Economy

Ford Motor Company’s impact on the U.S. and global economies is broad and diverse. Our success as a company directly affects millions of people, including employees, retirees, dealers, investors and suppliers. We also have indirect economic impact on the hundreds of communities in which we operate worldwide.

To sustain our Company, meet our responsibilities and contribute to tackling global sustainability issues, we are continuing to implement our restructuring plan, aligning all of our global operations to focus on four key priorities:

• Aggressively restructure to operate profitably at the current demand and changing model mix
• Accelerate the development of new products our customers want and value
• Finance our plan and improve our balance sheet
• Work together effectively as one team

This section first briefly discusses the current business environment, our recent economic progress and our materiality analysis. The bulk of the section then addresses our financial recovery plan, including our progress in implementing the above four priorities. (Note that the risks and competitive factors discussed in our Annual Report on Form 10-K and Form 8-K may affect the implementation of these plans). The section also includes information on shareholder relations and Ford Motor Credit Company, as well as two case studies: one on our development of additional plants in Asia, and one on the economic impacts of the auto industry.

Assessing Materiality

The updated materiality analysis used to shape this report confirmed that the Company and stakeholders alike have a high level of concern about Ford’s financial condition.

Within this broad topic, there was less focus on issues of managing downsizing and the potential bankruptcy of competitors or suppliers than in 2008/9, when a materiality analysis was last undertaken. Health care costs, legacy costs and access to capital also declined in importance, likely because of actions Ford has taken to manage these issues. Issues of cost and risk management and product competitiveness remained at the highest level of importance to the Company and stakeholders. “Product competitiveness” encompasses Ford’s strategy related to products and sales, including product mix, market share and meeting customer demands for more fuel-efficient products, among other issues.

Vehicle quality, Ford’s manufacturing efficiency and our emerging-market products and services strategy were also of significant concern to internal and external stakeholders. This section reports on all of these key material issues.

Current Business Environment

In 2010, the global economy continued to recover from a severe recession and challenging economic conditions in major markets. Ford also continued to improve its own financial condition significantly, building on the momentum gained in 2009. We achieved full-year profitability in 2010, with every business segment reporting better results than in 2009. We are continuing to introduce new products that are well received in the marketplace, and to increase productivity and reduce key costs to operate even more efficiently. We also substantially reduced our debt burden in 2010 and early 2011, helping us have more cash on our balance sheet than debt earlier than we expected.

Despite our progress, mixed overall economic conditions continued to impact our business. Unemployment, for example, remained high in many countries, including the U.S., where the unemployment rate was 9.4 percent as of December 2010. Global GDP grew by more than 3 percent last year, with the U.S. GDP expanding by 2.8 percent as compared to 2009. The pace of global economic activity varied substantially from country to country, with China growing more than 10 percent while peripheral European markets (e.g., Greece, Ireland, Portugal) experienced tepid growth associated with excessive government debt and weak banking systems.

The auto sector overall experienced moderate growth in 2010. Worldwide vehicle sales (including passenger cars, commercial vehicles and all trucks of medium- and heavy-duty gross vehicle weights) were estimated at 74 million units, which exceeded the prior peak in sales in 2007, before the recession began. Some markets continued to have government-sponsored scrap page programs and other aggressive new-vehicle incentives intended to stabilize sales and automotive production. Given how important the auto sector is to the core vitality of national economies, this support was important not only for the industry, but also for its customers, suppliers, local communities and other stakeholders. U.S. new-vehicle sales have improved from a low point of 9.8 million units (seasonally adjusted at annual rate) in the second quarter of 2009 to 12.7 million units by the fourth quarter of 2010.

Looking ahead to 2011, general economic indicators suggest that global economic growth will be in the 3 to 4 percent range. Improving conditions in the U.S. likely will bring the unemployment rate down gradually. Several emerging markets, such as China, India and Brazil, are experiencing rising inflation, which may lead to weaker economic growth. While economic growth could be slower in these markets during 2011, economic activity will continue to expand at a rate much faster than what is expected in the U.S. and Europe.

A further recovery in the U.S. auto sector is projected during 2011, with full-year sales predicted to reach 13 to 13.5 million units in 2011, and in Europe full-year sales are predicted to be in the 14.5 to 15.5 million unit range. Other markets are recovering at different speeds, due to differences in the pace of economic activity, interest rates and other important factors influencing the cost of vehicle ownership.

At Ford, we are looking forward to continued growth in 2011. We are investing in new products to meet growing consumer demand. And we are making significant investments in our manufacturing operations; in the U.S., we are retooling plants to produce more fuel-efficient vehicles, while in Asia, we are building new facilities and adding workforce to meet growing consumer demand.

The rest of this Economy section addresses our continued economic progress and our future plans to maintain this momentum.