Ford 2009 Annual Report Download - page 28

Management’s Discussion and Analysis of Financial Condition and Results of Operations
26 Ford Motor Company | 2009 Annual Report
Overall Automotive Sector
The improvement in results primarily reflects favorable cost changes ($5.8 billion), favorable net pricing ($5.5 billion), the
non-recurrence of fixed asset impairment charges in Ford North America ($5.3 billion), net gains on debt reduction actions
($4.7 billion), and higher returns on the assets held in the TAA (about $900 million). These factors were offset partially by
unfavorable volume and mix ($3.7 billion), higher retiree health care and related charges and the non-recurrence of a retiree
health care curtailment gain ($3.4 billion), and unfavorable changes in currency exchange ($2.1 billion). The favorable cost
changes primarily reflect lower structural costs.
The decrease in revenue primarily reflects lower volumes, the non-recurrence of revenue at Jaguar Land Rover, and
unfavorable changes in currency exchange, offset partially by favorable net pricing.
The table below details our Automotive sector 2009 structural cost changes at constant exchange, excluding special
items and discontinued operations (in billions):
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Ford North America Segment. The improvement in earnings primarily reflects the non-recurrence of fixed asset
impairment charges ($5.3 billion), favorable net pricing ($4 billion), favorable cost changes ($3.7 billion), lower costs
associated with personnel-reduction actions (about $500 million), and the non-recurrence of losses on the sale of
ACH plants (about $300 million). These factors are offset partially by higher retiree health care and related charges and
the non-recurrence of a retiree health care curtailment gain ($3.4 billion), unfavorable changes in currency exchange
($1.2 billion), and unfavorable volume and mix (including lower industry volume, offset partially by favorable mix and higher
market share) (about $900 million). The favorable net pricing primarily reflects the success of new products, selective top-
line pricing, and a disciplined approach on incentives. The unfavorable changes in currency exchange primarily reflect the
non-recurrence of favorable 2008 balance sheet valuations. The favorable cost changes primarily reflect lower structural
costs (including lower manufacturing and engineering, pension and OPEB, and spending-related costs) and lower net
product costs.
Ford South America Segment. The decrease in earnings primarily reflects unfavorable changes in currency exchange
rates and unfavorable cost changes, offset partially by favorable net pricing. The unfavorable cost changes primarily
reflect higher net product costs.
Ford Europe Segment. The decline in results primarily reflects unfavorable volume and mix (including lower industry
volume and dealer stock, as well as unfavorable product mix due in part to government scrappage programs), unfavorable
changes in currency exchange rates, lower earnings due to lower volumes at our consolidated joint ventures, higher costs
associated with personnel-reduction actions, and an investment impairment. These factors are offset partially by favorable
cost changes and favorable net pricing. The favorable cost changes primarily reflect lower structural costs (including lower
manufacturing and engineering, advertising and sales promotions, and spending-related costs).
Ford Asia Pacific Africa Segment. The improvement in earnings is more than explained by favorable net pricing,
favorable cost changes, lower costs associated with personnel-reduction actions, and favorable China joint venture profits,
offset partially by unfavorable volume and mix and unfavorable changes in currency exchange rates. The favorable cost
changes are more than explained by lower structural costs (including lower manufacturing and engineering, advertising
and sales promotions, and overhead costs).