Ford 2011 Annual Report Download - page 39

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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Ford Motor Company | 2011 Annual Report 37
The chart below details 2011 pre-tax operating results by sector:
Total Company full-year 2011 pre-tax profit of $8.8 billion reflects strong results from both sectors. Compared with
2010, total Company full-year pre-tax operating profit improved, driven by a $1 billion improvement in the Automotive
sector, with Financial Services delivering strong results, although lower than last year, as previously projected.
AUTOMOTIVE SECTOR
In general, we measure year-over-year change in Automotive pre-tax operating profit for our total Automotive sector
(excluding special items) and reportable segments using the causal factors listed below, with revenue and cost variances
calculated at present-year volume and mix and exchange:
• Market Factors:
Volume and mix - Primarily measures profit variance from changes in wholesale volumes (at prior-year
average margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the
profit variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels
and options within a vehicle line.
Net pricing - Primarily measures profit variance driven by changes in wholesale prices to dealers and
marketing incentive programs such as rebate programs, low-rate financing offers, and special lease offers.
• Contribution costs - Primarily measures profit variance driven by per-unit changes in cost categories that typically
vary with volume, such as material costs, warranty expense, and freight and duty costs.
• Other costs - Primarily measures profit variance driven by absolute change in cost categories that typically do not
have a directly proportionate relationship to production volume - mainly structural costs, such as labor costs
including pension and health care ("manufacturing and engineering" and "pension/OPEB"), other costs related to
development and manufacture of our vehicles ("overhead"), amortization and depreciation ("spending-related"),
and advertising and sales promotions.
• Exchange - Primarily measures profit variance driven by one or more of the following: (i) impact of gains or
losses arising from transactions denominated in currencies other than the functional currency of the locations,
(ii) effect of remeasuring income, assets, and liabilities of foreign subsidiaries using U.S. dollars as the functional
currency, or (iii) results of our foreign currency hedging activities.
• Net interest and other - Primarily measures profit variance driven by changes in our Automotive sector's centrally-
managed net interest (primarily interest expense, interest income, and other adjustments) and related fair value
market adjustments in our investment portfolio and marketable securities as well as other items not included in
the causal factors defined above.