Understanding Changing Customer Needs

Consumers' wants and needs are constantly evolving, and we must keep pace with them if we expect to remain competitive, particularly in a difficult economy. Ford monitors global market trends, shifting consumer interests, and social and political developments to identify issues that will likely affect our consumers, our industry and our Company. We rely on a network of internal and external experts – from around the world – to ensure that we get a diverse, comprehensive perspective on consumer trends and how they will affect consumers' future choices about vehicles and mobility. We apply these trend analyses throughout our marketing, product development, research and design organizations to guide future product and technology developments.

Our marketing experts use an intensive research and analysis process to understand who our potential customers are, what they value and what they want in a vehicle. We define a "brand DNA" and hypothetical "target customer" for each of our main brands. Ultimately, each individual product is also assigned its own specific DNA and target customer. The brand DNA and target customer profiles go beyond simple demographic information such as age, gender and income; we build complete profiles of our hypothetical target customers, including what they like to do, what music they listen to and where they shop. This approach helps us pinpoint our aims for each vehicle we produce. Using a fully developed, "invented character" as the focus of our vehicle development brings our market research data to life and keeps everyone on the product development team focused on designing a vehicle that meets customers' needs and desires.

We develop our target customer profiles based on psychological traits and archetypes that transcend national characteristics or customer desires. This is a critical part of our drive to develop truly global vehicles that appeal to customers in multiple markets. Toward this end, we are focusing more on the emotional and psychological elements of how customers choose their vehicles as well as the traditional economic criteria of price and features. In addition to developing vehicles that deliver best-in-class features and price for value, we are focused on developing vehicles that fulfil the dreams and aspirations of the target customer group. We believe this approach not only helps us to understand our customers better, it helps us develop vehicles that capture the imaginations, dreams and loyalty of our customers across the globe. Of course, we are keenly aware that economic pressures will push the boundaries of brand loyalties, forcing us to work even harder to define our potential customers and build vehicles they can afford.

As we contemplate the economic pressures and other external factors that will influence our business, we know that we cannot predict the future. However, we can prepare for a broad range of possibilities through "futuring" exercises that help us ensure we have robust strategies in place, whatever the future might bring. Therefore, in addition to product- and brand-specific market research, we have an office dedicated to tracking shifts in social, technological, economic, environmental and political arenas. This Global Consumer Trends and Futuring team is part of our ongoing effort to identify trends that will impact the future of consumers' values, attitudes and beliefs. The team collaborates with internal subject-matter experts and external thought leaders to ensure that we have a truly global and diverse view of the world. Ultimately, our goal is to see changes on the horizon and respond to them in a way that gives Ford a sustainable competitive advantage in terms of our product portfolio and business strategies. The rest of this section discusses some of the trends that currently guide our discussion regarding consumers and their future needs, wants and desires. These trends include:

• Increasing demand for more fuel-efficient vehicles
• Growing consumer interest in "ethical consumption," or a desire to buy products from companies that reflect one's own environmental and social values
• An increasing focus on "careful consumption," in which consumers have to balance their values, passions and preferences with practical purchases as the global economic recession continues
• Expanding interest in vehicles that help consumers meet their increasing desire for information and connectivity and make the most of their time

Demand for Fuel Efficiency

Rising fuel prices, energy security issues and global climate change have spurred consumer interest in cleaner, more efficient vehicles. In the 2009 New Vehicle Customer Survey, fuel economy was chosen as the feature most influencing drivers' next vehicle purchase decision; it even ranked higher than pricing incentives and advanced safety technologies. Seventy-four percent of respondents ranked fuel economy as extremely or very influential in their next vehicle purchase decision. This was down from 81 percent in 2008. This drop is likely due to lower fuel prices at the time of the survey; average per gallon fuel prices were approximately $0.99 lower when the survey was conducted in 2009 compared to 2008. As evidence of the overall trend toward more fuel-efficient vehicles, the crossover segment has seen significant growth compared to traditional truck-based SUVs. This shift in demand is visible in the changes in sales by vehicle segment since 2005.

Responding to this increasing demand is at the heart of our financial recovery plan and our product development plans. We recently announced that all of our new vehicles will be best in class or among the leaders in their segment for fuel economy. And we are continuing to design and introduce advanced technologies that improve fuel efficiency, reduce emissions and lessen dependence on foreign oil. Elsewhere in this report we describe our response to the increasing demand for fuel economy and our plans to improve fuel economy fiwith advanced technologies.

Ethical Consumption

Customers are increasingly interested in buying products from brands and companies that reflect their environmental and social values – a trend we call "ethical consumption." Ethical consumers are integrating ethical, religious, political, environmental and other beliefs in the purchasing decisions they make. They want to feel good about their consumption choices. In fact, ethical consumption is often driven by how it makes the consumers feel about themselves and the world around them. Therefore, these consumers tend to buy products from companies with values that they believe reflect their own. As a result, companies have to be increasingly aware of the values they express in their actions, products and communications.

In addition, as many social and environmental issues – like climate change – have worked their way into mainstream consumer consciousness, corporations are being held to a rising standard, shaped by the recognition that seemingly small actions can have personal and environmental health and wellness impacts. Increased access to information and corporate transparency are also driving purchases based on ethical issues.

While people are generally not willing to compromise on performance or affordability, they want products that come from ethical companies and have positive environmental and social impacts. Being a good corporate citizen, and making positive impacts on our stakeholders, communities and the planet as a whole, have been integral parts of Ford's century-long heritage. Ford was recently named one of the world's most ethical companies by the Ethisphere Institute. The fact that this kind of list exists – and perhaps more importantly that publicly traded companies on the list continue to outperform both the FTSE 100 and the S&P 500 – illustrate the relevance of corporate ethics and values to consumer choices. This sustainability report is one of the channels we use to share our story about our commitment to sustainability with our consumers and stakeholders.

Careful Consumption

At the same time that consumers are increasingly interested in ethical consumption, they are also facing very challenging economic conditions. Therefore we are also seeing a trend toward "careful consumption." Careful consumers have to balance their values, passions and preferences with practicality when making purchase decisions. The careful consumer's purchase decisions tend to be more planned and considered, and less spontaneous or impulse driven. People who used to pay extra for a wide range of sustainable products may now have to make tradeoffs between buying to meet their social and environmental values and buying what they can afford. People are still considering sustainability in their purchase decisions, but these choices are also being limited by increasingly difficult economic realities.

In these difficult economic times, consumers are increasingly interested in value in terms of style, safety and quality. Also, buyers are holding on to their older vehicles for longer periods of time, increasing the importance of long-term durability.

We are responding to the global financial crisis and the resulting changes toward more careful consumption in many ways. For example, we are developing more fuel-efficient vehicles that will reduce overall operating costs by lowering lifetime fuel costs. We are introducing high-end technological innovations like the SYNC® entertainment and communication system as standard equipment in many of our vehicles. And as always, we are increasing quality and long-term durability.

In addition, in March 2009 we announced the Ford Advantage Plan. This Plan provides customers with car payment support for up to 12 months on any new Ford, Lincoln or Mercury vehicle if they lose their job, as well as zero-percent, limited-term annual percentage rate financing on select vehicles. This is another way we are responding to customers' demands for value and security and helping to reduce the uncertainty involved in making major purchases during economic hard times.

Information Addiction

We are also seeing a trend we call "information addiction" – an increasing demand for constant connectivity and access to information. As the amount of information and rate of information change increases, being "in the know" is a new status symbol. Having more information and faster access to new information gives people more control, influence and success. As a result, people are more reliant on having constant access to new information.

As information addiction becomes more prevalent, people are demanding access to information and connection to their social networks while in their cars. People are coming to see their car as more than just transportation; they want their vehicles to help them stay informed and connected. This can be driven by an emotional desire for connection and a practical desire for productivity. People who drive to work spend, on average, more than an hour every day in their cars – and they want to be able to use that time productively. Consumers today want to be able to connect with the outside world from within their vehicles, and they want access to the information they need to get things done during their drives.

Ford is responding to these demands by developing and implementing a wide range of cutting-edge, "drive smart" technologies that increase in-vehicle connectivity, productivity and efficiency, in an effort to make our customers' lives easier. SYNC® is the centerpiece of this effort. It allows our customers to access their phone, MP3 player, navigation and travel information, as well as the internet, from inside their cars. SYNC provides all this using hands-free, voice-activated access to help make in-vehicle connectivity and information sources convenient.