Segment Shifts

As consumer preferences in North America have shifted from larger vehicles to smaller, more fuel-efficient models, we are responding. We have made a commitment and are taking steps to make our assembly plants "flexible" – that is, more nimble to enable us to adapt our vehicle production more swiftly to changing market preferences and needs. Thanks in part to significant investments in our manufacturing facilities, we're retooling three of our North American assembly plants that previously had built large trucks and SUVs to instead build smaller, more fuel-efficient vehicles on Ford's global platforms. For example, we're investing $550 million to transform our Michigan Assembly Plant – formerly the production site for the Ford Expedition and Lincoln Navigator SUVs – to one that will build Ford's next-generation global Focus for the North American market. This transformation is emblematic of the larger transformation under way at Ford. In the modern marketplace, we see flexibility and adaptability as critical to our success.

We have been working hard these last few years to reverse the decades-long trend of losing money on the production of small cars in the United States. We have boosted production of smaller-sized vehicles in North America and globally, and we are improving costs to competitive levels. The strength of the new Ford Fiesta in markets from Europe to Africa to Asia is proof of the progress we are making in this area. (The Fiesta debuts in the United States in the summer of 2010.) We are also improving sales thanks to the increased production of vehicles with class-leading fuel economy, safety performance, quality and technology.

As part of our ONE Ford plan, we have shifted our entire business structure. We historically operated as four somewhat independent automotive companies around the globe – North America, South America, Europe and Asia Pacific – each with its own product development systems, manufacturing processes, suppliers and other duplicative structures. While this made sense in the past, such a structure led to unnecessary and inefficient processes and a failure to realize the substantial benefits of scale available to a global enterprise like ours.

As we expanded our brand portfolio around the world, our global enterprise became more difficult to manage, and we neglected to ensure that the Ford brand retained its strength in all markets and in all segments. The situation was especially acute in the United States where, in the 1990s, both Ford and our foreign and domestic competitors became increasingly dependent on sales of trucks and large SUVs.

While we did begin to refocus our North American portfolio in the early 2000s with a new line of midsize cars, we did not adequately predict the sizeable shifts in consumer preferences that were to come later in the decade. When fuel prices shot up rapidly in early 2008, consumers migrated toward small cars at a much faster pace than we and others in the industry anticipated.

In 2010, sales trends show that consumers are continuing to move toward smaller vehicles, which bodes well for our Company as we prepare for the U.S. launch of the Fiesta this summer.

Today, gas remains relatively inexpensive in the United States, but we think consumers will remember how higher gas prices impacted their wallets, and we believe the shift in buying patterns is more than a temporary fluke.

When we watch how our customers' aspirations and lifestyles change, monitor long-term trends and connect the dots, we succeed in bringing our customers the vehicles they really want and value. For example, while we anticipated a shift in U.S. consumer attitudes regarding the desire for cars with affordable fuel economy, we also appreciated that not everyone is ready for a hybrid. That's why we pursued two compatible plans. The result was our high-horsepower, high-mileage EcoBoost technology – developed on a parallel path to our popular hybrids.

Our innovative technologies have been well received within the industry, in the media and, most importantly, with our customers. Our challenge is to maintain – or even further improve – the pace of innovation that we set in 2009 to deliver even better vehicles each and every year, with even better technology. We're not delivering technology just for technology's sake. Every piece of technology that goes into a Ford product is there for one reason: it adds real value.

As customers look for more fuel-efficient choices, we intend to be there with more of the products they really want.