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Management’s Discussion and Analysis of Financial Condition and Results of Operations
34 Ford Motor Company | 2010 Annual Report
The table below details our key Automotive sector cost changes (in billions):
Explanation of Cost Changes
Explanation of Cost ChangesExplanation of Cost Changes
Explanation of Cost Changes*
***
2010
2010 2010
2010
Better/(Worse)
Better/(Worse) Better/(Worse)
Better/(Worse)
Than 2009
Than 2009Than 2009
Than 2009
Material Costs Excluding
Commodity Costs
Primarily reflects material cost reductions, offset partially by customer and regulatory content costs
................................
$ 1.1
Commodity Costs Reflects upward trend in commodity costs in 2010 with increase in global economic growth
................................
(1.0)
Structural Costs Primarily reflects higher manufacturing costs related to increased volumes, engineering to support
growth of our product plans, and advertising for product launches................................
................................
(1.2)
Warranty / Other Primarily reflects lower warranty coverage and other non-structural costs, offset partially by product
recall and freight costs ................................................................................................
................................
0.1
Total......................................................................................................................................... $ (1.0)
* Cost changes are measured primarily at present-year exchange; in addition, costs that vary directly with volume, such as material, freight
and warranty costs, are measured at present-year volume and mix.
Ford North America Segment. The improvement in results primarily reflects favorable volume and mix, net pricing,
and changes in currency exchange, offset partially by unfavorable cost changes. The unfavorable cost changes primarily
reflect higher structural costs driven primarily by higher manufacturing costs to support higher volume and product
launches.
Ford South America Segment. The increase in earnings is more than explained by favorable net pricing, changes in
currency exchange, and volume and mix, offset partially by unfavorable cost changes (primarily higher commodity and
structural costs).
Ford Europe Segment. The improvement in results primarily reflects favorable cost changes and higher parts and
subsidiary profits, offset partially by unfavorable volume and mix (primarily lower market share offset partially by the non-
recurrence of prior-year reductions in dealer stocks). The favorable cost changes primarily reflect material cost
reductions and lower warranty costs, offset partially by higher structural costs (in part to support product launches and
growth of our product plans).
Ford Asia Pacific Africa Segment. The improvement in results primarily reflects favorable volume and mix (higher
industry volume offset partially by unfavorable mix) and favorable cost changes (material cost reductions and lower freight
and warranty costs, offset by higher structural costs to support investment in our product and growth plans).
Other Automotive. The decline in results primarily reflects higher net interest expense. This is more than explained by
interest expense associated with the debt owed to the UAW VEBA Trust that was added at the end of 2009 and prepaid in
full during 2010, and the interest expense associated with our convertible debt issued in November 2009, offset partially by
lower interest expense on our revolving debt which was 90% repaid in 2010.
2009 Compared with 2008
Details by segment or business unit of Income/(Loss) before income taxes are shown below (in millions), with Mazda
separated out from "ongoing" subtotals:
2009
20092009
2009
2008
20082008
2008
2009
20092009
2009
Over/(Under)
Over/(Under)Over/(Under)
Over/(Under)
2008
20082008
2008
Ford North America * ................................................................................................
................................
$ (639) $ (5,884) $ 5,245
Ford South America ................................................................................................
................................
765 1,230 (465)
Ford Europe................................................................................................
................................
(144) 644 (788)
Ford Asia Pacific Africa................................................................
................................
(86) (157) 71
Volvo................................................................................................
................................
(662) (1,497) 835
Other Automotive ................................................................................................
................................
(1,091) (1,324) 233
Total Automotive Excluding Special Items ................................................................
................................
(1,857) (6,988) 5,131
Special Items ................................................................................................
................................
2,642 (5,556) 8,198
Total ongoing Automotive ................................................................
................................
785 (12,544) 13,329
Mazda................................................................................................
................................
— 230 (230)
Total Automotive sector ................................................................
................................
$ 785 $ (12,314) $ 13,099
__________
* Retrospective application of the new accounting standard on VIE consolidation has caused us to deconsolidate AAI beginning with 2009 data; even
with retrospective application of the new accounting standard, AAI remains consolidated in 2008. Accordingly, 2009 data in this table exclude
income from sales of Mazda6, whereas 2008 data in this table include income from these sales.