Workforce Reductions

In recent years, we have had to take painful but necessary steps to reduce our salaried and hourly workforce, as part of our multi-year effort to return our North American operations to profitability.

Since 2005, we have reduced employment levels in our Ford North America business unit by about 65,700 individuals. We also have closed 12 manufacturing facilities in North America (including Automotive Components Holding plants). Four additional plant closures are slated to take effect by 2011.

As of December 31, 2009, our Ford North America business unit had approximately 70,000 salaried and hourly employees, including those at our ACH facilities. This compares with approximately 135,700 salaried and hourly employees on December 31, 2005. Most of our hourly worker reductions were the result of early retirement offers and voluntary separation packages to U.S. employees, including Ford employees at our ACH plants.

In 2009, we offered 42,000 hourly employees two opportunities to accept buyout and early retirement offers, which included payments of up to $70,000 for newer workers and up to $60,000 for those already eligible for retirement. Approximately 1,300 hourly employees accepted a buyout offer last year. We have attempted to handle workforce separations and plant closings with respect for the people and communities affected.

Ford fully complies with the federal Worker Adjustment and Retraining Notification Act (WARN), which requires companies to provide 60-day notifications of plant closures to employees.

See the Economy section of this report for more information on the plant closures and separation agreements.

We have entered into collective bargaining agreements with the UAW (the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America) and CAW (the National Automobile, Aerospace, Transportation and General Workers Union of Canada). In 2007, we negotiated with the UAW a transformational agreement, enabling us to improve our competitiveness by establishing a Voluntary Employee Benefit Association (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. Modifications to the VEBA Trust allowed for the smoothing of payment obligations and provided us the option to satisfy up to approximately 50 percent of our future payment obligations to the UAW VEBA Trust in Ford common stock.

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. The 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. (See the Economy section of this report for more detail.)

In 2009, we negotiated new Ford collective bargaining agreements with labor unions in Argentina, Australia, Belgium, Brazil, Britain, France, Germany, Mexico, New Zealand, Russia, Spain and Taiwan. We began negotiations with labor unions in Thailand in the fourth quarter of 2009; these were expected to be completed in 2010.

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.

Our improved financial performance has resulted in some tangible improvements for our workforce in 2010. We were able to pay profit sharing to eligible UAW members. We have reinstated a 401(k) matching program and are awarding 2010 merit increases for our U.S. salaried employees.

We know that these compensation and benefits programs are valuable to our employees and their families, and we are pleased to be able to deliver on our promise to improve the competitiveness of our total compensation, as business conditions allow.

For our retirees, we have two principal qualified defined benefit retirement plans in the United States. The Ford-UAW Retirement Plan covers hourly employees represented by the UAW, and the General Retirement Plan covers substantially all other Ford employees in the United States hired on or before December 31, 2003. We established, effective January 1, 2004, a defined contribution plan generally covering new salaried U.S. employees hired on or after that date. Other U.S. and non-U.S. subsidiaries have separate plans that generally provide similar types of benefits. We report on contributions to, and the funded status of, our pension plans in our Annual Report on Form 10-K.