A New Approach to Health Care Costs

We provide health care coverage to about 535,000 employees or retirees and their dependents in the United States alone. The rising cost of health care coverage and our high proportion of retirees compared to more recent entrants to U.S. markets put us at a competitive disadvantage. Ford's health care costs have been estimated to add about $1,000 to the cost of each vehicle built in the United States.

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.

We have also taken other steps to reduce health care costs and promote the health of employees. For example, we have implemented health and wellness programs for our employees and their families, and worked with organizations in the health care sector to improve the efficiency and effectiveness of the U.S. health care system.