Progress and Goals

Current Business Environment

In 2009, the global economy fell into one of the worst recessions on record. Global GDP fell by more than 1 percent last year, with the U.S. GDP contracting by 2.4 percent. The severe financial crisis left consumers and businesses in dire condition, with double-digit unemployment in the United States, falling incomes, tight credit due to banking-sector problems and faltering housing wealth due to the collapse of home values.

As of early 2010, there are indications that the massive fiscal and monetary policy stimulus package, along with significant support for ailing financial institutions worldwide, are sowing the seeds of recovery. Economies in Asia are growing strongly, particularly in China and India. In the North and South American markets – including the United States – the recovery has been gradual. These markets are held back by the severe losses incurred by consumers and businesses and a labor market not yet healthy enough to spur job creation and reductions in unemployment.

The auto sector in many markets was assisted by special scrappage programs and other 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 all of our stakeholders. The financial crisis contributed to a cumulative 39 percent decline in U.S. new vehicle sales since the peak in sales in mid-2005. Since the first half of 2009, 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 11.0 million units by the fourth quarter of 2009 and 11.2 million in the first quarter of 2010. A further, albeit gradual, recovery in sales is projected during 2010, with full-year sales predicted to reach 11.5-12.5 million units in 2010. Other markets are recovering at different speeds due to differences in vehicle incentive program size and timing and the strength of economic recoveries.

Overall, the business environment has improved, but it is by no means advancing at its potential rate of expansion. Central bank and government policy stimuli remain warranted until more national and regional economies can regain their footing. The auto industry is healing but it remains severely impaired, with sales and production still running at levels last seen during the severe economic downturn of 1981-1982. Sales and production levels are particularly low in the United States compared to pre-recession levels.

Even in these difficult economic conditions, however, we are making significant progress on our restructuring plan.

Progress Since Last Report

Some of our major financial and product achievements in 2009 and the first quarter of 2010 include the following.

• In 2010 Ford reported a first quarter net income of $2.1 billion, or 50 cents per share, and pre-tax operating profit of $2 billion, or 46 cents per share.
• We posted a pre-tax profit for full-year 2009 (excluding special items), reflecting our improving performance throughout the year with strong pre-tax profits in the third and fourth quarters. Based on Ford's improving business performance, the gradually strengthening economy and our updated assumptions, we now expect to be profitable with positive Automotive operating-related cash flow in 2010, and we expect continued improvement in 2011.
• In 2009, Ford gained market share in the United States for the first time since 1995. We also gained market share in many global markets, including Europe, Brazil, Argentina, Venezuela, Taiwan and South Africa.
• Market share increased even further in the first quarter of 2010. We increased our overall U.S. market share that quarter by 2.6 percentage points to 16.5 percent and our retail market share was 14.1 percent. This was the largest quarterly U.S. market share gain since 1977. In Europe we achieved a 9.4 percent market share, and Ford was the bestselling brand in 19 of the European markets we track in March 2010.
• Ford completed the transfer of its UAW retiree health care liabilities to the UAW Retiree Medical Benefits Trust ("UAW VEBA Trust") on December 31, 2009.
• In 2009 Ford committed that every all-new or redesigned vehicle we introduce will be best in class or among the best in class for fuel economy in its segment. Since then, we have followed through on this commitment with vehicles introduced in both the United States and Europe, and we will continue to do so in future product launches.
• In early 2009, Ford began selling the new 2010 Ford Fusion and Mercury Milan. The hybrid versions of these vehicles lead their segments in fuel economy. These vehicles have won dozens of awards, including Motor Trend Car of the Year for 2010 and Car of the Year at the 2010 North American International Auto Show. They have also led sales increases for Ford, posting record sales in 2009.
• The new Ford Fiesta, which went on sale in Europe in 2008, was the bestselling vehicle in all of Europe for the first quarter of 2010. Ford began production of the Fiesta in our Asia Pacific and Africa region in 2009 and will bring the vehicle to the United States in the second quarter of 2010.
• Ford was the bestselling brand of crossover vehicles in the United States in 2009.
• Every consumer metric about the Ford brand – including favorable opinion, consideration, shopping and intention to buy – ended the year at record levels. Favorable opinion was up more than 20 percent from the beginning of the year and intention to buy Ford increased more than 30 percent.
• Ford, Lincoln and Mercury vehicles achieved the highest customer satisfaction and the fewest number of "things gone wrong" among all full-line manufacturers, according to the 2010 first quarter Global Quality Research System survey for the United States. In 2010, the initial quality of Ford, Lincoln and Mercury brand vehicles in the United States improved by 8 percent compared to last year.1