Ford 2010 Annual Report Download - page 38

Management’s Discussion and Analysis of Financial Condition and Results of Operations
36 Ford Motor Company | 2010 Annual Report
Total costs and expenses for our Automotive sector for 2009 and 2008 was $107.2 billion and $137.6 billion,
respectively, a difference of $30.4 billion. An explanation of the change is shown below (in billions):
2009
(Over)/Under
2008
Explanation of Change:
Volume and Mix, and Exchange................................................................................................
................................
$ 16.0
Material Costs Excluding Commodity Costs (a) ................................................................
................................
(1.0)
Commodity Costs (a) ................................................................................................................................
................
1.2
Structural Costs (a) ................................................................................................................................
...................
5.1
Warranty / Other (a) ................................................................................................................................
..................
0.5
Special Items / Other (b) ................................................................................................
................................
8.6
Total................................................................................................................................
................................
$ 30.4
(a) Our key cost change elements 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. Excludes special items/other (primarily changes in
Jaguar Land Rover costs and expenses reflecting the sale of these operations).
(b) Primarily reflects change in Jaguar Land Rover costs and expenses.
Total Automotive Excluding Special Items. The improvement in earnings is more than explained by favorable cost
changes ($5.8 billion, as described in the table below) and favorable net pricing ($5.5 billion). These factors were offset
partially by unfavorable volume and mix ($3.7 billion), and unfavorable changes in currency exchange ($2.1 billion).
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*
***
2009
2009 2009
2009
Better/(Worse)
Better/(Worse) Better/(Worse)
Better/(Worse)
Than 2008
Than 2008Than 2008
Than 2008
Material Costs Excluding
Commodity Costs
Primarily reflects higher product costs and higher distressed supplier costs, offset partially by
material cost reductions ................................................................................................
................................
$ (1.0)
Commodity Costs Reflects lower commodity costs and the non-recurrence of prior-year unfavorable commodity
hedge adjustments ................................................................................................
................................
1.2
Structural Costs Primarily reflects hourly and salaried personnel reductions and efficiencies in our plants and
processes, and the impact of the UAW Retiree Health Care Settlement Agreement
................................
5.1
Warranty / Other Primarily reflects lower freight and distribution costs, and other non-structural costs changes
................................
0.5
Total................................................................................................................................
........
$ 5.8
* 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 earnings is more than explained by favorable net pricing and
favorable cost changes. These factors are offset partially by unfavorable changes in currency exchange, and
unfavorable volume and mix (including lower industry volume, offset partially by favorable mix and higher market share).
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 is more than explained by unfavorable changes in currency
exchange 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 is more than explained by unfavorable volume and mix (including lower
industry volume and dealer stock, as well as unfavorable product mix due in part to government scrappage programs),
and unfavorable changes in currency exchange. 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, and favorable China joint venture profits, offset partially by unfavorable volume and mix and
unfavorable changes in currency exchange. The favorable cost changes are more than explained by lower structural
costs (including lower manufacturing and engineering, advertising and sales promotions, and overhead costs).
Volvo Segment. The improvement in earnings is more than explained by favorable cost changes and favorable
changes in currency exchange, offset partially by unfavorable volume and mix. The favorable cost changes primarily
reflect lower structural costs (including lower manufacturing and engineering, advertising and sales promotions, and
overhead costs) and lower net product costs.