Ford 2004 Annual Report Download - page 29

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2 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The improvement in Income/(loss) before income taxes primarily reflected the change in charges related to Visteon Corporation
(“Visteon”), Ford’s largest supplier (see “Ford North America” discussion below), higher net pricing, favorable cost performance
and the favorable effect of tax-related interest on refunds and settlements of prior-year federal and state audits, offset partially by
lower vehicle unit sales and unfavorable changes in currency exchange rates.
The table below details our achievement of our 2004 cost performance milestone (in billions):
2004
Over/(Under)
20032004 2003 Market
Americas
- Ford North America 18.0% 19.2% (1.2) pts. U.S. a/
- Ford South America 11.8 11.5 0.3 Brazil a/
Ford Europe and PAG b/
- Ford Europe 8.7 8.6 0.1 Europe a/
- PAG 1.3/2.3 1.3/2.1 0/0.2 U.S./Europe
Ford Asia Pacific and Africa 14.2 13.9 0.3 Australia a/
a/ Excludes market share of our PAG brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin).
b/ European market share for Ford Europe and PAG are based, in part, on estimated 2004 vehicle registrations for our 19 major markets.
Overall Automotive Sector
2004 Costs*
Better/(Worse)
than 2003 Explanation of Cost Performance
Quality-related $ (0.1) - Non-recurrence of 2003 reserve adjustments, offset partially
by 2004 improvements.
Manufacturing and engineering 1.2 - Primarily reductions in hourly and salaried personnel as a
result of the Ford Europe Improvement Plan, North American
plant closings, and engineering efficiency actions, offset
partially by higher costs to launch new vehicles in 2004.
Overhead 0.3 - Primarily administrative cost savings (largely personnel
related), reduced parts distribution costs, and lower litigation
expenses, offset partially by higher fixed marketing costs.
Pension and health care 0.1 - Primarily the effect of new Medicare drug legislation and
higher VEBA contributions, partially offset by the effect of a
lower discount rate.
Net product costs 0.0 - New product and commodities-related cost increases, offset
by design cost reductions on existing products and pricing
efficiencies at our suppliers.
Depreciation and amortization (0.6) - Related to investments for new vehicles.
Total $ 0.9
* At constant volume, mix and exchange and excluding special items and discontinued operations.
The Americas Segment
Ford North America. The improvement in earnings primarily reflected the non-recurrence of $1.6 billion of charges in 2003
related to Visteon, offset by a charge of $600 million to establish an allowance against a receivable from Visteon in 2004. The
receivable relates to costs for postretirement health care and life insurance benefits provided to Ford hourly employees assigned
to Visteon and other select Visteon employees who are former employees of Ford. The charges in 2003 related to agreements
with Visteon, which primarily addressed postretirement health care costs for service prior to 2000 for Ford hourly employees
assigned to Visteon, as well as pricing, sourcing and other arrangements.
Details of Automotive sector market share for selected markets for 2004 and 2003 are shown below: