Sustainability Management

Product Development

The development of our new products starts with the identification of advanced technologies and breakthrough ideas by our Research Labs and our Advanced Product Strategy, Advanced Marketing and Advanced Design groups. These groups continuously scan the latest developments in technologies and consumer trends to identify the best new technologies and anticipate the needs and desires of the marketplace. Once a new product is conceived, product development engineers, designers and product marketing teams work together to finalize a vehicle concept. Once approved, our vehicle programs are brought to market using our Global Product Development System, or GPDS.

The GPDS, launched in 2005, merges the best product-creation methods from all of Ford Motor Company's global operations, including Mazda's efficient manufacturing disciplines, Volvo's work with computer-aided design and manufacturing, and a return to the in-house engineering of all major vehicle components. The GPDS provides a common set of milestones and metrics for the development of all vehicle programs across our regional business groups, which increases efficiency and quality. As a part of this system, we require all vehicles to meet specific competitive and performance targets at every milestone along the product's development path. These targets include a wide range of environmental performance criteria, such as fuel economy, recycled materials and substances of concern.

In early 2007, we reorganized our product development management systems. Our product development organizations now report to one global leader – the Group Vice President of Global Product Development. In late 2007, we took a similar step to establish a global head of manufacturing. These and associated management changes allow us to be more globally integrated across our regional business organizations so we can develop better products, more efficiently, at a lower cost. We also strengthened our sustainable mobility governance to provide more integrated development and implementation of sustainability initiatives. Please see our Climate Change section for more information on these changes.

Manufacturing

We use a consistent system worldwide to manage our manufacturing facilities. This Ford Production System encompasses a set of principles and processes that are defined and carried out in the same way in all our manufacturing facilities. Key elements of the system include goal-setting, training and performance measurement.

Environment

We have an environmental Policy and Directives that apply to our operations globally.

All Ford manufacturing facilities and our product development function are certified to ISO 14001, the leading global standard for managing environmental issues. In addition, we have asked our preferred "Q1" suppliers of production parts to certify their facilities. These commitments place our most significant potential environmental impacts under one comprehensive environmental management system.

Manufacturing

Ford's manufacturing management sets environmental goals. Those goals and progress made in reaching them are discussed in the Environment section of this report.

During 2005, we began to implement an Environmental Operating System (EOS) at our North American assembly plants. As a counterpart to our Quality Operating System, the EOS provides a standardized, streamlined approach to maintaining compliance with all legal and Ford internal requirements. The EOS drives compliance responsibility to the operations level by assigning compliance-related tasks to the appropriate personnel and tracking the completion of those tasks.

The EOS is integrated with other key management systems at the plant level, including ISO 14001 and the Ford Production System (FPS). The EOS provides information, standardized tools and processes to support ISO 14001's requirement to identify and manage compliance issues. The FPS, which sets expectations across the full range of manufacturing performance areas, requires plants to complete implementation of the EOS to attain a high rating.

As of May 2008, the EOS was in place at all U.S. and Canadian plants, and was being rolled out to Mexican plants. Implementation of the EOS has also begun in Ford of Europe facilities.

Ford has moved to group ISO 14001 certification for its plants in North America. All powertrain plants share a single group certification. Likewise, assembly plants, stamping plants and Ford Customer Service Division facilities each have their own group certification. Instead of being audited yearly by a third party, each plant is now audited every three years. Group certification saves time and money, with no degradation in plant environmental performance.

Product Development

In the Global Product Development System discussed above, environmental objectives – including targets for fuel economy, vehicle emissions, the use of recycled materials and recyclability – are defined at the outset of the design process for every new Ford vehicle. We track our progress toward those targets throughout the product development process. The targets, broken down from a vehicle level to a supplier or component level, enter into each contractual agreement signed between Ford and its suppliers.

To support this effort, Ford's Design for Environment (DfE) tool bridges the gap between product development and environmental management. DfE uses simplified life-cycle assessments and costings, substance restrictions, checklists and other tools to identify and reduce significant impacts.

Ford of Europe's Product Sustainability Index is broadening the DfE process to include further dimensions of sustainability, in order to improve each vehicle's environmental, social and economic performance.

In North America, the product development function has sustainability "pillars" addressing key environmental issues as part of its strategy to drive innovation.

Suppliers

ISO 14001 certification is expected of all "Q1," or preferred, production suppliers as well as nonproduction supplier facilities if the supplier has a manufacturing site or a nonmanufacturing site with significant environmental impacts that ships products to Ford.

In 2006, we attained our goal of having 100 percent of our Q1 production suppliers gain ISO 14001 environmental management system certification for facilities supplying Ford. We also encourage our suppliers to extend the benefits of improved environmental performance by implementing similar requirements for environmental management systems in their own supply base.

Health and Safety

Health and Safety management and performance assessment is carried out through a set of governance and management systems that are fully integrated with manufacturing management. These systems, and the associated performance in 2007, are discussed in Workplace Safety.

Stakeholder Engagement

We believe that listening and responding to stakeholders is a central part of being an accountable company. In addition, stakeholder engagement is vital to our ability to serve our customers and the local and global communities in which we operate. It is a critical tool in tuning in to signals about changes in the world and the marketplace that may present risks and opportunities.

Stakeholder engagement takes place in countless formal and informal ways every day across our Company, from facility personnel's meetings with local community groups to market research with customers to convenings of Ford dealers and suppliers. (See Who Are Our Stakeholders for a profile of our major stakeholder groups and forums for engagement.)

At the corporate level, we use a variety of mechanisms to engage with stakeholders on sustainability issues. Some of these are informal and ad hoc – indeed, simply picking up the telephone to discuss an issue with any of the numerous sustainability-related organizations or individuals with whom Ford has a relationship is a part of our standard protocol. Others, including the following, are more formal:

• The creation of forums to gather stakeholder input on our activities, challenges and performance. For example, we work with stakeholder committees to help shape and provide feedback on our sustainability reports. We have also organized meetings with individuals and groups of stakeholders to solicit input on the key sustainability challenges and opportunities facing Ford. These and other engagements have been critical in shaping our sustainability strategy.
• Outreach on emerging and ongoing issues of particular importance to Ford or our stakeholders. We believe we have taken a thoughtful approach to our stakeholders as we work to improve tough situations. For example, stakeholder input has been critical to the development and testing of our approach to human rights over the past several years. Several organizations, notably the Interfaith Center on Corporate Responsibility, have been key partners with Ford, providing information, input and feedback at every step of the process, especially during conversations around shareholder resolutions. We did outreach to the United Nations Global Compact as we developed our strategy to be a global leader in human rights and have worked with stakeholders to address specific issues in the automotive industry supply chain (see the Human Rights section for more detail). We also devoted particular effort to engaging stakeholders on issues related to sustainable mobility, as described in the Mobility section of this report.
• Engagement with local stakeholders in the communities in which we operate as part of our Code of Basic Working Conditions assessment process.
• Consultation with organizations that have implemented campaigns targeting Ford.
• Engagement with rating and ranking organizations in the investment community. These have provided insight into external perspectives on some important issues and our relative performance in addressing them.
• Dialogue and, in many cases, ongoing cooperation with organizations that have filed shareholder resolutions on environmental and social issues. During the 2008 proxy season, Ford received socially or environmentally related resolutions calling on:
  • The Company to produce a report on policies and procedures and political contributions and expenditures made with corporate funds.
  • The Board of Directors to adopt principles for comprehensive health care reform.
  • The Company to produce a report on global warming.

In addition, we also received a proposal from The Sisters of St. Dominic of Caldwell, New Jersey, and other shareholders that asked the Company to adopt quantitative goals to reduce greenhouse gas emissions from the Company's products and operations and to report to shareholders on our plans to meet those goals. We received a second proposal from the Connecticut Retirement Plans & Trust Funds requesting that an independent committee of the Board of Directors of the Company assess the steps the Company is taking to meet new fuel economy and greenhouse gas emission standards for our fleet of cars and trucks and to issue a report to shareholders. Following extensive engagement and detailed discussion of our CO2 modeling and product strategy, the shareholder proponents agreed with the Company to withdraw the proposals on the basis of commitments made to adopt and publish in this report quantitative goals for reducing greenhouse gas emissions; discuss the steps the Company is taking to meet new fuel economy and greenhouse gas emission standards for our fleet of cars and trucks; and continue the dialogue with the proponents on this important issue.

Employees

Substantially all of our hourly employees in our automotive operations in the United States are represented by labor unions. Most hourly employees and many nonmanagement salaried employees of our subsidiaries outside of the United States also are represented by unions. We work closely with these unions to develop agreements and governance plans through a collective bargaining process. Policy and procedures involving information, consultation and negotiations with employees over changes in the reporting organization's operations (e.g., reorganization, plant shutdown, employee transfers and reductions) are negotiated with the appropriate union. In addition, joint labor-management committees are set up at each plant to give employees an opportunity to influence working conditions and practices.

Most of our salaried employees are not covered by union agreements. We have a strong Code of Conduct and comprehensive Policy Letters and Directives covering topics, including diversity, relevant to our employees. We also practice regular two-way communication with all employees through weekly interactive webcasts, surveys and informal communications, and we survey our salaried employees annually, as discussed in the Society section.

We provide learning and development opportunities for our salaried employees, so they can develop general professional and functional/technical competencies as well as core leadership competencies for those in supervisory or managerial positions.

Customers

Maintaining good relationships with our customers is one of our most important activities. We provide a variety of means for customers to reach us, including mail, email and toll-free phone. We also reach out to customers and potential customers through focus groups and other market research, and we track customer satisfaction as described in the Society section. We gather online, consumer-generated content to learn what consumers are saying about sustainability-related topics (e.g., fuels, alternative technologies, public policy, climate change, human rights, mobility, carbon offsets and the environment) relating to both our Company and the industry in general.

Increasingly, customers are using these electronic media – including Web sites, discussion groups and blogs – to research, discuss and problem-solve topics related to their current vehicles and those they are interested in purchasing. We monitor both media- and consumer-generated content found online and have begun to participate in the conversations, responding directly to consumers online when the need arises. Through this process, we learn about consumer concerns and have the opportunity to influence perceptions about the Company.

Investors

We provide information to and interact regularly with investors through a variety of means, including our corporate Web site, annual report and regulatory filings, annual meeting and periodic analyst conference calls. We also engage with socially responsible investment organizations that are seeking information to use to evaluate our sustainability performance. These interactions help us stay abreast of and respond to investor concerns. (See the Economy section for a discussion of investor ratings and feedback.)

Dealers

We manage our relationships with dealers through Dealer Councils, which are forums in which dealers can voice their concerns, needs and ideas for working more productively together. Each brand has its own Dealer Council. Dealer advisory committees also provide input into future product offerings. Through these various methods of interaction, Ford management has the opportunity to meet with, and hear from, the majority of the dealers in their respective franchises. The feedback gathered through these interactions has helped us develop various programs, change policies and enhance processes to improve customer handling and other significant elements of the dealers' business.

Community

To effectively and sustainably manage community relations issues, we must embed them in our core business practices and seek to manage them with the same rigor as other aspects of our business.

In recent years, we have taken steps to develop a more integrated approach to managing the different dimensions of our community involvement. Our goal is to more closely connect our traditional community relations programs, community impact assessment processes and human rights efforts. Over time, we also want to link all of these efforts with our development of new products and services to meet the unique mobility needs of communities in emerging markets. In our view, this approach will not only increase efficiencies, but also maximize our impact and effectiveness.

The release of our Code of Basic Working Conditions (CBWC) as a formal Policy Letter reinforced that our behaviors and actions include a focus on issues outside the walls of our plants and facilities. The performance criteria for CBWC assessments of owned and operated facilities now address several key community issues and evaluate engagement with members of the local community.

Our work to develop and implement the CBWC has helped to establish our trustworthiness in communities in which we are developing our sustainable mobility strategy. In our view, developing a deep understanding of the unique mobility needs of emerging markets is a pre-condition of being able to do business in those places. We have conducted important engagement sessions in Cape Town, South Africa, and Bangalore and Chennai, India, as described in the Mobility section.