Letter from Alan R. Mulally
"Climate change may be the first sustainability issue to fundamentally reshape our business, but it will not be the last. How we anticipate and respond to issues like human rights, the mobility divide, resource scarcity and poverty will determine our future success."
Alan R. Mulally
President and Chief Executive Officer
As I reflect on my first full year at Ford, I see a company – and a world – that have changed dramatically.
In retrospect, 2007 may be seen as the year that sustainability, and in particular the climate change issue, reached a tipping point in public consciousness. The Nobel Peace Prize was awarded for climate change work. The Intergovernmental Panel on Climate Change issued a new and more adamant assessment of the likelihood and risks of climate change. The U.S. Supreme Court issued a major decision on the treatment of climate change issues under the Clean Air Act, while the U.S. Congress passed an energy bill and pondered climate change legislation. Oil prices passed the $100 per barrel mark in early 2008. Along with concerns over climate change and energy security, the cost of fuel drove strong consumer interest in more fuel-efficient vehicles.
Ford also is changing. It is becoming smaller, leaner, more globally integrated and more focused on meeting our customers' needs and wants. It is also a company with sustainability at the heart of its business. Our vision for the 21st century is to provide sustainable transportation that is affordable in every sense of the word: socially, environmentally and economically.
Over the past year, this vision drove the development of our product CO2 strategy, which targets a 30 percent reduction in CO2 emissions from our vehicles in the U.S. and EU by 2020.
I am convinced that our vision makes sense from a business point of view as well as an ethical one. Climate change may be the first sustainability issue to fundamentally reshape our business, but it will not be the last. How we anticipate and respond to issues like human rights, the mobility divide, resource scarcity and poverty will determine our future success.
For example, urbanization, congestion, high fuel prices and other trends are putting safe, affordable transportation out of reach for many people around the world. We view this as an enormous opportunity and are leading the implementation of a prototype program to provide smart, innovative urban mobility solutions.
Our progress in addressing climate change, mobility and our other material sustainability issues is summarized below. I believe that our approach to sustainability will be one of the most important factors in both our short-term financial recovery and our long-term success. I hope that what you read in this report demonstrates that we are on the right track.
CLIMATE CHANGE
During 2007, we analyzed the product actions we need to take to contribute to stabilizing atmospheric CO2 levels in the range generally accepted to minimize environmental impacts. The result was our blueprint for sustainability – a CO2 strategy for our products.
We also joined the U.S. Climate Action Partnership (USCAP) to advocate for effective climate change policy in the United States. As a member of USCAP, we support the call for short-, mid- and long-term targets, including an emission target zone aimed at reducing emissions by 60 to 80 percent from current levels by 2050.
An important feature of our approach is our focus on sustainable technology solutions that can be used not for hundreds or thousands of cars – but for millions of cars. The democratization of fuel-efficient technology is how Ford can truly make a difference.
Ford has not always been a leader in fuel economy, particularly in North America, but we believe that the steps we have laid out will bring our product plans in line with our commitment to leadership in addressing the climate change issue and our goal to provide customers with vehicles that are fully competitive in every way, including fuel economy.
This product strategy complements our operational energy management programs, which have resulted in a 31 percent reduction in our CO2 emissions since 2000.
30%
targeted reduction in CO2 emissions from new U.S. and EU vehicles by 2020
PRODUCT CO2 STRATEGY
Our product CO2 strategy is discussed in detail in this report. Some of its key features include:
NEAR TERM
We will introduce a new generation of smaller-displacement turbocharged gasoline engines with advanced fuel-saving direct-injection technologies that will provide customers with fuel savings of between 10 and 20 percent without compromising performance.
We will also improve fuel economy by cutting energy wasted in vehicle systems, minimizing wind drag and optimizing new six-speed transmissions. We will introduce more hybrid and diesel vehicles and make a large percentage of our fleet capable of using high levels of biofuels.
MID TERM (2012 to 2020)
We will cut the weight of our vehicles, which then allows us to use smaller engines to achieve the same performance. We will continue to roll out known fuel-saving technologies and increase our number of hybrid models, including the introduction of plug-in hybrids. And second-generation biofuels such as cellulosic ethanol should become available and begin to play a role.
LONG TERM (2020 to 2030)
We are investing in a range of technologies, including hydrogen internal combustion and fuel cell vehicles, so we will be ready to introduce the options that prove most viable. We also expect the use of renewable fuels to grow.
MOBILITY
There are currently 900 million vehicles in the world, and that number is increasing rapidly as individuals in developing markets reach new levels of prosperity. It could reach two billion vehicles by the middle of this century.
While that sounds like good news for an automaker, issues like congestion, air quality and the explosive growth of mega-cities could put the brakes on that growth. We need better and smarter mobility solutions that integrate various forms of public and private transport to help people gain the benefits of mobility while minimizing environmental and social impacts.
For several years, we have developed innovative concepts for a mega-city mobility business that would provide integrated urban mobility services to underserved populations. During 2007, we engaged with local stakeholders and developed partnerships in a number of global locations. In 2008, we will lead the launch of the first mega-city mobility program in Cape Town, South Africa.
HUMAN RIGHTS
We recognized early on that the globalization of our industry makes human rights an increasingly important issue in our operations, partnerships and supply chain. In April of 2008, we joined the United Nations Global Compact, reinforcing our commitment to human rights and other important responsibilities of global companies.
In 2007, we further strengthened our Code of Basic Working Conditions, which applies to our operations and those of our partners and suppliers, by expanding its scope and formally adopting it as a Policy Letter. To reach more deeply into our supply chain, we are working with our most important suppliers to encourage them to promote sound working conditions with their own suppliers. We also have led an effort through the Automotive Industry Action Group to bring together the major automakers to adopt a strong, consistent approach to protecting human rights in the automotive supply chain.
VEHICLE SAFETY
We are bringing a range of safety innovations to our vehicles worldwide. For example, together with Volvo, Ford has been developing a suite of accident avoidance features that use forward-looking radar and vision sensors. These features help forewarn drivers of potentially dangerous situations, such as an unintended lane departure, following too closely to a car in front or a pedestrian who might have walked into the path of a car. Several of these technologies are now available on selected vehicles across the Ford and Volvo range.
This is part of our commitment to make the products our customers want and expect – vehicles that save fuel, perform well, look great and provide ever-higher levels of safety.
RECOVERING OUR FINANCIAL FOOTING
To contribute to long-term solutions to global problems, we must operate at a profit. During 2007, we made important progress in restoring our company to profitability. We reached an innovative agreement with the United Auto Workers union that allows management and our U.S. union-represented workforce to focus on critical actions to secure our future.
We also cut our workforce substantially and closed plants. These actions, which were difficult but necessary, directly affected our shareholders, employees, suppliers, dealers and the communities in which we operate. Indirectly, they affected local and regional economies. In most cases, employees were able to choose whether to leave the company. We believe we have handled the separations responsibly by offering a range of traditional and nontraditional separation packages to help employees transition to retirement, education or other employment.
We also continued to accelerate our development of new products, while reducing the complexity of our manufacturing processes. These actions support our restructuring to be profitable at lower volumes and with a changed vehicle mix.
This report provides an account of our global sustainability performance. We have seen steady improvements in many areas, including product quality and our use of energy and water in manufacturing. We also experienced significant challenges. Foremost among these: nine of our employees and contractors lost their lives on the job. We deeply regret these deaths, and we have taken steps to preclude similar accidents from happening in the future.
We accomplished a lot in 2007, but much more remains to be done. We need to complete the job of restoring the financial health of the company and focus on improving performance in areas where we lag. At the same time, we need to keep abreast of the constantly changing global environment for business and sustainability. We will need to move faster and do more to continue to be a leader in providing sustainability solutions to ever-more-difficult challenges.
Alan R. Mulally
President and Chief Executive Officer