Working with the UAW

In November 2007, Ford workers represented by the UAW ratified a new collective bargaining agreement with Ford that includes significant innovative features to enhance productivity and reduce costs. The new agreement helps Ford to deliver on its key priorities, as it significantly improves Ford's competitiveness and allows the Company to continue to pursue its restructuring efforts.

In February 2009, Ford and the UAW negotiated modifications to this agreement in an effort to further aid the business and ensure that Ford is in a competitive position in the challenging U.S. auto market. Key elements of the new agreement include the suspension of economic lump sum payments and Cost of Living Adjustments, as well as provisions to enhance flexibility. We also agreed on modifications to the Job Security Program, including elimination of the Jobs Bank and reduced benefits based on service. Operating savings from the agreement are estimated to be about $500 million annually and could be more if conditions allow us to realize all the benefits inherent in the contract. These modifications also bring hourly labor costs nearer to parity with foreign transplant companies operating in the United States.

These changes to our UAW agreement will help us operate through the current economic downturn without accessing a U.S. government bridge loan. They will also help us continue to invest in our "One Ford," product-led transformation.

New Mechanism for Health Care Costs

We received the necessary approvals in the third quarter of 2008 to begin implementing our Retiree Health Care Settlement Agreement to fund and discharge our obligations related to UAW hourly retiree health care through a new, external Voluntary Employee Benefit Association Trust.

In March 2009, we reached an agreement with the UAW to provide us the option to settle, with Ford common stock, up to 50 percent of our future cash payment obligations to the VEBA required by the Settlement Agreement. This agreement is subject to various conditions, including court approval of the modification to the Settlement, approval by the U.S. Securities and Exchange Commission of accounting treatment acceptable to us, and receipt of a prohibited transaction exemption from the U.S. Department of Labor.

Notwithstanding our option to pay our VEBA obligations in stock in lieu of cash, we will use our discretion in determining which form of payment makes sense at the time of each required payment, balancing liquidity needs and the preservation of shareholder value. In making such a determination, we will consider the facts and circumstances existing at the time of each required payment, including market and economic conditions, our available liquidity and the price of Ford common stock.

Other Steps to Reduce Health Care Costs

The delivery of high-quality, cost-effective health care is important to the success of Ford. The One Ford Health Strategy complements the corporate One Ford vision and creates a culture of wellness that aligns incentives to help our employees become more engaged and informed consumers. We are providing resources and tools to help people make sound choices and to understand the benefits of being better health care consumers.

Ford aims to build a culture of personal accountability in which knowledgeable, motivated people consistently work safely and make the right health choices to help deliver One Ford. The One Ford Health Strategy is based on the following key concepts:

• Benefit designs that encourage healthy behaviors and appropriate use of care
• Tools and social support systems to enable wellness and help people become better health care consumers
• Partnerships for sustained and systemic improvement
• Measurement of results against benchmark companies and programs to ensure competitiveness

The One Ford Health Strategy and its central theme of building a wellness culture are globally focused. Though national systems of care vary from country to country, high-quality, cost-effective health care is a common goal. In the U.S., for example, the country is beginning discussion on national health care reform. This dialogue must focus on controlling the rising cost of health care. In 2008, for example, Ford's health care expenses (excluding special items) for U.S. employees, retirees and their dependents were $1.3 billion.

We believe that three key areas must be addressed in U.S. health care reform to reduce health care costs:

• Wellness and Prevention – As a country, we must focus on prevention and wellness, and make sure that employers can offer creative incentives that work to engage people in healthy behaviors. At Ford, we are doing our part to spread education and tools that effectively encourage people to take an active part in their health care.
• Health Information Technology – We need a national technology infrastructure that allows the consolidation of a patient's medical records, so that the most appropriate care is given wherever treatment is provided. To accomplish this, we need electronic medical records at every doctor's office and hospital, and they all need to be connected. We also need tools to improve the accuracy and safety of prescription drug dispensing, such as electronic prescribing (ePrescribing). Ford is a key participant in the Southeast Michigan ePrescribing Initiative, one of the largest employer-driven ePrescribing initiatives. This initiative has helped move Michigan into the top five of ePrescribing states.
• Understanding What Works – By studying the cost and quality of health care and its effect on health status, we can deliver more effective care. New innovations in technology and drugs are key drivers of cost increases. Therefore, before new innovations are widely implemented, they must be compared to the standard practice to really know whether and how much additional value they bring.

We have taken steps to reduce our own health care costs. Since 2005, for example, health care contributions paid by Ford's U.S. active salaried employees have increased each year. Company contributions for U.S. salaried retirees that are not eligible for Medicare are capped at 2006 levels, and Company contributions for U.S. salaried retirees who are eligible for Medicare are capped at $1,800 per member per year (effective January 1, 2007 and 2008, respectively).

Our focus on prevention and consumer engagement, along with actions relating to the One Ford Health Strategy, are intended to help us to control health care cost increases, support the health of our current and retired employees, and reduce our competitive disadvantage related to health care costs.