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Ford Submits Far-Reaching Plan to Congress

Executive Summary

Ford in its statement to Congress says while its liquidity currently is sufficient, the collapse of one or both of the remaining Detroit Three would be devastating.

Ford Motor Co. today presents to Congress a wide-reaching business plan calling for the acceleration of hybrids, plug-in hybrids and long-range electric vehicles, as well as a promise to either break even or return to profitability in 2011.

The auto maker readies the plan in an attempt to secure $9 billion in federal bridge loans to help it weather the current economic downturn, while hoping it won’t need to tap the funds should they be made available.

Related document: Ford Motor Company Business Plan (PDF file)

“For Ford, government loans would serve as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company,” CEO Alan Mulally says in a statement.

Mulally agrees to work for a salary of $1 per year as a sign of his confidence in Ford’s plan, marking an about-face from his earlier stance.

When asked by lawmakers in the first round of testimony about the possibility of reducing his salary, Mulally said, “I think I’m OK where I am.” Last year, he made $21.7 million. Since joining Ford in 2006, his total compensation to date is $49.9 million.

The auto maker in its statement to Congress says it does not anticipate a liquidity crisis in 2009, barring a bankruptcy by one of its domestic competitors or more severe economic downturn. While its liquidity currently is sufficient, the collapse of one or both of the remaining Detroit Three would be devastating.

“We are acutely aware that our domestic competitors are, by their own reporting, at risk of running out of cash in a matter of weeks or months,” Ford says. “Our industry is an interdependent one.

“We have 80% overlap in supplier networks. Nearly 25% of Ford’s top dealers also own General Motors (Corp.) and Chrysler (LLC) franchises. That is why the collapse of one or both of our domestic competitors would also threaten Ford.”

The auto maker’s forward-looking plan calls for an investment of about $14 billion in the U.S. for advanced technologies and products to improve fuel efficiency over the next seven years.

Ford also will sell its fleet of corporate aircraft, which garnered criticism from lawmakers when Mulally flew to Washington for the first round of Congressional testimony last month. The CEO plans to forego jet travel and drive to Washington for hearings later this week in an Escape Hybrid cross/utility vehicle.

The company reiterates the One-Ford transformation plan, which is anchored by four priorities: aggressively restructure to operate profitably at the current demand and changing model mix; accelerate development of new products customers want and value; finance the plan and improve the company’s balance sheet; and work together effectively as one team, leveraging global assets.

The auto maker points to past cost-cutting initiatives, such as the sale of Aston Martin Lagonda Ltd., Jaguar Cars, Land Rover and its majority stake in Mazda Motor Corp. Ford on Monday announced it was exploring all options to ensure its sustainability, including the possible sale of its Volvo Cars subsidiary.

By 2010, half of Ford, Lincoln and Mercury light-duty vehicles will qualify as “Advanced Technology Vehicles” under the U.S. Energy Independence and Security Act. That number will increase to 75% by 2011 and more than 90% in 2014, Ford says in its plan.

Additionally, the auto maker will improve fleet-wide fuel economy by 14% for ’09, 26% for ’12 and 36% for ’15 models, compared with the fuel economy of its ’05 fleet.

More details of Ford’s accelerated vehicle-electrification plan, which includes bringing to market by 2012 a family of hybrids, plug-in hybrids and battery-operated electric vehicles, will be announced at next month’s North American International Auto Show in Detroit.

The plan involves partnering with battery and powertrain suppliers to deliver a fully electric vehicle in a “van-type” vehicle for commercial fleet use in 2010, followed by a sedan in 2011. Ford says it will develop the vehicles in such a way as to reduce costs and make them affordable to consumers.

In another effort to cut costs, Ford is in discussions with the United Auto Workers union to reduce the company’s labor cost and eliminate the gap that exists between the Detroit Three and foreign transplants.

The auto maker also will continue to shutter plants – two this quarter and four more between 2009 and 2011 – and sell or close its remaining Automotive Components Holdings LLC facilities. ACH is composed of orphaned manufacturing plants and other operations Ford acquired from former subsidiary Visteon Corp. in 2005.

Dealer consolidation is under way, as well. Ford says by year-end, it will have 3,790 U.S. dealers, a reduction of 606 dealers, or 14% from like-2005.

The company has reduced the number of its major suppliers from 3,400 in 2004 to some 1,600 today, a reduction of 53%. Plans call for a further reduction of suppliers eligible for major sourcing to 750, Ford says.

In its submission to Congress, the auto maker reiterates it is cancelling all bonuses to be paid in 2009 to management employees worldwide and foregoing bonuses for all North American personnel. Merit pay increases for North American salaried employees in 2009 also will be eliminated.

The company admits past mistakes but says it already is well on its way to restructuring its business.

“During the past several years, Ford has begun a fundamental restructuring in the way we do business – a restructuring that…affects every part of our business including product innovation, fuel efficiency, labor relations, suppliers and dealers. In short, Ford recognized that our business model needed to change, and we are changing it.”

Mulally says Ford understands lawmakers’ skepticism regarding the auto maker’s long-term viability and hopes “our submission today helps instill confidence in Ford’s commitment to change, including our accountability and shared sacrifice during this difficult economic period.”

In the report, Ford predicts U.S. industry sales for 2009, 2010 and 2011 of 12.5 million units, 14.5 million units and 15.5 million units, respectively.


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