Ford 2007 Annual Report Download - page 26

Management’s Discussion and Analysis of Financial Condition and Results of Operations
24 Ford Motor Company | 2007 Annual Report
PAG Segment. The decline in earnings primarily reflected higher 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 lower manufacturing and
engineering costs, improved 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
less favorable 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, since
then no longer had 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.
FINANCIAL SERVICES SECTOR RESULTS OF OPERATIONS
2007 Compared with 2006
Details of the full-year Financial Services sector Revenues and Income/(Loss) before income taxes for 2007 and 2006
are shown below:
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Ford Credit
The decrease in pre-tax earnings primarily reflected a higher provision for credit losses primarily related to the non-
recurrence of credit loss reserve reductions (about $500 million), lower financing margin primarily related to higher
borrowing costs (about $400 million), unfavorable lease residual performance reflected in higher depreciation expense for
leased vehicles (about $400 million), and higher other costs primarily due to Ford Credit's North American business
transformation initiative (about $100 million). These factors were offset partially by lower expenses primarily reflecting
improved operating costs (about $400 million) and lower net losses related to market valuation adjustments from
derivatives (about $300 million).