Sustaining Ford

The year 2008 undeniably ranks among the most difficult in Ford's history. It was a year marked by workforce reductions, plant closures, dramatically reduced consumer demand for vehicles and the worst global economic downturn in decades. Despite a profitable first quarter, the financial crisis and related credit crunch acutely affected our worldwide operations and challenged all of our stakeholders, including our employees, shareholders, suppliers, dealers and the communities in which we operate.

As the financial crisis deepened around the globe, reduced credit availability, escalating fuel costs and weakened consumer confidence coalesced, resulting in a drastic decline in vehicle sales across the industry – the lowest annualized level in a quarter century. Ford lined up credit before the crisis hit, but the pressures of the recession pushed many in our industry to a critical point.

In the late fall, chief executives from Ford, General Motors and Chrysler appeared before the U.S. Congress to warn about the risks to the industry from the global recession and to ask for help for the industry. Although Ford did not request government funding for restructuring – asking instead for access to up to $9 billion in potential credit – our appearance before lawmakers highlighted the interdependence of an industry that has 80 percent overlap in supplier networks. Nearly 25 percent of Ford's top dealers also own GM and Chrysler franchises, and an uncontrolled bankruptcy of one or both of our domestic competitors, or one of our major suppliers, could also threaten our own operations.

On the supply side, we have been working extremely hard to strengthen our U.S.-located supply base, instituting practices designed to increase collaboration, provide for data transparency and expand the volume of business with select suppliers – all with an eye toward building a more sustainable business model.

(Find our full submission to Congress on our Web site.)

In the past, we allowed our portfolio to become too dependent on popular and profitable trucks and SUVs, missing opportunities to advance production of small- and midsize cars. We fully appreciate that the industry needs to develop greener, safer and even better quality vehicles.

At Ford, sustainability is not an after-thought, and our path toward long-term viability began well before the recent economic downturn began. Over the past several years, we have undertaken a fundamental restructuring in the way that we operate, a reshaping that affects every part of our business, from product innovation and fuel efficiency to labor relations and our interactions with suppliers and dealers. In difficult economic times, it is more important than ever for Ford to stay focused on issues of sustainability.

In short, Ford recognized that our business model needed to change, and we are changing it.

We already have taken many of the decisive actions necessary to ensure a healthy future for our company, including shifting our emphasis away from trucks and SUVs to a more balanced portfolio that includes more small and midsize vehicles. We also have set a CO2-reduction goal for our products, and we are on track to meet it. Our blueprint for sustainability, which highlights how we will meet our product CO2 goal and which we shared with Congress, has positioned us to lead in the industry by delivering the vehicles consumers want and need in the 21st century.

At the same time, we have been working to lower our operational costs. Our transformation plan, which we call "One Ford," was launched in 2007 to create a leaner, more efficient global enterprise and is anchored by four key priorities:

• Aggressive restructuring to operate profitably at current demand and changing model mix
• Accelerated development of new products our customers want and value
• Financing the plan and improving our balance sheet
• Working together effectively as one team to leverage our global assets

As part of this plan, we completed debt restructuring initiatives in the spring of 2009 that will reduce our automotive debt by $9.9 billion and lower our annual cash interest expense by more than $500 million, based on current interest rates. This decisive action will help us weather the economic downturn to deliver long-term profitable growth.

While the economic crisis clearly has taken center stage for governments and policymakers around the world, developing thoughtful and comprehensive energy and climate policies can help secure economic prosperity and provide opportunities for businesses to succeed. We believe that organizations whose recovery plans include ways to reduce greenhouse gas emissions are better positioned for the eventual recovery.

Over the last year, wildly fluctuating oil prices that peaked at $147 per barrel in mid-2008 continued to feed consumer interest in automobiles that are thrifty in their gasoline use, and renewed calls for technologies that will reduce oil dependency. And in rapidly growing economies, the interrelated issues of congestion, pollution and inadequate infrastructure pose additional challenges for the automotive market.

Offering vehicles with smaller environmental footprints, tackling the mobility challenges of rapidly growing urban centers, and tailoring our products and services to increasingly diverse global markets are not peripheral to Ford's future success – they are a prerequisite to it.