Ford 2005 Annual Report Download - page 42

Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following chart summarizes our present credit ratings and the outlook assigned by four of the nationally recognized statistical
rating organizations:
DBRS Fitch Moody's S&P
Long-
Term
Short-
Term Trend
Long-
Term
Short-
Term Outlook
Long-
Term
Short-
Term Outlook
Long-
Term
Short-
Term Outlook
Ford BB (low) R-3 (high) Negative BB+ B Negative Ba3 NA Negative BB- B-2 Negative
Ford
Credit BB R-3 (high) Negative BB+ B Negative Ba2 NP Negative BB- B-2 Negative
OUTLOOK
We have set and communicated the following planning assumptions and operational metrics:
Industry Volume (SAAR incl. heavy trucks) Planning Assumptions
U.S. .............................................................................................................................................................................................. 17.0 million units
Europe .......................................................................................................................................................................................... 17.3 million units
Industry Net Pricing
U.S. .............................................................................................................................................................................................. Slightly negative
Europe .......................................................................................................................................................................................... Slightly negative
Operation Metrics 2006 Milestones
Quality........................................................................................................................................................................................... Improved
Market share .................................................................................................................................................................................. Flat to improved
Automotive cost performance*........................................................................................................................................................ Favorable
Capital spending............................................................................................................................................................................. About $7 billion
__________
* At constant volume, mix and exchange; excluding special items.
Automotive Cost Performance. We expect commodity costs to continue to increase in 2006. We also expect depreciation and
amortization expenses to increase in 2006 compared with 2005, primarily because capacity reduction actions pursuant to our Way
Forward plan will result in accelerated depreciation of assets at certain manufacturing facilities. We expect our quality-related costs in
2006 to be about the same as in 2005; although we expect favorable performance in our vehicle quality, we will not have the
recurrence of the favorable impact of a $240 million settlement reached in 2005 with Bridgestone-Firestone North American
Tire, LLC. Pension and OPEB expenses in 2006 also are expected to be about the same as last year, with the modifications to retiree
health care programs (discussed above under "Overview") offsetting the impact of these expenses for our employees previously
assigned to Visteon, as well as lower discount rates and lower assumed rates of return. Manufacturing, engineering and overhead
costs are expected to be lower in 2006, reflecting personnel reductions and other efficiencies. Product costs are expected to be
favorable in 2006 compared with 2005, as we begin to see the benefits of the material cost reduction plan discussed above under
"Overview." Overall, excluding special items and at constant volume, mix, and exchange, we expect our cost performance to be
favorable in 2006, compared with 2005.
Automotive Results. Our automotive operations in North America are projected to post a pre-tax loss in 2006. However, subject to
the risks described below, we expect these operations to be profitable no later than 2008, although the progression to profitability will
not necessarily be linear or smooth. Subject to the risks described below, we expect each of our other automotive business units to be
profitable on a pre-tax basis in 2006. Overall, we expect our total automotive operations to be unprofitable in 2006 due to the
expected performance of our North American operations.
These expected results include certain pre-tax charges (i.e., special items) of about $1 billion that we anticipate in 2006. These
charges will include the costs associated with the Way Forward plan through 2006, which are estimated to include pre-tax charges and
cash expenditures of $250 million for hourly personnel reductions, and pre-tax charges (primarily non-cash) of $250 million for fixed
asset write-offs. The remainder of these charges relates to personnel reduction actions in Europe and, to a lesser extent, at our ACH
operations.
In addition, in connection with the Way Forward plan, we are reviewing costs relating to the guaranteed employment numbers
("GEN") provision of our collective bargaining agreement with the UAW. Under this GEN provision, we are required to pay idled
workers who meet certain conditions substantially all of their wages and benefits for the term of the current agreement. Heretofore,
we have had relatively few employees subject to the GEN provision; however, we expect the number of employees subject to the GEN
provision to grow in the near term as a result of the hourly personnel reduction actions that are part of the Way Forward plan. We are
Ford Motor Company Annual Report 2005 40 Ford Motor Company Annual Report 2005 41