Ford 2006 Annual Report Download - page 21

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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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19
The Americas
Ford North America Segment. The decline in earnings primarily reflected the effect of Jobs Bank Benefits charges and
higher personnel-reduction program charges, unfavorable volume and mix (mainly adverse product mix, lower market
share, a reduction in stock levels, and lower industry volumes), pension curtailment charges, unfavorable net pricing, and
impairment charges related to our long-lived assets, offset partially by favorable cost changes. The favorable cost
changes reflected improvements in pension and OPEB costs, manufacturing and engineering costs, warranty-related
costs, and overhead costs.
Ford South America Segment. The increase in earnings primarily reflected favorable net pricing, favorable volume and
mix more than accounted for by higher industry volume, and a legal settlement relating to social welfare tax liability, offset
partially by unfavorable cost changes. The unfavorable cost changes primarily reflected higher net product costs, and
manufacturing and engineering costs.
Ford Europe and PAG
Ford Europe Segment. The improvement in results primarily reflected reduced charges for personnel-reduction
programs, favorable volume and mix, and favorable cost changes, offset partially by unfavorable changes in currency
exchange rates. The favorable cost changes primarily reflected lower overhead costs, warranty-related costs, net product
costs, and manufacturing and engineering costs, offset partially by higher pension costs.
PAG Segment. The decline in earnings primarily reflected unfavorable warranty-related costs mainly associated with
adjustments to warranty accruals for prior model-year vehicles (mainly at Jaguar and Land Rover), unfavorable currency
exchange (mainly related to the expiration of favorable hedges), and higher impairment charges for long-lived assets of
the Jaguar and Land Rover operations. These adverse factors were offset partially by favorable manufacturing and
engineering costs, favorable volume and mix (mainly improved product and market mix, offset partially by lower market
share primarily at Volvo and Jaguar and lower levels of dealer stocks) and lower net product costs.
Ford Asia Pacific and Africa/Mazda
Ford Asia Pacific and Africa/Mazda Segment. The decline in results for Ford Asia Pacific and Africa primarily reflected
unfavorable volume and mix (mainly adverse product mix including lower large car sales in Australia, and lower market
share) and unfavorable changes in currency exchange rates. Wholesale unit volumes for the year increased, while
revenue for the same period decreased. The increase in wholesale unit volumes is explained by higher unit sales in
China and India, offset partially by declines in other markets (primarily Australia and Taiwan). Our revenue excludes
wholesale unit volumes at our unconsolidated affiliates, primarily those in China. The decrease in revenue primarily
reflects changes in currency exchange rates and a higher mix of small cars relative to the same period last year.
The decrease in earnings for Mazda and Associated Operations primarily reflected the non-recurrence of gains on our
investment in Mazda convertible bonds, and charges for personnel-reduction programs at AAI, offset partially by our share
of a gain Mazda realized on the transfer of its pension liabilities back to the Japanese government. During the second
half of 2005 and the first quarter of 2006, we converted to equity all of our Mazda convertible bonds, and, therefore, will no
longer have income effects from mark-to-market adjustments for these bonds.
Other Automotive
The improvement in results primarily reflected higher returns on invested cash, and a higher average cash portfolio,
offset partially by the non-recurrence of a gain on the sale of our remaining interest in Kwik-Fit Group Limited.