrument panels, closed in 2006;




El Jarudo (Mexico), which produced automotive fuel rails, was sold in 2007; and




Converca (Mexico), which produced power transfer units, was sold in 2007.

New UAW Collective Bargaining Agreement

On November 3, 2007, we agreed in principle with the UAW on a new, four-year collective bargaining agreement ("CBA") and a separate memorandum of understanding relating to retiree health care benefits ("MOU", and together with the CBA, "Agreements"). The Agreements were ratified by our UAW-represented employees on November 14, 2007. The MOU is subject to several additional conditions, including court approval of a final settlement agreement and satisfactory accounting treatment of the retiree health care benefits obligation.

The Agreements will enable us to increase our competitiveness in the United States through reduced retiree health care costs, more competitive wages and benefits, and improved operational flexibility. Following are some of the significant terms of the Agreements.

RESULTS OF OPERATIONS

FULL-YEAR 2007 RESULTS OF OPERATIONS

Our worldwide net loss was $2.7 billion or $1.38 per share of Common and Class B Stock in 2007, an improvement of $9.9 billion from a loss of $12.6 billion or $6.72 per share in 2006.


AUTOMOTIVE SECTOR RESULTS OF OPERATIONS

The discussion below of Automotive and Financial Services sector results of operations is on a pre-tax basis. Our results for interim periods are not necessarily indicative of results for a full year. We believe that the trends, particularly for year-over-year changes in profitability, cost changes and market share, generally are important and are indicative of the direction of our business unless our disclosures indicate otherwise.

2007 Compared with 2006

Overall Automotive Sector

The improvement in earnings primarily reflected lower charges for Jobs Bank Benefits and personnel-reduction programs in Ford North America ($4 billion), favorable net pricing – including a variable marketing charge related to a business practice change – ($2.6 billion), lower pension curtailment charges ($2.6 billion), the non-recurrence of 2006 impairment charges related to our long-lived assets in Ford North America ($2.2 billion), favorable cost changes ($1.8 billion), and retiree health care curtailment gains related to our hourly separation programs ($1.3 billion). These factors were offset partially by changes in currency exchange rates (about $900 million), higher impairment charges related to our PAG assets (about $800 million), and higher net interest (about $800 million).

The increase in revenue primarily reflected changes in currency exchange rates, improved product mix, and higher net pricing, offset partially by lower volumes (more than explained by North America). Higher net pricing in 2007 compared with 2006 was achieved despite the variable marketing charge related to a business practice change.


The Americas

Ford North America Segment. The improvement in earnings primarily reflected lower charges for Jobs Bank Benefits and personnel-reduction programs, lower pension curtailment charges, the non-recurrence of 2006 impairment charges related to our long-lived assets, higher net pricing, and retiree health care curtailment gains related to our hourly separation programs.

Ford South America Segment. The increase in earnings is more than explained by higher net revenue and improved volume and mix, offset partially by unfavorable cost changes and the non-recurrence of a 2006 gain associated with a legal settlement relating to a social welfare tax liability. The unfavorable cost changes primarily reflected higher net product costs and higher manufacturing and engineering costs. The level of profitability that our Ford South America segment achieved in 2007 is not likely to be sustained over the next few years due in part to an expected increase in competition.

Ford Europe and PAG

Ford Europe Segment. The increase in earnings is more than explained by favorable cost changes and improved volume and mix, offset partially by costs associated with a U.K. plant closure and changes in currency exchange. The favorable cost changes primarily reflected lower warranty-related costs and net product costs, offset partially by higher manufacturing and engineering costs and advertising and sales promotion costs.

PAG Segment. The improvement in earnings primarily reflected favorable cost changes, improved volume and mix, favorable net pricing, the effect of our sale of Aston Martin (primarily the gain on sale), and lower charges for personnel-reduction programs, offset partially by higher impairment charges related to PAG assets and changes in currency exchange rates. The favorable cost changes primarily reflected lower warranty-related costs (primarily the non-recurrence of adverse 2006 adjustments to Jaguar and Land Rover warranty accruals), overhead costs, and spending-related costs.

Ford Asia Pacific and Africa/Mazda

Ford Asia Pacific and Africa/Mazda Segment. The improvement in results for Ford Asia Pacific and Africa primarily reflected favorable cost changes, higher net pricing, and lower charges for personnel-reduction programs, offset partially by less favorable volume and mix. The favorable cost changes primarily reflected lower manufacturing and engineering costs, overhead costs, and net product costs.

The decrease in earnings for Mazda and Associated Operations primarily reflected the decrease in net earnings at Mazda (including the non-recurrence of a gain Mazda realized on the transfer of its pension liabilities back to the Japanese government), offset partially by the non-recurrence of personnel-reduction programs at AAI.

Other Automotive

The decline in results primarily reflected higher interest expense and related costs associated with the higher debt levels that resulted from financing actions taken in the fourth quarter of 2006, the non-recurrence in Other Automotive of tax-related interest adjustments resulting from settlements with the Internal Revenue Service in 2006, and a loss on the conversion of 43% of our Trust Preferred Securities. These unfavorable factors were offset partially by higher interest income reflecting higher average cash balances, mark-to-market adjustments for changes in exchange rates on intercompany loans and related loan hedges, and a gain on the exchange of debt securities for equity that occurred in December 2007.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

SECOND QUARTER RESULTS OF OPERATIONS

Our worldwide net loss was $8.7 billion or $3.88 per share of Common and Class B Stock in the second quarter of 2008, down from net income of $750 million or $0.31 per share in the second quarter of 2007.

Included in Provision for/(Benefit from) income taxes are tax benefits of $727 million for the second quarter of 2008 that we consider to be special items. This amount primarily consists of the tax effects of the pre-tax special items listed above, and a $645 million benefit reflecting the change in our deferred tax asset valuation allowance allocated to Income/(Loss) from continuing operations after taking into consideration income from Accumulated other comprehensive income/(loss) when determining whether sufficient future taxable income exists to realize deferred tax assets.


The discussion below of Automotive and Financial Services sector results of operations is on a pre-tax basis. Our results for interim periods are not necessarily indicative of results for a full year. We believe that the trends, particularly for year-over-year changes in profitability, cost changes, and market share, generally are important and may be indicative of the direction of our business unless our disclosures indicate otherwise.

AUTOMOTIVE SECTOR

Details by segment or business unit of Income/(Loss) before income taxes for the second quarter of 2008 and 2007 are shown below (in millions), with Jaguar Land Rover and Aston Martin segment separated out from "ongoing" subtotals:

Overall Automotive Sector

The decline in results primarily reflected fixed asset impairment charges in Ford North America ($5.3 billion), unfavorable volume and mix ($1.3 billion), higher charges for Job Security Benefits and personnel-reduction programs (about $300 million), a loss on the sale of ACH plants and assets (about $300 million), lower interest income and mark-to-market adjustments for changes in currency exchange rates on intercompany loans offset partially by lower interest expense (about $200 million), a charge as determined under U.S. GAAP representing the impact on Ford of a goodwill impairment related to Mazda-owned dealerships in Japan (about $200 million), the non-recurrence of the gain on sale of Aston Martin (about $200 million), lower net pricing (about $200 million), the reduction of net gains on certain Jaguar Land Rover undesignated hedges (about $200 million), and unfavorable changes in currency exchange rates (about $200 million). These factors were offset partially by favorable cost changes ($1 billion).


The decline in revenue was more than explained by North America results including lower wholesale unit volumes, adverse product mix, and lower net pricing, offset partially by favorable changes in currency exchange rates in all other segments.

Ford North America Segment. The decline in earnings primarily reflected fixed asset impairment charges, unfavorable volume and mix, higher charges for Job Security Benefits and personnel-reduction programs, lower net pricing, and a loss on the sale of ACH plants and assets, offset partially by favorable cost changes. The favorable cost changes primarily reflected lower spending-related costs, manufacturing and engineering costs, pension and OPEB costs, and overhead costs.


Ford South America Segment. The increase in earnings primarily reflected higher net pricing and favorable volume and mix, offset partially by unfavorable changes in currency exchange.

Ford Europe Segment. The increase in earnings primarily reflected favorable volume and mix, favorable cost changes, lower charges for personnel-reduction programs, and favorable net pricing, offset partially by unfavorable changes in currency exchange rates. The favorable cost changes primarily reflected lower overhead costs, pension costs, advertising and sales promotion costs, and net product costs, offset partially by higher manufacturing and engineering costs.

Volvo Segment. The decline in earnings primarily reflected unfavorable volume and mix, lower net pricing, unfavorable changes in currency exchange rates, and higher charges for personnel-reduction programs, offset partially by favorable cost changes. The favorable cost changes primarily reflected lower manufacturing and engineering costs, overhead costs, warranty-related costs, advertising and sales promotion costs, and spending-related costs.

Ford Asia Pacific Africa Segment. The increase in earnings was more than explained by higher net pricing.

Mazda Segment. The decline in results primarily reflected a charge as determined under U.S. GAAP representing the impact on Ford of a goodwill impairment related to Mazda-owned dealerships in Japan.

Other Automotive. The decline in earnings primarily reflected lower interest income (primarily reflecting lower interest rates) and mark-to-market adjustments for changes in exchange rates on intercompany loans, offset partially by lower interest expense.

Jaguar Land Rover and Aston Martin Segment. The decrease in earnings primarily reflected the non-recurrence of the gain on sale of Aston Martin, the reduction of net gains on certain Jaguar Land Rover undesignated hedges, and the loss on the sale of Jaguar Land Rover.

FINANCIAL SERVICES SECTOR


The decrease in earnings primarily reflected the significant decline in used vehicle auction values during the second quarter of 2008. This decline in auction values contributed to: an impairment charge to Ford Credit's North America segment operating lease portfolio for contracts terminating beginning third quarter of 2008 ($2.1 billion), higher depreciation expense for lease vehicles (about $500 million), and a higher provision for credit losses (about $500 million). These factors were offset partially by the non-recurrence of net losses related to market valuation adjustments from derivatives (about $300 million), higher financing margin primarily attributable to lower borrowing costs (about $100 million), a gain related to the sale of approximately half of Ford Credit's ownership interest in its Nordic operations (about $100 million), and lower expenses primarily reflecting improved operating costs (about $100 million).

During the second quarter of 2008, higher fuel prices and the weak economic climate in the United States and Canada resulted in a more pronounced and accelerated shift in consumer preferences away from full-size trucks and traditional SUVs to smaller, more fuel-efficient vehicles. This shift in consumer preferences combined with a weak economic climate caused a significant reduction in auction values, in particular for used full-size trucks and traditional SUVs. At the end of the quarter, Ford Credit completed its quarterly North America operating lease portfolio adequacy study for accumulated depreciation and projected that lease-end residual values would be significantly lower than previously expected for full-size trucks and traditional SUVs.

As a result of the market factors and Ford Credit's adequacy study results, Ford Credit tested the operating leases of its North America segment for recoverability as of June 30, 2008 and recorded a pre-tax impairment charge of $2.1 billion. This charge represents the amount by which the carrying value of certain vehicle lines, primarily full-size trucks and traditional SUVs, in Ford Credit's lease portfolio exceeded their fair value.

About 60% of Ford Credit's net investment in operating leases is included in on-balance sheet private securitizations, and $1.3 billion of the impairment charge is attributable to the assets included in these securitizations. Ford Credit structured the enhancements in its operating lease securitizations to protect investors against residual and credit losses. Ford Credit expects that these enhancements will be sufficient to cover projected residual losses that supported the impairment charge.

The decrease in managed receivables from year-end 2007 was more than explained by lower North America receivables, the impact of divestitures, and the impairment charge for operating leases, offset partially by changes in currency exchange rates.

The following table shows worldwide credit losses, net of recoveries (which are referred to as "charge-offs") for Ford Credit, for the various categories of financing during the periods indicated. The loss-to-receivables ratios, which equal charge-offs on an annualized basis divided by the average amount of receivables outstanding for the period, excluding the allowance for credit losses and unearned interest supplements related to finance receivables, are shown below for Ford Credit's on-balance sheet and managed portfolios.

The increases in charge-offs and loss-to-receivable ratios for Ford Credit's on-balance sheet and managed portfolios, principally in the U.S. retail installment and lease portfolio, primarily reflected higher severity (i.e., average loss per repossession) mainly due to the overall auction value deterioration in the used vehicle market, along with an increase in amount financed, and a higher mix of 72-month contracts for vehicles repossessed in its portfolio.

Shown below is an analysis of Ford Credit's allowance for credit losses and its allowance for credit losses as a percentage of end-of-period receivables ( i.e., finance receivables, excluding unearned interest supplements, and net investment in operating leases, excluding the allowance for credit losses) for its on-balance sheet portfolio:


CONF CALL

George Pipas

Thanks for participating in this September sales call at Ford. I’d like to introduce Jim Farley, Ford Group Vice President, Marketing and Communications, who is joining us today as well as Emily Kolinski Morris, Ford’s Senior US Economist.

I’d like to begin with some comments about industry sales and segment trends and speak a little bit about incentives and our own sales results. As far as the industry goes, we estimate the September sales rate was something less than $13 million even including medium and heavy trucks. That means that for the second month in the third quarter the overall sales rate was in the 12s. We estimate that industry-wide sales of cars and trucks were fewer than 1 million and that would put the percentage decline from last September in the 25% to 30% range. For sure retail sales were more than 30% lower than a year ago for the industry.

The third quarter SAAR would be 13.1 million. The trajectory in 2008 goes something like this: Q1 15.3, that would be the light vehicle sales rate; Q2 14.3; and in the third quarter something in the 12s. Confronted with this trajectory the question is, have we reached the bottom or is the bottom still ahead of us? And I’m going to ask Emily to weigh in on that question later in the call.

As far as industry segment trends are concerned, we see much the same story as we did last month. When you compare the share of each segment to a year ago, small and mid-size car segments have increased their share of the total industry. They got that higher share from medium and large utility segments; in other words, traditional SUVs. The full-size pickup segment was about the same size relative to the overall industry as it was a year ago.

The sequential story however shows something different just as it did in July. Since May, small and mid-size car segments are weaker as a percentage of the total industry and full-size trucks and SUVs are stronger. In last month’s call we discussed the factors contributing to the recovery in the full-size pickup segment and the decline in the small car segment.

Well, first of all is incentive spending. If you look at full-size truck incentive spending since May, it’s as much as $2,000 higher industry-wide and as much as $4,000 higher than last September.

Second, residual values have improved on trucks and SUVs relative to where they were in May. So that means some of the people that couldn’t get out of their truck in May and June are now in a better position to trade particularly with the higher levels of incentive spending that we saw in some areas.

Third, gas prices have declined and that’s a welcome development, not just for full-size truck buyers but for all consumers.

Fourth, some buyers postponed their purchases earlier this summer and now will be back in the market with these higher levels of incentives.

With regard to incentive trends, it’s hard to generalize. It certainly depends on the segment as I’ve alluded to and it depends on the manufacturers. Hard to generalize.

Ford and Honda, Toyota and Nissan reduced incentive spending on a per unit basis from August to September. GM and Chrysler increased.

Within segments as I mentioned earlier, incentive spend on full-size pickups has increased sharply since earlier this summer and against a year ago while incentive spending on cars, particularly small cars, has declined. I think this is a very interesting development that even as the industry sales rate is weaker than it was in the second quarter, manufacturers have reduced in the aggregate at least the incentive spend on small cars.

As far as Ford sales are concerned, as you can see from our sales report the overall result was down 34% compared with last September. Retail sales were down 35%. And as I said, we believe the industry-wide retail sales are down more than 30%. I think the truth is that you could throw a blanket around all the year-to-year comparisons for all the manufacturers and it would cover everybody.

Our fleet mix was 23%. We also had in addition to the retail sales decline a fleet sales decline of 29% this month. So our fleet mix was 23% which we believe to be easily the lowest among the Big Three for the second straight month.

Obviously these are very challenging times. On the bright side we’re encouraged to see our retail share club back from June lows despite the escalation in competitive spending.

Emily, I’d like to ask you to make some comments on the current situation.

Emily Kolinski Morris

Clearly we are looking at a very fragile economy and we have this renewed credit market turmoil adding another dimension to what was already a strained business and consumer environment. The freezing up of short-term credit markets in recent weeks has become more severe than other recent episodes. Policy measures to restore market liquidity will be critical to stabilize the financial sector and to preserve the functioning of the economy in the coming months.

While policymakers are working aggressively to address the situation, we cannot yet see the path to its resolution. Some degree of impact to the real economy is unavoidable at this point and as long as these credit market channels remain closed to consumers and businesses, the real economy may face some serious repercussions in the form of business failures, rising unemployment and a sharp pullback in consumer spending.

Let’s keep in mind that incoming indicators during the month of September were already pointing to further weakening in the economy. As the fiscal stimulus payments faded from view, [supplanted] by tighter credit conditions and rising unemployment. The falling gas prices that we’ve seen will provide some offset for consumers acting as an effective tax cut to boost disposable income. In the current environment however, we continue to expect an increase in precautionary saving by household as we’ve discussed in previous calls.

Given this fragility of conditions in the financial markets and the potential for additional economic spillover, we have to consider the near-term risks to the economy and the industry. In the third quarter we’ve seen industry performance averaging around 13 million units on a SAAR basis with support from incentive spending. This pricing and other market factors may generate volume swings both up and down on a month-to-month basis but it’s unlikely that we’ll see any significant improvement in the underlying trend of sales any time soon.

Given the lack of resolution to the financial crisis, I don’t think anyone can say where the bottom might be but we’re continuing to monitor conditions as they unfold to assess the forecast sensitivity as these developments continue in the coming weeks.

James D. Farley

I know a couple months ago we said the credit situation would take center stage in the second half of the year, and regrettably we were right. That didn’t take into consideration the two storms we had in September, both Ike and the economic hurricane. Our point of view was always that dealers, businesses, consumers would find credit increasingly difficult to get and obtain, and that’d slow consumer spending.

As Emily said, the present situation is very fragile. The level of uncertainty has been elevated at the consumer level if you think about what our consumer’s going through in September. Even if you have good credit, there’s a reluctance to pull the trigger on a big ticket item. And many customers are waiting and seeing and that’s the attitude they’re taking. There are some exceptions by region of the country and segments. It’ll take some time to work through this credit situation for our customers and we can’t be certain how long it’s going to take.

So what do we do? I think the best way we’re looking at that at Ford Motor Company is to execute our plan. We’ve embarked on a plan to leverage our global assets, to be profitable at lower volumes, to be aggressive at adjusting our production, to take advantage of mix and accelerate the development of products that people want to buy. So times like this really represent the best opportunity for us to make progress against our competitors to the advantage of our customers.

In the middle of all the swirling storm around us, the marketing sales team at Ford is calm in the middle of the storm working on our brand and working on the plans to launch 10 brand new vehicles in essentially nine months or launching a brand new vehicle almost every month through the summer of next year. We’re also getting ready for our assault on the small vehicle market in 2010.

Since launching vehicles has been such a big part of what we do here at Ford in the coming months, I guess it’s probably important to reflect on where we are with Flex, MKS and of course the F-150. The Flex and MKS, September marked the start of our national marketing launch for Flex and it’s really important for us because of our four point plan to build products that people really want, to look at the quality of customers that we’re getting with our new products. Essentially that’s our plan and I’m really excited to see how customers are reacting to Flex and MKS.

The conquest rates increase every month. In fact our conquest rates now for Flex are higher than any Ford product with the exception of the Escape Hybrid. Flex is attracting a very premium customer, a very high import customer, and at this point in the launch a greater percentage of Flex sales are coming already from California than even Edge. And what’s really interesting about Flex is the transaction price. Our transaction price is already much higher than Pilot and Highlander. Our limited grade is 46% of our mix.

While Flex and MKS are increasing their share of the mid-size crossover and of course the mid-luxury market, monthly sales for Flex and MKS are a little bit lower than we expected a few months ago. But let’s face it, the industry’s a lot lower than we expected and current conditions are affecting sales of every product for every manufacturer.

One of the really interesting things that we didn’t predict about the Flex was our customer situation on residual values for the SUVs they’d be turning in. Many of our customers that are new to Ford buying the Flex are SUV customers and they’re a major source of trade for us and for the whole industry in the crossover area. What we’ve seen is that they’ve been taken out of the market because of their trade position. And we’ve actually been experimenting regionally with some interesting trade assistant incentives that have really responded well for Flex and encourage us on how we deploy our incentives to continue to grow the opportunity with Flex.

The last few months we’ve been obviously busy for more than a year but especially the last few months on the F-150. Today I’d like to give you a quick update because certainly last month the full-size truck was a big part of the month.

Today I’m announcing that we will begin our national marketing launch for the new F-150 in November, one full month earlier than we’d planned. The sell-down of the old models progressed much faster than we thought and the first shipments of the all-new F-150 are on their way to Ford dealers already.

In the last few months I’ve read a lot of comments about what an awful time it is to launch a new truck, and I guess my view is it’s really the very best time to launch an all-new F-150. Capabilities never mattered more for our customers. It matters more today than it ever has in the past. The people buying trucks today are different than the people buying six months ago, and the all-new F-150 has class-leaning payload towing and today’s truck customer is in the center of what we call Build Ford Tough Bull’s-eye.

Plus we recently announced the SFE package offering unsurpassed fuel economy of 21 miles per gallon highway and the F-150 truck has been America’s best selling truck for 31 years in a row. We’re planning to extend that streak in 2008 with a truck that is the industry standard for capability and fuel economy.

George Pipas

Just one more item to cover before we start the Q&A session. I covered the retail and fleet variances when I talked about Ford’s sales. Let me just hit inventories before we conclude this segment.

At the end of September we had 159,000 cars, 315,000 trucks, 474,000 vehicles in total. At the end of August we had 461,000 vehicles in total so we’re up slightly 13,000 units from the end of August to the end of September. Cars are what’s up in terms of inventory. We went from 142,000 at the end of August to 159,000 as I said at the end of September. The overall truck inventory is down by 4,000 units but the F Series inventory is down by about 20,000 units.

As Jim alluded to, we’ve made great progress. At the end of June we had 135,000 or so F-150s in stock and that was whittled down by about 40,000 in two months’ time as we began the month of September, and it’ll be down by another roughly 30,000 to 40,000 units by the time we commence the launch that Jim was talking about during the month of November. That is great progress in something that was very important before we start talking about even in more detail but the product capabilities in launching our truck on a national basis.

With that, I’d like to begin the Q&A. We’ve covered a lot of subjects in a short amount of time. Let’s find out what’s on the minds of our participants today.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

776 Views