Investing in Operations

As part of our ongoing efforts to restructure our business to regain and maintain profitable operations, we have reduced and realigned our vehicle assembly capacity to bring it more in line with demand and shifting customer preferences. These efforts have been highly successful, and we are now reinvesting in North American plants and adding jobs in the U.S. We are also building new plants around the world to meet growing demand in our global markets.

In North America, we are transforming some of our traditional truck plants to produce smaller, more fuel-efficient vehicles. For example, we are converting assembly plants from the production of large SUVs and trucks to the production of small cars, to support what we believe is a permanent shift in consumer preferences to smaller, more fuel-efficient vehicles. We are also upgrading plants to produce more fuel-efficient engines and transmissions. These investments include the following.

• We are making an incremental $850 million investment in Michigan-based plants between 2011 and 2013 to support expanded manufacturing capabilities for new fuel-efficient, six-speed transmissions. These investments will be spread across a number of plants, including Van Dyke Transmission, Sterling Axle, Livonia Transmission and Dearborn Truck.
• We are investing $600 million to redevelop our Louisville Assembly plant to build the next-generation Ford Escape. When the Louisville plant reopens in late 2011, it will be our most flexible high-capacity plant, capable of building six different vehicles on a single line without requiring down time for retooling. Ford worked closely with state and local officials in planning this investment. The Commonwealth of Kentucky and the city of Louisville have committed up to $240 million in tax incentives during the next 10 years, based on current and potential future investments and job creation at the Company’s two Kentucky facilities –Louisville Assembly and the Kentucky Truck Plant.
• In 2010, we invested $400 million in our Chicago Assembly and Stamping plants to launch production of the all-new 2011 Ford Explorer, which has up to 30 percent better fuel economy than the outgoing model and best-in-class fuel economy in the full-size SUV segment. This investment supported the addition of a second production shift at the Chicago Assembly Plant, which brought 1,200 new jobs to the Chicago area.
• We also are investing $400 million in our Kansas City Assembly Plant, to ready the plant for the production of a new vehicle, yet to be announced. This plant currently builds the Ford F-150 and the Ford Escape. The Escape will shift production to our Louisville Assembly Plant in 2011. The $400 million investment will pay for installing a new body shop, new tooling and other upgrades. The Kansas City plant will continue to produce the Ford F-150 on a separate production line. We worked closely with state and local officials in planning our continued investment in this state. Our investments were supported in part by the 2010 Missouri Manufacturing Jobs Act, which provides tax incentives for certified automotive manufacturers that commit to new investments and job retention in Missouri and to suppliers who create new jobs in the state.

These investments in American plants and more fuel-efficient vehicles add to the $550 million we previously announced to transform the Michigan Assembly Plant (MAP) from a large SUV factory to a state-of-the-art car plant. MAP is now building the new Focus, which began arriving in showrooms during the first quarter of 2011. The plant will also build the Company’s Battery Electric Focus, beginning later this year, and the next-generation Ford C-MAX Hybrid and C-MAX Energi Plug-In Hybrid vehicles starting in 2012.

Many of these investments in our U.S. facilities are supported by loans Ford received from the U.S. Department of Energy to accelerate the production of more fuel-efficient vehicles. For more information on these loans, please see Ford’s Green Partnerships with Federal and State Governments.

We also will be adding more than 7,000 new hourly and salaried jobs throughout 2011 and 2012 the U.S. This includes nearly 4,000 hourly jobs at several U.S. plants and 750 salaried engineering jobs in product development and manufacturing, which we expect to add in 2011. In 2012, we expect to add the remainder of the 7,000 new jobs through at least 2,500 more new hourly manufacturing positions.

Our improved financial performance has allowed us to begin growing our workforce. These gains come, however, after having made some significant and painful employee reductions over the past few years as part of our efforts to restructure our business and right-size our Company. Since 2005, we have reduced employment levels in our Ford North America business unit by about 58,800. As of December 31, 2010, our Ford North America business unit had approximately 74,900 salaried and hourly employees, including employees at Automotive Components Holdings facilities, compared with approximately 133,700 salaried and hourly employees on December 31, 2005.1

As part of the restructuring process, we closed plants to reduce capacity and better match demand. Since 2005 we have sold or closed eight Ford plants. We closed the Cleveland Casting Plant in 2010, and two additional plant closures will take effect by end of 2011 – the Twin Cities Assembly Plant and St. Thomas (Ontario) Assembly Plant.

We have also been working to sell or close the majority of the Automotive Components Holdings (ACH) plants that remain in our portfolio. We sold our ACH manufacturing plant in Utica, Michigan, in 2010. To date, we have sold and/or closed 10 ACH plants. We plan to close another plant in Indianapolis in the near future. We are exploring our options for the remaining ACH plants (Milan, Sheldon Road, Saline and Sandusky), and intend to transition these businesses to the supply base as soon as practicable.

When the decision is made to close a facility, we take an active role in returning the property to a productive use that will be environmentally responsible, return shareholder value and benefit the community. Ford wants to leave a positive legacy in the communities in which we have operated, and we are therefore committed to handling our environmental responsibilities and working with municipal leaders to ensure smooth and successful transitions to new uses.

Our first step with any closed facility is to assess and address any possible environmental issues on the property. The goal of our environmental assessment is to understand the environmental condition of the site and the actions needed to ensure that future use of the site will not pose any risk to human health or the environment. If any environmental issues are discovered, the property is cleaned up to the standard appropriate for its future use, whether industrial, commercial or residential.

We also undertake extensive communications with community leaders, citizens and real estate partners to understand the potential future uses for the property and the community’s goals for the property. In some cases, Ford redevelops the property itself, but more often it seeks a well-qualified developer to buy and convert it. Some properties remain in industrial use. In other cases, the surrounding communities have changed since the plant opened, and new uses, such as retail, commercial or residential, are possible and desirable.

Ford has a corporate responsibility to maximize returns to our shareholders in the disposition of our properties. However, we always work with the community to see the property redeveloped into a productive and beneficial use.

In March 2011 we sold the former Norfolk Assembly Plant in Norfolk, Virginia, to Jacoby Development, Inc. As part of the transaction, Jacoby, in turn, sold a portion of the 100-acre former Ford plant to Belgium-based Katoen Natie (KTN), a global logistics provider. KTN will invest $12 million to establish a new warehousing and distribution operation, including $10.5 million to purchase the portion of the former Ford plant and refurbish the 662,000-square-foot former body shop, and $1.5 million for new equipment. The project is expected to create 225 new jobs. Ford worked closely with the City of Norfolk and the Commonwealth of Virginia to ensure the best use of the site, which is the largest privately owned, industrial-zoned, contiguous property in Norfolk.