Climate Change Risks and Opportunities

The past year has seen a seismic shift in the significance of the climate change issue in public awareness, political debate and government action, magnifying the risks and opportunities to Ford posed by the issue. These risks and opportunities include the following:

Markets

Worldwide, record oil prices continue to drive buyers to shift from larger vehicles and light trucks to smaller vehicles, cars, crossovers and diesel-powered vehicles. Energy security is also a major concern in several markets in which we operate. In emerging markets, continued rapid growth in vehicle sales is raising concerns about emissions and congestion. In North America, the shift away from SUVs and light trucks continues to affect our profitability and market share. In other regions of the world, where our profitability is less dependent on large vehicles, our sales and market share have grown. These market shifts are very significant to our Company. Everywhere we operate, the future financial health of our Company depends on our ability to predict market shifts of all kinds and to be ready with the products and services our customers demand.

Regulations

The regulation of GHG emissions affects many areas of our business, including our manufacturing facilities and the emissions from our vehicles. For example, in Europe, GHG emissions from manufacturing facilities are regulated through a combination of emission limits and market-based mechanisms. The EU Emission Trading Scheme regulations apply to nine Ford and Volvo facilities in the UK, Belgium, Sweden, Spain and Germany. Ford anticipated the start of this trading scheme and established internal business plans and objectives to maintain compliance with the new regulatory requirements.

Japan, South Korea and Taiwan have adopted fuel-efficiency targets. The Chinese government has introduced weight-based fuel consumption standards for passenger cars and light-duty commercial vehicles. Ford's product offerings comply with the standards in all of these markets. We have established global roles, responsibilities, policies and procedures to help ensure compliance with emissions requirements and participate in trading initiatives worldwide. We are also participating in the development of policies affecting our facilities and products, as discussed in Market, Policy and Technological Framework.

Investment Community

Both mainstream investment analysts and those who practice socially responsible investing are assessing companies in the auto sector for their exposure to climate risks and their positioning to take advantage of opportunities created by the issue. Thus, providing climate-change-relevant information to investors and shaping our business strategy with climate change in mind are important elements of maintaining access to capital.

Physical Risks

Extreme weather disrupts the production of natural gas, a fuel necessary for the manufacture of vehicles. Supply disruptions raise market rates and jeopardize the consistency of vehicle production. To minimize the risk of production interruptions, Ford has established firm delivery contracts with natural gas suppliers and installed propane tank farms at key manufacturing facilities as a source of backup fuel. Higher utility rates have prompted Ford to revisit and implement energy-efficiency actions that previously did not meet our internal rate of return.