Financing Our Plan

The costs associated with the transformation of our business, combined with the effects of the sudden and substantial decline in industry sales volume that have accompanied the global economic crisis and other pressures, contributed to substantial negative operating-related and other cash flow during 2008. We have announced and are on track to achieve $14 billion to $17 billion in Automotive cash improvement actions designed to improve our balance sheet in the 2009–2010 period, with about one-half of the efforts occurring by the end of 2009 and the remainder in 2010. These announced actions include:

• Reducing North American salaried personnel-related costs by an additional 10 percent by the end of January 2009, in addition to personnel-related cost actions already taken or underway globally
• Eliminating merit pay increases for North America salaried employees in 2009 and eliminating performance bonuses for global salaried employees, including the Annual Incentive Compensation Plan for the 2008 performance year
• Suspending matching funds for U.S. salaried employees participating in Ford's Savings and Stock Investment Plan
• Reducing annual capital spending to between $5 billion and $5.5 billion, primarily by reducing launch costs and increasing efficiencies in Ford's global product development system
• Reducing engineering, manufacturing, information technology and advertising costs through greater global efficiencies
• Reducing inventories globally and achieving other working capital improvements
• Returning capital from Ford Credit consistent with its plan for a smaller balance sheet and focus on core Ford brands
• Continuing to develop incremental sources of Automotive funding, including divesting non-core operations and assets, and reducing our debt

In addition, we are taking steps to improve the liquidity of our Automotive operations, including obtaining access to $2.3 billion of Temporary Asset Account assets for use during 2009 and borrowing $10.1 billion under our secured revolving credit facility. For more information on these activities, please see our 10K filing with the U.S. Securities and Exchange Commission.

We also applied for $11 billion in loans over time pursuant to Section 136 of the Energy Independence and Security Act of 2007 for the design and production of "advanced technology vehicles" (as defined in the Act). Our application has been determined by the U.S. Department of Energy (DOE) to be "substantially complete," but remains pending. We have not received notice of the timing by which the loans may be funded. In addition, we are applying for loans from the European Investment Bank (EIB) of up to €2.3 billion for eligible CO2 emissions-reduction projects over the 2008 to 2012 period. Between the DOE and EIB loans for which we have applied, we expect to receive about $2 billion in 2009.

Also, as previously discussed, we reached an agreement with the UAW in March 2009 to provide us the option to settle with Ford common stock up to 50 percent of our future cash payment obligations to the Voluntary Employee Benefits Association retiree health care trust required by the Retiree Health Care Settlement Agreement.

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 our pension contributions and funding in our annual financial statements.

Also in March 2009, Ford Motor Company announced a debt conversion offer to restructure our corporate debt. The Ford conversion offer paid a premium in cash to induce the holders of its outstanding 4.25 percent Senior Convertible Notes due December 15, 2036 to convert those debt notes into shares of Ford's common stock. The Convertible Notes were issued in 2006, and the outstanding principal amount of the Notes was approximately $4.88 billion at the commencement of the conversion offer. Before this new conversion offer, the Notes were convertible into shares of Ford common stock at a conversion rate of 108.6957 shares per $1,000 principal amount of the Convertible Notes. Holders who elected to convert their Convertible Notes into shares of Ford common stock under this conversion offer received the 108.6957 shares of Ford common stock plus $80 in cash for each $1,000 principal amount of the Convertible Notes converted. This debt conversion offer has significantly reduced our debt obligations and annual interest expense. As of April 3, 2009, when this conversion offer expired, approximately $4.3 billion of the principal amount of Convertible Notes were validly tendered and accepted for purchase. This debt conversion offer, in combination with a debt restructuring offer initiated by Ford Motor Credit, will reduce Ford's outstanding Automotive debt by $9.9 billion from $25.8 billion at December 31, 2008. This will reduce Ford's annual cash interest expense by more than $500 million based on current interest rates.