Ford 2004 Annual Report Download - page 26

2 4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
• Roll Stability Control™ system, which is a computer-controlled system that detects vehicle roll and automatically controls the
vehicle to prevent it from rolling over. This is currently standard equipment or is available as an option on most of our SUVs.
• All-aluminum bodies, which reduce the weight of the vehicle, compared with steel bodies, thereby increasing vehicle fuel
economy and performance. The current version of the Jaguar XJ, first introduced as a 2004 model, is an example of a
vehicle with this technology.
Cost Reductions. Given the difficult competitive environment of the automotive industry, we continue to focus on reducing our
cost structure. During 2004 and 2003, we reduced our costs by $900 million and $3 billion, respectively (at constant volume,
mix and exchange and excluding special items and discontinued operations). For 2005, we expect costs for pensions and
health care, commodities, and depreciation and amortization will increase, compared with 2004. We expect quality-related
costs (i.e., those related to warranty claims and additional service actions) in 2005 to be about the same as they were in
2004. In 2005, we expect to achieve reduced manufacturing, engineering and overhead costs, as well as significant savings
in product costs (which comprise material and component costs for our vehicles), compared with 2004. Overall, we expect our
costs in 2005 will be about the same as they were in 2004 (at constant volume, mix and exchange and excluding special items
and discontinued operations).
Shared Technologies. One of the strategies we are employing to realize efficiencies in manufacturing, engineering and product
costs for new vehicles is to share vehicle architectures, technologies and components among various models and re-use them
from one generation of a vehicle model to the next. This is illustrated in our recently launched Ford Five Hundred and Mercury
Montego car models, which are 85% (by value) common, and the Ford Freestyle cross-over model, which shares 65% (by
value) of the components used in those aforementioned models. In addition, the architecture for all three of these vehicles is
derived from an existing architecture.
Business Improvement Actions
Ford Europe Improvement Plan. In October 2003, we announced that we were taking actions to improve efficiency resulting
from our flexible manufacturing capability by concentrating production of the next generation of our Ford Focus model in two
assembly plants rather than three. This plan included canceling investment for the Focus model at our Genk, Belgium plant. In
addition, it included revising production for our Ford Mondeo model at Genk to a 2-shift rather than 3-shift pattern beginning
in January 2004. These Genk actions, together with a series of manufacturing, engineering and staff efficiency actions
at various other locations in Europe, all of which comprised the Ford Europe Improvement Plan, were expected to reduce
personnel levels by 6,700 and result in pre-tax charges of $675 million, including $513 million in 2003. During 2004, we
completed the planned Ford Europe improvement actions; the associated pre-tax charges totaled $605 million. Including the
results of these actions, Ford Europe has reduced total personnel levels by more than 7,000 since mid-2003.
PAG Improvement Plan. In September 2004, we announced that we were taking actions to improve the structure of our
Premier Automotive Group (“PAG”) business unit. These actions included closing the final assembly operations at our Browns
Lane plant in Coventry, England, where Jaguar XJ and XK models are produced, and reducing salaried staffing levels at our
Jaguar and Land Rover operations. We estimated at that time that we would incur pre-tax charges and cash expenditures of
about $175 million for employee separation costs. Our 2004 results include $94 million of these costs, and we expect to incur
$75 million in 2005 associated with the shutdown of the final assembly operations at Browns Lane. These actions reduced our
personnel levels by 1,100 in 2004, with further personnel reductions in 2005 expected to be about 400.
In addition, we decided to exit Formula One racing and to sell our Formula One racing operations, which incurred pre-tax
operating losses of $45 million in the first nine months of 2004. We sold the operations in the fourth quarter of 2004. For a
further discussion of the disposition of our Formula One racing operations, see Note 4 of the Notes to the Financial Statements.
Revitalization Plan. One of the elements of our Revitalization Plan, which we announced and began implementing in January
2002, included a reduction of maximum-installed assembly capacity for North American vehicles of over 900,000 units (down
from 5.7 million units in 2001 to an ongoing level of approximately 4.8 million units). Through 2004, including the closure of
our Ontario Truck Plant and Edison Plant, maximum-installed capacity will have been reduced by over 700,000 units. Plans
through 2007 (including closure of our Lorain, Ohio assembly plant) will achieve further net reductions of approximately
200,000 units, resulting in a total net reduction of about 920,000 units.
The Revitalization Plan also included a global reduction of more than 35,000 personnel by 2006, including selected actions
prior to 2002. Progress towards this target is measured by excluding employees of entities recently consolidated pursuant to
Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51 (“FIN 46”), discussed in Note 16 of the Notes to the Financial Statements, as well as personnel associated with
divested and newly-acquired operations (the latter of which would represent a net reduction of 11,000 personnel through
year-end 2004 if included in the measurement). On this basis, we have realized a reduction of about 36,000 hourly and
salaried employees and salaried equivalents (i.e., salaried positions filled with agency personnel or the functions of which are
provided by purchased services) through year-end 2004.