~~Item 1. Business (Continued)~~

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 manufactured for sale. 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 Emission Standards. The federal Clean Air Act imposes stringent limits on the amount of regulated pollutants that lawfully may be emitted by new vehicles and engines produced for sale in the United States. Pursuant to the Clean Air Act, California may establish its own vehicle emission standards, which can then be adopted by other states. Both the U.S. Environmental Protection Agency (“EPA”) and the California Air Resources Board (“CARB”) have established tailpipe and evaporative emissions standards for light and medium duty vehicles that become increasingly stringent through the 2025 model year. Thirteen states, primarily located in the Northeast and Northwest, have adopted the California standards. Compliance with both the federal and California standards ~~could~~can, in some cases, be challenging.

Both federal and California regulations require motor vehicles to be equipped with on-board diagnostic (“OBD”) systems that monitor emission-related systems and components. As OBD requirements become more complex and challenging over time, they could lead to increased vehicle recalls and warranty costs. Compliance with automobile emission standards depends in part on the widespread availability of high-quality and consistent automotive fuels that the vehicles were designed to use. Fuel variables that can affect vehicle emissions include ethanol content, octane ratings, and the use of metallic-based fuel additives, among other things. 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 emission standards.

The California vehicle emissions program also includes requirements for manufacturers to produce and deliver for sale zero-emission vehicles (“ZEVs”). The current ZEV regulations mandate substantial annual increases in the production and sale of battery-electric, fuel cell, and plug-in hybrid vehicles through the 2025 model year. By the 2025 model year, approximately 15% of a manufacturer’s total California sales volume will need to be made up of such vehicles. Compliance with ZEV rules could have a substantial adverse effect on our sales volumes and profits. We are concerned that the market and infrastructure in California may not support the large volume of advanced-technology vehicles that manufacturers will be required to produce, especially if gasoline prices remain relatively low. We also are concerned about enforcement of the ZEV mandate in other states that have adopted California’s ZEV program, where the existence of a market for such vehicles is even less certain. California is now in the process of promulgating new ZEV regulations aimed at medium- and heavy-duty vehicles, effective no earlier than the 2024 model year. These rules, which could entail significant costs and compliance challenges, are also expected to include burdensome warranty and recall requirements.

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. Stringent new Stage 6 emission standards took effect for vehicle registrations starting in September 2014, and a second phase introduced a new laboratory test cycle for CO₂ and emissions in September 2017. These standards drive the need for additional diesel exhaust after-treatment, which adds cost to, and potentially impacts, the diesel CO₂ advantage. The mandatory Real Driving Emission (“RDE”) rules require manufacturers to conduct on-road emission tests using portable emission analyzers. These on-road emission tests complement the laboratory-based tests. In ~~September~~ 2017, manufacturers began to reduce the divergence between the regulatory limit that is tested in laboratory conditions and the values of RDE tests (“conformity factors”). The costs associated with conducting the RDE tests and complying with the conformity factors are significant. AIn December 2018, the European Court of First Instance ruled that the EU Commission must decrease this divergence to zero within the next 12 months. Such a short lead time may result in our inability to sell products in the EU if we are unable to timely satisfy any new requirements. It is unclear whether the European Commission will appeal the court’s decision or change the base regulation. Regardless of the ultimate resolution before the court, a second step for ~~RDEs~~RDE to further reduce the conformity factors becomes mandatory for new vehicle type approvals by authorities starting in January 2020. ~~Europe is in the process of finalizing the~~The RDE in-use surveillance rules ~~with proposals to allow~~were published in November 2018, and they further increase the stringency of emission requirements by allowing third parties to conduct testing and ~~to define~~defining a process toby which those third parties may challenge ~~the product~~a product’s compliance with authorities. The WVTA (Whole Vehicle Type Approval) Regulations are being adapted to cover increased market surveillance, and the EU Commission announced that in 2018 it will begin to discuss air quality modeling scenarios for the next steps of emission standards post Stage 6.

There is an increasing trend of city access restrictions for internal combustion engine powered vehicles, in particular in European cities that do not meet air quality limits. Depending on city and country, the conditions for access will vary (e.g., different emission limits or vehicle requirements), which indirectly impact residual values and sales of internal combustion powered vehicles prior to restrictions being agreed. There might also be a need to retrofit emission after-treatment of vehicles. There are also discussions in several European countries to ban the registration of internal combustion powered vehicles in the ~~future.~~

~~Item 1. Business (Continued)~~

future as a part of their plan to meet their country specific targets as part of the Paris Accord.

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, in December 2016, the China Ministry of Environmental Protection (“MEP”) finalized emission regulations based on European Stage VI emission standards for light duty vehicles and U.S. evaporative emissions and OBD requirements. The China Stage VI standards incorporate two levels of stringency. Stage one is slated for implementation by July 1, 2020, and the more stringent stage two level is slated for implementation by July 1, ~~2023. In 2018,~~2023; however, the ~~MEP will continue~~government has encouraged the more developed cities to ~~focus on the development of detailed test procedures for RDE and OBD.~~pull-ahead implementation. The earliest implementation is expected as early as July 2019.

~~Korea and Taiwan have adopted very stringent U.S.-based standards for gasoline vehicles and European-based standards for diesel vehicles.~~Although these countries have adopted regulations based on UN-ECE or U.S. standards, there may be some unique testing provisions that require emission-control systems to be redesigned for these markets.Canadian criteria emissions regulations are largely aligned with U.S. requirements.

In October 2016, the Canadian Province of Quebec passed legislation enabling regulation of a ZEV ~~mandate.~~mandate as part of its climate change plan. Final regulations were published in December 2017, and came into effect in January 2018. Quebec’s final regulations are more stringent than those in place in California and the other U.S. ZEV mandate states. In November 2018, the Province of British Columbia announced plans to introduce legislation for a ZEV mandate in the spring of 2019.

In South America, there is a mix of regulations and processes based on U.S. and EU standards. Brazil has specific regulations for light vehicle emissions (PROCONVE) and OBD based on U.S. standards and heavy vehicle emissions based on Euro V.

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.

Item 1. Business (Continued)

Brazil and Chile have introduced stringent emission and OBD standards based on the European Stage 5 standards for light duty vehicles and Stage V standards for heavy duty vehicles. In Brazil, all light duty vehicles are required to meet U.S.-based PROCONVE L6 standards and more stringent OBD standards for diesel light duty vehicles were introduced in 2017. Argentina implemented European Stage 5 standards for all new light duty vehicles in 2017 and European Stage V standards for heavy duty vehicles in 2018.

Global Developments. ~~Beginning in September 2015,~~In recent years, EPA and CARB have ~~pursued enforcement actions against a major competitor in connection with its~~increased their focus on the use of “defeat devices” in hundreds of thousands of light-duty diesel vehicles. These actions have resulted in settlements involving billions of dollars for environmental remediation and civil penalties, as well as indictments of and guilty pleas from several employees on charges of committing federal crimes. The competitor continues to face various class action suits, as well as numerous claims and investigations by various U.S. states and other nations.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.

~~The investigations by EPA and CARB of our competitor~~Regulators around the world have ~~led to~~ increased scrutiny of automakers’ emission testing, which has led to a number of defeat device settlements by ~~regulators around the world.~~various manufacturers. EPA ~~began~~is carrying out additional non-standard tests as part of its vehicle certification ~~program, following an announcement~~program. CARB has also been conducting extensive non-standard emission tests, which in ~~September 2015.~~some cases have resulted in certification delays for diesel vehicles. The EUEU’s accelerated efforts to finalize its RDE testing program asare described above. In 2016, several European countries, including France and Germany, conducted non-standard emission tests and published the results. In some cases, this supplemental testing has triggered investigations of ~~other~~ manufacturers for possible defeat devices. Testing is expected to continue on an ongoing basis. In ~~the United States,~~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.

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 three model years and expected credits for the five 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.

~~Item 1. Business (Continued)~~

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 effectively are fuel economy standards. Thus, it is necessary for NHTSA and EPA to coordinate with each other on their fuel economy and GHG standards, respectively, to avoid potential inconsistencies.

In 2010, EPA and NHTSA jointly promulgated regulations establishing the “One National Program” of CAFE and GHG regulations for light duty vehicles for the 2012-2016 model years. In 2012, EPA and NHTSA jointly promulgated regulations extending the One National Program framework through the 2025 model year. These rules require manufacturers to achieve increasingly stringent standards reaching approximately 50 mpg by the 2025 model year. Each manufacturer’s specific task depends on the mix of vehicles it sells. The rules include the opportunity for manufacturers to earn credits for technologies that achieve real-world CO₂ reductions and fuel economy improvements that are not captured by the EPA fuel economy test procedures. Manufacturers also can earn credits for GHG reductions not specifically tied to fuel economy, such as improvements in air conditioning systems.

The existing One National Program standards will be difficult to meet 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. We are concerned about the commercial feasibility of meeting future model year GHG and CAFE standards, particularly the 2022-2025 standards, because of the many unknowns regarding technology development, market conditions, and other factors so far into the future.

The One National Program rules provided for a midterm evaluation process under which, by April 2018, EPA and NHTSA would re-evaluate their standards for model years 2022-2025 in order to ensure that those standards are feasible and optimal in light of intervening events. In ~~January 2017,~~April 2018, EPA announced ~~an accelerated decision~~its intention to ~~maintain~~reconsider the GHG standards originally set for those model ~~years–that decision is currently under reconsideration by EPA. NHTSA is continuing~~years, reversing a prior decision. In August 2018, the federal government issued a proposed rule to ~~conduct its evaluation~~reduce the stringency of future GHG standards, identifying eight potential scenarios of alternate standards beginning with ~~respect to~~ the 2021 model ~~year 2022-2025 standards.~~year. It is expected that by ~~April 2018~~the second quarter of 2019, EPA and NHTSA will ~~either announce~~finalize their rulemaking for future GHG and fuel economy standards.

Item 1. Business (Continued)

California has asserted the right to regulate motor vehicle GHG emissions, and other states have asserted the right to adopt the California standards. Under the One National Program framework discussed above, California and the other states had agreed that compliance with the federal program would satisfy compliance with any purported state GHG requirements for the 2012-2025 model years, thereby avoiding a patchwork of potentially conflicting federal and state GHG standards. In the wake of the federal government’s decision to ~~maintain~~reconsider the ~~existing~~model year 2022-2025 standards, California has taken the position that if there are any changes to the federal standards, it will return to enforcing its own state-specific GHG standards. In contrast, the federal government has taken the position that state GHG standards are preempted by federal law. Should California and the federal government remain at odds over GHG standards, there is significant potential for litigation, which, in turn, would give rise to regulatory uncertainty about future GHG and fuel economy standards. Such uncertainty would make it difficult for automobile manufacturers to engage in future product planning with confidence. Should California and other states be successful in enforcing state-specific motor vehicle GHG rules, the existence of separate state and federal GHG and fuel economy standards ~~or commence a rulemaking to set revised standards.~~would impose significant costs on automobile manufacturers.

If ~~the agencies seek~~any federal or state agency seeks to impose and enforce fuel economy and GHG standards that are misaligned with market conditions, we likely would be forced to take various actions that could have substantial adverse effects on our sales ~~volume~~volumes and profits. Such actions likely would include restricting offerings of selected engines and popular options; increasing market support programs for our most fuel-efficient ~~cars and light trucks;~~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.

California has asserted the right to regulate motor vehicle GHG emissions, and other states have asserted the right to adopt the California standards. With the adoption of the federal One National Program standards discussed above, California and the other states have agreed that compliance with the federal program would satisfy compliance with any purported state GHG requirements for the 2012–2025 model years. This avoids a patchwork of potentially conflicting federal and state GHG standards. Should California and other states ever renew their efforts to enforce state-specific motor vehicle GHG rules, this would impose significant costs on automotive manufacturers.

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 our case, the standards primarily affect our 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.

European Requirements. In December 2008, the EU approved regulation of passenger car CO₂ emissions, with a 2012-2015 phase-in period, that limits the industry fleet average to a maximum of 130 grams per kilometer (“g/km”), using a sliding scale (the EU target slope) based on vehicle weight. This regulation provides different CO₂targets for each manufacturer based on the respective average vehicle weight for its fleet of vehicles initially registered in a calendar year. Limited credits are available for CO₂ off-cycle technologies (“eco-innovations”), certain alternative fuels, and vehicles with CO₂ emissions below 50 g/km for a period of time. A penalty system applies to manufacturers failing to meet the individual CO₂targets. Pooling agreements between manufacturers are possible under certain conditions. Starting in 2020, an EU industry target of 95 g/km has been set, for which 95% of a manufacturer’s fleet has to comply; by 2021, 100% of a manufacturer’s fleet has to comply. Outside of the EU, Switzerland, for example, has introduced similar rules, which began phasing-in in July 2012, although the stringency of the industry average emission target is significantly higher in a volatile market. We face the risk of advance premium payment requirements if, for example, unexpected market fluctuation within a quarter negatively impacts our average fleet performance.

~~Item 1. Business (Continued)~~

In separate legislation, “complementary measures” have been mandated, including requirements related to fuel economy indicators, gear shift indicators, tire pressure monitoring systems, low rolling resistance tires, and more-efficient low-CO₂ mobile air conditioning systems. The EU Commission introduced in 2011 a CO₂target for commercial light duty vehicles to be at an EU industry average of 175 g/km starting in 2014 and 147 g/km starting in 2020 (with a similar 2020 ruling in Switzerland). For “multi-stage vehicles” (e.g., our Transit chassis cabs), the base manufacturer (e.g., Ford) is fully responsible for the CO₂ performance of the final up-fitted vehicles. The EU legislation for light commercial vehicles also includes a penalty system, super-credits for vehicles below 50 g/km (granted between 2014 and 2017), and limited credits for CO₂ off-cycle eco-innovations, pooling, etc., similar to the passenger car CO₂ regulation.

The EU ~~Commission has proposed revised~~is preparing to publish rules ~~for the years 2021 to 2024 and 2025/2030~~ that ~~include~~require a ~~further tightening~~reduction of CO₂ ~~limits~~by 15% for passenger cars and light commercial vans ~~including expected shares~~in 2025 compared to 2021, and, in 2030, by 31% for light commercial vans and 37.5% for passenger cars compared to 2021. The EU Commission will investigate the introduction of ~~zero~~ Real Driving CO₂and ~~low emission vehicles.~~Life Cycle Assessment elements. Heavy duty vehicles will be addressed in a separate regulation.

Item 1. Business (Continued)

The United Nations developed a new technical regulation for passenger car emissions and CO_2.This new 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 is likely to require updates to CO₂ labeling, thereby impacting taxes in countries with a CO₂ tax scheme as well as the above-mentioned CO₂fleet regulations for passenger cars and light commercial vehicles. Costs associated with new or incremental testing for WLTP could be significant.

Some European countries have implemented or are considering other initiatives for reducing CO₂ vehicle emissions, including fiscal measures and CO₂ ~~labeling.~~labeling to address country 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. ~~To limit GHG emissions,~~Other countries are considering bans on internal combustion engine vehicle registrations in the EU directive on mobile air conditioning currently requires the replacement of the current refrigerant with a lower “global warming potential” refrigerant for new vehicle types, and for all newly registered vehicles starting in January 2017. A refrigerant change adds considerable costs along the whole manufacturing chain.future.

Other National Requirements. The Canadian federal government has regulated vehicle GHG emissions under the Canadian Environmental Protection Act, beginning with the 2011 model year. 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 final regulation for 2014–2018 heavy duty vehicles was published in February 2013. ~~Part 1 draft~~The 2018 model year standards hold through the 2020 model year. Final regulations for the 2021 model year and beyond were published in ~~March 2017~~May 2018 and are in line with U.S. requirements.

~~Mexico adopted~~The China fuel ~~economy/CO~~₂ ~~standards, based on the U.S. One National Program framework, that took effect in 2014. Recently, the government agreed~~consumption requirement uses a weight-based approach to ~~carryover 2016 model year standards into the 2017~~establish targets, specifies year-over-year target reductions, and ~~2018 model years. Standards for the 2019 model year and later are being developed.~~

Many Asia Pacific countries (such as Australia, China, India, South Korea, Taiwan, and Vietnam) are developing or enforcing fuel efficiency or labeling targets. For example, South Korea has set fuel efficiency targets for 2020, with incentives for early adoption. In September 2017, China published the Method for Parallel Administration on Corporate Average Fuel Consumption of Passenger Car andrequires New Energy Vehicle (“NEV”) ~~Credit, which aims~~mandated volumes of plug-in hybrids, battery electric vehicles, or fuel cell vehicles to ~~improve~~generate credits equivalent to 10% in 2019 and 12% in 2020. China has set the 2020 fuel ~~efficiency~~consumption fleet average at 5.0L/100km and ~~to set targets for new energy vehicles.~~4.0L/100km in 2025. 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 ~~cost~~costs of vehicle technology in the future.

In South America, Brazil ~~introduced~~was the first country to establish a ~~voluntary vehicle energy-efficiency labeling program, indicating fuel consumption rates~~GHG reduction policy for all light-duty vehicles. Brazil has required inclusion of emission classification on fuel economy labels since January 2016. Brazil also published a new automotive regime establishing a minimum absolute CAFE value as a function of Fleet Corporate Average Mass for 2017 light duty vehicles with a spark ignition ~~engine in order~~engine. Targets had to ~~qualify~~be achieved for ~~industrialized products tax reduction.~~2017 and must be maintained through 2020. Additional tax reductions are available if further fuel efficiency ~~improvements~~targets are achieved, and ~~maintained through 2020. Penalties are~~penalties may be applied if the ~~energy~~ efficiency levels are not maintained. ~~Brazil reduced~~In December 2018, the ~~import tax on electric and hybrid cars. The tax rate, which was 35%, will vary from zero to 7%, depending on a vehicle’s energy efficiency. Discussion on new~~next phase of the fuel efficiency ~~requirements has started. Chile introduced~~program was published and it includes light duty diesel and heavy duty vehicles. Other countries in the region are considering a ~~tax based on urban fuel consumption and NOx emission for light and medium vehicles beginning in late 2014. In general,~~similar approach with the inclusion of a fuel efficiency ~~targets may impact the cost of technology of our models~~labeling program in ~~the future.~~

Argentina and Chile initiating discussions around GHG reduction.

Item 1. Business (Continued)

In the Middle East, the Kingdom of Saudi Arabia introduced new light duty vehicle fuel economy standards, which are patterned after the U.S. CAFE standard structure, with fuel economy targets following the design of the U.S. 2012–2016 fuel economy standards. The standards became effective on January 1, 2016 and became fully phased in at the end of 2017.

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, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emission and fuel economy standards. 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.

Other National Requirements. The EU and many countries have established vehicle safety standards and regulations, and are likely to adopt additional or more stringent requirements in the future. The European General Safety Regulation introduced UN-ECE regulations, which will be required for the European Type Approval ~~process.~~process and will require the mandatory introduction of multiple active and passive safety features with limited lead time. EU regulators also are focusing on active safety features such as lane departure warning systems, electronic stability control, and automatic brake assist. 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 recently launched bilateral negotiations on free trade can potentially contribute to this goal. New safety and recall requirements in China, India, and Gulf Cooperation Council countries also may add substantial costs and complexity to our global recall practice. ~~In South America, additional~~Brazil has set mandatory safety ~~requirements~~targets and penalties are ~~being introduced or proposed in Argentina, Brazil, Chile, Colombia, Ecuador, and Uruguay, influenced by The New Car Assessment Program for Latin America and the Caribbean (“Latin NCAP”), which~~applied if these levels are not maintained, while a tax reduction may be ~~a driver~~available for ~~similar actions in other countries.~~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 would be in the interest of safety. In China, a new mandatory Event Data Recorder regulation is under development that is more complex than U.S. requirements, and in China, Malaysia, and South Korea, mandatory e-Call requirements have been drafted.

New Car Assessment Programs. Organizations around the globe rate and compare motor vehicles in New Car Assessment Programs (“NCAPs”) to provide consumers 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. China finalized the 2018 NCAP protocol with more stringent Pedestrian Protection and Automatic Emergency Braking requirements compared to the United States and Europe. China will also launch a new safety assessment, China Insurance Vehicle Safety Index (“CIVSI”), that is similar to the U.S. IIHS in 2018. Taiwan may also draft NCAP requirements in 2018.

Item 1. Business (Continued)

EMPLOYMENT DATA

The approximate number of individuals employed by us and entities that we consolidated as of December 31, ~~2016~~2017 and ~~2017~~2018 was as follows (in thousands):


	2016	2017	2017	2018
Automotive
North America	101	100	100	100
South America	15	14	14	12
Europe	52	54	54	53
Middle East & Africa	3	3	3	4
Asia Pacific	23	23	23	22
Financial Services
Total Automotive			194	191
Ford Credit	7	7	7	7
Other
Ford Smart Mobility LLC	-	1
Total	201	202
Mobility			1	1
Total Company			202	199

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, ~~2017,~~2018, approximately ~~56,400~~55,400 hourly employees in the United States were represented by the UAW. Approximately ~~1.5%~~1% of our U.S. salaried employees are represented by unions. Many non-management salaried employees at our operations outside of the United States also are represented by unions.

In ~~2017,~~2018, we entered into ~~collective bargaining agreements (covering wages, benefits and/or other employment provisions) with unions in Argentina, Australia, Brazil, Britain, France, Mexico, Taiwan, and Thailand.~~

~~In 2018, we will negotiate~~ collective bargaining agreements (covering wages, benefits, and/or other employment provisions) with unions in Argentina, Brazil, Germany, India, Mexico, Russia, Spain, and Thailand.

~~ENGINEERING, RESEARCH, AND DEVELOPMENT~~

~~We engage~~In 2019, we will negotiate collective bargaining agreements (covering wages, benefits, and/or other employment provisions) with unions in ~~engineering, research,~~Brazil, France, India, Mexico, Russia, Romania, South Africa, Thailand, the United Kingdom, and ~~development primarily to improve~~ the performance (including fuel efficiency), safety, and customer satisfaction of our products, and to develop new products and services. Engineering, research, and development expenses for 2015, 2016, and 2017 were $6.7 billion, $7.3 billion, and $8 billion, respectively. United States.

ITEM 1A. Risk Factors.

We have listed below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us:

Ford’s long-term competitiveness depends on the successful execution of fitness actions. We have announced fitness redesign plans to transform the operational fitness of our business by becoming more customer centric and adopting processes that emphasize simplicity, speed and agility, efficiency, and accountability. We are working on 18 major initiatives as part of our fitness redesign efforts. In addition, to further improve our fitness and overall competitiveness, we are leveraging relationships with third parties, including the recently announced alliance with Volkswagen AG to develop commercial vans and medium-sized pickups for global markets beginning as early as 2022. The goal of the alliance is to drive scale and efficiencies and enable both companies to share investments in vehicle architectures. If ~~these~~our fitness actions are not successful or are delayed, we may not be able to materially lower costs in the near term or improve our competitiveness in the long term, which could have an adverse effect on our profitability.

Industry sales volume, particularly in the United States, Europe, or China, 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 profitability. 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, particularly in the United States, Europe, or China, ~~due to a financial crisis, recession, or significant geopolitical event,~~ 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 the “Overview” section of Item 7.

Item 1A. Risk Factors (Continued)

Ford’s new and existing products and mobility services are subject to market acceptance. 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. 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 high enough prices 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. 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 area 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. Rapid changes to our industry, including the introduction of new types of competitors who may possess technological innovations, increase the significance that we are able to anticipate, develop, and deliver products and services that customers desire.

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 ~~SUVs)~~utilities) at levels beyond our current planning assumption—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 results and financial ~~condition and results of operations.~~condition.

Ford may face increased price competition resulting from industry excess capacity, currency fluctuations, or other factors. The global automotive industry is intensely competitive, with manufacturing capacity far exceeding current demand. According to the December ~~2017~~2018 report issued by IHS Automotive, the global automotive industry is estimated to have had excess capacity of about 3542 million units in ~~2017,~~2018, an increase of about 47 million units from the prior year. 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 costs of marketing incentives, commodity or other cost increases, or the impact of adverse currency fluctuations, including pricing advantages foreign competitors may have because of their weaker home market currencies. Continuation of or increased excess capacity, particularly for trucks and utilities, could have a substantial adverse effect on our financial condition and results of operations.

Fluctuations in commodity prices, foreign currency exchange rates, and interest rates can have a significant effect on results. As a resource-intensive manufacturing operation, 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 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 and results of operations. See the “Overview” tosection of Item 7 and Item 7A for additional discussion of currency, commodity price, and interest rate risks.

With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other ~~events.~~events, including Brexit. With the increasing interconnectedness of global economic and financial systems, a financial crisis, 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. Recent steps taken by the U.S. government to apply and consider applying tariffs on automobiles, parts, and other products and materials have the potential to disrupt existing supply chains and impose additional costs on our business. Further, other countries could attempt to retaliate by imposing tariffs that would increase the cost for us to import our vehicles into such countries.

Item 1A. Risk Factors (Continued)

Concerns persist regarding the overall stability of the European Union, given the diverse economic and political circumstances of individual European ~~currency area (“euro area”)~~ countries. These concerns have been exacerbated by Brexit. ~~We have a sterling revenue exposure and a euro cost exposure; a sustained weakening of sterling against euro may have an adverse effect on our profitability. Further,~~A hard Brexit, which would result in the United Kingdom ~~may be at risk of~~ losing access to free trade agreements for goods and services with the European Union and other countries, ~~which may~~would likely result in a significant reduction in industry volumes in the United Kingdom, increased tariffs on U.K. imports and exports, ~~that~~and delays at the U.K. border. The total cost to us of a hard Brexit, not including currency exchange related effects, could ~~have an adverse effect on our profitability.~~

~~Item 1A. Risk Factors (Continued)~~

be $500 million to $1 billion in 2019.

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 and 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.

Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor disputes, 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 disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements, oras a result of labor disputes in response to potential restructuring actions (e.g., plant closures), as a result of supplier financial distress or other production constraints or difficulties, or for other reasons. Many components used in our vehicles are available only from a single supplier 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 single-source suppliers also could threaten to disrupt our production as leverage in negotiations. A significant disruption to our production schedule could have a substantial adverse effect on our financial condition and results of operations.

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. As a practical matter, 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.

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 and certain of our subsidiaries 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 were 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.

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 substantial remeasurement loss in our results. For discussion of our assumptions, see “Critical Accounting Estimates” in Item 7 and Note 17 of the Notes to the Financial Statements.

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 ~~costs associated with any protracted delay in new model launches necessary to remedy such defects, or the~~ cost of recall ~~campaigns or warranty costs~~and customer satisfaction actions to remedy ~~such~~ defects in vehicles that have been sold could be ~~substantial.~~substantial, particularly if the actions relate to global platforms or involve defects that are identified years after production (e.g., Takata airbag inflators). Such recall and customer satisfaction actions may relate to defective components we receive from ~~suppliers. The cost~~suppliers, and our ability to ~~complete a recall or customer satisfaction action could~~recover from the suppliers may be ~~exacerbated to~~limited by the ~~extent such action relates to a global platform.~~suppliers’ financial condition. Furthermore, launch delays, or recall actions, and increased warranty costs could adversely affect our reputation or market acceptance of our products as discussed above under “Ford’s new and existing products and mobility services are subject to market acceptance.”

~~Safety,~~Ford may need to substantially modify its product plans to comply with safety, emissions, fuel economy, and other regulations ~~affecting Ford~~that may ~~become more stringent.~~change in the future. The worldwide automotive industry is governed by a substantial amount of government regulation, which often differs by state, region, and country. Government regulation has ~~arisen,~~increased, and proposals for additional regulation are advanced, primarily out of concern for the environment (including concerns about global climate change and its impact), vehicle safety, and energy independence. For example, as discussed above under “Item 1. Business - Governmental Standards,” in the United States the CAFE standards for light duty vehicles increase sharply to approximately 50 mpg by the 2025 model year; EPA’s parallel CO₂ emission regulations impose similar standards. California’s ZEV rules also mandate steep increases in the sale of electric vehicles and other advanced technology vehicles through the 2025 model year; the ZEV mandate is now being expanded to include medium- and heavy-duty vehicles, and even more burdensome regulations are likely to follow. In addition, many governments regulate local product content and/or impose import requirements as a means of creating jobs, protecting domestic producers, and influencing the balance of payments.

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 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, 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. The current fuel economy, CO₂, and ZEV standards will be difficult to meet 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.

The U.S. government has pursued an enforcement action against a major competitor in connection with its alleged use of “defeat devices” in hundreds of thousands of light duty diesel vehicles, collecting billions of dollars for environmental remediation projects and civil penalties. Several of the competitor’s employees have been indicted on charges of committing federal crimes. The competitor also faces various class action suits, as well as numerous claims and investigations by various U.S. states and other nations. The emergence of this issue has led to increasedIncreased scrutiny of automaker emission testing by regulators around the world, ~~which in turn~~ has ~~triggered investigations of other manufacturers. These events have~~ led to new regulations, more stringent enforcement programs, requests for field actions, and/or delays in regulatory approvals. The cost to comply with existing government regulations is substantial and additional regulations or changes in consumer preferences that affect vehicle mix could have a substantial adverse impact on our financial condition and results of operations. In addition, a number of governments, as well as non-governmental organizations, publicly assess vehicles to their own protocols. The protocols could change aggressively, 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.

Item 1A. Risk Factors (Continued) ��

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. Compliance with governmental standards, however, does not necessarily prevent individual or class actions, 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, may require significant expenditures of time and other resources. Litigation also is inherently uncertain, and we could experience significant adverse results. In addition, adverse publicity surrounding an allegation may cause significant reputational harm that could have a significant adverse effect on our sales.

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, and tax abatements or credits. The impact of these incentives can be significant in a particular market during a reporting period. For example, most of our manufacturing facilities in South America are located in Brazil, where the state or federal governments have historically offered, and continue to offer, significant incentives to manufacturers to encourage capital investment, increase manufacturing production, and create jobs. As a result, the performance of our South American operations has been impacted favorably by government incentives to a substantial extent. In Brazil, however, the federal government has levied assessments against us concerning our calculation of federal incentives we received, and certain states have challenged the grant to us of tax incentives by the State of Bahia. 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 and results of operations. 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.

Operational systems, security systems, and vehicles could be affected by cyber incidents. 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 breaches 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. Such cyber 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 customers, employees, or others; jeopardize the security of our facilities; affect the performance of in-vehicle systems; and/or impact the safety of our vehicles. A cyber incident could be caused by malicious third parties using sophisticated, targeted methods to circumvent firewalls, encryption, and other security defenses, including hacking, fraud, trickery, or other forms of deception. We, our suppliers, and our dealers have been the target of these types of attacks in the past and such attacks are likely to occur in the future. The techniques used for attacks by third parties change frequently and may become more sophisticated, which may cause cyber incidents to be difficult to detect for long periods of time. Our networks and in-vehicle systems may also be affected by computer viruses or breaches due to the negligence or misconduct of employees, contractors,, and/or others who have access to our networks and systems. A significant cyber incident could ~~impact production capability,~~ harm our reputation and/or subject us to regulatory actions or ~~litigation.~~litigation, and a significant cyber incident involving us or one of our suppliers could impact our production capability.

We are subject to laws, rules, and regulations in the United States and other countries relating to the collection, use, and security of personal information of customers, employees, or others, including laws that may require us to notify regulators and affected individuals of a data security breach. Regulatory actions seeking to impose significant penalties and/or legal actions could be brought against us in the event of a data breach or perceived or actual non-compliance with data protection or privacy requirements. Among these requirements is the European Union’s General Data Protection Regulation (“GDPR”), which came into effect on May 25, 2018.

Item 1A. Risk Factors (Continued)

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 Credit’s ability to obtain unsecured funding at a reasonable cost is dependent on its credit ratings or its perceived creditworthiness. 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 any 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. The potential phase out of LIBOR is one such risk that could cause market volatility or disruption. In July 2017 the chief executive of the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR after 2021 or whether LIBOR will continue to be published by its administrator based on these submissions or on any other basis. It is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates, but the potential phase out of LIBOR could adversely affect Ford Credit’s access to the capital markets and cost of funding. In addition, Ford Credit may be limited in the amount of receivables it purchases or originates in certain countries or regions if the local capital markets, particularly in developing countries, do not exist or are not adequately developed. Similarly, 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 profits and could adversely affect its ability to support the sale of Ford vehicles.

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 and 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 the profitability of the lease transaction. Among the factors that can affect the value of returned lease vehicles are the volume of vehicles returned, economic conditions, marketing programs, and quality or perceived quality, safety, fuel efficiency, or reliability of the vehicles. 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 profitability if actual results were to differ significantly from Ford Credit’s projections. See “Critical Accounting Estimates” in Item 7 for additional discussion.

Ford Credit could face increased competition from banks, financial institutions, or other third parties seeking to increase their share of financing Ford vehicles. No single company is a dominant force in the automotive finance industry. Most of Ford Credit’s competitors in the United States use credit aggregation systems that permit dealers to send, through standardized systems, retail credit applications to multiple finance sources to evaluate financing options offered by these sources. Also, direct on-line or large dealer group financing options provide consumers with alternative finance sources and/or increased pricing transparency. All of these financing alternatives drive greater competition based on financing rates and terms. Competition from such institutions and alternative finance sources could adversely affect Ford Credit’s profitability and the volume of its retail business. In addition, Ford Credit may face increased competition on wholesale financing for Ford dealers.

Ford Credit could be subject to new or increased credit regulations, consumer or data 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 ~~supervision,~~ and ~~licensing~~supervision under various federal, state, and local laws, ~~and regulations,~~ including the federal Truth-in-Lending Act, Consumer Leasing Act, Equal Credit Opportunity Act, and Fair Credit Reporting Act.

Item 1A. Risk Factors (Continued)

The Dodd-Frank Act directs federal agencies to adopt rules to regulate the ~~consumer~~ 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 ~~retail~~ 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.

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 40% 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 ~~98%~~90% 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, ~~2017~~2018 use ~~nine~~eight regional engineering, research, and development centers, and 61 manufacturing and assembly plants as shown in the table below:



Automotive Business Units		Plants
North America		3132
South America		8
Europe		1615
Middle East & Africa		2
Asia Pacific		4
Total		61

Included in the number of plants shown above are 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 the Asia Pacific region, Europe, and the United States. The joint venture operates one plant in Taiwan.

Ford Sollers Netherlands B.V. (“Ford Sollers”) — a 50/50 joint venture between Ford and Sollers ~~OJSC~~PJSC (“Sollers”), in which Ford has control. The joint venture primarily is engaged in manufacturing a range of Ford passenger cars and light commercial vehicles for sale in Russia, and has an exclusive right to manufacture, assemble, and distribute certain Ford vehicles in Russia through the licensing of certain trademarks and intellectual property rights. The joint venture ~~has been approved to participate in Russia’s industrial assembly regime, which qualifies it for reduced import duties for parts imported into Russia. The joint venture~~ operates three manufacturing facilities and one engine plant in Russia. We have begun a strategic review of the joint venture with our joint venture partner to evaluate options regarding the joint venture.

Item 2. Properties (Continued)

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.

~~Item 2. Properties (Continued)~~

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. These plants are not included in the number of plants shown in the table above. The most significant of the automotive unconsolidated joint ventures are as follows:

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 an expanding variety of Ford passenger vehicle models.

Changan Ford Mazda Engine Company, Ltd. (“CFME”) — a joint venture among Ford (25% partner), Mazda (25% partner), and Changan (50% partner). CFME is located in Nanjing, and ~~produces~~produced engines for Ford until November 2018 and continues to produce engines for Mazda vehicles manufactured in China.Ford and Mazda entered into an equity transfer agreement pursuant to which Ford sold its interest in CFME to Mazda effective as of January 29, 2019.

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 the Cargo truck for the Turkish and certain export markets and certain engines and transmissions, as well as certain components mainly for the Transit for supply to other regions. The joint venture owns three plants, a parts distribution depot, and a ~~new~~ research and development center in Turkey.

Getrag Ford Transmissions GmbH (“GFT”) — a 50/50 joint venture with Magna PT International GmbH (formerly Getrag International ~~GmbH,~~GmbH), a German company belonging to Magna Powertrain GmbH. GFT operates plants in Halewood, England; Cologne, Germany; Bordeaux, France; and Kechnec, Slovakia to produce, among other things, manual transmissions for our Europe business unit.

JMC — a publicly-traded company in China with Ford (32% shareholder) and Jiangling Holdings, Ltd. (41% shareholder) as its controlling shareholders. Jiangling Holdings, 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, Ford Everest, Ford Territory, 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, and is constructing a new passenger vehicle assembly 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 ~~Financial Services~~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 23 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, 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.

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.

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.

We have one environmental legal proceeding to which a governmental authority is a party and in which we believe there is the possibility of monetary sanctions in excess of $100,000:

Notice of Violation to Ford Chicago Assembly Plant. On August 17, 2015, U.S. EPA issued a notice of violation to our Chicago Assembly Plant. EPA alleges that the plant violated several requirements related to its air permit. Monetary sanctions, if any, have not yet been determined.

Item 3. Legal Proceedings (Continued)

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, other than as described below, we have no such purported class actions filed against us.

In re: Takata Airbag Product Liability Litigation; Economic Loss Track Cases Against Ford Motor Company. On July 16, 2018, Ford entered into a settlement agreement related to a consumer economic loss class action pending before the U.S. District Court for the Southern District of Florida. The first case was originally filed on October 27, 2014, against Ford, Takata, and several other automotive manufacturers, and was brought by consumers who own or owned vehicles equipped with Takata airbag inflators. Additional cases were subsequently filed in courts throughout the United States and consolidated into a multidistrict case before the Florida court, which also included personal injury claims and claims by automotive recyclers. Ford’s July 16 settlement relates only to the consumer economic loss matters. In these cases, Plaintiffs allege that Ford vehicles equipped with Takata airbags are defective and that Ford did not disclose this defect to consumers. Plaintiffs allege that they suffered several forms of economic damages as a result of purchasing vehicles with defective airbags. The settlement is for $299 million, which is subject to certain discounts, and court approval. On December 20, 2018, the court overruled all objections and entered a final order approving the settlement. Several objectors have filed notices of appeal of the trial court’s order.

OTHER MATTERS

Brazilian Tax Matters. Two Brazilian states and the Brazilian federal tax authority currently have outstanding substantial tax assessments against Ford Brazil related to state and federal tax incentives Ford Brazil receives for its operations in the Brazilian state of Bahia. All assessments have been appealed to the relevant administrative court of each jurisdiction. Our appeals with the State of São Paulo and the federal tax authority remain at the administrative level. In the State of Minas Gerais, where three cases are pending, one remains at the administrative level and two have been appealed to the judicial court. 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.

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. ~~We expect~~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.

Transit Connect Customs Ruling. On March 8, 2013, U.S. Customs and Border Protection (“CBP”) ruled that Transit Connects imported as passenger wagons and later converted into cargo vans are subject to the 25% duty applicable to cargo vehicles, rather than the 2.5% duty applicable to passenger vehicles. As a result of the ruling, CBP is requiring Ford to pay the 25% duty upon importation of Transit Connects that will be converted to cargo vehicles, and is seeking the difference in duty rates for prior imports. Our protest of the ruling within CBP was denied, and we filed a challenge in the U.S. Court of International Trade (“CIT”). On August 9, 2017, the CIT ruled in our favor. On October 6, 2017, CBP filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. If we prevail on appeal, we will receive a refund of the contested amounts paid, plus interest.

European Competition Law Matter. On October 5, 2018, FCE Bank plc 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 alleges that FCE Bank plc and other parties engaged in anti-competitive practices in relation to the automotive finance market in Italy. On January 9, 2019, FCE Bank plc received a decision from the ICA, which included an assessment of a fine against FCE Bank plc in the amount of about $50 million. FCE Bank plc plans to appeal the decision and the fine, with the ultimate resolution of the matter potentially taking several years.

Emissions Certification. The Company has become aware of a potential concern involving its U.S. emissions certification process. The potential concern does not involve the use of defeat devices in our products. On February 18, 2019, we voluntarily disclosed this matter to the Environmental Protection Agency, and we will fully cooperate with any inquiries. Because this matter is preliminary, we cannot predict the outcome, and cannot provide assurance that it will not have a material adverse effect on us.

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, ~~2018:~~2019:



Name	Position	Position Held Since	Age
William Clay Ford, Jr. (a)	Executive Chairman and Chairman of the Board	September 2006	6061
James P. Hackett (b)	President and Chief Executive Officer	May 2017	6263
James D. Farley, Jr.	~~Executive Vice President and~~ President, Global Markets (c)	June 2017	5556
Joseph R. Hinrichs	~~Executive Vice President and~~ President, Global Operations (c)	June 2017	5152
Marcy Klevorn	~~Executive Vice President and~~ President, Mobility (c)	June 2017	58
~~Raj Nair~~	~~Executive Vice President and President, North America~~	~~June 2017~~	5359
Bob Shanks	~~Executive Vice President and~~ Chief Financial Officer (c)	April 2012	6566
Hau Thai-Tang	~~Executive Vice President,~~Chief Product Development and Purchasing Officer (c)	June ~~2017~~	51
~~Steven Armstrong~~	~~Group Vice President and President, Europe, Middle East & Africa~~	~~June 2017~~	53
~~Joy Falotico~~	~~Group Vice President – Chairman and Chief Executive Officer, Ford Motor Credit Co.~~	~~October 2016~~	50
~~Peter Fleet~~	~~Group Vice President and President, Asia Pacific~~	~~July 2017~~	50
~~Kumar Galhotra~~	~~Group Vice President, Lincoln and Chief Marketing Officer~~	~~November~~ 2017	52
Bradley M. Gayton	~~Group Vice President,~~ Chief Administrative Officer and General Counsel (c)	June 2017	5455
~~Bruce Hettle~~Kiersten Robinson	~~Group Vice President – Manufacturing and Labor Affairs~~Chief Human Resources Officer (c)	~~January 2016~~April 2018	5648
~~Ziad S. Ojakli~~	~~Group Vice President – Government and Community Relations~~	~~January 2004~~	50
~~Kimberly Pittel~~	~~Group Vice President – Sustainability, Environment & Safety Engineering~~	~~January 2017~~	58
~~John Lawler~~Cathy O’Callaghan	Vice President, ~~and~~ Controller &and Chief Financial Officer, Global Markets	June ~~2017~~2018	5150

____________


(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 and the Finance Committee of the Board of Directors.


(c)	Certain executive officers’ titles changed January 1, 2019 without any change in their responsibilities.

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 of Ford, James P. Hackett was the Chief Executive Officer of Steelcase Inc. until March 2014; a member of Ford’s Board of Directors from 2013 to 2016; and the chairman of Ford Smart Mobility LLC from March 2016 to May 2017.

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.

PART II.

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our Common Stock is listed on the New York Stock Exchange in the United ~~States.~~States under the symbol F.

The table below shows ~~the high and low sales prices for our Common Stock, and~~ the dividends we paid per share of Common and Class B Stock, for each quarterly period in ~~2016~~2017 and ~~2017:~~2018:

2016 2017

Ford Common Stock price per share (a)
First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter
High $ 14.00
$ 14.22
$ 14.04
$ 13.20
$ 13.27
$ 11.70
$ 12.06
$ 12.81
Low 11.02
12.00
11.90
11.07
11.41
10.67
10.47
11.87
Dividends per share of Ford Common and Class B Stock 0.40
0.15
0.15
0.15
0.20
0.15
0.15
0.15



	2017								2018
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Dividends per share of Ford Common and Class B Stock	$	0.20	$	0.15	$	0.15	$	0.15	$	0.28	$	0.15	$	0.15	$	0.15

~~__________~~


~~(a)~~	~~New York Stock Exchange composite intraday prices as listed in the price history database available at www.nyse.com.~~

As of January 31, ~~2018,~~2019, stockholders of record of Ford included approximately ~~120,626~~116,764 holders of Common Stock and 3 holders of Class B Stock.

In ~~the second quarter~~2018, we repurchased shares of ~~2017, we completed~~Ford Common Stock from our employees or directors related to certain exercises of stock options, in accordance with our various compensation plans. We also repurchased shares through a modest anti-dilutive share repurchase program to offset the dilutive effect of share-based compensation granted during ~~2017.~~2018 and the shares issued in the Autonomic transaction described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018. The ~~plan~~program authorized repurchases of up to ~~11.8~~28.5 million shares of Ford Common Stock. We repurchased 8,015,658 shares and 8,000,0000 shares of Ford Common Stock. during the first and third quarters of 2018, respectively.

ITEM 6. Selected Financial Data.

The following table sets forth selected financial data for each of the last five years (dollar amounts in millions, except for per share amounts):


SUMMARY OF INCOME	2013			2014			2015			2016		2017		2014			2015			2016		2017		2018
Total revenues	$	146,917		$	144,077		$	149,558		$	151,800	$	156,776	$	144,077		$	149,558		$	151,800	$	156,776	$	160,338

Income before income taxes	$	14,371		$	1,234		$	10,252		$	6,796	$	8,148	$	1,280		$	10,179		$	6,784	$	8,159	$	4,345
Provision for/(Benefit from) income taxes	2,425			4			2,881			2,189		520		21			2,854			2,184		402		650
Net income	11,946			1,230			7,371			4,607		7,628		1,259			7,325			4,600		7,757		3,695
Less: Income/(Loss) attributable to noncontrolling interests	(7		)	(1		)	(2		)	11		26		(1		)	(2		)	11		26		18
Net income attributable to Ford Motor Company	$	11,953		$	1,231		$	7,373		$	4,596	$	7,602	$	1,260		$	7,327		$	4,589	$	7,731	$	3,677

Earnings Per Share Attributable to Ford Motor Company Common and Class B Stock
Average number of shares of Ford Common and Class B Stock outstanding (in millions)	3,935			3,912			3,969			3,973		3,975		3,912			3,969			3,973		3,975		3,974

Basic income	$	3.04		$	0.31		$	1.86		$	1.16	$	1.91	$	0.32		$	1.85		$	1.16	$	1.94	$	0.93
Diluted income	2.94			0.31			1.84			1.15		1.90		0.32			1.83			1.15		1.93		0.92

Cash dividends declared	0.40			0.50			0.60			0.85		0.65		0.50			0.60			0.85		0.65		0.73

Common Stock price range (NYSE Composite Intraday)
High	18.02			18.12			16.74			14.22		13.27
Low	12.10			13.26			10.44			11.02		10.47

BALANCE SHEET DATA AT YEAR-END
Total assets	$	202,204		$	208,615		$	224,925		$	237,951	$	257,808	$	209,227		$	225,491		$	238,510	$	258,496	$	256,540

Automotive debt	$	15,683		$	13,824		$	12,839		$	15,907	$	15,931	$	13,824		$	12,839		$	15,907	$	15,931	$	13,547
Financial Services debt	99,005			105,347			120,015			127,063		138,356
Ford Credit debt														104,712			119,417			126,464		137,757		140,066
Other debt														635			598			599		599		600

Total equity	$	26,173		$	24,465		$	28,657		$	29,187	$	34,918	$	25,077		$	29,223		$	29,746	$	35,606	$	35,966

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

Non-GAAP Financial Measures That Supplement GAAP Measures

We use both generally accepted accounting principles (“GAAP”) and non-GAAP financial measures for operational and financial decision making, and to assess Company and segment business performance. The non-GAAP measures listed below are intended to be considered by users as supplemental information to their equivalent GAAP measures, to aid investors in better understanding our financial results. We believe that these non-GAAP measures provide useful perspective on underlying business results and trends, and a means to assess our period-over-period results. These non-GAAP measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP measures may not be the same as similarly titled measures used by other companies due to possible differences in method and in items or events being adjusted.

Company Adjusted ~~Pre-tax Profit~~EBIT (Most Comparable GAAP Measure: Net Income Attributable to Ford) – ~~The~~Earnings before interest and taxes (EBIT) includes non-controlling interests and excludes interest on debt (excl. Ford Credit Debt), taxes, and pre-tax special items. This non-GAAP measure is useful to management and investors because it allows users to evaluate our ~~pre-tax~~operating results ~~excluding pre-tax special items.~~relative to other companies in our industry. Pre-tax special items consist of (i) pension and ~~other postretirement employee benefits (“OPEB”)~~OPEB remeasurement gains and losses, ~~that are not reflective of our underlying business results,~~ (ii) significant ~~restructuring actions related to~~personnel and dealer-related costs 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. When we provide guidance for adjusted ~~pre-tax profit,~~EBIT, we do not provide guidance on a net income basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

Company Adjusted EBIT Margin (Most Comparable GAAP Measure: Company Net Income Margin) – Company Adjusted EBIT margin is Company adjusted EBIT divided by Company revenue. This non-GAAP measure is useful to management and investors because it allows users to evaluate our operating results relative to other companies in our industry.

Adjusted Earnings Per Share (Most Comparable GAAP Measure: Earnings Per Share) – Measure of Company’s diluted net earnings per share adjusted for impact of pre-tax special items (described above) and tax special items. The measure provides investors with useful information to evaluate performance of our business excluding items not indicative of the underlying run rate of our business. When we provide guidance for adjusted earnings per share, we do not provide guidance on an earnings per share basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

Adjusted Effective Tax Rate (Most Comparable GAAP Measure: Effective Tax Rate) – Measure of Company’s tax rate excluding pre-tax special items (described above) and tax special items. The measure provides an ongoing effective rate which investors find useful for historical comparisons and for forecasting. When we provide guidance for adjusted effective tax rate, we do not provide guidance on an effective tax rate basis because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses.

Company Adjusted Operating Cash Flow (Most Comparable GAAP Measure: Net Cash Provided By / (Used In) Operating Activities) -– Measure of Company’s operating cash flow excluding Ford Credit’s operating cash flows. The measure contains elements management considers operating activities, including Automotive and Mobility capital spending, Ford Credit distributions to its parent, and settlement of derivatives. The measure excludes cash outflows for ~~Automotive and Mobility~~ funded pension contributions, separation payments, and other items that are considered operating cash outflows under U.S. GAAP. This measure is useful to management and investors because it is consistent with management’s assessment of the Company’s operating cash flow performance. When we provide guidance for Company adjusted operating cash flow, we do not provide guidance for net cash provided by/(used in) operating activities because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, including cash flows related to the Company's exposures to foreign currency exchange rates and certain commodity prices (separate from any related hedges), Ford Credit's operating cash flows, and cash flows related to special items, including separation payments, each of which individually or in the aggregate could have a significant impact to our net cash provided by/(used in) our operating activities.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Adjusted Cash Conversion (Most Comparable GAAP Measure: Net Cash Provided By / (Used In) Operating Activities divided by Net Income Attributable to Ford (“cash conversion”)) – Company Adjusted Cash Conversion is Company adjusted operating cash flow divided by Adjusted EBIT. This non-GAAP measure is useful to management and investors because it allows users to evaluate how much of Ford's Adjusted EBIT is converted into cash flow.

Adjusted Debt to EBITDA (Most Comparable GAAP Measure: Total Company Debt to Net income attributable to Ford) – This financial leverage ratio is commonly used to assess a company’s ability to repay its debt. This measure is useful to management and investors because it helps to assess how long we would need to operate at our current level to repay our debt (excl. Ford Credit’s debt). When we provide guidance for adjusted debt to EBITDA, we do not provide guidance for the most comparable GAAP measure because the GAAP measure will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end, including pension and OPEB remeasurement gains and losses. For more information, see the definitions of Adjusted Debt and Adjusted EBITDA.

Adjusted Debt (Most Comparable GAAP Measure: Total Company Debt) – Measure of total company debt (excl. Ford Credit), adjusted to include unamortized discount/premium and issuance costs (excl. Ford Credit), operating lease minimum commitments, and net pension liabilities excluding prepaid assets.

Adjusted EBITDA (Most Comparable GAAP Measure: Net income attributable to Ford) – Measure of Company Adjusted EBIT (see definition), excluding Ford Credit EBT and equity in net income/(loss) of affiliated companies, and further adjusted to include certain non-pension related special items, depreciation and tooling amortization (excl. Ford Credit), operating lease expense, and certain pension costs.

Adjusted ROIC – Adjusted Return on Invested Capital (“ROIC”) provides management and investors with useful information to evaluate the Company’s after-cash tax operating return on its invested capital for the period presented. Adjusted net operating profit after cash tax measures operating results less special items, interest on debt (excl. Ford Credit Debt), and certain pension/OPEB costs. Average invested capital is the sum of average balance sheet equity, debt (excl. Ford Credit Debt), and net pension/OPEB liability. When we provide guidance for adjusted ROIC, we do not provide guidance on an unadjusted ROIC basis because it will include potentially significant special items that have not yet occurred and are difficult to predict with reasonable certainty prior to year-end.

Ford Credit Managed Receivables (Most Comparable GAAP Measure: Net Finance Receivables plus Net Investment in Operating Leases) – Measure of Ford Credit’s total net receivables, excluding unearned interest supplements and residual support, allowance for credit losses, and other (primarily accumulated supplemental depreciation). The measure is useful to management and investors as it closely approximates the customer’s outstanding balance on the receivables, which is the basis for earning revenue.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Ford Credit Managed Leverage (Most Comparable GAAP Measure: Financial Statement Leverage) – Ford Credit’s debt-to-equity ratio adjusted (i) to exclude cash, cash equivalents, and marketable securities (other than amounts related to insurance activities), and (ii) for derivative accounting. The measure is useful to investors because it reflects the way Ford Credit manages its business. Cash, cash equivalents, and marketable securities are deducted because they generally correspond to excess debt beyond the amount required to support operations and on-balance sheet securitization transactions. Derivative accounting adjustments are made to asset, debt, and equity positions to reflect the impact of interest rate instruments used with Ford Credit’s term-debt issuances and securitization transactions. Ford Credit generally repays its debt obligations as they mature, so the interim effects of changes in market interest rates are excluded in the calculation of managed leverage.

Revenue

Our Automotive segment revenue is generated primarily by sales of vehicles, parts, and accessories. Revenue is recorded when control is transferred to our customers (generally, our dealers and distributors). For the majority of sales, this occurs when products are shipped from our manufacturing facilities. This is not the case, however, with respect to vehicles produced for sale to daily rental car companies with an obligation to repurchase the vehicle for a guaranteed amount, exercisable at the option of the customer. These vehicles are accounted for as operating leases, with lease revenue and profits recognized over the term of the lease. Proceeds from the sale of vehicles at auction are recognized in revenue upon transfer of control of the vehicle to the ~~customer.~~buyer.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Most of the vehicles sold by us to our dealers and distributors are financed at wholesale by Ford Credit. Upon Ford Credit originating the wholesale receivable related to a dealer’s purchase of a vehicle, Ford Credit pays cash to the relevant Automotive legal entity in payment of the dealer’s obligation for the purchase price of the vehicle. The dealer then pays the wholesale finance receivable to Ford Credit when it sells the vehicle to a retail customer.

Our ~~Financial Services~~Ford Credit segment revenue is generated primarily from interest on finance receivables, net of certain deferred origination costs that are included as a reduction of financing revenue, and such revenue is recognized over the term of the receivable using the interest method. Also, revenue from operating leases is recognized on a straight-line basis over the term of the lease. Income is generated to the extent revenues exceed expenses, most of which are interest, depreciation, and operating expenses.

Transactions between our Automotive and ~~Financial Services~~Ford Credit segments occur in the ordinary course of business. For example, we offer 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 at the later of the date the related vehicle sales to our dealers are recorded or the date the incentive program is both approved and communicated. 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. Ford Credit recognizes the incentive amount over the life of retail finance contracts as an element of financing revenue and over the life of lease contracts as a reduction to depreciation. See Note 1 of the Notes to the Financial Statements for a more detailed discussion of transactions between our Automotive and ~~Financial Services~~Ford Credit segments.

Costs and Expenses

Our income statement classifies our Automotive segment total costs and expenses into two categories: (i) cost of sales, and (ii) selling, administrative, and other expenses. We include within cost of sales those costs related to the development, manufacture, and distribution of our vehicles, parts, and accessories. Specifically, we include in cost of sales each of the following: material costs (including commodity costs); freight costs; warranty, including product recall costs; labor and other costs related to the development and manufacture of our products; depreciation and amortization; and other associated costs. We include within selling, administrative, and other expenses labor and other costs not directly related to the development and manufacture of our products, including such expenses as advertising and sales promotion costs.

Certain of our costs, such as material costs, generally vary directly with changes in volume and mix of production. In our industry, production volume often varies significantly from quarter to quarter and year to year. Quarterly production volumes experience seasonal shifts throughout the year (including peak retail sales seasons and the impact on production of model changeover and new product launches). ~~As we have seen in recent years, annual~~Annual production volumes are heavily impacted by external economic factors, including the pace of economic growth and factors such as the availability of consumer credit and cost of fuel.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

As a result, we analyze the profit impact of certain cost changes holding constant present-year volume and mix and currency exchange, in order to evaluate our cost trends absent the impact of varying production and currency exchange levels. We analyze these cost changes in the following categories:

Contribution Costs – these costs typically vary with production volume. These costs include material, commodity, warranty, and freight and duty costs.

Structural Costs – these costs typically do not have a directly proportionate relationship to production volume. These costs include manufacturing, engineering, spending-related, advertising and sales promotion, administrative and selling, and pension and OPEB costs.

While contribution costs generally vary directly in proportion to production volume, elements within our structural costs category are impacted to differing degrees by changes in production volume. We also have varying degrees of discretion when it comes to controlling the different elements within our structural costs. For example, depreciation and amortization expense largely is associated with prior capital spending decisions. On the other hand, while labor costs do not vary directly with production volume, manufacturing labor costs may be impacted by changes in volume, for example when we increase overtime, add a production shift, or add personnel to support volume increases. Other structural costs, such as advertising or engineering costs, do not necessarily have a directly proportionate relationship to production volume. Our structural costs generally are within our discretion, although to varying degrees, and can be adjusted over time in response to external factors.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

We consider certain structural costs to be a direct investment in future growth and revenue. For example, increases in structural costs are necessary to grow our business and improve profitability, ~~as we expand around the world,~~ invest in new products and technologies, respond to increasing industry sales volume, and grow our market share.

Cost of sales and Selling, administrative, and other expenses for full-year ~~2017~~2018 were ~~$142.9~~$147.7 billion. Our Automotive segment’s material and commodity costs make up the largest portion of these costs and expenses, representing in ~~2017~~2018 about two-thirds of the total amount. Structural costs are the largest piece of the remaining balance. Although material costs are our largest absolute cost, our margins can be affected significantly by changes in any category of costs.

Key Economic Factors and Trends Affecting the Automotive Industry

Currency Exchange Rate Volatility. The U.S. Federal Reserve raised its policy interest rate ~~three~~four times in ~~2017, after single rate~~2018, for a total of nine increases since the tightening cycle began in ~~2015 and 2016.~~late 2015. Central banks in other developed markets have also initiated or signaled the end of an extended period of monetary policy easing. The related shifts in capital flows have contributed to increased volatility for both developed and emerging market currencies globally. Emerging markets also face differing inflation backdrops and, in some cases, political instability, contributing to unpredictable movements in the value of their exchange rates. This condition was demonstrated by significant devaluations of currency values in Turkey and Argentina in 2018. In addition to direct impacts on the financial flows of global automotive companies, currency movements can also impact pricing of vehicles exported to overseas markets, most notably in the case of the Japanese yen. In most markets, exchange rates are market-determined, and all are impacted by many different macroeconomic and policy factors, and thus likely to remain volatile. However, in some markets, exchange rates are heavily influenced or controlled by governments.

Excess Capacity. According to IHS Automotive, an automotive research firm, the estimated automotive industry global production capacity for light vehicles of about ~~130~~137 million units exceeded global production by about 3542 million units in ~~2017.~~2018. In North America and Europe, two regions where a significant share of industry revenue is earned, excess capacity as a percent of production was an estimated ~~17%~~22% and ~~20%~~24%, respectively, in ~~2017.~~2018. In China, the auto industry also witnessed excess capacity at ~~57%~~78% of production in ~~2017,~~2018, as manufacturers compete to capitalize on China’s future market potential. According to production capacity data projected by IHS Automotive, global excess capacity conditions could continue for several years at an average of about 4047 million units per year during the period from ~~2018~~2019 to ~~2023.~~2024.

Pricing Pressure. Excess capacity, coupled with a proliferation of new products being introduced in key segments, will keep pressure on manufacturers’ ability to increase prices. In North America, the industry restructuring of the past few years has allowed manufacturers to better match production with demand, although Japanese and Korean manufacturers also have capacity located outside of the region directed to North America. In the future, Chinese and Indian manufacturers are expected to enter U.S. and European markets, further intensifying competition. Over the long term, intense competition and excess capacity will continue to put downward pressure on inflation-adjusted prices for similarly-contented vehicles in the United States and contribute to a challenging pricing environment for the automotive industry. In Europe, the excess capacity situation ~~was~~has been exacerbated by ~~weakening demand and~~ the lack of reductions in existing capacity, such that negative pricing pressure is expected to continue for the foreseeable future.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Commodity and Energy Price Changes. The price of oil ~~has increased~~declined since late ~~2017, supported~~2018, driven by ~~global~~reduced expectations for near-term demand growth in China and continued robust supply despite an extended agreement among oil-producing nations to maintain modest output reductions. ~~Still, oil~~Oil prices are expected to remain ~~well below~~volatile, and on a lower long-term trend than in prior ~~peaks. In addition, after several years of low prices, stronger global demand has put upward pressure on~~cycles. Prices for other ~~commodity prices, including steel, aluminum, and other metals~~commodities have been similarly volatile, with some retreat from recent peaks for many commodities used in the manufacturing of our ~~vehicles.~~vehicles, while steel and aluminum have seen additional upward pressure related to the imposition of tariffs, which affected domestic prices in 2018 as well.

Vehicle Profitability. Our financial results depend on the profitability of the vehicles we sell, which may vary significantly by vehicle line. In general, larger vehicles tend to command higher prices and be more profitable than smaller vehicles, both across and within vehicle segments. For example, in North America, our larger, more profitable

vehicles had an average contribution margin that was about ~~135%~~140% of our total average contribution margin across all

vehicles, whereas our smaller vehicles had significantly lower contribution margins. In addition, government regulations aimed at reducing emissions and increasing fuel efficiency (e.g., ZEV mandates and low emission zones) may increase the cost of vehicles by more than the perceived benefit to the consumer. Given the backdrop of excess capacity, these regulations could dampen contribution margins.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Trade Policy. To the extent governments in various regions erect or intensify barriers to imports, or implement currency policy that advantages local exporters selling into the global marketplace, there can be a significant negative impact on manufacturers based in ~~markets that promote free trade.~~other markets. While we believe the long-term trend ~~is toward~~will support the growth of free trade, we have noted with concern recent developments in a number of regions. The imposition of tariffs on steel and aluminum coming into the United States in 2018 had a direct negative impact on costs for manufacturers in the U.S. market. In Asia Pacific, ~~for example,~~ a weak yen significantly reduces the cost of exports into the United States, Europe, and other global markets by Japanese ~~manufacturers. Over~~manufacturers, and, over a period of time, ~~a weak yen can~~ contribute to other countries pursuing weak currency policies by intervening in the exchange rate markets. This is particularly likely in other Asian countries, such as South Korea. We will continue to monitor and address developing issues around trade policy.

Other Economic Factors. Although in recent months interest rates have risen, mature market government bond yields and inflation have remained lower than expected. At the same time, government deficits and debt remain at high levels in many major markets. The eventual implications of higher government deficits and debt, with potentially higher long-term interest rates, may drive a higher cost of capital over our planning period. Higher interest rates and/or taxes to address the higher deficits also may impede real growth in gross domestic product and, therefore, vehicle sales over our planning period.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~Trends and Strategies~~

Cities are becoming more congested. Fortunately, vehicles that move people in city infrastructures are becoming smarter. Our opportunity is to leverage the capability of smart vehicles in smart environments to attack the congestion problem through a new transportation operating system.

We also have an opportunity to improve logistics. Currently, there is an inefficient operating system for the delivery of goods. The growth of internet sales has resulted in more deliveries, which is compounding the problem of city congestion. We can imagine a world where smart vehicles in a smart world improve traffic flow, reduce congestion, and improve logistics.

In response to these trends, we refined our strategy in 2017 to focus on resetting revenue and attacking costs in the short-term, and redesigning our business to compete and win in the future. To that end, we have identified five priorities:


1.	~~Rapidly improving our fitness to lower costs, release capital, and finance growth~~


2.	~~Accelerating the introduction of connected, smart vehicles and services~~


3.	~~Re-allocating capital to where we can win in the future~~


4.	~~Continuously innovating to create the most human-centered mobility solutions~~


5.	~~Empowering our team to work together effectively to compete and win~~

~~In 2017, we took several actions to help achieve these priorities, including:~~

~~We launched fitness redesign efforts that are focused on customer centricity, simplicity, speed and agility, efficiency, and accountability~~

We announced collaborations with Dominos, Lyft, and Postmates in the United States to support autonomous vehicle development and testing. We also announced collaborations with Mahindra in India and Zotye in China to provide access to technology, capabilities, and scale that will enhance our competitive position

~~We invested in Autonomic to accelerate growth in digital services~~

~~We announced a plan to achieve 100% connectivity for new vehicles in the United States by 2019 and 90% globally by 2020~~

We announced that we are shifting toward a lower volume passenger car lineup in North America and Europe, and we are playing to our strengths by investing in authentic off-roaders and high performance city crossovers

~~We announced a plan to launch a performance SUV battery electric vehicle that offers at least a 300-mile range~~

At the start of 2018, we announced a plan to increase our investment in electrification—expected to be over $11 billion by 2022—to substantially increase the number of battery electric vehicles we offer around the world. And we will have more to announce in 2018 as we remain focused on designing smart vehicles for a smart world that help people move more safely, confidently, and freely.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS - ~~2017~~2018

~~TOTAL~~ COMPANY

~~Net income attributable to Ford.~~ The chart below shows our full year 2018 net income attributable to Ford ~~for full year 2017:~~and Company adjusted EBIT by segment.

Net income attributable to Ford ~~for full year 2017~~and Company adjusted EBIT were driven by our Automotive and Ford Credit segments. Mobility and Corporate Other, as expected, were losses.

The year-over-year decline in net income was ~~$7.6 billion or $1.90 diluted earnings per share of Common and Class B Stock, an increase of $3 billion or $0.75 per share compared with 2016,~~primarily due to the ~~significantly~~ lower ~~remeasurement loss on~~Automotive EBIT, the larger mark-to-market adjustment for global pension and OPEB plans due to adverse financial market conditions that occurred late in 2018, and personnel separation-related actions in North America, South America, and Europe.

The lower Automotive EBIT fully explains the $2.6 billion decline in Company adjusted EBIT, compared with 2017.

Ford Credit generated a full year 2018 EBT of $2.6 billion, $317 million higher than a year ago, and its best EBT in eight years. Ford Credit’s EBT improvement was led by favorable lease residual performance and favorable ~~tax planning actions. Full year 2017 pre-tax results of~~volume and mix. This was offset by unfavorable derivatives market valuation.

The chart below shows our ~~Automotive segment, Financial Services segment, All Other, Special Items, and Taxes are discussed in the following sections in “Results of Operations - 2017.”~~

~~Revenue.~~ ~~Company revenue for~~ full year ~~2017 was $156.8 billion, $5 billion higher than 2016.~~

~~Cost of sales~~ ~~and~~ ~~Selling, administrative, and other expenses~~ ~~for full year 2017 were $142.9 billion, an increase of $5.7 billion compared with 2016. The detail~~2018 key metrics for the ~~change is shown below (in billions):~~

Lower/(Higher)
Volume and mix, exchange, and other $ (3.9 )
Contribution costs
Material excluding commodities (0.1 )
Commodities (1.2 )
Freight and other 0.1
Warranty —
Structural costs (0.7 )
Special items 0.1
Total $ (5.7 )
Company compared to a year ago.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~Equity.~~ ~~At December 31, 2017, total equity~~

For full year 2018, revenue grew 2% to $160.3 billion.

Net income attributable to Ford ~~was $34.9 billion, an increase of $5.7 billion compared with December 31, 2016. The detail for this change is shown below (in billions):~~

Increase/(Decrease)
Net income $ 7.6
Shareholder distributions (2.7 )
Other comprehensive income —
Adoption of accounting standards 0.6
Common Stock issued (including share-based compensation impacts) 0.2
Total $ 5.7

~~The chart below shows our full year 2017 total Company adjusted pre-tax results and pre-tax results of our Automotive segment by regional business unit, our Financial Services segment, and All Other.~~

~~Our Company adjusted pre-tax profit~~ for full year ~~2017~~2018 was ~~$8.4~~$3.7 billion a decrease of $1.9 billion from 2016. Our Company adjusted pre-tax profit consisted of Automotive segment profit of $7.3 billion, a strong profit of $2.2 billion in the Financial Services segment, and a loss of $1.1 billion in All Other.

Automotive results were driven by North America. In total, our Automotive operations outside North America generated a loss of $252 million, $673 million lower than in 2016 driven largely by expected Brexit effects in Europe.

~~Our adjusted~~or $0.92 diluted earnings per share of Common and Class B ~~Stock was $1.78, an increase~~stock, a decrease of ~~$0.02~~$4.1 billion or $1.01 per share ~~due to favorable tax planning actions.~~compared with 2017. Company adjusted EBIT for full year 2018 was $7 billion or $1.30 diluted adjusted earnings per share, down $2.6 billion or $0.48 per share compared with 2017.

Net income margin was 2.3% and Company adjusted EBIT margin was 4.4% for full year 2018, down 2.6 percentage points and 1.7 percentage points, respectively, from 2017.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

AUTOMOTIVE SEGMENT

In general, we measure year-over-year change in Automotive segment ~~pre-tax results~~EBIT using the causal factors listed below, with net pricing and cost variances calculated at present-year volume and mix and exchange:

Market Factors(exclude the impact of unconsolidated affiliate wholesales):


◦	Volume and Mix – primarily measures ~~profit~~EBIT variance from changes in wholesale volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the ~~profit~~EBIT variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line


◦	Net Pricing – primarily measures ~~profit~~EBIT variance driven by changes in wholesale prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory

~~Contribution Costs~~ – primarily measures profit variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs

~~Structural Costs~~ – primarily measures profit variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories:

Cost:


◦	Contribution Costs – primarily measures EBIT variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs


◦	Structural Costs – primarily measures EBIT variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories:


▪	Manufacturing, Including ~~Volume Related~~Volume-Related – consists primarily of costs for hourly and salaried manufacturing personnel, plant overhead (such as utilities and taxes), and new product launch expense. ~~These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules~~

These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules


◦▪	Engineering – consists primarily of costs for engineering personnel, prototype materials, testing, and outside engineering services


◦▪	Spending-Related – consists primarily of depreciation and amortization of our manufacturing and engineering assets, but also includes asset retirements and operating leases


◦▪	Advertising and Sales Promotions – includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows


◦▪	Administrative and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities and selling functions, as well as associated information technology costs


◦▪	Pension and OPEB – consists primarily of past service pension costs and other postretirement employee benefit costs

~~Exchange~~ – primarily measures profit variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging

Other – includes a variety of items, such as parts and services profits, royalties, government incentives, and compensation-related ~~changes~~changes. Other also includes:

◦

Exchange – primarily measures EBIT variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging


◦	Beginning in 2018, in our discussion of Asia Pacific EBIT, Other includes the equity income from our China JVs. In prior periods, the impact of our equity income from our China JVs was spread across each causal factor

In addition, definitions and calculations used in this ~~report~~Report include:

Wholesales and Revenue – wholesale unit volumes 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 China 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

~~Automotive Segment Operating Margin~~ ~~– defined as Automotive segment pre-tax profit divided by Automotive segment revenue~~

Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks

A~~utomotive Cash~~SAAR – ~~includes cash, cash equivalents, and marketable securities~~seasonally adjusted annual rate

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~References to~~The chart below shows our full year 2018 Automotive ~~records for operating cash flow, operating margin, and business units are since at least 2000.~~segment EBIT by region.

~~The charts on~~

North America more than explained the ~~following pages detail~~Automotive segment’s full year 2018 profitability. Automotive EBIT benefited from the largest improvement in market factors since 2015. This benefit was more than offset by commodity and currency headwinds, higher net product costs as we enter a major product refresh cycle, higher warranty costs, and Ford-specific challenges in China and Europe. Compared to 2017, ~~key metrics~~the decline in Automotive EBIT was essentially due to China and Europe.

In 2018, we incurred headwinds of about $3.3 billion in four areas. These impacts are not indicative, for the ~~change in~~most part, of the ongoing run rate of the business. Our full year ~~2017 pre-tax~~2018 results ~~compared with full~~reflect (i) about $750 million in tariff-related effects, (ii) about $1.1 billion of increased commodity cost unrelated to tariff effects, (iii) about $750 million of unfavorable exchange net of pricing, and (iv) about $775 million of cost related to the Takata recalls announced last year ~~2016 by causal factor for our Automotive segment and its business units — North America, South America, Europe, Middle East & Africa, and Asia Pacific.~~

~~Shown above are the key financial metrics for our Automotive segment for full year 2017.~~

~~Wholesale volumes were about flat while Automotive revenue was up 3% due to favorable mix, higher volume from consolidated operations, and favorable net pricing.~~

~~Global industry volume, estimated at 94.9 million units, was up 2.2 million units or 2% compared to a year ago. The increase was driven by Asia Pacific, Europe, and South America.~~

~~Global market share, at 7%, was down two-tenths of a percentage point, reflecting lower share in Asia Pacific, Europe, and Middle East & Africa. Market share was up in South America and flat~~ in North America.

About $1.9 billion of the headwinds described above was reflected in North America’s full year 2018 EBIT, which declined $450 million year over year. This reflects the strong improvements we delivered in North America resulting from the continued focus on high-margin products.

~~Our Automotive operating margin~~South America was ~~5% and pre-tax profit~~affected by about $400 million of these headwinds, which excludes other inflationary effects, yet it delivered a full year EBIT improvement of $75 million compared to 2017.

Asia Pacific was ~~$7.3 billion. Both metrics were~~affected by about $400 million of the headwinds described above, yet the region delivered a much deeper EBIT decline of $1.8 billion compared to 2017 primarily due to lower ~~than~~JV income in China.

Europe was affected by about $600 million of the headwinds, yet saw a ~~year ago.~~year-over-year EBIT decline of $765 million despite the strongest product refresh among all our regions in 2018.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~Shown above are~~The charts on the ~~factors that contributed to~~following pages provide full year 2018 key metrics and the ~~$2.2 billion decline~~change in full year 2018 EBIT compared with full year 2017 by causal factor for our Automotive segment ~~pre-tax profit. The lower profit was primarily explained by higher commodities~~ and ~~adverse exchange. All other factors about offset.~~its regional business units: North America, South America, Europe, Middle East & Africa, and Asia Pacific (including China).

Higher commodities were driven by metals, primarily steel, and adverse exchange was driven by the sterling, reflecting Brexit effects of about $600 million, along with the Canadian dollar, Chinese renminbi, and Argentine peso.

~~Favorable market factors were driven by improved mix in all regions, excluding South America, and higher net pricing in all regions, except Asia Pacific, reflecting negative industry pricing in China.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~In 2017, North America generated a full year pre-tax profit of $7.5 billion with an operating margin of 8%.~~

~~Wholesale volume was down 2% while revenue was up 1% from a year ago.~~

~~North America and U.S. industry volume, at 21.5 million units and 17.5 million units, respectively, were each down 300,000 units.~~

~~Our North America market share was flat, with U.S. share up two-tenths of a point to 14.8%. The increase was driven by F-Series (with share up four-tenths), utilities, and Lincoln.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

North America’s full year 2017 pre-tax profit was $1.5 billion lower than a year ago. The decrease was driven by higher commodities, mainly steel and other metals; Expedition/Navigator launch effects, reflecting lower volume and higher costs, both product and structural costs, offset partially by favorable net pricing; and adverse exchange driven primarily by the Canadian dollar.

~~The higher engineering expense primarily reflects utilities, autonomous vehicles, and commercial vehicles.~~

~~The favorable mix was driven by the strength of F-Series and utilities.~~

Within the United States, average retail transaction prices were $1,300 per vehicle higher compared to a year ago, more than double the industry average increase. (Average retail transaction prices are based on J.D. Power and Associates PIN data). Our incentives were up slightly as a percent of revenue, but less than the industry average.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~In 2017, South America generated a pre-tax loss of $784 million, an improvement of $325 million, or 29%, from a year ago.~~

~~All full year key metrics were improved from a year ago, as macroeconomic conditions continue to show signs of improvement.~~

~~Wholesale volume increased by 15% and revenue was up 21% from a year ago.~~

~~Industry volume for the region, at 4.2 million units, was 13% higher than 2016 due to growth in Brazil and Argentina.~~

~~Our market share for the region, at 8.9%, was up one-tenth of a percentage point due to the strong performance of Ka in Brazil.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

South America’s full year 2017 pre-tax loss improved $325 million compared to a year ago due to higher industry volume and favorable net pricing. This was partially offset by unfavorable cost performance due to the effects of high inflation and higher product costs net of efficiencies, driven by the all-new EcoSport.

~~Unfavorable exchange was primarily due to the weaker Argentine peso.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~In 2017, Europe delivered a full year pre-tax profit of $234 million and an operating margin of 0.8%, both down sharply from a year ago.~~

~~Wholesale volume increased by 3% and revenue was up 4% from a year ago.~~

~~Europe industry volume, at 20.9 million units, was 4% higher than a year ago.~~

~~Europe’s market share, at 7.5%, was down two-tenths of a percentage point reflecting limited product availability, primarily due to the all-new Fiesta launch ramp-up.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Europe’s full year 2017 pre-tax profit was $971 million lower than a year ago driven by Brexit effects, reflecting the weaker sterling and lower U.K. industry, offset partially by favorable net pricing in the United Kingdom; higher commodities, mainly steel and other metals; Fiesta launch effects, reflecting lower volume and higher costs, both product and structural costs, offset partially by favorable net pricing; and higher warranty costs.

~~Although not shown, results in Russia continued to improve.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

MOBILITY SEGMENT

~~In 2017, Middle East & Africa generated a pre-tax loss of $263 million, an improvement of $39 million, or 13%, from~~Our Mobility segment primarily includes development costs related to our autonomous vehicles and our investment in mobility through Ford Smart Mobility LLC (“FSM”). Autonomous vehicles includes self-driving systems development and vehicle integration, autonomous vehicle research and advanced engineering, autonomous vehicle transportation-as-a-service network development, user experience, and business strategy and business development teams. FSM designs and builds mobility services on its own, and collaborates with start-ups and technology companies.

The chart below shows the Mobility segment’s full year 2018 EBIT compared with a year ago.

Wholesale volume was lower than a year ago, as the sharp and sustained decline of the Middle East industries required the distributors to adjust their stock level in line with the lower industry level.

~~Industry volume for the region, at 3.6 million units, was down 100,000 units from 2016. Within this, the markets where we participate declined 300,000 units.~~

~~Our market share was 3.9%, down six-tenths of a percentage point due to unfavorable market mix and market performance in the Middle East.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~Middle East & Africa’s full year 2017 pre-tax result improved $39 million from a year ago. All factors improved other than volume.~~

~~Favorable cost performance and exchange, reflecting the stronger South African rand and euro, offset lower volume.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~In 2017, Asia Pacific generated a pre-tax profit of $561 million and an operating margin of 4%, both down from a year ago.~~

~~Wholesale volume was down 3% while revenue from consolidated operations was up 17%.~~

Asia Pacific industry volume was 44.8 million units, up 1.4 million units from 2016, including a 700,000 unit increase in China industry volume, estimated at 28.2 million units, and a 300,000 unit increase in India industry volume, estimated at 4 million units.

Our Asia Pacific market share was 3.4%, down three-tenths of a percentage point. China share decreased four-tenths of a percentage point to 4.2%, reflecting increased competitive entries, primarily in the SUV segment.

~~Asia Pacific achieved record full-year Lincoln sales in China, up 55% from a year ago.~~

Our China joint ventures contributed $916 million to pre-tax profit, reflecting our equity share of the unconsolidated JVs’ after-tax earnings. This was $523 million lower than last year. Net income margin was 10.9%, down 3.7 percentage points. The decline in margin reflects negative industry pricing in China and a higher mix of vehicles with engine displacement of 1.6 liters or lower.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~Asia Pacific’s full year 2017 pre-tax profit was $66 million lower than a year ago due to market performance in China and unfavorable exchange.~~

~~Lower net pricing compared to a year ago reflects negative pricing trends in China.~~

~~Favorable cost performance reflects our continued focus on material cost reductions.~~

~~Unfavorable exchange was driven by the Chinese renminbi and Thai baht.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~FINANCIAL SERVICES~~FORD CREDIT SEGMENT

In general, we measure year-over-year changes in Ford Credit’s ~~pre-tax results~~EBT using the causal factors listed below:

Volume and Mix:

◦

Volume primarily measures changes in net financing margin driven by changes in average managed receivables at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicle sales and leases, the extent to which Ford Credit purchases retail installment sale and lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding ~~for the purchase of retail installment sale and lease contracts and to provide wholesale financing~~


◦	Mix primarily measures changes in net financing margin driven by period over period changes in the composition of Ford Credit’s average managed receivables by product and by country or region

•Financing Margin:

◦

Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average managed receivables at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average managed receivables for the same period


◦	Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management

Credit Loss:


◦	Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses

◦

Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in economic conditions. For additional information, ~~on the allowance for credit losses,~~ refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2018 Form 10-K Report

Lease Residual:


◦	Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation

◦

Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in Ford Credit’s estimate of the expected auction value at the end of the lease term, and changes in ~~the~~Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. For additional information, ~~on accumulated supplemental depreciation,~~ refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2018 Form 10-K Report

Exchange:


◦	Reflects changes in ~~pre-tax results~~EBT driven by the effects of converting functional currency income to U.S. dollars

Other:


◦	Primarily includes operating expenses, other revenue, ~~and~~ insurance expenses, and other income at prior period exchange rates


◦	Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts


◦	In general, other ~~revenue~~income changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates) and other miscellaneous items

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In addition, the following definitions and calculations apply to Ford Credit when used in this ~~report:~~Report:

Cash (as shown on the Funding Structure, Liquidity Sources, and Leverage charts) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities

Earnings Before Taxes (EBT) – Reflects Ford Credit’s income before income taxes

Return on Equity (ROE) (as shown on the Key Metrics chart) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period

Securitizations (as shown on the Public Term Funding Plan chart) – Public ~~securitizations,~~securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada

Term Asset-Backed Securities (as shown on the Funding Structure chart) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements

Total Debt (as shown on the Leverage chart) – Debt on Ford Credit’s balance sheet. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. 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

Total Net Receivables (as shown on the ~~Key Metrics and~~Total Net Receivables Reconciliation ~~charts)~~To Managed Receivables chart) – Includes finance receivables (retail and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheet and 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 of Ford Credit or the claims of Ford Credit’s other creditors

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The charts below provide full year 2018 key metrics and the change in full year 2018 EBT compared with full year 2017 by causal factor for the Ford Credit segment.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (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 portfolio gains and losses from our cash, cash equivalents, and marketable securities, 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. Our full year 2018 Corporate Other results were a $373 million loss, compared with a $457 million loss a year ago. The year-over-year improvement was driven by higher interest income and net gains on cash equivalents and marketable securities, offset partially by an increase in corporate governance costs.

INTEREST ON DEBT

Interest on Debt consists of interest expense on Automotive and Other debt. Full year 2018 interest expense on Automotive and Other debt was $1.2 billion, $38 million higher than a year ago, reflecting primarily higher foreign debt interest expense.

SPECIAL ITEMS

In Note 24 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among the Automotive, Mobility, and Ford Credit segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources.

Our pre-tax and tax special items were as follows:

TAXES

Our provision for income taxes for full year 2018 was $650 million, resulting in an effective tax rate of 15.0%. Our full year 2018 adjusted effective tax rate, which excludes special items, was 9.7%.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS - 2017

COMPANY

The chart below shows our full year 2017 net income attributable to Ford and Company adjusted EBIT by segment.

In 2017, net income attributable to Ford and Company adjusted EBIT were driven by our Automotive and Ford Credit segments. Mobility and Corporate Other, as expected, were losses.

Company adjusted EBIT consisted of Automotive EBIT of $8.1 billion, a strong EBT of $2.3 billion in the Ford Credit segment, a loss of $299 million in the Mobility segment, and a loss of $457 million in Corporate Other.

Ford Credit’s full year ~~pre-tax profit~~2017 EBT was ~~$2.3 billion. Receivables were~~$431 million higher ~~with~~than 2016, led primarily by receivables growth, ~~globally led~~lease residual performance, and financing margin. The improvement in lease residual performance was driven by ~~retail receivables.~~

Average placement FICO scores remained strong, and Ford Credit’s origination, servicing, and collection practices continued to be disciplined and consistent. The loss-to-receivables ratio of 53 basis points was up 6 basis points and within expectations.higher than expected auction values.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~Ford Credit’s~~The chart below shows our full year 2017 ~~pre-tax profit~~key metrics for the Company compared with full year 2016.

Company revenue for full year 2017 was ~~$431 million~~$156.8 billion, $5 billion higher than 2016.

Net income attributable to Ford for full year 2017 was $7.7 billion or $1.93 diluted earnings per share of Common and Class B stock, an increase of $3.1 billion or $0.78 per share compared with 2016, ~~led primarily~~due to the significantly lower remeasurement loss on pension and OPEB plans and favorable tax planning actions.

Company adjusted EBIT for full year 2017 was $9.6 billion, a decrease of $1.7 billion from 2016, more than explained by ~~receivables growth, lease residual performance,~~North America and ~~financing margin.~~Europe.

Our diluted adjusted earnings per share of Common and Class B Stock was $1.78, up $0.02 per share compared with 2016 due to favorable tax planning actions.

Net income margin was 4.9% and Company adjusted EBIT margin was 6.1% for full year 2017, up 1.9 percentage points and down 1.4 percentage points, respectively, from 2016.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

AUTOMOTIVE SEGMENT

The ~~improvement~~chart below shows our full year 2017 Automotive segment EBIT by region.

Full year 2017 Automotive EBIT was driven by North America. In total, our Automotive operations outside North America were slightly profitable and $641 million lower than in ~~lease residual performance~~2016 driven largely by expected Brexit effects in Europe.

The $2 billion year-over-year decline in full year 2017 Automotive segment EBIT was primarily explained by higher commodities and adverse exchange. All other factors about offset. Higher commodities were driven by metals, primarily steel, and adverse exchange was driven by the sterling, reflecting Brexit effects of about $600 million, along with the Canadian dollar, Chinese renminbi, and Argentine peso. Favorable market factors were driven by improved mix in all regions, excluding South America, and higher net pricing in all regions, except Asia Pacific, reflecting negative industry pricing in China.

North America’s full year 2017 EBIT was $1.3 billion lower than 2016. The decrease was driven by higher commodities, mainly steel and other metals; Expedition/Navigator launch effects, reflecting lower volume and higher costs, both product and structural costs, offset partially by favorable net pricing; and adverse exchange driven primarily by the Canadian dollar.

South America’s full year 2017 EBIT improved $324 million compared to 2016 due to higher industry volume and favorable net pricing. This was partially offset by unfavorable cost performance due to the effects of high inflation and higher product costs net of efficiencies, driven by the all-new EcoSport.

Europe’s full year 2017 EBIT was $951 million lower than ~~expected auction values.~~in 2016 driven by Brexit effects, reflecting the weaker sterling and lower U.K. industry, offset partially by favorable net pricing in the United Kingdom; higher commodities, mainly steel and other metals; Fiesta launch effects, reflecting lower volume and higher costs, both product and structural costs, offset partially by favorable net pricing; and higher warranty costs.

Middle East & Africa’s full year 2017 EBIT improved $39 million compared to 2016. Favorable cost performance and exchange, reflecting the stronger South African rand and euro, offset lower volume.

Asia Pacific’s full year 2017 EBIT was $53 million lower than in 2016 due to market performance in China and unfavorable exchange.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

MOBILITY SEGMENT

The chart below shows the Mobility segment’s full year 2017 EBIT compared with full year 2016.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FORD CREDIT SEGMENT

The charts below provide full year 2017 key metrics and the change in full year 2017 EBT compared with full year 2016 by causal factor for the Ford Credit segment.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~ALL~~CORPORATE OTHER

~~All~~Our full year 2017 Corporate Other is a combination of Central Treasury Operations and Ford Smart Mobility LLC, two operating segments that did not meet the quantitative thresholds in this reporting period to qualify as reportable segments.

The Central Treasury Operations segment is primarily engaged in decision making for investments, risk management activities, and providing financing for the Automotive segment. Interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment), interest expense, gains and losses on cash equivalents and marketable securities, and foreign exchange derivatives associated with intercompany lending are included in the results ~~of Central Treasury Operations. The underlying assets and liabilities, primarily cash and cash equivalents, marketable securities, debt, and derivatives, remain with the Automotive segment.~~

Ford Smart Mobility LLC is a subsidiary formed to design, build, grow, and invest in mobility services. Designed to compete like a start-up company, Ford Smart Mobility LLC designs and builds mobility services on its own, and collaborates with start-ups and tech companies.

~~In 2017, pre-tax results for All Other~~ were a $457 million loss, ~~of $1.1 billion,~~ a ~~$203~~$41 million ~~greater~~lower loss compared with ~~a year ago.~~2016. This ~~increase is primarily explained~~year-over-year improvement was driven by higher ~~net~~interest income, offset partially by higher corporate governance expenses.

INTEREST ON DEBT

Our full year 2017 interest expense on Automotive and ~~Ford Smart Mobility LLC’s results.~~Other debt was $1.2 billion, $239 million higher than in 2016, reflecting primarily higher average U.S. and foreign debt balances.

SPECIAL ITEMS

Our pre-tax and tax special items were as follows:

TAXES

Our provision for income taxes for full year 2017 was ~~$520~~$402 million, resulting in an effective tax rate of ~~6.4%~~4.9%, both lower than 2016, reflecting benefits for foreign tax credits expected to be realized in the foreseeable future, non-U.S. restructuring, and the impact of the Tax Cuts and Jobs Act of 2017.

Our full year 2017 adjusted effective tax rate, which excludes special items, was ~~15.3%~~15.4%, reflecting the same benefits from foreign tax credits mentioned above.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~RESULTS OF OPERATIONS - 2016~~

~~TOTAL COMPANY~~

~~Net income attributable to Ford.~~ ~~The chart below shows our net income attributable to Ford for full year 2016:~~

Net income attributable to Ford for full year 2016 was $4.6 billion or $1.15 diluted earnings per share of Common and Class B Stock, a decrease of $2.8 billion or $0.69 per share compared with 2015. Full year 2016 pre-tax results of our Automotive segment, Financial Services segment, All Other, and Special Items, as well as Taxes are discussed in the following sections in “Results of Operations - 2016.”

~~Revenue.~~ ~~Company revenue for full year 2016 was $151.8 billion, $2.2 billion higher than a year ago.~~

~~Cost of sales~~ ~~and~~ ~~Selling, administrative, and other expenses~~ ~~for the full year 2016 were $137.2 billion, an increase of about $1.9 billion compared with 2015. The detail for the change is shown below (in billions):~~

Lower/(Higher)
Volume and mix, exchange, and other $ (0.1 )
Contribution costs
Material excluding commodities (0.3 )
Commodities 0.9
Warranty and other (0.4 )
Structural costs (1.5 )
Special items (0.5 )
Total $ (1.9 )

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~Equity.~~ ~~At December 31, 2016, total equity attributable to Ford was $29.2 billion, an increase of $0.5 billion compared with December 31, 2015. The detail for this change is shown below (in billions):~~

Increase/
(Decrease)
Net income $ 4.6
Dividends (3.4 )
Other comprehensive income (0.8 )
Compensation-related equity issuances 0.2
Treasury stock share repurchases (0.1 )
Total $ 0.5

The chart below shows our full year 2016 total Company adjusted pre-tax results and pre-tax results of our Automotive segment by regional business unit, our Financial Services segment, and All Other, which is mainly net interest expense.

Our total Company adjusted pre-tax profit for full year 2016 was $10.4 billion, or $1.76 of adjusted earnings per share of Common and Class B Stock, a decrease of $425 million or $0.17 per share compared with 2015. Our total Company adjusted pre-tax profit consisted of our second-best Automotive segment profit of $9.4 billion, a solid profit of $1.8 billion in the Financial Services segment, and a loss of $867 million in All Other.

~~Automotive results were driven by North America, a record profit in Europe, and the second-best profit in Asia Pacific.~~

~~In total, our Automotive operations outside North America delivered a full year profit of $421 million, $198 million higher than in 2015.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~AUTOMOTIVE SEGMENT~~

The charts on the following pages detail full year 2016 key metrics and the change in full year 2016 pre-tax results compared with full year 2015 by causal factor for our Automotive segment and its business units — North America, South America, Europe, Middle East & Africa, and Asia Pacific.

Shown above are the key financial metrics for our Automotive segment for full year 2016. Wholesales and revenue were about the same as 2015 with all other metrics down, consistent with our expectations for the year.

~~Global industry volume, estimated at 91.4 million units, was up 3.2 million units or 4%. The increase was driven by industry gains in Asia Pacific, Europe, and North America.~~

Global market share was down one-tenth of a percentage point driven by lower market share in North America and South America. Market share was flat in Europe and higher in Middle East & Africa and Asia Pacific.

~~Our Automotive operating margin was 6.7% and pre-tax profit was $9.4 billion. Both metrics were the second-best for a full year and only slightly lower than our record performance in 2015.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Shown above are the factors that contributed to the $146 million decline in full year 2016 Automotive segment pre-tax profit. The lower profit was more than explained by higher warranty costs, including about $600 million for the door latch recall we announced in the third quarter of 2016.

Market factors were favorable, driven by strong mix in all regions except South America. This more than offset unfavorable dealer stock changes which reflected stock reductions this year compared to increases in 2015 in North America, Europe, and Asia Pacific.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~North America generated a full year 2016 pre-tax profit of $9 billion with an operating margin of 9.7%.~~

~~North America industry, at 21.8 million units, was up 300,000 units, reflecting increases in Mexico, the United States, and Canada. U.S. industry, at 17.9 million units, was up 100,000 units.~~

Our North America market share was down one-tenth of a percentage point, with U.S. share down by one-tenth of a point to 14.6%. The decrease was driven by lower retail sales, mainly cars. F-Series retail share was a partial offset, improving two-tenths from 2015.

Included in North America’s profit is about $600 million for the door latch recall we announced in the third quarter of 2016, which negatively impacted North America’s operating margin by six-tenths of a percentage point.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~North America’s full year pre-tax 2016 profit was $344 million lower than 2015 driven by unfavorable stock changes and higher recall costs.~~

The unfavorable stock changes reflect decreases in dealer stock this year compared to increases in 2015 when we were building F-150 stock after the Kansas City plant launch. It also reflects actions to align production to demand for several vehicles.

~~The higher product costs reflect primarily the impact of our first major refresh of the Super Duty.~~

~~The non-repeat of 2015’s one-time ratification bonus related to the UAW agreement was a partial offset.~~

Within the United States, average retail transaction prices were $1,300 per vehicle higher compared to 2015, more than double the industry average increase. (Average retail transaction prices are based on J.D. Power and Associates PIN data). Our incentives were up as a percent of revenue, but less than the industry average.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~All full year 2016 key metrics were lower than 2015, reflecting the difficult external environment.~~

~~Industry volume for the region, at 3.7 million units, was 500,000 units lower than 2015 due to Brazil.~~

~~Our market share for the region, at 8.8%, was down eight-tenths of a percentage point, reflecting our continued focus on optimizing more profitable share amid higher industry discounting.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

South America’s full year 2016 loss was $277 million greater than in 2015. This was more than explained by the unfavorable effects of high local inflation and weaker local currencies exceeding higher net pricing and favorable cost performance.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~Europe delivered a record full year profit of $1.2 billion and a record operating margin of 4.2% in 2016, both up sharply from 2015.~~

~~Europe industry volume, at 20.1 million units, was 5% higher than 2015.~~

~~Europe’s market share, at 7.7%, was unchanged from 2015.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Europe’s full year 2016 pre-tax profit improved $946 million from 2015. This was driven by favorable mix, reflecting increasing demand for our higher trim series across all major vehicle lines, and improved cost performance, reflecting our continued focus on material cost reductions. Improved results in Russia also contributed to Europe’s favorable year-over-year profit improvement.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Middle East & Africa’s operating margin and pre-tax results in 2016 were down sharply from 2015, reflecting difficult external conditions resulting in lower volume and unfavorable exchange, primarily the South African rand.

Industry volume for the region, at 3.6 million units, was down 700,000 units from 2015. Lower industry volume was the primary driver in the 14% reduction in our wholesale volume. Our market share for the region was 4.5%, up one-tenth of a percentage point.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~In 2016, Asia Pacific generated its second-best full year pre-tax profit.~~

~~Wholesale volume increased by 10% while revenue from consolidated operations was up 12%.~~

Asia Pacific industry was 42.1 million units, up 3.0 million units from 2015, primarily explained by a 2.9 million unit increase in China industry volume, estimated at 26.4 million units. The increase was driven by the government purchase tax incentive for vehicles with engine displacements of 1.6 liters or lower.

~~Our Asia Pacific market share was 3.8%, up two-tenths of a percentage point. The improvement in share was driven by new product introductions, including Taurus, Edge, Lincoln MKX, and Lincoln MKZ.~~

Our China joint ventures contributed $1.4 billion to Asia Pacific’s pre-tax profit, reflecting our equity share of the unconsolidated JVs’ after-tax earnings; this was $75 million lower than in 2015. Our China joint ventures’ net income margin was 14.6%, a reduction of 1 percentage point from 2015. The decline in margin reflects negative industry pricing in China and a higher mix of vehicles with engine displacement of 1.6 liters or lower.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Asia Pacific’s full year 2016 profit was $627 million, down $138 million from 2015, reflecting lower net pricing, adverse exchange effects (mainly a weaker Chinese renminbi), and unfavorable cost performance.

~~Lower net pricing in 2016 compared to 2015 reflected continued negative pricing trends in China.~~

Unfavorable cost performance was driven by cost increases to support higher volumes and continued investment for future product and regulatory actions. The investments in structural cost were offset partially by our continued focus on material cost efficiencies.

~~Volume and mix were up reflecting higher industry volume in China and improved mix from new product launches.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~FINANCIAL SERVICES SEGMENT~~

Ford Credit’s receivables in 2016 were higher than 2015, in line with expectations, and while full year pre-tax profit was lower, it remained solid at $1.9 billion. Portfolio performance remained robust, despite higher LTRs. Origination, servicing, and collection practices remained disciplined and consistent.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

Ford Credit’s lower full year 2016 pre-tax profit is primarily explained by unfavorable lease residual performance and credit losses. Favorable volume and mix, driven by growth in consumer and non-consumer finance receivables globally and operating leases in North America, was a partial offset. Lease residual performance primarily reflects higher depreciation in North America as we expect lower auction values in the future. Credit loss performance primarily reflects higher charge-offs in North America.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~ALLOTHER~~

Our full year 2016 All Other pre-tax results were a loss of $867 million, a $71 million higher loss compared with 2015. This increase is more than explained by higher net interest expense, offset partially by lower net losses on cash equivalents and marketable securities.

~~SPECIAL ITEMS~~

~~Our pre-tax and tax special items were as follows:~~

~~TAXES~~

~~Our provision for income taxes for full year 2016 was $2.2 billion, resulting in an effective tax rate of 32.2%.~~

~~Our full year 2016 adjusted effective tax rate, which excludes special items, was 31.9%.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2018, total balance sheet cash, cash equivalents, marketable securities, and restricted cash (including Ford Credit) was $34.1 billion.

~~Automotive Segment~~We analyze our balance sheet on a “Company” basis which excludes Ford Credit. The key balance sheet metrics that we consider are: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines.

Company excluding Ford Credit

Liquidity. One of our key priorities is to maintain a strong balance sheet, while at the same time having resources available to invest in and grow our business. Based on our planning assumptions, we believe we have sufficient liquidity and capital resources to continue to invest in new products and services, ~~that customers want and value, transform and grow our business,~~ pay our debts and obligations as and when they come due, pay a ~~sustainable~~ regular dividend, ~~at the current level,~~ and provide protection within an uncertain global economic environment.

Our key balance sheet metrics include total cash, cash equivalents, and marketable securities (collectively “Automotive cash”), Automotive liquidity, which includes Automotive cash and total available committed credit lines, and cash net of debt.

At December 31, ~~2017,~~2018, we had ~~$26.5~~$23.1 billion of ~~Automotive~~Company cash, ~~of which about~~with 90% ~~was~~ held by consolidated entities domiciled in the United States. WeTo be prepared for an economic downturn, we target to have an ~~average~~ ongoing ~~Automotive~~Company cash balance ~~of about~~at or above $20 billion. We expect to have periods when we will be above or below this amount due toto: (i) future cash flow expectations, such as for investments in future opportunities, capital investments, debt maturities, pension contributions, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic environment.

Our ~~Automotive~~Company cash investments primarily include U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, investment-grade corporate securities, investment-grade ~~securities,~~ commercial paper, ~~rated A-1/P-1 or higher,~~ and debt obligations of a select group of non-U.S. governments, non-U.S. governmental agencies, and supranational institutions. The average maturity of these investments is approximately one year and is adjusted based on market conditions and liquidity needs. We monitor our ~~Automotive~~Company cash levels and average maturity on a daily basis.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In addition to our target ~~Automotive~~for Company cash, ~~balance,~~ we also target to maintain a corporate credit facility, discussed below, for our Automotive business of about $10 billion to protect against exogenous shocks. We assess the appropriate long-term target for total ~~Automotive~~Company liquidity, which includes ~~Automotive~~Company cash and the Automotive portion of the corporate credit facility, to be ~~about~~at or above $30 billion, which is an amount we believe is sufficient to support our business priorities and to protect our business. At December 31, ~~2017,~~2018, we had ~~$37.4~~$34.2 billion of ~~Automotive~~Company liquidity. ~~Our Automotive~~We may reduce our Company cash and ~~Automotive~~ liquidity targets ~~could be reduced~~ over time, based on improved operating performance and changes in our risk profile.

Changes in Company Cash. In 2018, we began reporting Company adjusted operating cash flow, which includes Automotive, ~~Cash.~~ ~~Changes in Automotive~~Mobility, Corporate Other, and Interest on Debt cash ~~are summarized below:~~flows, as well as Ford Credit distributions. Prior to 2018, Ford Credit distributions were reported as a non-operating cash flow.

In managing our ~~Automotive~~ business, we classify changes in ~~Automotive~~Company cash into operating and other items. Operating items include: ~~Automotive segment pre-tax profits,~~Company adjusted EBIT excluding Ford Credit, capital spending, depreciation and tooling amortization, changes in working capital, Ford Credit distributions, and all other and timing differences. Non-operating items include: separation payments, other transactions with ~~other segments,~~Ford Credit, acquisitions and divestitures, changes in Automotive and Other debt, contributions to funded pension plans, and shareholder distributions.

Automotive operating cash flow was $3.9 billion in 2017, more than explained by Automotive segment pre-tax profits. Automotive total cash outflow of $1 billion in 2017 includes $1.4 billion of funded pension contributions and $2.7 billion of shareholder distributions.

Capital spending was $7 billion in 2017 and is projected to be about $7.5 billion in 2018. Based on expected cash flows and the identification of additional opportunities for profitable growth, the ongoing amount of capital spending to support product development, growth, restructuring, and infrastructure is expected to be about $8 billion annually through 2021.

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

With respect to “Changes in working capital,” in general we carry relatively low Automotive segment trade receivables compared with our trade payables because the majority of our Automotive wholesales are financed (primarily by Ford Credit) immediately upon sale of vehicles to dealers, which generally occurs shortly after being produced. In addition, our inventories are lean because we build to order, not for inventory. In contrast, our Automotive trade payables are based primarily on industry-standard production supplier payment terms generally ranging between 30 days to 45 days. As a result, our cash flow tends to improve as wholesale volumes increase, but can deteriorate significantly when wholesale volumes drop sharply. These working capital balances generally are subject to seasonal changes that can impact cash flow. For example, we typically experience cash flow timing differences associated with inventories and payables due to our annual summer and December shutdown periods when production, and therefore inventories and wholesale volumes, are usually at their lowest levels, while payables continue to come due and be paid. The net impact of this typically results in cash outflows from changes in our working capital balances during these shutdown periods.

In 2018, our cash flow was lower than 2017 primarily driven by lower EBIT. In 2019, we expect improved cash flow versus 2018.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Changes in Company cash excluding Ford Credit are summarized below:

Capital spending was $7.7 billion in 2018 and is projected to be about the same in 2019. As we redesign our business, the ongoing amount of capital spending to support product development, growth, and infrastructure is expected to be about $7 billion annually through 2022.

Full year 2018 working capital was about $900 million negative, reflecting primarily higher inventory.

All other and timing differences were negative $1.1 billion, reflecting primarily interest payments on Automotive and Other debt, cash taxes, and assorted timing differences.

Shareholder distributions were about $3.1 billion in 2018.

At December 31, 2018, our cash conversion rate was 409%, and our adjusted cash conversion rate was 40%.

Available Credit Lines. Total committed ~~Automotive~~Company credit lines excluding Ford Credit at December 31, ~~2017~~2018 were ~~$12.1~~$11.9 billion, consisting of $10.4 billion of our corporate credit facility and ~~$1.7~~$1.5 billion of local credit ~~facilities available to non-U.S. Automotive affiliates.~~facilities. At December 31, ~~2017,~~2018, the utilized portion of the corporate credit facility was ~~about $35~~$27 million, representing amounts utilized for letters of credit. At December 31, ~~2017,~~2018, the utilized portion of the local credit facilities was ~~about $1.1 billion.~~$735 million.

Lenders under our corporate credit facility have commitments to us totaling $13.4 billion, with 75% of the commitments maturing on April 30, ~~2022~~2023 and 25% of the commitments maturing on April 30, ~~2020.~~2021. We have allocated $3 billion of commitments to Ford Credit on an irrevocable and exclusive basis to support its liquidity. ~~Any~~We would guarantee any borrowings by Ford Credit under the corporate credit ~~facility would be guaranteed by us.~~facility.

The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or ~~fixed charge~~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. 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. If our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P, ~~(each as defined under “Credit Ratings” below),~~ the guarantees of certain subsidiaries will be required.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Debt. ~~Total~~As shown in Note 18 of the Notes to the Financial Statements, at December 31, 2018, Company debt excluding Ford Credit was $14.1 billion, including Automotive debt of $13.5 billion. Both balances were about $2.4 billion lower than at December 31, 2017, ~~was $15.9 billion, unchanged from December 31, 2016.~~reflecting primarily foreign and U.S. debt repayments and exchange.

U.S. Department of Energy (“DOE”) Advanced Technology Vehicle Manufacturer (“ATVM”) Incentive ~~Program~~Program. . See Note 18 of the Notes to the Financial Statements for information regarding the ATVM loan.

Leverage. We manage ~~Automotive~~Company debt (excluding Ford Credit) levels with a leverage framework to maintain ~~strong,~~ investment grade credit ratings through a normal business cycle. The leverage framework includes a ratio of ~~Automotive~~total company debt ~~underfunded~~(excluding Ford Credit) adjusted to include unamortized discount/premium and issuance costs (excluding Ford Credit), operating lease minimum commitments and net pension liabilities ~~operating leases, and other adjustments,~~excluding prepaid assets, divided by ~~Automotive~~Company Adjusted EBIT, excluding Ford Credit EBT, and further adjusted to include depreciation and tooling amortization (excluding Ford Credit), operating lease expense, and certain pension costs. At December 31, 2018, our ratio of Company debt to net income ~~before income tax,~~attributable to Ford was 41.9:1, and our ratio of adjusted ~~for depreciation, amortization, interest expense on Automotive~~ debt ~~and other adjustments.~~ to EBITDA was 3.2:1.

Ford Credit’s leverage is calculated as a separate business as described in the Liquidity - ~~Financial Services~~Ford Credit Segment section of Item 7.2. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Automotive and Other debt.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~Financial Services Segment~~

Ford Credit Segment

Funding Overview. Ford Credit’s primary funding ~~and liquidity~~ objective is to be well capitalized with a strong ~~investment grade~~ balance sheet and ample liquidity to support its financing activities and growth under a variety of market conditions, including short-term and long-term market disruptions. Ford Credit’s funding strategy remains focused on diversification, and it plans to continue accessing a variety of markets, channels, and investors.

Ford Credit’s liquidity profile continues to be diverse, robust, and focused on maintaining liquidity levels that meet its business and funding requirements. Ford Credit annually stress tests its balance sheet and liquidity to ensure that it continues to meet its financial obligations through economic cycles.

Funding Sources. Ford Credit’s funding sources include primarily unsecured debt and securitization transactions (including other structured financings). Ford Credit issues both short-term and long-term debt that is held by both institutional and retail investors, with long-term debt having an original maturity of more than 12 months. Ford Credit sponsors a number of securitization programs that can be structured to provide both short-term and long-term funding through institutional investors in the United States and international capital markets.

Ford Credit obtains short-term unsecured funding from the sale of ~~floating rate~~ demand notes under its Ford Interest Advantage program, through its Retail Deposit program at FCE Bank plc (“FCE”), and by issuing unsecured commercial paper in the United States and other international markets. At December 31, ~~2017,~~2018, the principal amount outstanding of Ford Interest Advantage notes, which may be redeemed at any time at the option of the holders thereof without restriction, and FCE Deposits was ~~$5.5~~$6 billion. At December 31, ~~2017,~~2018, the principal amount outstanding of Ford Credit’s unsecured commercial paper was ~~$4.9~~$4 billion, which primarily represents issuance under its commercial paper program in the United States. Ford Credit maintains multiple sources of readily available liquidity to fund the payment of its unsecured short-term debt obligations.

Funding Portfolio. The chart below shows the trends in funding for Ford Credit’s managed receivables:

Managed receivables of ~~$151~~$155 billion as of December 31, ~~2017~~2018 were funded primarily with term debt and term asset-backed securities. Securitized funding as a percent of managed receivables was 39%. Ford Credit targets a mix of securitized funding between 35% and 40%. The calendarization of the funding plan will result in quarterly fluctuations of the securitized funding percentage.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~Ford Credit expects the mix of securitized funding to remain around 35%. The calendarization of the funding plan will result in quarterly fluctuations of the securitized funding percentage.~~

Public Term Funding Plan. The chart below shows Ford Credit’s issuances for full-year ~~2015,~~ 2016, 2017, and ~~2017,~~2018, and its planned issuances for full-year ~~2018,~~2019, excluding short-term funding programs:

Ford Credit’s total unsecured public term funding plan is categorized by currency of issuance.

In ~~2017,~~2018, Ford Credit completed ~~$32~~$27 billion of public term funding. For ~~2018,~~2019, Ford Credit projects full-year public term funding in the range of $27 billion to $33 billion. Ford ~~Credit’s total unsecured public term funding plan is categorized by currency of issuance. Ford~~ Credit plans to ~~issue~~continue issuing its ~~euro-denominated~~eurocurrency-denominated (e.g., euro and sterling) public unsecured debt from the United States.

Through February ~~7, 2018,~~15, 2019, Ford Credit has completed ~~$4.3~~$4 billion of public term issuances.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Liquidity. The chart below shows Ford Credit’s liquidity sources and utilization:

Ford Credit’s liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth, and timing of funding transactions. Ford Credit targets liquidity of ~~at least~~about $25 billion. At December 31, ~~2017,~~2018, Ford Credit’s liquidity available for use was ~~$29.5~~$27.3 billion, ~~$2.5~~$2.2 billion ~~higher~~lower than year-end ~~2016.~~2017.

Ford Credit’s sources of liquidity include cash, committed asset-backed facilities, unsecured credit facilities, and the corporate credit facility allocation.

Ford Credit’s balance sheet is inherently liquid because of the short-term nature of its finance receivables, investment in operating leases, and cash. Ford Credit ensures its cumulative debt maturities have a longer tenor than its cumulative asset maturities. This positive maturity profile is intended to provide Ford Credit with additional liquidity after all of its assets have been funded.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Leverage. Ford Credit uses leverage, or the debt-to-equity ratio, to make various business decisions, including evaluating and establishing pricing for finance receivable and operating lease financing, and assessing its capital structure.

The chart below shows the calculation of Ford Credit’s financial statement leverage and managed leverage:

Ford Credit believes that managed leverage is useful to its investors because it reflects the way Ford Credit manages its business. Ford Credit deducts cash, cash equivalents, and marketable securities (excluding amounts related to insurance activities) because they generally correspond to excess debt beyond the amount required to support its operations and amounts to support on-balance sheet securitization transactions. Ford Credit makes derivative accounting adjustments to its assets, debt, and equity positions to reflect the impact of interest rate instruments Ford Credit uses in connection with its term-debt issuances and securitization transactions. The derivative accounting adjustments related to these instruments vary over the term of the underlying debt and securitized funding obligations based on changes in market interest rates. Ford Credit generally repays its debt obligations as they mature. As a result, Ford Credit excludes the impact of these derivative accounting adjustments on both the numerator and denominator in order to exclude the interim effects of changes in market interest ~~rates~~.rates.

Ford Credit plans its managed leverage by considering prevailing market conditions and the risk characteristics of its business. At December 31, ~~2017,~~2018, Ford Credit’s financial statement leverage was ~~8.7:~~9.4:1, and managed leverage was ~~8.0:~~8.8:1. Ford Credit targets managed leverage in the range of 8:1 to 9:1.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Total Company

Pension Plan Contributions and Strategy. Our strategy is to reduce the risk of our funded defined benefit pension plans, including minimizing the volatility of the value of our pension assets relative to pension liabilities and the need for unplanned use of capital resources to fund the plans. The strategy reduces balance sheet, cash flow, and income exposures and, in turn, reduces our risk profile. We have made significant progress in implementing this strategy over the last several years. For example, we have limited liability growth by closing our funded plans to new participants and have reduced plan deficits through discretionary contributions. Going forward, we expect to:

Limit our pension contributions to offset ongoing service cost or meet regulatory requirements, if any;

Continue progressively re-balancing assets to more fixed income investments, with a target asset allocation of about 80% fixed income investments and 20% growth assets, which will provide a better matching of plan assets to the characteristics of the liabilities, thereby reducing our net exposure; and

Evaluate strategic actions to reduce pension liabilities, such as plan design changes, curtailments, or settlements

Worldwide, our defined benefit pension plans were underfunded by ~~$6.6~~$6.3 billion at December 31, ~~2017,~~2018, an improvement of ~~$2.3 billion~~$300 million from December 31, ~~2016,~~2017, primarily as a result of ~~asset returns,~~higher discount rates, demographics, and contributions offsetting lower ~~discount rates.~~asset returns. Of the ~~$6.6~~$6.3 billion underfunded status at year-end ~~2017, $6.5~~2018, about $6 billion ~~or about 98%,~~ is associated with our unfunded plans. These are “pay as you go,” with benefits paid from general Company cash. These unfunded plans primarily include certain plans in Germany, and U.S. defined benefit plans for senior management.

The U.S. weighted-average discount rate ~~decreased 43~~increased 69 basis points to 4.29% at year-end 2018 from 3.60% at year-end ~~2017 from 4.03% at year-end 2016.~~2017. The non-U.S. weighted average discount rate ~~decreased 11~~increased 15 basis points to 2.48% at year-end 2018 from 2.33% at year-end ~~2017 from 2.44% at year-end 2016.~~2017.

Asset returns in ~~2017~~2018 for our U.S. plans were ~~13.4%~~negative 3.7%, reflecting fixed income ~~gains~~losses as long-term interest rates ~~fell.~~increased. The fixed income mix in our U.S. plans at year-end ~~2017~~2018 was ~~76%~~78%, ~~one~~two percentage ~~point~~points higher than year-end ~~2016.~~2017. Asset returns for our non-U.S. plans were ~~4.5%~~negative 0.1%, reflecting ~~fixed income gains offset~~varied results by ~~unfavorable exchange.~~market. The fixed income mix in our non-U.S. plans at year-end ~~2017~~2018 was ~~80%~~83%, ~~four~~three percentage points higher than year-end ~~2016.~~2017.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In ~~2017,~~2018, we contributed ~~$1.4 billion~~about $400 million (most of which were mandatory contributions) to our global funded pension plans, ~~an increase~~a decrease of ~~$200 million~~about $1 billion compared with ~~2016.~~2017. The contributions in 2017 included a pull-ahead of about $500 million of 2018 planned funding into the fourth quarter of 2017 to achieve a cash tax benefit. ~~As a result of this pull-ahead, during 2018,~~During 2019, we expect to contribute about ~~$500~~$650 million ~~(most of which are mandatory contributions)~~(including $140 million in discretionary contributions in the United States) from ~~Automotive~~Company cash to our global funded pension plans. We also expect to make about $350 million of benefit payments to participants in unfunded plans, for a combined total of ~~$850 million.~~about $1 billion. Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major U.S. plans in ~~2018.~~2019. After ~~2018,~~2019, we expect contributions to our global funded plans of about ~~$1 billion~~$500 million to $650 million per year, limited to ongoing service cost. Our global funded plans are now fully funded in aggregate, which is an important milestone demonstrating the effectiveness of our de-risking strategy and our commitment to a strong balance sheet.

For a detailed discussion of our pension plans, see Note 17 of the Notes to the Financial Statements.

Return on Invested Capital. We analyze total ~~company~~Company performance using aan adjusted Return on Invested Capital (“ROIC”) financial metric based on an after-tax rolling five-year average, which we believe is appropriate given our industry’s product and investment cycles. The following table contains the calculation of our ROIC for the years shown:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

CREDIT RATINGS

Our short-term and long-term debt is rated by four credit rating agencies designated as nationally recognized statistical rating organizations (“NRSROs”) by the U.S. Securities and Exchange Commission:

•DBRS, ~~Limited (“DBRS”);~~

•Fitch, ~~Inc. (“Fitch”);~~

•Moody’s, ~~Investors Service, Inc. (“Moody’s”);~~ and

•~~Standard & Poor’s Ratings Services, a division of McGraw Hill Financial (“~~S~~&P”)~~&P.

In several markets, locally-recognized rating agencies also rate us. A credit rating reflects an assessment by the rating agency of the credit risk associated with a corporate entity or particular securities issued by that entity. Rating agencies’ ratings of us are based on information provided by us and other sources. Credit ratings are not recommendations to buy, sell, or hold securities, and are subject to revision or withdrawal at any time by the assigning rating agency. Each rating agency may have different criteria for evaluating company risk and, therefore, ratings should be evaluated independently for each rating agency.

~~The following~~There have been no rating actions ~~were~~ taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017:~~

~~On January 30, 2018, Moody’s revised the outlook to negative from stable for Ford and Ford Credit and affirmed their ratings.~~2018.

The following chart summarizes certain of the credit ratings and outlook presently assigned by these four NRSROs:

NRSRO RATINGS

Ford

Ford Credit

NRSROs

Issuer

Default /

Corporate /

Issuer Rating

Long-Term Senior Unsecured

Outlook / Trend

Long-Term Senior Unsecured

Short-Term

Unsecured

Outlook / Trend

Minimum Long-Term Investment Grade Rating

DBRS

BBB

Stable

BBB

R-2M

Stable

BBB (low)

Fitch

BBB

Stable

BBB

Stable

BBB-

Moody’s

N/A

~~Baa2~~Baa3

Negative

~~Baa2~~Baa3

~~P-2~~P-3

Negative

Baa3

S&P

BBB

~~Stable~~Negative

BBB

A-2

~~Stable~~Negative

BBB-

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~2018 MAJOR~~2019 EXTERNAL FACTORS ASSUMPTIONS

Based on the current environment, we have assumed the following for ~~2018:~~2019:

~~We have assumed the following industry volumes:~~

•~~U.S. volume~~For 2019 GDP, we project continued growth globally and across our major markets. Relative to 2018, we expect a deterioration in the ~~low-17 million unit range, including medium-heavy trucks, slightly lower than 2017;~~

•~~Brazil volume~~rate of growth in the ~~mid-2 million unit range, up roughly 20 percent from 2017;~~

•~~Total~~United States, Europe, ~~volume~~and China, but we do not expect a recession to occur in the ~~low-21 million unit range, up slightly from 2017; and~~

•~~China volume in~~United States during the ~~mid-28 million units range, up slightly from 2017~~year.

We expect ~~prices~~global industry volume in 2019 to be about flat compared with 2018. This includes a decline in the United States, although industry sales will still be strong on an absolute basis, with retail down slightly and fleet down more (mainly rentals). We expect Europe industry volume to be about flat, and, in China, we expect industry volume to be down modestly with a strong second half of ~~most key metals to rise in 2018 and remain above~~ the ~~10-year historical mean. We also expect continued headwinds from currency exchange rates.~~

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)~~

~~PRODUCTION VOLUMES~~

~~Our full year 2017 production volumes and first quarter 2018 forecast production volumes for our Automotive business units are as follows:~~

year.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

OUTLOOK

~~2018 Company Guidance~~

Based on ~~the~~our current ~~economic environment,~~assumptions, our Company guidance for ~~2018~~2019 includes the following:

For 2019, we see the potential for year-over-year improvement in the key metrics shown above, including our revenue to be greater than $160.3 billion, adjusted EBIT margin to be greater than 4.4%, adjusted ROIC to be greater than 7.1%, adjusted cash conversion to be greater than 40%, and adjusted debt to EBITDA to be lower than 3.2:1.

We also expect Company ~~revenue to be about flat to up modestly as favorable Company-specific drivers more than offset slightly lower volumes in the United States.~~

~~We expect~~ adjusted EPS in the range of $1.45 to $1.70. The low end of the range reflects the normal volatility we could see from recalls and further pressure from exchange and commodity prices. It also recognizes potential challenges in fully delivering the recovery actions we have developed and deployed to offset the adverse year-over-year impact of commodities and exchange. We also expect:

~~Automotive profit to be flat to lower than in 2017 with continued headwinds from commodities and exchange, and higher market factors driven by mix and net pricing;~~

~~Mobility to have a higher loss due to increased investments in autonomous vehicles and mobility-related capabilities and services; and~~

~~Ford Credit profit to remain strong but lower than 2017 due to adverse financing margin from interest rates and derivative revaluation.~~

~~We expect an adjusted effective tax rate in 2018 of about 15%, which is similar to 2017.~~

~~We expect to generate positive Company~~ operating cash flow to be stronger and Automotive EBIT to improve. From a business unit perspective, we expect North America, China, and Europe, where results were lower in 2018, to lead the potential EBIT improvement. Drivers of this would be the favorable effects of new products, fitness initiatives as they gain greater traction, and a turnaround, at least in part, of the major factors that led to our lower China performance in 2018.

Offsetting these positive effects, in part, will be higher investments in Mobility – both for our autonomous vehicle business and mobility services development – as well as lower, though still strong, EBT at Ford Credit, reflecting lower ~~than 2017, driven by adverse working capital~~volume and ~~unfavorable timing~~financing margin and ~~other differences.~~higher operating costs.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Cautionary Note on Forward-Looking Statements

Statements included or incorporated by reference herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, ~~the following factors:~~without limitation:

Ford’s long-term competitiveness depends on the successful execution of fitness actions;

Industry sales volume, particularly in the United States, Europe, or China, can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;

Ford’s new and existing products and mobility services are subject to market acceptance;

Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;

Ford may face increased price competition resulting from industry excess capacity, currency fluctuations, or other factors;

Fluctuations in commodity prices, foreign currency exchange rates, and interest rates can have a significant effect on results;

With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other ~~events;~~events, including Brexit;

Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor disputes, natural or man-made disasters, financial distress, production difficulties, or other factors;

Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints;

Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition;

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;

Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs;

Ford could experience unusual or significant litigation, governmental investigations, or adverse publicity arising out of alleged defects in products, perceived environmental impacts, or otherwise;

Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;

Operational systems, security systems, and vehicles could be affected by cyber incidents;

Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;

Ford Credit could face increased competition from banks, financial institutions, or other third parties seeking to increase their share of financing Ford vehicles; and

Ford Credit could be subject to new or increased credit regulations, consumer or data protection regulations, or other regulations.

We cannot be certain that any expectation, forecast, or assumption made in preparing forward-looking statements will prove accurate, or that any projection will be realized. It is to be expected that there may be differences between projected and actual results. Our forward-looking statements speak only as of the date of their initial issuance, and we do not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. For additional discussion, see “Item 1A. Risk Factors” above.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

NON-GAAP FINANCIAL MEASURE RECONCILIATIONS

The following charts show our Non-GAAP financial measure reconciliations for: Adjusted ~~Pre-Tax Profit,~~EBIT, Adjusted Earnings Per Share, Adjusted Effective Tax Rate, Adjusted Operating Cash Flow, Adjusted Cash Conversion, Adjusted Debt to EBITDA, and Ford Credit Managed Receivables. The GAAP reconciliation for Ford Credit Managed Leverage can be found in the ~~Financial Services~~Ford Credit Segment section of “Liquidity and Capital Resources.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

~~2017~~2018 SUPPLEMENTAL FINANCIAL INFORMATION

The tables below provide supplemental consolidating financial information and other financial information. ~~The data is presented by~~Company excluding Ford Credit includes our Automotive and Mobility reportable segments, ~~Automotive~~Corporate Other, Interest on Debt, and ~~Financial Services. All Other,~~ Special ~~Items, and Adjustments include our operating segments that did not meet the quantitative threshold to qualify as a reportable segment, special items (which~~Items. Eliminations, where presented, primarily ~~consists of our pension and OPEB remeasurement gains and losses),~~represent eliminations of intersegment transactions and deferred tax netting.

Selected Income Statement Information. The following table provides supplemental income statement information ~~by segment~~ (in millions):


		For the year ended December 31, 2017										For the year ended December 31, 2018
		Automotive		Financial Services			All Other, Special Items, & Adjustments			Consolidated		Company excluding Ford Credit
Total revenues		$	145,653	$	11,113		$	10		$	156,776
												Automotive		Mobility			Other (a)			Subtotal		Ford Credit		Consolidated
Revenues												$	148,294	$	26		$	—		$	148,320	$	12,018	$	160,338
Total costs and expenses		142,268		9,104			591			151,963		145,691		758			1,223			147,672		9,463		157,135
Interest expense on Automotive debt		—		—			1,133			1,133		—		—			1,171			1,171		—		1,171
Interest expense on Other debt												—		—			57			57		—		57
Other income/(loss), net		2,705		207			355			3,267		2,724		58			(579		)	2,203		44		2,247
Equity in net income of affiliated companies		1,169		32			—			1,201		95		—			—			95		28		123
Income/(loss) before income taxes		7,259		2,248			(1,359		)	8,148		5,422		(674		)	(3,030		)	1,718		2,627		4,345
Provision for/(Benefit from) income taxes		2,365		(696		)	(1,149		)	520		705		(162		)	(296		)	247		403		650
Net income/(Loss)		4,894		2,944			(210		)	7,628		4,717		(512		)	(2,734		)	1,471		2,224		3,695
Less: Income/(Loss) attributable to noncontrolling interests	Less: Income/(Loss) attributable to noncontrolling interests	26		—			—			26		18		—			—			18		—		18
Net income/(Loss) attributable to Ford Motor Company	Net income/(Loss) attributable to Ford Motor Company	$	4,868	$	2,944		$	(210	)	$	7,602	$	4,699	$	(512	)	$	(2,734	)	$	1,453	$	2,224	$	3,677

(a) Other includes Corporate Other, Interest on Debt, and Special Items

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Balance Sheet Information. The following tables provide supplemental balance sheet information ~~by segment~~ (in millions):


	December 31, 2017									December 31, 2018
Assets	Automotive		Financial Services		All Other & Adjustments			Consolidated		Company excluding Ford Credit		Ford Credit		Eliminations			Consolidated
Cash and cash equivalents	$	8,930	$	9,558	$	4		$	18,492	$	7,111	$	9,607	$	—		$	16,718
Marketable securities	17,554		2,881		—			20,435		15,925		1,308		—			17,233
Financial Services finance receivables, net	—		52,210		—			52,210
Ford Credit finance receivables, net										—		54,353		—			54,353
Trade and other receivables, less allowances	4,049		6,548		2			10,599		3,698		7,497		—			11,195
Inventories	10,277		—		—			10,277		11,220		—		—			11,220
Other assets	2,631		1,258		—			3,889		2,567		1,363		—			3,930
Receivable from other segments	57		1,948		(2,005		)	—		1,054		2,470		(3,524		)	—
Total current assets	43,498		74,403		(1,999		)	115,902		41,575		76,598		(3,524		)	114,649

Financial Services finance receivables, net	—		56,182		—			56,182
Ford Credit finance receivables, net										—		55,544		—			55,544
Net investment in operating leases	1,574		26,661		—			28,235		1,705		27,414		—			29,119
Net property	35,133		177		17			35,327		35,986		192		—			36,178
Equity in net assets of affiliated companies	2,984		101		—			3,085		2,595		114		—			2,709
Deferred income taxes	13,367		247		(2,641		)	10,973		12,293		216		(2,097		)	10,412
Other assets	6,329		1,702		73			8,104		6,343		1,586		—			7,929
Receivable from other segments	—		865		(865		)	—		166		14		(180		)	—
Total assets	$	102,885	$	160,338	$	(5,415	)	$	257,808	$	100,663	$	161,678	$	(5,801	)	$	256,540


Liabilities
Payables	$	22,115	$	1,162	$	5		$	23,282	$	20,426	$	1,094	$	—		$	21,520
Other liabilities and deferred revenue	18,278		1,403		16			19,697		18,868		1,688		—			20,556
Automotive debt payable within one year	3,356		—		—			3,356		2,314		—		—			2,314
Financial Services debt payable within one year	—		48,265		—			48,265
Ford Credit debt payable within one year										—		51,179		—			51,179
Payable to other segments	1,945		—		(1,945		)	—		3,524		—		(3,524		)	—
Total current liabilities	45,694		50,830		(1,924		)	94,600		45,132		53,961		(3,524		)	95,569

Other liabilities and deferred revenue	23,602		1,107		2			24,711		22,491		1,097		—			23,588
Automotive long-term debt	12,575		—		—			12,575		11,233		—		—			11,233
Financial Services long-term debt	—		90,091		—			90,091
Ford Credit long-term debt										—		88,887		—			88,887
Other long-term debt										600		—		—			600
Deferred income taxes	155		3,301		(2,641		)	815		99		2,595		(2,097		)	597
Payable to other segments	853		—		(853		)	—		17		163		(180		)	—
Total liabilities	$	82,879	$	145,329	$	(5,416	)	$	222,792	$	79,572	$	146,703	$	(5,801	)	$	220,474



(Mark One)
þ	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the fiscal year ended December 31, ~~2017~~2018

or

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from __________ to __________

	Commission file number 1-3950



Delaware	38-0549190
(State of incorporation)	(I.R.S. Employer Identification No.)

One American Road, Dearborn, Michigan	48126
(Address of principal executive offices)	(Zip Code)



Title of each class		Name of each exchange on which registered
Common Stock, par value $.01 per share		New York Stock Exchange



Document		Where Incorporated
Proxy Statement*		Part III (Items 10, 11, 12, 13, and 14)



Item 8	Financial Statements and Supplementary Data	93
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
Item 9A	Controls and Procedures	9794
Item 9B	Other Information	9794
	Part III
Item 10	Directors, Executive Officers of Ford, and Corporate Governance	9895
Item 11	Executive Compensation	9895
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	9895
Item 13	Certain Relationships and Related Transactions, and Director Independence	9895
Item 14	Principal Accounting Fees and Services	9895
	Part IV
Item 15	Exhibits and Financial Statement Schedules	9996
Item 16	Form 10-K Summary	~~102~~99
	Signatures	~~103~~100
	Ford Motor Company and Subsidiaries Financial Statements
	Report of Independent Registered Public Accounting Firm	FS-1
	Consolidated Income Statement	FS-3
	Consolidated Statement of Comprehensive Income	FS-3
	Consolidated Balance Sheet	FS-4
	Consolidated Statement of Cash Flows	FS-5
	Consolidated Statement of Equity	FS-6
	Notes to the Financial Statements	FS-7
	Schedule II — Valuation and Qualifying Accounts	FSS-1


*	As stated under various Items of this Report, only certain specified portions of such document are incorporated by reference in this Report.



	Table of Contents	Page
	Part I
Item 1	Business	1
	Overview	2
	Automotive Segment	2
	~~Financial Services~~Mobility Segment	67
	Ford Credit Segment	7
	Governmental Standards	78
	Employment Data	12
	~~Engineering, Research, and Development~~	1214
Item 1A	Risk Factors	1214
Item 1B	Unresolved Staff Comments	1820
Item 2	Properties	1820
Item 3	Legal Proceedings	2022
Item 4	Mine Safety Disclosures	2124
Item 4A	Executive Officers of Ford	2224
	Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2325
Item 6	Selected Financial Data	2426
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2527
	Overview	2527
	Results of Operations - 2018	32
	Automotive Segment	34
	Mobility Segment	43
	Ford Credit Segment	44
	Corporate Other	47
	Interest on Debt	47
	Special Items	47
	Taxes	47
	Results of Operations - 2017	3048
	Automotive Segment	3250
	~~Financial Services~~Mobility Segment	4557
	~~All~~Ford Credit Segment	58
	Corporate Other	4859
	Interest on Debt	59
	Special Items	4859
	Taxes	48
	~~Results of Operations - 2016~~	49
	~~Automotive Segment~~	51
	~~Financial Services Segment~~	62
	~~All Other~~	64
	~~Special Items~~	64
	~~Taxes~~	6459
	Liquidity and Capital Resources	6560
	Credit Ratings	7470
	~~2018 Major~~2019 External Factors Assumptions	75
	~~Production Volumes~~	7671
	Outlook	7772
	Non-GAAP Financial Measure Reconciliations	7974
	~~2017~~2018 Supplemental Financial Information	8177
	Critical Accounting Estimates	8581
	Accounting Standards Issued But Not Yet Adopted	9188
	Aggregate Contractual Obligations	9289
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	93
~~Item 8~~	~~Financial Statements and Supplementary Data~~	96
~~Item 9~~	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	9690



Brand	Number of Dealerships at December 31, ~~2017~~2018
Ford	~~10,345~~10,466
Ford-Lincoln (combined)	~~820~~858
Lincoln	~~263~~210
Total	~~11,428~~11,534


◦	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


	Wholesales (a)			Wholesales (a)
	(in thousands of units)			(in thousands of units)
	2015	2016	2017	2016	2017	2018
United States	2,677	2,588	2,566	2,588	2,566	2,540
Canada	285	313	308	313	308	295
Mexico	93	103	82	103	82	69
North America	3,073	3,019	2,967	3,019	2,967	2,920
Brazil	250	182	215	182	215	235
Argentina	94	101	115	101	115	86
South America	381	325	373	325	373	365
United Kingdom	447	428	418	428	418	387
Germany	261	283	277	283	277	313
EU21 (b)				1,387	1,429	1,439
Russia	38	45	54	45	54	51
Turkey	128	116	116	116	116	65
Europe	1,530	1,539	1,582	1,539	1,582	1,533
Middle East & Africa	187	161	119	161	119	109
China	1,160	1,267	1,215	1,267	1,215	731
Australia	71	82	78	82	78	65
India	78	86	88	86	88	98
ASEAN (b)	80	106	122
Asia Pacific (c)	1,464	1,607	1,566
ASEAN (c)				106	122	117
Asia Pacific				1,607	1,566	1,055
Total Company	6,635	6,651	6,607	6,651	6,607	5,982


(b)	~~ASEAN includes Philippines, Thailand,~~EU21 markets are United Kingdom, Germany, France, Italy, Spain, Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Hungary, Ireland, Netherlands, Norway, Poland, Portugal, Romania, Russia, Sweden, and ~~Vietnam.~~Switzerland.


(c)	~~Asia Pacific market share~~ASEAN includes ~~Ford brand~~Philippines, Thailand, and ~~JMC brand vehicles produced and sold by our unconsolidated affiliates.~~Vietnam.


	U.S. Retail Sales	U.S. Wholesales	U.S. Retail Sales	U.S. Wholesales
Trucks	1,123,416	1,114,304	1,139,079	1,156,022
SUVs	867,909	869,725	872,215	937,845
Cars	595,390	581,754	486,024	445,999
Total Vehicles	2,586,715	2,565,783	2,497,318	2,539,866


	Retail Sales (a)			Industry Volume (b)			Market Share (c)						Retail Sales (a)			Industry Volume (b)			Market Share (c)
	(in millions of units)			(in millions of units)			(as a percentage)						(in millions of units)			(in millions of units)			(as a percentage)
	2015	2016	2017	2015	2016	2017	2015		2016		2017		2016	2017	2018	2016	2017	2018	2016		2017		2018
United States	2.6	2.6	2.6	17.8	17.9	17.5	14.7	%	14.6	%	14.8	%	2.6	2.6	2.5	17.9	17.6	17.7	14.6	%	14.7	%	14.1	%
Canada	0.3	0.3	0.3	1.9	2.0	2.1	14.4		15.4		14.9		0.3	0.3	0.3	2.0	2.1	2.0	15.4		14.9		14.7
Mexico	0.1	0.1	0.1	1.4	1.6	1.6	6.4		6.2		5.3		0.1	0.1	0.1	1.6	1.6	1.5	6.2		5.3		4.8
North America	3.0	3.0	3.0	21.5	21.8	21.5	14.0		13.9		13.9		3.0	3.0	2.9	21.8	21.5	21.5	13.9		13.9		13.4
Brazil	0.3	0.2	0.2	2.6	2.1	2.2	10.4	%	9.2	%	9.6	%	0.2	0.2	0.2	2.1	2.2	2.6	9.2	%	9.6	%	9.2	%
Argentina	0.1	0.1	0.1	0.6	0.7	0.9	14.9		13.6		12.8		0.1	0.1	0.1	0.7	0.9	0.8	13.6		12.9		12.1
South America	0.4	0.3	0.4	4.2	3.7	4.2	9.6		8.8		8.9		0.3	0.4	0.4	3.7	4.2	4.5	8.8		8.9		8.3
United Kingdom	0.4	0.4	0.4	3.1	3.1	3.0	14.3	%	14.0	%	13.8	%	0.4	0.4	0.4	3.1	3.0	2.8	14.0	%	13.8	%	13.7	%
Germany	0.3	0.3	0.3	3.5	3.7	3.8	7.3		7.6		7.7		0.3	0.3	0.3	3.7	3.8	3.8	7.6		7.7		7.9
EU21 (d)													1.4	1.4	1.4	18.6	19.3	19.6	7.5		7.3		7.2
Russia	0.0	0.0	0.1	1.6	1.5	1.6	2.4		2.9		3.1		0.0	0.1	0.1	1.5	1.6	1.8	2.9		3.1		2.9
Turkey	0.1	0.1	0.1	1.0	1.0	1.0	12.6		11.4		11.9		0.1	0.1	0.1	1.0	1.0	0.6	11.4		11.9		10.9
Europe	1.5	1.5	1.6	19.2	20.1	20.9	7.7		7.7		7.5		1.5	1.6	1.5	20.1	20.9	20.9	7.7		7.5		7.2
Middle East & Africa	0.2	0.2	0.1	4.3	3.7	3.6	4.4	%	4.5	%	3.9	%	0.2	0.1	0.1	3.7	3.6	3.8	4.4	%	3.8	%	3.0	%
China	1.1	1.3	1.2	23.8	27.5	28.2	4.7	%	4.6	%	4.2	%
China (e)													1.3	1.2	0.8	27.5	28.2	26.2	4.6	%	4.2	%	2.9	%
Australia	0.1	0.1	0.1	1.2	1.2	1.2	6.1		6.9		6.6		0.1	0.1	0.1	1.2	1.2	1.2	6.9		6.6		6.0
India	0.1	0.1	0.1	3.5	3.7	4.0	2.1		2.4		2.2		0.1	0.1	0.1	3.7	4.1	4.4	2.4		2.2		2.2
ASEAN (d)	0.1	0.1	0.1	1.4	1.5	1.6	6.0		7.0		7.6
ASEAN (f)													0.1	0.1	0.1	1.5	1.6	1.7	7.0		7.5		6.6
Asia Pacific (e)	1.4	1.6	1.5	39.5	43.4	44.8	3.6		3.7		3.4		1.6	1.5	1.1	43.4	44.8	43.5	3.7		3.4		2.5
Global	N/A	N/A	N/A	88.7	92.7	94.9	7.3	%	7.2	%	7.0	%	N/A	N/A	N/A	92.8	95.0	94.2	7.2	%	7.0	%	6.3	%
Total Company	6.5	6.7	6.6	N/A	N/A	N/A	N/A		N/A		N/A		6.7	6.6	6.0	N/A	N/A	N/A	N/A		N/A		N/A


(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.


(e)	China and Asia Pacific market share includes Ford brand and JMC brand vehicles produced and sold by our unconsolidated affiliates.


	Years Ended December 31,						Years Ended December 31,
	2015		2016		2017		2016		2017		2018
United States - Financing Share
Retail installment and lease share of Ford retail sales (excl. Fleet)	65	%	56	%	55	%	56	%	55	%	58	%
Wholesale	76		76		76		76		76		76

Europe - Financing Share (incl. Fleet)
Retail installment and lease share of total Ford sales	37	%	37	%	37	%	37	%	37	%	38	%
Wholesale	98		98		98		98		98		98



	2016								2017
Ford Common Stock price per share (a)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
High	$	14.00	$	14.22	$	14.04	$	13.20	$	13.27	$	11.70	$	12.06	$	12.81
Low	11.02		12.00		11.90		11.07		11.41		10.67		10.47		11.87
Dividends per share of Ford Common and Class B Stock	0.40		0.15		0.15		0.15		0.20		0.15		0.15		0.15



	Lower/(Higher)
Volume and mix, exchange, and other	$	(3.9	)
Contribution costs
Material excluding commodities	(0.1		)
Commodities	(1.2		)
Freight and other	0.1
Warranty	—
Structural costs	(0.7		)
Special items	0.1
Total	$	(5.7	)



	Increase/(Decrease)
Net income	$	7.6
Shareholder distributions	(2.7		)
Other comprehensive income	—
Adoption of accounting standards	0.6
Common Stock issued (including share-based compensation impacts)	0.2
Total	$	5.7



	Increase/ (Decrease)
Net income	$	4.6
Dividends	(3.4		)
Other comprehensive income	(0.8		)
Compensation-related equity issuances	0.2
Treasury stock share repurchases	(0.1		)
Total	$	0.5


	For the year ended December 31, 2017												For the year ended December 31, 2018
Cash flows from operating activities	Automotive			Financial Services			All Other & Adjustments			Consolidated			Company excluding Ford Credit			Ford Credit			Eliminations		Consolidated
Net income	$	4,894		$	2,944		$	(210	)	$	7,628		$	1,471		$	2,224		$	—	$	3,695
Depreciation and tooling amortization	4,963			4,159			—			9,122			5,384			3,896			—		9,280
Other amortization	134			(803		)	—			(669		)	100			(1,072		)	—		(972		)
Provision for credit and insurance losses	6			711			—			717			—			609			—		609
Pension and OPEB expense/(income)	(608		)	—			—			(608		)	400			—			—		400
Equity investment (earnings)/losses in excess of dividends received	271			(31		)	—			240			231			(25		)	—		206
Foreign currency adjustments	(395		)	(8		)	—			(403		)	528			1			—		529
Net (gain)/loss on changes in investments in affiliates	(7		)	—			—			(7		)	(39		)	(3		)	—		(42		)
Stock compensation	233			10			3			246			183			8			—		191
Net change in wholesale and other receivables	—			(836		)	—			(836		)	—			(2,408		)	—		(2,408		)
Provision for deferred income taxes	651			(883		)	—			(232		)	573			(770		)	—		(197		)
Decrease/(Increase) in intersegment receivables/payables	7			(28		)	21			—			(558		)	558			—		—
Decrease/(Increase) in accounts receivable and other assets	(1,824		)	(470		)	(3		)	(2,297		)	(1,999		)	(240		)	—		(2,239		)
Decrease/(Increase) in inventory	(959		)	—			—			(959		)	(828		)	—			—		(828		)
Increase/(Decrease) in accounts payable and accrued and other liabilities	5,777			301			11			6,089			6,521			260			—		6,781
Other	307			(346		)	104			65			89			(72		)	—		17
Interest supplements and residual value support to Financial Services	(4,524		)	4,524			—			—
Interest supplements and residual value support to Ford Credit													(5,205		)	5,205			—		—
Net cash provided by/(used in) operating activities	8,926			$	9,244		$	(74	)	$	18,096		$	6,851		$	8,171		$	—	$	15,022

Reconciling Adjustments to Automotive Segment Operating Cash Flows*
Automotive capital spending	(7,001		)
Settlements of derivatives	217
Funded pension contributions	1,434
Separation payments	281
Other	51
Automotive Segment Operating Cash Flows	$	3,908



Cash flows from investing activities
Capital spending	$	(7,737	)	$	(48	)	$	—		$	(7,785	)
Acquisitions of finance receivables and operating leases	—			(62,924		)	—			(62,924		)
Collections of finance receivables and operating leases	—			50,880			—			50,880
Purchases of marketable and other securities	(13,508		)	(3,632		)	—			(17,140		)
Sales and maturities of marketable and other securities	15,356			5,171			—			20,527
Settlements of derivatives	132			226			—			358
Other	(174		)	(3		)	—			(177		)
Investing activity (to)/from other segments	2,711			154			(2,865		)	—
Net cash provided by/(used in) investing activities	$	(3,220	)	$	(10,176	)	$	(2,865	)	$	(16,261	)



Cash flows from financing activities
Cash dividends	$	(2,905	)	$	—		$	—	$	(2,905	)
Purchases of common stock	(164		)	—			—		(164		)
Net changes in short-term debt	(543		)	(2,276		)	—		(2,819		)
Proceeds from issuance of long-term debt	176			49,954			—		50,130
Principal payments on long-term debt	(1,642		)	(42,530		)	—		(44,172		)
Other	(42		)	(150		)	—		(192		)
Financing activity to/(from) other segments	(154		)	(2,711		)	2,865		—
Net cash provided by/(used in) financing activities	$	(5,274	)	$	2,287		$	2,865	$	(122	)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash	$	(153	)	$	(217	)	$	—	$	(370	)



	2017 Lower/(Higher) 2016			2018 Lower/(Higher) 2017
Volume and mix, exchange, and other	$	(3.9	)	$	(0.5	)
Contribution costs
Material excluding commodities	(0.1		)	(0.8		)
Commodities	(1.2		)	(1.6		)
Warranty	0.1			(1.1		)
Freight and other	—			(0.4		)
Structural costs	(0.7		)	(0.4		)
Special items	0.1			—
Total	$	(5.7	)	$	(4.8	)



	2017 vs 2016 Increase/ (Decrease)			2018 vs 2017 Increase/ (Decrease)
Net income	$	7.7		$	3.7
Shareholder distributions	(2.7		)	(3.1		)
Other comprehensive income	—			(0.4		)
Adoption of accounting standards	0.6			—
Common Stock issued (including share-based compensation impacts)	0.2			0.2
Total	$	5.8		$	0.4



	Basis Point Change		Increase/(Decrease) in December 31, 2018 Funded Status
		~~Point~~	Increase/(Decrease) in December 31, 2018 Funded Status				~~December 31, 2017 Funded Status~~
Factor		~~Change~~		U.S. Plans		Non-U.S. Plans
Discount rate - obligation	+/- 100 ~~bps.~~bps		$~~5,000/~~4,250/$~~(6,200)~~(5,150)		$~~5,000/~~4,450/$~~(6,500)~~(5,800)
Interest rate - fixed income assets	+/- 100		~~(4,800)~~(4,100)/~~5,900~~4,950		~~(3,400)~~(2,900)/~~4,400~~3,750
Net impact on funded status			$~~200/~~150/$~~(300)~~(200)		$~~1,600/~~1,550/$~~(2,100)~~(2,050)



			Worldwide OPEB
	Basis Point Change		(Increase)/Decrease ~~2017~~2018 YE Obligation	Increase/(Decrease) ~~2018~~2019 Expense
		~~Point~~
Factor		~~Change~~
Discount rate - obligation	+/- 100 ~~bps.~~bps		$~~700/~~600/$~~(900)~~(700)	N/A
Interest rate - service cost and interest cost	+/- 25		N/A	$5/$(5)



Assumption	Basis Point Change	Increase/(Decrease)
Frequency - repossession ratio	+/- 10 bps	$~~41/~~36/$~~(41)~~(36)
Loss severity per unit	+/- 100	~~5/(5)~~4/(4)



Assumption	Basis Point Change	Increase/(Decrease)
Future auction values	+/- 100 bps	$~~(123)~~(128)/$~~123~~128
Return volumes	+/- 100	~~23/(23)~~18/(18)



~~Standard~~ASU		Effective Date (a)
~~2016-18~~2018-16	~~Statement~~Inclusion of ~~Cash Flows - Restricted Cash~~	~~January 1, 2018~~
~~2016-16~~	~~Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory~~	~~January 1, 2018~~
~~2016-15~~	~~Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments~~	~~January 1, 2018~~
~~2016-01~~	~~Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities~~	~~January 1, 2018 (b)~~
~~2017-12~~	~~Derivatives and Hedging~~the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes	January 1, 2019 ~~(b)~~
~~2017-08~~2018-08	~~Nonrefundable Fees~~Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made	January 1, 2019
2018-07	Improvements to Nonemployee Share-Based Payment Accounting	January 1, 2019
2018-02	Reclassification of Certain Tax Effects from Accumulated Other ~~Costs - Premium Amortization on Purchased Callable Debt Securities~~Comprehensive Income	January 1, 2019
2016-02	Leases	January 1, 2019 (b) ~~(c)~~
2018-18	Clarifying the Interaction between Collaborative Arrangements and Revenue from Contracts with Customers	January 1, 2020
2018-17	Targeted Improvements to Related Party Guidance for Variable Interest Entities	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
2018-13	Fair Value Measurement - Changes to the Disclosure Requirement for Fair Value Measurement	January 1, 2020
2016-13	Credit Losses - Measurement of Credit Losses on Financial Instruments	January 1, 2020 ~~(b)~~
2018-14	Changes to the Disclosure Requirements for Defined Benefits Plans	January 1, 2021
2018-12	Targeted Improvements to the Accounting for Long Duration Contracts	January 1, 2021