Ford 2014 Annual Report Download - page 23

Item 1A. Risk Factors (Continued)
Worse-than-assumed economic and demographic experience for postretirement benefit plans
(e.g., discount rates or investment returns). The measurement of our obligations, costs, and liabilities associated
with benefits pursuant to our postretirement benefit plans requires that we estimate the present value of projected
future payments to all participants. We use many assumptions in calculating these estimates, including assumptions
related to discount rates, investment returns on designated plan assets, and demographic experience (e.g., mortality
and retirement rates). To the extent actual results are less favorable than our assumptions, there could be a
substantial adverse impact on our financial condition and results of operations. For discussion of our assumptions, see
“Critical Accounting Estimates” in Item 7 and Note 12 of the Notes to the Financial Statements.
Restriction on use of tax attributes from tax law “ownership change.” Section 382 of the U.S. Internal
Revenue Code restricts the ability of a corporation that undergoes an ownership change to use its tax attributes,
including net operating losses and tax credits (“Tax Attributes”). At December 31, 2014, we had Tax Attributes that
would offset more than $15 billion of taxable income. For these purposes, an ownership change occurs if 5 percent
shareholders of an issuer’s outstanding common stock, collectively, increase their ownership percentage by more than
50 percentage points over a rolling three-year period. In 2012, we renewed for an additional three-year period our tax
benefit preservation plan (the “Plan”) to reduce the risk of an ownership change under Section 382. Under the Plan,
shares held by any person who acquires, without the approval of our Board of Directors, beneficial ownership of 4.99%
or more of our outstanding Common Stock could be subject to significant dilution. Our shareholders approved the
renewal at our annual meeting in May 2013.
The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns, or
increased warranty costs. Meeting or exceeding many government-mandated safety standards is costly and often
technologically challenging, especially where standards may be in tension with the need to reduce vehicle weight in
order to meet government-mandated emissions and fuel-economy standards. Government safety standards also
require manufacturers to remedy defects related to vehicle safety through safety recall campaigns, and a manufacturer
is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. In addition, the
introduction of new and innovative features and technology to our vehicles could increase the risk of defects or
customer dissatisfaction. In 2014, there was an unprecedented increase in both the number of safety recalls by
manufacturers in the United States and vehicles involved in those recalls due, in part, to significant public and
governmental attention on the recall process at one of our domestic competitors and NHTSA’s expanded definition of
safety defects. In addition, NHTSA’s enforcement strategy shifted to a significant increase in civil penalties levied and
the use of consent orders requiring direct oversight by NHTSA of certain manufacturers’ safety processes, a trend that
could continue. Should we or government safety regulators determine that a safety or other defect or a noncompliance
exists with respect to certain of our vehicles prior to the start of production, the launch of such vehicle could be delayed
until such defect is remedied. The costs associated with any protracted delay in new model launches necessary to
remedy such defects, or the cost of recall campaigns or warranty costs to remedy such defects in vehicles that have
been sold, could be substantial. These recall and warranty costs could be exacerbated to the extent they relate to
global platforms. Furthermore, launch delays or recall actions also could adversely affect our reputation or market
acceptance of our products as discussed above under “Lower-than-anticipated market acceptance of Ford’s new or
existing products.”
Increased safety, emissions, fuel economy, or other regulations resulting in higher costs, cash
expenditures, and/or sales restrictions. The worldwide automotive industry is governed by a substantial amount of
government regulation, which often differs by state, region, and country. Government regulation has arisen, and
proposals for additional regulation are advanced, primarily out of concern for the environment (including concerns
about the possibility of global climate change and its impact), vehicle safety, and energy independence. For example,
as discussed above under “Item 1. Business - Governmental Standards,” in the United States the CAFE standards for
light duty vehicles are 35.5 mpg by the 2016 model year, 45 mpg by the 2021 model year, and 54.5 mpg by the 2025
model year; EPA’s parallel CO2 emission regulations impose similar standards. California’s ZEV rules also mandate
steep increases in the sale of electric vehicles and other advanced technology vehicles beginning in the 2018 model
year. In addition, many governments regulate local product content and/or impose import requirements as a means of
creating jobs, protecting domestic producers, and influencing the balance of payments.
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