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PART I.
ITEM 1. Business.
Ford Motor Company was incorporated in Delaware in 1919. We acquired the business of a Michigan company, also known as Ford Motor Company, which had been incorporated in 1903 to produce and sell automobiles designed and engineered by Henry Ford. We are a global company based in Dearborn, Michigan. With about 186,000 employees worldwide, the Company designs, manufactures, markets, and services a full line of Ford trucks, utility vehicles, and cars – increasingly including electrified versions – and Lincoln luxury vehicles; provides financial services through Ford Motor Credit Company LLC (“Ford Credit”); and is pursuing leadership positions in electrification; mobility solutions, including self-driving services; and connected vehicle services.
In addition to the information about Ford and our subsidiaries contained in this Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K Report” or “Report”), extensive information about our Company can be found at http://corporate.ford.com, including information about our management team, brands, products, services, and corporate governance principles.
The corporate governance information on our website includes our Corporate Governance Principles, Code of Ethics for Senior Financial Personnel, Code of Ethics for the Board of Directors, Code of Corporate Conduct for all employees, and the Charters for each of the Committees of our Board of Directors. In addition, any amendments to our Code of Ethics or waivers granted to our directors and executive officers will be posted on our corporate website. All of these documents may be accessed by going to our corporate website, or may be obtained free of charge by writing to our Shareholder Relations Department, Ford Motor Company, One American Road, P.O. Box 1899, Dearborn, Michigan 48126-1899.
Our recent periodic reports filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge at http://shareholder.ford.com. This includes recent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, and our Section 16 filings. We post each of these documents on our website as soon as reasonably practicable after it is electronically filed with the SEC. Our reports filed with the SEC also may be found on the SEC’s website at www.sec.gov.
Our Sustainability Report, which details our performance and progress toward our sustainability and corporate responsibility goals, is available at http://sustainability.ford.com.
The foregoing information regarding our website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC.
Item 1. Business (Continued)
OVERVIEW
Below is a description of our reportable segments and other activities.
AUTOMOTIVE SEGMENT
The Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs. The segment includes the following regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group.
General
Our vehicle brands are Ford and Lincoln. In 2020, we sold approximately 4,187,000 vehicles at wholesale throughout the world. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“Item 7”) for a discussion of our calculation of wholesale unit volumes.
Substantially all of our vehicles, parts, and accessories are sold through distributors and dealers (collectively, “dealerships”), the substantial majority of which are independently owned. At December 31, the approximate number of dealerships worldwide distributing our vehicle brands was as follows:
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Brand
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2019
|
|
2020
|
Ford
|
9,883
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|
|
9,618
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|
Ford-Lincoln (combined)
|
759
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|
|
707
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|
Lincoln
|
279
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|
|
392
|
|
Total
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10,921
|
|
|
10,717
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|
We do not depend on any single customer or a few customers to the extent that the loss of such customers would have a material adverse effect on our business.
In addition to the products we sell to our dealerships for retail sale, we also sell vehicles to our dealerships for sale to fleet customers, including commercial fleet customers, daily rental car companies, and governments. We also sell parts and accessories, primarily to our dealerships (which, in turn, sell these products to retail customers) and to authorized parts distributors (which, in turn, primarily sell these products to retailers). We also offer extended service contracts.
The worldwide automotive industry is affected significantly by general economic and political conditions over which we have little control. Vehicles are durable goods, and consumers and businesses have latitude in determining whether and when to replace an existing vehicle. The decision whether to purchase a vehicle may be affected significantly by slowing economic growth, geopolitical events, and other factors (including the cost of purchasing and operating cars, trucks, and utility vehicles and the availability and cost of financing and fuel). As a result, the number of cars, trucks, and utility vehicles sold may vary substantially from year to year. Further, the automotive industry is a highly competitive business that has a wide and growing variety of product and service offerings from a growing number of manufacturers.
Item 1. Business (Continued)
Our wholesale unit volumes vary with the level of total industry demand and our share of that industry demand. Our wholesale unit volumes also are influenced by the level of dealer inventory. Our share is influenced by how our products are perceived by customers in comparison to those offered by other manufacturers based on many factors, including price, quality, styling, reliability, safety, fuel efficiency, functionality, and reputation. Our share also is affected by the timing and frequency of new model introductions. Our ability to satisfy changing consumer and business preferences with respect to type or size of vehicle, as well as design and performance characteristics, affects our sales and earnings significantly.
As with other manufacturers, the profitability of our business is affected by many factors, including:
•Wholesale unit volumes
•Margin of profit on each vehicle sold - which, in turn, is affected by many factors, such as:
◦Market factors - volume and mix of vehicles and options sold, and net pricing (reflecting, among other factors, incentive programs)
◦Costs of components and raw materials necessary for production of vehicles
◦Costs for customer warranty claims and additional service actions
◦Costs for safety, emissions, and fuel economy technology and equipment
•A high proportion of relatively fixed structural costs, so that small changes in wholesale unit volumes can significantly affect overall profitability
Our industry has a very competitive pricing environment, driven in part by industry excess capacity. For the past several decades, manufacturers typically have given price discounts and other marketing incentives to provide value for customers and maintain market share and production levels. The decline in value of foreign currencies in the past has contributed significantly to competitive pressures in many of our markets. The U.S. administration has sought to address this issue with currency provisions that were included in the United States-Mexico-Canada Agreement and United States-China trade deals.
Competitive Position. The worldwide automotive industry consists of many producers, with no single dominant producer. Certain manufacturers, however, account for the major percentage of total sales within particular countries, especially their countries of origin.
Seasonality. We manage our vehicle production schedule based on a number of factors, including retail sales (i.e., units sold by our dealerships to their customers at retail) and dealer stock levels (i.e., the number of units held in inventory by our dealerships for sale to their customers). Historically, we have experienced some seasonal fluctuation in the business, with production in many markets tending to be higher in the first half of the year to meet demand in the spring and summer (typically the strongest sales months of the year). In 2020, because of production disruptions in the first half of the year due to COVID-19, production was higher in the second half of the year.
Backlog Orders. We generally produce and ship our products on average within approximately 20 days of an order becoming firm. Therefore, no significant amount of backlog orders accumulates during any period.
Raw Materials. We purchase a wide variety of raw materials from numerous suppliers around the world for use in the production of, and development of technologies in, our vehicles. These materials include base metals (e.g., steel and aluminum), precious metals (e.g., palladium), energy (e.g., natural gas), and plastics/resins (e.g., polypropylene). We believe we have adequate supplies or sources of availability of raw materials necessary to meet our needs; however, there always are risks and uncertainties with respect to the supply of raw materials that could impact availability in sufficient quantities and at cost effective prices to meet our needs. See the “Key Trends and Economic Factors Affecting Ford and the Automotive Industry” section of Item 7 for a discussion of supplier disruptions caused by a shortage of key components, as well as commodity and energy price changes, and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” (“Item 7A”) for a discussion of commodity price risks.
Intellectual Property. We own or hold licenses to use numerous patents, trade secrets, copyrights, and trademarks on a global basis. We expect to continue building this portfolio as we actively pursue innovation in every part of our business. We also own numerous trademarks and service marks that contribute to the identity and recognition of our Company and its products and services globally. While our intellectual property rights in the aggregate are important to the operation of each of our businesses, we do not believe that our business would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property agreement.
Item 1. Business (Continued)
Warranty Coverage, Field Service Actions, and Customer Satisfaction Actions. We provide warranties on vehicles we sell. Warranties are offered for specific periods of time and/or mileage, and vary depending upon the type of product and the geographic location of its sale. Pursuant to these warranties, we will repair, replace, or adjust all parts on a vehicle that are defective in factory-supplied materials or workmanship during the specified warranty period. In addition to the costs associated with this warranty coverage provided on our vehicles, we also incur costs as a result of field service actions (i.e., safety recalls, emission recalls, and other product campaigns), and for customer satisfaction actions.
For additional information regarding warranty and related costs, see “Critical Accounting Estimates” in Item 7 and Note 25 of the Notes to the Financial Statements.
Wholesales
Wholesales consist primarily of vehicles sold to dealerships. For the majority of such sales, we recognize revenue when we ship the vehicles to our dealerships from our manufacturing facilities. See Item 7 for additional discussion of revenue recognition practices. Wholesales in each region and in certain key markets within each region during the past three years were as follows:
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Wholesales (a)
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(in thousands of units)
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2018
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2019
|
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2020
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United States
|
2,540
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|
|
2,412
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|
|
1,826
|
|
Canada
|
295
|
|
|
289
|
|
|
210
|
|
Mexico
|
69
|
|
|
53
|
|
|
34
|
|
North America
|
2,920
|
|
|
2,765
|
|
|
2,081
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Brazil
|
235
|
|
|
218
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|
|
135
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|
Argentina
|
86
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|
|
47
|
|
|
31
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|
South America
|
365
|
|
|
295
|
|
|
185
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|
United Kingdom
|
387
|
|
|
367
|
|
|
208
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|
Germany
|
313
|
|
|
328
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|
|
211
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|
EU20 (b)
|
1,388
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|
|
1,317
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|
|
904
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|
Turkey
|
65
|
|
|
47
|
|
|
102
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|
Europe
|
1,482
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|
|
1,390
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|
|
1,020
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China (c)
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732
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|
535
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|
|
617
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Australia
|
65
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|
|
64
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|
|
57
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India
|
98
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|
|
73
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|
|
46
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ASEAN (d)
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117
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102
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|
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67
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Russia
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51
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|
|
28
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|
|
14
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International Markets Group
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483
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|
|
401
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|
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284
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Total Company
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5,982
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5,386
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4,187
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__________
(a)Wholesale unit volumes include sales of medium and heavy trucks. Wholesale unit volumes also include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, and local brand units produced by our unconsolidated Chinese joint venture Jiangling Motors Corporation, Ltd. (“JMC”) that are sold to dealerships. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue.
(b)EU20 markets are United Kingdom, Germany, France, Italy, Spain, Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Hungary, Ireland, the Netherlands, Norway, Poland, Portugal, Romania, Sweden, and Switzerland.
(c)China includes Taiwan.
(d)ASEAN includes Philippines, Thailand, and Vietnam.
Item 1. Business (Continued)
Retail Sales, Industry Volume, and Market Share
Retail sales, industry volume, and market share in each region and in certain key markets within each region during the past three years were as follows:
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Retail Sales (a)
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Industry Volume (b)
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Market Share (c)
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(in millions of units)
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(in millions of units)
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(as a percentage)
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2018
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2019
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2020
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2018
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2019
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2020
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2018
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2019
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2020
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United States
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2.5
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2.4
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2.0
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17.7
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17.5
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14.9
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14.1
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%
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13.8
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%
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13.7
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%
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Canada
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0.3
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0.3
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0.2
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2.0
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2.0
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1.6
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14.7
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14.6
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15.1
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Mexico
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0.1
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0.1
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—
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1.5
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1.4
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1.0
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4.8
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4.4
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4.0
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North America
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2.9
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2.8
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2.3
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21.5
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21.1
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17.6
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13.4
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13.2
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13.2
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Brazil
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0.2
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0.2
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0.1
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2.6
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2.8
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2.1
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9.2
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8.1
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6.8
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Argentina
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0.1
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0.1
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—
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0.8
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0.5
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0.3
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12.1
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11.4
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9.7
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South America
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0.4
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0.3
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0.2
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4.5
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4.3
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3.1
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8.3
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7.2
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6.2
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United Kingdom
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0.4
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0.4
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0.2
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2.8
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2.7
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1.9
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13.7
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13.0
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12.9
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Germany
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0.3
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0.3
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0.2
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3.8
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4.0
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3.3
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7.9
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8.3
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7.4
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EU20 (d)
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1.4
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1.3
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1.0
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17.7
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17.9
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13.7
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7.6
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7.4
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7.1
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Turkey
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0.1
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—
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0.1
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0.6
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0.5
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0.8
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10.9
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10.1
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12.4
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Europe
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1.5
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1.4
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1.1
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19.0
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19.2
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15.1
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7.6
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7.3
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7.2
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China (e)
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0.8
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0.6
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0.6
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26.7
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26.1
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25.2
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2.9
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2.2
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2.4
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Australia
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0.1
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0.1
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0.1
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1.2
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1.1
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0.9
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6.0
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6.0
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6.5
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India
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0.1
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0.1
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0.1
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4.4
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3.8
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2.8
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2.2
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2.0
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1.7
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ASEAN (f)
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0.1
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0.1
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0.1
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1.7
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1.8
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1.3
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6.6
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5.9
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5.3
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Russia
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0.1
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—
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—
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1.8
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1.8
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1.5
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2.9
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1.6
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0.9
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International Markets Group
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0.5
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0.4
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0.3
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22.5
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21.2
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17.5
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2.2
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1.9
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1.7
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Global / Total Company
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6.0
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5.5
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4.5
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94.2
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91.9
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78.5
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6.3
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%
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6.0
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%
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5.8
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%
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__________
(a)Retail sales represents primarily sales by dealers and is based, in part, on estimated vehicle registrations; includes medium and heavy trucks.
(b)Industry volume is an internal estimate based on publicly available data collected from various government, private, and public sources around the globe; includes medium and heavy trucks.
(c)Market share represents reported retail sales of our brands as a percent of total industry volume in the relevant market or region.
(d)EU20 markets are United Kingdom, Germany, France, Italy, Spain, Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Hungary, Ireland, the Netherlands, Norway, Poland, Portugal, Romania, Sweden, and Switzerland.
(e)China includes Taiwan; China market share includes Ford brand and JMC brand vehicles produced and sold by our unconsolidated affiliates.
(f)ASEAN includes Philippines, Thailand, and Vietnam.
U.S. Sales by Type
The following table shows U.S. retail sales volume and U.S. wholesales segregated by truck, sport utility vehicle (“SUV”), and car sales. U.S. retail sales volume reflects transactions with (i) retail and fleet customers (as reported by dealers), (ii) government, and (iii) Ford management. U.S. wholesales reflect sales to dealers.
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U.S. Retail Sales
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U.S. Wholesales
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2019
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2020
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2019
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2020
|
Trucks
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1,243,136
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1,102,097
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1,285,859
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953,165
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SUVs
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830,471
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749,583
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|
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816,933
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|
|
712,623
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Cars
|
349,091
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|
|
193,064
|
|
|
309,413
|
|
|
160,449
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|
Total Vehicles
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2,422,698
|
|
|
2,044,744
|
|
|
2,412,205
|
|
|
1,826,237
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|
Item 1. Business (Continued)
MOBILITY SEGMENT
The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments (including Spin, a micro-mobility service provider). Effective January 1, 2021, the costs and benefits related to Ford’s enterprise connectivity activities included in the Mobility segment will be reported in the Automotive segment.
FORD CREDIT SEGMENT
The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
Ford Credit offers a wide variety of automotive financing products to and through automotive dealers throughout the world. The predominant share of Ford Credit’s business consists of financing our vehicles and supporting our dealers. Ford Credit earns its revenue primarily from payments made under retail installment sale and finance lease (retail financing) and operating lease contracts that it originates and purchases; interest rate supplements and other support payments from us and our affiliates; and payments made under dealer financing programs.
As a result of these financing activities, Ford Credit has a large portfolio of finance receivables and operating leases which it classifies into two portfolios—“consumer” and “non-consumer.” Finance receivables and operating leases in the consumer portfolio include products offered to individuals and businesses that finance the acquisition of our vehicles from dealers for personal and commercial use. Retail financing includes retail installment sale contracts for new and used vehicles and finance leases (comprised of sales-type and direct financing leases) for new vehicles to retail and commercial customers, including leasing companies, government entities, daily rental companies, and fleet customers. Finance receivables in the non-consumer portfolio include products offered to automotive dealers. Ford Credit makes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer vehicle programs. Ford Credit also purchases receivables generated by us and our affiliates, primarily related to the sale of parts and accessories to dealers and certain used vehicles from daily rental fleet companies. Ford Credit also provides financing to us for vehicles that we lease to our employees.
Ford Credit does business in the United States and Canada through business centers. Outside of the United States, Europe is Ford Credit’s largest operation. Ford Credit’s European operations are managed primarily through its United Kingdom-based subsidiary, FCE Bank plc (“FCE”). Within Europe, Ford Credit’s largest markets are the United Kingdom and Germany.
See Item 7 and Notes 10 and 12 of the Notes to the Financial Statements for a detailed discussion of Ford Credit’s receivables, credit losses, allowance for credit losses, loss-to-receivables ratios, funding sources, and funding strategies. See Item 7A for a discussion of how Ford Credit manages its financial market risks.
We routinely sponsor special retail financing and lease incentives to dealers’ customers who choose to finance or lease our vehicles from Ford Credit. In order to compensate Ford Credit for the lower interest or lease payments offered to the retail customer, we pay the discounted value of the incentive directly to Ford Credit when it originates the retail finance or lease contract with the dealer’s customer. These programs increase Ford Credit’s financing volume and share. See Note 2 of the Notes to the Financial Statements for information about our accounting for these programs.
We have a Second Amended and Restated Relationship Agreement with Ford Credit, pursuant to which, if Ford Credit’s managed leverage for a calendar quarter were to be higher than 11.5:1 (as reported in its most recent periodic report), Ford Credit could require us to make or cause to be made a capital contribution to it in an amount sufficient to have caused such managed leverage to have been 11.5:1. No capital contributions have been made pursuant to this agreement. In a separate agreement with FCE, Ford Credit has agreed to maintain FCE’s net worth in excess of $500 million. No payments have been made pursuant to that agreement.
Ford Credit files periodic reports with the SEC that contain additional information regarding Ford Credit. The reports are available through Ford Credit’s website located at www.fordcredit.com/investor-center and can also be found on the SEC’s website located at www.sec.gov.
The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC.
Item 1. Business (Continued)
CORPORATE OTHER
Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, marketable securities and other investments, and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, and are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests.
Effective January 1, 2021, (i) cash and other centrally managed corporate assets reported in the Automotive segment will be realigned to Corporate Other, and (ii) certain corporate governance expenses that benefit the global enterprise reported in the Automotive segment will be reported as part of Corporate Other.
INTEREST ON DEBT
Interest on Debt consists of interest expense on Automotive and Other debt.
GOVERNMENTAL STANDARDS
Many governmental standards and regulations relating to safety, fuel economy, emissions control, noise control, vehicle recycling, substances of concern, vehicle damage, and theft prevention are applicable to new motor vehicles, engines, and equipment. In addition, manufacturing and other automotive assembly facilities are subject to stringent standards regulating air emissions, water discharges, and the handling and disposal of hazardous substances. The most significant of the standards and regulations affecting us are discussed below:
Vehicle Emissions Control
U.S. Requirements - Federal and California Tailpipe Emission Standards. Both the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) have established motor vehicle tailpipe and evaporative emissions standards that become increasingly stringent over time. Thirteen states have adopted California’s light-duty standards, and other states may join them. Both federal and California regulations also require motor vehicles to be equipped with on-board diagnostic (“OBD”) systems that monitor emission-related systems and components. In addition, light- and medium-duty vehicles and heavy-duty engines must be certified by EPA prior to sale in the United States and by CARB prior to sale in California and the relevant states. Canada accepts EPA certification. Compliance with emissions standards, OBD requirements, and related regulations can be challenging and can drive increased product development costs, warranty costs, and vehicle recalls.
CARB is in the process of adopting new emissions regulations applicable to model year 2024 heavy-duty engines, and EPA has announced that it intends to adopt more stringent heavy-duty standards as well. These rules are likely to include more stringent emissions standards as well as new requirements affecting durability testing, warranty, and OBD. CARB has also begun to develop new light-duty emissions standards expected to include a more stringent fleet-average emissions standard and add other new emissions limits. These new rules are expected to impose increased challenges and costs on the development of light-duty vehicles and heavy-duty engines.
Compliance with automobile emissions standards depends in part on the widespread availability of high-quality and consistent automotive fuels that the vehicles were designed to use. Legislative, regulatory, and judicial developments related to fuel quality at both the national and state levels could affect vehicle manufacturers’ warranty costs as well as their ability to comply with vehicle emissions standards.
The California vehicle emissions program also includes requirements for manufacturers to produce and deliver for sale zero-emission vehicles (“ZEVs”). The current light-duty vehicle ZEV regulation, which uses a system based on credits that can be banked and carried forward, mandates substantial annual increases in the production and sale of battery-electric, fuel cell, and plug-in hybrid vehicles through the 2025 model year. At that time, the regulation will require credits equating to 22 percent of a manufacturer’s California light-duty vehicle sales volume. California has also instituted ZEV regulations aimed at medium- and heavy-duty vehicles, beginning with the 2024 model year. These medium- and heavy-duty rules, which could entail significant costs and compliance challenges, include complex warranty and recall requirements for some vehicle configurations. Compliance with ZEV rules depends on market conditions as well as the availability of adequate infrastructure to support vehicle charging.
Item 1. Business (Continued)
European Requirements. European Union (“EU”) directives and related legislation limit the amount of regulated pollutants that may be emitted by new motor vehicles and engines sold in the EU. Regulatory stringency has increased significantly since 2014 when Stage VI emission standards were introduced. Since then, a laboratory test cycle for CO2 and emissions was implemented in 2017, followed by the introduction of on-road emission testing using portable emission analyzers (Real Driving Emission or “RDE”). These on-road emission tests are in addition to the laboratory-based tests. The divergence between the regulatory limit that is tested in laboratory conditions and the allowed values measured in RDE tests will ultimately be reduced to zero as the regulatory demands increase. The costs associated with complying with these requirements are significant, and following the EU Commission’s indication of its intent to accelerate emissions rules in its road map publication “EU Green Deal” as well as the EU sustainable mobility action plan, the challenges will continue. In addition, the Whole Vehicle Type Approval (“WVTA”) regulation has been updated to increase the stringency of in-market surveillance. Moreover, following the United Kingdom’s withdrawal from the EU, we may be subject to diverging requirements in our European markets, which could increase vehicle complexity and duties.
There is an increasing trend of city access restrictions for internal combustion engine powered vehicles, particularly in European cities that do not meet air quality limits. The access rules being introduced are developed by individual cities based on their specific concerns, resulting in rapid deployment of access rules that differ greatly among cities. The speed of implementation of access rules may directly influence customer vehicle residual values and choice of next purchase, and there is a risk that these rules may result in the need for customers to retrofit their vehicles with emission after-treatment systems. In an effort to support the Paris Accord, some countries are adopting yearly increases in CO2 taxes, where such a system is in place, and publishing dates by when internal combustion powered vehicles may no longer be registered, e.g., Norway in 2025 and the United Kingdom and the Netherlands in 2030.
Other National Requirements. Many countries, in an effort to address air quality and climate change concerns, are adopting previous versions of European or United Nations Economic Commission for Europe (“UN-ECE”) mobile source emission regulations. Some countries have adopted more advanced regulations based on the most recent version of European or U.S. regulations. For example, the China Stage VI emission standards, based on European Stage VI emission standards for light duty vehicles, U.S. evaporative and refueling emissions standards, and CARB OBD II requirements, incorporate two levels of stringency for tailpipe emissions. Level one (VI(a)) was implemented in July 2020, and the more stringent level two (VI(b)) is slated for implementation in July 2023. The government has encouraged the more economically developed cities to pull-ahead implementation. The earliest implementation of VI(a) began in July 2019, with a few areas, such as Shanghai and Guangdong province, implementing VI(b). China Stage VII emission regulations are currently under consideration, and the Ministry of Ecology and Environment has advised that the Stage VII regulations will have more stringent limits on pollutant emissions and will establish limits for greenhouse gas (primarily CO2) tailpipe emissions.
Canadian criteria emissions regulations are largely aligned with U.S. requirements; however, the existing ZEV regulations in Quebec and those published in British Columbia in July 2020 are more stringent than those in place in California.
Elsewhere, there is a mix of regulations and processes based on U.S. and EU standards. Not all countries have adopted appropriate fuel quality standards to accompany the stringent emission standards adopted. This could lead to compliance problems, particularly if OBD or in-use surveillance requirements are implemented.
Global Developments. In recent years, EPA and CARB have increased their focus on the use of “defeat devices.” Defeat devices are elements of design (typically embedded in software) that improperly cause the emission control system to function less effectively during normal on-road driving than during an official laboratory emissions test, without justification. They are prohibited by law in many jurisdictions, and we do not use defeat devices in our vehicles.
Regulators around the world continue to scrutinize automakers’ emission testing, which has led to a number of defeat device settlements by various manufacturers. EPA is carrying out additional non-standard tests as part of its vehicle certification program. CARB has also been conducting extensive non-standard emission tests, which in some cases have resulted in certification delays for diesel vehicles. In the past, several European countries have conducted non-standard emission tests and published the results, and, in some cases, this supplemental testing has triggered investigations of manufacturers for possible defeat devices. Testing is expected to continue on an ongoing basis. In addition, plaintiffs’ attorneys are pursuing consumer class action lawsuits based on alleged excessive emissions from cars and trucks, which could, in turn, prompt further investigations by regulators.
Item 1. Business (Continued)
Vehicle Fuel Economy and Greenhouse Gas Standards
U.S. Requirements - Light-Duty Vehicles. Federal law requires that light duty vehicles meet minimum corporate average fuel economy (“CAFE”) standards set by the National Highway Traffic Safety Administration (“NHTSA”). Manufacturers are subject to substantial civil penalties if they fail to meet the CAFE standard in any model year, after taking into account all available credits for the preceding five model years and expected credits for the three succeeding model years. The law requires NHTSA to promulgate and enforce separate CAFE standards applicable to each manufacturer’s fleet of domestic passenger cars, imported passenger cars, and light-duty trucks.
EPA also regulates vehicle greenhouse gas (“GHG”) emissions under the Clean Air Act. Because the vast majority of GHGs emitted by a vehicle are the result of fuel combustion, GHG emission standards are similar to fuel economy standards. Thus, NHTSA and EPA coordinate with each other on their fuel economy and GHG standards, respectively, to avoid potential inconsistencies.
Since the 2012 model year, EPA and NHTSA have jointly promulgated harmonized GHG and fuel economy regulations under what came to be known as the “One National Program” (“ONP”) framework. California, which had promulgated its own state-specific set of GHG regulations, agreed that compliance with the federal program would satisfy compliance with its own GHG requirements, thereby avoiding a patchwork of potentially conflicting federal and state GHG standards. ONP has required manufacturers to achieve increasingly stringent year-over-year standards.
ONP was envisioned to continue at least through the 2025 model year. The ONP rules provided for a mid-term evaluation process under which, by April 2018, EPA and NHTSA would re-evaluate the standards for model years 2022-2025 in order to ensure that they are feasible and optimal in light of intervening events. As a result of the mid-term evaluation process, the federal government issued a rule that significantly reduced the stringency of 2021-2026 fuel economy and GHG standards. The federal government also took the position that California’s vehicle GHG standards are preempted by federal law, together with other states that opted-in to California’s standards. California, which continues to assert its authority to regulate vehicle GHGs and has challenged in court the federal government’s preemption actions, took steps to withdraw from ONP and plans to return to enforcing its own state-specific GHG standard if it prevails in the litigation that is underway. The federal government’s revised fuel economy and GHG standards rule is also being challenged in court by a coalition of states and non-governmental organizations (“NGOs”).
The litigation over both standards and preemption, with uncertain outcomes, creates difficulty for purposes of Ford’s future product planning. One plausible outcome is a “bifurcated” scenario in which California, along with the 13 states that have adopted California’s GHG standards, enforce one set of rules, while a different set of rules applies in the rest of the country. Such an outcome would impose a layer of complexity on Ford’s product planning, testing, certification, and distribution activities. In an effort to avoid such an outcome and mitigate the current regulatory uncertainty, Ford reached an agreement with California on a set of terms for an alternative framework. Under this framework, Ford will meet a designated set of standards on a national basis in lieu of the California regulatory program. This framework enables Ford to continue its product planning on a nationwide basis, and it is also consistent with Ford’s environmental goals. Ford finalized its agreement with California in August 2020, and other states that opted into the California standards indicated they would respect the agreement.
While the California agreement helps mitigate the current regulatory uncertainty, it does not resolve all potential risks or litigation outcomes. The new presidential administration may re-evaluate the stringency of fuel economy and GHG standards and/or reinstate California’s authority to enforce its own GHG standards. Ford would face increased costs and complexity if the federal standards are revised to be more stringent than the California agreement. If any federal or state agency imposes and enforces fuel economy and GHG standards that are misaligned with market conditions, Ford would likely be forced to take various actions that could have substantial adverse effects on our sales volumes and results of operations. Such actions likely would include restricting offerings of selected engines and popular options; increasing market support programs for Ford’s most fuel-efficient vehicles; and ultimately curtailing the production and sale of certain vehicles, such as high-performance cars, utilities, and/or full-size light trucks in order to maintain compliance.
U.S. Requirements - Heavy-Duty Vehicles. EPA and NHTSA have jointly promulgated GHG and fuel economy standards for heavy-duty vehicles (generally, vehicles over 8,500 pounds gross vehicle weight rating) through the 2027 model year. In Ford’s case, the standards primarily affect heavy-duty pickup trucks and vans, plus vocational vehicles such as shuttle buses and delivery trucks. As the heavy-duty standards increase in stringency, it may become more difficult to comply while continuing to offer a full lineup of heavy-duty trucks.
Item 1. Business (Continued)
European Requirements. The EU regulates passenger car and light commercial vehicle CO2 emissions using sliding scales with different CO2 targets for each manufacturer based on the respective average vehicle weight for its fleet of vehicles first registered in a calendar year, with separate targets for passenger cars and light commercial vehicles. A penalty system applies to manufacturers failing to meet the individual CO2 targets. Pooling agreements between manufacturers to utilize credits are possible under certain conditions, and we have entered into such pooling agreements in order to comply with fuel economy regulations without paying a penalty and to enable other manufacturers to benefit from our positive CO2 performance. For “multi-stage vehicles” (e.g., Ford’s Transit chassis cabs), the base manufacturer (e.g., Ford) is fully responsible for the CO2 performance of the final up-fitted vehicles. The initial target levels get significantly more stringent every five years (2020, 2025, 2030), requiring significant investments in propulsion technologies and extensive fleet management forcing low CO2 emissions. Delayed launches, supply shortages, or lower demand for low CO2 emission vehicles, as well as a limited charging infrastructure, can trigger compliance risks.
The EU Commission is investigating the introduction of Real Driving CO2 and Life Cycle Assessment elements, and heavy-duty vehicles are addressed in separate regulations with analogous requirements and challenges. As discussed above, the EU Commission has announced a “Green Deal” that is likely to trigger more stringent requirements for CO2 emissions and other regulated emissions and include recycling and substance restrictions. The announcement also included a pull ahead of revision dates for the CO2 fleet regulation. The EU Commission targets net climate neutrality by 2050 and a more ambitious 2030 interim target (a 50-55% instead of 40% CO2 reduction compared to 1990).
Outside of the EU, the United Kingdom and Switzerland have introduced similar rules. Ford faces the risk of advance premium payment requirements for both passenger cars as well as for light commercial vehicles due to, for example, unexpected market fluctuations and shorter lead times impacting average fleet performance.
The United Nations developed a technical regulation for passenger car emissions and CO2. This world light duty test procedure (“WLTP”) is focused primarily on better aligning laboratory CO2 and fuel consumption figures with customer-reported figures. The introduction of WLTP in Europe started in September 2017 and requires updates to CO2 labeling, thereby impacting taxes in countries with a CO2 tax scheme as well as CO2 fleet regulations for passenger cars and light commercial vehicles. Costs associated with new or incremental testing for WLTP are significant.
Some European countries have implemented or are considering other initiatives for reducing CO2 vehicle emissions, including fiscal measures and CO2 labeling to address country specific targets associated with the Paris Accord. For example, the United Kingdom, France, Germany, Spain, Portugal, and the Netherlands, among others, have introduced taxation based on CO2 emissions. The EU CO2 requirements are likely to trigger further measures.
Other National Requirements. The Canadian federal government regulates vehicle GHG emissions under the Canadian Environmental Protection Act. In October 2014, the Canadian federal government published the final changes to the regulation for light-duty vehicles, which maintain alignment with U.S. EPA vehicle GHG standards for the 2017-2025 model years. The revised U.S. EPA standards were automatically adopted in Canada by reference for the 2022-2025 model years; however, Canada is also undertaking a mid-term evaluation of the standards for the 2022 model year and beyond, the outcome of which remains uncertain and may be influenced by U.S. actions. The Canadian federal government is expected to conclude the mid-term evaluation in the first quarter of 2021. The heavy-duty vehicle and engine GHG emissions regulations for the 2021 model year and beyond were published in May 2018 and are in line with U.S. requirements, subject to any change in those requirements under the new U.S. presidential administration.
The China fuel consumption requirement uses a weight-based approach to establish targets, specifies year-over-year target reductions, and requires mandated volumes of New Energy Vehicle (“NEV”), i.e., plug-in hybrids, battery electric vehicles, or fuel cell vehicles, credits. The requirement is for NEV credits to be at least 14%, 16%, and 18% of the annual ICE vehicle production or import fleet volume in 2021, 2022, and 2023, respectively. China’s 2020 fuel consumption industry fleet average was set at 5.0L/100km and lowers to 4.0L/100km by 2025 based on the New European Driving Cycle (“NEDC”) system. The government is projecting further fuel consumption reductions in 2030 and is targeting 3.2L/100km. The fuel efficiency targets and NEV mandate will impact the costs of vehicle technology in the future.
As discussed below in Item 1A. Risk Factors under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations,” a production disruption, stop ship, lower than planned market acceptance of our vehicles, or other intervening events may cause us to modify our product plans or, in some cases, purchase credits in order to comply with fuel economy standards.
Item 1. Business (Continued)
Vehicle Safety
U.S. Requirements. The National Traffic and Motor Vehicle Safety Act of 1966 (the “Safety Act”) regulates vehicles and vehicle equipment in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly and has continued to evolve as global compliance and public domain (e.g., New Car Assessment Programs (“NCAPs”), Insurance Institute for Highway Safety (“IIHS”)) requirements continue to evolve, are increasing in demands, and lack harmonization globally. As we expand our business priorities to include autonomous vehicles and broader mobility products and services, our financial exposure has increased. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines the vehicles do not comply with a safety standard. Should we or NHTSA determine that either a safety defect or noncompliance issue exists with respect to any of our vehicles, the cost of such recall campaigns could be substantial.
European Requirements. The EU has established vehicle safety standards and regulations and is likely to adopt additional or more stringent requirements in the future, especially in the areas of access to in-vehicle data and autonomous vehicles.
The European General Safety Regulation (“GSR”) introduced UN-ECE regulations, which will be required for the European Type Approval process. The GSR includes the mandatory introduction of multiple active and passive safety features, including cybersecurity requirements for new vehicle models in 2022 and for all registrations in 2024. EU regulators also are focusing on active safety features, such as lane departure warning systems, electronic stability control, and automatic brake assist.
Other National Requirements. Globally, governments generally have been adopting UN-ECE based regulations with minor variations to address local concerns. Any difference between North American and UN-ECE based regulations can add complexity and costs to the development of global platform vehicles, and we continue to support efforts to harmonize regulations to reduce vehicle design complexity while providing a common level of safety performance; several on-going bilateral negotiations on free trade can potentially contribute to this goal.
Safety and recall requirements in Brazil, China, India, and Gulf Cooperation Council countries also may add substantial costs and complexity to our global recall practice. Brazil has set mandatory fleet safety targets, and penalties are applied, if these levels are not maintained, while a tax reduction may be available for over-performance. In Canada, regulatory requirements are currently aligned with U.S. regulations; however, under the Canadian Motor Vehicle Safety Act, the Minister of Transport has broad powers to order manufacturers to submit a notice of defect or non-compliance when the Minister considers it to be in the interest of safety. In China, a new mandatory Event Data Recorder regulation that is more complex than U.S. requirements has been released, and in China, Malaysia, and South Korea, mandatory e-Call requirements are being drafted. E-Call is mandatory in the UAE for new vehicles beginning with the 2021 model year.
New Car Assessment Programs. Organizations around the world rate and compare motor vehicles in NCAPs to provide consumers and businesses with additional information about the safety of new vehicles. NCAPs use crash tests and other evaluations that are different than what is required by applicable regulations, and use stars to rate vehicle safety, with five stars awarded for the highest rating and one for the lowest. Achieving high NCAP ratings, which may vary by country or region, can add complexity and cost to vehicles. Similarly, environmental rating systems exist in various regions, e.g., Green NCAP in Europe. In China, C-NCAP has a stringent rating structure to decrease the number of five-star ratings. Further, the China Insurance Auto Safety Index (similar to IIHS) has been implemented, with higher standards for passenger and pedestrian protection and driver assistance technologies.
Item 1. Business (Continued)
HUMAN CAPITAL RESOURCES
People Strategy and Governance
Caring for each other through valuing diversity, embracing inclusion, celebrating success, encouraging new thinking, supporting each other through change, and winning as a team is a key element of our plan to drive long-term business success. Ford maintains an Executive People Forum consisting of the CEO and top leadership team that meets multiple times a month with a specific focus on people and organizational topics that will enable and accelerate delivery of the business plan. Key topic areas include our Enterprise People Strategy, Diversity & Inclusion, Organizational Fitness and Workforce Planning, and Leadership Development and Culture.
Our Board of Directors and Board committees provide important oversight on certain human capital matters, including items discussed at the Executive People Forum. The Compensation Committee maintains responsibility to review, discuss, and set strategic direction for various people-related business strategies, including our compensation and benefit programs, leadership succession planning, culture, diversity and inclusion, and talent development programs. The Sustainability and Innovation Committee is responsible for discussing and advising management on maintaining and improving sustainability strategies, the implementation of which create value consistent with the long-term preservation and enhancement of shareholder value and social well-being, including human rights, working conditions, and responsible sourcing. The collective recommendations to the Board and its committees are how we proactively manage our human capital and care for our employees in a manner that is consistent with our Ford values.
Diversity, Equity, and Inclusion
At Ford, we believe that creating a Culture of Belonging for all our employees is foundational to our success and morally the right thing to do. Ford offers 11 Employee Resource Groups (“ERGs”) that represent various dimensions of our employee population, including racial, ethnic, gender, religious, sexual orientation and gender identity, ability, and generational communities with chapters throughout the world, in addition to Diversity and Inclusion (“D&I”) Councils in every region. Our ERGs and D&I Councils are instrumental in providing a voice to our globally diverse workforce and to help us better understand the employee experience.
In 2020, we conducted a comprehensive Diversity, Equity, and Inclusion (“DEI”) Audit in the United States with plans for a global rollout in 2021. The purpose of the audit, which included qualitative data, quantitative data, and deep ethnography, is to accelerate our efforts to improve the employee experience and cultivate a culture of belonging. As a result of this effort, we have taken several concrete steps, including initiating a monthly CEO DEI Forum with top leadership and embedding DEI into our corporate strategy and governance with clear objectives for progress established for every senior leader. Several additional actions are planned for the first half of 2021 that will demonstrate our commitment to transparency, inclusion, and the important role that our People Leaders will play in further enhancing our culture of belonging. Our diversity statistics include the following as of December 31, 2020 (based on self-reporting at the date of hire): 27.7% of our salaried employees worldwide are females (excludes certain employees in Europe in accordance with the European Union’s General Data Protection Regulation); 25.1% of our total salaried and hourly employees in the United States are females; and 34.4% of our total salaried and hourly employees in the United States are minorities.
Talent Attraction, Growth, and Capability Assessment
In an environment where many employees are no longer bound to physical locations, where and how we source our talent is evolving. From a growth perspective, we are focusing on several key segments vital to our success (e.g., software, electrification, and data science). We have added a substantial number of employees to our salaried workforce since January 2020 to support these emerging areas of the business. From a capability perspective, we are leveraging best practices in assessments and talent management to strengthen our current capabilities and future pipeline while reinforcing a culture of belonging, empowerment, and innovation. Further, we are also creating targeted learning experiences, democratizing learning and career development opportunities across the organization, and empowering employees to design their own career paths with skill development targeted for the roles of today and the future. Finally, the extent to which our People Leaders are equipped to care for, inspire, and empower our people plays a vital role in our strategy, and we are committed to helping our leaders strengthen these capabilities with dedicated learning paths and non-traditional learning opportunities.
Item 1. Business (Continued)
Employee Health and Safety
Nothing is more important than the health, safety, and well-being of our people, and we work hard to achieve world-class levels of safety year-over-year, through the application of policies and best practices. We maintain a robust safety culture to reduce workplace injuries, supported by effective communication, reporting, and external benchmarking. We hold regular talks and events on key safety issues, including reporting all injuries, hazards, and near-misses, to prevent recurrences. We also participate in multi-industry groups, within and outside the automotive sector, to share safety best practices and collaborate to address common issues.
Our Safety Record
Any loss of life or serious injury in the workplace is unacceptable and deeply regretted. We did not have any fatal incidents at any of our facilities in 2020. Another key safety indicator, our global lost-time case rate (“LTCR”), decreased from 0.39 in 2019 to 0.31 in 2020. LTCR is defined as the number of cases where one or more working days is lost due to work-related injury/illness per 200,000 hours worked.
Ford Motor Company also embarked on a complex journey to address the people and business implications of the COVID-19 pandemic, including how we support and protect our employees, the communities where we operate, and our Company assets. After idling our manufacturing facilities, our priority was to create the COVID-19 Business Resumption Plan, i.e., “The Return-To-Work Playbook.” The Return-To-Work Playbook is our corporate guideline and aligns with recommendations from the World Health Organization, the Centers for Disease Control and Prevention, and country and local health departments. The Playbook’s core objective is to protect our employees and provide a safe work environment. The main elements of the Playbook include:
•Guidelines and requirements for completion of a daily health check survey
•Guidelines for temperature scanning prior to entering facilities
•Guidelines for appropriate use and application of Personal Protective Equipment
•Guidelines and recommendations for social distancing inside and outside of workstations
•Cleaning and disinfecting workstations and common areas
•Guidelines supporting handwashing methods and frequency
•Placement strategy for hand sanitizer stations
We will continue to be vigilant and proactive in our efforts to effectively manage the COVID-19 pandemic.
Employee Wellbeing Initiatives
Our global, holistic approach to wellbeing encompasses the financial, social, mental/emotional, physical, and professional needs of our employees. Foundational to our wellbeing philosophy is providing a broad array of resources and solutions to educate employees and build capability and support for meeting individual wellbeing needs and goals. Our wellbeing program is an integral part of our total rewards strategy as we work to address business and employee challenges through a multi-channel approach that provides our diverse populations and global regions flexibility and choice to meet their specific needs.
We use data driven insights gathered through surveys, focus groups and claims data to prioritize our wellbeing programs. Through our wellbeing offerings, e.g., Work from Home support and enhanced childcare and parental resources, we provide employees the resources they need to achieve their own sense of wellbeing and build an environment where employees and People Leaders care for each other as we deliver the business objectives.
Item 1. Business (Continued)
Employee Sentiment Strategy
We leverage our ask/listen/observe framework to understand employee sentiment at Ford. This approach is a holistic and consistent methodology that enables us to understand how employees are feeling in real time and act accordingly. Our measurement focuses on several areas that are key to our business: Employee Mental and Emotional Wellbeing, Health & Safety (including our COVID-19 safety protocols), Employee Experience, Culture, Diversity, Equity & Inclusion, Leadership, and Strategic Alignment. Our efforts to drive change in these areas are paying off. We surveyed our employees during 2020 after the onset of the pandemic; 91% of the respondents, which were primarily salaried employees, indicated that Ford’s response to the pandemic helped them do what is best for their health and family. A critical element of our measurement program is ensuring that data ends up in the hands of those who are best positioned to drive meaningful change. To this end, leaders at all levels have access to dashboards with data from their teams and organizations, as well as personalized next step recommendations embedded into action planning tools. Our measurement approach is also used to inform our areas of focus as an organization and to evaluate the effectiveness of talent initiatives across the enterprise.
Employment Data
The approximate number of individuals employed by us and entities that we consolidated as of December 31 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
North America
|
99
|
|
|
101
|
|
South America
|
10
|
|
|
8
|
|
Europe
|
46
|
|
|
43
|
|
China (including Taiwan)
|
3
|
|
|
4
|
|
International Markets Group
|
15
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|
|
14
|
|
Total Automotive
|
173
|
|
|
170
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|
Ford Credit
|
7
|
|
|
6
|
|
Mobility
|
3
|
|
|
2
|
|
Corporate and Other
|
7
|
|
|
8
|
|
Total Company
|
190
|
|
|
186
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|
The reduction in employees in 2020 is primarily a result of our global redesign efforts, partially offset by the addition of employees to increase production in certain facilities and the addition of employees in growth areas, including software, electrification, and data science.
Substantially all of the hourly employees in our Automotive operations are represented by unions and covered by collective bargaining agreements. In the United States, approximately 99% of these unionized hourly employees in our Automotive segment are represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW” or “United Auto Workers”). At December 31, 2020, approximately 58,000 hourly employees in the United States were represented by the UAW.
ITEM 1A. Risk Factors.
We have listed below the material risk factors applicable to us grouped into the following categories: Operational Risks; Macroeconomic, Market, and Strategic Risks; Financial Risks; and Legal and Regulatory Risks.
Operational Risks
Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19. We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the global outbreak of COVID-19. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. To the extent cases surge in any locations, stringent limitations on daily activities that may have been eased previously could be reinstated in those areas. Further, if new strains of COVID-19 develop or sufficient amounts of vaccines are not available, not widely administered for a significant period of time, or otherwise prove ineffective, the impact of COVID-19 on the global economy, and, in turn, our financial condition, liquidity, and results of operations could be material.
Consistent with the actions taken by governmental authorities, in late March 2020, we idled our manufacturing operations in regions around the world other than China, where manufacturing operations were suspended in January and February before beginning to resume operations in March. By May 2020, taking a phased approach and after introducing new safety protocols at our plants, we resumed manufacturing operations around the world.
The economic slowdown attributable to COVID-19 led to a global decrease in vehicle sales in markets around the world. As described in more detail below under “Industry sales volume in any of Ford’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event,” a sustained decline in vehicle sales would have a substantial adverse effect on our financial condition, results of operations, and cash flow.
The predominant share of Ford Credit’s business consists of financing Ford and Lincoln vehicles, and the duration or resurgence of COVID-19 or similar public health issues may negatively impact the level of originations at Ford Credit. For example, Ford’s suspension of manufacturing operations, a significant decline in dealer showroom traffic, and/or a reduction of operations at dealers may lead to a significant decline in Ford Credit’s consumer and non-consumer originations. Moreover, a sustained decline in sales could have a significant adverse effect on dealer profitability and creditworthiness. Further, COVID-19 has had a significant negative impact on many businesses and unemployment rates have increased sharply from pre-COVID-19 levels. Ford Credit expects the economic uncertainty and higher unemployment to result in higher defaults in its consumer portfolio, and prolonged unemployment is expected to have a negative impact on both new and used vehicle demand.
The global economic slowdown and stay-at-home orders enacted across the United States disrupted auction activity in many locations, which adversely impacted and caused delays in realizing the resale value for off-lease and repossessed vehicles. Although auction performance has improved, future or additional restrictions could have a similar adverse impact on Ford Credit. For more information about the impact of higher credit losses and lower residual values on Ford Credit’s business, see “Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles” below.
As described in more detail below under “Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors,” the volatility created by COVID-19 adversely affected Ford Credit’s access to the debt and securitization markets and its cost of funding, and any volatility in the capital markets as a result of a surge in cases of COVID-19, new outbreaks, or for any other reason could have an adverse impact on Ford Credit’s access to those markets and its cost of funding.
Item 1A. Risk Factors (Continued)
The full impact of COVID-19 on our financial condition and results of operations will depend on future developments, such as the ultimate duration and scope of the outbreak (including any potential future waves and the success of vaccination programs), its impact on our customers, dealers, and suppliers, how quickly normal economic conditions, operations, and the demand for our products can resume, and any permanent behavioral changes that the pandemic may cause. For example, in the event manufacturing operations are again suspended, fully ramping up our production schedule to prior levels may take longer than the prior resumption and will depend, in part, on whether our suppliers and dealers have resumed normal operations. Our automotive operations generally do not realize revenue while our manufacturing operations are suspended, but we continue to incur operating and non-operating expenses, resulting in a deterioration of our cash flow. Accordingly, any significant future disruption to our production schedule, whether as a result of our own or a supplier’s suspension of operations, could have a substantial adverse effect on our financial condition, liquidity, and results of operations. Further, government-sponsored liquidity or stimulus programs in response to COVID-19 may not be available to our customers, suppliers, dealers, or us, and if available, may nevertheless be insufficient to address the impacts of COVID-19. Moreover, our supply and distribution chains may be disrupted by supplier or dealer bankruptcies or their permanent discontinuation of operations.
The COVID-19 pandemic may also exacerbate other risks disclosed in our 2020 Form 10-K Report, including, but not limited to, our competitiveness, demand or market acceptance for our products, and shifting consumer preferences.
Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule, and a shortage of key components, such as semiconductors, can disrupt Ford’s production of vehicles. Our products contain components that we source globally from suppliers who, in turn, source components from their suppliers. If there is a shortage of a key component in our supply chain, and the component cannot be easily sourced from a different supplier, the shortage may disrupt our production. For example, the automotive industry is facing a significant shortage of semiconductors. With up to fifty modules on a vehicle, we and our competitors who need integrated circuits are experiencing various levels of semiconductor impact. The semiconductor supply chain is complex, and a constrained wafer capacity is occurring deep in the chain. Global semiconductor makers allocated more capacity to meet surging demand for consumer electronics during the COVID-19 pandemic as automotive OEMs experienced industry-wide plant closures. At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support demand from all of their customers. Wafers have a long lead time for production, in some cases up to 30 weeks, which further exacerbates the shortage. When global automakers resumed vehicle production in 2020 – even more quickly than some expected – semiconductor supplies became further strained. A combination of these factors, including increased demand for consumer electronics, automotive shutdowns due to COVID-19, the rapid recovery of demand for vehicles, and long lead times for wafer production, is contributing to the shortage of semiconductors. A shortage of semiconductors or other key components can cause a significant disruption to our production schedule and have a substantial adverse effect on our financial condition or results of operations.
Ford’s long-term competitiveness depends on the successful execution of its Plan. We previously announced our plan for the global redesign of our business, pursuant to which we are working to turn around automotive operations, compete like a challenger, and capitalize on our strengths by allocating more capital, more resources, and more talent to our strongest business and vehicle franchises. We plan to do so by becoming more customer centric, embracing technology, and adopting processes that emphasize simplicity, speed and agility, efficiency, and accountability. The restructurings involved in turning around our automotive operations have resulted in charges that have had an adverse impact on our financial condition and results of operations, and we expect to incur additional charges in the future. Moreover, such restructuring actions may subject us to potential claims from employees, suppliers, dealers, or governmental authorities or harm our reputation. In addition, to further improve our business and overall competitiveness, we are attempting to leverage relationships with third parties, including various alliances and joint ventures as discussed below under “Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies.” Further, significant changes to our long-term business model in various regions may be necessary should they prove to be unviable. If we are not successful in executing the Plan or are delayed for reasons outside of our control, we may not be able to materially lower costs in the near term, improve our competitiveness in the long term, or realize the full benefits of our global redesign actions, which could have an adverse effect on our financial condition or results of operations.
Item 1A. Risk Factors (Continued)
Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs. Government safety standards require manufacturers to remedy defects related to vehicle safety through safety recall campaigns, and a manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. NHTSA’s enforcement strategy has shifted to a significant increase in civil penalties levied and the use of consent orders requiring direct oversight by NHTSA of certain manufacturers’ safety processes, a trend that could continue. Should we or government safety regulators determine that a safety or other defect or a noncompliance exists with respect to certain of our vehicles prior to the start of production, the launch of such vehicle could be delayed until such defect is remedied. The cost of recall and customer satisfaction actions to remedy defects in vehicles that have been sold could be substantial, particularly if the actions relate to global platforms or involve defects that are identified years after production. For example, NHTSA and the automotive industry are currently engaged in a study of the safety of approximately 56 million Takata desiccated airbag inflators in the United States. Of these, approximately three and a half million of the inflators are in our vehicles. Should NHTSA determine that the inflators contain a safety defect, Ford and other manufacturers could potentially face significant incremental recall costs. Our recent experience recalling about three million Takata airbag inflators with a different design resulted in us incurring a charge of $610 million in our fourth quarter 2020 results. Further, to the extent recall and customer satisfaction actions relate to defective components we receive from suppliers, our ability to recover from the suppliers may be limited by the suppliers’ financial condition. We accrue the estimated cost of both base warranty coverages and field service actions at the time a vehicle is sold, and we reevaluate the adequacy of our accruals on a regular basis. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. For additional information regarding warranty and field service action costs, including our process for establishing our reserves, see “Critical Accounting Estimates” in Item 7 and Note 25 of the Notes to the Financial Statements. If warranty costs are greater than anticipated as a result of increased vehicle and component complexity, the adoption of new technologies, or otherwise, such costs could have an adverse effect on our financial condition or results of operations. Furthermore, launch delays, recall actions, and increased warranty costs could adversely affect our reputation or market acceptance of our products as discussed below under “Ford’s new and existing products and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and mobility industries.”
Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies. We have invested in, formed strategic alliances with, and announced or formed joint ventures with a number of companies, and we may expand those relationships or enter into similar relationships with additional companies. These initiatives typically involve enormous complexity and we may not be able to complete anticipated transactions, the anticipated benefits of these transactions may not be realized, or the benefits may be delayed. For example, we may not successfully integrate an alliance or joint venture with our operations, including the implementation of our controls, systems, procedures, and policies, or unforeseen expenses or liabilities may arise that were not discovered during due diligence prior to an investment or entry into a strategic alliance, or a misalignment of interests may develop between us and the other party. Further, to the extent we share ownership, control, or management with another party in a joint venture, our ability to influence the joint venture may be limited, and we may be unable to prevent misconduct or implement our compliance or internal control systems. In addition, implementation of a new business strategy may lead to the disruption of our existing business operations, including distracting management from current operations. Results of operations from new activities may be lower than our existing activities, and, if a strategy is unsuccessful, we may not recoup our investments in that strategy. Failure to successfully and timely realize the anticipated benefits of these transactions or strategies could have an adverse effect on our financial condition or results of operations.
Item 1A. Risk Factors (Continued)
Operational systems, security systems, and vehicles could be affected by cyber incidents and other disruptions. We rely on information technology networks and systems, including in-vehicle systems and mobile devices, some of which are managed by suppliers, to process, transmit, and store electronic information that is important to the operation of our business and our vehicles. Despite security measures, we are at risk for interruptions, outages, and compromises of: (i) operational systems (including business, financial, accounting, product development, consumer receivables, data processing, or manufacturing processes); (ii) facility security systems; and/or (iii) in-vehicle systems or mobile devices, whether caused by a cyber attack, security breach, or other reasons, e.g., a natural disaster, fire, or overburdened infrastructure system. Such incidents could materially disrupt operational systems; result in loss of trade secrets or other proprietary or competitively sensitive information; compromise the privacy of personal information of consumers, employees, or others; jeopardize the security of our facilities; affect the performance of in-vehicle systems; and/or impact the safety of our vehicles. This risk exposure rises as we continue to develop and produce vehicles with increased connectivity. Moreover, we, our suppliers, and our dealers have been the target of cyber attacks in the past, and such attacks will continue and evolve in the future, which may cause cyber incidents to be more difficult to detect for periods of time. Our networks and in-vehicle systems, sharing similar architectures, could also be impacted by the negligence or misconduct of insiders or third parties who have access to our networks and systems. We continually employ capabilities, processes, and other security measures designed to reduce and mitigate the risk of cyber attacks; however, such preventative measures cannot provide absolute security and may not be sufficient in all circumstances or mitigate all potential risks. Moreover, a cyber incident could harm our reputation and/or subject us to regulatory actions or litigation, and a cyber incident involving us or one of our suppliers could impact production.
Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, or other factors. A work stoppage or other limitation on production could occur at Ford’s or its suppliers’ facilities for any number of reasons, including as a result of labor issues, including disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements, absenteeism, public health issues (e.g., COVID-19), stay-at-home orders, or in response to potential restructuring actions (e.g., plant closures); as a result of supplier financial distress or other production constraints, such as limited quantities of components, including but not limited to semiconductors, or raw materials, quality issues, or other difficulties; as a result of a natural disaster (including climate-related physical risk); or for other reasons. Many components used in our vehicles are available only from a single or limited number of suppliers and, therefore, cannot be re-sourced quickly or inexpensively to another supplier (due to long lead times, new contractual commitments that may be required by another supplier before ramping up to provide the components or materials, etc.). Such suppliers also could threaten to disrupt our production as leverage in negotiations. In addition, when we undertake a model changeover, significant downtime at one or more of our production facilities may be required, and our ability to return to full production may be delayed if we experience production difficulties at one of our facilities or a supplier’s facility. Moreover, as vehicles, components, and their integration become more complex, we may face an increased risk of a delay in production of new vehicles. Regardless of the cause, our ability to recoup lost production volume may be limited. Accordingly, a significant disruption to our production schedule could have a substantial adverse effect on our financial condition or results of operations and may impact our strategy to comply with fuel economy standards as discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations.”
Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints. Substantially all of the hourly employees in our Automotive operations in the United States and Canada are represented by unions and covered by collective bargaining agreements. These agreements provide guaranteed wage and benefit levels throughout the contract term and some degree of income security, subject to certain conditions. These agreements may restrict our ability to close plants and divest businesses. A substantial number of our employees in other regions are represented by unions or government councils, and legislation or custom promoting retention of manufacturing or other employment in the state, country, or region may constrain as a practical matter our ability to sell or close manufacturing or other facilities.
Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness. Our success depends on our ability to continue to recruit and retain talented and diverse employees who are highly skilled in engineering, software, technology (including digital capabilities and connectivity), and marketing and sales, among other areas. Competition for such employees is intense, and the loss of existing employees or our inability to recruit new employees, particularly with the introduction of new technologies, could have a substantial adverse effect on our business.
Item 1A. Risk Factors (Continued)
Macroeconomic, Market, and Strategic Risks
Ford’s new and existing products and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and mobility industries. Although we conduct extensive market research before launching new or refreshed vehicles and introducing new services, many factors both within and outside our control affect the success of new or existing products and services in the marketplace, and we may not be able to accurately predict trends or the success of new products or services in the market. It takes years to design and develop a new vehicle or change an existing vehicle. Because customers’ preferences may change quickly, our new and existing products may not generate sales in sufficient quantities and at costs low enough to be profitable. Offering vehicles and services that customers want and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less desirable (whether in terms of price, quality, styling, safety, overall value, fuel efficiency, or other attributes) can exacerbate these risks. For example, if we are unable to differentiate our products from those of our competitors or sufficiently tailor our products to customers in markets like China, there could be insufficient demand for our products, which could have an adverse impact on our financial condition or results of operations.
With increased consumer interconnectedness through the internet, social media, and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility, or other key attributes can negatively impact our reputation or market acceptance of our products or services, even where such allegations prove to be inaccurate or unfounded. Further, our ability to successfully grow through investments in the areas of mobility and electrification depends on many factors, including advancements in technology, regulatory changes, and other factors that are difficult to predict, that may significantly affect the future of autonomous vehicles and mobility services. The automotive and mobility businesses are very competitive and are undergoing rapid changes. Traditional competitors are expanding their offerings, and new types of competitors (particularly in our areas of strength, e.g., pick-up trucks and utilities) that may possess superior technology, may have business models with certain aspects that are more efficient, and are not subject to the same level of fixed costs as us, are entering the market. This level of competition increases the importance that we are able to anticipate, develop, and deliver products and services that customers desire on a timely basis, in quantities in line with demand, and at costs low enough to be profitable.
We have announced our intent to continue making multi-billion dollar investments in electrification and mobility. Our plans include offering electrified versions of many of our vehicles, including the F-150. If the market for electrified vehicles does not develop at the rate we expect, even if the regulatory framework encourages a rapid adoption of electrified vehicles, or if consumers prefer our competitors’ vehicles, there could be an adverse impact on our financial condition or results of operations. Further, as discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations,” lower than planned market acceptance of our vehicles may impact our strategy to comply with fuel economy standards. Moreover, new offerings, including those related to autonomous vehicles, may present technological challenges that could be costly to implement and overcome and may subject us to customer claims if they do not operate as anticipated. In addition, since new technologies are subject to market acceptance, a malfunction involving any manufacturer’s autonomous vehicle may negatively impact the perception of autonomous vehicles and erode customer trust.
Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States. A shift in consumer preferences away from larger, more profitable vehicles (including trucks and utilities), whether because of spiking fuel prices, a decline in the construction industry, government actions or incentives, or other reasons, could result in an immediate and substantial adverse effect on our financial condition or results of operations. Moreover, our ability to develop and sell these vehicles may be limited for the reasons discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations.”
With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs. With the increasing interconnectedness of the global economy, a financial crisis, economic downturn or recession, natural disaster, geopolitical crisis, or other significant event in one area of the world can have an immediate and material adverse impact on markets around the world. Changes in international trade policy can also have a substantial adverse effect on our financial condition or results of operations. For example, steps taken by the U.S. government to apply or consider applying tariffs on automobiles, parts, and other products and materials have the potential to disrupt existing supply chains, impose additional costs on our business, affect the demand for our products, and make us less competitive. Further, other countries attempting to retaliate by imposing tariffs would increase the cost for us to import our vehicles into such countries. In addition, changes to and withdrawals from existing trade agreements and the entry into new trade agreements between governments may impact our results of operations.
Item 1A. Risk Factors (Continued)
China, in particular, presents unique risks to automakers due to its unique competitive and regulatory landscape. For example, we have established joint ventures in China, and, as discussed above under “Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies,” we do not have the ability to control or operate those joint ventures for our sole benefit. Changes in the Chinese economy, and the automotive market in particular, are driving significant changes to our business model for operating in China. While the change in the U.S. administration is expected to reduce volatility in U.S.-China relations, early signals from the incoming administration indicate a continuity in China policy that may impact our business model for operating in China.
We have operations in various markets with volatile economic or political environments and are pursuing growth opportunities in a number of newly developed and emerging markets. These investments may expose us to heightened risks of economic, geopolitical, or other events, including governmental takeover (i.e., nationalization) of our manufacturing facilities or intellectual property, restrictive exchange or import controls, disruption of operations as a result of systemic political or economic instability, outbreak of war or expansion of hostilities, and acts of terrorism, each of which could have a substantial adverse effect on our financial condition or results of operations. Further, the U.S. government, other governments, and international organizations could impose additional sanctions that could restrict us from doing business directly or indirectly in or with certain countries or parties, which could include affiliates.
Industry sales volume in any of Ford’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event. Because we, like other manufacturers, have a high proportion of relatively fixed structural costs, relatively small changes in industry sales volume can have a substantial effect on our cash flow and results of operations. Industry vehicle sales are affected by overall economic and market conditions. If industry vehicle sales were to decline to levels significantly below our planning assumption for key markets including the United States, Europe, or China, the decline could have a substantial adverse effect on our financial condition, results of operations, and cash flow. For a discussion of economic trends, see Item 7.
Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors. The global automotive industry is intensely competitive, with manufacturing capacity generally far exceeding current demand (the recent capacity constraints as a result of the impacts of COVID-19 being a temporary exception). Industry overcapacity has resulted in many manufacturers offering marketing incentives on vehicles in an attempt to maintain and grow market share; these incentives historically have included a combination of subsidized financing or leasing programs, price rebates, and other incentives. As a result, we are not necessarily able to set our prices to offset higher marketing incentives, commodity or other cost increases, tariffs, or the impact of adverse currency fluctuations, including cost advantages foreign competitors may have because of their weaker home market currencies, which may, in turn, enable those competitors to offer their products at lower prices. Continuation of or increased excess capacity, particularly for trucks and utilities, could have a substantial adverse effect on our financial condition or results of operations.
Fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments can have a significant effect on results. We are exposed to a variety of market risks, including the effects of changes in commodity prices, foreign currency exchange rates, and interest rates. We monitor and manage these exposures as an integral part of our overall risk management program, which recognizes the unpredictability of markets and seeks to reduce potentially adverse effects on our business. Changes in commodity prices (from tariffs, as discussed above under “With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs,” or otherwise), currency exchange rates, and interest rates cannot always be predicted, hedged, or offset with price increases to eliminate earnings volatility. As a result, significant changes in commodity prices, foreign currency exchange rates, or interest rates could have a substantial adverse effect on our financial condition or results of operations. See Item 7 and Item 7A for additional discussion of currency, commodity price, and interest rate risks. In addition, our results are impacted by fluctuations in the market value of our investments.
Item 1A. Risk Factors (Continued)
Financial Risks
Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors. Ford and Ford Credit’s ability to obtain unsecured funding at a reasonable cost is dependent on their credit ratings or their perceived creditworthiness. Further, Ford Credit’s ability to obtain securitized funding under its committed asset-backed liquidity programs and certain other asset-backed securitization transactions is subject to having a sufficient amount of assets eligible for these programs, as well as Ford Credit’s ability to obtain appropriate credit ratings and, for certain committed programs, derivatives to manage the interest rate risk. Over time, and particularly in the event of credit rating downgrades, market volatility, market disruption, or other factors, Ford Credit may reduce the amount of receivables it purchases or originates because of funding constraints. As a result of LIBOR reform, the potential discontinuance of LIBOR is one such risk that could cause market volatility or disruption. It is difficult to predict the effect of these changes, other reforms, or the adoption of alternative reference rates, but the discontinuance of LIBOR could adversely affect Ford Credit’s access to the debt, securitization, or derivative markets and its cost of funding and hedging. In addition, Ford Credit may reduce the amount of receivables it purchases or originates if there is a significant decline in the demand for the types of securities it offers or Ford Credit is unable to obtain derivatives to manage the interest rate risk associated with its securitization transactions. A significant reduction in the amount of receivables Ford Credit purchases or originates would significantly reduce its ongoing results of operations and could adversely affect its ability to support the sale of Ford vehicles.
Ford’s receipt of government incentives could be subject to reduction, termination, or clawback. We receive economic benefits from national, state, and local governments in various regions of the world in the form of incentives designed to encourage manufacturers to establish, maintain, or increase investment, workforce, or production. These incentives may take various forms, including grants, loan subsidies, or tax abatements or credits. The impact of these incentives can be significant in a particular market during a reporting period. A decrease in, expiration without renewal of, or other cessation or clawback of government incentives for any of our business units, as a result of administrative decision or otherwise, could have a substantial adverse impact on our financial condition or results of operations. Until 2021, most of our manufacturing facilities in South America were located in Brazil, where the state or federal governments historically offered significant incentives to manufacturers to encourage capital investment, increase manufacturing production, and create jobs. As a result, the performance of our South American operations had been impacted favorably by government incentives to a substantial extent. The federal government in Brazil has levied assessments against us concerning the federal incentives we previously received, and certain states have challenged the grant to us of tax incentives by the State of Bahia. See Note 2 of the Notes to the Financial Statements for discussion of our accounting for government incentives, and “Item 3. Legal Proceedings” for a discussion of tax proceedings in Brazil and the potential requirement for us to post collateral.
Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles. Credit risk is the possibility of loss from a customer’s or dealer’s failure to make payments according to contract terms. Credit risk (which is heavily dependent upon economic factors including unemployment, consumer debt service burden, personal income growth, dealer profitability, and used car prices) has a significant impact on Ford Credit’s business. The level of credit losses Ford Credit may experience could exceed its expectations and adversely affect its financial condition or results of operations. In addition, Ford Credit projects expected residual values (including residual value support payments from Ford) and return volumes for the vehicles it leases. Actual proceeds realized by Ford Credit upon the sale of returned leased vehicles at lease termination may be lower than the amount projected, which would reduce Ford Credit’s return on the lease transaction. Among the factors that can affect the value of returned lease vehicles are the volume and mix of vehicles returned, economic conditions, marketing programs, and quality or perceived quality, safety, fuel efficiency, or reliability of the vehicles, or changes in propulsion technology and related legislative changes. Actual return volumes may be influenced by these factors, as well as by contractual lease-end values relative to auction values. Each of these factors, alone or in combination, has the potential to adversely affect Ford Credit’s results of operations if actual results were to differ significantly from Ford Credit’s projections. See “Critical Accounting Estimates” in Item 7 for additional discussion.
Item 1A. Risk Factors (Continued)
Economic and demographic experience for pension and other postretirement benefit plans (e.g., discount rates or investment returns) could be worse than Ford has assumed. The measurement of our obligations, costs, and liabilities associated with benefits pursuant to our pension and other postretirement benefit plans requires that we estimate the present value of projected future payments to all participants. We use many assumptions in calculating these estimates, including assumptions related to discount rates, investment returns on designated plan assets, and demographic experience (e.g., mortality and retirement rates). We generally remeasure these estimates at each year end and recognize any gains or losses associated with changes to our plan assets and liabilities in the year incurred. To the extent actual results are less favorable than our assumptions, we may recognize a remeasurement loss in our results, which could be substantial. For additional information regarding our assumptions, see “Critical Accounting Estimates” in Item 7 and Note 17 of the Notes to the Financial Statements.
Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition. We have defined benefit retirement plans in the United States that cover many of our hourly and salaried employees. We also provide pension benefits to non-U.S. employees and retirees, primarily in Europe. In addition, we sponsor plans to provide other postretirement benefits (“OPEB”) for retired employees (primarily health care and life insurance benefits). See Note 17 of the Notes to the Financial Statements for more information about these plans. These benefit plans impose significant liabilities on us and could require us to make additional cash contributions, which could impair our liquidity. If our cash flows and capital resources are insufficient to meet any pension or OPEB obligations, we could be forced to reduce or delay investments and capital expenditures, suspend dividend payments, seek additional capital, or restructure or refinance our indebtedness.
Legal and Regulatory Risks
Ford could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise. We spend substantial resources ensuring that we comply with governmental safety regulations, mobile and stationary source emissions regulations, and other standards, but we cannot ensure that employees or other individuals affiliated with us will not violate such laws or regulations. In addition, as discussed below under “Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations,” regulatory standards and interpretations may change on short notice and impact our compliance status. Moreover, compliance with governmental standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. In certain circumstances, courts may permit tort claims even where our vehicles comply with federal and/or other applicable law. Furthermore, simply responding to actual or threatened litigation or government investigations of our compliance with regulatory standards, whether related to our products or business or commercial relationships, requires significant expenditures of time and other resources. Litigation also is inherently uncertain, and we could experience significant adverse results, which could have an adverse effect on our financial condition or results of operations. In addition, adverse publicity surrounding an allegation may cause significant reputational harm that could have a significant adverse effect on our sales.
Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations. The automotive industry is subject to regulations worldwide that govern product characteristics and that differ by global region, country, and sometimes within national boundaries. Further, additional and new regulations continue to be proposed to address concerns regarding the environment (including concerns about global climate change and its impact), vehicle safety, and energy independence, and the regulatory landscape can change on short notice. In the United States, legal and policy debates are continuing, with a primary focus on reducing GHG emissions and increasing vehicle electrification. The Trump administration rolled back aggressive Obama administration GHG standards and blocked California’s authority to adopt its own regulations as well as other states’ authority to opt in to California’s standards. States, environmental groups, and others are challenging both of those Trump administration actions in court. The Trump administration’s actions also are subject to reconsideration and revision by the Biden administration. California has an ambitious plan to reduce overall GHG emissions to 40% below 1990 levels by 2030. Court rulings and actions by federal, California, and other state regulators create regulatory uncertainty and the potential for applicable regulatory standards to change quickly. In addition, many governments regulate local product content and/or impose import requirements with the aim of creating jobs, protecting domestic producers, and influencing the balance of payments.
Item 1A. Risk Factors (Continued)
We are continuing to make changes to our product cycle plan to improve the fuel economy of our petroleum-powered vehicles and to offer more propulsion choices, such as electrified vehicles, with lower GHG emissions. There are limits on our ability to achieve fuel economy improvements over a given time frame, however, primarily relating to the cost and effectiveness of available technologies, consumer acceptance of new technologies and changes in vehicle mix (as described in more detail above under “Ford’s new and existing products and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and mobility industries”), willingness of consumers to absorb the additional costs of new technologies, the appropriateness (or lack thereof) of certain technologies for use in particular vehicles, the widespread availability (or lack thereof) of supporting infrastructure for new technologies, and the human, engineering, and financial resources necessary to deploy new technologies across a wide range of products and powertrains in a short time. If fuel prices remain relatively low and market conditions do not drive consumers to purchase electric vehicles and other highly fuel-efficient vehicles in large numbers, it may be difficult to meet applicable environmental standards without compromising results. Moreover, a production disruption, stop ship, lower than planned market acceptance of our vehicles, or other intervening events may cause us to modify our product plans, or, in some cases, purchase credits, in order to comply with fuel economy standards, which could have an adverse effect on our financial condition or results of operations and/or cause reputational harm.
Increased scrutiny of automaker emission testing by regulators around the world has led to new regulations, more stringent enforcement programs, requests for field actions, demands for reporting on the field performance of emissions components and higher scrutiny of field data, and/or delays in regulatory approvals. The cost to comply with existing government regulations (in addition to the cost of any field service actions that may result from regulatory actions) is substantial and additional regulations, changes in regulatory interpretations, or changes in consumer preferences that affect vehicle mix could have a substantial adverse impact on our financial condition or results of operations. In addition, a number of governments, as well as NGOs, publicly assess vehicles to their own protocols. The protocols could change, and any negative perception regarding the performance of our vehicles subjected to such tests could reduce future sales. Court decisions arising out of consumer and investor litigation could give rise to de facto changes in the interpretation of existing emission laws and regulations, thereby imposing new burdens on manufacturers. For more discussion of the impact of standards on our global business, see the “Governmental Standards” discussion in “Item 1. Business” above.
We and other companies continue to develop autonomous vehicle technologies, and the U.S. and foreign governments are continuing to develop the regulatory framework that will govern autonomous vehicles. The evolution of the regulatory framework for autonomous vehicles, and the pace of the development of such regulatory framework, may subject us to increased costs and uncertainty, and may ultimately impact our ability to deliver autonomous vehicles and related services that customers want.
Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information. We are subject to laws, rules, guidelines from privacy regulators, and regulations in the United States and other countries (such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act) relating to the collection, use, cross-border data transfer, and security of personal information of consumers, employees, or others, including laws that may require us to notify regulators and affected individuals of a data security incident. Existing and newly developed laws and regulations may contain broad definitions of personal information, are subject to change and uncertain interpretations by courts and regulators, and may be inconsistent from state to state or country to country. Accordingly, complying with such laws and regulations may lead to a decline in consumer engagement or cause us to incur substantial costs to modify our operations or business practices. Moreover, regulatory actions seeking to impose significant financial penalties for noncompliance and/or legal actions (including pursuant to laws providing for private rights of action by consumers) could be brought against us in the event of a data compromise, misuse of consumer information, or perceived or actual non-compliance with data protection or privacy requirements. Further, any unauthorized release of personal information could harm our reputation, disrupt our business, cause us to expend significant resources, and lead to a loss of consumer confidence resulting in an adverse impact on our business and/or consumers deciding to withhold or withdraw consent for our collection or use of data.
Item 1A. Risk Factors (Continued)
Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations. As a finance company, Ford Credit is highly regulated by governmental authorities in the locations in which it operates, which can impose significant additional costs and/or restrictions on its business. In the United States, for example, Ford Credit’s operations are subject to regulation and supervision under various federal, state, and local laws, including the federal Truth-in-Lending Act, Consumer Leasing Act, Equal Credit Opportunity Act, and Fair Credit Reporting Act.
The Dodd-Frank Act directs federal agencies to adopt rules to regulate the finance industry and the capital markets and gives the Consumer Financial Protection Bureau (“CFPB”) broad rule-making and enforcement authority for a wide range of consumer financial protection laws that regulate consumer finance businesses, such as Ford Credit’s automotive financing business. Exercise of these powers by the CFPB may increase the costs of, impose additional restrictions on, or otherwise adversely affect companies in the automotive finance business. The CFPB has authority to supervise and examine the largest nonbank automotive finance companies, such as Ford Credit, for compliance with consumer financial protection laws.
Failure to comply with applicable laws and regulations could subject Ford Credit to regulatory enforcement actions, including consent orders or similar orders where Ford Credit may be required to revise practices, remunerate customers, or pay fines. An enforcement action against Ford Credit could harm Ford Credit’s reputation or lead to further litigation.
ITEM 1B. Unresolved Staff Comments.
None.
ITEM 2. Properties.
Our principal properties include manufacturing and assembly facilities, distribution centers, warehouses, sales or administrative offices, and engineering centers.
We own substantially all of our U.S. manufacturing and assembly facilities. Our facilities are situated in various sections of the country and include assembly plants, engine plants, casting plants, metal stamping plants, transmission plants, and other component plants. Most of our distribution centers are leased (we own approximately 35% of the total square footage, and lease the balance). The majority of the warehouses that we operate are leased, although many of our manufacturing and assembly facilities contain some warehousing space. Substantially all of our sales offices are leased space. Approximately 93% of the total square footage of our engineering centers and our supplementary research and development space is owned by us.
In addition, we maintain and operate manufacturing plants, assembly facilities, parts distribution centers, and engineering centers outside of the United States. We own substantially all of our non-U.S. manufacturing plants, assembly facilities, and engineering centers. The majority of our parts distribution centers outside of the United States are either leased or provided by vendors under service contracts.
We and the entities that we consolidated as of December 31, 2020 use eight regional engineering, research, and development centers, and 54 manufacturing and assembly plants, which includes plants that are operated by us or our consolidated joint ventures that support our Automotive segment.
The significant consolidated joint ventures and the number of plants each owns are as follows:
•Ford Lio Ho Motor Company Ltd. (“FLH”) — a joint venture in Taiwan among Ford (70% partner), the Lio Ho Group (25% partner), and individual shareholders (5% ownership in aggregate) that assembles a variety of Ford vehicles sourced from Ford. In addition to domestic assembly, FLH imports Ford brand built-up vehicles from Asia Pacific, Europe, and the United States. The joint venture operates one plant in Taiwan.
•Ford Vietnam Limited — a joint venture between Ford (75% partner) and Diesel Song Cong One Member Limited Liability Company (a subsidiary of the Vietnam Engine and Agricultural Machinery Corporation, which in turn is majority owned (87.43%) by the State of Vietnam represented by the Ministry of Industry and Trade) (25% partner). Ford Vietnam Limited assembles and distributes a variety of Ford passenger and commercial vehicle models. The joint venture operates one plant in Vietnam.
In addition to the plants that we operate directly or that are operated by our consolidated joint ventures, additional plants that support our Automotive segment are operated by unconsolidated joint ventures of which we are a partner. The most significant of our Automotive and Mobility segment unconsolidated joint ventures are as follows:
•Argo AI, LLC — Argo AI is a self-driving technology platform company with offices in Pittsburgh, PA, Palo Alto, CA, Allen Park, MI, Cranbury, NJ, and Munich, Germany. Ford and Volkswagen each hold 42% of the ownership interests in Argo AI, with the remaining interests consisting of incentive units and founders’ equity.
•AutoAlliance (Thailand) Co., Ltd. (“AAT”) — a 50/50 joint venture between Ford and Mazda that owns and operates a manufacturing plant in Rayong, Thailand. AAT produces Ford and Mazda products for domestic and export sales.
•Changan Ford Automobile Corporation, Ltd. (“CAF”) — a 50/50 joint venture between Ford and Chongqing Changan Automobile Co., Ltd. (“Changan”). CAF operates five assembly plants, an engine plant, and a transmission plant in China where it produces and distributes a variety of Ford passenger vehicle models.
•Ford Otomotiv Sanayi Anonim Sirketi (“Ford Otosan”) — a joint venture in Turkey among Ford (41% partner), the Koc Group of Turkey (41% partner), and public investors (18%) that is the sole supplier to us of the Transit, Transit Custom, and Transit Courier commercial vehicles for Europe and is our sole distributor of Ford vehicles in Turkey. Ford Otosan also manufactures Ford heavy trucks for markets in Europe, the Middle East, and Africa. The joint venture owns three plants, a parts distribution depot, and a research and development center in Turkey.
Item 2. Properties (Continued)
•Ford Sollers Netherlands B.V. (“Ford Sollers”) — a joint venture between Ford (49% shareholder) and Sollers PJSC (“Sollers”) (51% shareholder). The joint venture is primarily engaged in manufacturing light commercial vehicles for sale in Russia, and has an exclusive right to manufacture, assemble, and distribute light commercial Ford vehicles in Russia through the licensing of certain trademarks and intellectual property rights. The joint venture operates one manufacturing facility in Russia.
•Getrag Ford Transmissions GmbH (“GFT”) — a 50/50 joint venture with Magna PT International GmbH (formerly Getrag International GmbH), a German company owned by Magna Powertrain GmbH. GFT operates plants in Halewood, England; Cologne, Germany; and Bordeaux, France and produces, among other things, manual transmissions for our Europe business unit.
•JMC — a publicly-traded company in China with Ford (32% shareholder) and Nanchang Jiangling Investment Co., Ltd. (41% shareholder) as its controlling shareholders. Nanchang Jiangling Investment Co., Ltd. is a 50/50 joint venture between Changan and Jiangling Motors Company Group. The public investors in JMC own 27% of its total outstanding shares. JMC assembles Ford Transit, a series of Ford SUVs, Ford engines, and non-Ford vehicles and engines for distribution in China and in other export markets. JMC operates two assembly plants and one engine plant in Nanchang. JMC also operates a plant in Taiyuan that assembles heavy duty trucks and engines.
The facilities described above are, in the opinion of management, suitable and adequate for the manufacture and assembly of our and our joint ventures’ products.
The furniture, equipment, and other physical property owned by our Ford Credit operations are not material in relation to the operations’ total assets.
ITEM 3. Legal Proceedings.
The litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. See Note 25 of the Notes to the Financial Statements for a discussion of loss contingencies. Following is a discussion of our significant pending legal proceedings:
PRODUCT LIABILITY MATTERS
We are a defendant in numerous actions in state and federal courts within and outside of the United States alleging damages from injuries resulting from (or aggravated by) alleged defects in our vehicles. In many actions, no monetary amount of damages is specified or the specific amount alleged is the jurisdictional minimum. Our experience with litigation alleging a specific amount of damages suggests that such amounts, on average, bear little relation to the actual amount of damages, if any, that we will pay in resolving such matters.
In addition to pending actions, we assess the likelihood of incidents that likely have occurred but not yet been reported to us. We also take into consideration specific matters that have been raised as claims but have not yet proceeded to litigation. Individual product liability matters which, if resolved unfavorably to the Company, likely would involve a significant cost would be described herein. Currently there are no such matters to report.
ASBESTOS MATTERS
Asbestos was used in some brakes, clutches, and other automotive components from the early 1900s. Along with other vehicle manufacturers, we have been the target of asbestos litigation and, as a result, are a defendant in various actions for injuries claimed to have resulted from alleged exposure to Ford parts and other products containing asbestos. Plaintiffs in these personal injury cases allege various health problems as a result of asbestos exposure, either from component parts found in older vehicles, insulation or other asbestos products in our facilities, or asbestos aboard our former maritime fleet. We believe that we are targeted more aggressively in asbestos suits because many previously targeted companies have filed for bankruptcy or emerged from bankruptcy relieved of liability for such claims.
Item 3. Legal Proceedings (Continued)
Most of the asbestos litigation we face involves individuals who claim to have worked on the brakes of our vehicles. We are prepared to defend these cases and believe that the scientific evidence confirms our long-standing position that there is no increased risk of asbestos-related disease as a result of exposure to the type of asbestos formerly used in the brakes on our vehicles. The extent of our financial exposure to asbestos litigation remains very difficult to estimate and could include both compensatory and punitive damage awards. The majority of our asbestos cases do not specify a dollar amount for damages; in many of the other cases the dollar amount specified is the jurisdictional minimum, and the vast majority of these cases involve multiple defendants, sometimes more than one hundred. Many of these cases also involve multiple plaintiffs, and often we are unable to tell from the pleadings which plaintiffs are making claims against us (as opposed to other defendants). Annual payout and defense costs may become significant in the future. Our accrual for asbestos matters includes probable losses for both asserted and unasserted claims.
CONSUMER MATTERS
We provide warranties on the vehicles we sell. Warranties are offered for specific periods of time and/or mileage and vary depending upon the type of product and the geographic location of its sale. Pursuant to these warranties, we will repair, replace, or adjust all parts on a vehicle that are defective in factory-supplied materials or workmanship during the specified warranty period. We are a defendant in numerous actions in state and federal courts alleging damages based on state and federal consumer protection laws and breach of warranty obligations. Remedies under these statutes may include vehicle repurchase, civil penalties, and plaintiff’s attorney fees. In some cases, plaintiffs also include an allegation of fraud. Remedies for a fraud claim may include contract rescission, vehicle repurchase, and punitive damages.
The cost of these matters is included in our warranty costs. We accrue obligations for warranty costs at the time of sale using a patterned estimation model that includes historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We reevaluate the adequacy of our accruals on a regular basis.
We are currently a defendant in a significant number of litigation matters relating to the performance of vehicles, including those equipped with DPS6 transmissions.
ENVIRONMENTAL MATTERS
We have received notices under various federal and state environmental laws that we (along with others) are or may be a potentially responsible party for the costs associated with remediating numerous hazardous substance storage, recycling, or disposal sites in many states and, in some instances, for natural resource damages. We also may have been a generator of hazardous substances at a number of other sites. The amount of any such costs or damages for which we may be held responsible could be significant. At this time, we have no legal proceedings arising under any federal, state, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment, in which (i) a governmental authority is a party, and (ii) we believe there is the possibility of monetary sanctions (exclusive of interest and costs) in excess of $1,000,000.
CLASS ACTIONS
In light of the fact that very few of the purported class actions filed against us in the past have ever been certified by the courts as class actions, in general we list those actions that (i) have been certified as a class action by a court of competent jurisdiction (and any additional purported class actions that raise allegations substantially similar to an existing and certified class), and (ii) likely would involve a significant cost if resolved unfavorably to the Company. At this time, we have no such class actions filed against us.
Item 3. Legal Proceedings (Continued)
OTHER MATTERS
Brazilian Tax Matters. One Brazilian state (São Paulo) and the Brazilian federal tax authority currently have outstanding substantial tax assessments against Ford Motor Company Brasil Ltda. (“Ford Brazil”) related to state and federal tax incentives Ford Brazil received for its operations in the Brazilian state of Bahia. The state assessments are part of a broader conflict among various states in Brazil. The federal legislature enacted laws designed to encourage the states to end that conflict, and in 2017 the states reached an agreement on a framework for resolution. Ford Brazil continues to pursue a resolution under the framework and expects the amount of any remaining assessments by the states to be resolved under that framework. The federal assessments are outside the scope of the legislation.
All of the assessments have been appealed to the relevant administrative court of each jurisdiction. In the State of Minas Gerais, one case that had been pending at the administrative level was dismissed on April 1, 2020, and on July 13, 2020, the other two cases that were on appeal to the judicial court were dismissed. Our appeals with the State of São Paulo and the federal tax authority remain at the administrative level. To proceed with an appeal within the judicial court system, an appellant may be required to post collateral. To date, we have not been required to post any collateral. If we are required to post collateral, which could be in excess of $1 billion, we expect it to be in the form of fixed assets, surety bonds, and/or letters of credit, but we may be required to post cash collateral. Although the ultimate resolution of these matters may take many years, we consider our overall risk of loss to be remote.
European Competition Law Matter. On October 5, 2018, FCE Bank plc (“FCE”) received a notice from the Italian Competition Authority (the “ICA”) concerning an alleged violation of Article 101 of the Treaty on the Functioning of the European Union. The ICA alleged that FCE and other parties engaged in anti-competitive practices in relation to the automotive finance market in Italy. On January 9, 2019, FCE received a decision from the ICA, which included an assessment of a fine against FCE in the amount of €42 million. On March 8, 2019, FCE appealed the decision and the fine to the Italian administrative court, and on November 24, 2020, the Italian administrative court ruled in favor of FCE. On December 23, 2020, the ICA filed an appeal of the Italian administrative court’s decision to the Italian Council of State.
Emissions Certification. Beginning in 2018 and continuing into 2020, the Company investigated a potential concern involving its U.S. emissions certification process. The matter focused on issues related to road load estimations, including analytical modeling and coastdown testing. The potential concern did not involve the use of defeat devices (see Item 1, Governmental Standards for a definition of defeat devices). We voluntarily disclosed this matter to the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) on February 18, 2019 and February 21, 2019, respectively. Subsequently, the U.S. Department of Justice (“DOJ”) opened a criminal investigation into the matter. In addition, we notified a number of other state and federal agencies. We cooperated fully with these government agencies. We received notifications from CARB and DOJ that these agencies have closed their inquiries into the matter referenced above and do not intend to take any further action. Reviews opened by EPA and Environment and Climate Change Canada remain open.
ITEM 4. Mine Safety Disclosures.
Not applicable.
ITEM 4A. Executive Officers of Ford.
Our executive officers are as follows, along with each executive officer’s position and age at February 1, 2021:
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Name
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Position
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Position
Held Since
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Age
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William Clay Ford, Jr. (a)
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Executive Chairman and Chairman of the Board
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September 2006
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63
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James D. Farley, Jr. (b)
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President and Chief Executive Officer
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October 2020
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58
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John Lawler
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Chief Financial Officer
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October 2020
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54
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Hau Thai-Tang
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Chief Product Platform and Operations Officer
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October 2020
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54
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Kiersten Robinson
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Chief People and Employee Experience Officer
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October 2020
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50
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Anning Chen
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President and Chief Executive Officer, Ford of China
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December 2018
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59
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Kumar Galhotra
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President, Americas and International Markets Group
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April 2020
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56
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Stuart Rowley
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President, Ford of Europe
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April 2019
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53
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John F. Mellen
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General Counsel
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August 2020
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65
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Cathy O’Callaghan
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Controller
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June 2018
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52
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__________
(a)Also a Director, Chair of the Office of the Chairman and Chief Executive, Chair of the Finance Committee, and a member of the Sustainability Committee of the Board of Directors.
(b)Also a Director and member of the Office of the Chairman and Chief Executive.
Except as noted below, each of the officers listed above has been employed by Ford or its subsidiaries in one or more capacities during the past five years. Prior to becoming President and Chief Executive Officer, Ford of China, from 2010 to 2018, Anning Chen held several leadership roles in Chery Automobile LTD, China including: Chief Executive Officer; Executive Vice President and Chief Operating Officer; and Vice President of Products and Engineering. He also held the positions of Chairman of the Board of Directors, Chery Jaguar Land Rover Automotive, China; and Chairman of the Board, Qoros Automotive, China.
Under our by-laws, executive officers are elected by the Board of Directors at an annual meeting of the Board held for this purpose or by a resolution to fill a vacancy. Each officer is elected to hold office until a successor is chosen or as otherwise provided in the by-laws.
NOTES TO THE FINANCIAL STATEMENTS
Table of Contents
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Footnote
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Page
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Note 1
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Presentation
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Note 2
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Summary of Significant Accounting Policies
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Note 3
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New Accounting Standards
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Note 4
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Revenue
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Note 5
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Other Income/(Loss)
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Note 6
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Share-Based Compensation
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Note 7
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Income Taxes
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Note 8
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Capital Stock and Earnings/(Loss) Per Share
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Note 9
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Cash, Cash Equivalents, and Marketable Securities
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Note 10
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Ford Credit Finance Receivables and Allowance for Credit Losses
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Note 11
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Inventories
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Note 12
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Net Investment in Operating Leases
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Note 13
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Net Property
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Note 14
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Equity in Net Assets of Affiliated Companies
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Note 15
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Other Investments
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Note 16
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Other Liabilities and Deferred Revenue
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Note 17
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Retirement Benefits
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Note 18
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Lease Commitments
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Note 19
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Debt and Commitments
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Note 20
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Derivative Financial Instruments and Hedging Activities
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Note 21
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Employee Separation Actions and Exit and Disposal Activities
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Note 22
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Held-for-Sale Operations and Changes in Investments in Affiliates
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Note 23
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Accumulated Other Comprehensive Income/(Loss)
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Note 24
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Variable Interest Entities
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Note 25
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Commitments and Contingencies
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Note 26
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Segment Information
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Note 27
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Selected Quarterly Financial Data (unaudited)
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FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. PRESENTATION
For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us,” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. We also make reference to Ford Motor Credit Company LLC, herein referenced to as Ford Credit. Our consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). We reclassified certain prior year amounts in our consolidated financial statements to conform to the current year presentation.
Certain Transactions Between Automotive, Mobility, and Ford Credit
Intersegment transactions occur in the ordinary course of business. Additional detail regarding certain transactions and the effect on each segment at December 31 was as follows (in billions):
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2019
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2020
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Automotive
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Mobility
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Ford Credit
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Automotive
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Mobility
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Ford Credit
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Trade and other receivables (a)
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$
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4.9
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$
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5.9
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Unearned interest supplements and residual support (b)
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(6.7)
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(6.5)
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Finance receivables and other (c)
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2.1
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1.5
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Intersegment receivables/(payables)
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$
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(2.6)
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$
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0.1
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2.5
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$
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(2.7)
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$
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—
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2.7
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(a)Automotive receivables (generated primarily from vehicle and parts sales to third parties) sold to Ford Credit.
(b)Automotive pays amounts to Ford Credit at the point of retail financing or lease origination, which represent interest supplements and residual support.
(c)Primarily receivables with entities that are consolidated subsidiaries of Ford.
Global Pandemic
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. As a result, extraordinary actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions included travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.
Consistent with the actions taken by governmental authorities, by late March 2020, we had idled all of our significant manufacturing operations in regions around the world. By May 2020, we restarted manufacturing operations in a phased manner at locations around the world.
Our results include adjustments to our assets and liabilities recorded during 2020 due to the impact of COVID-19, the most significant of which were valuation allowances on certain deferred tax assets (see Note 7) and a charge to the provision for credit losses on Ford Credit’s finance receivables (see Note 10). The majority of these adjustments were recorded in the first quarter of 2020.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For each accounting topic that is addressed in its own note, the description of the accounting policy may be found in the related note. Other significant accounting policies are described below.
Use of Estimates
The preparation of financial statements requires us to make estimates and assumptions that affect our results. Estimates are used to account for certain items such as marketing accruals, warranty costs, employee benefit programs, allowance for credit losses, and other items requiring judgment. Estimates are based on assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
Foreign Currency
We remeasure monetary assets and liabilities denominated in a currency that is different than a reporting entity’s functional currency from the transactional currency to the legal entity’s functional currency. The effect of this remeasurement process and the results of our foreign currency hedging activities are reported in Cost of sales and Other income/(loss), net and were $(121) million, $108 million, and $25 million, for the years ended 2018, 2019, and 2020, respectively.
Generally, our foreign subsidiaries use the local currency as their functional currency. We translate the assets and liabilities of our foreign subsidiaries from their respective functional currencies to U.S. dollars using end-of-period exchange rates. Changes in the carrying value of these assets and liabilities attributable to fluctuations in exchange rates are recognized in Foreign currency translation, a component of Other comprehensive income/(Ioss), net of tax. Upon sale or upon complete or substantially complete liquidation of an investment in a foreign subsidiary, the amount of accumulated foreign currency translation related to the entity is reclassified to income and recognized as part of the gain or loss on the investment.
Cash Equivalents
Cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. A debt security is classified as a cash equivalent if it meets these criteria and if it has a remaining time to maturity of three months or less from the date of purchase. Amounts on deposit and available upon demand, or negotiated to provide for daily liquidity without penalty, are classified as Cash and cash equivalents. Time deposits, certificates of deposit, and money market accounts that meet the above criteria are reported at par value on our consolidated balance sheets.
Restricted Cash
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in Other assets in the non-current assets section of our consolidated balance sheets. Our Automotive segment restricted cash balances primarily include various escrow agreements related to legal, insurance, customs, and environmental matters. Mobility segment restricted cash balances primarily include cash held under the terms of certain contractual agreements. Our Ford Credit segment restricted cash balances primarily include cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements. Restricted cash does not include required minimum balances or cash securing debt issued through securitization transactions.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Marketable Securities
Investments in securities with a maturity date greater than three months at the date of purchase and other securities for which there is more than an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal are classified as Marketable securities.
Realized gains and losses and interest income on all of our marketable securities and unrealized gains and losses on securities not classified as available for sale are recorded in Other income/(loss), net. Unrealized gains and losses on available-for-sale securities are recognized in Unrealized gains and losses on securities, a component of Other comprehensive income/(loss), net of tax. Realized gains and losses and reclassifications of accumulated other comprehensive income into net income are measured using the specific identification method.
On a quarterly basis, we review our available-for-sale securities for credit losses. We compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, we determine if a credit loss allowance is necessary. If a credit loss allowance is necessary, we will record an allowance, limited by the amount that fair value is less than the amortized cost basis, and recognize the corresponding charge in Other income/(loss), net. Factors we consider include the severity of the impairment, the reason for the decline in value, interest rate changes, and counterparty long-term ratings.
Trade Receivables
Trade and other receivables consists primarily of Automotive segment receivables from contracts with customers for the sale of vehicles, parts, and accessories. Trade receivables initially are recorded at the transaction amount and are typically outstanding for less than 30 days. Each reporting period, we evaluate the collectibility of the receivables and record an allowance for doubtful accounts representing our estimate of the expected losses that result from all possible default events over the expected life of a receivable. Additions to the allowance for doubtful accounts are made by recording charges to bad debt expense reported in Selling, administrative, and other expenses.
At December 31, 2020, there were $11 million of certain trade receivables specifically identified as held for sale. These held-for-sale values are reported in Assets held for sale on our consolidated balance sheets.
Net Intangible Assets and Goodwill
Indefinite-lived intangible assets and goodwill are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate the assets may be impaired. Goodwill impairment testing is also performed following an allocation of goodwill to a business to be disposed or a change in reporting units. We test for impairment by assessing qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit allocated the goodwill is less than its carrying amount. If the qualitative assessment indicates a possible impairment, the carrying value of the asset or reporting unit is compared with its fair value. Fair value is measured relying primarily on the income approach by applying a discounted cash flow method, the market approach using market values or multiples, and/or third-party valuations. We capitalize and amortize our finite-lived intangible assets over their estimated useful lives.
Intangible assets are comprised primarily of licensing and advertising agreements, land rights, patents, customer contracts, and technology. The carrying amount of intangible assets and goodwill is reported in Other assets in the non-current assets section of our consolidated balance sheets. The net carrying amount of our intangible assets was $188 million and $144 million at December 31, 2019 and 2020, respectively. The net carrying amount of goodwill was $278 million and $258 million at December 31, 2019 and 2020, respectively.
For the periods presented, we have not recorded any material impairments for indefinite-lived intangibles or goodwill.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Held-and-Used Long-Lived Asset Impairment
We test long-lived asset groups for recoverability when changes in circumstances indicate the carrying value may not be recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. When a triggering event occurs, a test for recoverability is performed, comparing projected undiscounted future cash flows to the carrying value of the asset group. If the test for recoverability identifies a possible impairment, the asset group’s fair value is measured relying primarily on a discounted cash flow method. To the extent available, we will also consider third-party valuations of our long-lived assets that were prepared for other business purposes. An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life. For the periods presented, we have not recorded any impairments.
Held-for-Sale Asset Impairment
We perform an impairment test on a disposal group to be discontinued, held for sale (“HFS”), or otherwise disposed when we have committed to an action and the action is expected to be completed within one year. We estimate fair value to approximate the expected proceeds to be received, less cost to sell, and compare it to the carrying value of the disposal group. An impairment charge is recognized when the carrying value exceeds the estimated fair value (see Note 22). We also assess fair value if circumstances arise that were considered unlikely and, as a result, we decide not to sell a disposal group previously classified as HFS upon reclassification as held and used. When there is a change to a plan of sale, and the assets are reclassified from HFS to held and used, the long-lived assets should be reported at the lower of (i) the carrying amount before HFS designation, adjusted for depreciation that would have been recognized if the assets had not been classified as HFS, or (ii) the fair value at the date the assets no longer satisfy the criteria for classification as HFS.
Fair Value Measurements
We measure fair value of our financial instruments, including those held within our pension plans, using various valuation methods and prioritize the use of observable inputs. The use of observable and unobservable inputs and their significance in measuring fair value are reflected in our fair value hierarchy:
•Level 1 - inputs include quoted prices for identical instruments and are the most observable
•Level 2 - inputs include quoted prices for similar instruments and observable inputs such as interest rates, currency exchange rates, and yield curves
•Level 3 - inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the instruments
Fixed income securities, equities, commingled funds, derivative financial instruments, and alternative assets are remeasured and presented within our consolidated financial statements at fair value on a recurring basis. Finance receivables and debt are measured at fair value for the purpose of disclosure. Other assets and liabilities are measured at fair value on a nonrecurring basis.
Transfers into and transfers out of the hierarchy levels are recognized as if they had taken place at the end of the reporting period.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Valuation Method
Fixed Income Securities. Fixed income securities primarily include government securities, government agency securities, corporate bonds, and asset-backed securities. We generally measure fair value using prices obtained from pricing services or quotes from dealers that make markets in such securities. Pricing methods and inputs to valuation models used by the pricing services depend on the security type (i.e., asset class). Where possible, fair values are generated using market inputs, including quoted prices (the closing price in an exchange market), bid prices (the price at which a buyer stands ready to purchase), and other market information. For fixed income securities that are not actively traded, the pricing services use alternative methods to determine fair value for the securities, including quotes for similar fixed income securities, matrix pricing, discounted cash flow using benchmark curves, or other factors. In certain cases, when market data are not available, we may use broker quotes or pricing services that use proprietary pricing models to determine fair value. The proprietary models incorporate unobservable inputs primarily consisting of prepayment curves, discount rates, default assumptions, recovery rates, yield assumptions, and credit spread assumptions.
An annual review is performed on the security prices received from our pricing services, which includes discussion and analysis of the inputs used by the pricing services to value our securities. We also compare the price of certain securities sold close to the quarter end to the price of the same security at the balance sheet date to ensure the reported fair value is reasonable.
Equities. Equity securities are primarily exchange-traded and are valued based on the closing bid, official close, or last trade pricing on an active exchange. If closing prices are not available, securities are valued at the last quoted bid price or may be valued using the last available price. Securities that are thinly traded or delisted are valued using unobservable pricing data.
Commingled Funds. Fixed income and public equity securities may each be combined into commingled fund investments. Most commingled funds are valued to reflect our interest in the fund based on the reported year-end net asset value (“NAV”).
Derivative Financial Instruments. Exchange-traded derivatives for which market quotations are readily available are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. Over-the-counter derivatives are not exchange traded and are valued using independent pricing services or industry-standard valuation models such as a discounted cash flow. When discounted cash flow models are used, projected future cash flows are discounted to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices, and the contractual terms of the derivative instruments. The discount rate used is the relevant benchmark interest rate (e.g., LIBOR, SONIA) plus an adjustment for non-performance risk. The adjustment reflects the full credit default swap (“CDS”) spread applied to a net exposure, by counterparty, considering the master netting agreements and any posted collateral. We use our counterparty’s CDS spread when we are in a net asset position and our own CDS spread when we are in a net liability position. In cases when market data are not available, we use broker quotes and models (e.g., Black-Scholes) to determine fair value. This includes situations where there is a lack of liquidity for a particular currency or commodity, or when the instrument is longer dated.
Alternative Assets. Hedge funds generally hold liquid and readily-priced securities, such as public equities, exchange-traded derivatives, and corporate bonds. Private equity and real estate investments are less liquid. External investment managers typically report valuations reflecting initial cost or updated appraisals, which are adjusted for cash flows, and realized and unrealized gains/losses. All alternative assets are valued at the NAV provided by the investment sponsor or third party administrator, as they do not have readily-available market quotations. Valuations may be lagged up to six months. The NAV will be adjusted for cash flows (additional investments or contributions, and distributions) through year end. We may make further adjustments for any known substantive valuation changes not reflected in the NAV.
The Ford-Werke GmbH (“Ford-Werke”) defined benefit plan is primarily funded through a group insurance contract (see Note 17). We measure the fair value of the insurance asset by projecting expected future cash flows from the contract and discounting them to present value based on current market rates including an assessment for non-performance risk of the insurance company. The assumptions used to project expected future cash flows are based on actuarial estimates and are unobservable; therefore, the contract is categorized within Level 3 of the hierarchy.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Finance Receivables. We measure finance receivables at fair value using internal valuation models (see Note 10). These models project future cash flows of financing contracts based on scheduled contract payments (including principal and interest). The projected cash flows are discounted to present value based on assumptions regarding expected credit losses, pre-payment speed, and applicable spreads to approximate current rates. The fair value of finance receivables is categorized within Level 3 of the hierarchy.
On a nonrecurring basis, we also measure at fair value retail contracts greater than 120 days past due or deemed to be uncollectible, and individual dealer loans probable of foreclosure. We use the fair value of collateral, adjusted for estimated costs to sell, to determine the fair value of these receivables. The collateral for a retail financing or wholesale receivable is the vehicle financed, and for dealer loans is real estate or other property.
The fair value of collateral for retail receivables is calculated as the outstanding receivable balances multiplied by the average recovery value percentage. The fair value of collateral for wholesale receivables is based on the wholesale market value or liquidation value for new and used vehicles. The fair value of collateral for dealer loans is determined by reviewing various appraisals, which include total adjusted appraised value of land and improvements, alternate use appraised value, broker’s opinion of value, and purchase offers.
Debt. We measure debt at fair value using quoted prices for our own debt with approximately the same remaining maturities (see Note 19). Where quoted prices are not available, we estimate fair value using discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of the debt instruments. For certain short-term debt with an original maturity date of one year or less, we assume that book value is a reasonable approximation of the debt’s fair value. The fair value of debt is categorized within Level 2 of the hierarchy.
Finance and Lease Incentives
We routinely sponsor special retail financing and lease incentives to dealers’ customers who choose to finance or lease our vehicles from Ford Credit. The cost for these incentives is included in our estimate of variable consideration when the vehicle is sold to the dealer. Ford Credit records a reduction to the finance receivable or reduces the cost of the vehicle operating lease when it records the underlying finance contract, and we transfer to Ford Credit the amount of the incentive on behalf of the dealer’s customer. See Note 1 for additional information regarding transactions between Automotive and Ford Credit. The Ford Credit segment recognized interest revenue of $2.4 billion, $2.5 billion, and $2.4 billion in 2018, 2019, and 2020, respectively, and lower depreciation of $2.4 billion, $2.6 billion, and $2.3 billion in 2018, 2019, and 2020, respectively, associated with these incentives.
Supplier Price Adjustments
We frequently negotiate price adjustments with our suppliers throughout a production cycle, even after receiving production material. These price adjustments relate to changes in design specification or other commercial terms such as economics, productivity, and competitive pricing. We recognize price adjustments when we reach final agreement with our suppliers. In general, we avoid direct price changes in consideration of future business; however, when these occur, our policy is to defer the recognition of any such price change given explicitly in consideration of future business where guaranteed volumes are specified.
Government Incentives
We receive incentives from U.S. and non-U.S. governmental entities in the form of tax rebates or credits, grants, and loans. Government incentives are recorded in our consolidated financial statements in accordance with their purpose as a reduction of expense, a reduction of the cost of the capital investment, or other income. The benefit is generally recorded when all conditions attached to the incentive have been met and there is reasonable assurance of receipt.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Selected Other Costs
Engineering, research, and development expenses are reported in Cost of sales and primarily consist of salaries, materials, and associated costs. Engineering, research, and development costs are expensed as incurred when performed internally or when performed by a supplier if we guarantee reimbursement. Advertising costs are reported in Selling, administrative, and other expenses and are expensed as incurred. Engineering, research, development, and advertising expenses for the years ended December 31 were as follows (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Engineering, research, and development
|
$
|
8.2
|
|
|
$
|
7.4
|
|
|
$
|
7.1
|
|
Advertising
|
4.0
|
|
|
3.6
|
|
|
2.8
|
|
NOTE 3. NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
Accounting Standards Update (“ASU”) 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. On January 1, 2020, we adopted the new credit loss standard and all of the related amendments, which replaced the incurred loss impairment method with a method that reflects lifetime expected credit losses. We adopted the changes in accounting for credit losses by recognizing the cumulative effect of initially applying the new credit loss standard as an adjustment to the opening balance of Retained earnings. The comparative information has not been restated and continues to be reported under the accounting standard in effect for those periods.
The cumulative effect of the changes made to our consolidated balance sheet at January 1, 2020, for the adoption of
ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments, was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
Adjustments due to ASU 2016-13
|
|
Balance at
January 1, 2020
|
Balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Ford Credit finance receivables, net, current
|
|
$
|
53,651
|
|
|
$
|
(69)
|
|
|
$
|
53,582
|
|
Trade and other receivables, net
|
|
9,237
|
|
|
(3)
|
|
|
9,234
|
|
Ford Credit finance receivables, net, non-current
|
|
53,703
|
|
|
(183)
|
|
|
53,520
|
|
Equity in net assets of affiliated companies
|
|
2,519
|
|
|
(7)
|
|
|
2,512
|
|
Deferred income taxes
|
|
11,863
|
|
|
2
|
|
|
11,865
|
|
Liabilities
|
|
|
|
|
|
|
Deferred income taxes
|
|
490
|
|
|
(58)
|
|
|
432
|
|
Equity
|
|
|
|
|
|
|
Retained earnings
|
|
20,320
|
|
|
(202)
|
|
|
20,118
|
|
ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. On April 1, 2020, we adopted the new standard and the related amendment, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of LIBOR) if certain criteria are met. As of December 31, 2020, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect the standard to have a material impact on our consolidated financial statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3. NEW ACCOUNTING STANDARDS (Continued)
We also adopted the following ASUs during 2020, none of which had a material impact to our consolidated financial statements or financial statement disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
ASU
|
|
Effective Date
|
2020-01
|
Clarifying the Interaction between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging
|
|
January 1, 2020
|
2018-18
|
Clarifying the Interaction between Collaborative Arrangements and Revenue from Contracts with Customers
|
|
January 1, 2020
|
2018-15
|
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service
Contract
|
|
January 1, 2020
|
Accounting Standards Issued But Not Yet Adopted
The Company considers the applicability and impact of all ASUs. ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE
The following tables disaggregate our revenue by major source for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Consolidated
|
Vehicles, parts, and accessories
|
$
|
142,532
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
142,532
|
|
Used vehicles
|
3,022
|
|
|
—
|
|
|
—
|
|
|
3,022
|
|
Extended service contracts
|
1,323
|
|
|
—
|
|
|
—
|
|
|
1,323
|
|
Other revenue
|
879
|
|
|
26
|
|
|
218
|
|
|
1,123
|
|
Revenues from sales and services
|
147,756
|
|
|
26
|
|
|
218
|
|
|
148,000
|
|
|
|
|
|
|
|
|
|
Leasing income
|
538
|
|
|
—
|
|
|
5,795
|
|
|
6,333
|
|
Financing income
|
—
|
|
|
—
|
|
|
5,841
|
|
|
5,841
|
|
Insurance income
|
—
|
|
|
—
|
|
|
164
|
|
|
164
|
|
Total revenues
|
$
|
148,294
|
|
|
$
|
26
|
|
|
$
|
12,018
|
|
|
$
|
160,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Consolidated
|
Vehicles, parts, and accessories
|
$
|
137,659
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
137,659
|
|
Used vehicles
|
3,307
|
|
|
—
|
|
|
—
|
|
|
3,307
|
|
Extended service contracts
|
1,376
|
|
|
—
|
|
|
—
|
|
|
1,376
|
|
Other revenue
|
811
|
|
|
41
|
|
|
204
|
|
|
1,056
|
|
Revenues from sales and services
|
143,153
|
|
|
41
|
|
|
204
|
|
|
143,398
|
|
|
|
|
|
|
|
|
|
Leasing income
|
446
|
|
|
—
|
|
|
5,899
|
|
|
6,345
|
|
Financing income
|
—
|
|
|
—
|
|
|
5,996
|
|
|
5,996
|
|
Insurance income
|
—
|
|
|
—
|
|
|
161
|
|
|
161
|
|
Total revenues
|
$
|
143,599
|
|
|
$
|
41
|
|
|
$
|
12,260
|
|
|
$
|
155,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Consolidated
|
Vehicles, parts, and accessories
|
$
|
110,180
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110,180
|
|
Used vehicles
|
2,935
|
|
|
—
|
|
|
—
|
|
|
2,935
|
|
Extended service contracts
|
1,431
|
|
|
—
|
|
|
—
|
|
|
1,431
|
|
Other revenue
|
1,027
|
|
|
56
|
|
|
161
|
|
|
1,244
|
|
Revenues from sales and services
|
115,573
|
|
|
56
|
|
|
161
|
|
|
115,790
|
|
|
|
|
|
|
|
|
|
Leasing income
|
312
|
|
|
—
|
|
|
5,653
|
|
|
5,965
|
|
Financing income
|
—
|
|
|
—
|
|
|
5,261
|
|
|
5,261
|
|
Insurance income
|
—
|
|
|
—
|
|
|
128
|
|
|
128
|
|
Total revenues
|
$
|
115,885
|
|
|
$
|
56
|
|
|
$
|
11,203
|
|
|
$
|
127,144
|
|
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our vehicles, parts, accessories, or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, value-added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The expected costs associated with our base warranties and field service actions continue to be recognized as expense when the products are sold (see Note 25). We recognize revenue for vehicle service contracts that extend mechanical and maintenance coverages beyond our base warranties over the life of the contract. We do not have any material significant payment terms as payment is received at or shortly after the point of sale.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE (Continued)
Automotive Segment
Vehicles, Parts, and Accessories. For the majority of vehicles, parts, and accessories, we transfer control and recognize a sale when we ship the product from our manufacturing facility to our customer (dealers and distributors). We receive cash equal to the invoice price for most vehicle sales at the time of wholesale. When the vehicle sale is financed by our wholly-owned subsidiary Ford Credit, the dealer pays Ford Credit when it sells the vehicle to the retail customer (see Note 10). Payment terms on part sales to dealers, distributors, and retailers range from 30 to 120 days. The amount of consideration we receive and revenue we recognize varies with changes in return rights and marketing incentives we offer to our customers and their customers. When we give our dealers the right to return eligible parts and accessories, we estimate the expected returns based on an analysis of historical experience. Estimates of marketing incentives are based on expected retail and fleet sales volumes, mix of products to be sold, and incentive programs to be offered. Customer acceptance of products and programs, as well as other market conditions, will impact these estimates. We adjust our estimate of revenue at the earlier of when the value of consideration we expect to receive changes or when the consideration becomes fixed. As a result of changes in our estimate of marketing incentives, during 2018, 2019, and 2020, we recorded a decrease of $903 million, $844 million, and $973 million, respectively, related to revenue recognized in prior annual periods.
Depending on the terms of the arrangement, we may also defer the recognition of a portion of the consideration received because we have to satisfy a future obligation (e.g., free extended service contracts). We use an observable price to determine the stand-alone selling price for separate performance obligations, or a cost plus margin approach when one is not available. We have elected to recognize the cost for freight and shipping when control over vehicles, parts, or accessories have transferred to the customer as an expense in Cost of sales.
We sell vehicles to daily rental companies and may guarantee that we will pay them the difference between an agreed amount and the value they are able to realize upon resale. At the time of transfer of vehicles to the daily rental companies, we record the probable amount we will pay under the guarantee to Other liabilities and deferred revenue (see Note 25).
Used Vehicles. We sell used vehicles both at auction and through our consolidated dealerships. Proceeds from the sale of these vehicles are recognized in Automotive revenues upon transfer of control of the vehicle to the customer, and the related vehicle carrying value is recognized in Cost of sales.
Extended Service Contracts. We sell separately priced service contracts that extend mechanical and maintenance coverages beyond our base warranty agreements to vehicle owners. The separately priced service contracts range from 12 to 120 months. We receive payment at contract inception and recognize revenue over the term of the agreement in proportion to the costs we expect to incur in satisfying the contract obligations. We had a balance of $4 billion and $4.2 billion of unearned revenue associated with outstanding contracts reported in Other liabilities and deferred revenue at December 31, 2018 and 2019, respectively. We recognized $1.1 billion and $1.2 billion of the unearned amounts as revenue during the years ended December 31, 2019 and 2020, respectively. At December 31, 2020, the unearned amount was $4.2 billion. We expect to recognize approximately $1.3 billion of the unearned amount in 2021, $1 billion in 2022, and $1.9 billion thereafter.
We record a premium deficiency reserve to the extent we estimate the future costs associated with these contracts exceed the unrecognized revenue. Amounts paid to dealers to obtain these contracts are deferred and recorded as Other assets. These costs are amortized to expense consistent with how the related revenue is recognized. We had a balance of $270 million and $283 million in deferred costs as of December 31, 2019 and 2020, respectively. We recognized $73 million, $74 million, and $79 million of amortization during the years ended December 31, 2018, 2019, and 2020, respectively.
Other Revenue. Other revenue consists primarily of net commissions received for serving as the agent in facilitating the sale of a third party’s products or services to our customers, payments for vehicle-related design and testing services we perform for others, and revenue associated with various Mobility operations. We have applied the practical expedient to recognize Automotive revenues for vehicle-related design and testing services over the two to three year term of these agreements in proportion to the amount we have the right to invoice.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. REVENUE (Continued)
Leasing Income. We sell vehicles to daily rental companies with an obligation to repurchase the vehicles for a guaranteed amount, exercisable at the option of the customer. The transactions are accounted for as operating leases. Upon the transfer of vehicles to the daily rental companies, we record proceeds received in Other liabilities and deferred revenue. The difference between the proceeds received and the guaranteed repurchase amount is recorded in Automotive revenues over the term of the lease using a straight-line method. The cost of the vehicle is recorded in Net investment in operating leases on our consolidated balance sheets and the difference between the cost of the vehicle and the estimated auction value is depreciated in Cost of sales over the term of the lease.
Ford Credit Segment
Leasing Income. Ford Credit offers leasing plans to retail consumers through Ford and Lincoln brand dealers that originate the leases. Ford Credit records an operating lease upon purchase of a vehicle subject to a lease from the dealer. The retail consumer makes lease payments representing the difference between Ford Credit’s purchase price of the vehicle and the contractual residual value of the vehicle plus lease fees, which we recognize on a straight-line basis over the term of the lease agreement. Depreciation and the gain or loss upon disposition of the vehicle is recorded in Ford Credit interest, operating, and other expenses.
Financing Income. Ford Credit originates and purchases finance installment contracts. Financing income represents interest earned on the finance receivables (including sales-type and direct financing leases). Interest is recognized using the interest method and includes the amortization of certain direct origination costs.
Insurance Income. Income from insurance contracts is recognized evenly over the term of the agreement. Insurance commission revenue is recognized on a net basis at the time of sale of the third party’s product or service to our customer.
NOTE 5. OTHER INCOME/(LOSS)
The amounts included in Other income/(loss), net for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Net periodic pension and OPEB income/(cost), excluding service cost
|
$
|
786
|
|
|
$
|
(1,602)
|
|
|
$
|
69
|
|
Investment-related interest income
|
667
|
|
|
809
|
|
|
452
|
|
Interest income/(expense) on income taxes
|
33
|
|
|
(29)
|
|
|
(2)
|
|
Realized and unrealized gains/(losses) on cash equivalents, marketable securities, and other investments
|
115
|
|
|
144
|
|
|
325
|
|
Gains/(Losses) on changes in investments in affiliates (a)
|
42
|
|
|
20
|
|
|
3,446
|
|
Gains/(Losses) on extinguishment of debt
|
—
|
|
|
(55)
|
|
|
(1)
|
|
Royalty income
|
491
|
|
|
381
|
|
|
493
|
|
Other
|
113
|
|
|
106
|
|
|
117
|
|
Total
|
$
|
2,247
|
|
|
$
|
(226)
|
|
|
$
|
4,899
|
|
__________
(a)See Note 22 for additional information relating to our Argo AI, LLC (“Argo AI”) and Volkswagen AG (“VW”) transaction.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. SHARE-BASED COMPENSATION
Under our Long-Term Incentive Plans, we may issue restricted stock units (“RSUs”), restricted stock shares (“RSSs”), and stock options. RSUs and RSSs consist of time-based and performance-based awards. The number of shares that may be granted in any year is limited to 2% of our issued and outstanding Common Stock as of December 31 of the prior calendar year. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. Granted RSUs generally cliff vest or ratably vest over a three-year service period. Performance-based RSUs have two components: one based on internal financial performance metrics, and the other based on total shareholder return relative to an industrial and automotive peer group. At the time of vest, RSU awards are net settled (i.e., shares are withheld to cover the employee tax obligation). Stock options ratably vest over a three-year service period and expire ten years from the grant date.
The fair value of both the time-based and the internal performance metrics portion of the performance-based RSUs and RSSs is determined using the closing price of our Common Stock at grant date. The weighted average per unit grant date fair value for the years ended December 31, 2018, 2019, and 2020 was $9.89, $8.99, and $7.11, respectively.
The fair value of time-based RSUs, RSSs, and stock options is expensed over the shorter of the vesting period, using the graded vesting method, or the time period an employee becomes eligible to retain the award at retirement. The fair value of performance-based RSUs and RSSs is expensed when it is probable and estimable as measured against the performance metrics over the shorter of the performance or required service periods. We measure the fair value of our stock options on the date of grant using either the Black-Scholes option-pricing model (for options without a market condition) or a Monte Carlo simulation (for options with a market condition). We have elected to recognize forfeitures as an adjustment to compensation expense for all RSUs, RSSs, and stock options in the same period as the forfeitures occur. Expense is recorded in Selling, administrative, and other expenses.
Restricted Stock Units and Restricted Stock Shares
The fair value of vested RSUs and RSSs as well as the compensation cost for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Fair value of vested shares
|
$
|
187
|
|
|
$
|
231
|
|
|
$
|
264
|
|
Compensation cost (a)
|
162
|
|
|
190
|
|
|
156
|
|
__________
(a) Net of tax benefit of $29 million, $38 million, and $31 million in 2018, 2019, and 2020, respectively.
As of December 31, 2020, there was approximately $73 million in unrecognized compensation cost related to non-vested RSUs and RSSs. This expense will be recognized over a weighted average period of 1.8 years.
The performance-based RSUs granted in March 2018, 2019, and 2020 include a relative Total Shareholder Return (“TSR”) metric. We estimate the fair value of the TSR component of the performance-based RSUs using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value at grant date were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
|
Fair value per stock award
|
$
|
9.03
|
|
|
$
|
9.66
|
|
|
$
|
7.21
|
|
|
|
Grant date stock price
|
10.40
|
|
|
8.81
|
|
|
7.08
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
Ford’s stock price expected volatility (a)
|
22.9
|
%
|
|
24.1
|
%
|
|
25.4
|
%
|
|
|
Expected average volatility of peer companies (a)
|
25.4
|
|
|
25.8
|
|
|
26.4
|
|
|
|
Risk-free interest rate
|
2.46
|
|
|
2.57
|
|
|
0.68
|
|
|
|
__________
(a)Expected volatility based on three years of daily closing share price changes ending on the grant date.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6. SHARE-BASED COMPENSATION (Continued)
During 2020, activity for RSUs and RSSs was as follows (in millions, except for weighted-average fair value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Fair Value
|
|
|
Outstanding, beginning of year
|
69.3
|
|
|
$
|
9.90
|
|
|
|
Granted (a)
|
34.2
|
|
|
7.11
|
|
|
|
Vested (a)
|
(25.5)
|
|
|
10.34
|
|
|
|
Forfeited
|
(5.8)
|
|
|
9.51
|
|
|
|
Outstanding, end of year (b)
|
72.2
|
|
|
8.35
|
|
|
|
__________
(a)Includes shares awarded to non-employee directors.
(b)Excludes 1,229,124 non-employee director shares that were vested, but unissued at December 31, 2020.
Stock Options
During 2020, 6.6 million stock options were issued to our employees with a weighted-average grant date fair value of $2.17. The options granted in 2020 contain a performance condition tied to Company stock price and were valued using a Monte Carlo simulation assuming a 0% dividend yield, a volatility rate of 30.4%, a risk-free interest rate of 0.69%, and an expected term of ten years.
For the years ended December 31, 2019 and 2020, stock options outstanding were 25.9 million and 26.9 million, respectively, and stock options exercisable were 25.9 million and 20.3 million, respectively. For the year ended December 31, 2020, the intrinsic value for vested and unvested stock options was $0 million and $15.7 million, respectively. The average remaining terms for fully vested stock options and unvested stock options were 1.8 years and 9.5 years, respectively. Compensation cost for stock options for the year ended December 31, 2020 was $8.7 million, net of a tax benefit of $2.7 million. As of December 31, 2020, there was approximately $2.9 million in unrecognized compensation cost related to non-vested stock options.
NOTE 7. INCOME TAXES
We recognize income tax-related penalties in Provision for/(Benefit from) income taxes on our consolidated income statements. We recognize income tax-related interest income and interest expense in Other income/(loss), net on our consolidated income statements.
We account for U.S. tax on global intangible low-taxed income in the period incurred.
Valuation of Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid.
Our accounting for deferred tax consequences represents our best estimate of the likely future tax consequences of events that have been recognized on our consolidated financial statements or tax returns and their future probability. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
Components of Income Taxes
Components of income taxes excluding cumulative effects of changes in accounting principles, other comprehensive income, and equity in net results of affiliated companies accounted for after-tax, for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Income/(Loss) before income taxes (in millions)
|
|
|
|
|
|
U.S.
|
$
|
2,051
|
|
|
$
|
2,656
|
|
|
$
|
(231)
|
|
Non-U.S.
|
2,294
|
|
|
(3,296)
|
|
|
(885)
|
|
Total
|
$
|
4,345
|
|
|
$
|
(640)
|
|
|
$
|
(1,116)
|
|
Provision for/(Benefit from) income taxes (in millions)
|
|
|
|
|
|
Current
|
|
|
|
|
|
Federal
|
$
|
75
|
|
|
$
|
(101)
|
|
|
$
|
(23)
|
|
Non-U.S.
|
690
|
|
|
738
|
|
|
554
|
|
State and local
|
(6)
|
|
|
33
|
|
|
(45)
|
|
Total current
|
759
|
|
|
670
|
|
|
486
|
|
Deferred
|
|
|
|
|
|
Federal
|
(360)
|
|
|
(1,190)
|
|
|
(523)
|
|
Non-U.S.
|
239
|
|
|
(70)
|
|
|
168
|
|
State and local
|
12
|
|
|
(134)
|
|
|
29
|
|
Total deferred
|
(109)
|
|
|
(1,394)
|
|
|
(326)
|
|
Total
|
$
|
650
|
|
|
$
|
(724)
|
|
|
$
|
160
|
|
Reconciliation of effective tax rate
|
|
|
|
|
|
U.S. statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
Non-U.S. tax rates under U.S. rates
|
(1.2)
|
|
|
46.9
|
|
|
(2.6)
|
|
State and local income taxes
|
2.0
|
|
|
12.4
|
|
|
8.9
|
|
General business credits
|
(9.2)
|
|
|
67.0
|
|
|
35.1
|
|
Dispositions and restructurings
|
4.6
|
|
|
45.5
|
|
|
(0.4)
|
|
U.S. tax on non-U.S. earnings
|
8.1
|
|
|
(49.2)
|
|
|
27.0
|
|
Prior year settlements and claims
|
1.1
|
|
|
(5.0)
|
|
|
8.3
|
|
Tax incentives
|
—
|
|
|
20.7
|
|
|
(6.0)
|
|
Enacted change in tax laws
|
(3.0)
|
|
|
(12.5)
|
|
|
1.5
|
|
Valuation allowances
|
(9.6)
|
|
|
(18.7)
|
|
|
(108.8)
|
|
Other
|
1.2
|
|
|
(15.0)
|
|
|
1.7
|
|
Effective rate
|
15.0
|
%
|
|
113.1
|
%
|
|
(14.3)
|
%
|
On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) was signed into law. This act includes, among other items, a permanent reduction to the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, and requires immediate taxation of accumulated, unremitted non-U.S. earnings. For the year ended December 31, 2019, our tax provision includes additional expense of $95 million related to the impact of the act and subsequently issued Treasury regulations on our global operations.
During 2020, based on all available evidence, we established U.S. valuation allowances of $1.3 billion, primarily against tax credits, as it is more likely than not that these deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, we consider the trade-offs between cash preservation and cash outlays to preserve tax credits.
At December 31, 2020, $12 billion of non-U.S. earnings are considered indefinitely reinvested in operations outside the United States, for which deferred taxes have not been provided. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested basis differences is not practicable.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
Components of Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Deferred tax assets
|
|
|
|
Employee benefit plans
|
$
|
4,125
|
|
|
$
|
4,760
|
|
Net operating loss carryforwards
|
1,726
|
|
|
1,584
|
|
Tax credit carryforwards
|
9,335
|
|
|
11,037
|
|
Research expenditures
|
619
|
|
|
1,321
|
|
Dealer and dealers’ customer allowances and claims
|
1,724
|
|
|
2,145
|
|
Other foreign deferred tax assets
|
799
|
|
|
729
|
|
All other
|
1,781
|
|
|
2,335
|
|
Total gross deferred tax assets
|
20,109
|
|
|
23,911
|
|
Less: Valuation allowances
|
(843)
|
|
|
(1,981)
|
|
Total net deferred tax assets
|
19,266
|
|
|
21,930
|
|
Deferred tax liabilities
|
|
|
|
Leasing transactions
|
2,694
|
|
|
3,299
|
|
Depreciation and amortization (excluding leasing transactions)
|
3,094
|
|
|
3,218
|
|
Finance receivables
|
584
|
|
|
574
|
|
Other foreign deferred tax liabilities
|
608
|
|
|
905
|
|
All other
|
913
|
|
|
2,049
|
|
Total deferred tax liabilities
|
7,893
|
|
|
10,045
|
|
Net deferred tax assets/(liabilities)
|
$
|
11,373
|
|
|
$
|
11,885
|
|
Deferred tax assets for net operating losses and other temporary differences related to certain non-U.S. operations have not been recorded as a result of elections to tax these operations simultaneously in U.S. tax returns. Reversal of these elections would result in the recognition of $10.8 billion of deferred tax assets, subject to valuation allowance testing.
Operating loss carryforwards for tax purposes were $3.6 billion at December 31, 2020, resulting in a deferred tax asset of $1.6 billion. There is no expiration date for $2.1 billion of these losses. A substantial portion of the remaining losses will expire beyond 2023. Tax credits available to offset future tax liabilities are $11 billion. Approximately half of these credits have a remaining carryforward period of six years or more. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and available tax planning strategies. In our evaluation, we anticipate making tax elections that change the order of tax credit carryforward utilization on U.S. tax returns.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
Other
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Beginning balance
|
$
|
2,047
|
|
|
$
|
1,943
|
|
Increase – tax positions in prior periods
|
169
|
|
|
137
|
|
Increase – tax positions in current period
|
24
|
|
|
25
|
|
Decrease – tax positions in prior periods
|
(239)
|
|
|
(131)
|
|
Settlements
|
(57)
|
|
|
(61)
|
|
Lapse of statute of limitations
|
—
|
|
|
—
|
|
Foreign currency translation adjustment
|
(1)
|
|
|
—
|
|
Ending balance
|
$
|
1,943
|
|
|
$
|
1,913
|
|
The amount of unrecognized tax benefits that would affect the effective tax rate if recognized was $1.9 billion at December 31, 2019 and 2020.
Examinations by tax authorities have been completed through 2008 in Germany, 2011 in Canada, 2014 in the United States and the United Kingdom, and 2015 in China. Although examinations have been completed in these jurisdictions, limited transfer pricing disputes exist for years dating back to 2005.
Net interest on income taxes was $33 million of income, $29 million of expense, and $2 million of expense for the years ended December 31, 2018, 2019, and 2020, respectively. These were reported in Other income/(loss), net in our consolidated income statements. Net payables for tax related interest were $58 million and $36 million as of December 31, 2019 and 2020, respectively.
Cash paid for income taxes was $821 million, $599 million, and $421 million in 2018, 2019, and 2020, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. CAPITAL STOCK AND EARNINGS/(LOSS) PER SHARE
All general voting power is vested in the holders of Common Stock and Class B Stock. Holders of our Common Stock have 60% of the general voting power and holders of our Class B Stock are entitled to such number of votes per share as will give them the remaining 40%. Shares of Common Stock and Class B Stock share equally in dividends when and as paid, with stock dividends payable in shares of stock of the class held.
If liquidated, each share of Common Stock is entitled to the first $0.50 available for distribution to holders of Common Stock and Class B Stock, each share of Class B Stock is entitled to the next $1.00 so available, each share of Common Stock is entitled to the next $0.50 so available, and each share of Common and Class B Stock is entitled to an equal amount thereafter.
We present both basic and diluted earnings/(loss) per share (“EPS”) amounts in our financial reporting. Basic EPS excludes dilution and is computed by dividing Net income/(loss) attributable to Ford Motor Company by the weighted-average number of Common and Class B Stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, including “in-the-money” stock options, unvested RSUs, and unvested RSSs. Potentially dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period.
Earnings/(Loss) Per Share Attributable to Ford Motor Company Common and Class B Stock
Basic and diluted income/(loss) per share were calculated using the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Basic and Diluted Income/(Loss) Attributable to Ford Motor Company
|
|
|
|
|
|
Basic income/(loss)
|
$
|
3,677
|
|
|
$
|
47
|
|
|
$
|
(1,279)
|
|
Diluted income/(loss)
|
3,677
|
|
|
47
|
|
|
(1,279)
|
|
|
|
|
|
|
|
Basic and Diluted Shares
|
|
|
|
|
|
Basic shares (average shares outstanding)
|
3,974
|
|
|
3,972
|
|
|
3,973
|
|
Net dilutive options, unvested restricted stock units, and unvested restricted stock shares (a)
|
24
|
|
|
32
|
|
|
—
|
|
Diluted shares
|
3,998
|
|
|
4,004
|
|
|
3,973
|
|
__________
(a) In 2020, there were 29 million shares excluded from the calculation of diluted earnings/(loss) per share, due to their anti-dilutive effect.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The fair values of cash, cash equivalents, and marketable securities measured at fair value on a recurring basis were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Fair Value
Level
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Consolidated
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
520
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
520
|
|
U.S. government agencies
|
2
|
|
125
|
|
|
—
|
|
|
—
|
|
|
125
|
|
Non-U.S. government and agencies
|
2
|
|
601
|
|
|
—
|
|
|
350
|
|
|
951
|
|
Corporate debt
|
2
|
|
642
|
|
|
—
|
|
|
604
|
|
|
1,246
|
|
Total marketable securities classified as cash equivalents
|
|
|
1,888
|
|
|
—
|
|
|
954
|
|
|
2,842
|
|
Cash, time deposits, and money market funds
|
|
|
6,432
|
|
|
117
|
|
|
8,113
|
|
|
14,662
|
|
Total cash and cash equivalents
|
|
|
$
|
8,320
|
|
|
$
|
117
|
|
|
$
|
9,067
|
|
|
$
|
17,504
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
2,930
|
|
|
$
|
—
|
|
|
$
|
195
|
|
|
$
|
3,125
|
|
U.S. government agencies
|
2
|
|
1,548
|
|
|
—
|
|
|
210
|
|
|
1,758
|
|
Non-U.S. government and agencies
|
2
|
|
4,217
|
|
|
—
|
|
|
2,408
|
|
|
6,625
|
|
Corporate debt
|
2
|
|
4,802
|
|
|
—
|
|
|
193
|
|
|
4,995
|
|
Equities (a)
|
1
|
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Other marketable securities
|
2
|
|
273
|
|
|
—
|
|
|
290
|
|
|
563
|
|
Total marketable securities
|
|
|
$
|
13,851
|
|
|
$
|
—
|
|
|
$
|
3,296
|
|
|
$
|
17,147
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
$
|
15
|
|
|
$
|
21
|
|
|
$
|
139
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash in held-for-sale assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Fair Value
Level
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Consolidated
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
2,940
|
|
|
$
|
—
|
|
|
$
|
3,255
|
|
|
$
|
6,195
|
|
U.S. government agencies
|
2
|
|
850
|
|
|
—
|
|
|
640
|
|
|
1,490
|
|
Non-U.S. government and agencies
|
2
|
|
600
|
|
|
—
|
|
|
717
|
|
|
1,317
|
|
Corporate debt
|
2
|
|
605
|
|
|
—
|
|
|
970
|
|
|
1,575
|
|
Total marketable securities classified as cash equivalents
|
|
|
4,995
|
|
|
—
|
|
|
5,582
|
|
|
10,577
|
|
Cash, time deposits, and money market funds
|
|
|
5,830
|
|
|
69
|
|
|
8,767
|
|
|
14,666
|
|
Total cash and cash equivalents
|
|
|
$
|
10,825
|
|
|
$
|
69
|
|
|
$
|
14,349
|
|
|
$
|
25,243
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
U.S. government
|
1
|
|
$
|
4,709
|
|
|
$
|
—
|
|
|
$
|
1,082
|
|
|
$
|
5,791
|
|
U.S. government agencies
|
2
|
|
3,259
|
|
|
—
|
|
|
485
|
|
|
3,744
|
|
Non-U.S. government and agencies
|
2
|
|
4,448
|
|
|
—
|
|
|
2,693
|
|
|
7,141
|
|
Corporate debt
|
2
|
|
7,095
|
|
|
—
|
|
|
308
|
|
|
7,403
|
|
Equities (a)
|
1
|
|
113
|
|
|
—
|
|
|
—
|
|
|
113
|
|
Other marketable securities
|
2
|
|
234
|
|
|
—
|
|
|
292
|
|
|
526
|
|
Total marketable securities
|
|
|
$
|
19,858
|
|
|
$
|
—
|
|
|
$
|
4,860
|
|
|
$
|
24,718
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
$
|
38
|
|
|
$
|
7
|
|
|
$
|
647
|
|
|
$
|
692
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash in held-for-sale assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
__________
(a) Net unrealized gains/losses incurred during the reporting periods on equity securities still held at December 31, 2019 and 2020 were a $44 million loss and a $24 million gain, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The cash equivalents and marketable securities accounted for as available-for-sale (“AFS”) securities were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Securities with
Contractual Maturities
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Within 1 Year
|
|
After 1 Year through 5 Years
|
|
After 5 Years
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
$
|
2,839
|
|
|
$
|
11
|
|
|
$
|
(1)
|
|
|
$
|
2,849
|
|
|
$
|
1,028
|
|
|
$
|
1,772
|
|
|
$
|
49
|
|
U.S. government agencies
|
1,445
|
|
|
2
|
|
|
(1)
|
|
|
1,446
|
|
|
830
|
|
|
589
|
|
|
27
|
|
Non-U.S. government and agencies
|
3,925
|
|
|
20
|
|
|
(1)
|
|
|
3,944
|
|
|
1,546
|
|
|
2,398
|
|
|
—
|
|
Corporate debt
|
5,029
|
|
|
53
|
|
|
—
|
|
|
5,082
|
|
|
1,837
|
|
|
3,245
|
|
|
—
|
|
Other marketable securities
|
230
|
|
|
1
|
|
|
—
|
|
|
231
|
|
|
—
|
|
|
149
|
|
|
82
|
|
Total
|
$
|
13,468
|
|
|
$
|
87
|
|
|
$
|
(3)
|
|
|
$
|
13,552
|
|
|
$
|
5,241
|
|
|
$
|
8,153
|
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Securities with
Contractual Maturities
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Within 1 Year
|
|
After 1 Year through 5 Years
|
|
After 5 Years
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
$
|
2,894
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
2,938
|
|
|
$
|
1,649
|
|
|
$
|
1,286
|
|
|
$
|
3
|
|
U.S. government agencies
|
2,588
|
|
|
15
|
|
|
—
|
|
|
2,603
|
|
|
772
|
|
|
1,629
|
|
|
202
|
|
Non-U.S. government and agencies
|
2,926
|
|
|
31
|
|
|
—
|
|
|
2,957
|
|
|
1,330
|
|
|
1,617
|
|
|
10
|
|
Corporate debt
|
7,482
|
|
|
102
|
|
|
(1)
|
|
|
7,583
|
|
|
3,566
|
|
|
3,987
|
|
|
30
|
|
Other marketable securities
|
212
|
|
|
3
|
|
|
—
|
|
|
215
|
|
|
1
|
|
|
147
|
|
|
67
|
|
Total
|
$
|
16,102
|
|
|
$
|
195
|
|
|
$
|
(1)
|
|
|
$
|
16,296
|
|
|
$
|
7,318
|
|
|
$
|
8,666
|
|
|
$
|
312
|
|
Sales proceeds and gross realized gains/losses from the sale of AFS securities for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Automotive
|
|
|
|
|
|
Sales proceeds
|
$
|
5,512
|
|
|
$
|
5,753
|
|
|
$
|
8,574
|
|
Gross realized gains
|
1
|
|
|
13
|
|
|
56
|
|
Gross realized losses
|
21
|
|
|
10
|
|
|
11
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES (Continued)
The present fair values and gross unrealized losses for cash equivalents and marketable securities accounted for as AFS securities that were in an unrealized loss position, aggregated by investment category and the length of time that individual securities have been in a continuous loss position, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Less than 1 Year
|
|
1 Year or Greater
|
|
Total
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
$
|
183
|
|
|
$
|
(1)
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
233
|
|
|
$
|
(1)
|
|
U.S. government agencies
|
370
|
|
|
(1)
|
|
|
344
|
|
|
—
|
|
|
714
|
|
|
(1)
|
|
Non-U.S. government and agencies
|
463
|
|
|
—
|
|
|
390
|
|
|
(1)
|
|
|
853
|
|
|
(1)
|
|
Corporate debt
|
29
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
82
|
|
|
—
|
|
Other marketable securities
|
59
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
76
|
|
|
—
|
|
Total
|
$
|
1,104
|
|
|
$
|
(2)
|
|
|
$
|
854
|
|
|
$
|
(1)
|
|
|
$
|
1,958
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Less than 1 Year
|
|
1 Year or Greater
|
|
Total
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government
|
$
|
181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
181
|
|
|
$
|
—
|
|
U.S. government agencies
|
83
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83
|
|
|
—
|
|
Non-U.S. government and agencies
|
164
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
174
|
|
|
—
|
|
Corporate debt
|
1,538
|
|
|
(1)
|
|
|
9
|
|
|
—
|
|
|
1,547
|
|
|
(1)
|
|
Other marketable securities
|
23
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
36
|
|
|
—
|
|
Total
|
$
|
1,989
|
|
|
$
|
(1)
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
2,021
|
|
|
$
|
(1)
|
|
We determine credit losses on AFS debt securities using the specific identification method. During the years ended December 31, 2018, 2019, and 2020, we did not recognize any credit loss. The unrealized losses on securities are due to changes in interest rates and market liquidity.
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
December 31,
2020
|
Cash and cash equivalents
|
$
|
17,504
|
|
|
$
|
25,243
|
|
Restricted cash (a)
|
175
|
|
|
692
|
|
Cash, cash equivalents, and restricted cash in held-for-sale assets
|
62
|
|
|
—
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
17,741
|
|
|
$
|
25,935
|
|
__________
(a)Included in Other assets in the non-current assets section of our consolidated balance sheets.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
Ford Credit manages finance receivables as “consumer” and “non-consumer” portfolios. The receivables are generally secured by the vehicles, inventory, or other property being financed.
Consumer Portfolio. Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use. Retail financing includes retail installment contracts for new and used vehicles and finance leases with retail customers, government entities, daily rental companies, and fleet customers.
Non-Consumer Portfolio. Receivables in this portfolio include products offered to automotive dealers. Dealer financing includes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer programs. Wholesale financing is approximately 92% of dealer financing.
Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.
For all finance receivables, Ford Credit defines “past due” as any payment, including principal and interest, that is at least 31 days past the contractual due date.
Finance Receivables Classification
Finance receivables are accounted for as held for investment (“HFI”) if Ford Credit has the intent and ability to hold the receivables for the foreseeable future or until maturity or payoff. The determination of intent and ability to hold for the foreseeable future is highly judgmental and requires Ford Credit to make good faith estimates based on all information available at the time of origination or purchase. If Ford Credit does not have the intent and ability to hold the receivables, then the receivables are classified as HFS.
Each quarter, Ford Credit makes a determination of whether it is probable that finance receivables originated or purchased during the quarter will be held for the foreseeable future based on historical receivables sale experience, internal forecasts and budgets, as well as other relevant, reliable information available through the date of evaluation. For purposes of this determination, probable means at least 70% likely and, consistent with the budgeting and forecasting period, the foreseeable future means twelve months. Ford Credit classifies receivables as HFI or HFS on a receivable-by-receivable basis. Specific receivables included in off-balance sheet sale transactions are generally not identified until the month in which the sale occurs.
Held-for-Investment. Finance receivables classified as HFI are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses. Cash flows from finance receivables, excluding wholesale and other receivables, that were originally classified as HFI are recorded as an investing activity since GAAP requires the statement of cash flows presentation to be based on the original classification of the receivables. Cash flows from wholesale and other receivables are recorded as an operating activity.
Held-for-Sale. Finance receivables classified as HFS are carried at the lower of cost or fair value. Cash flows resulting from the origination or purchase and sale of HFS receivables are recorded as an operating activity in Decrease/(Increase) in finance receivables (wholesale and other). Once a decision has been made to sell receivables that were originally classified as HFI, the receivables are reclassified as HFS and carried at the lower of cost or fair value. The valuation adjustment, if applicable, is recorded in Other income/(loss), net to recognize the receivables at the lower of cost or fair value.
The value of the finance receivables considered HFS at December 31, 2019 was $1.5 billion, primarily Forso Nordic AB (“Forso”) related finance receivables of $1.2 billion. At December 31, 2020, there were $36 million of certain wholesale finance receivables specifically identified as HFS. These HFS values are reported in Assets held for sale on our consolidated balance sheets. See Note 22 for additional information.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Ford Credit finance receivables, net at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Consumer
|
|
|
|
Retail installment contracts, gross
|
$
|
68,905
|
|
|
$
|
73,631
|
|
Finance leases, gross
|
8,566
|
|
|
8,431
|
|
Retail financing, gross
|
77,471
|
|
|
82,062
|
|
Unearned interest supplements
|
(3,589)
|
|
|
(3,987)
|
|
Consumer finance receivables
|
73,882
|
|
|
78,075
|
|
Non-Consumer
|
|
|
|
Dealer financing
|
33,985
|
|
|
20,908
|
|
Non-Consumer finance receivables
|
33,985
|
|
|
20,908
|
|
Total recorded investment
|
$
|
107,867
|
|
|
$
|
98,983
|
|
|
|
|
|
Recorded investment in finance receivables
|
$
|
107,867
|
|
|
$
|
98,983
|
|
Allowance for credit losses
|
(513)
|
|
|
(1,305)
|
|
Total finance receivables, net
|
$
|
107,354
|
|
|
$
|
97,678
|
|
|
|
|
|
Current portion
|
$
|
53,651
|
|
|
$
|
42,401
|
|
Non-current portion
|
53,703
|
|
|
55,277
|
|
Total finance receivables, net
|
$
|
107,354
|
|
|
$
|
97,678
|
|
|
|
|
|
Net finance receivables subject to fair value (a)
|
$
|
99,168
|
|
|
$
|
89,651
|
|
Fair value (b)
|
99,297
|
|
|
91,238
|
|
__________
(a)Net finance receivables subject to fair value exclude finance leases.
(b)The fair value of finance receivables is categorized within Level 3 of the fair value hierarchy.
Ford Credit’s finance leases are comprised of sales-type and direct financing leases. These financings include primarily lease plans for terms of 24 to 60 months. Financing revenue from finance leases for the years ended December 31, 2018, 2019, and 2020, was $375 million, $380 million, and $357 million, respectively, and is included in Ford Credit revenues on our consolidated income statements.
The amounts contractually due on Ford Credit’s finance leases at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2020
|
2021
|
|
$
|
1,978
|
|
2022
|
|
1,751
|
|
2023
|
|
1,348
|
|
2024
|
|
555
|
|
2025
|
|
55
|
|
Thereafter
|
|
—
|
|
Total future cash payments
|
|
5,687
|
|
Less: Present value discount
|
|
(251)
|
|
Finance lease receivables
|
|
$
|
5,436
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The reconciliation from finance lease receivables to finance leases, gross and finance leases, net at December 31 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Finance lease receivables
|
$
|
5,651
|
|
|
$
|
5,436
|
|
Unguaranteed residual assets
|
2,795
|
|
|
2,893
|
|
Initial direct costs
|
120
|
|
|
102
|
|
Finance leases, gross
|
8,566
|
|
|
8,431
|
|
Unearned interest supplements from Ford and affiliated companies
|
(363)
|
|
|
(337)
|
|
Allowance for credit losses
|
(17)
|
|
|
(67)
|
|
Finance leases, net
|
$
|
8,186
|
|
|
$
|
8,027
|
|
At December 31, 2019 and 2020, accrued interest was $251 million and $181 million, respectively, which we report in Other assets in the current assets section of our consolidated balance sheets.
Included in the recorded investment in finance receivables at December 31, 2019 and 2020 were consumer receivables of $38.3 billion and $43.7 billion, respectively, and non-consumer receivables of $26.8 billion and $16.4 billion, respectively, that have been sold for legal purposes in securitization transactions but continue to be reported in our consolidated financial statements. The receivables are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations or the claims of Ford Credit’s other creditors. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions (see Note 24).
Credit Quality
Consumer Portfolio
When originating consumer receivables, Ford Credit uses a proprietary scoring system that measures credit quality using information in the credit application, proposed contract terms, credit bureau data, and other information. After a proprietary risk score is generated, Ford Credit decides whether to originate a contract using a decision process based on a judgmental evaluation of the applicant, the credit application, the proposed contract terms, credit bureau information (e.g., FICO score), proprietary risk score, and other information. The evaluation emphasizes the applicant’s ability to pay and creditworthiness focusing on payment, affordability, applicant credit history, and stability as key considerations.
After origination, Ford Credit reviews the credit quality of retail financing based on customer payment activity. As each customer develops a payment history, an internally developed behavioral scoring model is used to assist in determining the best collection strategies, which allows Ford Credit to focus collection activity on higher-risk accounts. These models are used to refine Ford Credit’s risk-based staffing model to ensure collection resources are aligned with portfolio risk. Based on data from this scoring model, contracts are categorized by collection risk. Ford Credit’s collection models evaluate several factors, including origination characteristics, updated credit bureau data, and payment patterns.
Credit quality ratings for consumer receivables are based on aging. Consumer receivables credit quality ratings are as follows:
•Pass – current to 60 days past due;
•Special Mention – 61 to 120 days past due and in intensified collection status; and
•Substandard – greater than 120 days past due and for which the uncollectible portion of the receivables has already been charged off, as measured using the fair value of collateral less costs to sell.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The credit quality analysis of consumer receivables at December 31, 2019 was as follows (in millions):
|
|
|
|
|
|
|
Total
|
Consumer
|
|
31 - 60 days past due
|
$
|
839
|
|
61 - 120 days past due
|
166
|
|
Greater than 120 days past due
|
35
|
|
Total past due
|
1,040
|
|
Current
|
72,842
|
|
Total
|
$
|
73,882
|
|
The credit quality analysis of consumer receivables at December 31, 2020 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis by Origination Year
|
|
|
|
|
Prior to 2016
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Total
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 - 60 days past due
|
|
$
|
45
|
|
|
$
|
62
|
|
|
$
|
103
|
|
|
$
|
162
|
|
|
$
|
166
|
|
|
$
|
143
|
|
|
$
|
681
|
|
61 - 120 days past due
|
|
7
|
|
|
12
|
|
|
24
|
|
|
44
|
|
|
45
|
|
|
31
|
|
|
163
|
|
Greater than 120 days past due
|
|
11
|
|
|
6
|
|
|
7
|
|
|
8
|
|
|
7
|
|
|
2
|
|
|
41
|
|
Total past due
|
|
63
|
|
|
80
|
|
|
134
|
|
|
214
|
|
|
218
|
|
|
176
|
|
|
885
|
|
Current
|
|
782
|
|
|
2,518
|
|
|
6,648
|
|
|
13,704
|
|
|
20,822
|
|
|
32,716
|
|
|
77,190
|
|
Total
|
|
$
|
845
|
|
|
$
|
2,598
|
|
|
$
|
6,782
|
|
|
$
|
13,918
|
|
|
$
|
21,040
|
|
|
$
|
32,892
|
|
|
$
|
78,075
|
|
Non-Consumer Portfolio
Ford Credit extends credit to dealers primarily in the form of lines of credit to purchase new Ford and Lincoln vehicles as well as used vehicles. Payment is required when the dealer has sold the vehicle. Each non-consumer lending request is evaluated by considering the borrower’s financial condition and the underlying collateral securing the loan. Ford Credit uses a proprietary model to assign each dealer a risk rating. This model uses historical dealer performance data to identify key factors about a dealer that are considered most significant in predicting a dealer’s ability to meet its financial obligations. Ford Credit also considers numerous other financial and qualitative factors of the dealer’s operations, including capitalization and leverage, liquidity and cash flow, profitability, and credit history with Ford Credit and other creditors.
Dealers are assigned to one of four groups according to risk ratings as follows:
•Group I – strong to superior financial metrics;
•Group II – fair to favorable financial metrics;
•Group III – marginal to weak financial metrics; and
•Group IV – poor financial metrics, including dealers classified as uncollectible.
Ford Credit generally suspends credit lines and extends no further funding to dealers classified in Group IV.
Ford Credit regularly reviews the model to confirm the continued business significance and statistical predictability of the model and may make updates to improve the performance of the model. In addition, Ford Credit regularly audits dealer inventory and dealer sales records to verify that the dealer is in possession of the financed vehicles and is promptly paying each receivable following the sale of the financed vehicle. The frequency of on-site vehicle inventory audits depends primarily on the dealer’s risk rating. Under Ford Credit’s policies, on-site vehicle inventory audits of low-risk dealers are conducted only as circumstances warrant. On-site vehicle inventory audits of higher-risk dealers are conducted with increased frequency based primarily on the dealer’s risk rating, but also considering the results of electronic monitoring of the dealer’s performance, including daily payment verifications and monthly analyses of the dealer’s financial statements, payoffs, aged inventory, over credit line, and delinquency reports. Ford Credit typically performs a credit review of each dealer annually and more frequently reviews certain dealers based on the dealer’s risk rating and total exposure. Ford Credit adjusts the dealer’s risk rating, if necessary.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
The credit quality analysis of dealer financing receivables at December 31, 2019 was as follows (in millions):
|
|
|
|
|
|
|
2019
|
Dealer financing
|
|
Group I
|
$
|
26,281
|
|
Group II
|
5,407
|
|
Group III
|
2,108
|
|
Group IV
|
189
|
|
Total (a)
|
$
|
33,985
|
|
__________
(a)Total past due dealer financing receivables at December 31, 2019 were $62 million.
The credit quality analysis of dealer financing receivables at December 31, 2020 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis by Origination Year
|
|
Wholesale Loans
|
|
|
|
|
Dealer Loans
|
|
|
|
|
|
Prior to 2016
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Total
|
|
|
Total
|
Group I
|
|
$
|
503
|
|
|
$
|
129
|
|
|
$
|
110
|
|
|
$
|
188
|
|
|
$
|
70
|
|
|
$
|
248
|
|
|
$
|
1,248
|
|
|
$
|
13,160
|
|
|
$
|
14,408
|
|
Group II
|
|
38
|
|
|
20
|
|
|
11
|
|
|
35
|
|
|
3
|
|
|
87
|
|
|
194
|
|
|
4,680
|
|
|
4,874
|
|
Group III
|
|
9
|
|
|
—
|
|
|
3
|
|
|
19
|
|
|
3
|
|
|
35
|
|
|
69
|
|
|
1,464
|
|
|
1,533
|
|
Group IV
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
6
|
|
|
10
|
|
|
83
|
|
|
93
|
|
Total (a)
|
|
$
|
552
|
|
|
$
|
149
|
|
|
$
|
124
|
|
|
$
|
242
|
|
|
$
|
78
|
|
|
$
|
376
|
|
|
$
|
1,521
|
|
|
$
|
19,387
|
|
|
$
|
20,908
|
|
__________
(a)Total past due dealer financing receivables at December 31, 2020 were $99 million.
Non-Accrual of Revenue. The accrual of financing revenue is discontinued at the time a receivable is determined to be uncollectible or when it is 90 days past due. Accounts may be restored to accrual status only when a customer settles all past-due deficiency balances and future payments are reasonably assured. For receivables in non-accrual status, subsequent financing revenue is recognized only to the extent a payment is received. Payments are generally applied first to outstanding interest and then to the unpaid principal balance.
Troubled Debt Restructuring (“TDR”). A restructuring of debt constitutes a TDR if a concession is granted to a debtor for economic or legal reasons related to the debtor’s financial difficulties that Ford Credit otherwise would not consider. Consumer and non-consumer receivables that have a modified interest rate below market rate or that were modified in reorganization proceedings pursuant to the U.S. Bankruptcy Code, except non-consumer receivables that are current with minimal risk of loss, are considered to be TDRs. Ford Credit does not grant concessions on the principal balance of the receivables. If a receivable is modified in a reorganization proceeding, all payment requirements of the reorganization plan need to be met before remaining balances are forgiven.
Ford Credit offered various programs to provide relief to customers impacted by COVID-19. These programs, which were broadly available to all customers during the first half of 2020, included payment extensions. Ford Credit concluded that these programs did not meet TDR criteria. As of December 31, 2020, in the United States, Ford Credit has received payments on nearly all of the pandemic extensions offered to its customers. The volume of payment extensions has returned to pre-COVID-19 levels and Ford Credit continues to grant payment extensions to customers and dealers under its normal business practices.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the lifetime expected credit losses inherent in finance receivables as of the balance sheet date. The adequacy of the allowance for credit losses is assessed quarterly.
Additions to the allowance for credit losses are made by recording charges to Ford Credit interest, operating, and other expenses on our consolidated income statements. The uncollectible portion of a finance receivable is charged to the allowance for credit losses at the earlier of when an account is deemed to be uncollectible or when an account is 120 days delinquent, taking into consideration the financial condition of the customer or borrower, the value of the collateral, recourse to guarantors, and other factors.
Charge-offs on finance receivables include uncollected amounts related to principal, interest, late fees, and other allowable charges. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses. In the event Ford Credit repossesses the collateral, the receivable is charged off and the collateral is recorded at its estimated fair value less costs to sell and reported in Other assets on our consolidated balance sheets.
Consumer Portfolio
For consumer receivables that share similar risk characteristics such as product type, initial credit risk, term, vintage, geography, and other relevant factors, Ford Credit estimates the lifetime expected credit loss allowance based on a collective assessment using measurement models and management judgment. The lifetime expected credit losses for the receivables is determined by applying probability of default and loss given default assumption models to monthly expected exposures, then discounting these cash flows to present value using the receivable’s original effective interest rate or the current effective interest rate for a variable rate receivable. Probability of default models are developed from internal risk scoring models taking into account the expected probability of payment and time to default, adjusted for macroeconomic outlook and recent performance. The models consider factors such as risk evaluation at the time of origination, historical trends in credit losses (which include the impact of TDRs), and the composition and recent performance of the present portfolio (including vehicle brand, term, risk evaluation, and new/used vehicles). The loss given default is the percentage of the expected balance due at default that is not recoverable, taking into account the expected collateral value and trends in recoveries (including key metrics such as delinquencies, repossessions, and bankruptcies). Monthly exposures are equal to the receivables’ expected outstanding principal and interest balance.
The allowance for credit losses incorporates forward-looking macroeconomic conditions for baseline, upturn, and downturn scenarios. Three separate credit loss allowances are calculated from these scenarios. They are then probability-weighted to determine the quantitative estimate of the credit loss allowance recognized in the financial statements. Ford Credit uses forecasts from a third party that revert to a long-term historical average after a reasonable and supportable forecasting period, which is specific to the particular macroeconomic variable and which varies by market. Ford Credit updates the forward-looking macroeconomic forecasts quarterly.
If management does not believe the models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding qualitative factors, including economic uncertainty, observable changes in portfolio performance, and other relevant factors.
On an ongoing basis, Ford Credit reviews its models, including macroeconomic factors, the selection of macroeconomic scenarios, and their weighting, to ensure they reflect the risk of the portfolio.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Non-Consumer Portfolio
Dealer financing is evaluated on an individual dealer basis by segmenting dealers by risk characteristics (such as the amount of the loans, the nature of the collateral, the financial status of the dealer, and any TDR modifications) to determine if an individual dealer requires a specific allowance for credit loss. If required, the allowance is based on the present value of the expected future cash flows of the dealer’s receivables discounted at the loans’ original effective interest rate or the fair value of the collateral adjusted for estimated costs to sell.
For the remaining dealer financing, Ford Credit estimates an allowance for credit losses on a collective basis.
Wholesale Loans. Ford Credit estimates the allowance for credit losses for wholesale loans based on historical loss-to-receivable (“LTR”) ratios, expected future cash flows, and the fair value of collateral. For wholesale loans with similar risk characteristics, the allowance for credit losses is estimated on a collective basis using the LTR model and management judgment. The LTR model is based on the most recent years of history. An LTR ratio is calculated by dividing credit losses (i.e., charge-offs net of recoveries) by average net finance receivables, excluding unearned interest supplements and allowance for credit losses. The average LTR ratio is multiplied by the end-of-period balances, representing the lifetime expected credit loss reserve.
Dealer Loans. Ford Credit uses a weighted-average remaining maturity method to estimate the lifetime expected credit loss reserve for dealer loans. The loss model is based on the industry-wide commercial real estate credit losses, adjusted to factor in the historical credit losses for the dealer loans portfolio. The expected credit loss is calculated under different macroeconomic scenarios that are weighted to provide the total lifetime expected credit loss.
After establishing the collective and specific allowance for credit losses, if management believes the allowance does not reflect all losses inherent in the portfolio due to changes in recent economic trends and conditions, or other relevant forward-looking economic factors, an adjustment is made based on management judgment.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10. FORD CREDIT FINANCE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (Continued)
An analysis of the allowance for credit losses related to finance receivables for the years ended December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 (a)
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
Allowance for credit losses
|
|
|
|
|
|
Beginning balance
|
$
|
566
|
|
|
$
|
23
|
|
|
$
|
589
|
|
Charge-offs
|
(527)
|
|
|
(22)
|
|
|
(549)
|
|
Recoveries
|
168
|
|
|
10
|
|
|
178
|
|
Provision for credit losses
|
291
|
|
|
5
|
|
|
296
|
|
Other (b)
|
(2)
|
|
|
1
|
|
|
(1)
|
|
Ending balance
|
$
|
496
|
|
|
$
|
17
|
|
|
$
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Consumer
|
|
Non-Consumer
|
|
Total
|
Allowance for credit losses
|
|
|
|
|
|
Beginning balance
|
$
|
496
|
|
|
$
|
17
|
|
|
$
|
513
|
|
Adoption of ASU 2016-13 (c)
|
247
|
|
|
5
|
|
|
252
|
|
Charge-offs
|
(441)
|
|
|
(29)
|
|
|
(470)
|
|
Recoveries
|
161
|
|
|
8
|
|
|
169
|
|
Provision for credit losses
|
771
|
|
|
57
|
|
|
828
|
|
Other (b)
|
11
|
|
|
2
|
|
|
13
|
|
Ending balance
|
$
|
1,245
|
|
|
$
|
60
|
|
|
$
|
1,305
|
|
__________
(a)The comparative information has not been restated and continues to be reported under the accounting standard in effect during 2019.
(b)Primarily represents amounts related to translation adjustments.
(c)Cumulative pre-tax adjustments recorded to retained earnings as of January 1, 2020. See Note 3 for additional information.
For the year ended December 31, 2020, the allowance for credit losses increased $792 million. The change reflects an increase to the reserve of $252 million related to the adoption of ASU 2016-13, with the remainder primarily related to economic conditions attributable to the COVID-19 pandemic. The change to the reserve due to the impact of COVID-19 reflects economic uncertainty which, along with the expectation of continued higher unemployment, has increased the probability of default and loss given default rates used in Ford Credit’s estimate of the lifetime expected credit losses for its consumer portfolio, especially in the United States. These economic trends and conditions are also expected to negatively impact dealers. Although net charge-offs for the year ended December 31, 2020 remained low, reflecting government relief programs and customer payment deferral programs, the future impact of COVID-19 on credit losses is expected to be adverse. Ford Credit will continue to monitor economic trends and conditions and will adjust the reserve accordingly.
NOTE 11. INVENTORIES
All inventories are stated at the lower of cost or net realizable value. Cost of our inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis. Inventories at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Raw materials, work-in-process, and supplies
|
$
|
4,402
|
|
|
$
|
4,676
|
|
Finished products
|
6,384
|
|
|
6,132
|
|
Total inventories
|
$
|
10,786
|
|
|
$
|
10,808
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12. NET INVESTMENT IN OPERATING LEASES
Net investment in operating leases consists primarily of lease contracts for vehicles with individuals, daily rental companies, government entities, and fleet customers. Assets subject to operating leases are depreciated using the straight-line method over the term of the lease to reduce the asset to its estimated residual value. Estimated residual values are based on assumptions for used vehicle prices at lease termination and the number of vehicles that are expected to be returned.
The net investment in operating leases at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Automotive Segment
|
|
|
|
Vehicles, net of depreciation
|
$
|
1,612
|
|
|
$
|
1,304
|
|
Ford Credit Segment
|
|
|
|
Vehicles and other equipment, at cost (a)
|
33,386
|
|
|
32,486
|
|
Accumulated depreciation
|
(5,768)
|
|
|
(5,839)
|
|
Total Ford Credit Segment
|
27,618
|
|
|
26,647
|
|
Total
|
$
|
29,230
|
|
|
$
|
27,951
|
|
__________
(a)Includes Ford Credit’s operating lease assets of $14.9 billion and $12.8 billion at December 31, 2019 and 2020, respectively, that have been included in securitization transactions. These net investments in operating leases are available only for payment of the debt or other obligations issued or arising in the securitization transactions; they are not available to pay other obligations or the claims of other creditors.
Ford Credit Segment
Included in Ford Credit interest, operating, and other expense is operating lease depreciation expense, which includes gains and losses on disposal of assets. Operating lease depreciation expense for the years ended December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Operating lease depreciation expense
|
$
|
3,972
|
|
|
$
|
3,635
|
|
|
$
|
3,235
|
|
The amounts contractually due on operating leases at December 31, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
Operating lease payments
|
$
|
4,369
|
|
|
$
|
2,530
|
|
|
$
|
878
|
|
|
$
|
98
|
|
|
$
|
4
|
|
|
$
|
7,879
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13. NET PROPERTY
Net property is reported at cost, net of accumulated depreciation, which includes impairments. We capitalize new assets when we expect to use the asset for more than one year. Routine maintenance and repair costs are expensed when incurred.
Property and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset. Useful lives range from 3 years to 40 years. The estimated useful lives generally are 14.5 years for machinery and equipment, 8 years for software, 30 years for land improvements, and 40 years for buildings. Tooling generally is amortized over the expected life of a product program using a straight-line method.
Net property at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Land
|
$
|
421
|
|
|
$
|
451
|
|
Buildings and land improvements
|
11,900
|
|
|
12,557
|
|
Machinery, equipment, and other
|
38,939
|
|
|
40,463
|
|
Software
|
3,691
|
|
|
3,900
|
|
Construction in progress
|
1,710
|
|
|
1,718
|
|
Total land, plant and equipment, and other
|
56,661
|
|
|
59,089
|
|
Accumulated depreciation
|
(31,020)
|
|
|
(32,848)
|
|
Net land, plant and equipment, and other
|
25,641
|
|
|
26,241
|
|
Tooling, net of amortization
|
10,828
|
|
|
10,842
|
|
Total
|
$
|
36,469
|
|
|
$
|
37,083
|
|
Property-related expenses, excluding net investment in operating leases, for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Depreciation and other amortization
|
$
|
2,504
|
|
|
$
|
3,449
|
|
|
$
|
2,792
|
|
Tooling amortization
|
2,909
|
|
|
3,409
|
|
|
2,747
|
|
Total (a)
|
$
|
5,413
|
|
|
$
|
6,858
|
|
|
$
|
5,539
|
|
|
|
|
|
|
|
Maintenance and rearrangement
|
$
|
1,994
|
|
|
$
|
1,963
|
|
|
$
|
1,670
|
|
__________
(a) Includes impairment of held-for-sale long-lived assets in 2019 and 2020. See Note 22 for additional information.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES
We use the equity method of accounting for our investments in entities over which we do not have control, but over whose operating and financial policies we are able to exercise significant influence.
Our carrying value and ownership percentages of our equity method investments at December 31 were as follows (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Balance
|
|
Ownership Percentage
|
|
2019
|
|
2020
|
|
2020
|
Argo AI, LLC (see Note 22)
|
$
|
—
|
|
|
$
|
2,368
|
|
|
42
|
%
|
Changan Ford Automobile Corporation, Limited (a) (b)
|
672
|
|
|
691
|
|
|
50
|
|
Jiangling Motors Corporation, Limited (b)
|
544
|
|
|
592
|
|
|
32
|
|
AutoAlliance (Thailand) Co., Ltd.
|
435
|
|
|
428
|
|
|
50
|
|
Ford Otomotiv Sanayi Anonim Sirketi
|
274
|
|
|
328
|
|
|
41
|
|
Getrag Ford Transmissions GmbH (b)
|
209
|
|
|
131
|
|
|
50
|
|
FFS Finance South Africa (Pty) Limited
|
88
|
|
|
76
|
|
|
50
|
|
Ford Sollers Netherlands B.V. (see Note 21)
|
93
|
|
|
75
|
|
|
49
|
|
Ionity Holding GmbH & Co. KG
|
58
|
|
|
52
|
|
|
20
|
|
Other
|
146
|
|
|
160
|
|
|
Various
|
Total
|
$
|
2,519
|
|
|
$
|
4,901
|
|
|
|
_______
(a)In 2019, Changan Ford Automobile Corporation, Limited recorded a long-lived asset impairment charge, our share of which was $99 million, and is included in Equity in net income/(loss) of affiliated companies.
(b)In 2020, Changan Ford Automobile Corporation, Limited, Jiangling Motors Corporation, Limited, and Getrag Ford Transmissions GmbH recorded restructuring charges, our share of which was $15 million, $40 million, and $91 million, respectively. These charges are included in Equity in net income/(loss) of affiliated companies.
We recorded $330 million, $244 million, and $180 million of dividends from these affiliated companies for the years ended December 31, 2018, 2019, and 2020, respectively.
In the ordinary course of business, we buy/sell various products and services including vehicles, parts, and components to/from our equity method investees. In addition, we receive royalty income.
Transactions with equity method investees reported for the years ended or at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
Income Statement
|
2018
|
|
2019
|
|
2020
|
Sales
|
$
|
4,426
|
|
|
$
|
3,541
|
|
|
$
|
4,126
|
|
Purchases
|
10,477
|
|
|
10,106
|
|
|
8,439
|
|
Royalty income
|
374
|
|
|
250
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
2019
|
|
2020
|
Receivables
|
$
|
785
|
|
|
$
|
795
|
|
Payables
|
694
|
|
|
928
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15. OTHER INVESTMENTS
We have investments in entities not accounted for under the equity method for which fair values are not readily available. We record these investments at cost (less impairment, if any), adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We report the carrying value of these investments in Other assets in the non-current assets section of our consolidated balance sheets. These investments were $1.2 billion and $1.7 billion at December 31, 2019 and 2020, respectively. The increase from December 31, 2019 primarily reflects our preferred security investments in Argo AI (see Note 22). In the year ended December 31, 2020, there were no material adjustments to the fair values of these investments held at December 31, 2020.
In January 2021, there was an observable event for our investment in Rivian. Using an option pricing model, the observable event will result in an increase to our carrying value of approximately $900 million and will be recognized in our first quarter 2021 results.
NOTE 16. OTHER LIABILITIES AND DEFERRED REVENUE
Other liabilities and deferred revenue at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Current
|
|
|
|
Dealer and dealers’ customer allowances and claims
|
$
|
13,113
|
|
|
$
|
12,702
|
|
Deferred revenue
|
2,091
|
|
|
2,161
|
|
Employee benefit plans
|
1,857
|
|
|
1,752
|
|
Accrued interest
|
1,128
|
|
|
1,215
|
|
OPEB
|
332
|
|
|
339
|
|
Pension
|
185
|
|
|
193
|
|
Operating lease liabilities
|
367
|
|
|
323
|
|
Other
|
3,914
|
|
|
4,960
|
|
Total current other liabilities and deferred revenue
|
$
|
22,987
|
|
|
$
|
23,645
|
|
|
|
|
|
Non-current
|
|
|
|
Pension
|
$
|
9,878
|
|
|
$
|
10,738
|
|
OPEB
|
5,740
|
|
|
6,236
|
|
Dealer and dealers’ customer allowances and claims
|
1,921
|
|
|
3,072
|
|
Deferred revenue
|
4,191
|
|
|
4,559
|
|
Operating lease liabilities
|
1,047
|
|
|
991
|
|
Employee benefit plans
|
1,104
|
|
|
1,074
|
|
Other
|
1,443
|
|
|
1,709
|
|
Total non-current other liabilities and deferred revenue
|
$
|
25,324
|
|
|
$
|
28,379
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS
Defined benefit pension and OPEB plan obligations are remeasured at least annually as of December 31 based on the present value of projected future benefit payments for all participants for services rendered to date. The measurement of projected future benefits is dependent on the provisions of each specific plan, demographics of the group covered by the plan, and other key measurement assumptions. For plans that provide benefits dependent on salary assumptions, we include a projection of salary growth in our measurements. No assumption is made regarding any potential future changes to benefit provisions beyond those to which we are presently committed (e.g., in existing labor contracts).
Net periodic benefit costs, including service cost, interest cost, and expected return on assets are determined using assumptions regarding the benefit obligation and the fair value of plan assets (where applicable) as of the beginning of each year. We have elected to use a fair value of plan assets to calculate the expected return on assets in net periodic benefit cost. The funded status of the benefit plans, which represents the difference between the benefit obligation and fair value of plan assets, is calculated on a plan-by-plan basis. The benefit obligation and related funded status are determined using assumptions as of the end of each year. Actuarial gains and losses resulting from plan remeasurement are recognized in net periodic benefit cost in the period of the remeasurement. The impact of a retroactive plan amendment is recorded in Accumulated other comprehensive income/(loss), and is amortized as a component of net periodic cost, generally over the remaining service period of the active employees. The service cost component is included in Cost of sales and Selling, administrative and other expenses. Other components of net periodic benefit cost/(income) are included in Other income/(loss), net on our consolidated income statements.
A curtailment results from an event that significantly reduces the expected years of future service or eliminates the accrual of defined benefits for the future services of a significant number of employees. A curtailment gain is recorded when the employees who are entitled to a benefit terminate their employment, or when a plan suspension or amendment that results in a curtailment gain is adopted. A curtailment loss is recorded when it becomes probable a curtailment loss will occur. We recognize settlement expense when the costs associated with all settlements during the year exceed the interest component of net periodic cost for the affected plan. Expense from curtailments and settlements is recorded in Other income/(loss), net.
Defined Benefit Pension Plans. We have defined benefit pension plans covering hourly and salaried employees in the United States, Canada, United Kingdom, Germany, and other locations. The largest portion of our worldwide obligation is associated with our U.S. plans. Virtually all of our worldwide defined benefit plans are closed to new participants.
In general, our defined benefit pension plans are funded (i.e., have restricted assets from which benefits are paid). Our unfunded defined benefit pension plans are treated on a “pay as you go” basis with benefit payments from general Company cash. These unfunded plans primarily include certain plans in Germany and the U.S. defined benefit plans for senior management.
OPEB. We have defined benefit OPEB plans, primarily certain health care and life insurance benefits, covering hourly and salaried employees in the United States, Canada, and other locations. The largest portion of our worldwide obligation is associated with our U.S. plans. Our OPEB plans are unfunded and the benefits are paid from general Company cash.
Defined Contribution and Savings Plans. We also have defined contribution and savings plans for hourly and salaried employees in the United States and other locations. Company contributions to these plans, if any, are made from general Company cash and are expensed as incurred. The expense for our worldwide defined contribution and savings plans was $393 million, $444 million, and $398 million for the years ended December 31, 2018, 2019, and 2020, respectively. This includes the expense for Company-matching contributions to our primary employee savings plan in the United States of $143 million, $143 million, and $146 million for the years ended December 31, 2018, 2019, and 2020, respectively. The 2019 expense also reflects a one-time contribution of $33 million to certain eligible employees as part of the UAW collective bargaining agreement.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
Defined Benefit Plans – Expense and Status
The assumptions used to determine benefit obligation and net periodic benefit cost/(income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Worldwide OPEB
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Weighted Average Assumptions at December 31
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.32
|
%
|
|
2.56
|
%
|
|
1.74
|
%
|
|
1.23
|
%
|
|
3.30
|
%
|
|
2.62
|
%
|
Average rate of increase in compensation
|
3.50
|
|
|
3.50
|
|
|
3.37
|
|
|
3.34
|
|
|
3.44
|
|
|
3.44
|
|
Weighted Average Assumptions Used to Determine Net Benefit Cost for the Year Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - Service cost
|
4.17
|
%
|
|
3.55
|
%
|
|
2.52
|
%
|
|
1.75
|
%
|
|
4.34
|
%
|
|
3.57
|
%
|
Effective interest rate on benefit obligation
|
3.75
|
|
|
2.88
|
|
|
2.21
|
|
|
1.46
|
|
|
3.87
|
|
|
2.85
|
|
Expected long-term rate of return on assets
|
6.75
|
|
|
6.50
|
|
|
4.18
|
|
|
3.67
|
|
|
—
|
|
|
—
|
|
Average rate of increase in compensation
|
3.50
|
|
|
3.50
|
|
|
3.37
|
|
|
3.37
|
|
|
3.44
|
|
|
3.44
|
|
The pre-tax net periodic benefit cost/(income) for our defined benefit pension and OPEB plans for the years ended December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Worldwide OPEB
|
|
2018
|
|
2019
|
|
2020
|
|
2018
|
|
2019
|
|
2020
|
|
2018
|
|
2019
|
|
2020
|
Service cost
|
$
|
544
|
|
|
$
|
474
|
|
|
$
|
520
|
|
|
$
|
588
|
|
|
$
|
506
|
|
|
$
|
529
|
|
|
$
|
54
|
|
|
$
|
43
|
|
|
$
|
47
|
|
Interest cost
|
1,466
|
|
|
1,570
|
|
|
1,291
|
|
|
684
|
|
|
691
|
|
|
514
|
|
|
195
|
|
|
211
|
|
|
169
|
|
Expected return on assets
|
(2,887)
|
|
|
(2,657)
|
|
|
(2,795)
|
|
|
(1,295)
|
|
|
(1,124)
|
|
|
(1,067)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service costs/(credits)
|
143
|
|
|
87
|
|
|
4
|
|
|
25
|
|
|
33
|
|
|
32
|
|
|
(109)
|
|
|
(70)
|
|
|
(16)
|
|
Net remeasurement (gain)/loss
|
1,294
|
|
|
(135)
|
|
|
377
|
|
|
(76)
|
|
|
2,084
|
|
|
499
|
|
|
(366)
|
|
|
551
|
|
|
556
|
|
Separation programs/other
|
53
|
|
|
22
|
|
|
35
|
|
|
103
|
|
|
398
|
|
|
226
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Settlements and curtailments
|
(15)
|
|
|
(67)
|
|
|
5
|
|
|
(2)
|
|
|
8
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
Net periodic benefit cost/(income)
|
$
|
598
|
|
|
$
|
(706)
|
|
|
$
|
(563)
|
|
|
$
|
27
|
|
|
$
|
2,596
|
|
|
$
|
836
|
|
|
$
|
(225)
|
|
|
$
|
735
|
|
|
$
|
754
|
|
In 2019, we recognized additional expense of $361 million related to separation programs, settlements, and curtailments, which included a $57 million settlement loss, offset partially by a $12 million curtailment gain, related to the transfer of our Netherlands pension obligation and related plan assets to an insurance company, and $415 million of separation expenses, partially offset by $104 million of settlement and curtailment gains, related to ongoing redesign programs.
In 2020, we recognized additional expense of $367 million related to separation programs, settlements, and curtailments, which included $61 million of settlement losses related to a non-U.S. pension plan and $268 million related to ongoing redesign programs. Until our Global Redesign programs are completed, we anticipate further adjustments to our plans in subsequent periods.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
The year-end status of these plans was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Worldwide OPEB
|
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1
|
|
$
|
42,269
|
|
|
$
|
45,672
|
|
|
$
|
31,079
|
|
|
$
|
35,373
|
|
|
$
|
5,559
|
|
|
$
|
6,072
|
|
Service cost
|
|
474
|
|
|
520
|
|
|
506
|
|
|
529
|
|
|
43
|
|
|
47
|
|
Interest cost
|
|
1,570
|
|
|
1,291
|
|
|
691
|
|
|
514
|
|
|
211
|
|
|
169
|
|
Amendments
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Separation programs/other
|
|
(24)
|
|
|
(10)
|
|
|
391
|
|
|
219
|
|
|
3
|
|
|
—
|
|
Curtailments
|
|
—
|
|
|
—
|
|
|
(43)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
(966)
|
|
|
(25)
|
|
|
(272)
|
|
|
(189)
|
|
|
—
|
|
|
—
|
|
Plan participant contributions
|
|
23
|
|
|
23
|
|
|
17
|
|
|
14
|
|
|
3
|
|
|
21
|
|
Benefits paid
|
|
(2,615)
|
|
|
(3,055)
|
|
|
(1,395)
|
|
|
(1,394)
|
|
|
(367)
|
|
|
(339)
|
|
Foreign exchange translation
|
|
—
|
|
|
—
|
|
|
501
|
|
|
1,131
|
|
|
69
|
|
|
28
|
|
Actuarial (gain)/loss
|
|
4,941
|
|
|
4,604
|
|
|
3,888
|
|
|
3,638
|
|
|
551
|
|
|
556
|
|
Benefit obligation at December 31
|
|
45,672
|
|
|
49,020
|
|
|
35,373
|
|
|
39,835
|
|
|
6,072
|
|
|
6,575
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
39,774
|
|
|
44,253
|
|
|
27,273
|
|
|
29,958
|
|
|
—
|
|
|
—
|
|
Actual return on plan assets
|
|
7,800
|
|
|
7,018
|
|
|
2,935
|
|
|
4,149
|
|
|
—
|
|
|
—
|
|
Company contributions
|
|
284
|
|
|
186
|
|
|
789
|
|
|
744
|
|
|
—
|
|
|
—
|
|
Plan participant contributions
|
|
23
|
|
|
23
|
|
|
17
|
|
|
14
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
|
(2,615)
|
|
|
(3,055)
|
|
|
(1,395)
|
|
|
(1,394)
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
(966)
|
|
|
(25)
|
|
|
(330)
|
|
|
(189)
|
|
|
—
|
|
|
—
|
|
Foreign exchange translation
|
|
—
|
|
|
—
|
|
|
678
|
|
|
547
|
|
|
—
|
|
|
—
|
|
Other
|
|
(47)
|
|
|
(45)
|
|
|
(9)
|
|
|
(9)
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at December 31
|
|
44,253
|
|
|
48,355
|
|
|
29,958
|
|
|
33,820
|
|
|
—
|
|
|
—
|
|
Funded status at December 31
|
|
$
|
(1,419)
|
|
|
$
|
(665)
|
|
|
$
|
(5,415)
|
|
|
$
|
(6,015)
|
|
|
$
|
(6,072)
|
|
|
$
|
(6,575)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized on the Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid assets
|
|
$
|
911
|
|
|
$
|
1,578
|
|
|
$
|
2,318
|
|
|
$
|
2,673
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other liabilities
|
|
(2,330)
|
|
|
(2,243)
|
|
|
(7,733)
|
|
|
(8,688)
|
|
|
(6,072)
|
|
|
(6,575)
|
|
Total
|
|
$
|
(1,419)
|
|
|
$
|
(665)
|
|
|
$
|
(5,415)
|
|
|
$
|
(6,015)
|
|
|
$
|
(6,072)
|
|
|
$
|
(6,575)
|
|
Amounts Recognized in Accumulated Other Comprehensive Loss (pre-tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized prior service costs/(credits)
|
|
$
|
8
|
|
|
$
|
4
|
|
|
$
|
274
|
|
|
$
|
206
|
|
|
$
|
29
|
|
|
$
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans in which Accumulated Benefit Obligation Exceeds Plan Assets at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
2,141
|
|
|
$
|
2,295
|
|
|
$
|
12,421
|
|
|
$
|
14,595
|
|
|
|
|
|
Fair value of plan assets
|
|
156
|
|
|
145
|
|
|
5,948
|
|
|
7,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation at December 31
|
|
$
|
44,578
|
|
|
$
|
47,848
|
|
|
$
|
32,106
|
|
|
$
|
36,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans in which Projected Benefit Obligation Exceeds Plan Assets at December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
22,085
|
|
|
$
|
2,389
|
|
|
$
|
13,864
|
|
|
$
|
15,951
|
|
|
|
|
|
Fair value of plan assets
|
|
19,755
|
|
|
145
|
|
|
6,131
|
|
|
7,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at December 31
|
|
$
|
45,672
|
|
|
$
|
49,020
|
|
|
$
|
35,373
|
|
|
$
|
39,835
|
|
|
|
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
The actuarial (gain)/loss for our pension benefit obligations in 2019 and 2020 was primarily related to changes in discount rates.
Pension Plan Contributions
Our policy for funded pension plans is to contribute annually, at a minimum, amounts required by applicable laws and regulations. We may make contributions beyond those legally required.
In 2020, we contributed $570 million to our global funded pension plans and made $360 million of benefit payments to participants in unfunded plans. During 2021, we expect to contribute between $600 million and $800 million of cash to our global funded pension plans. We also expect to make about $390 million of benefit payments to participants in unfunded plans. Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major U.S. pension plans in 2021.
Expected Future Benefit Payments
The expected future benefit payments at December 31, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Payments
|
|
|
Pension
|
|
|
|
|
U.S. Plans
|
|
Non-U.S.
Plans
|
|
Worldwide
OPEB
|
2021
|
|
$
|
3,430
|
|
|
$
|
1,480
|
|
|
$
|
340
|
|
2022
|
|
2,750
|
|
|
1,360
|
|
|
340
|
|
2023
|
|
2,760
|
|
|
1,370
|
|
|
330
|
|
2024
|
|
2,790
|
|
|
1,380
|
|
|
330
|
|
2025
|
|
2,780
|
|
|
1,400
|
|
|
330
|
|
2026-2030
|
|
13,730
|
|
|
7,210
|
|
|
1,640
|
|
Pension Plan Asset Information
Investment Objectives and Strategies. Our investment objectives for the U.S. plans are to minimize the volatility of the value of our U.S. pension assets relative to U.S. pension obligations and to ensure assets are sufficient to pay plan benefits. Our U.S. target asset allocations are 80% fixed income and 20% growth assets (primarily hedge funds, real estate, private equity, and public equity). Our largest non-U.S. plans (United Kingdom and Canada) have similar investment objectives to the U.S. plans.
Investment strategies and policies for the U.S. plans and the largest non-U.S. plans reflect a balance of risk-reducing and return-seeking considerations. The objective of minimizing the volatility of assets relative to obligations is addressed primarily through asset-liability matching, asset diversification, and hedging. The fixed income target asset allocation matches the bond-like and long-dated nature of the pension obligations. Assets are broadly diversified within asset classes to achieve risk-adjusted returns that in total lower asset volatility relative to the obligations. Strategies to address the goal of ensuring sufficient assets to pay benefits include target allocations to a broad array of asset classes, and strategies within asset classes that provide adequate returns, diversification, and liquidity.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
Derivatives are permitted for fixed income investment and public equity managers to use as efficient substitutes for traditional securities and to manage exposure to interest rate and foreign exchange risks. Interest rate and foreign currency derivative instruments are used for the purpose of hedging changes in the fair value of assets that result from interest rate changes and currency fluctuations. Interest rate derivatives also are used to adjust portfolio duration. Derivatives may not be used to leverage or to alter the economic exposure to an asset class outside the scope of the mandate an investment manager has been given. Alternative investment managers are permitted to employ leverage (including through the use of derivatives or other tools) that may alter economic exposure.
Alternative investments execute diverse strategies that provide exposure to a broad range of hedge fund strategies, equity investments in private companies, and investments in private property funds.
Significant Concentrations of Risk. Significant concentrations of risk in our plan assets relate to interest rates, growth assets, and operating risks. In order to minimize asset volatility relative to the obligations, the majority of plan assets are allocated to fixed income investments which are exposed to interest rate risk. Rate increases generally will result in a decline in the value of fixed income assets, while reducing the present value of the obligations. Conversely, rate decreases generally will increase the value of fixed income assets, offsetting the related increase in the obligations.
In order to ensure assets are sufficient to pay benefits, a portion of plan assets is allocated to growth assets that are expected over time to earn higher returns with more volatility than fixed income investments which more closely match pension obligations. Within growth assets, risk is mitigated by constructing a portfolio that is broadly diversified by asset class, investment strategy, manager, style, and process.
Operating risks include the risks of inadequate diversification and weak controls. To mitigate these risks, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing manager oversight (e.g., style adherence, team strength, firm health, and internal risk controls), plan and asset class investment guidelines and instructions that are communicated to managers, and periodic compliance reviews to ensure adherence.
At year-end 2020, Ford securities comprised less than 1% of our plan assets.
Expected Long-Term Rate of Return on Assets. The long-term return assumption at year-end 2020 is 6.00% for the U.S. plans, 3.25% for the U.K. plans, and 4.25% for the Canadian plans, and averages 3.42% for all non-U.S. plans. A generally consistent approach is used worldwide to develop this assumption. This approach considers primarily inputs from a range of advisors for long-term capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of our investment strategy by plan. Historical returns also are considered where appropriate. The assumption is based on consideration of all inputs, with a focus on long-term trends to avoid short-term market influences.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
The fair value of our defined benefit pension plan assets (including dividends and interest receivables of $322 million and $102 million for U.S. and non-U.S. plans, respectively) by asset category at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at NAV (a)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at NAV (a)
|
|
Total
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
1,542
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,562
|
|
|
$
|
1,059
|
|
|
$
|
43
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,102
|
|
International companies
|
971
|
|
|
9
|
|
|
1
|
|
|
—
|
|
|
981
|
|
|
850
|
|
|
58
|
|
|
3
|
|
|
—
|
|
|
911
|
|
Total equity
|
2,513
|
|
|
29
|
|
|
1
|
|
|
—
|
|
|
2,543
|
|
|
1,909
|
|
|
101
|
|
|
3
|
|
|
—
|
|
|
2,013
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
8,965
|
|
|
2,823
|
|
|
—
|
|
|
—
|
|
|
11,788
|
|
|
380
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|
474
|
|
Non-U.S. government
|
—
|
|
|
1,321
|
|
|
16
|
|
|
—
|
|
|
1,337
|
|
|
—
|
|
|
18,256
|
|
|
—
|
|
|
—
|
|
|
18,256
|
|
Corporate bonds
|
—
|
|
|
23,717
|
|
|
—
|
|
|
—
|
|
|
23,717
|
|
|
—
|
|
|
3,089
|
|
|
35
|
|
|
—
|
|
|
3,124
|
|
Mortgage/other asset-backed
|
—
|
|
|
527
|
|
|
—
|
|
|
—
|
|
|
527
|
|
|
—
|
|
|
565
|
|
|
69
|
|
|
—
|
|
|
634
|
|
Commingled funds
|
—
|
|
|
191
|
|
|
—
|
|
|
—
|
|
|
191
|
|
|
—
|
|
|
174
|
|
|
1
|
|
|
—
|
|
|
175
|
|
Derivative financial instruments, net
|
(9)
|
|
|
(147)
|
|
|
—
|
|
|
—
|
|
|
(156)
|
|
|
15
|
|
|
103
|
|
|
(56)
|
|
|
—
|
|
|
62
|
|
Total fixed income
|
8,956
|
|
|
28,432
|
|
|
16
|
|
|
—
|
|
|
37,404
|
|
|
395
|
|
|
22,281
|
|
|
49
|
|
|
—
|
|
|
22,725
|
|
Alternatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
—
|
|
|
2,961
|
|
|
2,961
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,207
|
|
|
1,207
|
|
Private equity
|
—
|
|
|
—
|
|
|
—
|
|
|
1,884
|
|
|
1,884
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
695
|
|
|
695
|
|
Real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
1,193
|
|
|
1,193
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
325
|
|
|
325
|
|
Total alternatives
|
—
|
|
|
—
|
|
|
—
|
|
|
6,038
|
|
|
6,038
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,227
|
|
|
2,227
|
|
Cash, cash equivalents, and repurchase agreements (b)
|
(195)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(195)
|
|
|
(1,765)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,765)
|
|
Other (c)
|
(1,537)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,537)
|
|
|
(762)
|
|
|
—
|
|
|
5,520
|
|
|
—
|
|
|
4,758
|
|
Total assets at fair value
|
$
|
9,737
|
|
|
$
|
28,461
|
|
|
$
|
17
|
|
|
$
|
6,038
|
|
|
$
|
44,253
|
|
|
$
|
(223)
|
|
|
$
|
22,382
|
|
|
$
|
5,572
|
|
|
$
|
2,227
|
|
|
$
|
29,958
|
|
_______
(a)Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Primarily short-term investment funds to provide liquidity to plan investment managers, cash held to pay benefits, and repurchase agreements valued at $(1.9) billion in U.S. plans and $(2.5) billion in non-U.S. plans.
(c)For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales). For non-U.S plans, primarily Ford-Werke, plan assets (insurance contract valued at $4.5 billion at year-end 2019) and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
The fair value of our defined benefit pension plan assets (including dividends and interest receivables of $317 million and $102 million for U.S. and non-U.S. plans, respectively) by asset category at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at NAV (a)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at NAV (a)
|
|
Total
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. companies
|
$
|
2,161
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,181
|
|
|
$
|
1,989
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,037
|
|
International companies
|
1,346
|
|
|
18
|
|
|
2
|
|
|
—
|
|
|
1,366
|
|
|
1,428
|
|
|
181
|
|
|
4
|
|
|
—
|
|
|
1,613
|
|
Total equity
|
3,507
|
|
|
38
|
|
|
2
|
|
|
—
|
|
|
3,547
|
|
|
3,417
|
|
|
229
|
|
|
4
|
|
|
—
|
|
|
3,650
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
9,243
|
|
|
2,177
|
|
|
—
|
|
|
—
|
|
|
11,420
|
|
|
—
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
75
|
|
Non-U.S. government
|
—
|
|
|
1,203
|
|
|
14
|
|
|
—
|
|
|
1,217
|
|
|
—
|
|
|
20,398
|
|
|
—
|
|
|
—
|
|
|
20,398
|
|
Corporate bonds
|
—
|
|
|
26,983
|
|
|
—
|
|
|
—
|
|
|
26,983
|
|
|
—
|
|
|
3,391
|
|
|
53
|
|
|
—
|
|
|
3,444
|
|
Mortgage/other asset-backed
|
—
|
|
|
512
|
|
|
—
|
|
|
—
|
|
|
512
|
|
|
—
|
|
|
515
|
|
|
16
|
|
|
—
|
|
|
531
|
|
Commingled funds
|
—
|
|
|
189
|
|
|
—
|
|
|
—
|
|
|
189
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
—
|
|
|
111
|
|
Derivative financial instruments, net
|
1
|
|
|
(95)
|
|
|
—
|
|
|
—
|
|
|
(94)
|
|
|
2
|
|
|
80
|
|
|
(118)
|
|
|
—
|
|
|
(36)
|
|
Total fixed income
|
9,244
|
|
|
30,969
|
|
|
14
|
|
|
—
|
|
|
40,227
|
|
|
2
|
|
|
24,570
|
|
|
(49)
|
|
|
—
|
|
|
24,523
|
|
Alternatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
—
|
|
|
3,258
|
|
|
3,258
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,259
|
|
|
1,259
|
|
Private equity
|
—
|
|
|
—
|
|
|
—
|
|
|
1,859
|
|
|
1,859
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
729
|
|
|
729
|
|
Real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
1,220
|
|
|
1,220
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
323
|
|
|
323
|
|
Total alternatives
|
—
|
|
|
—
|
|
|
—
|
|
|
6,337
|
|
|
6,337
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,311
|
|
|
2,311
|
|
Cash, cash equivalents, and repurchase agreements (b)
|
(605)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(605)
|
|
|
(2,257)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,257)
|
|
Other (c)
|
(1,151)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,151)
|
|
|
(458)
|
|
|
—
|
|
|
6,051
|
|
|
—
|
|
|
5,593
|
|
Total assets at fair value
|
$
|
10,995
|
|
|
$
|
31,007
|
|
|
$
|
16
|
|
|
$
|
6,337
|
|
|
$
|
48,355
|
|
|
$
|
704
|
|
|
$
|
24,799
|
|
|
$
|
6,006
|
|
|
$
|
2,311
|
|
|
$
|
33,820
|
|
_______
(a)Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
(b)Primarily short-term investment funds to provide liquidity to plan investment managers, cash held to pay benefits, and repurchase agreements valued at $(2.4) billion in U.S. plans and $(2.9) billion in non-U.S. plans.
(c)For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales). For non-U.S plans, primarily Ford-Werke, plan assets (insurance contract valued at $5 billion at year-end 2020) and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/(sales).
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17. RETIREMENT BENEFITS (Continued)
The following table summarizes the changes in Level 3 defined benefit pension plan assets measured at fair value on a recurring basis for the years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Return on plan assets
|
|
|
|
|
|
|
|
Fair
Value
at
January 1
|
|
Attributable
to Assets
Held
at
December 31
|
|
Attributable
to
Assets
Sold
|
|
Net Purchases/
(Settlements)
|
|
Transfers Into/ (Out of) Level 3
|
|
Fair
Value
at
December 31
|
U.S. Plans
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
17
|
|
Non-U.S. Plans (a)
|
5,249
|
|
|
215
|
|
|
(5)
|
|
|
113
|
|
|
—
|
|
|
5,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
Return on plan assets
|
|
|
|
|
|
|
|
Fair
Value
at
January 1
|
|
Attributable
to Assets
Held
at
December 31
|
|
Attributable
to
Assets
Sold
|
|
Net Purchases/
(Settlements)
|
|
Transfers Into/ (Out of) Level 3
|
|
Fair
Value
at
December 31
|
U.S. Plans
|
$
|
17
|
|
|
$
|
(2)
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Non-U.S. Plans (a)
|
5,572
|
|
|
473
|
|
|
1
|
|
|
1
|
|
|
(41)
|
|
|
6,006
|
|
_______
(a)Primarily Ford-Werke plan assets (insurance contract valued at $4.5 billion and $5 billion at year-end 2019 and 2020, respectively).
NOTE 18. LEASE COMMITMENTS
We lease land, dealership facilities, offices, distribution centers, warehouses, and equipment under agreements with contractual periods ranging from less than one year to 40 years. Many of our leases contain one or more options to extend. In certain dealership lease agreements, we are the tenant and we sublease the site to a dealer. In the event the sublease is terminated, we have the option to terminate the head lease. We include options that we are reasonably certain to exercise in our evaluation of the lease term after considering all relevant economic and financial factors.
Leases that are economically similar to the purchase of an asset are classified as finance leases. The leased (“right-of-use”) assets in finance lease arrangements are reported in Net property on our consolidated balance sheets. Otherwise, the leases are classified as operating leases and reported in Other assets in the non-current assets section of our consolidated balance sheets.
For the majority of our leases, we do not separate the non-lease components (e.g., maintenance and operating services) from the lease components to which they relate. Instead, non-lease components are included in the measurement of the lease liabilities. However, we do separate lease and non-lease components for contracts containing a significant service component (e.g., energy performance contracts). We calculate the initial lease liability as the present value of fixed payments not yet paid and variable payments that are based on a market rate or an index (e.g., CPI), measured at commencement. The majority of our leases are discounted using our incremental borrowing rate because the rate implicit in the lease is not readily determinable. All other variable payments are expensed as incurred.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18. LEASE COMMITMENTS (Continued)
Lease right-of-use assets and liabilities at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Operating leases
|
|
|
|
|
Other assets, non-current
|
|
$
|
1,415
|
|
|
$
|
1,287
|
|
|
|
|
|
|
Other liabilities and deferred revenue, current
|
|
$
|
367
|
|
|
$
|
323
|
|
Other liabilities and deferred revenue, non-current
|
|
1,047
|
|
|
991
|
|
Total operating lease liabilities
|
|
$
|
1,414
|
|
|
$
|
1,314
|
|
|
|
|
|
|
Finance leases
|
|
|
|
|
Property and equipment, gross
|
|
$
|
252
|
|
|
$
|
540
|
|
Accumulated depreciation
|
|
(43)
|
|
|
(50)
|
|
Property and equipment, net
|
|
$
|
209
|
|
|
$
|
490
|
|
|
|
|
|
|
Automotive debt payable within one year
|
|
$
|
92
|
|
|
$
|
46
|
|
Automotive long-term debt
|
|
85
|
|
|
368
|
|
Total finance lease liabilities
|
|
$
|
177
|
|
|
$
|
414
|
|
The amounts contractually due on our lease liabilities as of December 31, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases (a)
|
|
Finance
Leases
|
2021
|
|
$
|
366
|
|
|
$
|
60
|
|
2022
|
|
279
|
|
|
54
|
|
2023
|
|
210
|
|
|
42
|
|
2024
|
|
156
|
|
|
35
|
|
2025
|
|
117
|
|
|
30
|
|
Thereafter
|
|
352
|
|
|
303
|
|
Total
|
|
1,480
|
|
|
524
|
|
Less: Present value discount
|
|
166
|
|
|
110
|
|
Total lease liabilities
|
|
$
|
1,314
|
|
|
$
|
414
|
|
_______
(a) Excludes approximately $101 million in future lease payments for various operating leases commencing in a future period.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18. LEASE COMMITMENTS (Continued)
Supplemental cash flow information related to leases for the years ended December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
460
|
|
|
$
|
434
|
|
Operating cash flows from finance leases
|
|
6
|
|
|
15
|
|
Financing cash flows from finance leases
|
|
35
|
|
|
105
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
|
|
|
Operating leases
|
|
$
|
527
|
|
|
$
|
304
|
|
Finance leases (a)
|
|
43
|
|
|
306
|
|
The components of lease expense for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Operating lease expense
|
|
$
|
467
|
|
|
$
|
463
|
|
Variable lease expense
|
|
53
|
|
|
57
|
|
Sublease income
|
|
(16)
|
|
|
(14)
|
|
Finance lease expense
|
|
|
|
|
Amortization of right-of-use assets
|
|
15
|
|
|
27
|
|
Interest on lease liabilities
|
|
6
|
|
|
15
|
|
Total lease expense
|
|
$
|
525
|
|
|
$
|
548
|
|
The weighted-average remaining lease term and weighted-average discount rate at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Weighted-average remaining lease term (in years)
|
|
|
|
|
Operating leases
|
|
6.3
|
|
6.3
|
Finance leases (a)
|
|
3.0
|
|
14.8
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
|
3.4
|
%
|
|
3.8
|
%
|
Finance leases
|
|
3.3
|
%
|
|
3.5
|
%
|
_______
(a) Includes the addition of a 20-year finance lease for about $300 million that commenced in January 2020.
NOTE 19. DEBT AND COMMITMENTS
Our debt consists of short-term and long-term secured and unsecured debt securities, and secured and unsecured borrowings from banks and other lenders. Debt issuances are placed directly by us or through securities dealers or underwriters and are held by institutional and retail investors. In addition, Ford Credit sponsors securitization programs that provide short-term and long-term asset-backed financing through institutional investors in the U.S. and international capital markets.
Debt is reported on our consolidated balance sheets at par value adjusted for unamortized discount or premium, unamortized issuance costs, and adjustments related to designated fair value hedging (see Note 20). Discounts, premiums, and costs directly related to the issuance of debt are capitalized and amortized over the life of the debt or to the put date and are recorded in interest expense using the effective interest method. Gains and losses on the extinguishment of debt are recorded in Other income/(loss), net.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
The carrying value of Automotive, Ford Credit, and Other debt at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
|
|
Average Contractual
|
|
Average Effective (a)
|
|
Automotive
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
Debt payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
$
|
315
|
|
|
$
|
613
|
|
|
1.5
|
%
|
|
4.0
|
%
|
|
1.5
|
%
|
|
4.0
|
%
|
|
Long-term payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Department of Energy Advanced Technology Vehicles Manufacturing (“DOE ATVM”) Incentive Program
|
591
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
Other debt
|
540
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
Unamortized (discount)/premium
|
(1)
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Total debt payable within one year
|
1,445
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Public unsecured debt securities
|
10,583
|
|
|
18,583
|
|
|
|
|
|
|
|
|
|
|
Delayed draw term loan
|
1,500
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
DOE ATVM Incentive Program
|
880
|
|
|
1,064
|
|
|
|
|
|
|
|
|
|
|
Other debt
|
547
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
Unamortized (discount)/premium
|
(161)
|
|
|
(239)
|
|
|
|
|
|
|
|
|
|
|
Unamortized issuance costs
|
(116)
|
|
|
(188)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt payable after one year
|
13,233
|
|
|
22,342
|
|
|
5.2
|
%
|
(b)
|
6.3
|
%
|
(b)
|
5.3
|
%
|
(b)
|
6.5
|
%
|
(b)
|
Total Automotive
|
$
|
14,678
|
|
|
$
|
23,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Automotive debt (c)
|
$
|
15,606
|
|
|
$
|
27,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
|
$
|
13,717
|
|
|
$
|
11,429
|
|
|
2.8
|
%
|
|
1.5
|
%
|
|
2.8
|
%
|
|
1.6
|
%
|
|
Long-term payable within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured debt
|
15,062
|
|
|
17,185
|
|
|
|
|
|
|
|
|
|
|
Asset-backed debt
|
23,609
|
|
|
21,345
|
|
|
|
|
|
|
|
|
|
|
Unamortized (discount)/premium
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Unamortized issuance costs
|
(17)
|
|
|
(17)
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments (d)
|
(1)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Total debt payable within one year
|
52,371
|
|
|
49,969
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured debt
|
55,148
|
|
|
54,197
|
|
|
|
|
|
|
|
|
|
|
Asset-backed debt
|
32,162
|
|
|
32,276
|
|
|
|
|
|
|
|
|
|
|
Unamortized (discount)/premium
|
6
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Unamortized issuance costs
|
(197)
|
|
|
(235)
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments (d)
|
539
|
|
|
1,442
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt payable after one year
|
87,658
|
|
|
87,708
|
|
|
3.0
|
%
|
(b)
|
2.7
|
%
|
(b)
|
3.0
|
%
|
(b)
|
2.7
|
%
|
(b)
|
Total Ford Credit
|
$
|
140,029
|
|
|
$
|
137,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Ford Credit debt (c)
|
$
|
141,678
|
|
|
$
|
139,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable within one year
|
$
|
130
|
|
|
$
|
180
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured debt
|
474
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Unamortized (discount)/premium and issuance costs
|
(4)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt payable after one year
|
470
|
|
|
291
|
|
|
9.3
|
%
|
(b)
|
9.3
|
%
|
(b)
|
9.2
|
%
|
(b)
|
9.2
|
%
|
(b)
|
Total Other
|
$
|
600
|
|
|
$
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Other debt
|
$
|
720
|
|
|
$
|
585
|
|
|
|
|
|
|
|
|
|
|
__________
(a)Average effective rates reflect the average contractual interest rate plus amortization of discounts, premiums, and issuance costs.
(b)Includes interest on long-term debt payable within one year and after one year.
(c)At December 31, 2019 and 2020, the fair value of debt includes $315 million and $529 million of Automotive short-term debt and $12.8 billion and $10.4 billion of Ford Credit short-term debt, respectively, carried at cost which approximates fair value. All other debt is categorized within Level 2 of the fair value hierarchy.
(d)These adjustments are related to hedging activity and include discontinued hedging relationship adjustments of $7 million and $299 million at December 31, 2019 and 2020, respectively. The carrying value of hedged debt was $39.4 billion and $45.5 billion at December 31, 2019 and 2020, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
Cash paid for interest was $1.2 billion, $1 billion, and $1.4 billion in 2018, 2019, and 2020, respectively, on Automotive and Other debt. Cash paid for interest was $3.5 billion, $4.1 billion, and $3.4 billion in 2018, 2019, and 2020, respectively, on Ford Credit debt.
Maturities
Debt maturities at December 31, 2020 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Adjustments
|
|
Total Debt Maturities
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public unsecured debt securities
|
$
|
—
|
|
|
$
|
86
|
|
|
$
|
3,500
|
|
|
$
|
—
|
|
|
$
|
3,709
|
|
|
$
|
11,288
|
|
|
$
|
(290)
|
|
|
$
|
18,293
|
|
DOE ATVM Incentive Program
|
148
|
|
|
1,064
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
1,215
|
|
Delayed draw term loan
|
—
|
|
|
1,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
Short-term and other debt
|
1,047
|
|
|
145
|
|
|
175
|
|
|
48
|
|
|
881
|
|
|
373
|
|
|
(141)
|
|
|
2,528
|
|
Total
|
$
|
1,195
|
|
|
$
|
2,795
|
|
|
$
|
3,675
|
|
|
$
|
48
|
|
|
$
|
4,590
|
|
|
$
|
11,661
|
|
|
$
|
(428)
|
|
|
$
|
23,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured debt
|
$
|
27,583
|
|
|
$
|
13,983
|
|
|
$
|
10,835
|
|
|
$
|
10,323
|
|
|
$
|
9,117
|
|
|
$
|
9,939
|
|
|
$
|
1,313
|
|
|
$
|
83,093
|
|
Asset-backed debt
|
22,376
|
|
|
14,419
|
|
|
7,850
|
|
|
3,148
|
|
|
6,159
|
|
|
700
|
|
|
(68)
|
|
|
54,584
|
|
Total
|
$
|
49,959
|
|
|
$
|
28,402
|
|
|
$
|
18,685
|
|
|
$
|
13,471
|
|
|
$
|
15,276
|
|
|
$
|
10,639
|
|
|
$
|
1,245
|
|
|
$
|
137,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured debt
|
$
|
180
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
294
|
|
|
$
|
(3)
|
|
|
$
|
471
|
|
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
Automotive Segment
Public Unsecured Debt Securities
Our public unsecured debt securities outstanding at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Principal Amount Outstanding
|
Title of Security
|
2019
|
|
2020
|
8 7/8% Debentures due January 15, 2022
|
$
|
86
|
|
|
$
|
86
|
|
8.500% Notes due April 21, 2023
|
—
|
|
|
3,500
|
|
9.000% Notes due April 22, 2025
|
—
|
|
|
3,500
|
|
7 1/8% Debentures due November 15, 2025
|
209
|
|
|
209
|
|
7 1/2% Debentures due August 1, 2026
|
193
|
|
|
193
|
|
4.346% Notes due December 8, 2026
|
1,500
|
|
|
1,500
|
|
6 5/8% Debentures due February 15, 2028
|
104
|
|
|
104
|
|
6 5/8% Debentures due October 1, 2028 (a)
|
638
|
|
|
638
|
|
6 3/8% Debentures due February 1, 2029 (a)
|
260
|
|
|
260
|
|
9.625% Notes due April 22, 2030
|
—
|
|
|
1,000
|
|
7.45% GLOBLS due July 16, 2031 (a)
|
1,794
|
|
|
1,794
|
|
8.900% Debentures due January 15, 2032
|
151
|
|
|
151
|
|
9.95% Debentures due February 15, 2032
|
4
|
|
|
4
|
|
4.75% Notes due January 15, 2043
|
2,000
|
|
|
2,000
|
|
7.75% Debentures due June 15, 2043
|
73
|
|
|
73
|
|
7.40% Debentures due November 1, 2046
|
398
|
|
|
398
|
|
5.291% Notes due December 8, 2046
|
1,300
|
|
|
1,300
|
|
9.980% Debentures due February 15, 2047
|
181
|
|
|
181
|
|
6.20% Notes due June 1, 2059
|
750
|
|
|
750
|
|
6.00% Notes due December 1, 2059
|
800
|
|
|
800
|
|
7.70% Debentures due May 15, 2097
|
142
|
|
|
142
|
|
Total public unsecured debt securities (b)
|
$
|
10,583
|
|
|
$
|
18,583
|
|
__________
(a)Listed on the Luxembourg Exchange and on the Singapore Exchange.
(b)Excludes 9.215% Debentures due September 15, 2021 with an outstanding balance at December 31, 2020 of $180 million. The proceeds from these securities were on-lent by Ford to Ford Holdings and are reported as Other long-term debt.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
DOE ATVM Incentive Program
In September 2009, we entered into a Loan Arrangement and Reimbursement Agreement with the DOE, under which we borrowed through multiple draws $5.9 billion to finance certain costs for fuel-efficient, advanced-technology vehicles. At December 31, 2020, an aggregate $1.2 billion was outstanding. In June 2020, the ATVM loan was modified, reducing quarterly principal payments from $148 million to $37 million. The deferred portion of the principal payments will be due upon original maturity in June 2022. The ATVM loan bears interest at a blended rate based on the U.S. Treasury yield curve at the time each draw was made (with the weighted-average interest rate on all such draws being about 2.3% per annum) on the principal amount, and an additional 1.45% per annum on the deferred portion of the principal amount.
U.K. Export Finance Program
In the second quarter of 2020, Ford Motor Company Limited (“Ford of Britain”), our operating subsidiary in the United Kingdom, entered into, and drew in full, a £625 million term loan credit facility with a syndicate of banks to support Ford of Britain’s general export activities. Accordingly, U.K. Export Finance (“UKEF”) provided a £500 million guarantee of the credit facility under its Export Development Guarantee scheme, which supports high value commercial lending to U.K. exporters. We have also guaranteed Ford of Britain’s obligations under the credit facility to the lenders. As of December 31, 2020, the full £625 million remained outstanding. This five-year, non-amortizing loan matures on June 30, 2025.
Automotive Credit Facilities
Total Company committed credit lines, excluding Ford Credit, at December 31, 2020 were $18.6 billion, consisting of $13.5 billion of our corporate credit facility, $2 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1.6 billion of local credit facilities. In the first quarter of 2020, we submitted borrowing notices to our lenders for the full amounts of both our corporate credit facility and our supplemental revolving credit facility, and by the third quarter of 2020, we repaid the full amounts outstanding under each facility. At December 31, 2020, the utilized portion of the corporate credit facility was $27 million, representing amounts utilized for letters of credit, and no portion of the supplemental revolving credit facility was utilized. The $1.5 billion delayed draw term loan facility was drawn in full in 2019 and remains outstanding. In addition, about $700 million of committed Company credit lines, excluding Ford Credit, was available under local credit facilities for our affiliates as of December 31, 2020.
Lenders under our corporate credit facility have $400 million of commitments maturing on April 30, 2022, $3 billion of commitments maturing on July 27, 2023, and $10.1 billion of commitments maturing on April 30, 2024. Lenders under our supplemental revolving credit facility have about $200 million of commitments maturing on April 30, 2022, and $1.8 billion of commitments maturing on July 27, 2023.
The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. Further, the terms of the corporate and supplemental revolving credit facilities prohibit share repurchases (with limited exceptions) while any portion of either facility is outstanding and the payment of dividends on our common or Class B stock while more than 50% of the aggregate amount of commitments under the two facilities is utilized. The terms and conditions of the delayed draw term loan (other than the restrictions on share repurchases and dividends) and the supplemental revolving credit facility are consistent with our corporate credit facility.
Each of the corporate credit facility, supplemental revolving credit facility, delayed draw term loan, and our Loan Arrangement and Reimbursement Agreement with the DOE include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities and to the DOE: Ford Component Sales, LLC; Ford European Holdings LLC; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Smart Mobility LLC; and Ford Trading Company, LLC.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19. DEBT AND COMMITMENTS (Continued)
Ford Credit Segment
Asset-Backed Debt
At December 31, 2020, the carrying value of our asset-backed debt was $54.6 billion. This secured debt is issued by Ford Credit and includes asset-backed securities used to fund operations and maintain liquidity. Assets securing the related debt issued as part of all our securitization transactions are included in our consolidated results and are based upon the legal transfer of the underlying assets in order to reflect legal ownership and the beneficial ownership of the debt holder. The third-party investors in the securitization transactions have legal recourse only to the assets securing the debt and do not have such recourse to us, except for the customary representation and warranty provisions or when we are counterparty to certain derivative transactions of the special purpose entities (“SPEs”). In addition, the cash flows generated by the assets are restricted only to pay such liabilities; Ford Credit retains the right to residual cash flows. See Note 24 for additional information.
Although not contractually required, we regularly support our wholesale securitization programs by repurchasing receivables of a dealer from a SPE when the dealer’s performance is at risk, which transfers the corresponding risk of loss from the SPE to us. In order to continue to fund the wholesale receivables, we also may contribute additional cash or wholesale receivables if the collateral falls below required levels. There were no contributions in 2019 and the balance of cash related to these contributions was $0 throughout 2019. The balances of cash related to these contributions were $25 million at December 31, 2020, and ranged from $0 to $524 million throughout 2020.
SPEs that are exposed to interest rate or currency risk may reduce their risks by entering into derivative transactions. In certain instances, we have entered into derivative transactions with the counterparty to protect the counterparty from risks absorbed through derivative transactions with the SPEs. Derivative income/(expense) related to the derivative transactions that support Ford Credit’s securitization programs were $(17) million, $(75) million, and $(234) million for the years ended December 31, 2018, 2019, and 2020, respectively. See Note 20 for additional information regarding the accounting for derivatives.
Interest expense on securitization debt was $1.4 billion, $1.6 billion, and $1.2 billion in 2018, 2019, and 2020, respectively.
The assets and liabilities related to our asset-backed debt arrangements included in our consolidated financial statements at December 31 were as follows (in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Assets
|
|
|
|
Cash and cash equivalents
|
$
|
3.5
|
|
|
$
|
3.2
|
|
Finance receivables, net
|
64.9
|
|
|
59.6
|
|
Net investment in operating leases
|
14.9
|
|
|
12.8
|
|
|
|
|
|
Liabilities
|
|
|
|
Debt (a)
|
$
|
56.6
|
|
|
$
|
54.6
|
|
__________
(a)Debt is net of unamortized discount and issuance costs.
Committed Credit Facilities
At December 31, 2020, Ford Credit’s committed capacity totaled $40.6 billion, compared with $42.6 billion at December 31, 2019. Ford Credit’s committed capacity is primarily comprised of committed asset-backed security facilities from bank-sponsored commercial paper conduits and other financial institutions and unsecured credit facilities with financial institutions.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, our operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates, certain commodity prices, and interest rates. To manage these risks, we enter into highly effective derivative contracts:
•Foreign currency exchange contracts, including forwards, that are used to manage foreign exchange exposure;
•Commodity contracts, including forwards, that are used to manage commodity price risk;
•Interest rate contracts, including swaps, that are used to manage the effects of interest rate fluctuations; and
•Cross-currency interest rate swap contracts that are used to manage foreign currency and interest rate exposures on foreign-denominated debt.
Our derivatives are over-the-counter customized derivative transactions and are not exchange-traded. We review our hedging program, derivative positions, and overall risk management strategy on a regular basis.
Derivative Financial Instruments and Hedge Accounting. Derivative assets are reported in Other assets and derivative liabilities are reported in Payables and Other liabilities and deferred revenue.
We have elected to apply hedge accounting to certain derivatives. Derivatives that are designated in hedging relationships are evaluated for effectiveness using regression analysis at the time they are designated and throughout the hedge period. Some derivatives do not qualify for hedge accounting; for others, we elect not to apply hedge accounting.
Cash Flow Hedges. Our Automotive segment has designated certain forward contracts as cash flow hedges of forecasted transactions with exposure to foreign currency exchange and commodity price risks.
Changes in the fair value of cash flow hedges are deferred in Accumulated other comprehensive income/(loss) and are recognized in Cost of sales when the hedged item affects earnings. Our policy is to de-designate foreign currency exchange cash flow hedges prior to the time forecasted transactions are recognized as assets or liabilities on our consolidated balance sheets and report subsequent changes in fair value through Cost of sales. If it becomes probable that the originally forecasted transaction will not occur, the related amount included in Accumulated other comprehensive income/(loss) is reclassified and recognized in earnings. The cash flows associated with hedges designated until maturity are reported in Net cash provided by/(used in) operating activities on our consolidated statement of cash flows. Our cash flow hedges mature within three years.
Fair Value Hedges. Our Ford Credit segment uses derivatives to reduce the risk of changes in the fair value of debt. We have designated certain receive-fixed, pay-float interest rate and cross-currency interest rate swaps as fair value hedges of fixed-rate debt. The risk being hedged is the risk of changes in the fair value of the hedged debt attributable to changes in the benchmark interest rate and foreign exchange. We report the change in fair value of the hedged debt related to the change in benchmark interest rate in Ford Credit debt and Ford Credit interest, operating, and other expenses. We report the change in fair value of the hedged debt and hedging instrument related to foreign currency in Other income/(loss), net. Net interest settlements and accruals, and fair value changes on hedging instruments due to the benchmark interest rate change are reported in Ford Credit interest, operating, and other expenses. The cash flows associated with fair value hedges are reported in Net cash provided by/(used in) operating activities on our consolidated statements of cash flows.
When a fair value hedge is de-designated, or when the derivative is terminated before maturity, the fair value adjustment to the hedged debt continues to be reported as part of the carrying value of the debt and is recognized in Ford Credit interest, operating, and other expenses over its remaining life.
Derivatives Not Designated as Hedging Instruments. Our Automotive segment reports changes in the fair value of derivatives not designated as hedging instruments through Cost of sales. Cash flows associated with non-designated or de-designated derivatives are reported in Net cash provided by/(used in) investing activities on our consolidated statements of cash flows.
Our Ford Credit segment reports the gains/(losses) on derivatives not designated as hedging instruments in Other income/(loss), net. Cash flows associated with non-designated or de-designated derivatives are reported in Net cash provided by/(used in) investing activities on our consolidated statements of cash flows.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Normal Purchases and Normal Sales Classification. We have elected to apply the normal purchases and normal sales classification for physical supply contracts that are entered into for the purpose of procuring commodities to be used in production over a reasonable period in the normal course of our business.
Income Effect of Derivative Financial Instruments
The gains/(losses), by hedge designation, reported in income for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Cash flow hedges
|
|
|
|
|
|
Reclassified from AOCI to Cost of sales
|
|
|
|
|
|
Foreign currency exchange contracts (a)
|
$
|
50
|
|
|
$
|
29
|
|
|
$
|
(11)
|
|
Commodity contracts (b)
|
—
|
|
|
(32)
|
|
|
(55)
|
|
Fair value hedges
|
|
|
|
|
|
Interest rate contracts
|
|
|
|
|
|
Net interest settlements and accruals on hedging instruments
|
10
|
|
|
(16)
|
|
|
290
|
|
Fair value changes on hedging instruments
|
(155)
|
|
|
706
|
|
|
986
|
|
Fair value changes on hedged debt
|
153
|
|
|
(694)
|
|
|
(985)
|
|
Cross-currency interest rate swap contracts
|
|
|
|
|
|
Net interest settlements and accruals on hedging instruments
|
—
|
|
|
—
|
|
|
(2)
|
|
Fair value changes on hedging instruments
|
—
|
|
|
—
|
|
|
38
|
|
Fair value changes on hedged debt
|
—
|
|
|
—
|
|
|
(37)
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
Foreign currency exchange contracts (c)
|
398
|
|
|
84
|
|
|
(310)
|
|
Cross-currency interest rate swap contracts
|
(244)
|
|
|
(229)
|
|
|
486
|
|
Interest rate contracts
|
(84)
|
|
|
(13)
|
|
|
(100)
|
|
Commodity contracts
|
(96)
|
|
|
—
|
|
|
47
|
|
Total
|
$
|
32
|
|
|
$
|
(165)
|
|
|
$
|
347
|
|
__________
(a)For 2018, 2019, and 2020, a $288 million gain, an $839 million loss, and a $198 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax.
(b)For 2019 and 2020, a $36 million loss and a $9 million gain, respectively, were reported in Other comprehensive income/(loss), net of tax.
(c)For 2018, 2019, and 2020, a $235 million gain, a $32 million gain, and a $228 million loss, respectively, were reported in Cost of sales and a $163 million gain, a $52 million gain, and an $82 million loss were reported in Other income/(loss), net, respectively.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Balance Sheet Effect of Derivative Financial Instruments
Derivative assets and liabilities are reported on our consolidated balance sheets at fair value and are presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not a direct measure of our financial exposure. We also enter into master agreements with counterparties that may allow for netting of exposures in the event of default or breach of the counterparty agreement. Collateral represents cash received or paid under reciprocal arrangements that we have entered into with our derivative counterparties, which we do not use to offset our derivative assets and liabilities.
The fair value of our derivative instruments and the associated notional amounts at December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
Notional
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
|
Notional
|
|
Fair Value of
Assets
|
|
Fair Value of
Liabilities
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
15,349
|
|
|
$
|
47
|
|
|
$
|
493
|
|
|
$
|
15,860
|
|
|
$
|
47
|
|
|
$
|
383
|
|
Commodity contracts
|
673
|
|
|
5
|
|
|
29
|
|
|
703
|
|
|
40
|
|
|
5
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
26,577
|
|
|
702
|
|
|
19
|
|
|
26,924
|
|
|
1,331
|
|
|
4
|
|
Cross-currency interest rate swap contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
885
|
|
|
46
|
|
|
—
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
19,350
|
|
|
58
|
|
|
270
|
|
|
25,956
|
|
|
172
|
|
|
399
|
|
Cross-currency interest rate swap contracts
|
5,849
|
|
|
134
|
|
|
67
|
|
|
6,849
|
|
|
557
|
|
|
1
|
|
Interest rate contracts
|
68,914
|
|
|
275
|
|
|
191
|
|
|
70,318
|
|
|
663
|
|
|
439
|
|
Commodity contracts
|
467
|
|
|
9
|
|
|
9
|
|
|
599
|
|
|
74
|
|
|
4
|
|
Total derivative financial instruments, gross (a) (b)
|
$
|
137,179
|
|
|
$
|
1,230
|
|
|
$
|
1,078
|
|
|
$
|
148,094
|
|
|
$
|
2,930
|
|
|
$
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
$
|
390
|
|
|
$
|
772
|
|
|
|
|
$
|
974
|
|
|
$
|
859
|
|
Non-current portion
|
|
|
840
|
|
|
306
|
|
|
|
|
1,956
|
|
|
376
|
|
Total derivative financial instruments, gross
|
|
|
$
|
1,230
|
|
|
$
|
1,078
|
|
|
|
|
$
|
2,930
|
|
|
$
|
1,235
|
|
__________
(a)At December 31, 2019 and 2020, we held collateral of $18 million and $9 million, respectively, and we posted collateral of $78 million and $96 million, respectively.
(b)At December 31, 2019 and 2020, the fair value of assets and liabilities available for counterparty netting was $269 million and $505 million, respectively. All derivatives are categorized within Level 2 of the fair value hierarchy.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES
We record costs associated with voluntary separations at the time of employee acceptance, unless the acceptance requires explicit approval by the Company. We record costs associated with involuntary separation programs when management has approved the plan for separation, the affected employees are identified, and it is unlikely that actions required to complete the separation plan will change significantly. Costs associated with benefits that are contingent on the employee continuing to provide service are accrued over the required service period.
Automotive Segment
Global Redesign
As previously announced, we are executing a global redesign of our business. Redesign-related activities, including employee separation costs, facility and other asset-related charges (e.g., impairment, accelerated depreciation), dealer and supplier payments, other statutory and contractual obligations, and other expenses, are recorded in Cost of sales and Selling, administrative, and other expenses. Below are actions we have initiated as part of the redesign.
Brazil. In February 2019, Ford Motor Company Brasil Ltda. (“Ford Brazil”), our subsidiary in Brazil, committed to a plan to exit the commercial heavy truck business in South America. As a result, Ford Brazil ceased production at the São Bernardo do Campo plant in Brazil during 2019. Ford Brazil completed a sale of the plant machinery and equipment in the third quarter of 2020 and the land and buildings in the fourth quarter of 2020.
In December 2020, Ford Brazil committed to a plan to exit manufacturing operations in Brazil, which will result in the closure of facilities in Camaçari, Taubaté, and Troller in 2021. Production in Camaçari and Taubaté to support new vehicle sales ceased in January 2021, with a limited amount of parts production continuing for a few months to support inventories for aftermarket sales. The Troller plant will cease operations in the fourth quarter of 2021. These actions will not result in Ford Brazil being substantially liquidated, as it will continue imported vehicle sales and customer support operations, and maintain the product development center in Bahia, the proving grounds in Tatuí, São Paulo, and the regional headquarters in São Paulo.
Russia. In March 2019, Ford Sollers Netherlands B.V. (“Ford Sollers”), a joint venture between Ford and Sollers PJSC (“Sollers”) in which Ford had control, announced its plan to restructure its business in Russia to focus exclusively on commercial vehicles and to exit the passenger car segment. As a result of these actions, Ford acquired 100% ownership of Ford Sollers and ceased production at the Naberezhnye Chelny and St. Petersburg vehicle assembly plants and the Elabuga engine plant during the second quarter of 2019.
Subsequent to completion of the restructuring actions, in July 2019, Ford sold a 51% controlling interest in the restructured entity to Sollers, which resulted in deconsolidation of the Ford Sollers subsidiary. Our continued involvement in Ford Sollers is accounted for as an equity method investment.
In the fourth quarter of 2020, we also completed a sale of certain manufacturing assets.
United Kingdom. In June 2019, Ford of Britain announced its plan to exit the Ford Bridgend plant in South Wales in 2020. Ford of Britain ceased production at the Bridgend plant and the facility was closed in September 2020.
India. In the third quarter of 2019, Ford committed to a plan to sell specific net assets in our India Automotive operations. On December 31, 2020, Ford and Mahindra & Mahindra Limited (“Mahindra”) mutually determined that we will not complete the joint venture. See Note 22 for additional information.
Other Global Redesign Actions. In 2018, we announced our plan to end production at the Ford Aquitaine Industries plant in Bordeaux, France. We ceased production and the facility was closed in July 2019. In March 2019, we announced our plan to phase-out the production of the C-Max at the Saarlouis Body and Assembly Plant in Germany. We ceased production of the C-Max in June 2019. In addition, we are continuing to reduce our global workforce and take other restructuring actions.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued)
The following table summarizes the redesign-related activities for the years ended December 31, which are recorded in Other liabilities and deferred revenue (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Beginning balance
|
|
$
|
291
|
|
|
$
|
734
|
|
Changes in accruals (a)
|
|
1,382
|
|
|
1,598
|
|
Payments
|
|
(911)
|
|
|
(631)
|
|
Foreign currency translation
|
|
(28)
|
|
|
31
|
|
Ending balance
|
|
$
|
734
|
|
|
$
|
1,732
|
|
__________
(a) Excludes pension costs of $311 million and $268 million in 2019 and 2020, respectively.
We also recorded $1.4 billion of non-cash charges in 2019 for the impairment of our India Automotive operations, accelerated depreciation, and other items. In 2020, we also recorded $1.4 billion of non-cash charges related to the write-off of certain tax and other assets in South America, accelerated depreciation, and other items. In addition, we recognized a pre-tax net gain on sale of assets in Brazil and Russia of $39 million, with cash proceeds of $128 million, in 2020.
We estimate that we will incur total charges in 2021 that range between $2.2 billion and $2.7 billion related to the actions above, primarily attributable to employee separations, accelerated depreciation, and dealer and supplier settlements.
Other Actions
United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) Voluntary Separation Packages. As agreed in the collective bargaining agreement ratified in November 2019, during the first quarter of 2020, we offered voluntary separation packages to our UAW hourly workforce who were eligible for normal or early retirement, and recorded associated costs of $201 million in Cost of sales. All separations occurred during 2020.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES
Automotive Segment
India. In the third quarter of 2019, we committed to a plan to sell specific net assets in our India Automotive operations. We entered into a definitive agreement to form a joint venture with Mahindra to sell certain India Automotive operations to the joint venture. Accordingly, we reported the assets and liabilities of these operations as held for sale for the year ended December 31, 2019, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2019
|
Assets
|
|
|
Trade and other receivables, net
|
|
$
|
269
|
|
Inventories
|
|
208
|
|
Other assets, current
|
|
147
|
|
Net property
|
|
279
|
|
Other assets, non-current
|
|
10
|
|
Total assets of held-for-sale operations
|
|
913
|
|
Less: Intercompany asset balances
|
|
(228)
|
|
Automotive segment total assets of held-for-sale operations (a)
|
|
$
|
685
|
|
|
|
|
Liabilities
|
|
|
Payables
|
|
$
|
461
|
|
Other liabilities and deferred revenue, current
|
|
71
|
|
Automotive debt payable within one year
|
|
90
|
|
Other liabilities and deferred revenue, non-current
|
|
28
|
|
Total liabilities of held-for-sale operations
|
|
650
|
|
Less: Intercompany liability balances
|
|
(169)
|
|
Automotive segment total liabilities of held-for-sale operations (a)
|
|
$
|
481
|
|
__________
(a) As of December 31, 2019, intercompany items and transactions have been eliminated on the consolidated balance sheets. We have presented those balances in the table for informational purposes.
We recognized, in Cost of sales, pre-tax impairment charges of $804 million and $23 million during the years ended December 31, 2019 and 2020, respectively, to adjust the carrying value of the held-for-sale assets to fair value less cost to sell. The value is measured on a nonrecurring basis and categorized within Level 3 of the fair value hierarchy. We determined fair value using a market approach, estimated based on the negotiated value of the assets.
As a result of fundamental changes in global economic and business conditions during 2020, caused in part by the global pandemic, on December 31, 2020, we and Mahindra mutually determined that we will not complete the joint venture. Accordingly, at December 31, 2020, the assets and liabilities of our India Automotive operations have been reclassified and reported as held and used. Because the carrying value of the net assets approximated fair value at December 31, 2020, the pre-tax impairment charges recorded in 2019 and 2020 were not adjusted as a result of the reclassification to held and used.
Mobility Segment
On June 1, 2020, we completed a transaction with VW that reduced our ownership interest in the autonomous vehicle technology company Argo AI and resulted in Ford and VW holding equal interests in Argo AI, with the remaining interests consisting of incentive units and founders’ equity. The transaction involved us selling a portion of our Argo AI equity to VW for $500 million and VW making additional investments in Argo AI, including contributing its Autonomous Intelligent Driving company. As a result of the transaction, we deconsolidated Argo AI, remeasured our retained investment in Argo AI at fair value, and recognized a $3.5 billion gain in Other income/(loss), of which $2.9 billion related to our retained investment in Argo AI. We measured the fair value of Argo AI using the income approach. The significant assumptions used in the valuation included Argo AI’s projected long-term cash flows and related terminal value, discounted at a rate typically used for a company at Argo AI’s stage of development.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22. HELD-FOR-SALE OPERATIONS AND CHANGES IN INVESTMENTS IN AFFILIATES (Continued)
Our retained investment in Argo AI immediately after the transaction consisted of an equity method investment of $2.4 billion and a preferred equity security investment of $400 million, reflected on our consolidated balance sheets in Equity in net assets of affiliated companies and Other assets, respectively. The difference between the fair value of our equity method investment and our share of the carrying value of Argo AI’s net assets primarily related to indefinite-lived assets. We also agreed to future funding of Argo AI of $600 million, subject to capital calls, which will increase our preferred equity investment. As of December 31, 2020, $507 million of the agreed future funding remains.
Ford Credit Segment
In the fourth quarter of 2019, Ford Credit committed to a plan to sell its operations in Forso, a wholly owned subsidiary of Ford Credit, that provided retail and dealer financing in Denmark, Finland, Norway, and Sweden. As a result, we classified the assets and liabilities of these operations as held for sale and recognized a pre-tax fair value impairment charge of $20 million, reported in Other income/(loss), net, in the fourth quarter of 2019.
The assets and liabilities of the Forso operations classified as held for sale for the year ended December 31, 2019 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
Assets
|
|
|
Cash and cash equivalents
|
|
$
|
61
|
|
Ford Credit finance receivables, net, current
|
|
516
|
|
Trade and other receivables, net
|
|
8
|
|
Other assets, current
|
|
106
|
|
Ford Credit finance receivables, net, non-current
|
|
715
|
|
Net property
|
|
2
|
|
Deferred income taxes
|
|
9
|
|
Other assets, non-current
|
|
1
|
|
Total assets of held-for-sale operations
|
|
1,418
|
|
Less: Intercompany asset balances
|
|
(2)
|
|
Ford Credit segment total assets of held-for-sale operations (a)
|
|
$
|
1,416
|
|
|
|
|
Liabilities
|
|
|
Payables
|
|
$
|
34
|
|
Other liabilities and deferred revenue, current
|
|
8
|
|
Ford Credit long-term debt
|
|
1,254
|
|
Deferred income taxes
|
|
23
|
|
Total liabilities of held-for-sale operations
|
|
1,319
|
|
Less: Intercompany liability balances
|
|
(1,274)
|
|
Ford Credit segment total liabilities of held-for-sale operations (a)
|
|
$
|
45
|
|
__________
(a) As of December 31, 2019, intercompany items and transactions have been eliminated on the consolidated balance sheets. Upon closing, the buyer assumed the intercompany assets and liabilities. Accordingly, we have presented those balances in the table for informational purposes.
In the first quarter of 2020, Ford Credit completed the sale of Forso recognizing a pre-tax loss of $4 million, reported in Other income/(loss), net, and cash proceeds of $1.3 billion.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
Foreign currency translation
|
|
|
|
|
|
Beginning balance
|
$
|
(4,277)
|
|
|
$
|
(4,800)
|
|
|
$
|
(4,626)
|
|
Gains/(Losses) on foreign currency translation
|
(435)
|
|
|
181
|
|
|
(1,107)
|
|
Less: Tax/(Tax benefit) (a)
|
91
|
|
|
6
|
|
|
(206)
|
|
Net gains/(losses) on foreign currency translation
|
(526)
|
|
|
175
|
|
|
(901)
|
|
(Gains)/Losses reclassified from AOCI to net income (b)
|
3
|
|
|
(1)
|
|
|
1
|
|
Other comprehensive income/(loss), net of tax (c)
|
(523)
|
|
|
174
|
|
|
(900)
|
|
Ending balance
|
$
|
(4,800)
|
|
|
$
|
(4,626)
|
|
|
$
|
(5,526)
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
Beginning balance
|
$
|
(48)
|
|
|
$
|
(59)
|
|
|
$
|
71
|
|
Gains/(Losses) on available for sale securities
|
(37)
|
|
|
173
|
|
|
155
|
|
Less: Tax/(Tax benefit)
|
(8)
|
|
|
40
|
|
|
37
|
|
Net gains/(losses) on available for sale securities
|
(29)
|
|
|
133
|
|
|
118
|
|
(Gains)/Losses reclassified from AOCI to net income
|
20
|
|
|
(3)
|
|
|
(45)
|
|
Less: Tax/(Tax benefit)
|
2
|
|
|
—
|
|
|
(12)
|
|
Net (gains)/losses reclassified from AOCI to net income
|
18
|
|
|
(3)
|
|
|
(33)
|
|
Other comprehensive income/(loss), net of tax
|
(11)
|
|
|
130
|
|
|
85
|
|
Ending balance
|
$
|
(59)
|
|
|
$
|
71
|
|
|
$
|
156
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
|
|
|
Beginning balance
|
$
|
18
|
|
|
$
|
201
|
|
|
$
|
(488)
|
|
Gains/(Losses) on derivative instruments
|
288
|
|
|
(875)
|
|
|
207
|
|
Less: Tax/(Tax benefit)
|
65
|
|
|
(180)
|
|
|
39
|
|
Net gains/(losses) on derivative instruments
|
223
|
|
|
(695)
|
|
|
168
|
|
(Gains)/Losses reclassified from AOCI to net income
|
(50)
|
|
|
3
|
|
|
66
|
|
Less: Tax/(Tax benefit)
|
(10)
|
|
|
(3)
|
|
|
12
|
|
Net (gains)/losses reclassified from AOCI to net income (d)
|
(40)
|
|
|
6
|
|
|
54
|
|
Other comprehensive income/(loss), net of tax
|
183
|
|
|
(689)
|
|
|
222
|
|
Ending balance
|
$
|
201
|
|
|
$
|
(488)
|
|
|
$
|
(266)
|
|
|
|
|
|
|
|
Pension and other postretirement benefits
|
|
|
|
|
|
Beginning balance
|
$
|
(2,652)
|
|
|
$
|
(2,708)
|
|
|
$
|
(2,685)
|
|
Prior service (costs)/credits arising during the period
|
(135)
|
|
|
(15)
|
|
|
(21)
|
|
Less: Tax/(Tax benefit)
|
(23)
|
|
|
(2)
|
|
|
(6)
|
|
Net prior service (costs)/credits arising during the period
|
(112)
|
|
|
(13)
|
|
|
(15)
|
|
Amortization and recognition of prior service costs/(credits) (e)
|
59
|
|
|
50
|
|
|
63
|
|
Less: Tax/(Tax benefit)
|
13
|
|
|
10
|
|
|
10
|
|
Net prior service costs/(credits) reclassified from AOCI to net income
|
46
|
|
|
40
|
|
|
53
|
|
Translation impact on non-U.S. plans
|
10
|
|
|
(4)
|
|
|
(11)
|
|
Other comprehensive income/(loss), net of tax
|
(56)
|
|
|
23
|
|
|
27
|
|
Ending balance
|
$
|
(2,708)
|
|
|
$
|
(2,685)
|
|
|
$
|
(2,658)
|
|
|
|
|
|
|
|
Total AOCI ending balance at December 31
|
$
|
(7,366)
|
|
|
$
|
(7,728)
|
|
|
$
|
(8,294)
|
|
__________
(a)We do not recognize deferred taxes for a majority of the foreign currency translation gains and losses because we do not anticipate reversal in the foreseeable future. However, we have made elections to tax certain non-U.S. operations simultaneously in U.S. tax returns, and have recorded deferred taxes for temporary differences that will reverse, independent of repatriation plans, in U.S. tax returns. Taxes or tax benefits resulting from foreign currency translation of the temporary differences are recorded in Other comprehensive income/(loss), net of tax.
(b)Reclassified to Other income/(loss), net.
(c)In 2020, excludes a loss of $1 million related to noncontrolling interests.
(d)Reclassified to Cost of sales. During the next twelve months we expect to reclassify existing net losses on cash flow hedges of $114 million. See Note 20 for additional information.
(e)Amortization and recognition of prior service costs/(credits) is included in the computation of net periodic pension cost/(income). See Note 17 for additional information.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24. VARIABLE INTEREST ENTITIES
A VIE is an entity that either (i) has insufficient equity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. We consolidate VIEs of which we are the primary beneficiary. We consider ourselves the primary beneficiary of a VIE when we have both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. Assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against our general assets. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIEs.
We have the power to direct the significant activities of an entity when our management has the ability to make key operating decisions, such as decisions regarding capital investment or manufacturing production schedules. For securitization entities, we have the power to direct significant activities when we have the ability to exercise discretion in the servicing of financial assets, issue additional debt, exercise a unilateral call option, add assets to revolving structures, or control investment decisions.
VIEs of Which We are Not the Primary Beneficiary
Certain of our investments in affiliates are VIEs, in which the power to direct economically significant activities is shared with other investors. Our investments in these affiliates are accounted for as equity method investments and, in the case of Argo AI, also as a preferred equity security investment. Our maximum exposure to any potential losses associated with these affiliates is limited to our investments, including loans, and was $209 million and $3 billion at December 31, 2019 and 2020, respectively. The increase from December 31, 2019 primarily reflects our investments in Argo AI in the second quarter of 2020. See Note 22 for additional information.
VIEs of Which We are the Primary Beneficiary
Securitization Entities. Through Ford Credit, we securitize, transfer, and service financial assets associated with consumer finance receivables, operating leases, and wholesale loans. Our securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote SPEs. We generally retain economic interests in the asset-backed securitization transactions, which are retained in the form of senior or subordinated interests, cash reserve accounts, residual interests, and servicing rights. For accounting purposes, we are precluded from recording the transfers of assets in securitization transactions as sales. In most cases, the bankruptcy remote SPEs meet the definition of VIEs for which we are the primary beneficiary and, therefore, are consolidated. We account for all securitization transactions as if they were secured financing and therefore the assets, liabilities, and related activity of these transactions are consolidated in our financial statements. See Note 19 for additional information on the accounting for asset-backed debt and the assets securing this debt.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty and field service actions.
Guarantees and Indemnifications
Financial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The maximum potential payments for financial guarantees were $162 million and $346 million at December 31, 2019 and 2020, respectively. The carrying value of recorded liabilities related to financial guarantees was $33 million and $46 million at December 31, 2019 and 2020, respectively.
Our financial guarantees consist of debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee.
Non-Financial Guarantees. Non-financial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under a guarantee or indemnity, the amount of probable payment is recorded. The maximum potential payments for non-financial guarantees were $587 million and $245 million at December 31, 2019 and 2020, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $200 million and $48 million at December 31, 2019 and 2020, respectively.
We guarantee the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $240 million as of December 31, 2020 represents the total proceeds we guarantee the rental company will receive on resale. Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we have recorded $47 million as our best estimate of the amount we will have to pay under the guarantee.
In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of contract claim brought by a counterparty, including a joint venture or alliance partner, or a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25. COMMITMENTS AND CONTINGENCIES (Continued)
Litigation and Claims
Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include, but are not limited to, matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures.
The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome.
We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar
nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time.
For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters. We do not believe there is a reasonably possible outcome materially in excess of our accrual for these matters.
For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax and customs matters, for which we estimate the aggregate risk to be a range of up to about $400 million, a decrease of about $500 million from September 30, 2020, primarily reflecting an accrual in the fourth quarter of 2020 for indirect tax matters.
As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25. COMMITMENTS AND CONTINGENCIES (Continued)
Warranty and Field Service Actions
We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. Warranty and field service action obligations are reported in Other liabilities and deferred revenue. We reevaluate the adequacy of our accruals on a regular basis.
We recognize the benefit from a recovery of the costs associated with our warranty and field service actions when specifics of the recovery have been agreed with our supplier and the amount of recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets.
The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the years ended December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
Beginning balance
|
$
|
5,137
|
|
|
$
|
5,702
|
|
Payments made during the period
|
(4,561)
|
|
|
(3,923)
|
|
Changes in accrual related to warranties issued during the period
|
3,182
|
|
|
3,934
|
|
Changes in accrual related to pre-existing warranties
|
1,941
|
|
|
2,403
|
|
Foreign currency translation and other
|
3
|
|
|
56
|
|
Ending balance
|
$
|
5,702
|
|
|
$
|
8,172
|
|
Changes in accrual related to pre-existing warranties in the table above includes changes to our estimated costs as well as a $610 million charge in our fourth quarter 2020 results for a field service action related to three million Takata airbag inflators. Separately, NHTSA and the automotive industry are currently engaged in a study of the safety of approximately 56 million Takata desiccated airbag inflators in the United States. Of these, approximately three and a half million of the inflators are in our vehicles. Should NHTSA determine that the inflators contain a safety defect, Ford and other manufacturers could potentially face significant incremental recall costs.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26. SEGMENT INFORMATION
We report segment information consistent with the way our chief operating decision maker (“CODM”) evaluates the operating results and performance of the Company. Accordingly, we analyze the results of our business through the following segments: Automotive, Mobility, and Ford Credit. Effective January 1, 2021, consistent with how our CODM assesses performance of the segments and makes decisions about resource allocations, we are changing the measurement of our segments as follows: (i) costs and benefits related to enterprise connectivity activities included in the Mobility segment will be reported in the Automotive segment; (ii) certain corporate governance expenses that benefit the global enterprise reported in the Automotive segment will be reported as part of Corporate Other; and (iii) cash and other centrally managed corporate assets reported in the Automotive segment will be realigned to Corporate Other.
Below is a description of our reportable segments and other activities as of December 31, 2020.
Automotive Segment
The Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs. The segment includes the following regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group.
Mobility Segment
The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments (including Spin, a micro-mobility service provider).
Ford Credit Segment
The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
Corporate Other
Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, marketable securities and other investments, and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, and are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. The underlying assets and liabilities associated with these activities remain with the respective Automotive and Mobility segments.
Interest on Debt
Interest on Debt is presented as a separate reconciling item and consists of interest expense on Automotive and Other debt. The underlying liability is reported in the Automotive segment and in Corporate Other.
Special Items
Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iii) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. Our management ordinarily excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26. SEGMENT INFORMATION
Key financial information for the years ended or at December 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
Mobility
|
|
Ford Credit
|
|
Corporate Other
|
|
Interest on Debt
|
|
Special
Items
|
|
Adjustments
|
|
Total
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
148,294
|
|
|
$
|
26
|
|
|
$
|
12,018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
160,338
|
|
Income/(Loss) before income taxes
|
5,422
|
|
|
(674)
|
|
|
2,627
|
|
|
(373)
|
|
|
(1,228)
|
|
|
(1,429)
|
|
(a)
|
—
|
|
|
4,345
|
|
Depreciation and tooling amortization
|
5,368
|
|
|
16
|
|
|
4,001
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,385
|
|
Interest expense
|
—
|
|
|
—
|
|
|
3,929
|
|
|
—
|
|
|
1,228
|
|
|
—
|
|
|
—
|
|
|
5,157
|
|
Investment-related interest income
|
109
|
|
|
—
|
|
|
201
|
|
|
357
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
667
|
|
Equity in net income/(loss) of affiliated companies
|
95
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
Cash outflow for capital spending
|
7,677
|
|
|
60
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,785
|
|
Cash, cash equivalents, marketable securities, and restricted cash
|
22,999
|
|
|
86
|
|
|
11,055
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,140
|
|
Total assets
|
100,105
|
|
|
558
|
|
|
161,678
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,801)
|
|
(b)
|
256,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
143,599
|
|
|
$
|
41
|
|
|
$
|
12,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155,900
|
|
Income/(Loss) before income taxes
|
4,926
|
|
|
(1,186)
|
|
|
2,998
|
|
|
(359)
|
|
|
(1,020)
|
|
|
(5,999)
|
|
(c)
|
—
|
|
|
(640)
|
|
Depreciation and tooling amortization
|
5,520
|
|
|
29
|
|
|
3,666
|
|
|
—
|
|
|
—
|
|
|
1,278
|
|
(d)
|
—
|
|
|
10,493
|
|
Interest expense
|
—
|
|
|
—
|
|
|
4,389
|
|
|
—
|
|
|
1,020
|
|
|
—
|
|
|
—
|
|
|
5,409
|
|
Investment-related interest income
|
167
|
|
|
—
|
|
|
306
|
|
|
336
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
809
|
|
Equity in net income/(loss) of affiliated companies
|
88
|
|
|
12
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
(99)
|
|
(d)
|
—
|
|
|
32
|
|
Cash outflow for capital spending
|
7,481
|
|
|
99
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,632
|
|
Cash, cash equivalents, marketable securities, and restricted cash
|
22,186
|
|
|
138
|
|
|
12,564
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,888
|
|
Total assets
|
101,348
|
|
|
1,034
|
|
|
160,697
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,542)
|
|
(b)
|
258,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
115,885
|
|
|
$
|
56
|
|
|
$
|
11,203
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
127,144
|
|
Income/(Loss) before income taxes
|
1,633
|
|
|
(1,274)
|
|
|
2,608
|
|
|
(188)
|
|
|
(1,649)
|
|
|
(2,246)
|
|
(e)
|
—
|
|
|
(1,116)
|
|
Depreciation and tooling amortization
|
5,232
|
|
|
37
|
|
|
3,269
|
|
|
—
|
|
|
—
|
|
|
236
|
|
|
—
|
|
|
8,774
|
|
Interest expense
|
—
|
|
|
—
|
|
|
3,402
|
|
|
—
|
|
|
1,649
|
|
|
—
|
|
|
—
|
|
|
5,051
|
|
Investment-related interest income
|
158
|
|
|
—
|
|
|
94
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
452
|
|
Equity in net income/(loss) of affiliated companies
|
300
|
|
|
(132)
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
(146)
|
|
|
—
|
|
|
42
|
|
Cash outflow for capital spending
|
5,560
|
|
|
142
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,742
|
|
Cash, cash equivalents, marketable securities, and restricted cash
|
30,721
|
|
|
76
|
|
|
19,856
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,653
|
|
Total assets
|
109,963
|
|
|
4,023
|
|
|
158,524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,249)
|
|
(b)
|
267,261
|
|
__________
(a)Primarily reflects mark-to-market adjustments for our global pension and OPEB plans and Global Redesign actions.
(b)Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting.
(c)Primarily reflects Global Redesign actions in Europe and mark-to-market adjustments for our global pension and OPEB plans.
(d)Prior period amounts have been reclassified in accordance with special item reporting.
(e)Primarily reflects Global Redesign actions in South America and Europe, mark-to-market adjustments for our global pension and OPEB plans, and the field service action for Takata airbag inflators, partially offset by the gain on our investment in Argo AI as a result of the transaction with Argo AI and VW in the second quarter of 2020.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26. SEGMENT INFORMATION (Continued)
Geographic Information
We report revenue on a “where-sold” basis, which reflects the revenue within the country in which the ultimate sale or financing is made to our external customer.
Total Company revenues and long-lived assets, split geographically by our country of domicile (the United States) and other countries where our major subsidiaries are domiciled, for the years ended December 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
Revenues
|
|
Long-Lived
Assets (a)
|
|
Revenues
|
|
Long-Lived
Assets (a)
|
|
Revenues
|
|
Long-Lived
Assets (a)
|
United States
|
$
|
97,546
|
|
|
$
|
44,940
|
|
|
$
|
98,729
|
|
|
$
|
46,434
|
|
|
$
|
82,535
|
|
|
$
|
45,360
|
|
Canada
|
10,541
|
|
|
4,604
|
|
|
10,855
|
|
|
4,842
|
|
|
8,711
|
|
|
5,111
|
|
Germany
|
7,894
|
|
|
3,593
|
|
|
7,930
|
|
|
3,225
|
|
|
6,526
|
|
|
3,197
|
|
United Kingdom
|
9,703
|
|
|
1,650
|
|
|
8,899
|
|
|
1,541
|
|
|
6,110
|
|
|
1,401
|
|
Mexico
|
1,853
|
|
|
2,285
|
|
|
1,451
|
|
|
2,909
|
|
|
1,030
|
|
|
3,669
|
|
All Other
|
32,801
|
|
|
8,225
|
|
|
28,036
|
|
|
6,748
|
|
|
22,232
|
|
|
6,296
|
|
Total Company
|
$
|
160,338
|
|
|
$
|
65,297
|
|
|
$
|
155,900
|
|
|
$
|
65,699
|
|
|
$
|
127,144
|
|
|
$
|
65,034
|
|
__________
(a) Includes Net property and Net investment in operating leases from our consolidated balance sheets.
NOTE 27. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
Selected financial data by calendar quarter were as follows (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Total revenues
|
$
|
40,342
|
|
|
$
|
38,853
|
|
|
$
|
36,990
|
|
|
$
|
39,715
|
|
|
$
|
34,320
|
|
|
$
|
19,371
|
|
|
$
|
37,501
|
|
|
$
|
35,952
|
|
Income/(Loss) before income taxes
|
1,610
|
|
|
205
|
|
|
(19)
|
|
|
(2,436)
|
|
|
(1,146)
|
|
|
1,084
|
|
|
2,756
|
|
|
(3,810)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Attributable to Ford Motor Company Common and Class B Shareholders
|
Net income/(loss)
|
$
|
1,146
|
|
|
$
|
148
|
|
|
$
|
425
|
|
|
$
|
(1,672)
|
|
|
$
|
(1,993)
|
|
|
$
|
1,117
|
|
|
$
|
2,385
|
|
|
$
|
(2,788)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and Class B per share from income/(loss) from continuing operations
|
Basic
|
$
|
0.29
|
|
|
$
|
0.04
|
|
|
$
|
0.11
|
|
|
$
|
(0.42)
|
|
|
$
|
(0.50)
|
|
|
$
|
0.28
|
|
|
$
|
0.60
|
|
|
$
|
(0.70)
|
|
Diluted
|
0.29
|
|
|
0.04
|
|
|
0.11
|
|
|
(0.42)
|
|
|
(0.50)
|
|
|
0.28
|
|
|
0.60
|
|
|
(0.70)
|
|
Certain of the quarterly results identified in the table above include material unusual or infrequently occurring items as follows on a pre-tax basis, except for tax items:
The first, second, third, and fourth quarter 2019 results each include Global Redesign related activities, including employee separation costs, payments to dealers and suppliers, and impairment and other charges, of $514 million, $1.2 billion, $1 billion, and $413 million, respectively.
The third quarter 2019 results include a one-time tax benefit of $278 million arising from restructuring in our European operations.
The third and fourth quarter 2019 results include pension and OPEB net remeasurement losses of $306 million and $2.2 billion, respectively.
The first quarter 2020 results include various adjustments to our assets and liabilities made due to the impact of COVID-19, the most significant of which were valuation allowances of $855 million on certain deferred tax assets and a charge of $486 million to the provision for credit losses on Ford Credit’s finance receivables.
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 27. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (Continued)
The second quarter 2020 results include the deconsolidation of Argo AI and remeasurement of our retained investment in Argo AI at fair value, which resulted in the recognition of a $3.5 billion gain (see Note 22).
The fourth quarter 2020 results include a pension and OPEB net remeasurement loss of $1.5 billion and a $610 million charge for a field service action to replace Takata airbag inflators.
The first, second, third, and fourth quarter 2020 results each include Global Redesign related activities, including employee separation costs, payments to dealers and suppliers, and impairment and other charges, of $106 million, $119 million, $268 million, and $2.9 billion (of which $2.4 billion related to our South America operations), respectively.