assurance

Automotive core and affiliate brands

Corporate profile

Ford Motor Credit Company

Premier Automotive Group

Customer service

Financial service

www.ford.com/go/sustainability

CONNECTINGWITH SOCIETY

FORDMOTOR COMPANY

SUSTAINABILITY REPORT 2006/7

www.ford.com/go/sustainability 39

YOUR FEEDBACK...

Preparing this report is a valuable opportunity for us toassess and improve upon our economic, environmentaland social progress and performance. To continue to doso, we need your feedback. We welcome your opinion andperspective through several means:

Write or call:Krista GulloFord Motor CompanyOne American RoadDearborn, MI 48126U.S.A.+1 (313) 206-2654

Credits:Flag for design and productionBuzzword for copywriting

This report is printed onModnadnock AstrolitePC100, which is totallychlorine-free andconstituted of 100 percentpost-consumer waste.

Ford Motor CompanyOne American RoadDearbornMichigan48126

Email us at:[email protected]


+ + +

This report is checked toApplication Level A+

For our 2004/5 report, we formalized thisapproach by working with Ceres andSustainAbility, an independent think tankand strategy consultancy, to create aReport Review Committee to assist in thedevelopment of the report and to increaseits usability and relevance. Findings of the13-member committee were published inthe report.

For our 2005/6 report and the currentreport, Ceres convened stakeholdercommittees as described below. Thecommittee reviewing this report mettwice; once to review and comment on themateriality analysis, and once to review andcomment on a nearly final draft of the report.

We have found these external reviews to bevaluable and have tried to respond to thecommittees’ recommendations. We believewe have made progress in several areashighlighted by the 2004/5 Report ReviewCommittee. We have strengthened ourreporting on sustainable mobility andhuman rights, and we continue to work toenhance our reporting against goalsand coverage of public policy issues.

We view this kind of stakeholder assuranceas distinct from third-party verification ofdata or other information in the report,which we have not sought. However, much ofthe data in this report have been reportedto government agencies and verifiedinternally or externally.

AssuranceAssurance of sustainabilityreports is an evolving conceptthat encompasses severaldistinct approaches. Sinceour first corporate citizenshipreport, covering the year1999, we have includedexternal stakeholderperspectives as a way tointroduce independent voicesand viewpoints to the report.

CeresStakeholderTeam

FordMotor Company engagedwith Ceresand a team of external stakeholders to reviewthis 2006/7 Sustainability Report. FordMotor Company agreed toworkwith astakeholder team that was selected for itby Ceres.

The Ceres stakeholder team is anindependent group of individuals drawnprimarily from the Ceres coalition andrepresents a range of constituencies thathave expertise in environmental, social andgovernance issues.

In reviewing this report, the team consideredwhether the Company adequately reportedon its sustainability performance and keyimpacts, including goals, targets, systems,data and initiatives. Through this reviewprocess, the Ceres stakeholder teamprovided extensive feedback to the Company,which was considered in the preparation ofthe final version of this report.

Ceres is a network of investors,environmentalists and other public interestgroups that workswith companies andinvestors to address sustainability challenges(seewww.ceres.org formore information).

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PRODUCTS AND CUSTOMERS 2002 2003 2004 2005 2006

ENVIRONMENT 2002 2003 2004 2005 2006

Initial quality study – J.D. Power and Associates (3 months in service), problems per hundred vehicles 143 136 127 129 131

GQRS things gone wrong (TGW) (3 months in service), total things gone wrong per 1,000 vehicles 1 1,997 1,936 1,956 1,846 1,586

GQRS customer satisfaction (3 months in service), percent satisfied 1 72 73 74 73 74

Vehicle dependability – J.D. Power andAssociates (4–5 years of ownership), FordMotor Company, U.S., problems/hundred 2 354 287 275 231 225

Sales satisfaction with dealer/retailer, Ford brand, U.S., percent completely satisfied 75 77 78 80 81

Sales satisfaction with dealer/retailer, Ford brand, Europe, percent completely satisfied 65 69 72 74 76

Service satisfaction with dealer/retailer, Ford brand, U.S., percent completely satisfied 61 65 67 66 70

Service satisfaction with dealer/retailer, Ford brand, Europe, percent completely satisfied 51 54 57 58 59

Ford U.S. fleet fuel economy (higher mpg reflects improvement), combined car and truck, miles per gallon 3 23.2 23.6 22.8 24.1 23.8

Ford U.S. fleet CO2 emissions (lower grams per mile reflects improvement), combined car and truck, grams per mile4 381 375 387 368 371

European CO2 performance (lower percentage reflects improvement), percent of 1995 base (1995 base = 100 percent) 5

Ford 83 82 80 78 78

Jaguar 79 77 63 62 66

Land Rover 86 87 86 88 89

Volvo 88 91 89 87 86

Worldwide facility energy consumption, trillion BTUs 6 83.7 83.2 80.3 76.3 71.8

Worldwide facility energy consumption per vehicle, million BTUs 7 12.8 13.4 12.7 12.1 11.8

Worldwide facility CO2 emissions, million metric tonnes 6 8.7 8.5 8.4 8.0 6.8

Worldwide facility CO2 emissions per vehicle, metric tonnes 7 1.32 1.37 1.33 1.26 1.13

North American Energy Efficiency Index (lower percentage reflects improvement), percent (2000 base = 100 percent) 8 89.7 91.7 87.8 83.4 78.4

COMMUNITY 2002 2003 2004 2005 2006

Ford Motor Company Fund contributions, $ million 9 84 78 78 80 58

Corporate contributions, $ million 9 47 43 33 29 29

Volunteer corps, thousand volunteer hours10 80

We havemade somemodifications to thetable of indicators for this report. For ournext report, wewill conduct a full reviewofour sustainability indicators to ensure thatthey are alignedwith our strategy and helpto drive progress.We are also reviewingour indicators in light of the revisedGlobalReporting InitiativeGuidelines.

This report covers the year 2006andearly2007.Thedata are primarily for 2006 (foroperations) and for the2006and2007model years (for vehicles).Thedata coverall of FordMotorCompany’swholly andmajority-ownedoperations globally, unlessotherwise noted. Changes in thebasis forreporting or reclassifications of datapreviously reported are notedbelowand inthedetailed data charts of ourWeb report.

This report is alignedwith the GlobalReporting Initiative G3 SustainabilityReporting Guidelines released in October2006, at a self-declared application levelof A+. A complete index of GRI indicatorsis available in ourWeb report. Moreinformation on the Global ReportingInitiative and the application levels isavailable at www.globalreporting.org.

This table provides five-yearperformance data accordingto a set of key indicators.Additional data are availablein our fullWeb report. Thistable, the additional data andthe performance sections oftheWeb report are allorganized by Ford’s BusinessPrinciples. TheBusinessPrinciples guide our conductand day-to-day decision-making inmajor areas ofsustainability performance.

Data Overview

SAFETY 2002 2003 2004 2005 2006

VEHICLE

U.S. safety recalls, number per calendar year 11 16 16 21 16 11

U.S. units recalled, number of million units 2.3 3.4 5.0 6.0 1.7

IIHS Top Safety Picks, number of vehicles 12 2 3

WORKPLACE

Lost-time case rate (per 100 employees), Ford Motor Company 2.1 1.8 1.2 1.4 1.1

Severity rate (per 100 employees), days lost per 200,000 hours worked 31.9 31.5 23.5 23.2 14.5

QUALITY OF RELATIONSHIPS 2002 2003 2004 2005 2006

Employee satisfaction, Pulse survey, overall, percent satisfied 13 59 58 61 62 62

Overall dealer attitude, Ford, relative ranking on a scale of 1–100 percent (summer/winter score) 14 58/61 64/67 67/69 70/72 70/64

Overall dealer attitude, Lincoln Mercury, relative ranking on a scale of 1–100 percent (summer/winter score) 14 46/46 50/56 56/61 64/64 64/64

FINANCIAL HEALTH 2002 2003 2004 2005 2006

Shareholder return – Bloomberg Total Return Analysis, percent 15 -39 79 -6 -45 1

Net income/loss, $ billion 0.9 0.2 3.0 1.4 -12.6

Sales and revenue, $ billion 167.0 166.1 172.3 176.9 160.1

The full report is online at www.ford.com/go/sustainability

1. GQRS customer satisfaction/TGWGQRS (Global Quality Research System) is a Ford-sponsored competitiveresearch survey. GQRS is an early indicator of J.D. Power quality results.Year to date 2007GQRS customer satisfaction andTGWare 75 and 1,458respectively. See Products and Customers section in ourWeb report for adiscussion of our efforts to improve quality.

2. Vehicle dependabilityData for 2002 are from the survey’s predecessor the ‘Vehicle DependabilityIndex’ whichmeasured 4 to 5 years of ownership.

3. U.S. fuel economySee the Climate Change and Environment sections for a discussion of ourCorporate Average Fuel Economy (CAFE) performance. For Model Year2006 the CAFE of our cars and trucks declined 1.0 percent, as expected.Preliminary data for Model Year 2007 shows a 5.4 percent improvement inCAFE compared to 2006, with a 1.7 percent improvement for cars and a 5.2percent improvement for trucks. Improvement is reflected by increasingmiles per gallon. Due to a weight increase for the 2007Model Year, theEconoline Vans were not part of the CAFE calculation.

4. U. S. fleet CO2 emissionsSee the Climate Change section for a discussion of our CO2 emissionsperformance. Improvement is reflected by decreasing grams permile.

5. European CO2 performanceOfficial EU data. Jaguar performance did not improve compared to 2005 duetomodelmix. Land Rover performance did not improve compared to 2005and 2004 due tomodelmix.

6.Worldwide facility energy and CO2 emissionsData have been adjusted to account for facilities that were closed, sold ornew. This data does not include ACH.

7. Energy and CO2 per vehicleEnergy consumption and CO2 emissions per vehicle divides energy used or

CO2 emitted by the number of vehicles produced. Averaging energy and CO2emissions by the number of vehicles produced yields a somewhatimperfect indicator of production efficiency.When the number of vehiclesproduced declines, as it has since 2000, per-vehicle energy use tends torise because a portion of the resources used by a facility is required forbase facility operations, regardless of the number of vehicles produced.

We believe that stable-to-declining per-vehicle energy use and CO2emissions indicate that more efficient production since 2000 is offsettingthe tendency of these indicators to rise during periods of decliningproduction. This interpretation is reinforced by our Energy EfficiencyIndex, which focuses on production energy efficiency, and which has beensteadily improving. Our Energy Efficiency Index target also has the effectof driving reductions in CO2 emissions. These data do not include ACH.

8. North American Energy Efficiency IndexThe Index is “normalized” based on an engineering calculation that adjusts fortypical variances in weather and vehicle production. The Indexwas set at 100for the year 2000 to simplify tracking against our target of 1% improvementin energy efficiency.

9. Ford Fund and corporate contributionsSee theCommunity section in ourWeb report for a description of ourcharitable contributions.

10. Volunteer corpsTheVolunteer corpswas founded in 2005, and 2006 is the first year data areavailable. However, volunteerism and community service have long been apart of Ford's culture, and these efforts were formalized in 1997with thecreation of the 16-hour Community Service Program.

11. RecallsRecalls are by calendar year rather thanmodel year. A single recall mayaffect several vehicle lines and/or several model years. The same vehiclemay havemultiple recalls. (Source: U.S. National HighwayTrafficSafetyAdministration.)

12. Top Safety PicksTo earn aTop Safety Pick from the Insurance Institute for Highway Safety(IIHS), a vehiclemust receive a rating of “good” in offset frontal impact, sideimpact and rear impact evaluations, and offer electronic stability control. TopSafety Picks are the best vehicle choices for safety within size categories.2005 (2006Model Year) was the first year IIHS issuedTop Safety Picks.

Aswe attempt to balance frequently changing government and non-government test requirements with real-world safety, we have continued toassess the appropriatemetrics formeasuring our performance.We havechosen to present public domain safety ratings for all of ourmodels, ratherthan a percentage ofmodels tested receiving a particular star rating, in ourfullWeb report.

13. Employee satisfactionIn 2006, the Pulse surveywas changed to incorporate new dimensions.While therewas no change to the number or content of the existing55 core questions asked on Pulse, theywere realigned into eight reviseddimensions. These changesweremade because the revised dimensionsare: better focused on current business priorities; can be benchmarkedexternally – two revised dimensions (including the revised EmployeeSatisfaction Index) can be benchmarked externally, none of the prior13 dimensions could be benchmarked outside the Company; provide aframework formore focused feedback and action planning.

14. Overall dealer attitudeOverall dealer attitude ismeasured by the National Automobile DealerAssociation (NADA) Dealer Attitude Survey. Scores are for the summer andwinter respectively of the year noted.

15. Shareholder returnTotal shareholder return is fromBloombergTotal Return Analysis assumingdividends reinvested in Ford stock.

Energy use2007 targets:3% improvement inglobal facility energyefficiency. 3%improvement inNorth Americanfacility energyefficiency.

www.ford.com/go/sustainability 37www.ford.com/go/sustainability

The full report, shown below, is online at:www.ford.com/go/sustainability.

ACCOUNTABILITY PRODUCTS ANDCUSTOMERS

ENVIRONMENT COMMUNITY SAFETY QUALITY OFRELATIONSHIPS

FINANCIALHEALTH


OVERVIEWLetter from Alan Mulally and Bill FordCorporate profileLetter from Sue CischkeAssuranceCeres Stakeholder TeamData Overview

VOICESSheryl Connelly Ford Motor CompanyDavid Duesterberg Johnson Controls, Inc.Derrick Kuzak Ford Motor CompanySeanMcAlindenCenter for Automotive ResearchIan Olson Ford Motor CompanySusan Rokosz Ford Motor CompanyIngrid SkogsmoVolvo Car CorporationEric Wingfield Ford Motor CompanySusan Zielinski University of Michigan

TOOL KITGRI indexGlossary + key termsDownloads

OUR IMPACTSMateriality analysisValue chain

PROGRESS SINCE OUR LAST REPORTCONTEXTMANAGEMENTPERFORMANCEDATACASE STUDIES

Our full Web report is structuredaccording to our BusinessPrinciples, above, and includesadditional sections, above right.

The discussion of each Principleis organized according to thecategories at right.

NOTES TOTHEDATA

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sustainablesustainable futurefuture

a more a more oror

Welcome to Ford Motor Company’s2006/7 Sustainability Report.This printed report covers the mostmaterial issues from our full reporton theWeb. These issues includemobility, climate change, human rights,vehicle safety and sustaining Ford, aswell as our overall vision, strategy,challenges and opportunities.

Letter from Alan Mulally and Bill Ford 2

Materiality analysis 4

Mobility 6

Climate Change 14

Human Rights 22

Vehicle Safety 28

Sustaining Ford 34

Letter from Sue Cischke 36

Data Overview 37

Assurance 39

Ceres Stakeholder Team 39

CONTENTS

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We see a clear relationship between ourCompany’s challenges and these globalsustainability challenges. For example,consumers are increasingly concerned about highfuel prices, energy security and climate change.Global competition for resourcesmakes usvulnerable to rising prices for some of the keycommodities we use tomake our vehicles,including steel and petroleum-basedmaterials.

With these great challenges comes greatopportunity. The companies that make the high-quality products and services that consumersreally value – and do so in ways that limit harm tothe environment andmaximize benefits tosociety – will be preferred in themarketplace.And the companies that providemobilitysolutions to the world’s burgeoningmega-citieswill tap into vital and growingmarkets.

Despite the difficult year for our Company, wehave progressed in the three key areas weoutlined in our previous report: integratingsustainability issues into our operations, drivingtechnological innovation and undertakingexternal dialogue and partnerships.

INTEGRATED STRATEGYIn April, we created a new position: Senior VicePresident, Sustainability, Environment andSafety Engineering, responsible for settingstrategy, establishing goals and integratingsustainability across the Company. Our progressin these areas will be reviewed regularly atmeetings of our most senior executives. Inaddition, we will continue to work as a team tobuild on existing examples of integration, whichinclude the following.

Our North American product developmentfunction includes sustainability and vehiclesafety as “innovation pillars,” used to guide thedevelopment of future products. For example,our product planning explicitly considers long-term emissions reductions that represent ourcontribution toward climate stabilization.

Our procurement organization works with oursuppliers to help them align their practices withour Code of BasicWorking Conditions. During2006, the Code was revised to include additional

commitments on community engagement,corruption, the environment and sustainability.Our clear stance on human rights also helped ustake swift and decisive action when an instanceof slave labor was discovered in our supply chain.

Our manufacturing operations have integratedsustainability goals and indicators into theirscorecards to drive progress. For example, wehave cut global energy use by 27 percent andwater use bymore than 25 percent since 2000.

TECHNOLOGICAL INNOVATIONAs the pace of change accelerates, innovation ismore important to our Company than ever.

Examples of Ford’s innovations can be seen onthe road today, including nearly 47,000 FordEscape Hybrid andMercuryMariner Hybridvehicles. Globally, we have placedmore than5million vehicles in service capable of runningon renewably produced ethanol fuel.We arepromoting the development of infrastructure inNorth America and Europe that will expand theuse of these biofuels and help reduce ourdependence on oil.We have built 4 millionvehicles globally with electronic stability controlsystems. More than 1million of those vehiclesfeature Ford’s industry-exclusive AdvanceTrac®with Roll Stability Control™.

In the near future, you’ll seemore innovation.The 2008 Escape Hybrid will use seat upholsterymade from 100 percent post-industrial material.New safety features will help drivers avoidcollisions through technologies like lanedeparture warnings and assisted braking.

Looking further out, technologies indevelopment include the Escape Hybrid E85demonstration fleet, which combines hybridtechnology with Flexifuel capability. Thisfleet joins test fleets of vehicles that run onhydrogen fuel cells and hydrogen internal-combustion engines.

And for a glimpse of what the future may hold, inearly 2007 we demonstrated a driveable FordEdge Plug-in Hybrid. This industry-first hybriduses a plug-in lithium ion battery and a hydrogenfuel cell generator. The system, called HySeries

These are challenging times, notonly for our Company but forour planet and its inhabitants.Themarkets for our productsare changing rapidly, and thereis fierce competitioneverywherewe operate.Collectively, we face dauntingglobal sustainability challenges,including climate change,depletion of natural resources,poverty, population growth,urbanization and congestion.

Letter fromAlan Mulally and Bill Ford



Drive™, powers the vehicle 25 miles each day onabout $1.00 of electricity from the grid beforeswitching to the hydrogen fuel cell to extend therange. For a commuter traveling 50 miles perday this translates to more than 80miles pergallon, zero emissions and a 70 percentreduction in fuel cost.

EXTERNAL DIALOGUEAND PARTNERSHIPSPartnerships extend our own capabilities and ourability to innovate.

We have partnered with our customers to helpthem offset greenhouse gas emissions fromtheir vehicles. In the United States, we do this inpartnership with TerraPass; in the UK, LandRover is working with Climate Care to offset theemissions from the first three years thatcustomers own their 2007 vehicles.

We have numerous partnerships aimed ataddressing climate change and energy securityissues.Most recently, Ford joined the UnitedStates Climate Action Partnership (USCAP), analliance ofmajor businesses and leading climateand environmental groups that have cometogether to develop an economy-wide, market-driven approach to reduce greenhouse gasemissions. In addition Ford is the onlyautomotivemember of the Chicago ClimateExchange, a voluntary initiative aimed atunderstanding the potential for carbon trading.We’re workingwith the energy company BP toexplore ways to reduce greenhouse gas emissionsfrom fuels, increase energy security and seekalternatives to the current reliance on petroleum.

We’re partnering with Northwestern Universityon nanotechnology approaches to structuralmaterials that have the potential to improvevehicle fuel economy. And we are participating inthe Prince ofWales International BusinessLeaders Forum to examine the influence ofglobal poverty on our business and the roles wemight play in alleviating it.

LOOKING AHEADThe economic dimension of sustainability loomslarge for the Ford of 2007.Wemust return toprofitability in order to continue to contributeto addressing global sustainability challenges.

In 2006, we lost $12.6 billion, largely due torestructuring costs, and took the painful butnecessary actions of closing plants andsignificantly reducing our workforce. In thisreport, you will find a discussion of howwe havetried tomanage our downsizing in a responsibleway.We are continuing to align our capacity withdemand, accelerate the development ofdesirable new products and support our peoplethrough the transition so they can focus as ateam on the challenges ahead.We also arecontinuing to implement the product actionsneeded so that our Company can contribute toclimate stabilization.

In the coming year, you will see usmoving tobecomemore globally integrated and aligned tomeet our goals. This approach will help us tackleboth business and sustainability challenges, and

provide a new generation of products withsignificantly less impact on the environment.

We continue tomake dramatic improvements invehicle quality. Our customers agree. In the 2007J.D. Power Initial Quality Study FordMotorCompany vehicles earned 14 vehicle honors,more than any other automaker.

We are firmly convinced that we will comethrough the current crisis leaner but stronger,more nimble andmore able to seize on themanyopportunities presented by the world’sexpanding need for sustainable mobility.

President and CEO Executive Chairman

ALANMULALLY AND BILL FORD



Materiality analysisThis report is intended to cover the sustainability issues webelieve are most material to Ford. We define these issues asthose that receive high scores on three criteria:

HAVING SIGNIFICANT CURRENTOR POTENTIAL IMPACTON THE COMPANYOF SIGNIFICANT CONCERN TO STAKEHOLDERSOVERWHICH FORD HAS A REASONABLE DEGREE OF CONTROL

Our intention is to cover the most materialissues in this print report. Our full report ontheWeb covers additional issues, includingelements and indicators identified by theGlobal Reporting Initiative (GRI).

To identify and prioritize material issues, wefollowed a three-step process.

Identification of material business issuesWe developed a list of more than 500 issues,grouped into 15 topics, by reviewing Fordbusiness documents as well as commentsfrom employees, dealers and our majorexternal stakeholders: customers, communities,suppliers, investors and NGOs. The documentsincluded Ford policies and business strategyinputs, the Global Reporting InitiativeG3 Guidelines, summaries of stakeholderengagement sessions, and reports fromsocially responsible andmainstream investors.

Prioritization of the issuesWenoted the frequencywith which issueswereraised in the source documents and rated eachissue as low, moderate or high for (1) current orpotential impact on the Company in a three- tofive-year timeframe, (2) degree of concern tostakeholders (by stakeholder group) and(3) Ford’s degree of control over the issue.The ratings were averaged for Ford andstakeholders (with extra weight assignedto investors andmulti-stakeholder inputs asthey are key audiences of our reporting)to arrive at ratings for each issue. The issuesand their ratings were then plotted on a“materiality matrix,” found on the facing page.We consider the issues in the upper rightsector to be the most material. None of theissues is unimportant; the position of eachin the matrix simply represents ourunderstanding of its relative importanceto the Company and its stakeholders.

Review of the analysisThe draft matrix was reviewed and revisedbased on input gathered at an internalworkshop of Ford employees representing avariety of functions and geographic regions.It was then reviewed and revised again basedon ameeting of a Ceres stakeholder committeethat included representatives of environmentalNGOs and socially responsible investmentorganizations. See page 39 for furtherdiscussion of the stakeholder group’s role.

USE OF THE ANALYSISWe have used this analysis to identify issuesto cover in our print and full Web reports,and we plan to use it as an input to oursustainability strategy development.

This analysis and the methods for conductingmateriality analyses generally are works inprogress. We improved the current analysiscompared to the analysis for our 2004/5 reportin several ways. First, we expanded the numberof issues rated from 34 to 505, primarily byanalyzing them at a more granular level. Weadded source documents - and in some cases,consultations - to better represent the viewsof our full range of stakeholders, includingsuppliers, dealers and communities, who werenot well represented in our prior analysis. Wealso significantly strengthened the internal andexternal review of the draft matrix to subject itto more rigorous “reality testing.”

But shortcomings remain. Sustainability issuesare not discrete. Rather, they overlap andinterconnect in a complex system that isdifficult to capture in a list of issues. Analyzingissues by stakeholder group adds depth to ourunderstanding of who is concerned about whichissues and why, but in the process of placingthem on a two-dimensional matrix, some of thatnuance is lost. Finally, an element of subjectivityis inevitable.

We have participated with other companies andorganizations in documenting current methodsfor materiality analysis with the expectationthat this will help advance the practice.

WHAT IS MATERIALITY IN ASUSTAINABILITY REPORTING CONTEXT?

As sustainability reports have proliferated innumber, size and scope, companies havebeen called upon by sustainability expertsand others to focus their sustainabilityreporting on their most significant, ormaterial, sustainability issues. For thepurposes of this report, we considermaterialinformation to be that which is of greatestinterest to, andwhich has the potential toaffect the perception of, those stakeholderswhowish tomake informed decisions andjudgments about the Company’scommitment to environmental, social andeconomic progress. Thus, materiality as usedin this sustainability report does not sharethemeaning of the concept for the purposesof financial reporting.

SOURCESOFFURTHERINFORMATIONINCLUDE:

AccountAbility’s “TheMaterialityReport”www.accountability21.netandtheGRIreportingprincipleswww.globalreporting.org



CON

CER

NTO

STA

KEH

OLD

ERS

CURRENT OR POTENTIAL IMPACT ON COMPANY

MED

IUM

MEDIUM

LOW

LOW

HIG

H

HIGH

Sustainability strategySustainability vision and management •••GovernanceEthical business practices •••OperationsEnergy use/oil consumption ••• Water use •••GHG emissions •••ProductTailpipe emissions •• Materials use •••End of Life management •• Product compliance •••SafetyWorkplace health and safety •••Supply chainSupplier relationships ••

Public policyIncreasing and inconsistent global environmentand safety regulations ••OperationsAir emissions (other than GHGs) ••• Wastegeneration and management •••Ford as employerEmployee morale and teamwork •••Ford financial viabilityDealer relationships ••

ProductCustomer privacy •••Supply chainEnergy, materials, waste in supply chain ••Ford as employerDiversity: advertising practices ••

ProductLabeling •••Foreign v. domestic vehicles •

Climate changeLow carbon strategy ••• Vehicle GHG emissions ••Fuel economy ••• Advanced cleaner technologies ••Clean/alternative fuels •• Public policy: GHG /fueleconomy regulation •• Energy security •Mobility and emerging marketsProducts and services strategy ••• Role inemerging markets ••SafetyVehicle safety ••Ford financial viabilityManaging downsizing ••• Profitability level andtiming •• Legacy and health care costs ••Other costs •• Competitive factors •• Productcompetitiveness ••• Risks • Quality •••Human rightsSupply chain practices ••• Other issues ••

CommunityCommunity engagement •••Community impacts and contributions •••Climate changePhysical risks ••

Sustainability strategySustainability reporting •••Public policyPolitical payments/contributions •••OperationsEnvironmental management ••• Environmentalcompliance •••ProductLife cycle assessment ••• In-vehicle air quality •••Ford as employerEmployees/labor practices/decent work •••Diversity: equal opportunity •••ProductMarketing communications/demandcreation/advertising •••Mobility and emerging marketsCongestion •Ford financial viabilityFuture availability of fossil fuels •

GovernanceShareholder concerns (resolutions) •••OperationsHazardous pollutants •••Land and nature •••Other environmental issues: spills, nuisances,logistics •••Mobility and emerging marketsEmerging markets vehicle and road safety ••ProductNoise ••

Setting the agenda for the print section ofthis report

Setting the agenda for the rest of the reportat www.ford.com/go/sustainability andfuture reporting

••• HIGH level of control or influence

•• MID level of control or influence

• LOW level of control or influence

CONTROL OR INFLUENCE OF ISSUES

Ratings of control or influence reflect Ford’scontribution to an issue through its operations andproduct offerings. Factors that can reduce Ford’scontrol or influence include, among other things,technology limitations, costs and consumer demand.



Mobility

If developing countries adopt the sameunsustainable approaches to mobility that havebeen used in developed countries, it will furtherstrain environmental and social systems. At thesame time, meeting mobility needs in thesemarkets will help improve economic opportunityand quality of life. For Ford, developing marketsrepresent a significant business opportunity.However, economic and cultural differencesbetween those markets and the developedmarkets we have traditionally served mean weneed to fundamentally rethink how we meettheir needs.

This section describes what Ford is doing todeepen our understanding of the future ofmobility and develop new products, servicesand business models to effectively andprofitably offer sustainable mobility solutionsfor all of our global customers.

Several trends within our industry – and the global economybroadly – have led Ford to reexamine the concept of mobilityand, with that, the products and services we offer. For example,as developing countries gain economic momentum, their citizensare seeking levels of personal mobility long enjoyed by people inthe developed world. This poses opportunities and challengesfor Ford, and for society more generally.

ON THEWEB SITEwww.ford.com/go/sustainability

BRIGADE ROAD, BANGALORE, INDIA

IN THE PRODUCTS AND CUSTOMERS SECTIONResponding to changing marketsLeading with productsAdvanced clean technologiesImproving quality and customer satisfactionNanotechnologyThe Piquette project


DEVELOPING SUSTAINABLEMOBILITY STRATEGIES FOREMERGINGMARKETSEmergingmarkets are an importantsource of growth in the automotiveindustry.We have been focusing on threeprimary types of emergingmarkets:

All of these types of emerging marketsrepresent a significant business opportunity forFord, and also offer us the chance to providepersonal mobility options that improveenvironmental and social well-being. Indeveloping countries and revitalizing economies,customers are actively seeking increased accessto personal mobility. Meeting the needs of thesecustomers will help them to improve theireconomic opportunity and quality of life. Indeveloped markets, increased demand forhybrids and other advanced clean technologiesenable us to bring to market technologicalinnovations that not only reduce environmentalimpacts today, but also have the potential toimprove the environmental performance of allour products over the long term.

Emerging markets also pose challenges. Forexample, the majority of potential consumers indeveloping countries survive on less than fivedollars a day. As a result, Ford will need todevelop new products, services and businessmodels that are accessible to these consumers,and effectively and profitably meet theirmobility needs.

More importantly, unless developing countriesadopt more sustainable approaches to personalmobility than those used in developedcountries, greenhouse gas emissions andtraffic-related fatalities will continue toincrease, and congestion will bring mobility ingrowing cities to a grinding halt.

Ultimately, sustainablemobility solutions will berequired across all markets.But the development of moresustainable options – whetherfor developing country marketsor high-growth niches in theUnited States or Europe –requires a significantinvestment in new technologiesand coordination betweenautomotive companies, fueland energy companies,governments and consumers.

To date, Ford is focusingefforts on:

Expanding our product offeringsin developing countries andrevitalizing economies

Taking a new approach to personalmobility in developing countries

Developing advanced clean technologiesthat meet market needs and improveenvironmental performance

1. Developing countries such as China, Indiaand Brazil, where economies are growingrapidly. Developing countries areprojected to account for the highestgrowth in demand for vehicles andpersonal mobility.

2. Revitalizing economies includingcountries such as Russia that areexperiencing periods of high growthafter prolonged periods of economicstagnation. Revitalizing economies alsoinclude areas within developed economiesthat have experienced decline but areundergoing economic renaissance.

3. High-growth niches within developedmarkets such as the United States andEurope, which overall show little growthin sales volume. Some of these nichesinclude hybrid vehicles and otheradvanced clean technologies; smaller,more fuel-efficient vehicles; luxuryvehicles; crossover vehicles; andvehicles that run on flexible oralternative fuels such as ethanol andbiodiesel. Many of the high-growthsegments in developed automotivemarkets reflect increased demand formore sustainable mobility solutions.

200,000units of additional capacityin China in 2006 for Ford(see page 8)




EXPANDING OUR PRODUCTOFFERINGS IN DEVELOPINGCOUNTRIES ANDREVITALIZING ECONOMIESWe know that the highest growth indemand for vehicles will be indeveloping countries such as China andIndia. In response, we are increasing ourproduction capacity in China, India andthe rest of Asia, as well as launchingnew products in these and otherdeveloping markets to meet consumerneeds and remain competitive.

Last year, we increased our production capacityin China to 200,000 units annually at theChangan Ford plant in Chongqing. This plantproduces the Mazda 3 and Volvo S40, amongother vehicles. We also completed a newassembly and engine plant in conjunction withMazda in Nanjing, China. This plant will produce160,000 vehicles annually at the outset andcould increase to 200,000 annually.

In India, we recently launched the Fusion, a smallSUV, and the Fiesta sedan, with great customerfeedback. In fact, Ford ranked second forCustomer Satisfaction in India by J.D. PowerAsia Pacific. In 2007, we will begin producingand selling the S-MAXmulti-purpose vehicle andVolvo S40 in China.We have experienced rapidgrowth in some of these developing andrevitalizing markets. Ford’s share of the Turkishmarket increased to 17.1 percent – the fifthyear in a row that the Ford brand has led themarket in sales in Turkey. In Russia, sales ofFord-brand vehicles increased approximately92 percent to 116,000 units in 2006. Our salesin the Asia Pacific region were up 9 percent in2006, with the majority of the growth occurringin China and India. Sales in South America wereup 14 percent in 2006, from 335,000 to381,000 units sold.

This recent sales growth represents a significantachievement for the Company. At the same time,we know that our long-term success in thesedeveloping and revitalizing economies willdepend on our offering new types of mobilitysolutions that are increasingly sustainable andtailored to the unique needs of these markets.Our sustainable mobility strategy is aimed atensuring we do just that.

TAKING A NEWAPPROACH TOPERSONALMOBILITY INDEVELOPING COUNTRIESWe believe that providing sustainablemobility solutions for customers indeveloping countries is one of thekey business, social and environmentalchallenges of the 21st century.

Given our knowledge and experience,we also believe this is an area in whichFord may be able to have particularpositive impact.

IDENTIFYING MEGA-TRENDSOver the past year, Ford has undertaken anintensive research effort to identify andunderstand global “mega-trends” that we mustrespond to if we are to deliver sustainablemobility solutions.

The top five mega-trends, which are changingtransportation and business realities across theglobe, are as follows:

These mega-trends are especially importantin developing countries, where the negativeimpacts of a rapid increase in vehicles areoutpacing the positive impacts of mobilityin many areas. In fact, in many developingcountries, these trends are combining in massiveand rapidly growing urban conglomerationscalled “mega-cities,” which are a primary focus ofour efforts to develop sustainable mobilitysolutions in emerging markets.

FORD PLANT, CHINA

92%increase in sales of Ford-brandvehicles in Russia in 2006

Climate change and greenhousegas emissions

Rapid urbanization

Congestion associated with arapid increase in vehicles andtraffic in urban areas

Social inequality, includingincreasing income inequality andassociated social issues

Shifting demographics, especiallyan increase in older populationsin developed countries and anincrease in younger populationsin developing countries

1

2

4

3

5

ADDITIONALWEB CONTENTwww.ford.com/en/company/about/sustainability/2006-07/additional.htm


http://www.ford.com/en/company/about/sustainability/2006-07/additional.htm


MEGA-CITIES: THE ICON OF PERSONALMOBILITY CHALLENGESMega-cities are urban areas with more than10 million residents. There are already at least25 mega-cities worldwide. Twenty are located inthe developing world, as are seven of the ninemost populous. By 2015, there are projected tobe at least 35 mega-cities, with virtually all thegrowth in developing countries. Mega-citiesoften experience a wide range of social andenvironmental problems, many of them relatedto mobility.

All of the mega-trends we have identified,as well as other challenges to sustainablemobility, are at their worst in mega-cities,including paralyzing traffic congestion, airpollution, vehicle-related injuries and fatalities,and health problems. Furthermore, socialinequality and the dislocation of families andcommunities are increasing as people movefrom rural areas to mega-cities seekingeconomic opportunities. Developing mega-citymobility strategies will require addressing themobility needs of rural as well as urbanresidents, as many mega-city problems couldbe improved by developing new approaches tothe transportation of people and goodsbetween rural and urban areas, and byreducing the need for rural–urban migration.

NEWAPPROACHES TO DEVELOPING MARKETSWe are exploring new strategies fordeveloping country markets that take intoconsideration these economic, cultural andinfrastructure characteristics. Central to ourapproach is the recognition that, becausethese markets are different than the onesFord has historically served, we need toconduct extensive stakeholder engagement tohelp us understand the wants and needs ofconsumers in developing countries.

Additionally, we appreciate that it will requireus to explore new types of business andpartnership models to develop and bring tomarket successful mobility solutions indeveloping countries.

PARTNERSHIPS AS AVENUES FORLEARNING AND ACTIONIn our view, developing practical, broad-basedsustainable mobility solutions will require thecombined efforts of transportation companies,energy companies, governments and consumers.That is why partnerships have been a keyelement of Ford’s sustainable mobility strategy.

For the past six years, Ford has been a sponsorand participant in the Sustainable Mobilityproject of theWorld Business Council forSustainable Development (WBCSD). This projectbrings together the insights and viewpoints of awide range of corporations and global thoughtleaders to develop a vision for sustainablemobility and to define the challenges andpossible pathways for reaching this vision.

TheWBCSD defines sustainable mobilitybroadly as the need for individuals and societiesto move freely, gain access, communicate, tradeand establish relationships, without sacrificingother essential human and ecological values.This broad definition and systems-thinkingapproach has guided our approach to meetingthe challenges of providing sustainable mobilityin developing countries.

In addition to our engagement with theWBCSD,Ford participates in a number of other initiativesaimed at developing more sustainableapproaches to mobility in emerging markets.For example:

TheWorld Resources Institute/EMBARQproject, which is working to developsustainable mobility solutions for urban areasin developing countries. Our first joint projectis working to reduce vehicle emissions andtraffic congestion in Istanbul, Turkey, byunderstanding mobility patterns, needs andopportunities.

The Global Road Safety Initiative,a collaboration with multiple companies andgovernmental agencies that aims to reducetraffic-related fatalities through best-practice transfer and educational outreach.

35mega-cities by 2015 withmore than 10 millionresidents each


CONGESTION IN MUMBAI




Sustainable Mobility and AccessibilityResearch and Transformation (SMART),a joint project with the University ofMichigan that uses a collaborative, systems-thinking approach to meet future mobilityand accessibility needs in an ecologicallysound and socially sustainable manner.

The Prince ofWales Forum, a gathering ofglobal businesses that aims to promoteresponsible business leadership andpartnerships for social, economic andenvironmentally sustainable internationaldevelopment, particularly in new and emergingmarket economies. Ford has participated inthe Forum’s Business and Environment andBusiness and Poverty programs.

To help us identify how Ford can bestcontribute to the development of sustainablemobility solutions, we are integrating whatwe learn from our involvement in thesepartnerships with our own research on globaltrends and advanced technologies.

PLANS FOR THE FUTUREOver the long term, we believe that successfuland sustainable mobility may require radicalredefinitions of traditional mobility productsand vehicle transactions, and whole newcategories of mobility services may evolve.Towards this end, Ford is developing a portfolioof new approaches to personal mobility,incorporating input from our global operationsand sustainable mobility partners, whichincludes ideas for everything from advancedpowertrains and fuels to closed-loop materialsto new business models for approachingpersonal transportation.

In the coming year, we plan to identify in whichdeveloping markets we will initially pilot someof these new approaches to sustainablemobility. We recognize that having the trust andinterest of local communities, governments andconsumers in these markets will be critical toour ability to test and launch these newapproaches. As a result, we intend to focus onlocations where Ford already has a presenceand has developed a strong reputation forethical behavior, respecting human rights andcontributing to the local community. We areworking with the University of Michigan’s jointBusiness and Environment program – the ErbInstitute for Global Sustainable Enterprise – todevelop a set of criteria for evaluating the bestmarkets in which to pilot new approaches.

Oncewe have identified specificmarkets, we planto undertake extensive research and stakeholderengagement with new and existing partners,communitymembers and others to help usunderstand themobility needs, opportunities andchallenges in those locations. This input will helpus develop new products, services and businessmodels to bettermeet the needs of consumers inthose and other developing countries.

SUSAN ZIELINSKIManaging Director, Sustainable Mobilityand Accessibility Research and Transformation (SMART),University of Michigan in Ann Arbor


ISTANBUL, TURKEY

“The overarching message of the future of mobility isconnectivity – among technologies, modes and services,across government departments and among variousindustry sectors that can innovate (and benefit from) thedevelopment of a vital “NewMobility” industry. This isn’tnecessarily going to be easy, but in the case of NewMobility, even incremental changes that come fromconnecting the dots can have dramatic effects.”For more commentary visit www.ford.com/go/sustainability




ADVANCED CLEAN TECHNOLOGIES

Technological innovation is central toFord’s strategy to develop sustainablemobility solutions thatmeet current andemergingmarket needs, and improve theenvironmental performance of ourproducts, including their impact onclimate change.

We believe that demand for clean, fuel-efficientvehicles will continue to increase, driven byconcerns about energy security and climatechange, along with consumers’ growing interestin fuel economy. In response, we are developingand implementing new products and advancedtechnologies to both meet market demandsand help contribute to climate stabilization.(See page 19 for further discussion of howFord is using technology to help addressclimate change.)

IMPROVEMENTS IN OUR CURRENT FLEETIn the short term, we are working to betterthe fuel economy of our existing productsthrough incremental improvements ininternal-combustion technology, such as directinjection turbocharged gasoline engines andnew transmission technologies. For example,the “Twin Force” Duratec, a 3.5-literturbocharged gas engine with direct fuelinjection, will deliver V-8 power andperformance with better fuel economy.Powershift, a dual clutch system, will providefuel economy comparable to a manualtransmission with the driving ease andconvenience of an automatic.

Several fuel-saving measures can be appliedregardless of engine type, including reducingthe vehicle’s weight, decreasing tire rollingresistance and improving aerodynamics.We are using these approaches in currentvehicles and those under development to theextent possible.

In addition, Ford’s division in Europe recentlyannounced plans to spend at least £1 billion(approximately $2 billion) developing a range ofglobal environmental technologies in the UK for


CURRENTGASOLINE

ADVANCEDDIESEL

DIESELHYBRID

LIMITOF POWERTRAIN TECHNOLOGYTo achieve advances approaching zeroCO2 will require infrastructure changes:• Renewable fuels (hydrogen or biofuels)• Carbon sequestration

HYDROGENNATURAL GASSPARK IGNITION

ADVANCEDGASOLINE

GASOLINEHYBRID

RENEWABLESPARK IGNITION

HYDROGENNATURAL GASFUEL CELL

RENEWABLEDIESEL

0.07

0.02

0

ZEV

TIER 2 BIN 5STAGE V

PZEV

RENEWABLEHYDROGENFUEL CELL

Well-to-wheels CO2(g/km)

TailpipeNOxem

issions(g/m

ile)

0 50 100 150 200 250 300


its Ford, Jaguar, Land Rover and Volvo brands.This is the largest commitment ever to theenvironment by an automaker in the UK. Thiswork will be focused on implementing as manynew technologies on as many productionvehicles as possible in order to make asignificant and near-term impact on carbondioxide emissions. Specific technologies underdevelopment include next-generation aluminumlightweight vehicles; hybrid technologies;downsized direct-injection gasoline engines;advanced diesel engines; Powershifttransmission and other new transmissiontechnologies that will significantly reducegreenhouse gas emissions; and a range oftechnologies to encourage more fuel-efficientdriving behavior, including information systemsand fuel-efficient driving modes.

MEETING THE DEMANDS OF HIGH-GROWTHNICHE MARKETSFor the longer term, our Sustainable MobilityGroup is coordinating the development of next-generation, advanced technologies to achievebreakthrough advances in fuel efficiency,emissions reduction and energy independence

in areas such as hybrids, advanced cleandiesels, biofueled vehicles, hydrogen internal-combustion engines and hydrogen fuel cellvehicles. We are also researching the viability ofplug-in hybrids, though major hurdles remain inbattery technology. We believe it is importantto develop a variety of different engine and fueltechnologies, as different technologies will beappropriate for different regions and driveroperating conditions.

Further information about these technologiescan be found in the table on the following pagesand on theWeb site.

DEVELOPING TECHNOLOGIES TO REDUCE VEHICLE EMISSIONS




HYBRID ELECTRICVEHICLES ADVANCEDCLEANDIESELS

Ford Focus Mercury Mariner

OVERVIEW

Ford’s hybrids use both a gas and an electric engineto improve fuel efficiencyThe electric engine is recharged by capturingbraking energy

BENEFITS

The2008MY2.3LEscapeHybridhas89percentbetterfueleconomyincitydrivingwhencomparedtothe3.0LV6gasolinemodelwhichhassimilarengineperformance. Whencomparedtothe2.3LEscapeI4gasoline, thehybridpowertrainstilloffersafueleconomyimprovementincitydrivingof70percentwhileofferingsuperiorpower.TechnologyisavailableandontheroadtodayUsesexistingfuelandfuelinginfrastructure

KEYCHALLENGES

There is a substantial purchase cost premiumBattery technology needs to be improved to providelonger electric power range and reduce the size ofbattery storageBattery costs need to be reduced significantly tomake hybridelectric vehiclesmore competitive with conventional vehicles

ONTHEROAD

Ford has two hybrid vehicles on the road today: the Ford EscapeandMercuryMariner Hybrid compact SUVsIn 2007, wewill launch a hybrid version of theMazdaTribute SUVIn 2008, wewill launch hybrid versions of the Ford FusionandMercuryMilan sedans

UNDERDEVELOPMENT

Weareworking on developing next-generation hybrid technologyincluding plug-in hybrids and combining hybrid technologies withFlexifuel and diesel technology and hydrogen fuel cells

OVERVIEW

Clean diesel technologies utilize ultra-low sulfur diesel fuelsand advancements in transmission and powertraintechnologies to provide cleaner, more fuel-efficient vehicles

BENEFITS

Diesel vehicles can increase fuel economy by up to 30 percentand reduce greenhouse gas emissions by approximately20 percentClean diesel fuel is widely available in the United Statesand Europe, and is becoming available in other regions

KEYCHALLENGES

Consumers have lingering negativemisperceptions aboutdiesel vehicles, especially in the United StatesFuel-quality improvements are required globally to takefull advantage of advanced diesel technologyDifficult tomeet stringent U.S. emissions standards forair-quality pollutants, evenwith cleaner diesel fuelsIncremental purchase price increase for consumers

ONTHEROAD

Diesel vehicles are widely used globally – for example, theymake up 50 percent of the total new vehicle fleet in EuropeFord’s 2008 F-Series Super Duty pickup truckswill use thefirst of a new generation of cleaner, quieter, advanced dieselengines for the North AmericanmarketIn 2007, EuropeanVolvoV50 and S40 diesel models will beavailable with Powershift dual clutch technology, whichimproves fuel economy over conventional transmissionsA diesel version of the Ford F-150 pickup truck hasbeen announcedPlease see Global Product chart on theWeb for details ofdiesel models and global availability

UNDERDEVELOPMENT

Ford engineers are working on next-generation cleandiesel technologies that will further reduce emissions fromdiesel vehicles

IMPROVING FUEL ECONOMYOFCURRENTVEHICLES

OVERVIEW

Smaller cars and crossovers providemore fuel-efficientvehicle optionsFuel economy can also be improved through refinements toengine technologies and transmissions, better aerodynamicsand use of lightweightmaterials, low-rolling-resistance tiresand other technologies

BENEFITS

Providesmore fuel-efficient vehicle options immediatelyNo compromise in functionality, style or performanceNew transmission technologywill significantly improvefuel economyUses existing fuel and fueling infrastructure

KEYCHALLENGES

Some technologies increase costsSmaller vehiclesmay notmeet the capacity and hauling needsof some customers

ONTHEROAD

In all of our global markets, we offer a variety of small vehiclesincluding the Ford Focus, Ford Fiesta and Ford KaIn 2006, we introduced the Ford Fusion,MercuryMilan andLincolnMKZ sedans and the Ford Edge and LincolnMKXcrossovers in North America. These vehicles providemuch ofthe functionality of SUVs in amore fuel-efficient packageIn Europe, South America and Asia, we offer a smaller“B-car” vehicleIn 2007, theVolvo S40 andV50 diesel models will have thePowershift dual clutch system

UNDERDEVELOPMENT

Weare improving fuel economy across our products globallyIn 2008, a redesigned Ford Focus sedanwill be launched inNorth AmericaWe are developingmore crossover vehiclesWe announced a new Ford “B-car” smaller sedan forNorth America

Ford 2008 F-Series Super Duty

ADVANCED CLEAN TECHNOLOGIES



OVERVIEW

Fuel cell vehicles use super-efficient energy productiontechnologies and provide extremely low emissions

BENEFITS

Provides a completely zero-emission vehicle(tailpipe emissions)Provides breakthrough reductions in fuel economy

KEYCHALLENGES

Costsmust be reduced by orders ofmagnitude tomake thistechnology competitiveSee challenges listed for Hydrogen Internal-CombustionEngine vehicles

ONTHEROAD

Ford has a fleet of 30 Focus Fuel Cell vehicles on the roadtoday collecting real-world information on drivingperformance.Wewill accumulate 30,000miles on each ofthe 30 FCVs over a three-year demonstration project

UNDERDEVELOPMENT

Ford is working on next-generation fuel cell technologiesincluding using nanotechnology to developmore efficient fuelcells and hydrogen storage

BIOFUELEDVEHICLES HYDROGEN INTERNAL-COMBUSTIONENGINE (H2ICE)VEHICLES HYDROGEN FUEL CELLVEHICLES

H2ICE Shuttle Bus Ford Focus Fuel Cell

OVERVIEW

Biofueled vehicles run on bio-ethanol, a gasoline equivalent,and biodiesel, a diesel equivalent. These fuels are currentlyderived from plant sugars

BENEFITS

Requires relatively inexpensive changes to vehicle technologycompared to other alternative fuels such as hydrogenLittle increase in vehicle purchase cost or fuel costscompared to other alternative fuels such as hydrogenA renewable fuel source that reduces life cycle greenhousegas emissions and, if produced locally, can increaseenergy independence

KEYCHALLENGES

Full realization of environmental and economicbenefits will require development of next-generationbiofuels that can be producedmore efficiently andutilize cellulosic andwastematerials as feed stocksfor fuel productionWidespread usewill require investment in biofuelstransportation and fueling infrastructure

ONTHEROAD

Ford hasmore than 5million vehicles on the road capableof running on high blends of ethanol, mostly in Brazil andNorth AmericaAll of Ford’s diesel vehicles can run on up to 5 percent biodieselWe have committed to producing 50 percent of our vehicles asFlexifuel capable in North America by 2012 ifmarket demandand fueling infrastructure support itWe areworking to expand access to biofuels in the UnitedStates through partnerships with BP andVeraSun, including inthe E85 ethanol corridorIn Europe, we havemultiple partnerships to increaseavailability of biofuels, including BioEthanol for SustainableTransport, or BEST, and PROCURAFord currently sells 14 Flexifuel vehiclemodels: the Ford CrownVictoria, Mercury GrandMarquis, LincolnTown Car and FordF-150 in North America; the FordMondeo, S-MAX, Galaxy,C-MAX and Focus, and theVolvo XC60 in Europe; and theFiesta, EcoSport and Focus in Brazil

UNDERDEVELOPMENT

We are supporting development of the next generation ofbiofuels and developing vehicles capable of utilizingcellulosic biofuels and other advanced biofuels. Thesefuels will continue to improve the environmental, climatechange and energy security benefits of biofuels

OVERVIEW

These vehicles can burn hydrogen fuel in existinginternal-combustion engine technology

BENEFITS

Provides a near-zero emission vehicle (tailpipe)Provides a bridge from existing internal-combustion enginetechnology to hydrogen fuel cell vehiclesCould drive development of hydrogen fuel infrastructure

KEYCHALLENGES

Hydrogen ICE technology is not currently cost-competitive with traditional vehiclesOn-board hydrogen fuel storage limits passenger andcargo capacityCurrent hydrogen storage technology does not allowacceptable driving range between refuelingsHydrogen infrastructure is in its infancyHydrogen must be made from renewable sources to providea “well-to-wheels” emissions reduction

ONTHEROAD

Ford has a fleet of 30 H2ICE shuttle buses on the roadtoday in Florida as part of that state’s Hydrogen Highwayinitiative and in Canada as part of the national government’shydrogen advancement program

UNDERDEVELOPMENT

Ford engineers are continuing to improve H2ICEtechnologies and better understand hydrogeninfrastructure challenges

Ford F-150 Sport



Climate ChangeThe growing weight of evidence holds that man-madegreenhouse gas emissions are starting to influence the world’sclimate in ways that affect all parts of the globe.With thepublication of the Intergovernmental Panel on Climate Changereport in February 2007, the scientific consensus around thelikelihood of climate change and the need for timely action hasstrengthened. Concerns about climate change – along withgrowing concerns over the use and availability of fossil carbon-based fuels – affect our operations, our customers, ourinvestors and our communities.


IN THE ENVIRONMENT SECTIONEnvironmental managementGreenhouse gas emissions/fuel economyTailpipe emissionsMaterialsManufacturing energy use

Water useVOCsWaste generationLand useEnvironmental compliance and remediation

WIND POWER ATDAGENHAM DIESEL CENTRE



CLIMATECHANGERISKSANDOPPORTUNITIESThe business climate is also changing.Since our last report, governments,companies, investors and consumershave tackled climate change inways that present new risks andopportunities, and place the issuesquarely on the agenda for globalcompanies. This section summarizescurrent market, regulatory, investment,and physical risks and opportunities,while the following section summarizesour strategic response.

MARKETSThe United States, once a major producerand exporter of oil, has seen oil productiondecline at the same time that gasoline and otheroil consumption has continued to grow, makingthe country steadily more dependent onimported oil and leading to concerns overenergy security. (See box at right.) Coupled withthe rapid rise in gasoline prices during 2005 and2006, this has led to greater consumer interestin more fuel-efficient vehicles.

Concerns about fuel economy track fuel pricesand drive buyers to shift from larger vehiclesand light trucks to smaller vehicles, cars andcrossovers. During 2006, small cars andcrossover utility vehicles, which generally havebetter fuel economy than large cars and truck-based SUVs, were the fastest (and some of theonly) growing segments of the U.S. market.

In Europe, where awareness of climate changeand vehicle CO2 emissions is relatively high andgrowing, already high fuel prices have also risensharply in recent years. This has continued toreinforce interest in diesel-powered vehicles,which now account for around half of newvehicle sales in the EU, and other environmentally

advanced vehicle technologies. The climatechange issue is also linked to concerns aboutand actions to address congestion, particularlyin city centers.

In the markets in which we operate in Asia, therapid growth in vehicle sales is raising concernabout emissions and congestion. A focus onenergy independence is also growing alongwith the rapid rise in demand for energy.

In Brazil, consumers have embraced renewableethanol as an economical, locally producedalternative to imported oil. This has come aboutvia 30 years of coordinated effort betweenthe government, consumers, fuel providersand automakers.

These market shifts and regional concernsare very significant to our Company. In NorthAmerica, although our sales market share forcars increased in 2006, the shift away fromSUVs and light trucks, our most profitablevehicles, contributed to our loss of revenueand overall market share. Elsewhere in theworld, where our profitability is less dependenton large vehicles, we have been less affected.Everywhere we operate, the future financialhealth of our Company depends on our abilityto predict market shifts of all kinds, includingthose resulting from consumer concerns overfuel prices, greenhouse gas (GHG) emissionsand energy security, and our ability to beready with the products and services ourcustomers demand.



1960s 1970s 1980s 1990s 2000s

GASOLINECONSUMED(Billions of gallons)

CRUDE OILIMPORTS

TOTAL MILESTRAVELED

61

719 billion

101

137

2.9 trillion

U.S. ENERGY SECURITY

13% 38% 63%





REGULATIONSAs a global automobile manufacturing company,regulations related to GHGs affect many areasof our business, including our manufacturingfacilities and the emissions from our vehicles.

The GHG regulatory landscape is changing rapidly:

In the United States, CO2 emissions fromvehicles have been regulated throughCorporate Average Fuel Economy (CAFE)1

requirements for more than 30 years. Unlikesome of our competitors, Ford has compliedwith CAFE standards throughout the life of theprogram. New light truck CAFE standards wererecently promulgated, and they are set toincrease each year from 2005 through 2011.These will pose a significant challenge forcompanies like Ford that produce light trucks.California and several other states haveadopted regulations limiting GHG emissionsfrommotor vehicles, a move that both theautomobile industry and the federalgovernment believe is preempted by thefederal CAFE law. The litigation over theseregulations is discussed in more detail onpage 21 and in our fullWeb report.

In Europe, GHG emissions frommanufacturing facilities are regulatedthrough a combination of emission limits andmarket-based mechanisms. The EU EmissionTrading Scheme regulations apply to 15Ford Motor Company (including PremierAutomotive Group) facilities in the UK,Belgium, Sweden, Spain and Germany. Fordanticipated the start of the EU EmissionTrading Scheme and established internalbusiness plans and objectives to maintaincompliance with the new regulatoryrequirements. The EU has taken steps topropose stringent regulation of CO2emissions from vehicles, following the 2008end of a voluntary reduction commitmentby the European auto industry. The proposedregulation is planned to be effectivefrom 2012.

The Chinese government has introducedweight-based fuel consumption standardsfor passenger cars and trucks. The standardsbegan with 2005 model year (MY) passengervehicles and increase in stringency for 2008MY vehicles. Proposed standards forcommercial trucks start in 2008. All of

Ford’s product offerings comply with theappropriate 2005MY standards and are fullyexpected to comply with the 2008MYstandards as well.

Other countries in the Asia Pacific regionhave introduced stringent fuel economyrequirements, including Japan (2010) andKorea (2006/2009).

We have established global roles, responsibilities,policies and procedures to help ensurecompliance with emissions requirements andparticipate in trading initiatives worldwide.

The regulation of vehicle fuel economy and GHGemissions has a significant impact on ourcurrent and future product offerings. We expectregulation to increase in the future, and it is inthe interest of our Company and society toreduce the uncertainty and increase thepredictability of policy frameworks and marketconditions around the issue of climate change.We are committed to being a constructiveparticipant in the formulation of policies toreduce GHG emissions across the entireeconomy and promote energy security.

INVESTMENT COMMUNITYBoth mainstream investment analysts and thosewho practice “Socially Responsible Investing”(SRI) have begun to assess companies in theauto sector for their exposure to climate risksand their positioning to take advantage ofopportunities created by the issue. The CarbonDisclosure Project, for example, providesinvestors with a standard set of disclosuresabout company responses to climate change.We have participated in the project since itsinception and have submitted four publiclyavailable reports (www.cdproject.net).

The feedback we receive from regularcommunications with mainstream investorssuggests that their primary interest at thispoint is in our plans to return to profitability.However, these investors recognize, as we do,that the success of those plans is affected bygrowing carbon constraints and market shiftsinfluenced by concerns over climate change.

Our response to the issue is an additional – andincreasingly important – element of our overallcompetitiveness. Thus, providing climatechange-relevant information to investors andshaping our business strategy with climatechange in mind are important elements ofmaintaining access to capital.

PHYSICAL RISKSExtreme weather such as the severe hurricanesthe United States experienced in the Gulf ofMexico in 2005 disrupts the production ofnatural gas, a fuel necessary for themanufacture of vehicles. Supply disruptionsraise market rates and jeopardize theconsistency of vehicle production. To minimizethe risk of production interruptions, Ford hasestablished firm delivery contracts with naturalgas suppliers and installed propane tank farmsat key manufacturing facilities as a source ofbackup fuel.

Although increased energy rates have asignificant cost impact to the Company, they doincrease awareness of energy conservation, itsimpact on the environment and the need foralternative energy solutions. Increased utilityrates have prompted Ford Motor Company torevisit energy efficiency actions that previouslydid not meet our internal rate of return. Theseprojects include the replacement or upgrade ofheating, ventilating and cooling systems,lighting and vehicle painting systems.

HEIGHTENED RISK AND OPPORTUNITYAltogether, this changing landscape presentssignificant risks for our Company, particularly inthe short term due to market shifts andregulatory trends. In the longer term, the stepsdescribed below will put our Company in a goodposition to offer innovative products andservices to serve the mobility needs ofestablished and emerging markets. Also seethe Mobility section.

FORD RESPONSETOTHE RISKS ANDOPPORTUNITIES OF CLIMATE CHANGEWe take the issue of climate changeseriously, and we have for some time.

Ford was the first automaker to estimate itstotal GHG emissions from our facilities andFord vehicles. We have updated that estimatefor this year. (See box above right.)





20051999CO2 INMILLIONMETRICTONNES (MMT)

ESTIMATE OF FORD’S CLIMATE CHANGE EMISSIONS

NEWVEHICLES are new vehicles sold in the reference calendar year.VEHICLESONTHEROAD represents Ford vehicles sold prior to the reference calendar year.The increase of CO2 from vehicles is primarily due to additional vehicles on the road and vehiclemiles traveled (VMT).

TOTAL(APPROX415)

TOTAL(APPROX383)

89.437 (approx)35 (approx)

370(approx)

338(approx)

Vehicles on theroad, World

New vehicles,World

Facilities

KEY

In 2001, as part of an assessment of the impact of the climatechange issue on our Company, we estimated the globalgreenhouse gas emissions from our facilities and Ford vehicleson the road to be approximately 400 million metric tonnes peryear. We updated that estimate for this report. While theestimate has increased somewhat (primarily due to additionalvehicles on the road and increased VMT), the result remainsclose to 400 million metric tonnes per year. This includesemissions from our facilities, emissions from current yearvehicles and emissions from all Ford vehicles on the road. Wehave the most control over our facility emissions, whichaccount for only about 2 percent of total life cycle vehicle CO2emissions, while we have the least control over the emissionsof vehicles on the road, which account for about 90 percent ofthe total. More detail on the estimate is available on theWeb.Because many assumptions are required to generate thisfigure, and we do not control all of the factors that influenceits magnitude, we do not expect to use this estimate as anongoing performance measure. We intend to continue toreduce our facility GHG emissions, improve the energyefficiency of our operations and the vehicles we sell, andclosely track those results.

17


Wewere the first U.S. automaker to offer a fullhybrid vehicle, which was also the first hybridfrom any automaker in the SUVsegment.

We have played a leading role in scientificresearch to establish the contribution ofvehicles to climate change.

We were the first in our industry to issue astandalone report on climate change, inlate 2005. We continue to do comprehensivereporting on our GHG emissions.

We were the first automaker to participatein carbon trading markets in North Americaand the UK.

We were also the first to offsetmanufacturing emissions and offercustomers an innovative way to offsetemissions from use of their vehicle, asdescribed in the Driver section on page 20.

We were the first automotive company in theUK to install photovoltaics (solar panels) andonsite wind turbines to provide power to ourmanufacturing sites.

These “firsts” are backed up by a set ofcommitments covering our operations andproducts. (See box on this page.)

Australian Industrywide National AverageCO2 Emissions (NACE). Previously known asNational Average Fuel Consumption (NAFC)

Canadian Greenhouse Gas Memorandumof Understanding

UK Emissions Trading Scheme

Global manufacturing energy efficiency

Chicago Climate Exchange

Greener Miles/Hybrid Offset

Land Rover CO2 Offset Programme

Alliance of Automotive Manufacturers

Voluntary GHG Reporting

CLIMATE CHANGE-RELATED COMMITMENTS AND PROGRESS | KEY Achieved On track

COMMITMENT – OPERATIONS

COMMITMENT – PRODUCTS

European Automobile ManufacturersAssociation CO2 commitment

TARGET

EU new car fleet average of 140g/km by 2008; equivalent to 25%average CO2 reduction compared with 1995

2

Voluntary target to achieve national average CO2 emissionsof 222 grams of CO2 per km for light vehicles under 3.5 tonnes grossvehicle mass by 2010. Requires an overall reduction in average CO2

emissions of 12%between 2002 and 2010

Industry-wide voluntary agreement to reduce GHGs from theCanadian car and truck fleet by 5.3 megatonnes by 2010 comparedto projected emissions

TARGET

Improvemanufacturing energy efficiency globally by 1%year overyear, following an improvement ofmore than 13%from2000 to 2005.2007 target is 3% improvement in global facility energy efficiency.

UK operations to achieve 5% absolute reduction targetover 2002–2006 timeframe based upon an average1998–2000 baseline

Reduce North American facility emissions by 6% between 2000and 2010

Voluntarily offset CO2 emissions frommanufacturing 2007and 2008MY hybrid electric vehicles

Voluntarily offset 2007 and 2008 CO2 emissions frommanufacturing facilities

Reduce U.S. facility emissions by 10% per vehicle producedbetween 2002 and 2012

Voluntarily report facility CO2 emissions to national emissionsregistries in Australia, Canada, Mexico and the United States

[1] Fuel economy standards are functionally equivalent to CO2 limits, because fuel economy is calculated bymeasuring the amount of CO2 emitted by a vehicle.[2] On track to achieve the target as of the 2003 checkpoint. Industry progress to date has alreadymade a very significant contribution to the EU’s overall efforts to address climate

change. The industry has always said that the agreement represents one of themost challenging CO2 reduction actions within the EU and that it is extremely ambitious, bothtechnically and economically. Despite an increasingly adverse environment, Ford and the industry continue towork hard tomove toward the 2008 target.




+To plan and implement our strategic approach, wehaveestablished sustainability-related governancesystems, which include a strong focus on fueleconomy and CO2 improvements. The strategicdirection is provided by a senior executiveforum, made up of vice president and executivestakeholders, who guide the development of thevision, policy and business goals.

A related executive planning team is responsiblefor developing detailed and specific policy,product and technical analyses to meetobjectives. These teams base their plans onscientific data and promote actions that willachieve the Company’s environmental ambitions,recognizing the need to use a holistic approachto effectively protect the environment. Metricshave been established and are reviewedregularly to ensure satisfactory progress.

The Environmental and Public Policy Committeeof the Board of Directors is responsible forreviewing the Company’s climate changestrategy and actions.We have also developedstrategic principles to guide our approach.

STRATEGIC RESPONSEAs the risks and opportunities posed by climatechange have evolved, so has our approach to theissue. Our long-term strategy is to contribute toclimate stabilization by:

Continuously reducing the GHG emissionsand energy usage of our operations

Developing the flexibility and capability tomarket more lower-GHG-emissions productsin line with evolving market conditions

Working with industry partners, energycompanies, consumer groups and policymakers to establish an effective andpredictable market, policy and technologicalframework for reducing road transportGHG emissions

OperationsWe have reduced our global operational energyuse by 27 percent since 2000, as described inthe Environment section of our full report ontheWeb. The U.S. Environmental ProtectionAgency recognized our energy conservationefforts with 2006 and 2007 Energy StarPartner of the Year awards, the first time anautomaker has won in successive years.

Lower-GHG vehiclesWebelieve an integrated approach among allrelevant stakeholders is needed to reduce GHGemissions from vehicles. Our shorthand for this,and the organizing framework for the discussionon the following pages, is “Vehicle + Fuel + Driver= GHG emissions.” More recently, we have addedgovernment to the equation, recognizing theindispensable role of governments in coordinatingactions across sectors, providing leadership inareas like infrastructure development tomeettransportation demand and creating a harmonizedlegal and political framework that leveragesmarket forces to lead to the desired result. Thebox on page 11 illustrates the respective roles ofvehicle technologies and fuels in driving GHGemissions towards zero.

VEHICLEOur product portfolio is the most importantelement of our strategy for contributing to agoal of climate stabilization.

Using this goal for guidance, we are exploringscenarios for the contribution needed byimprovements to vehicle technologies.We havealso worked closely with strategic partners toexplore scenarios for the potential contributionsof varying combinations of vehicle technologiesand lower-carbon fuels. This analysis is beingfactored into our vehicle “cycle plan,” which setsout the products and technologies we will makeover the next five years as well as our longer-range product strategy and technology planning.

In the current tomid-term timeframe, we areimproving the fuel economy and reducing theGHGemissions of the vehicleswe offer by using a broadarray of technologies, as discussed in theAdvancedCleanTechnologies section.

Over the past several years, our vehicle GHGemissions have improved significantly in Europeandmodestly in theUnited States (seeDataOverviewon page 37). As seen in the box aboveright, ourU.S. vehicles are competitive in fueleconomy, ranking better than average in six of 11categories, worse in four and the same in one.

At the portfolio level, themix of vehicleswe sellwill continue to be dictated by the consumer’swants, but ourmove toward global product designand commonplatforms and technologieswill helpus offer greater fuel economy across awide rangeof product designs.

A commonglobal approach also allowsus toleverage the intellectual and innovative capacitywehavedeveloped throughout theCompany. Forexample, in 2006,Volvo announced theestablishment of a newhybrid development centerinGothenburg, Sweden, complementing theexpertise developed through the launchof Ford’sNorthAmerican hybrid vehicles. Also in 2006,weannouncedplans to invest £1billion (approximately$2billion) in developing environmental

“We want to do our part in the effort to achieve climatestabilization. Market forces already indicate that wemust continue to improve our fuel economy to staycompetitive. We must all work together to ensurealignment among climate goals, market needs, andemerging policy and legislation.”For more commentary visit www.ford.com/go/sustainability

DERRICK KUZAK Group Vice President,Global Product Development


VEHICLE





technologies in theUK.Over the next six years,Ford, Jaguar, LandRover andVolvowill introducemore than100models andderivativeswithimproved fuel consumption andexhaust gases.

Our product plans for the longer term areshaped by a need for flexibility. We know thatalmost any scenario will call for reducing vehicleGHG emissions, but the future development oftechnologies, markets and politicalexpectations are all uncertain.

Because of this, we are investing in a broadrange of promising advanced powertraintechnologies, including advanced gasolineengines; hybrids; diesel hybrids and other cleandiesel technologies; biofueled vehicles; hydrogeninternal-combustion engines; hydrogen fuel cellpowertrains; and various combinations of thesetechnologies, plus weight reductions.We aremaking steady progress in developing thesetechnologies. For example, we have 30 fuel cellvehicles and 30 hydrogen internal-combustionengine vehicles on the road undergoing testing.Please see the Advanced CleanTechnologiessection on page 11 formore detail.

FUELThe use of renewable fuels can reduce GHGemissions attributable to vehicle use. Whilecurrent corn-based bio-ethanol production inthe United States provides modest(approximately 20 to 30 percent) reduction invehicle GHG emissions on a well-to-wheels

basis, next-generation biofuels such as ligno-cellulosic bio-ethanol offer up to approximately90 percent GHG reduction benefit.1 Thus,building a substantial fleet of Flexifuel vehicles(FFVs) is a bridge to widespread use of lower-carbon biofuels in the future.

We have been a leader in developing anddeploying affordable technology allowingvehicles to use renewable fuels. In Brazil, wehave produced nearly 3 million vehicles with theability to run on bio-ethanol. In the UnitedStates, we have produced more than 2 millionFFVs since 1997 that can be fueled with eitherconventional gasoline or a blend of up to 85percent bio-ethanol. We have committed todoubling the number of FFVs in our lineup by2010. Assuming continuing incentives thatencourage the manufacture, distribution andavailability of renewable fuels and theproduction of Flexifuel vehicles, we stand readyto expand FFV output to 50 percent of totalvehicle production by 2012.

In Europe, Ford is an FFVmarket leader andpioneer. The Focus and C-MAX FFVs arepresently on sale in 12 European markets, withmore markets to come. Building upon thesuccess of its FFVs, Ford of Europe has

announced it will extend its FFV range byoffering FFV versions of the newMondeo,Galaxy and S-MAX in early 2008. AdditionallyVolvo presently markets three FFV vehicles(S40, V50 and C30) and has plans to introducefurther derivatives in the next 12 months.

Through its range of alternative fuel vehicletechnologies, and its range of low-CO2conventional vehicle technologies, such as itshigh-tech clean diesel technologies with among-best-in-class CO2 performance, Ford is offeringone of the broadest low-CO2 vehicle portfoliosin Europe today.

Alternative fuels pose a classic chicken-and-eggproblem: automakers can produce a range ofproducts to use fuels with varying carboncontent, but the benefits are only realized ifenergy providers bring the fuels to market andconsumers demand the vehicle and the fuel.

We are working with fuel producers toencourage development of E85 infrastructurein the United States through projects such asthe Midwest Ethanol Fuel Corridor. Ford is alsoengaged in two pilot projects in Europe to testthe potential large-scale introduction ofbio-ethanol and FFVs.


Two seater

Minicompact car

Subcompact car

Compact car

Midsize car

Large car

Small station wagon

Midsize station wagon

Minivan

SUV

Pickup

Vans*

10 20 30 40 50 60MILES PER GALLON

11

1313

2221

12

14

12 2320

12 2820

1620

1115

11

11 17

2615

15

1722

22

24

24

2655

20 28 31

3131

28

50

2420

20

3723

2035

35

34

272625 26

20

2019

19

1719 26

20

25

252524

19

15

2523

INDUSTRY**MIN MAXAVE

FORD FLEET***MIN MAXAVE

1934

17

* Due to a weight increase for the 2007Model Year, the Ford Econoline Vans were not part of the CAFE calculation.** EPA miles per gallon estimates were used to calculate the industry averages for all vehicles in each class.***The Ford data are based on Corporate Average Fuel Economy (CAFE) test values adjusted downward by 15 percent

to be equivalent to EPA estimates and better reflect real-world driving conditions for an average U.S. motorist.

FUEL ECONOMYOF U.S. FORD VEHICLES BY EPA SEGMENT (2007 MODEL YEAR)

=+

[1] Ethanol: the Complete Lifecycle Picture, Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy,March 2007

FORD ESCAPE HYBRID

FUEL DRIVER GHG EMISSIONS



In the longer term, we believe that next-generation biofuels made from a variety offeedstocks, including agricultural wastes(particularly ligno-cellulosic material) will be animportant part of the GHG emission reductionequation and will help address concerns aboutcurrent-generation biofuels, including potentialcompetition between food and fuel crops.

More details on our biofuels programs areavailable in the Advanced Clean Technologysection of this report and our full Web report.

DRIVERParadoxically, the “driver” portion of the GHGemissions equation holds the potential forsubstantial reductions at minimal cost, but it isoften overlooked. We focus on the driverbecause, ultimately, drivers decide whichvehicles and fuels they will purchase and howthose vehicles will be driven.

Since 2000, Ford has offered an “eco-driving”program through its German dealerships inpartnership with the German Federation ofDriving Instructor Associations and theGerman Road Safety Council. The programhas documented the potential for up to a 25percent improvement in fuel economy whendrivers adopt conservation-minded driving andvehicle maintenance habits. During 2006, webuilt on this experience and rolled out aWeb-based eco-driving program to all U.S. salariedemployees. The eco-driving approach hasalso been incorporated into Driving Skills forLife, a teen driver education program(www.drivingskillsforlife.com). Eco-driving tipsare available to the public at www.ford.com/en/goodWorks/environment/airAndClimate/ecoDrivingTips.htm.

We believe that our customers are concernedabout vehicle GHG emissions and ready to helpreduce them. As a complement to eco-driving, weare offering customers an innovative tool calledcarbon offsetting, which neutralizes the CO2emissions from one source by supporting

projects that reduce emissions elsewhere by thesame amount. Through our GreenerMilesprogram, operated in partnership withTerraPass,Ford owners and customers can visit the programWeb site (www.terrapass.com/ford), easilycalculate the amount of GHGs created by drivingtheir vehicle and learnmore about climate changeand how carbon offsettingworks. They canoffset, or neutralize, a year of their driving bypurchasing aTerraPass customized to theirvehicle and driving patterns. The proceeds –ranging from about $30 to $80 – are used to fundclean renewable energy production (like thatfromwind farms), which reduces GHG emissionsby displacing coal-fired electricity from thepower grid.

During 2006, the program’s first year ofoperation, 23,000 people visited the site, one-third used the calculator and 361 purchasedoffsets. Together with offsets purchased byFord to cover the manufacture of its 2007 MYhybrid vehicles, a total of 23,876 tonnes ofGHG were avoided.

Our Land Rover brand has built upon theGreener Miles model by including three years’worth of carbon offsets in the purchase price ofits vehicles in the UK. The program, developedand run in partnership with the NGO ClimateCare, is part of an integrated approach thatincludes fuel economy improvements to thevehicles and offsets for all of Land Rover’smanufacturing GHG emissions.

The offset cost of £85 to £165 (approximately$165 to $325) is included on the invoice to thecustomer and is clearly communicated by thedealer. This amount represents 45,000 miles(equivalent to three years’ average driving).Land Rover tested the program with customersbefore its launch and found that they wereprepared to play an active role.

The program, which began with the 2007 modelyear and will run for an initial three-year period,is projected to offset 2.5 million tonnes of CO2in total, including 600,000 tonnes related tomanufacturing emissions and the balance tocustomer vehicle use. Following the success ofthe UK program, Land Rover is evaluatingextension to other countries.

Land Rover selects offset projects in the areasof renewable energy, energy efficiency and

technology change cooperatively with ClimateCare, with consideration also given to the socialand environmental benefits of the project. InMarch 2007, the first offset projects wereannounced, including providing run-of-riverhydroelectric power to a remote area ofTajikistan and funding a wind farm in China.

MARKET, POLICY ANDTECHNOLOGICALFRAMEWORKAddressing the linked issues of climate changeand energy security requires an integratedapproach – a partnership of all stakeholders,including the automotive industry, the fuelindustry, government and consumers. It will alsorequire the best thinking fromall ofthese sectors.

Ford is involved in numerous partnerships andallianceswith universities, coalitions,nongovernmental organizations and othercompanies to improve our understanding ofclimate change.

For example, Ford recently joined theUnitedStates ClimateAction Partnership (USCAP), analliance ofmajor businesses and leading climateand environmental groups that have cometogether to develop an economy-wide,market-driven approach to reduce greenhouse gasemissions. The group believes that legislativeaction on theUSCAP solutions-based proposal,entitledACall for Action, would encourageinnovation, enhanceAmerica's energy security,foster economic growth, improve our balance oftrade and provide critically neededU.S. leadershipon this vital global challenge.

We are alsoworking closelywith BP to explorevehicle and low-carbon fuel technologies.We areworkingwith theWorld Resources Institute on the“EMBARQ” Istanbul project to reduce vehicleemissions and traffic congestion.We are afoundingmember of theCarbonMitigationInitiative at PrincetonUniversity to study thefundamental scientific, environmental andtechnical issues related to carbonmanagement.Our participation in these and other partnershipshelps to formulate improved strategies forproducts and policies thatwill in turn help toaddress climate change and energy security.

We try to bring these perspectives to ourparticipation in public policy development.





CLIMATE CHANGE PUBLIC POLICYEverywhere we operate, we seek to be aconstructive partner in developing policiesthat will be effective and efficient in reducingGHG emissions.

European policyIn 1999, ACEA (the European automobilemanufacturers association) and the EUCommission signed an industry collectiveagreement inwhich the European automotiveindustry committed itself to voluntarily reducethe average fleet CO2 emissions of its new carssold in the EU.The target is 140 gCO2/kmby2008, down from185g/km in 1995 as thereference year. Part of the agreementwas toreach an interim target of 165–170 g/km in 2003,whichwas overachieved by the industry, but in therecent years, the progress has slowed down.

The auto industry’s progress to date alreadyrepresents a very significant contribution to theEU’s overall efforts to address climate change.The industry has always said that the agreementrepresents one of themost challengingCO2reduction actionswithin the EUand that it isextremely ambitious, both technically andeconomically. Despite an increasingly adverseenvironment, Ford and the industry continue towork hard tomove toward the 2008 target.

In February 2007, the EUCommission proposedits post-2008CO2 emissions reduction strategyfor vehicles. Fordwill continue to play its part tohelp further reduce CO2 emissions fromautomotive sources; however, we believe the EUCommission’s proposal focuses toomuch onvehicle technology, denying the fact that abroader range ofmeans is available to reduceCO2 emissions in a farmore cost-effective way.We call on the Commission to adopt amoreintegrated approach than envisaged in thecurrent proposal, as per the recommendations bythemulti-stakeholder CARS21High-Level Group.Involving all stakeholders – the auto industry, fuelsuppliers, infrastructure providers, consumersand government –will result in larger andmorecost-effective CO2 emissions reductions fromroad transport.

U.S. Federal PolicyAt the federal level, we believe that policies thatput constraints on carbon need to include allsectors of the economy.They should encourageconservation and the introduction of lower-carbon

and renewable-carbon fuels and energy sources,while increasing the demand formore energy-efficient products across all sectors at the lowestpossible social cost and at a pace consistentwithtechnologymaturation, consumer demand andeconomic viability.Within the transportationsector, vehicles, fuels and fuel usemust beaddressed as a system. Policies need toencourage the use of biofuels and blends throughfavorablemarket signals and incentives, aswell asencourage energy efficiency, carbonsequestration initiatives, offsets and creditsacross all phases of the energy value chain.

During 2006 and early 2007, we provided thisperspective to policymakers in a variety ofsettings, stating our support for:

Reduction programs based on upstreamcarbon trading systems that graduallyreduce the limits on carbon introduced intothe economy

Market-driven incentives for advancedtechnology vehicles to increase theirpresence in the marketplace

Working with the technical and safetyexperts at NHTSA to set standards atmaximum feasible levels and to reform theCAFE system

Specific federal policy measures toencourage ethanol infrastructure expansionas part of an integrated approach thatincludes support from fuel providers, fuelretailers and automakers

State levelIn 2002, the California legislature passed a lawdirecting the California Air Resources Board(CARB) to promulgate rules limiting greenhousegas emissions frommotor vehicles. In 2004,CARB voted to adopt a set of fleet averagestandards expressed in grams per mile of CO2.Final rules incorporating these standards wereadopted in 2005. The standards are set to takeeffect beginning with the 2009model year andbecome increasingly stringent through the 2016model year. Several other states, including NewYork, Connecticut, Massachusetts, Vermont,New Jersey, Pennsylvania, Rhode Island, Maine,Oregon,Washington andMaryland, have eitheradopted parallel regulations or are in theprocess of doing so.

Ford supports the reduction of vehicle CO2emissions and is working aggressively towardthe development and implementation of real,market-based solutions. However, the entireautomobile industry is united in opposition tothe AB 1493 rules because they constitutestate fuel economy standards. The federalCAFE law calls for a single, nationwide fueleconomy program and prohibits individualstates from adopting or enforcing regulationsrelated to vehicle fuel economy standards.State-by-state regulation of fuel economy isunworkable because it raises the prospect of anunmanageable patchwork of state standards.Moreover, the AB 1493 regulations seek toimpose a fuel economy task that is far moresteep and severe than any that has ever beenimposed in the history of CAFE. As time passesand the standards grow more stringent, many ifnot all manufacturers will have to severelyrestrict or eliminate sales of larger cars andtrucks in order to maintain compliance. Evenwith our commitment to embrace innovativetechnologies, Ford would not be able to complywith these standards without restricting ourproduct lineup over time.

In December 2004, the Alliance of AutomobileManufacturers filed an action in federal court inCalifornia seeking to overturn theAB1493regulations. Subsequently, similar caseswerefiled inVermont andRhode Island. All members ofthe Alliance (BMW,DCX, Ford, GM,Mazda,Mitsubishi, Porsche, Toyota andVolkswagen)supported taking this action. TheAssociation ofInternational AutomobileManufacturers (AIAM),whosemembership includesHonda, Nissan, AstonMartin, Bosch, Delphi, Denso, Ferrari, Maserati,Hitachi, Hyundai, Isuzu, Toyota, Suzuki, Subaru,Renault, Peugeot,Mitsubishi and Kia, and theJapanAutomobileManufacturers Association, Inc.(JAMA) have since intervened in the litigation onthe side of the Alliance. The legal argument beingmade by the automobilemanufacturers in thesecases is that state greenhouse gas regulationsare functionally equivalent to fuel economystandards and therefore preempted by thefederal CAFE law.TheVermont casewent to trialin April/May of 2007, and a ruling in that case isexpected in the summer of 2007.The CaliforniaandRhode Island cases are still pending. It isvirtually certain that any ruling in these caseswillbe appealed by one side or the other, and thus itmay be several years before the issue of federalpreemption is fully resolved.




Human RightsWhile Ford has long recognized the business and moral case fortreating our employees and suppliers with dignity and respect,in 2000, human rights became a formal focus of our Company’ssustainability agenda. At that time, we consulted withstakeholders, looked at the public’s changing expectations forcompanies such as ours, and assessed the evolving landscapeand competitive pressures in our industry. What we learnedconvinced us that developing explicit human rights policiesand processes for our Company and suppliers was not onlythe right thing to do, but also a business imperative.

Human rights refers to basic standards oftreatment to which all people are entitled. It isa broad concept, with economic, social, cultural,political and civil dimensions. For Ford, thismeans ensuring that our products, no matterwhere they are made, are manufactured underconditions that demonstrate respect for thepeople who make them. It also meansrespecting the rights of people living in thecommunities around our facilities, and thoseof our suppliers, who may be affected bythese operations.


IN THE COMMUNITY SECTIONCommunity impacts and engagementInvesting in communitiesA tradition of givingFord Volunteer Corps

Human rights: complex andevolving challengesHuman rights: summary findingsof supplier assessments

WORKING ATA FORD ASSEMBLY PLANT


HUMAN RIGHTS AT FORDIn 2003, following significant internaland external engagement, Fordadopted a Code of BasicWorkingConditions, which articulates ourcommitments on key human and laborrights issues, and provides thefoundation for our efforts in this area.

Since then, we have developed a range ofprocesses to ensure that our own operations andthose of our suppliers are adhering to the Codein practice, including integrating the Code and itssupporting assessment process into Ford’sGlobal Manufacturing Scorecard, a key tool weuse to manage our manufacturing operations.This section provides information on key actionswe took in 2006 to continue to integrate humanrights into our operations, including:

Revising our Code

Assessing working conditions in Fordfacilities and our supply chain

Working with our suppliers to build theircapacity on human rights

Helping launch an industry-wide effort toaddress working conditions across the globalsupply chain

Additional information on Ford’s approach tohuman rights is described on ourWeb site.

REVISING OUR CODEIn 2006, we revised our Code to includeadditional provisions that we felt wereimportant to strengthen our effortsin this area, based on our experienceimplementing and assessing compliancewith the Code. Specifically, we addedcommitments on “communityengagement and indigenouspopulations,” “bribery and corruption”and “environment and sustainability.”

We also added explicit reference to – andour general endorsement of – severalhuman rights frameworks and charters.

The revised Code reflects our increasedunderstanding of the broad set of issues thatfall under the umbrella of human rights.In particular, it seeks to articulate ourcommitments on several key issues that extendbeyond the fenceline of our facilities and thoseof our suppliers – where we have focused themajority of our initial efforts on human rights –to include our impacts on the broadercommunities in which we operate. It is one ofthe key steps in our effort to take a moreintegrated approach to managing human rightsand community issues. The revised Code wasapproved and was rolled out to employees andsuppliers as a formal Policy Letter in 2007.

WORKING CONDITIONS INFORD PLANTSFollowing the adoption of our Code,our first step was to develop andimplement a process for assessingour owned-and-operated facilities’compliance with the Code. Our nextstep was to expand that process toinclude majority- and minority-ownedjoint venture operations.

FORD FACILITY ASSESSMENT PROCESSWe have continued to refine the process forassessing Ford facilities’ compliance with ourCode since we conducted our first pilotassessment in late 2004.

Today, the process includes a questionnaireto be completed by facility management anda detailed review of documents related to thefull range of working conditions issues(e.g., collective bargaining agreements,grievance procedure logs, employee hotlinerecords, and health and safety audit reports).The findings of both of these serve as the basisfor interviews with facility management.

Where procedures and/or documentation arelacking, orwherewe feel it would otherwise bevaluable, the assessments also include facilityvisits. The findings of the assessments are initiallysharedwith human rights organizationswithwhichFordworks and then published on ourWeb site.Wehave sought the opinions of neutral third partieswho have visited plants and/or reviewed theassessment process, and they have agreed thatthe process is robust and has integrity.

Since 2004, we have conducted a total of eightformal assessments of Ford facilities, three ofwhich were in joint venture facilities. During2006, we conducted assessments at our ownedfacility in Tamil Nadu, India, and at joint venturefacilities in the Changan Ford plant in Chongqing,China, and Otosan Kocaeli, Turkey, in which Fordowns a 35 percent and 41 percent stake,respectively. The findings were generallyconsistent with those from previousassessments and confirmed that Ford’s whollyand majority-owned facilities are operating incompliance with our Code. The full reports areavailable on ourWeb site.

NEXTSTEPSIn 2007, we plan to conduct assessments in selectFord facilities in SouthAfrica, Brazil andRussia. Inaddition to providing the usual insight intoworkingconditions in these facilities, these assessmentswill give us our first opportunities to evaluatecompliancewith the newelements of our Code.For example, to better understand performancerelated to the added “community engagement andindigenous populations” element, we intend toengagewithmembers of the local communities aspart of planned site visits.

We are also taking steps to align the communityengagement efforts related to our Code with ourexploration of new approaches to personalmobility in developing countries. Specifically,we plan to conduct extensive stakeholderengagement with new and existing partners,community members and others to help usunderstand the mobility needs, opportunitiesand challenges in those locations.









WORKING CONDITIONS IN OURSUPPLY CHAINUnderstanding and, where necessary,working with our suppliers to helpimprove working conditions in theirfacilities is another key focus of ourhuman rights efforts. This is a majorundertaking, as Ford has tens ofthousands of supplier facilitiesglobally. It is also a critical undertaking,as we have less control in suppliers’facilities than in our own, andsourcing is increasingly expandingto emerging economies.

The discovery in 2006 that pig iron made fromslave labor in Brazil had found its way into oursupply chain emphasized for us the complexityof this challenge. (Pig iron is used to make steel,one of the principal materials in automobiles.)When we learned of the situation, Fordimmediately stopped sourcing from the sitethat was identified in the investigation and,subsequently, found a site in the United Statesfor ongoing supply.We then identified allpotential points of entry for pig iron in the Fordvalue chain and engaged with all relevantsuppliers, seeking assurances from them thatforced labor is not employed anywhere in theirvalue chain.We also requested additional detailregarding their systems for safeguarding humanrights throughout their operations. Thissituation underscored the importance of themajor effort we have underway to assess, trainand engage our suppliers on our Code and assistthem in integrating the Code into their ownpolicies and systems.

SETTING EXPECTATIONS FOR OUR SUPPLIERSTo reinforce our commitment to our Code,Ford’s Global Terms and Conditions – our corecontract covering all suppliers – reflects ourspecific working conditions requirements on theprohibition of the use of forced labor, child laborand physical disciplinary abuse. Theserequirements were added in January 2004 forproduction suppliers and in September 2005 forall others.We have provided a standard forthese areas – the same as we use in our ownfacilities that supersedes local law if our

standard is more stringent. The Global Termsand Conditions also prohibit any practice inviolation of local laws.

SUPPLIER ASSESSMENTANDTRAINING PROGRAMOver the past several years, we have developedand continued to refine a supplier assessmentand training program. Assessments consist ofa detailed questionnaire, document review,factory visits, and management and employeeinterviews, and are conducted with theassistance of external auditors. Since2003, we have conducted nearly 400assessments of existing and prospectivesuppliers in nine countries.

In 2006, we conducted assessments and trainingsessions in India, Turkey, Russia, Romania andChina.We also conducted follow-up assessmentsinMexico, where we had held training sessionsthe previous year. The findings from theassessments in 2006were generally consistentwith those we had previously conducted in ChinaandMexico. Namely, they identified a wide rangeof general health and safety issues, severalwages and benefits issues, and a limited numberof other types of noncompliance. (See data tableon page 27.)

We continue to focus on the 17 countrieswe had previously identified as havinghigher risks of substandardworkingconditions (see chart at right.) Amongthose countries, locations are prioritizedbased on production and sourcing trends;sales trends; and relative perceived riskbased on the input of human rightsgroups, companies’ experience and othergeopolitical analysis.

While we initially focused the bulk of our effortson the assessment component, our experiencehas convinced us that while assessments are auseful tool as part of a larger program, theyshould not be ourmain emphasis. Rather, we have



AUTOALLIANCE PLANT IN RAYONG, THAILAND


400assessments of existing andprospective suppliers in ninecountries since 2003




learned that we can better understand theconditions of each facility – and help improveconditions where needed –whenwe engagewithsuppliers in amore interactive, collaborative way.

This process – focused on training and education–maymean that in some cases suppliers will be innoncompliancewhile theywork tomeet ourstandards. However, we continue to engagewithcooperative suppliers to develop and implementappropriate corrective action plans. In thismanner, we also have an opportunity to encouragechange throughout the tiers of suppliers andaffect positive changemore broadly.

BUILDING SUPPLIER CAPACITYOur primary focus now is building capacity amongsuppliers by developing and conducting tailoredtraining programs.The locally customizedworkshops emphasize interpretation andapplication of legal standards and internationalbest practice rather than a simple reviewof labor

law and expectations. The interactionwithmanagers from theHumanResources, Health andSafety, Labor Affairs and Legal departments ofparticipating companies allows for a two-waylearning experience touching on the areas ofinterest for each company.Material for thetrainingworkshops is developed by Ford andtypically delivered by theAutomotive IndustryActionGroup, amember-based, nonprofit industrygroup thatwill be offering industry-wideworkingconditions training in selectmarkets in 2007.

As of the end of 2006, 755managers from 534different supplier companies in nine countrieshad completed a full day of training. Thesesuppliers have nowmoved on to the process ofassessing their facilities for compliance withlocal law and Ford expectations, and completionof the final stage of the program, which iscommunication to both personnel and supplierson the topic of working conditions expectations.

EXPANDING THE PROGRAMWITHOUR GLOBAL STRATEGIC SUPPLIERSOver the last year, one of our centralareas of focus has been to embed oursupplier working conditionsexpectations into our new strategicsupplier strategy – called the AlignedBusiness Framework – and tocommunicate these expectations toour suppliers. The Aligned BusinessFramework emphasizes longer-term,more collaborative relationships witha set of Global Strategic Suppliers.Through this approach, we also saw anopportunity to strengthen and expandthe ways in which we engage with oursuppliers on human rights.


TAILORINGOURAPPROACHLaws, culture and customs vary in the differentcountries in which our suppliers are located. To ensurecompliancewith our Code of BasicWorking Conditionsin each of these countries, our practice is to:

Build an understanding of the market byconsulting with sourcing experts, our internalnetwork and a network of NGOs with expertisein human rights

Analyze local laws and compare them to ourCode, using internal and NGO legal experts

If local laws are absent or lacking, analyzeinternational best practices to select arecommended approach

Develop training materials tailored to the market

Adapt our assessment approach for the market

Conduct pilot assessments

Evaluate assessment results to identify whereissues are arising and get feedback on theassessment process

Use the feedback to revise the assessment andtraining process

90

2003-04 2005 2006 2007 2008 and beyond

1,400

2,000+

Estimated number of sitescovered (Not to scale)

CHINA EXPORT

CHINADOMESTIC

MEXICO

INDIA

ROMANIA

RUSSIA

TURKEY

BRAZIL

COLOMBIA

MALAYSIA

THAILAND

VENEZUELA

ARGENTINA

KOREA

PHILIPPINES

SOUTH AFRICA

TAIWAN

VIETNAM

PLUS GROWTH

EXPANDING OUR APPROACH



As part of the Aligned Business Framework,Ford’s Global Strategic Suppliers explicitlycommit to manage and assure proper workingconditions in their facilities and in their sub-tiersuppliers’ facilities. In addition to complyingwith Ford’s Global Terms and Conditions, thismeans we expect suppliers to develop:

Their own working conditions code (if theydo not have one already), aligned with Ford’sCode of BasicWorking Conditions

Internal training and compliance processes

Training and compliance processes for theirsub-tier suppliers

As a first step in rolling out this new program,we have distributed a questionnaire to GlobalStrategic Suppliers to help us understand howtheir policies, processes and programs alignwith Ford’s Code. Initial findings suggest thatfew respondents already have consolidatedprocesses driven by stand-alone codes.However, the majority have policies or programsin place to manage some or all elements ofFord’s Code – and, indeed, some do haveconsolidated processes, including those thatextend beyond their own operations into thoseof their supply chain.

Ford has committed to providing suppliers witha range of support and assistance based on ourexperience in this area. We have developed anin-depth resource guide to give suppliersinformation and background on human rightsgenerally, and on the development of theirown codes, specifically. We have also offeredto share the training materials we havedeveloped, as well as information on ourcompliance and training processes. Finally, wehave committed to working with suppliers tohelp resolve issues and concerns, rather than toissue automatic exclusions.

We are particularly excited about this newphase, which represents a further shift from atop-down, compliance-focused approach tomanaging human rights issues in our supplychain to a more collaborative, in-depth one.In our view, it will help embed ownership ofhuman rights issues throughout our value chain,and lead to the development of more robust,sustainable human rights programs.

MEASURING PERFORMANCEThe shift toward greater emphasis on tailoredtraining and engagement versus assessments isinherently more qualitative than quantitative.This has meant a reevaluation of our approachto collecting and managing data. We have beguncollecting new data on training. Additionally, asour systems mature, we are working to developnew indicators that are more reflective ofperformance, rather than just process. Finally,we have taken steps to better align the data weprovide with that used elsewhere in theCompany to ensure it is useful and accessible topeople within our business. While we have madeprogress developing – and remain committed to– a data tracking and reporting system, we arealso looking for ways to streamline the datacollection process, targeting those indicatorsthat are of highest value to us and ourstakeholders. (See data table on page 27.)

NEXTSTEPSIn 2007, we plan to launch supplier assessmentsand training programs in Brazil, Colombia,Malaysia, Thailand and Venezuela. In addition, aspart of the working conditions efforts under theAligned Business Framework, we plan to workwith our Global Strategic Suppliers to assistthem in developing their own codes and/orexpanding their programs or processes, whereneeded, to ensure they meet Ford’s workingconditions expectations.

TAKING ACTION AS AN INDUSTRYDespite the progress Ford has madeimplementing systems to ensure properworking conditions in our and our suppliers’facilities, we recognize that there arelimitations to what Ford alone can do. The long-term sustainability of these efforts depends onthe active participation of all parties in thevalue chain – from the original equipmentmanufacturers (OEMs) such as Ford, to thesuppliers themselves, to the governmentagencies that set and enforce the regulationsgoverning operations. Such collective action willnot only minimize costs and increase efficiencyfor OEMs and suppliers alike, but also lead tofurther-reaching impact than individualcompanies taking steps in isolation.

PRODUCTION(Anything that is part of the vehicle)

60+Countries in which suppliers are located

30Emerging markets in which suppliersare located

17Emerging markets considered to haverisks of substandard working conditionsThese countries were identified as higherrisk based on consultation with NGOs,other companies with human rightsexperience, local Ford operations, andvarious media and government reports.

107 1

Ford manufacturing sites

2,000+Supplier companies

7,500+Supplier manufacturing sites

130,000Parts currently being manufactured

250+Production commodities to manage

NONPRODUCTION(Anything that is not in the vehicle such asservices, marketing, construction,computers, industrial materials, healthcare, machinery, trains)

9,000+Supplier companies

500+Nonproduction commodities

TOTAL GLOBAL BUY

$90+ billion

1As of year end 2006

SUPPLY CHAIN PROFILE


AUTOMOTIVE INDUSTRYACTIONGROUP INITIATIVEIn 2006, Ford was pleased to be amonga group of major automakers andsuppliers that announced the launch ofa collaborative, industry-wide projectfocused on advancing a shared visionand promoting decent workingconditions throughout our supplychains. The effort is coordinated by theAutomotive Industry Action Group(AIAG) in partnership with Business forSocial Responsibility (BSR), a nonprofitorganization that works with companiesto advance responsible businesspractices. BSR received a $185,000grant from the U.S. State Departmentto help support the project. Ford hascontributed an “executive on loan” – theglobal manager of our supply chainsustainability group – to AIAG tosupport the project and facilitatesharing what we have learned fromworking on these issues within ourown operations.

PROGRESS AND PLANSProject participants have established a set ofguiding statements to create a shared industryvoice on key working conditions issues. Thestatements cover the core elements ofindividual companies’ codes and policies, jointcodes created by other industries and keyinternational standards. The elements includechild labor, forced labor, freedom of association,harassment and discrimination, health andsafety, wages and benefits, and working hours.

Another key objective of the project is todevelop country-specific training sessions thatcan be delivered by the AIAG. The sessions willbe particularly targeted toward suppliers thatare shared by multiple automakers. The initialareas of focus will be China and Mexico, withplans to conduct the first sessions in thoseregions by mid-2007.

Going forward, project participants plan toexplore other areas of cooperation, includingdeveloping training tailored to other regions.Additionally, they intend to engage with othersin the industry to continue to expandmembership in the effort.


WORKINGCONDITIONSASSESSMENTSTATUS FORSUPPLYCHAIN

Working Conditions Assessments (as of 12/31/06) AMERICAS ASIA EUROPE GLOBALTOTAL

Total violations per region 784 2,544 201 3,529Average violations per assessment 14.8 11.9 11.2 12.4Assessments completed to date 53 214 18 285Follow-up assessments completed to date 32 99 0 131(third party and/or internal)

Working ConditionsTraining (as of 12/31/06) AMERICAS ASIA EUROPE GLOBALTOTAL

Training sessions completed to date 11 5 5 21Total number of attending companies 245 146 143 534Total number of trainedmanagers 399 198 158 755

Americas: Mexico and Central America (Dominican Republic, Honduras, Nicaragua)Asia: China, IndiaEurope: Romania, Russia, Turkey

While the general findingswere consistent with previous years, 2006 saw an increasein the total number of issues identified.We believe that reflects the fact that Ford hasbecomemore skilled at identifying potentially at-risk facilities – and thus targetingthem for assessments – rather than an actual decline in suppliers’ performance.

“It is abundantly clear that the entire industry mustwork together to enhance working conditions andcascade these concepts through the supply chain.One of our roles as a tier one supplier of automotiveparts is helping the second- and third-tier suppliersunderstand the need for, as well as the value of,better working conditions.”For more commentary visit www.ford.com/go/sustainability

DAVID DUESTERBERG Director, Health, Safety andEnvironment for Automotive Experience North America,Johnson Controls, Inc.




Vehicle SafetyWe are continuously enhancing the safety of our vehiclesthrough the sharing of research and technologies acrossbrands and regions.

Others have recognized the resultsof our efforts. In 2006, we againearned high marks for safety fromthe U.S. National Highway TrafficSafety Administration (NHTSA), theInsurance Institute for HighwaySafety (IIHS) and the European NewCar Assessment Programme(EuroNCAP).

Also, the volume of vehiclesaffected by safety-related recallsdropped, frommore than 6 millionunits in 2005 to 1.7 million unitsin 2006.


IN THE SAFETY SECTIONWorkplace health andsafety managementand performance

Vehicle safety• Safety management• Advanced technologies• Partnerships•Volvo S80 case study

FORD FOCUS CRASH TEST


CONTEXTTraffic safety is a growing publichealth challenge, particularly indeveloping countries. Worldwide,approximately 1.2 million people dieeach year in traffic accidents. The vastmajority of those fatalities – morethan 1 million – occur in countries withlow- and middle-income economies.

TheWorld Health Organization reports thattraffic accidents were the ninth leading threat toglobal public health in 1990, but such accidentsare expected to rise to the third leading threat by2020. All of that projected increase is forecastedto take place in low- andmiddle-incomecountries; high-income countries are actuallyexpected to see a decrease of 30 percent intraffic deaths between 2000 and 2020.

This critical global challenge requires holisticsolutions including infrastructure improvements,themodification of road user behavior and theenforcement of traffic laws, as well as continuedimprovements in vehicle safety.

We at Ford continue to take seriously ourresponsibility to build safe vehicles. Increasingly,we have also becomemore involved in findingnew and innovative ways tomodify road userbehavior (for example, through new technologiesand driver education efforts) and to encourageinfrastructure and enforcement improvements inthe communities in which we operate. Thissection details our latest efforts andachievements in all of these areas.

SAFETYMANAGEMENTOur objective is to provide our customers withvehicles that achieve high levels of vehiclesafety for a wide range of people over thebroad spectrum of real-world conditions.Real-world safety data, research, regulatory

requirements and voluntary agreementsprovide much of the input into our safetyprocesses, including our Safety and PublicDomain Design Guidelines, which are Ford’sstringent internal targets that exceedregulatory requirements. Ford utilizesengineering analysis, extensive computermodeling and its crash-test facilities –including our state-of-the-art SafetyInnovation Laboratory in Dearborn, Michiganand the Volvo Car Safety Centre in Gothenburg,Sweden – to evaluate the performance ofvehicles and individual components. Theseevaluations help to confirm that our vehiclesmeet or exceed regulatory requirements andour even more stringent internal guidelines.

ADDITIONALWEB CONTENTwww.who.int/world-health-day/2004/infomaterials/world_report/en/

18 Ford vehicles received five-star ratingsfor frontal and side impact fromNHTSA inits 2007U.S. NewCar AssessmentProgram (NCAP) ratings.

The IIHS awarded 22 Ford vehicles with“good” ratings for frontal offsetperformance in crash tests, and singled outthree vehicles – the brand-new Ford Edgeand LincolnMKX, as well as theVolvo XC90– asTop Safety Picks.

Recent EuroNCAP assessments of theFord Focus, S-MAX andGalaxy resulted inbest-in-class ratings for adult and childoccupant protection. Ford now has three ofseven highest-rated vehicles ever testedby EuroNCAP. The Galaxy achieved thehighest score possible for a right-hand-drive vehicle.

In 2007, the Land Rover Freelander 2received the EuroNCAP best-in-classrating for a small off-road vehicle for adultoccupant protection. This vehicle is alsoamong the highest-rated in its class forchild occupant protection.

SINCE OUR LAST REPORT


In 2006, Jaguar received the Traffic SafetyAchievement Award in the AutomakerCategory from theWorld Traffic SafetySymposium for the new Jaguar XK’sPedestrian Impact Safety System.Jaguar’s award was due in large part to the2006 XK’s pyrotechnic deployable bonnetsystem – an all-new, industry-leadingfeature that was created to meet PhaseOne of the new European safetylegislation on pedestrian safety andvehicle fronts.

The European standards are designed tohelp mitigate the severity of injuries topedestrians in traffic accidents. In the1980s, researchers at NHTSA in theUnited States observed a potential linkbetween under-hood clearance and risk ofhead injury to pedestrians. In theunfortunate event of a pedestrian impact,the XK’s unique deployable hoodautomatically “pops up” a few inches, toincrease the space between the engineand the hood. This helps to isolate thepedestrian from hard points in the enginecompartment and provides room for thehood to deform upon head impact, thusabsorbing impact energy and helping toreduce head injury risk. An advancedsensing system is mounted in the frontbumper to help discriminate between apedestrian collision and any otherpossible front-end collision.

JAGUAR XK150

PEDESTRIAN SAFETY – THE JAGUAR XK150


http://www.who.int/violence_injury_prevention/publications/road_traffic/world_report/en/index.html


SAFETY PERFORMANCEVehicle safety is the product ofcomplex interactions among thedriver, the vehicle and the drivingenvironment. We use the HaddonSafety Matrix (developed byWilliam Haddon, a former NHTSAadministrator and IIHS president) totake a holistic view of the factors thataffect automotive safety. The HaddonMatrix looks at injuries in terms ofcausal and contributing factors,including human behavior, vehiclesafety and environment. Each factoris then considered in the pre-crash,crash and post-crash phases.

HUMANBEHAVIORThe U.S. Department of Transportation reportsthat human factors cause or contribute to morethan 90 percent of serious crashes. In the pre-crash stage, drivers can try to avoid crashes bypracticing safe driving. Drivers can help reducethe risk of injury in the crash and post-crashphases by always properly using safetyequipment such as safety belts. Ford MotorCompany provides information, educationalprograms and technologies to assist inpromoting safe driving practices.

Ford continued its commitment to educatingyoung drivers about safer driving in 2006 and2007 through Driving Skills for Life, ournational education program for teens. Thisprogram earned Ford the 2007 Traffic SafetyAchievement Award for Community Servicefrom theWorld Traffic Safety Symposium at the2007 New York Auto Show. (For more about theprogram, see the case study on page 31.)

To promote more effective child passengersafety practices in Latino communities aroundthe United States, Ford Motor Company Fundhelps to support Corazón de Mi Vida, a bilingualand bicultural educational program developedby the National Latino Children’s Institute(NLCI) and NHTSA.

In addition, Ford continues to lead the industryin promoting safety belt use through itsBeltminder™ system, an industry-first innovationthat uses technology to influence the behavior ofdrivers and vehicle occupants by prompting themto buckle their safety belts. In the United States,andmany regions outside of North America whereregulations permit, Beltminder™ for the driver’sseat is standard equipment on all FordMotorCompany vehicles.

An important element of our research into humanbehavior is VIRTTEX – ourVIRtual TestTrackEXperiment simulator. Ford has publicly releaseddata from twomajorVIRTTEX studies – one ondriver distraction and one on the effects ofdrowsy driving. The findings from these studiesare being used to develop technologies that helpdrivers avoid crashes.

Ford also has been working to research andhelp improve driver behavior factors on a globalbasis. In China, for example, Ford is cooperatingwith the China Automotive Technology andResearch Center and the Chinese Ministry ofPublic Security to launch a new project thataims to provide accurate and scientific data forresearch into road safety in China.

PRE-CRASH(ACCIDENTAVOIDANCE)

ResearchEducationAdvocacy

Crash avoidanceSecurity

Road design foraccident avoidanceTraffic control

CRASH(OCCUPANT PROTECTION)

Technology andproper use

Crashworthiness Road design forinjury mitigationResearch

EXAMPLES OFFORD ACTIONS(DETAILED IN THIS SECTION)

VIRTTEX SimulatorDriving Skills for LifeBeltminder™

Roll Stability Control™Personal Safety System™Safety Canopy™Automatic crashnotification

Global Road SafetyPartnership

POST-CRASH(INJURYMITIGATION)

Telematics Automatic crashnotification

Emergency medicalservices

HUMAN BEHAVIOR VEHICLE SAFETY ENVIRONMENT

HADDON SAFETYMATRIX


VEHICLE SAFETYPRE-CRASH/ACCIDENTAVOIDANCEA variety of new technologies, in addition to avehicle’s basic handling and braking capabilities,can help a driver avoid accidents.

One new Ford innovation is the next generationof adaptive headlamps. With a unique two-partoptics package, the Adaptive Front LightingSystem (AFLS) is an industry breakthrough thatallows drivers to see better at night aroundcurves in the road. Most cornering, or swivel,lighting systems are one-piece modules thatturn as a single unit with the vehicle as itapproaches a curve. In contrast, the AFLSincorporates two independent light sources:a high-output halogen projector for the mainbeam and a secondary row of light-emittingdiodes that illuminates almost instantaneously,distributes the light beam evenly, and consumesless power than conventional lights. The AFLS isnow available on the 2007 Lincoln MKX.

All-wheel drive (AWD) and four-wheel drive (4WD)can also help drivers negotiate difficult drivingconditions by utilizing the available traction atboth the front and rearwheels to help keep thevehiclemoving during slippery or snowyconditions. Ford has been expanding its offeringsof these important features and nowoffers AWDor 4WDon all SUVs and light trucks, including allLandRovers. For 2007, AWD is also offered on thefollowing passenger cars and crossovers: the FordFiveHundred, Freestyle, Fusion and Edge; theMercuryMontego andMilan; the LincolnMKZandMKX; the Jaguar X-Type; and theVolvo S40, S60,S80,V50,V70 andXC70. AWD is also offered inAustralia on the Ford Falcon andTerritory.

Our industry-leading innovation known as RollStability Control™ (RSC) continues to give driversmore confidence in emergency situations. Fordand its global brands have built 4 million vehiclesglobally with electronic stability control systems.To date, more than 1million of those vehiclesfeature AdvanceTrac® with Roll StabilityControl™, which actively measures and helpscontrol both yaw and roll movements. RSCwasfirst introduced on the 2003Volvo XC90 and isnow standard equipment on the Ford Explorer,SportTrac, Expedition, Edge and new 2008Escape, as well as E-seriesWagons equippedwith the 5.4L engine. It is also standard on the


10,000TH FORD CRASH TEST

DRIVING SKILLS FOR LIFE

Established in 2003 by Ford, the GovernorsHighway Safety Association and a panel ofsafety experts, Driving Skills for Life is aprogram that helps youngsters develop theskills necessary for safe driving, beyondwhatthey learn in standard driver educationprograms. This program earned Ford the2007Traffic Safety Achievement Award forCommunity Service from theWorldTrafficSafety Symposium.

Vehicle crashes are the number one killerof teenagers in America. According tothe National HighwayTraffic SafetyAdministration, nearly 7,000 teens dieannually in automobile crashes in the UnitedStates. Studies demonstrate that crash ratesdecline considerably as young drivers gainexperience. Driving Skills for Life helps youngdrivers improve their skills in four key areasthat are factors inmore than 60 percent ofteen vehicle crashes: hazard recognition,vehicle handling, spacemanagement andspeedmanagement.

Driving Skills for Life provides outstandinglearning tools, including a DVD, printedmaterials and a newly redesignedWeb site(www.drivingskillsforlife.com) that featuresstunning graphics, upbeatmusic andinteractive features (such as simulationgames) that help young drivers improve theirability behind thewheel. The content was alsoupgraded in 2006with information abouteco-driving, car care tips and information formature drivers.

Driving Skills for Life also reached up to90,000 individuals through in-person events in2006, including a four-day Summer Camp fornew drivers, a ride-and-drive event for teensnear Orlando, and displays and presentationsat 14 conferences or other events.

Finally, 2006 also saw the release of a 30-minute documentary on Driving Skills for Life,which wasmade available to public televisionstations, including PBS, via satellite.

Driving Skills for Life opened its 2007 seasonin January with a ride-and-drive event inSacramento, at which 300 students honedtheir driving skills on challenging drivingcourses under the supervision of a team ofprofessional instructors. In February 2007,Ford partnered with KDKA-TV (the CBSaffiliate in Pittsburgh) andWestfieldInsurance to announce a new partnership toassist young drivers in Pittsburgh andwestern Pennsylvania called Taking the Lead,based on Driving Skills for Life. Furthermore,a Driving Skills for Life programwas launchedin Tazewell County, Illinois, in March. TazewellCounty has lost 15 teens in car crashes in justover a year, and the Driving Skills for Life“Operation Teen Safe Driving” program isdesigned to be an intensive two-monthimmersion into teen safe-driving issues.



MercuryMountaineer, the new 2008Mariner,Lincoln Navigator and LincolnMKX. Ford is alsodeveloping the next-generation regenerativebraking system for the 2009 Escape Hybrid andMariner Hybrid to be compatible with RSC.

Ford has developed numerous additionalinnovations to help the driver avoid accidents,including several technologies that use forward-looking radar and vision sensors. For example,the new technologies available on the all-new2007Volvo S80 include Adaptive Cruise Control,CollisionWarning with Brake Support, and theBlind Spot Information System, among others.

CRASH/OCCUPANT PROTECTIONMany factors influence a vehicle’scrashworthiness, including the design of thevehicle’s structure to absorb impact energy andthe use of passive safety equipment such as airbags. To help protect drivers and passengers inthe event of a crash, our newest technologiesfurther enhance the performance of safety beltsand air bags, and provide additional occupantprotection in side crashes and rollovers.

The Ford Personal Safety System™ helpsreduce the risk of injury to the driver and frontpassenger in the event of a moderate to severefrontal collision. The system is designed toadjust the deployment of the front air bags toenhance protection for front-seat occupants.It accomplishes this with the help of crashseverity sensors, safety belt usage sensors,dual-stage driver and front-passenger air bags,a driver’s seat position sensor and frontoutboard safety belt pretensioners. ThePersonal Safety System™ is standard on manyFord vehicles in the United States.

The 2007 Ford Explorer andMercuryMountaineer are equipped with numerousstandard advanced safety technologies to helpmeet our stringent internal requirements toenhance occupant protection. For example, inthe event of a frontal crash, a variety oftechnologies work together as a system toengage innovative safety features in

milliseconds to help protect the driver andpassenger. In addition, side-impact air bags forthe driver and front passenger, mounted in theoutboard side of each front seat, enhance chest-area protection in the event of a side-impactcrash and are standard on all models. Doorarmrests and door trim provide additionalabdomen and lower torso cushion, and a four-inch-thick foam block inside each door helps tomanage side-impact forces on the occupants’hips. The all-new 2007Volvo S80 includes a longlist of innovations in occupant protection, whichare discussed in the case study on ourWeb site.

In Europe, Ford has been at the forefront ofindustry efforts to attempt to develop feasibleand effective measures to help reducepedestrian injuries and fatalities. This isdiscussed in the case study on page 29.

POST-CRASH/INJURYMITIGATIONOne method of assisting emergency respondersto reach the scene of a vehicle crash quickly isthrough in-vehicle emergency call systems, alsocalled automatic crash notification. Thesesystems enable a driver to summon assistancein an urgent situation either automatically (if,for example, an air bag deploys) or at the touchof a button. The Volvo On Call system – a GSM-and GPS-based emergency and assistancesystem – is currently sold in seven Europeancountries, and Volvo is the first OEM to havethe service working across borders in 13European countries.



NEWSAFETY CERTIFICATION TEST LAB




DRIVINGENVIRONMENTThe driving environment includes physicalinfrastructure (roads, signs, traffic lights, etc.)and the condition and maintenance of thatinfrastructure. Increasingly, informationtechnologies play a role in the drivingenvironment – for example, by controlling thetiming of traffic lights. All of these factors havean enormous influence on traffic safety.

Safety challenges related to the drivingenvironment vary between countries andbetween developed and developing economies.Around the world, we work with governmentagencies and private-sector partners topromote road safety.

In late 2004, working in partnership with GeneralMotors, Honda, Michelin, Renault, Shell andToyota, we helped to found the Global RoadSafety Initiative (GRSI). The purpose of the GRSIis to transfer best practices, with the objectiveof reducing accidents and building capacity indeveloping countries to manage road safety.Projects include educational outreach toincrease safety belt and helmet usage rates andtraining aimed at improving roadway design. Theparticipating companies have pledged $1millioneach over five years to fund projects in China,ASEAN countries and Brazil.

In 2003, Volvo partnered with the ThailandDepartment of Highways and the Global RoadSafety Partnership to establish the ThailandAccident Research Center (TARC). Thailand hasthe dubious distinction of having one of thehighest traffic fatality rates in the world. TARChas two main objectives: first, to build adatabase of knowledge gleaned from localaccident experience, and second, to providepolicy makers with information to help themprioritize traffic safety solutions and ultimatelyreduce the number of accidents.

In Europe, Ford has also been taking aleadership role in two major accident researchactivities, in cooperation with public bodies.These include the German In-Depth AccidentStudy and the UK’s Car Crash Injury Study. Fordsees these two different but complementarystudies as key components of its policy of data-driven decision-making, both internally toensure that our safety strategy is targeted atthe most productive areas, and externally tohelp governments focus their rulemakingattention on genuine safety issues, where theycan make a difference.

FUTURE TECHNOLOGIESEngineers across the Ford MotorCompany brands are creatingtechnologies to help drivers avoidaccidents and help protect occupantsduring a collision. Ford’s state-of-the-art safety testing facility in Dearborn,Michigan, known as the SafetyInnovation Laboratory, is helping todrive these innovations. Thelaboratory is part of a $65 millioninvestment in advanced vehicle testingtechnology that is expected to deliverfaster, more accurate and moreefficient testing, in order to acceleratethe introduction of new safetytechnologies to the marketplace.

FORWARD-LOOKING RADAR ANDVISIONSENSOR TECHNOLOGIESTogether with Volvo, Ford is developing a suiteof accident avoidance features that useforward-looking radar and vision sensors. Thesefeatures are being developed to help forewarndrivers of potentially dangerous situations, suchas an unintended lane departure, following tooclosely to a car in front, or a pedestrian whomight have walked into the path of a car. Severalof these technologies are now available on the2007 Volvo S80 and are detailed in the casestudy in theWeb version of this report.



$65 millioninvestment in advanced vehicletesting technology

“Automakers can and should become more involved inimprovement of road safety in the developing nations.We must work with local governments and NGOsto craft real solutions to their countries’ mobilityproblems. We need to communicate responsiblevehicle use. And we must take responsibility forthe cars that we put on the road. ”For more commentary visit www.ford.com/go/sustainability

INGRID SKOGSMO Director, Volvo Cars Safety Centre,Volvo Car Corporation, Gothenburg, Sweden,Chair of Global Road Safety Partnership

Driver Alert and Lane DepartureWarning systemsare among several advanced technologies beingdeveloped. Driver Alert aims to combat driverfatigue, which is amajor traffic-safety problemthroughout theworld. This world-first innovationanalyzes a car’s progress on the road and alertsthe driver before he or she falls asleep. DriverAlert uses a camera, sensors and a computerprocessor tomonitor the vehicle’s movementsand assesswhether it is being driven in acontrolled or uncontrolledmanner. This patentedmethod is unique among vehiclemanufacturers,and has been tested both on the road and insimulators with excellent results and very highdependability. Driver Alert is expected to beavailable on production vehicles in two years.

Lane DepartureWarning uses a forward-lookingcamera to continuously monitor the road andkeep track of where the car is in relation to thelane markings. If the driver loses concentrationand the vehicle’s wheels move outside the lanemarkings, a warning chime alerts the driver. LaneDepartureWarning has been demonstrated onvarious concept vehicles but is not yet availableon production models.





Sustaining FordTo sustain our Company, meet our responsibilities andcontribute to tackling global sustainability issues, we mustoperate at a profit. During 2006, we reported a $12.6 billionloss, primarily due to restructuring costs, and took a series ofactions to restore the Company to profitability, includingclosing manufacturing facilities and reducing our workforce.In our full Web report and in Ford’s financial publications, youwill find more information on these actions. In this report, wefocus on two key topics because of their broad interest tostakeholders and impact on the Company’s financial health:managing downsizing and Ford’s legacy health care costs.

MANAGINGDOWNSIZINGWe are keenly aware of theinterconnections between our Companyand its employees, its business partnersand the communities in which we operate.

Our investment inmanufacturing facilities and ouremployment of hundreds of thousands of peoplehas helped to build and sustain vibrant, stablecommunities.We value this contribution, so it ispainful to restructure our North American operations.Because of our commitment to our employees andcommunities, it is critical that we handle thedownsizing in a responsible way. Some of the stepswe have taken to do this are detailed below.

WORK FORCE REDUCTIONResponding to continued deterioration in businessconditions, in September 2006we announced plansto speed up capacity and work force reductions,accelerating by four years the timing for completingour previously announced goal of reducing thenumber of our North Americanmanufacturing

employees by 25,000–30,000. As part of thisreduction, we have announced plans to idle 16 NorthAmericanmanufacturing facilities, including sevenvehicle assembly plants, by the end of 2012.

During 2006, all of our UAW-represented hourlyemployees were offered the opportunity to leave theCompany. As an incentive, we offered theseemployees eight different voluntary packages toselect from, including four traditional offers (such asearly retirement) and four innovative programsdesigned to help employees’ transition to new jobsrequiring new skills.

For example, Ford is offering specialized supportto employees who elect to separate from theCompany to attend college. Pursuant to ourEducational Opportunity Program, hourly U.S.employees with at least one year of service wereeligible for up to $15,000 in tuition reimbursementper year for up to four years, paid directly to anapproved college or vocational school. The programalso offered a stipend and continued healthinsurance and other benefits.


IN THE FINANCIAL HEALTH SECTIONFordWay Forward planList of offers to hourly employeesSocially Responsible Investor ratingsand feedback

KANSAS CITY ASSEMBLY PLANT



At each plant, we invited employees, schoolsand prospective employers to an OpportunityFair as a way tomatch employees who weremaking decisions about leaving the Companywith educational opportunities and prospectiveemployers.We also offered training toemployees in searching for jobs, relocating andweighing their options, such as further education.

Our approach was to communicate extensively –to employees directly, to plant management,to the national and local UAW leadership, whorepresent our hourly employees, and to theaffected communities. Just over half of theemployees accepting a buyout during theopen enrollment period took one of the non-traditional packages.

In addition, costs related to salaried employeesare planned to be reduced through theelimination of the equivalent of about 14,000salaried-related positions, which representsapproximately one-third of Ford’s NorthAmerican salaried work force. The reductionincludes the equivalent of nearly 5,000positions eliminated by the end of 2006. Theadditional reductions will be achieved throughearly retirements, voluntary separations and,if necessary, involuntary separations.

We tried to maintain open communicationthroughout the process and accommodateemployee needs during this difficult time. Allmanagers were informed of the Company’sknowledge retention tools to ensure continuityand avoid the loss of critical knowledge andexperience from exiting employees.

As our manufacturing facilities lose full-timeemployees, we may use temporary employeesto fill in as needed. To prevent safety-relatedincidents and maintain high levels of productquality, we worked with the UAW jointcommittees on safety and quality to developstandardized training guidelines for temporaryemployees before they begin work. Through thefirst quarter of 2007, facilities using temporaryemployees have experienced unchanged orimproved safety records.

FACILITYCLOSURESClosing a facility –whether amanufacturing plantor an office building – presents a set of challengesthatmust be handled responsibly, fromworkingwith the host community to ensure a smooth

transition to a newuse for the property, tohandling any needed environmental remediationand disposing of surplus fixtures and furniture.

When the decision is made to close a facility,environmental professionals assess the facilityand surrounding land. This assessment revealsthe environmental condition of the site and theactions needed to ensure that future use of thesite will not pose any risk to human health orthe environment.

Ford consults with real estate partners andrepresentatives of the local community aboutpotential uses for the property. In some cases,Ford redevelops the property itself; more often,it seeks a well-qualified developer to buy andconvert it. Some properties remain in industrialuse. In other cases, the surrounding communitieshave changed since the plant opened, and newuses, such as retail, commercial or residential,are possible and desirable.

LEGACYHEALTHCARECOSTSWeprovide health care coverage to about570,000 employees or retirees and theirdependents in theUnited States alone.

In 2006, our health care expenses for U.S.employees, retirees and their dependents were$3.1 billion, with about $1.8 billion for post-retirement health care and the balance for activeemployee health care and other retiree expenses.

We are proud of our role in providing thesebenefits to individuals and families. However, therising cost of health care coverage and our highproportion of retirees compared tomore recententrants to U.S. markets puts us at a competitivedisadvantage. It is estimated that Ford’s healthcare costs add about $1,200 to the cost of eachvehicle built in the United States.

During 2005 and 2006, we took steps to haveemployees and retirees bear a higher portionof the costs of their health care benefits. Activesalaried employeeswere asked to increasetheir health care contributions in both years.Salaried retirees have Company contributionscapped at 2006 levels if they are under 65, whilethe Company contribution for salaried retireesaged 65 and over is capped at $1,800 permemberper year (effective January 1, 2008).

For hourly employees, we successfully reachedagreement with the UAWto reduce health carecosts in 2006, primarily throughmodifications tothe Company’s hourly retiree health care plan.While these actions did result in substantialsavings, we still expect our total health carecosts to continue to increase. For 2007, our trendassumptions for U.S. health care costs include aninitial trend rate of 6 percent, gradually decliningto a steady-state trend rate of 5 percent reachedin 2011. These assumptions include the effect ofactions we are taking and expect to take tooffset health care inflation, including eligibilitymanagement, employee education and wellnessprograms, competitive sourcing and appropriateemployee cost sharing.

To promote the health of employees and theCompany’s financial health, we are focusing oncreating a culture of health and wellness for ouremployees and their families. We are providingresources and tools to help themmake soundchoices about health care services and coverage,and help them understand the benefits of beinga better health care consumer.We are alsocollaborating with communities and governmentagencies in projects aimed at improving theefficiency and effectiveness of the U.S. healthcare system.We hope that, over time, theseactionswill support the health of our current andretired employees and reduce our competitivedisadvantage related to health care costs.

“About 1 billion of the world’s 6.5 billion people currentlyhave access to a car or truck, and international saleshave the potential to double, if not triple, as morepeople seek similar access. But the F-150 is an unlikelysource for any sizable world increase in market share. Inmost developing nations, such growth will evolve from acar that sells for $8,000, not $20,000.”For more commentary visit www.ford.com/go/sustainability

SEANMCALINDEN Center for Automotive Research, ChiefEconomist and Vice President for Research




Current challengesIn developing a sustainable business model forFord, we have a number of challenges:

To continue to integrate all elements ofsustainability throughout all parts of theCompany, working as a team, and developinga roadmap that lists our priorities and guidesus through the key decisions we will need tomake for the future. I will work closely withall functions at Ford, particularly our ProductDevelopment and Procurement teams, toensure we take a systems approach tomeeting our sustainability challenges.

To understand the technology that willdeliver our sustainability goals. For years,automakers improved on many aspects ofautomotive design – safety features,electronics, cargo and towing capabilities, forexample. We also made steady progress onthe fuel efficiency of powertrains, but mostof those gains were offset by customerdemands for more features in their cars andtrucks. Now we’re fundamentally rethinkingour powertrains, with an expanding portfolioof options that includes hybrids, clean diesel,direct-injection turbocharged gasolineengines, biofuel and hydrogen-fueledvehicles, and various combinations of thosetechnologies. We need to choose the rightinvestments in the right technologies to meetthe needs of our customers around the world,while addressing sustainability concerns andcontributing to climate stabilization.

To leverage our allianceswith universities,NGOs and governments to help deliver ourstrategy. The scale of our challenge requiresa change in our mindsets and the way we alldo business. Not just Ford and not just theautomotive industry. Even if every driverwere to purchase a hybrid or even a hydrogenfuel cell vehicle, we would not stabilizegreenhouse gas emissions. We are pleased tosee growing recognition that responding to arange of daunting sustainability challengeswill require all sectors of the economy andsociety to join forces and work towardscommon goals.

Going forwardRegular readers of this reportmay feel they’veheard similar statements fromFord before – andthat Ford hasn’t always delivered on the goals itsets for itself. Sowhat’s different this time?

First, I would say that the real progress we’vemade already in integrating sustainability intoour business systems is not always externallyvisible. This includes the establishment of ourSustainable Mobility Governance team, asenior-level team working to define our climatechange strategy and delivering oursustainability strategy in the marketplace.

Second, we have delivered on some importantcommitments, including bringing the firsthybrid SUV to market – one that remains thefuel economy leader even as others havebeen introduced.

Third, you may find us being more cautious inour public statements, but those statementswill be anchored by our business plans. Ourplans include introducing additional hybrids andother environmentally advanced vehicles thatoffer a flexible array of options so we canrespond to changes in our markets.

You can be sure that at Ford, we will continue topush the frontiers of vehicle technology toeffectively respond to sustainability challenges.It is the right thing to do and it is essential to thefuture of our Company.

Earlier this year, I was namedas Ford’s first Senior VicePresident of Sustainability,Environment and SafetyEngineering. The creation ofmy position signals an evenhigher priority for theseissues within Ford.

As part of the senior leadership team,I will be keeping sustainability at the top ofthe Company’s agenda. My position may be afirst in our industry, but it mirrors the elevationof sustainability issues – with climate changeon the leading edge – in public awareness andpolicy making. We view sustainability asboth an opportunity and a requirement.

We define sustainability as a business modelthat creates value consistent with the long-term preservation and enhancement ofenvironmental, social and financial capital. Thisdefinition is far-reaching, including our actionsin the communities in which we work and ourinfluence throughout our value chain.

Letter from Sue Cischke

SUE CISCHKEIn April 2007, Sue Cischke was named Ford’s firstSenior Vice President of Sustainability, Environmentand Safety Engineering.

Senior Vice President, Sustainability, Environmentand Safety Engineering


PRODUCTS AND CUSTOMERS 2002 2003 2004 2005 2006

ENVIRONMENT 2002 2003 2004 2005 2006

Initial quality study – J.D. Power and Associates (3 months in service), problems per hundred vehicles 143 136 127 129 131

GQRS things gone wrong (TGW) (3 months in service), total things gone wrong per 1,000 vehicles 1 1,997 1,936 1,956 1,846 1,586

GQRS customer satisfaction (3 months in service), percent satisfied 1 72 73 74 73 74

Vehicle dependability – J.D. Power andAssociates (4–5 years of ownership), FordMotor Company, U.S., problems/hundred 2 354 287 275 231 225

Sales satisfaction with dealer/retailer, Ford brand, U.S., percent completely satisfied 75 77 78 80 81

Sales satisfaction with dealer/retailer, Ford brand, Europe, percent completely satisfied 65 69 72 74 76

Service satisfaction with dealer/retailer, Ford brand, U.S., percent completely satisfied 61 65 67 66 70

Service satisfaction with dealer/retailer, Ford brand, Europe, percent completely satisfied 51 54 57 58 59

Ford U.S. fleet fuel economy (higher mpg reflects improvement), combined car and truck, miles per gallon 3 23.2 23.6 22.8 24.1 23.8

Ford U.S. fleet CO2 emissions (lower grams per mile reflects improvement), combined car and truck, grams per mile4 381 375 387 368 371

European CO2 performance (lower percentage reflects improvement), percent of 1995 base (1995 base = 100 percent) 5

Ford 83 82 80 78 78

Jaguar 79 77 63 62 66

Land Rover 86 87 86 88 89

Volvo 88 91 89 87 86

Worldwide facility energy consumption, trillion BTUs 6 83.7 83.2 80.3 76.3 71.8

Worldwide facility energy consumption per vehicle, million BTUs 7 12.8 13.4 12.7 12.1 11.8

Worldwide facility CO2 emissions, million metric tonnes 6 8.7 8.5 8.4 8.0 6.8

Worldwide facility CO2 emissions per vehicle, metric tonnes 7 1.32 1.37 1.33 1.26 1.13

North American Energy Efficiency Index (lower percentage reflects improvement), percent (2000 base = 100 percent) 8 89.7 91.7 87.8 83.4 78.4

COMMUNITY 2002 2003 2004 2005 2006

Ford Motor Company Fund contributions, $ million 9 84 78 78 80 58

Corporate contributions, $ million 9 47 43 33 29 29

Volunteer corps, thousand volunteer hours10 80

We havemade somemodifications to thetable of indicators for this report. For ournext report, wewill conduct a full reviewofour sustainability indicators to ensure thatthey are alignedwith our strategy and helpto drive progress.We are also reviewingour indicators in light of the revisedGlobalReporting InitiativeGuidelines.

This report covers the year 2006andearly2007.Thedata are primarily for 2006 (foroperations) and for the2006and2007model years (for vehicles).Thedata coverall of FordMotorCompany’swholly andmajority-ownedoperations globally, unlessotherwise noted. Changes in thebasis forreporting or reclassifications of datapreviously reported are notedbelowand inthedetailed data charts of ourWeb report.

This report is alignedwith the GlobalReporting Initiative G3 SustainabilityReporting Guidelines released in October2006, at a self-declared application levelof A+. A complete index of GRI indicatorsis available in ourWeb report. Moreinformation on the Global ReportingInitiative and the application levels isavailable at www.globalreporting.org.

This table provides five-yearperformance data accordingto a set of key indicators.Additional data are availablein our fullWeb report. Thistable, the additional data andthe performance sections oftheWeb report are allorganized by Ford’s BusinessPrinciples. TheBusinessPrinciples guide our conductand day-to-day decision-making inmajor areas ofsustainability performance.

Data Overview

SAFETY 2002 2003 2004 2005 2006

VEHICLE

U.S. safety recalls, number per calendar year 11 16 16 21 16 11

U.S. units recalled, number of million units 2.3 3.4 5.0 6.0 1.7

IIHS Top Safety Picks, number of vehicles 12 2 3

WORKPLACE

Lost-time case rate (per 100 employees), Ford Motor Company 2.1 1.8 1.2 1.4 1.1

Severity rate (per 100 employees), days lost per 200,000 hours worked 31.9 31.5 23.5 23.2 14.5

QUALITY OF RELATIONSHIPS 2002 2003 2004 2005 2006

Employee satisfaction, Pulse survey, overall, percent satisfied 13 59 58 61 62 62

Overall dealer attitude, Ford, relative ranking on a scale of 1–100 percent (summer/winter score) 14 58/61 64/67 67/69 70/72 70/64

Overall dealer attitude, Lincoln Mercury, relative ranking on a scale of 1–100 percent (summer/winter score) 14 46/46 50/56 56/61 64/64 64/64

FINANCIAL HEALTH 2002 2003 2004 2005 2006

Shareholder return – Bloomberg Total Return Analysis, percent 15 -39 79 -6 -45 1

Net income/loss, $ billion 0.9 0.2 3.0 1.4 -12.6

Sales and revenue, $ billion 167.0 166.1 172.3 176.9 160.1

The full report is online at www.ford.com/go/sustainability

1. GQRS customer satisfaction/TGWGQRS (Global Quality Research System) is a Ford-sponsored competitiveresearch survey. GQRS is an early indicator of J.D. Power quality results.Year to date 2007GQRS customer satisfaction andTGWare 75 and 1,458respectively. See Products and Customers section in ourWeb report for adiscussion of our efforts to improve quality.

2. Vehicle dependabilityData for 2002 are from the survey’s predecessor the ‘Vehicle DependabilityIndex’ whichmeasured 4 to 5 years of ownership.

3. U.S. fuel economySee the Climate Change and Environment sections for a discussion of ourCorporate Average Fuel Economy (CAFE) performance. For Model Year2006 the CAFE of our cars and trucks declined 1.0 percent, as expected.Preliminary data for Model Year 2007 shows a 5.4 percent improvement inCAFE compared to 2006, with a 1.7 percent improvement for cars and a 5.2percent improvement for trucks. Improvement is reflected by increasingmiles per gallon. Due to a weight increase for the 2007Model Year, theEconoline Vans were not part of the CAFE calculation.

4. U. S. fleet CO2 emissionsSee the Climate Change section for a discussion of our CO2 emissionsperformance. Improvement is reflected by decreasing grams permile.

5. European CO2 performanceOfficial EU data. Jaguar performance did not improve compared to 2005 duetomodelmix. Land Rover performance did not improve compared to 2005and 2004 due tomodelmix.

6.Worldwide facility energy and CO2 emissionsData have been adjusted to account for facilities that were closed, sold ornew. This data does not include ACH.

7. Energy and CO2 per vehicleEnergy consumption and CO2 emissions per vehicle divides energy used or

CO2 emitted by the number of vehicles produced. Averaging energy and CO2emissions by the number of vehicles produced yields a somewhatimperfect indicator of production efficiency.When the number of vehiclesproduced declines, as it has since 2000, per-vehicle energy use tends torise because a portion of the resources used by a facility is required forbase facility operations, regardless of the number of vehicles produced.

We believe that stable-to-declining per-vehicle energy use and CO2emissions indicate that more efficient production since 2000 is offsettingthe tendency of these indicators to rise during periods of decliningproduction. This interpretation is reinforced by our Energy EfficiencyIndex, which focuses on production energy efficiency, and which has beensteadily improving. Our Energy Efficiency Index target also has the effectof driving reductions in CO2 emissions. These data do not include ACH.

8. North American Energy Efficiency IndexThe Index is “normalized” based on an engineering calculation that adjusts fortypical variances in weather and vehicle production. The Indexwas set at 100for the year 2000 to simplify tracking against our target of 1% improvementin energy efficiency.

9. Ford Fund and corporate contributionsSee theCommunity section in ourWeb report for a description of ourcharitable contributions.

10. Volunteer corpsTheVolunteer corpswas founded in 2005, and 2006 is the first year data areavailable. However, volunteerism and community service have long been apart of Ford's culture, and these efforts were formalized in 1997with thecreation of the 16-hour Community Service Program.

11. RecallsRecalls are by calendar year rather thanmodel year. A single recall mayaffect several vehicle lines and/or several model years. The same vehiclemay havemultiple recalls. (Source: U.S. National HighwayTrafficSafetyAdministration.)

12. Top Safety PicksTo earn aTop Safety Pick from the Insurance Institute for Highway Safety(IIHS), a vehiclemust receive a rating of “good” in offset frontal impact, sideimpact and rear impact evaluations, and offer electronic stability control. TopSafety Picks are the best vehicle choices for safety within size categories.2005 (2006Model Year) was the first year IIHS issuedTop Safety Picks.

Aswe attempt to balance frequently changing government and non-government test requirements with real-world safety, we have continued toassess the appropriatemetrics formeasuring our performance.We havechosen to present public domain safety ratings for all of ourmodels, ratherthan a percentage ofmodels tested receiving a particular star rating, in ourfullWeb report.

13. Employee satisfactionIn 2006, the Pulse surveywas changed to incorporate new dimensions.While therewas no change to the number or content of the existing55 core questions asked on Pulse, theywere realigned into eight reviseddimensions. These changesweremade because the revised dimensionsare: better focused on current business priorities; can be benchmarkedexternally – two revised dimensions (including the revised EmployeeSatisfaction Index) can be benchmarked externally, none of the prior13 dimensions could be benchmarked outside the Company; provide aframework formore focused feedback and action planning.

14. Overall dealer attitudeOverall dealer attitude ismeasured by the National Automobile DealerAssociation (NADA) Dealer Attitude Survey. Scores are for the summer andwinter respectively of the year noted.

15. Shareholder returnTotal shareholder return is fromBloombergTotal Return Analysis assumingdividends reinvested in Ford stock.

Energy use2007 targets:3% improvement inglobal facility energyefficiency. 3%improvement inNorth Americanfacility energyefficiency.

www.ford.com/go/sustainability 37www.ford.com/go/sustainability

The full report, shown below, is online at:www.ford.com/go/sustainability.

ACCOUNTABILITY PRODUCTS ANDCUSTOMERS

ENVIRONMENT COMMUNITY SAFETY QUALITY OFRELATIONSHIPS

FINANCIALHEALTH


OVERVIEWLetter from Alan Mulally and Bill FordCorporate profileLetter from Sue CischkeAssuranceCeres Stakeholder TeamData Overview

VOICESSheryl Connelly Ford Motor CompanyDavid Duesterberg Johnson Controls, Inc.Derrick Kuzak Ford Motor CompanySeanMcAlindenCenter for Automotive ResearchIan Olson Ford Motor CompanySusan Rokosz Ford Motor CompanyIngrid SkogsmoVolvo Car CorporationEric Wingfield Ford Motor CompanySusan Zielinski University of Michigan

TOOL KITGRI indexGlossary + key termsDownloads

OUR IMPACTSMateriality analysisValue chain

PROGRESS SINCE OUR LAST REPORTCONTEXTMANAGEMENTPERFORMANCEDATACASE STUDIES

Our full Web report is structuredaccording to our BusinessPrinciples, above, and includesadditional sections, above right.

The discussion of each Principleis organized according to thecategories at right.

NOTES TOTHEDATA

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Automotive core and affiliate brands

Corporate profile

Ford Motor Credit Company

Premier Automotive Group

Customer service

Financial service


CONNECTINGWITH SOCIETY

FORDMOTOR COMPANY

SUSTAINABILITY REPORT 2006/7


YOUR FEEDBACK...

Preparing this report is a valuable opportunity for us toassess and improve upon our economic, environmentaland social progress and performance. To continue to doso, we need your feedback. We welcome your opinion andperspective through several means:

Write or call:Krista GulloFord Motor CompanyOne American RoadDearborn, MI 48126U.S.A.+1 (313) 206-2654

Credits:Flag for design and productionBuzzword for copywriting

This report is printed onModnadnock AstrolitePC100, which is totallychlorine-free andconstituted of 100 percentpost-consumer waste.

Ford Motor CompanyOne American RoadDearbornMichigan48126

Email us at:[email protected]


+ + +

This report is checked toApplication Level A+

For our 2004/5 report, we formalized thisapproach by working with Ceres andSustainAbility, an independent think tankand strategy consultancy, to create aReport Review Committee to assist in thedevelopment of the report and to increaseits usability and relevance. Findings of the13-member committee were published inthe report.

For our 2005/6 report and the currentreport, Ceres convened stakeholdercommittees as described below. Thecommittee reviewing this report mettwice; once to review and comment on themateriality analysis, and once to review andcomment on a nearly final draft of the report.

We have found these external reviews to bevaluable and have tried to respond to thecommittees’ recommendations. We believewe have made progress in several areashighlighted by the 2004/5 Report ReviewCommittee. We have strengthened ourreporting on sustainable mobility andhuman rights, and we continue to work toenhance our reporting against goalsand coverage of public policy issues.

We view this kind of stakeholder assuranceas distinct from third-party verification ofdata or other information in the report,which we have not sought. However, much ofthe data in this report have been reportedto government agencies and verifiedinternally or externally.

AssuranceAssurance of sustainabilityreports is an evolving conceptthat encompasses severaldistinct approaches. Sinceour first corporate citizenshipreport, covering the year1999, we have includedexternal stakeholderperspectives as a way tointroduce independent voicesand viewpoints to the report.

CeresStakeholderTeam

FordMotor Company engagedwith Ceresand a team of external stakeholders to reviewthis 2006/7 Sustainability Report. FordMotor Company agreed toworkwith astakeholder team that was selected for itby Ceres.

The Ceres stakeholder team is anindependent group of individuals drawnprimarily from the Ceres coalition andrepresents a range of constituencies thathave expertise in environmental, social andgovernance issues.

In reviewing this report, the team consideredwhether the Company adequately reportedon its sustainability performance and keyimpacts, including goals, targets, systems,data and initiatives. Through this reviewprocess, the Ceres stakeholder teamprovided extensive feedback to the Company,which was considered in the preparation ofthe final version of this report.

Ceres is a network of investors,environmentalists and other public interestgroups that workswith companies andinvestors to address sustainability challenges(seewww.ceres.org formore information).

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