A New Mechanism for Health Care Costs

Ford has also reached an agreement with the UAW for a new mechanism to provide health care to retirees. In April 2008, Ford, the UAW and the class representatives of former UAW-represented Ford employees filed with the United States District Court for the Eastern District of Michigan a Settlement Agreement dated March 28, 2008. The Settlement Agreement provides that on the later of 1) December 31, 2009, 2) final court approval of the Settlement Agreement, and 3) Ford's completion of discussions with the Securities and Exchange Commission regarding satisfactory accounting treatment, a new retiree health care plan (the "New Plan"), to be funded by a new Voluntary Employee Beneficiary Association trust (the "New VEBA"), will be permanently responsible for providing retiree health care benefits to covered UAW employees. This obligation was measured at $20.2 billion on Ford's December 31, 2007, balance sheet.

Ford will fund the New VEBA through a number of sources, including funds that are currently in existing voluntary employee beneficiary association trusts, Ford-issued convertible and term notes, and cash on hand. The parties to the Settlement Agreement have acknowledged that Ford's obligations to pay into the New VEBA are fixed and capped as provided in the Settlement Agreement and that Ford is not responsible for, and does not provide a guarantee of: 1) the payment for future benefits to plan participants, 2) the asset returns of the funds in the New VEBA, or 3) the sufficiency of assets in the New VEBA to fully pay the obligations of the New VEBA or the New Plan.

The Settlement Agreement will reduce Ford's ongoing health care costs and strengthen its balance sheet, while allowing for the continuation of health care benefits to current and former UAW-represented Ford employees.