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Ford Motor Company 10-K 2010 Documents found in this filing:UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________
FORM
10-K
Ford
Motor Company
(Exact
name of Registrant as specified in its charter)
313-322-3000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
__________
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). 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. 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, 2009, Ford had outstanding 3,149,667,003 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
($6.07 per share), the aggregate market value of such Common Stock was
$19,118,478,708. 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, 2009 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 13, 2010 (our
"Proxy Statement"), which is incorporated by reference under various Items of
this Report as indicated below.
As of
February 12, 2010, Ford had outstanding 3,297,413,605 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 ($11.12 per share), the aggregate market value of such Common Stock
was $36,667,239,288.
DOCUMENTS
INCORPORATED BY REFERENCE
__________
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, 2009 ("2009
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 the Committees of our Board of Directors. 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 may be accessed by logging onto our
website and clicking on "Investors," then "Company Information," and then
"Corporate Governance," or 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 also 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 SEC 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.
1
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, 2009 are
described in the table below:
__________
We
provide financial information (such as revenue, income, and assets) for each
business sector and reportable segment 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" ("Item 7"); and (3) Note 28
of the Notes to the Financial Statements located at the end of this
Report. Financial information relating to certain geographic areas is
included in Note 29 of the Notes to the Financial Statements.
2
ITEM
1. Business (continued)
AUTOMOTIVE
SECTOR
General
We sell
cars and trucks throughout the world. In 2009, our total ongoing
Automotive operations (including unconsolidated affiliates in China) sold
approximately 4,817,000 vehicles at wholesale throughout the
world. See Item 7 for additional discussion of wholesale unit
volumes.
As of
December 31, 2009, our vehicle brands included Ford, Mercury, Lincoln,
and Volvo, although Volvo is held for sale. 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, 2009, the approximate number of
dealerships worldwide distributing our vehicle brands was as
follows:
__________
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 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 in determining whether and when to replace an
existing vehicle. The decision whether to purchase a vehicle 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). As we recently
have seen in the United States and Europe in particular, the number of cars and
trucks sold may vary substantially from year to year. Further, the
automotive industry is 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, 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.
3
ITEM
1. Business (continued)
The
profitability of our business is affected by many factors,
including:
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 the "Overview" section in Item 7.
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., the
dealership). See the "Overview" section in Item 7 for additional
discussion of revenue recognition practices.
We manage
our vehicle production schedule based on a number of factors, including retail
sales (i.e., units sold by our dealerships to their customers at retail) and
dealer stock levels (i.e., the number of units held in inventory by our
dealerships for sale to retail and fleet customers). In the past, we
have experienced some seasonal fluctuation in the business, with production in
many markets tending to be higher in the first half of the year to meet demand
in the spring and summer (typically the strongest sales months of the
year). Third quarter production has tended to be the
lowest. As a result, operating results for the third quarter
typically have been less favorable than 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 availability in
sufficient quantities to meet our needs. See the "Overview" section
of Item 7 for a discussion of commodity and energy price trends, and
"Item 7A. Quantitative and Qualitative Disclosures About Market Risk"
("Item 7A") 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 15,900 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.
4
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 "Critical Accounting Estimates" in Item 7, as well as
Note 31 of the Notes to the Financial Statements.
Industry
Sales Volume
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):
__________
U.S. and
European industry sales volume declined in 2009 compared with 2008, reflecting
weak economic conditions in both markets. The decline in Europe was
more modest because the impact of the economic slowdown was offset somewhat by
substantial government-sponsored vehicle scrappage program
incentives. Asia Pacific Africa industry sales increased in 2009 as
compared to 2008, largely driven by growth in China.
United
States
Industry Sales
Data. The following table shows U.S. industry sales of cars
and trucks (in millions of units):
5
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, crossover
utility vehicles ("CUVs") and traditional sport utility vehicles ("SUVs"),
and medium/heavy segments. We refer to CUVs, which are based on car
platforms, and SUVs, which are based on truck platforms, collectively as
"utilities" or "utility vehicles." In the tables, we have classified
all of our luxury cars as "premium," regardless of size. Annually, we
review various 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) and for
Ford:
__________
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
SUVs and full-size pickups. In recent years, the percentage of cars
sold in the overall market and by Ford has trended higher, primarily due to a
shift in consumer preferences to smaller, more fuel-efficient
vehicles. In 2009, overall changes in our U.S. vehicle mix generally
followed the overall direction of U.S. industry trends. Our
year-over-year growth in car mix, however, outpaced the industry, primarily
fueled by the strength of our medium-car mix and sales led by our redesigned
Ford Fusion, Fusion Hybrid, Mercury Milan and Milan Hybrid.
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 increase production
capacity in North America. Our principal competitors in the United
States include General Motors Company ("General Motors"),
Chrysler Group 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. The percentages in each
of the following tables represent percentages of the combined car and truck
industry:
6
ITEM
1. Business (continued)
__________
Our
improvement in overall market share primarily is the result of several factors,
including favorable acceptance of our redesigned products, product focus on
industry growth segments, and customers' increasing awareness and acceptance of
our commitment to leadership in quality, fuel efficiency, safety, smart
technologies and value.
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 0.6% in 2009, up 0.1 percentage points
from 2008. This increase in market share primarily reflected the
introduction of the new XC60 and improved sales of the V50.
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.
7
ITEM
1. Business (continued)
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):
__________
Lower
fleet sales in 2009 primarily reflected an overall industry decline in rental,
commercial and government sectors. Although total fleet industry
volume decreased for the year, we improved year-over-year fleet segment market
share. We continue to maintain profitable government and commercial
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 77% 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, 2009 market data are based on estimated
registrations currently available; percentage change is measured from actual
2008 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 2009, vehicle
manufacturers sold approximately 15.8 million cars and trucks in these 19
markets, down 4.8% from 2008. Ford-brand combined car and truck
market share in Europe in 2009 was approximately 9.1% (up 0.5 percentage
points from the previous year); Volvo market share in Europe was 1.3% (about the
same as in 2008).
Britain
and Germany are our highest-volume markets within Europe. Any change
in the British or German market has a significant effect on the results of our
Ford Europe segment. The global economic crisis caused 2009 industry
sales in Britain to decline by 10.5% from 2008 levels (which were down
considerably from 2007 levels, as the economic crisis hit Britain earlier than
many other European countries). As a result of government stimulus in
Germany, 2009 industry sales volume there actually increased by 18.2% compared
with 2008. Our Ford-brand combined car and truck share in these
markets in 2009 was 16.8% in Britain (up 0.4 percentage points from the
previous year), and 7.6% in Germany (up 0.6 percentage points from the
previous year).
Although
not included in the 19 markets above, several additional markets in the region
contribute to our Ford Europe segment results. In 2009, Ford's share
of the Turkish market increased by 0.4 percentage points to 15.1%, the
eighth year in a row that the Ford brand led the market in sales in
Turkey. Industry sales volume in Russia decreased dramatically during
2009, shrinking by 1.6 million units or about half of its total volume as a
result of the economic crisis. As a result, sales of Ford-brand
vehicles decreased by nearly 56% from 2008 to about 82,000 units in
2009.
Motor Vehicle Distribution in
Europe. In 2002, the Commission of the European Union
("Commission") adopted a new regulatory scheme that changed the way motor
vehicles are sold and repaired ("Block Exemption
Regulation"). Pursuant to this regulation, manufacturers must operate
either 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.
8
ITEM
1. Business (continued)
We, like
most other automotive manufacturers, elected to establish a "selective"
distribution system, allowing us to restrict the dealer’s ability to sell our
vehicles to unauthorized resellers. Under this "selective" system, we
are entitled to determine the number of dealers we establish but, since October
2005, not their locations. Under either system permitted by the Block
Exemption Regulation, the rules make it easier for a dealer to display and sell
multiple brands in one store without the need to maintain separate
facilities.
Under the
Block Exemption Regulation, the Commission also adopted sweeping changes to the
repair industry. Dealers no longer could be required by the
manufacturer to perform repair work. Instead, dealers could
subcontract repair work to independent repair shops that met reasonable criteria
set by the manufacturer. These authorized repair facilities could
perform warranty and recall work, in addition to other repair and maintenance
work. While a manufacturer may continue to require the use of its
parts in warranty and recall work, for all other repair work the repair
facilities may use parts made by others that are of comparable
quality. 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 Commission's Block Exemption
Regulation continues to contribute to an increasingly competitive market for
vehicles and parts, and to ongoing price convergence. This has
contributed to an increase in marketing expenses, negatively affecting the
profitability of Ford Europe and Volvo.
The
current Block Exemption Regulation expires on
May 31, 2010. In December 2009, the Commission launched a
public review process for a revised Block Exemption Regulation and guidelines on
motor vehicles sales and repair agreements. The Commission proposes
to adopt a new block exemption for repair and maintenance services, in which
area the Commission believes competition to be more limited. The
Commission also proposes to adopt guidelines dealing with specific issues for
both motor vehicle sales and repair. It is expected that the
Commission will adopt final regulation in the spring of 2010.
Other
Markets
Canada and
Mexico. Canada and Mexico also are important markets for
us. In Canada, industry sales volume for new cars and trucks in 2009
was approximately 1.48 million units, down 11% from 2008 levels; industry
sales volume in Mexico for new cars and trucks in 2009 was approximately
770,000 units, down 28% from 2008. The decrease in industry
sales volume in these markets reflected the impact of the global economic
slowdown beginning in the fourth quarter of 2008. Our combined car
and truck market share (including all of our brands sold in these markets) in
2009 was 15.2% for Canada (up 2.6 percentage points from a year ago), which
represents our highest full-year share since 2001 and made Ford the number-one
selling brand in Canada, and 11.8% in Mexico (down 0.3 percentage points
from the previous year).
South
America. Brazil, Argentina, and Venezuela are our principal
markets in South America. Industry sales in 2009 were approximately
3.1 million units in Brazil (up 11.4% from 2008), 509,000 units in
Argentina (down 15.3% from 2008), and 136,000 units in Venezuela (down
49.9% from 2008). Our combined car and truck share for Ford-brand
vehicles in these markets was 10.3% in Brazil (up 0.3 percentage points from
2008), 13.3% in Argentina (up 0.9 percentage points from 2008), and 20.9%
in Venezuela (up 5.2 percentage points from 2008). In Brazil,
2009 industry sales were strong in comparison to other markets in South America
due to government stimulus actions taken in response to the global economic
slowdown. We have announced plans for our largest-ever investment in
Brazil operations in a five-year period, investing R$4 billion in 2011-2015
to accelerate delivery of more fuel-efficient, high-quality vehicles in
Brazil.
Asia Pacific
Africa. Australia, China, India, South Africa, and Taiwan are
our principal markets in this region. Industry sales in 2009 were
approximately 940,000 units in Australia (down 7.4% from 2008),
14.1 million units in China (up 42.1% from 2008), 2.3 million units in
India (up 12.2% from 2008), 350,000 units in South Africa (down 27.6% from
2008), and 290,000 units in Taiwan (up 28.4% from 2008). 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 2008), 1.9% in China (about the
same as 2008), 1.3% in India (down 0.1 percentage points from 2008), 7.6% in
South Africa (up 0.7 percentage points from 2008) and 6.1% in Taiwan (up
0.6 percentage points from 2008). We anticipate that the ongoing
relaxation of import restrictions (including duty reductions) will continue to
intensify competition in the region.
9
ITEM
1. Business (continued)
China and
India are the key emerging markets that will continue to drive economic growth
in the region. Small cars account for 60% of Asia Pacific Africa
industry sales volume, and are anticipated to continue to benefit from
government fiscal policy. In line with these trends, our
manufacturing capacity investments in both Thailand and India are nearing
completion. At our joint venture assembly facility in Rayong,
Thailand we have invested $500 million in an expansion for the production of
small passenger cars. In India, we have invested $500 million to
significantly increase our presence through expansion of our current
manufacturing facility in Chennai to begin production of our new Ford Figo,
and construction of a fully-integrated and flexible engine manufacturing
plant. As previously announced in September 2009, we also have broken
ground on a new plant in Chongqing, China to meet anticipated demand and grow
Ford-brand market share.
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:
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 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:
See
Item 7 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 7A for a discussion of
how Ford Credit manages its financial market risks.
10
ITEM
1. Business (continued)
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 for more information about these support payments.
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 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 2007 through 2009 periods.
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. The Tier 2 emissions standards also establish
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
difficult to utilize light-duty diesel technology, which in turn restricts one
pathway for improving fuel economy for purposes of satisfying Corporate Average
Fuel Economy ("CAFE") standards and upcoming federal greenhouse gas ("GHG")
standards.
The EPA
also has standards and requirements for EPA-defined "heavy-duty" vehicles and
engines (generally, those vehicles with a gross vehicle weight rating of
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 or
selective catalytic reduction ("SCR") systems, 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 has issued guidance regarding maintenance
intervals and the warning systems that will be used to alert motorists to the
need for maintenance of SCR systems, which are incorporated into some of our
heavy-duty vehicles. One heavy-duty engine manufacturer that does not
rely on SCR technology is challenging EPA's 2010 model year heavy-duty standards
and related SCR guidance in federal court. Should the litigation lead
to tightening of the EPA's SCR guidance, or a ruling that otherwise interferes
with our ability to use SCR technology, it could have an adverse effect on our
ability to produce and sell heavy-duty vehicles.
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 for motor vehicles; 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.
11
ITEM
1. Business (continued)
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. Initially, the goal of the ZEV mandate was to
require the production and sale of battery-electric vehicles, which were the
only vehicles capable of meeting the zero-emission requirements and of being
produced in significant volumes. Such vehicles have had narrow
consumer appeal due to their limited range, reduced functionality, and
relatively high cost.
Over
time, the ZEV regulations have been modified several times to reflect the fact
that the development of battery-electric technology progressed at a slower pace
than anticipated by CARB. CARB has adopted amendments to the ZEV
mandate that allow advanced-technology vehicles (e.g., hybrid electric vehicles
or natural gas vehicles) with extremely low tailpipe emissions to qualify for
ZEV credits. The rules also give some ZEV credits 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 response to a 2007 review of battery technology and
other advanced vehicle technologies by a panel of independent experts, CARB
finalized its most recent set of revisions to its ZEV regulations in February
2009, revising requirements for the 2012 model year and beyond. The
current rules require increasing volumes of battery electric and other advanced
technology vehicles with each passing model year. Ford plans to
comply with the ZEV regulations through the sale of a variety of
battery-electric vehicles, hybrid vehicles, plug-in hybrid vehicles, and
PZEVs. Ford's compliance plan entails significant costs, and has a
variety of inherent risks such as uncertain consumer demand for the vehicles and
potential component shortages that may make it difficult to produce vehicles in
sufficient quantities.
In 2004,
CARB enacted standards limiting emissions of GHGs (e.g., carbon dioxide) from
all new motor vehicles. CARB asserts that its vehicle emissions
regulations provide authority for it to adopt such standards. Because
GHG emission standards are functionally equivalent to fuel economy standards,
issues associated with motor vehicle GHG regulation are discussed more fully in
the "Motor Vehicle Fuel Economy" section below.
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, thirteen states, primarily located in the Northeast and Northwest,
have adopted the California standards (and eleven of these states also have
adopted the ZEV requirements). These thirteen states, together with
California, account for more than 30% of Ford's current light-duty vehicle sales
volume in the United States. Other states are considering adoption of
the California standards. The adoption of California standards by
other states presents challenges for manufacturers, including the
following: 1) managing fleet average emissions standards and ZEV
mandate requirements on a state-by-state basis presents difficulties from the
standpoint of planning and distribution; 2) market acceptance of some
vehicles required by the ZEV program 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.
CARB has
indicated that it is planning a complete overhaul of its LEV, ZEV, and GHG
regulations; these changes would begin to take effect in the 2014-2015 model
year time frame. CARB is expected to propose "LEV III" regulations in
the spring of 2010 and finalize those rules by the spring of 2011. We
anticipate that the LEV III rules will contain a host of new and more stringent
requirements for tailpipe emissions, evaporative emissions, and component
durability. Also in 2010, CARB is expected to propose modifications
to its ZEV regulations that would integrate them with its GHG regulations to
some extent. The ZEV program is expected to focus on requirements to
produce ever-increasing numbers of vehicles using battery-electric, fuel cell,
plug-in hybrid, and hydrogen internal combustion engine
technologies. Under the new regulatory approach, manufacturers that
produce higher numbers of vehicles specified as ZEVs may be allowed to meet less
stringent fleet average GHG levels. The revised ZEV regulations would
likely take effect beginning with the 2015 model year, replacing the existing
rules for that model year and beyond.
In
general, compliance with the revised regulations is likely to require costly
actions that could have a substantial adverse effect on our sales volume and
profits, depending on such factors as the specific emission levels required in
the LEV III program and the volumes of advanced-technology vehicles required by
the ZEV mandate. We are not able to assess the impact of these
pending regulatory changes until specific proposals have been
released.
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.
12
ITEM
1. Business (continued)
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 phased 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 EPA has adopted light-duty and heavy-duty OBD
requirements that generally align with CARB's; the EPA also accepts
certification to CARB's OBD requirements.
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 contemplate this difficulty, and, in
certain instances, permit manufacturers to comply by paying per-vehicle
penalties in lieu of meeting the full array of OBD monitoring
requirements. In other cases, CARB regulations provide for automatic
recalls of vehicles that fail to comply with specified core OBD
requirements. Many states have implemented OBD tests as part of
inspection and maintenance programs. Failure of in-service compliance
tests could lead to vehicle recalls with substantial costs for related
inspections or repairs. CARB is in the process of finalizing
amendments to the OBD regulations for 2010-2017 model years; these rules will
relax or defer some requirements in the earlier model years, while phasing in
some additional requirements in the later model years. CARB also is
required to undertake a biennial review of its OBD regulations for light-duty
vehicles, and this will occur in 2010. Automobile manufacturers will
make suggestions for streamlining and improving the regulations, but it also is
possible that CARB may alter the rules in ways that make it more difficult for
manufacturers to comply.
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 100,000 kilometers of vehicle
life. Failure of in-service compliance tests could lead to vehicle
recalls with substantial costs for related inspections or repairs.
In 2007,
the Commission published a proposed law for Stage V/VI emissions that further
restricted the amount of particulate and nitrogen oxide emissions from diesel
engines, and tightened some regulations for gasoline
engines. Stage V emissions requirements began in September 2009
for vehicle registrations starting in January 2011. Stage VI
requirements will apply from September 2014. Stage V particulate
standards drove the deployment of particulate filters across diesels.
Stage VI further reduces the standard for oxides of nitrogen.
This will drive the need for additional diesel exhaust aftertreatment which
will add cost and potentially impact the diesel CO2
advantage. These technology requirements add cost and further erode
the fuel economy cost/benefit advantage of diesel vehicles.
Vehicles
equipped with SCR 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); information also must be provided to diagnostic tool
manufacturers. Some aspects of this regulatory scheme are still being
finalized in an amendment package due for member state voting in early
2010.
13
ITEM
1. Business (continued)
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 ("UN-ECE") 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 plans to adopt the most recent European standards to be
implemented starting from 2012 in large cities. 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
implemented more stringent standards beginning 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.
In South
America, Brazil, Argentina and Chile also are introducing more stringent
emissions standards. Brazil approved Euro V emissions standards for
heavy trucks starting in 2012, and is developing more stringent light vehicle
limits starting in 2013. Argentina approved Euro IV emissions
standards starting in 2009, and Euro V in 2012. Chile is proposing a
new decontamination plan for its metropolitan region with more stringent
emission requirements based on U.S. or EU regulations.
Fuel
Quality and Content
U.S. Requirements. Currently,
EPA regulations allow conventional gasoline to contain up to 10% ethanol
("E10"). We and other manufacturers design gasoline-powered vehicles
to be able to run on E10 fuel for the full useful life of the
vehicle. In 2008 and 2009, a coalition of ethanol producers filed a
petition with the EPA seeking approval for an increase in the amount of
allowable ethanol content in gasoline to 15% ("E15"). Under the Clean
Air Act, the EPA may approve changes to gasoline only if it determines that the
change will not cause or contribute to the failure of emission control devices
or systems. The EPA has indicated that it is considering seriously
this petition and may approve E15 fuel for use in automobiles manufactured as
far back as the 2001 model year. It is not entirely clear how the EPA
would implement and enforce such a decision. The automobile industry
has concerns about the approval of E15 fuel for use in gasoline-powered
vehicles, especially with respect to past model-year
vehicles. Ethanol is more corrosive than pure gasoline, and fuel
containing more than 10% ethanol may detrimentally affect vehicle durability if
the vehicle's fuel system has not been designed to accommodate
it. The addition of more ethanol to fuel has the potential to result
in increased customer dissatisfaction and/or warranty claims for fuel system
failures, OBD system warnings, and other problems. Older vehicles are
likely to be more susceptible to such problems. We and others in the
automobile industry have commented on the E15 petition, and we will continue to
track this issue and provide relevant information to the
EPA.
Biomass-based
diesel fuel, known as "biodiesel," also is becoming more common in the United
States. Biodiesel typically is a combination of petroleum-based
diesel fuel and fuel derived from "biomass" (biological material from plant or
animal sources). Biodiesel is approved by the EPA as well as a number
of U.S. state agencies for use in motor vehicles. While diesel fuel
containing 5% biomass-based fuel is now common, higher-concentration blends are
becoming more common as well. The content and quality of biodiesel
fuels varies considerably. Diesel fuel that contains higher
concentrations of biomass-based fuels, and/or that contains lower-quality
ingredients, can have adverse effects on the durability and performance of
diesel engines and on the exhaust emissions from such engines.
European
Requirements. In general, the use of automotive fuel derived
from biomass is increasing in the EU, primarily driven by the desire to reduce
carbon emissions. Fuel content requirements have been amended to
allow "B5" diesel (including up to 5% biomass-based fuel) and "E5" gasoline
(including up to 5% ethanol). France is moving forward with the
introduction of "E10" gasoline (including up to 10% ethanol), and
considering "B8" diesel (including up to 8% biomass-based fuel). In
parallel, a renewable energy directive sets out long-term (i.e., 2020) targets
for renewable energy. Currently, the automotive industry and the oil
industry are engaged in establishing a set of potential fuel scenarios and
assessing most likely routes to success. In many other countries,
fuel may contain biomass from locally-produced crops, with varying quality and
stability; high-quality fuels are essential to support clean vehicles throughout
their lifetime.
14
ITEM
1. Business (continued)
Stationary
Source Emissions Control
U.S.
Requirements. The Clean Air Act 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 increasing the stringency of the NAAQS
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
now is in the process of developing new NAAQS for fine particulate matter and
ozone. The EPA estimates that the new standard will put approximately
124 counties into non-attainment status for fine particulate
matter. Various parties have 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. In February 2009, the Court ordered
the EPA to reconsider the fine particulate standards. The EPA plans
to issue a new proposed fine particulate NAAQS standard by July 2010, and a
final rule by April 2011. We expect the revised standards to be more
stringent than the 2006 standard.
In March
2008, the EPA promulgated rules setting a new ozone NAAQS at a level more
stringent than the previous standard. The EPA estimates that as a
result of the new standard, the number of counties out of attainment for the
ozone NAAQS could triple. A number of states and environmental groups
filed suit seeking to compel the EPA to issue an even more stringent ozone
standard. The EPA agreed to reconsider the rule and issued a new
proposed rule in January 2010. In the new proposal, the EPA is
considering a primary NAAQS standard of 0.060 – 0.070 parts per million measured
over eight hours (by comparison, the 2008 rule was set at 0.075 parts per
million). Depending upon the standard that is ultimately chosen,
approximately 76% to 96% of all areas would be in non-attainment. A
final rule is expected later this year.
After
issuance of the final ozone and particulate matter NAAQS and designation of
non-attainment areas, areas that do not meet the standards 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 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.
The EPA
proposed a new hourly NAAQS for oxides of nitrogen (as measured by ambient
concentrations of nitrogen dioxide ("NO2")) in
2009, and adopted a final NAAQS in January 2010. The new rule
will result in a substantial number of new non-attainment areas for oxides of
nitrogen. The NAAQS also incorporated a plan for monitoring NO2
concentrations using a newly-developed roadside monitoring
network. The roadside monitoring plan may tend to impose additional
scrutiny on mobile sources of NO2 relative
to other sources that contribute to overall ambient levels. The
revised NAAQS for oxides of nitrogen may lead to additional NO2 standards
for both stationary and mobile sources that could be costly and technologically
challenging.
The EPA
also issued a final rule on September 22, 2009 establishing a national
GHG reporting system. Facilities with production processes that fall
into certain industrial source categories, or that contain boilers and process
heaters and emit 25,000 or more metric tons per year of GHGs, will be required
to submit annual GHG emission reports to the EPA. Facilities subject
to the rule were required to begin collecting data as of
January 1, 2010, and submit an annual report for calendar year 2010 by
March 31, 2011. Many of our facilities in the United States
will be required to submit reports. Under the rule, we also will be
required to report emissions of certain GHGs from heavy-duty engines and
vehicles; these requirements phase in beginning with the 2011 model
year.
On
September 30, 2009, the EPA issued a proposed rule (the "PSD Tailoring Rule")
that would define the circumstances under which certain GHGs would be regulated
under the Clean Air Act's New Source Review - Prevention of Significant
Deterioration ("PSD") rules and Title V operating permits
program. The proposed PSD Tailoring Rule was issued due to concerns
that, once the EPA begins regulating GHGs from motor vehicles, GHGs will become
regulated air pollutants under PSD and Title V, triggering permit requirements
for many small sources not currently regulated under those
programs. The PSD Tailoring Rule proposes to address this by
setting a 25,000 ton per year GHG emission level as the threshold for inclusion
in the PSD and Title V permit programs. The proposal does not specify
what the best-available control technology would be for controlling GHG
emissions, but indicates that the agency would evaluate this and other
applicability issues during the first five years after issuance of the final
rule. After this five-year period, the EPA would consider lowering
the applicability threshold.
15
ITEM
1. Business (continued)
Depending
upon the scope of the final PSD Tailoring Rule, a large percentage of our
facilities could be required to obtain PSD and Title V permits for GHG
emissions. These requirements could lead to the installation of
additional pollution control equipment, potential delay in the issuance of
permits due to changes at a facility, and increased operating
costs.
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
Otomotiv Sanayi Anonim Sirketi ("Ford Otosan") in Turkey. 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
February 12, 2010, 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 was signed into law in 2005; the Cameron Gulbransen Kids Transportation
Safety Act of 2007 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. Both Acts establish substantive, safety-related rulemaking
mandates for NHTSA that already have resulted in or will result in new
regulations and product content requirements. In 2009, NHTSA
published a final rule related to roof strength that increased the load
requirements, added new performance requirements, and extended the rule's
application to a wider range of vehicles. Also in 2009, NHTSA issued
Notices of Proposed Rulemaking concerning ejection mitigation, automatic
reversal function on power windows, and rear visibility (advance notice
provided, with the final notice expected in the spring of 2010). In
addition, the Department of Transportation has identified driver distraction as
its top priority in 2010, and new regulatory activity in this area is
anticipated. Each of these regulatory actions may add substantial
cost to the design and development of new products, depending on the final rules
adopted.
Foreign
Requirements. Canada, the EU, and countries in South America,
the Middle East, and Asia Pacific Africa 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 the adoption and mandatory fitment requirement
for the new UN-ECE regulation for tire-pressure monitoring systems ("TPMS");
this regulation differs from the North American regulation in that it addresses
both safety and environmental aspects of TPMS. In addition, the
European General Safety Regulation was introduced that replaces existing
European Directives with UN-ECE regulations. These UN-ECE regulations
will be required for the European Type Approval process. Some
implementing measures are still under development and expected to be finalized
by mid-2010; this includes new definitions for masses and dimensions, and for
vehicle categories. EU regulators also are expected to focus on
active safety features such as lane departure warning systems, electronic
stability control, and automatic brake assist. Globally, governments
generally have been adopting EU-based regulations with minor variations to
address local concerns. The difference between North American and
EU-based regulations adds complexity and costs to the development of global
platform vehicles; we continue to support efforts to harmonize regulations to
reduce vehicle design complexity while providing a common level of safety
performance.
16
ITEM
1. Business (continued)
Global
Technical Regulations ("GTRs") developed under the auspices of the United
Nations ("UN") continue to have increasing impact on automotive safety
activities. The most recently adopted GTRs on Electronic Stability
Control, Head Restraints, and Pedestrian Protection by the UN "World Forum for
the Harmonisation of Vehicle Regulations" 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.
In the
Asia Pacific Africa region, China is expected to focus on parts-marking and
anti-theft requirements. Countries within this region continue to
adopt European requirements, with possible local modifications. Among
other measures, Japanese regulators are pursuing accident avoidance measures for
vulnerable road users.
South
American countries are implementing requirements for features such as airbags,
safety belts, and anti-lock braking systems ("ABS") consistent with U.S. and
European requirements. Examples of more stringent safety requirements
in South America include the approval in Brazil of more severe impact
requirements, the mandatory use of front airbags and ABS, and the introduction
of mandatory vehicle tracking and blocking systems. In Argentina,
regulations will address mandatory front airbags and ABS.
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 UN-ECE standards as a compliance option, where
equivalency exists.
For each
of these markets, the possibility of more stringent or different requirements
exists, and the cost to comply with new standards may be
substantial.
Motor
Vehicle Fuel Economy
There are
ever-increasing demands from regulators, public interest groups, and consumers
for improvements in motor vehicle fuel economy, for a variety of
reasons. These include concerns over U.S. energy security, concerns
over GHG emissions, and consumer preferences for more fuel-efficient
vehicles. In recent years, we have made significant changes to our
product cycle plan to improve the overall fuel economy of vehicles we produce in
upcoming model years. These cycle plan changes involve both the
deployment of various fuel-saving technologies, some of which have been
announced publicly, and changes to the overall fleet mix of vehicles we offer,
in response to a recent increase in demand for smaller
vehicles. There are limits on our ability to achieve fuel economy
improvements over a given time frame, however, primarily related to the cost and
effectiveness of available technologies, consumer acceptance of new technologies
and changes in vehicle mix, 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, engineering and
financial resources necessary to deploy new technologies across a wide range of
products and powertrains in a short time.
Our
ability to comply with a given set of fuel economy standards (including GHG
emissions standards, which are functionally equivalent to fuel economy
standards), depends on a variety of factors, including: 1) prevailing
economic conditions, including fluctuations in fuel prices; 2) the alignment of
the standards with actual consumer demand for vehicles; and 3) adequate lead
time to make the necessary product changes. Consumer demand for
vehicles tends to fluctuate based on a variety of external
factors. Consumers are more likely to pay for vehicles with
fuel-efficient technologies (such as hybrid-electric vehicles) when the economy
is robust and fuel prices are relatively high. When the economy is in
recession and/or fuel prices are relatively low, many consumers may put off new
vehicle purchases altogether, and among those who do purchase new vehicles,
demand for higher-cost technologies is not likely to be strong. 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 GHG 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).
17
ITEM
1. Business (continued)
U.S. Requirements – Federal
Standards. Federal law requires that light-duty 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).
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 industry 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 2008, NHTSA issued a Notice of
Proposed Rulemaking to establish CAFE standards for the 2011-2015 model years,
but the Bush Administration decided not to promulgate a final rule, and it was
left to the incoming Obama Administration to establish CAFE standards for these
model years. In March 2009, NHTSA published a final rule setting CAFE
standards for the 2011 model year, and indicated that it would address 2012-2016
model year CAFE standards in a separate rulemaking.
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, because the
amount of carbon dioxide emitted by a vehicle is directly proportional to the
amount of fuel consumed. The EPA denied the petition on the grounds
that the Clean Air Act does not authorize the EPA to regulate GHG emissions
because they did not constitute "air pollutants," 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.
The
matter was eventually brought before the U.S. Supreme Court, which ruled that
GHGs did constitute "air pollutants" subject to regulation by the EPA pursuant
to the Clean Air Act. Upon taking office, the Obama Administration
indicated its intention to promulgate rules to control mobile source GHG
emissions. Under the Clean Air Act, EPA must issue a determination
that GHGs endanger the public health and welfare in order for EPA to finalize
GHG regulations for both mobile and stationary sources. In December
2009, EPA issued its endangerment finding for GHGs. In early 2010,
several industry groups filed a petition for review of the endangerment finding;
nevertheless, EPA is proceeding with rulemaking activity to regulate
GHGs.
As
described more fully below, the Obama Administration has brokered an agreement
in principle for a national program of mobile source CAFE and GHG regulation for
light-duty vehicles for the 2012-2016 model years. Before describing
this program, it is necessary to discuss the GHG standards for light-duty
vehicles promulgated by California and other states.
To date,
fuel economy regulations have applied primarily to light-duty
vehicles. Energy legislation enacted in 2007 directed the National
Academy of Sciences ("NAS") to undertake a study of the fuel efficiency of
heavy-duty vehicles (vehicles with a gross vehicle weight rating over 8,500
pounds). Once the NAS study is completed, the law directs NHTSA to
develop fuel efficiency regulations for these vehicles. Such
regulations are unlikely to take effect before the 2016 model
year. Separately, the EPA has begun work on the development of GHG
standards for heavy-duty vehicles. The EPA has indicated that it will
release a set of proposed rules in 2010, and the GHG standards for heavy-duty
vehicles may take effect as early as the 2014 model year.
18
ITEM
1. Business (continued)
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 imposed
standards 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.
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. After California's request
for a waiver of its AB 1493 standards was initially denied in 2008, the
Obama Administration granted the waiver in 2009. The grant of the
waiver is being challenged in federal court by the National Automobile Dealers
Association and the U.S. Chamber of Commerce. Under the Clean Air Act, other
states may adopt and enforce emissions regulations for which California receives
a waiver. The following states have adopted CARB's GHG standards: New
York, Massachusetts, Maine, Vermont, Rhode Island, Connecticut, New Jersey,
Pennsylvania, Oregon, Washington, Maryland, New Mexico, and
Arizona. Several other states are known to be considering the
adoption of such rules.
The
prospect of state-by-state regulation of motor vehicle GHG emissions and fuel
economy is very troubling to the automobile industry, which has significant
concerns about an unwieldy patchwork of regulations and the likely need to
implement product restrictions in some states in order to
comply. Concerns about product restrictions were driven in part by
the fact that the AB 1493 standards became increasingly more stringent as time
passed, with especially steep increases in some model years. In 2004,
the Alliance and other plaintiffs filed suit in federal district court in
California, seeking to overturn the AB 1493 standards on the grounds that they
are preempted by the federal CAFE law. Similar suits were filed in
Vermont and Rhode Island challenging those states' adoption of California's AB
1493 rules. District Courts in California and Vermont ruled that the
state GHG rules were not preempted; those decisions were appealed by the auto
industry. The District Court in Rhode Island has not yet issued a
ruling.
U.S. Requirements – "One National
Standard" for Model Years 2012-2016. By early 2009, it had
become apparent that the United States was headed toward a series of overlapping
regulations aimed at motor vehicle fuel economy and GHGs. NHTSA was
already setting federal CAFE standards, EPA was planning to regulate motor
vehicle GHG emissions at the federal level, and California and other states were
getting set to regulate motor vehicle emissions at the state level if and when a
Clean Air Act waiver was granted. In order to avoid this confusing
patchwork of regulations, President Obama announced in May 2009 an agreement in
principle among the automobile industry, the federal government, and the state
of California concerning motor vehicle GHG emissions and fuel economy
regulations. Under the agreement in principle, California would
enforce its GHG standards for the 2009-2011 model years, and defer to a set of
federal standards for the 2012-2016 model years. With respect to the
2009-2011 model years, California agreed to modify its regulations so
that: 1) manufacturers would be able to use federal test procedures
to determine compliance with California's standards, and 2) compliance would be
determined based on the fleet average emissions across all states that have
adopted the California standards. With respect to the 2012-2016 model
years, EPA and NHTSA agreed to conduct joint rulemaking to establish GHG
standards and fuel economy standards that align with each
other. California agreed to modify its regulations to provide that
compliance with the 2012-2016 federal requirements will constitute compliance
with the California regulations for California and any states that have adopted
California requirements. Manufacturers also agreed to seek an
immediate stay of pending litigation challenging EPA's waiver decision and the
right of states to issue motor vehicle GHG standards. Assuming
California and the federal government carry out their obligations under the
agreement in principle, manufacturers agreed to dismiss the pending
litigation.
Since the
May 2009 announcement, various steps have been taken to implement the agreement
in principle. The automobile industry sought and obtained a stay of
the federal court litigation in California, Vermont, and Rhode Island, pending
the issuance of final rules consistent with the agreement in
principle. The EPA has issued a revised decision granting a Clean Air
Act waiver for California's GHG regulations. The automotive industry
has refrained from challenging that decision, although the waiver decision has
been challenged by the National Automobile Dealers Association and the U.S.
Chamber of Commerce. CARB has adopted some of the modifications to
its regulations that will be required to implement the agreement in principle,
with additional modifications expected in 2010. The EPA and NHTSA
have promulgated a joint Notice of Proposed Rulemaking setting forth their
proposal for harmonizing GHG and fuel economy standards for the 2012-2016 model
years, and interested members of the public, including Ford and the Alliance,
have filed comments on the proposed rules. The rules are expected to
be finalized on or before April 1, 2010.
19
ITEM
1. Business (continued)
The
agreement in principle would result in federal GHG and fuel economy standards
that are very challenging. The proposed rules would require new
light-duty vehicles to achieve an industry average fuel economy of approximately
35.5 miles per gallon by the 2016 model year. Assuming the agreement
in principle is implemented as envisioned, we believe that we will be able to
comply with the California GHG standards for the 2009-2011 period, and the
harmonized federal CAFE/GHG standards for the 2012-2016 period, as a result of
aggressive actions to improve fuel economy built into our cycle
plan. In contrast, we were projecting that we would be unable to
comply with the state GHG standards throughout the 2012-2016 period without
undertaking costly product restrictions in some states. Key
differences that enable us to project compliance with the national program
include: 1) the national program standards, although very stringent,
do not increase as steeply as the state standards they are replacing; and
2) the national program allows us to determine compliance based on
nationwide sales rather than state-by-state sales. The ability to
average across the nation eliminates state-to-state sales variability and is a
critical element for Ford and the auto industry.
The
agreement in principle does not address what will happen in the 2017 model year
and beyond. California has already indicated that it will promulgate
a new set of state-level GHG standards that will take effect beginning with the
2017 model year; we expect that a proposed rule will be issued in
2010. Moreover, there is no commitment that NHTSA and the EPA will
continue to harmonize the federal CAFE and GHG standards in 2017 and
beyond. Thus, it is possible that there will be a return to three
different and conflicting regimes for regulating fuel economy and GHG emissions
in 2017. 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. 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; and ultimately curtailing the production and sale of certain vehicles
such as family-size, luxury, and high-performance cars, utilities, 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 rules adopted by
California and other states, or they may need to be taken at the national level
if either the CAFE standards or the EPA GHG standards are excessively
stringent. Therefore, we believe that for 2017 and beyond, it is
essential to maintain a single national program that regulates motor vehicle
GHGs and fuel economy in a harmonized and workable fashion. We will
work toward legislative and regulatory solutions that would establish such a
national program on a permanent basis.
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 issued proposed rules under AB 32 that would
require so-called "cool glazing" for automotive glass. The glazing
requirements are intended to promote lower interior temperatures in vehicles,
thereby reducing the air conditioning load and leading to fewer GHG
emissions. The current proposal would require significant
expenditures of resources to meet standards that would take effect beginning in
the 2012 model year, and increase in stringency for the 2016 model
year. We are evaluating our ability to comply with the proposed
standards, and will comment on the proposal along with the rest of the
automobile industry. CARB is expected to finalize its regulations in
2010.
European
Requirements. 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.
20
ITEM
1. Business (continued)
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
2010. The Commission has proposed a target for commercial light duty
vehicles to be at an industry average of 175 g/km (with phase-in 2014 – 2016),
and potentially more stringent long-term targets (proposed to be at 135 g/km in
2020); several EU Members have raised concerns about these
targets. The EU proposal also includes a penalty system,
"super-credits" for vehicles below 50 g/km, and limited credits for CO2 off-cycle
actions (“eco-innovations”).
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, France, Germany, Spain,
Portugal, and the Netherlands among others have introduced taxation based on
carbon dioxide emissions. The EU CO2
requirements are likely to trigger further measures.
Other National
Requirements. Some Asian countries (such as China, Japan,
India, South Korea, and Taiwan) also have adopted fuel efficiency or labeling
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.
The
Canadian federal government announced that vehicle GHG emissions will be
regulated under the Canadian Environmental Protection Act, beginning with the
2011 model year. The standards will track the new U.S. CAFE standards
for the 2011 model year and U.S. EPA GHG regulations for 2012 through 2016 model
years. Several provinces, including British Columbia and Nova Scotia,
have publicly announced an intention to impose GHG standards at the provincial
level, likely modeled after California's AB 1493 approach. In
December 2009, Quebec enacted province-specific regulations setting fleet
average GHG standards for the 2010-2016 model years effective January 14,
2010. Although the announcement indicated that Quebec's standards are
based on the California AB 1493 rules, there are a number of key
differences. The Quebec program appears to define vehicle fleets
differently than either the U.S. federal government or California, does not
apply attribute-based standards, does not allow for alternative means of
compliance (e.g., industry credit for new and advanced technologies), and does
not take into account the fact that California has entered into an agreement in
principle supporting "One National Program" in the United States for the
2012-2016 model years. If a manufacturer fails to meet the required
fleet average standard, the provincial government has established a formula to
determine the level of non-compliance within the fleet and impose a
fee. We are analyzing the new regulations, and anticipate that some
level of fees may be imposed under the regulations as written. Quebec
recently indicated, however, that it will publish interpretation guidelines
designed to clarify that the definition of vehicle fleets is intended to match
California's, which would reduce significantly the potential for incurring fees
under the new regulation. In addition, the provincial government has
indicated that it will reevaluate the situation when the Canadian federal
regulation is in place and, if the federal requirements are satisfactory, accept
federal compliance as compliance with the Quebec requirements.
Chemical
Regulation and Substance Restrictions
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. Other states, such as Maine, are considering so-called
"product stewardship" bills that would require sellers of products to establish
elaborate plans, approved by the state agency, to address life-cycle impacts of
each product. These programs would impose extensive reporting and
auditing requirements, along with penalties for non-compliance. If
enacted, compliance with such legislation would be costly and
resource-intensive.
21
ITEM
1. Business (continued)
European
Requirements. The 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
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 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.
The
European End-of-Life Vehicle directive and EU Battery directive prohibit the use
of the heavy metals lead, cadmium, hexavalent chromium, and mercury with limited
exceptions that are regularly scrutinized. These regulations also
include broad manufacturer responsibility for disposing of vehicle parts and
substances, including taking vehicles back without charge for disposal and
recycling requirements. This legislation has triggered similar
regulatory actions around the globe, including, for example, in China, Korea,
and possibly India in the near future. Other European regulatory
developments will ban the use of refrigerants with a "global warming potential"
higher than 150 on the European scale (which would include the refrigerant
commonly in use) beginning in 2011 in new vehicle models and in 2017 for all new
vehicles, which some other governments, such as Japan, have been closely
monitoring and are likely to adopt in some form. This European
restriction is expected to lead to a general change in refrigerants for future
vehicles worldwide.
Regulations
requiring a globally-harmonized system of classification and labeling of
chemicals also took effect in January 2009. This regulation is
the implementation of the UN regulation UN-GHS, and should harmonize the
classification and labeling of chemicals worldwide with impact of existing
storage facilities and labeling.
Pollution
Control Costs
During
the period 2010 through 2014, we expect to spend approximately $170 million
on our North American and European facilities to comply with stationary source
air and water pollution and hazardous waste control standards that are now in
effect or are scheduled to come into effect during this period. Of
this total, we currently estimate spending approximately $29 million in
2010 and $35 million in 2011. These amounts exclude projections
for Volvo, which is held for sale. Specific environmental expenses
are difficult to isolate because expenditures may be made for more than one
purpose, making precise classification difficult.
EMPLOYMENT
DATA
The
approximate number of individuals employed by us and entities that we
consolidated (including entities that we did not control) as of
December 31, 2009 and 2008 was as follows (in thousands):
The
year-over-year decrease in employment levels primarily reflects our
implementation of global personnel-reduction programs.
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.
22
ITEM
1. Business (continued)
We have
entered into collective bargaining agreements with the UAW, and the National
Automobile, Aerospace, Transportation and General Workers Union of Canada
("CAW"). In 2007, we negotiated with the UAW a transformational
agreement, enabling us to improve our competitiveness and establishing a
Voluntary Employee Benefit Association ("VEBA") trust ("UAW VEBA Trust") to fund
our retiree health care obligations.
In March
2009, Ford-UAW membership ratified modifications to the existing collective
bargaining agreement that significantly improved our competitiveness, saving us
up to $500 million annually and bringing us near to competitive parity with the
U.S. operations of foreign-owned automakers. The operational
changes affected wage and benefit provisions, productivity, job security
programs, and capacity actions, allowing us to increase manufacturing efficiency
and flexibility. In addition, modifications to the UAW VEBA Trust
allowed for smoothing of payment obligations and provided us the option to
satisfy up to approximately 50% of our future payment obligations to the UAW
VEBA Trust in Ford Common Stock; see "Liquidity and Capital Resources" in
Item 7 and Note 18 of the Notes to the Financial Statements for additional
discussion of the UAW VEBA Trust.
On November 1, 2009, the CAW announced
that a majority of its members employed by Ford Canada had voted to ratify
modifications to the terms of the existing collective bargaining agreement
between Ford Canada and the CAW. The modifications are patterned off
of the modifications agreed to by the CAW for its agreements with the Canadian
operations of General Motors Company and Chrysler LLC and are expected to result
in annual cost savings. The agreement also confirms the end of
production at the St. Thomas Assembly Plant in 2011.
On November 2, 2009, the UAW announced
that a majority of its members employed by Ford had voted against ratification
of a tentative agreement that would have further modified the terms of the
existing collective bargaining agreement between Ford and the
UAW. These latest modifications were designed to closely match the
modified collective bargaining agreements between the UAW and our domestic
competitors, General Motors and Chrysler. Among the proposed
modifications was a provision that would have precluded any strike action
relating to improvements in wages and benefits during the negotiation of a new
collective bargaining agreement upon expiration of the current agreement, and
would have subjected disputes regarding improvements in wages and benefits to
binding arbitration, to determine competitiveness based on wages and benefits
paid by other automotive manufacturers operating in the United
States.
Even with
recent modifications, our agreements with the UAW and CAW provide for guaranteed
wage and benefit levels for the term of the respective agreements, and a degree
of 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 collective
bargaining agreement with the UAW expires on September 14, 2011; our
collective bargaining agreement with the CAW expires on
September 14, 2012.
In 2009,
we negotiated new collective bargaining agreements with labor unions in
Argentina, Australia, Belgium, Brazil, Britain, France, Germany, Mexico, New
Zealand, Russia, Spain and Taiwan. We began negotiations in Thailand
in the fourth quarter of 2009 and expect to complete the negotiations in
2010.
Additionally,
in 2010 we are or will be negotiating new collective bargaining agreements with
labor unions in Australia, Brazil, France, Germany, Mexico, New Zealand, Russia,
South Africa, Spain, Taiwan, Thailand and Venezuela.
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 (part of our held-for-sale Volvo
operations); 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.
We
recorded $4.9 billion, $7.3 billion, and $7.5 billion of engineering, research,
and development costs that we sponsored during 2009, 2008, and 2007
respectively. The decreased costs in 2009 compared with 2008
primarily reflect efficiencies in our global product development, manufacturing,
and related processes, favorable currency exchange, and the non-recurrence of
costs related to our former Jaguar Land Rover operations. Research
and development costs sponsored by third parties during 2009 were not
material.
23
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:
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
profitability. If industry vehicle sales were to decline to levels
significantly below our planning assumptions, particularly in the United States
or Europe, due to financial crisis, deepening recession, geo-political events,
or other factors, our financial condition and results of operations would be
substantially adversely affected. For discussion of economic trends,
see the "Overview" section of Item 7.
An increase in or
acceleration of market shift beyond our current planning assumptions from sales
of trucks, medium- and large-sized utilities, or other more profitable vehicles,
particularly in the United States. >Trucks and medium- and
large-sized utilities 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 utilities and trucks adversely affected our
overall market share and profitability. A continuation or
acceleration of this general shift in consumer preferences – or a similar shift
in consumer preferences away from other more profitable vehicle sales – that is
greater than our current planning assumption, 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.
24
ITEM
1A. Risk Factors (continued)
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 2010 report, the global
automotive industry is estimated to have had excess capacity of 29 million
units in 2009. Industry overcapacity has resulted in many
manufacturers offering marketing incentives on vehicles in an attempt to
maintain and grow market share; these incentives historically 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 and our domestic competitors have initiated plans
to reduce capacity significantly, successful reductions may require further
cooperation of organized labor, take several years to complete, or only
partially address the industry's overcapacity problems, particularly in light of
recent, dramatic decreases in industry sales volume. A continuation
or increase in excess capacity could have a substantial adverse effect on our
financial condition and results of operations.
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 that
has affected all manufacturers. Dramatically lower industry sales
volume made existing debt obligations and fixed cost levels difficult for many
suppliers to manage.
25
ITEM
1A. Risk Factors (continued)
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.
Work stoppages at
Ford or supplier facilities or other interruptions of
production.> A work stoppage or other interruption of
production could occur at Ford or supplier facilities as a result of disputes
under existing collective bargaining agreements with labor unions or 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 or interruption of
production at Ford or supplier facilities due to labor disputes, shortages of
supplies, or any other reason (including but not limited to tight credit markets
or other financial distress, natural or man-made disasters, or production
difficulties) could substantially adversely affect our financial condition and
results of operations.
26
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.
27
ITEM
1A. Risk Factors (continued)
A change in our
requirements for parts or materials where we have 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 related
to capital investments. >We receive economic benefits from
national, state, and local governments related to investments we make around the
world. 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.
28
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
some 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 Credit Agreement, see the discussion in Item 7
under the captions "Liquidity and Capital Resources" and "Overview," and in
Note 19 of the Notes to the Financial Statements.
Inability of Ford
Credit to obtain competitive funding. Other
institutions that provide automotive financing to certain of our competitors
have access to relatively low-cost government-insured or other funding.
For example, financial institutions with bank holding company status may have
access to other lower cost sources of funding. Access by our
competitors' dealers and customers to financing provided by financial
institutions with relatively low-cost funding that is not available to Ford
Credit could adversely affect Ford Credit's ability to support the sale of Ford
vehicles at competitive cost and rates. This in turn would adversely
affect the marketability of Ford vehicles in comparison to certain competitive
brands.
29
ITEM
1A. Risk Factors (continued)
Inability to
implement our One Ford plan. >As discussed in the "Overview"
section in Item 7, we are taking actions to execute the four priorities of
our One Ford plan and address the impact of current economic conditions,
including the deteriorated credit market and automotive sales. To the
extent that we are unable to implement necessary actions to execute our plan,
our financial condition and results of operations would be substantially
adversely affected.
ITEM
1B. Unresolved
Staff Comments
None to
report.
30
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. About half of our distribution centers are leased (we own
approximately 53% of the total square footage and lease the
balance). 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 98% of the total square footage of our
engineering centers and our supplementary research and development space is
owned by us. Many of the facilities, as well as most of the machinery
and equipment, that we own and operate in the United States have been pledged to
secure our obligations under the Credit Agreement. For
discussion of the Credit Agreement, see "Liquidity and Capital Resources" in
Item 7 and Note 19 of the Notes to the Financial Statements.
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 as of
December 31, 2009 are shown in the table below:
__________
31
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. The new accounting standard
related to the consolidation of variable interest entities is effective for us
as of January 1, 2010, and will result in the deconsolidation of many of our
consolidated joint ventures. As of December 31, 2009, the significant
consolidated joint ventures and the number of plants they own are as
follows:
32
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 unconsolidated joint ventures of which we are a
partner. These plants are not included in the number of plants shown
in the table above. The most significant of these joint ventures
are:
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.
33
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
or other matters; government incentives related to capital investments; tax
matters; financial services; employment-related matters; dealer, supplier, and
other contractual relationships; intellectual property rights; product
warranties; environmental matters; shareholder or investor matters; and
financial reporting matters. Certain of the pending legal actions
are, or purport to be, class actions. Some of the foregoing matters
involve or may 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, loss of government incentives,
assessments, 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 claim to have 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
often are unable to tell from the pleadings which 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.
34
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. We have substantially completed the work at a number of
locations, and Edgewood is completing the investigation and remediation at
several locations that it owns. We resolved the matter with DEP
through an administrative consent order ("Order"), pursuant to which 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 reviewing comments submitted by Edgewood, the DEP
finalized the Order in February 2009. Edgewood has appealed the
issuance of the Order to the Appellate Division of the New Jersey Superior
Court. The New Jersey Attorney General's office has closed its
investigation of us.
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 related to our
self-report of several potential violations of air permits at this
location. We promptly took steps to correct and prevent recurrence of
the potential violations. We agreed with the MDEQ in 2009 to resolve
the enforcement proceeding through a civil administrative settlement, which
included a $129,920 penalty. In 2009, we learned that the U.S.
Environmental Protection Agency and the U.S. Department of Justice had opened a
criminal investigation into the potential violations. We are
cooperating fully in the investigation, including disclosing additional
potential violations that were discovered since the initial enforcement
action.
Dearborn Research and Engineering
Center. In August 2009, our Dearborn Research and Engineering
Center ("R&E Center") received a notice of violation from the MDEQ alleging
that the R&E Center exceeded fuel usage limitations at its engine test
facility, and did not properly certify compliance with its air
permit. MDEQ has commenced an administrative enforcement
proceeding. We are working with MDEQ to resolve this matter, and have
taken appropriate actions to address any 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 us. The federal and state complaints allege, among other
things, that vehicle manufacturers, aided by 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 were consolidated for coordinated pretrial proceedings in
the U.S. District Court for the District of Maine and have been
dismissed. Cases remain pending in state courts in Arizona,
California, Florida, Minnesota, New Mexico, Tennessee and
Wisconsin. A statewide class has been certified in the California
case; proceedings in the other state cases had been stayed pending resolution of
the consolidated federal court action.
35
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.
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.
Apartheid Litigation. Along
with several other prominent multinational companies, we are a defendant 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; motions to
dismiss have been granted in part and denied in part, and the defendants’ appeal
to the U.S. Court of Appeals is pending.
ITEM
4. Submission of Matters to a
Vote of Security Holders
Not
required.
36
ITEM
4A. Executive Officers of
Ford
Our
executive officers and their positions and ages at February 1, 2010 are as
follows:
__________
37
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:
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.
38
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 2008
and 2009:
__________
As of
February 12, 2010, stockholders of record of Ford included 165,026 holders
of Common Stock (which number does not include 270 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 86 holders of Class B Stock.
During
the fourth quarter of 2009, we purchased shares of our Common Stock as
follows:
__________
39
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 for per share amounts).
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