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  2. 2. The full report, shown below, is online at: OVERVIEW Letter from Alan Mulally and Bill Ford Corporate profile Letter from Sue Cischke Assurance Ceres Stakeholder Team Data Overview OUR IMPACTS Materiality analysis Value chain VOICES Sheryl Connelly Ford Motor Company David Duesterberg Johnson Controls, Inc. Derrick Kuzak Ford Motor Company Sean McAlinden Center for Automotive Research Ian Olson Ford Motor Company Susan Rokosz Ford Motor Company Ingrid Skogsmo Volvo Car Corporation Eric Wingfield Ford Motor Company Susan Zielinski University of Michigan TOOL KIT GRI index Glossary + key terms Downloads ACCOUNTABILITY PRODUCTS AND ENVIRONMENT COMMUNITY SAFETY QUALITY OF FINANCIAL CUSTOMERS RELATIONSHIPS HEALTH Our full Web report is structured PROGRESS SINCE OUR LAST REPORT according to our Business CONTEXT Principles, above, and includes MANAGEMENT additional sections, above right. PERFORMANCE The discussion of each Principle DATA is organized according to the categories at right. CASE STUDIES
  3. 3. or a more sustainable future Welcome to Ford Motor Company’s 2006/7 Sustainability Report. This printed report covers the most material issues from our full report on the Web. These issues include mobility, climate change, human rights, vehicle safety and sustaining Ford, as CONTENTS well as our overall vision, strategy, challenges and opportunities. Letter from Alan Mulally and Bill Ford 2 Materiality analysis 4 Mobility 6 Climate Change 14 Human Rights 22 Vehicle Safety 28 Sustaining Ford 34 Letter from Sue Cischke 36 Data Overview 37 Assurance 39 Ceres Stakeholder Team 39 1
  4. 4. Letter from Alan Mulally and Bill Ford These are challenging times, not We see a clear relationship between our commitments on community engagement, Company’s challenges and these global corruption, the environment and sustainability. only for our Company but for sustainability challenges. For example, Our clear stance on human rights also helped us our planet and its inhabitants. consumers are increasingly concerned about high fuel prices, energy security and climate change. take swift and decisive action when an instance of slave labor was discovered in our supply chain. The markets for our products Global competition for resources makes us vulnerable to rising prices for some of the key Our manufacturing operations have integrated are changing rapidly, and there commodities we use to make our vehicles, sustainability goals and indicators into their is fierce competition including steel and petroleum-based materials. scorecards to drive progress. For example, we have cut global energy use by 27 percent and everywhere we operate. With these great challenges comes great water use by more than 25 percent since 2000. Collectively, we face daunting opportunity. The companies that make the high- quality products and services that consumers TECHNOLOGICAL INNOVATION global sustainability challenges, really value – and do so in ways that limit harm to As the pace of change accelerates, innovation is including climate change, the environment and maximize benefits to more important to our Company than ever. society – will be preferred in the marketplace. depletion of natural resources, And the companies that provide mobility Examples of Ford’s innovations can be seen on poverty, population growth, solutions to the world’s burgeoning mega-cities the road today, including nearly 47,000 Ford will tap into vital and growing markets. Escape Hybrid and Mercury Mariner Hybrid urbanization and congestion. vehicles. Globally, we have placed more than Despite the difficult year for our Company, we 5 million vehicles in service capable of running have progressed in the three key areas we on renewably produced ethanol fuel. We are outlined in our previous report: integrating promoting the development of infrastructure in sustainability issues into our operations, driving North America and Europe that will expand the technological innovation and undertaking use of these biofuels and help reduce our external dialogue and partnerships. dependence on oil. We have built 4 million vehicles globally with electronic stability control INTEGRATED STRATEGY systems. More than 1 million of those vehicles In April, we created a new position: Senior Vice feature Ford’s industry-exclusive AdvanceTrac® President, Sustainability, Environment and with Roll Stability Control™. Safety Engineering, responsible for setting strategy, establishing goals and integrating In the near future, you’ll see more innovation. sustainability across the Company. Our progress The 2008 Escape Hybrid will use seat upholstery in these areas will be reviewed regularly at made from 100 percent post-industrial material. meetings of our most senior executives. In New safety features will help drivers avoid addition, we will continue to work as a team to collisions through technologies like lane build on existing examples of integration, which departure warnings and assisted braking. include the following. Looking further out, technologies in Our North American product development development include the Escape Hybrid E85 function includes sustainability and vehicle demonstration fleet, which combines hybrid safety as “innovation pillars,” used to guide the technology with Flexifuel capability. This development of future products. For example, fleet joins test fleets of vehicles that run on our product planning explicitly considers long- hydrogen fuel cells and hydrogen internal- term emissions reductions that represent our combustion engines. contribution toward climate stabilization. And for a glimpse of what the future may hold, in Our procurement organization works with our early 2007 we demonstrated a driveable Ford suppliers to help them align their practices with Edge Plug-in Hybrid. This industry-first hybrid our Code of Basic Working Conditions. During uses a plug-in lithium ion battery and a hydrogen 2006, the Code was revised to include additional fuel cell generator. The system, called HySeries 2
  5. 5. Drive™, powers the vehicle 25 miles each day on about $1.00 of electricity from the grid before switching to the hydrogen fuel cell to extend the range. For a commuter traveling 50 miles per day this translates to more than 80 miles per gallon, zero emissions and a 70 percent reduction in fuel cost. EXTERNAL DIALOGUE AND PARTNERSHIPS Partnerships extend our own capabilities and our ability to innovate. We have partnered with our customers to help them offset greenhouse gas emissions from their vehicles. In the United States, we do this in partnership with TerraPass; in the UK, Land Rover is working with Climate Care to offset the emissions from the first three years that customers own their 2007 vehicles. We have numerous partnerships aimed at addressing climate change and energy security issues. Most recently, Ford joined the United States Climate Action Partnership (USCAP), an alliance of major businesses and leading climate and environmental groups that have come together to develop an economy-wide, market- driven approach to reduce greenhouse gas emissions. In addition Ford is the only automotive member of the Chicago Climate ALAN MULALLY AND BILL FORD Exchange, a voluntary initiative aimed at understanding the potential for carbon trading. We’re working with the energy company BP to In 2006, we lost $12.6 billion, largely due to provide a new generation of products with explore ways to reduce greenhouse gas emissions restructuring costs, and took the painful but significantly less impact on the environment. from fuels, increase energy security and seek necessary actions of closing plants and alternatives to the current reliance on petroleum. significantly reducing our workforce. In this We continue to make dramatic improvements in report, you will find a discussion of how we have vehicle quality. Our customers agree. In the 2007 We’re partnering with Northwestern University tried to manage our downsizing in a responsible J.D. Power Initial Quality Study Ford Motor on nanotechnology approaches to structural way. We are continuing to align our capacity with Company vehicles earned 14 vehicle honors, materials that have the potential to improve demand, accelerate the development of more than any other automaker. vehicle fuel economy. And we are participating in desirable new products and support our people the Prince of Wales International Business through the transition so they can focus as a We are firmly convinced that we will come Leaders Forum to examine the influence of team on the challenges ahead. We also are through the current crisis leaner but stronger, global poverty on our business and the roles we continuing to implement the product actions more nimble and more able to seize on the many might play in alleviating it. needed so that our Company can contribute to opportunities presented by the world’s climate stabilization. expanding need for sustainable mobility. LOOKING AHEAD The economic dimension of sustainability looms In the coming year, you will see us moving to large for the Ford of 2007. We must return to become more globally integrated and aligned to profitability in order to continue to contribute meet our goals. This approach will help us tackle President and CEO Executive Chairman to addressing global sustainability challenges. both business and sustainability challenges, and 3
  6. 6. Materiality analysis This report is intended to cover the sustainability issues we believe are most material to Ford. We define these issues as those that receive high scores on three criteria: HAVING SIGNIFICANT CURRENT OR POTENTIAL IMPACT ON THE COMPANY OF SIGNIFICANT CONCERN TO STAKEHOLDERS OVER WHICH FORD HAS A REASONABLE DEGREE OF CONTROL Our intention is to cover the most material Review of the analysis We have participated with other companies and issues in this print report. Our full report on The draft matrix was reviewed and revised organizations in documenting current methods the Web covers additional issues, including based on input gathered at an internal for materiality analysis with the expectation elements and indicators identified by the workshop of Ford employees representing a that this will help advance the practice. Global Reporting Initiative (GRI). variety of functions and geographic regions. It was then reviewed and revised again based To identify and prioritize material issues, we on a meeting of a Ceres stakeholder committee WHAT IS MATERIALITY IN A followed a three-step process. that included representatives of environmental SUSTAINABILITY REPORTING CONTEXT? NGOs and socially responsible investment Identification of material business issues organizations. See page 39 for further As sustainability reports have proliferated in We developed a list of more than 500 issues, discussion of the stakeholder group’s role. number, size and scope, companies have grouped into 15 topics, by reviewing Ford been called upon by sustainability experts business documents as well as comments USE OF THE ANALYSIS and others to focus their sustainability from employees, dealers and our major We have used this analysis to identify issues reporting on their most significant, or external stakeholders: customers, communities, to cover in our print and full Web reports, material, sustainability issues. For the suppliers, investors and NGOs. The documents and we plan to use it as an input to our purposes of this report, we consider material included Ford policies and business strategy sustainability strategy development. information to be that which is of greatest inputs, the Global Reporting Initiative interest to, and which has the potential to G3 Guidelines, summaries of stakeholder This analysis and the methods for conducting affect the perception of, those stakeholders engagement sessions, and reports from materiality analyses generally are works in who wish to make informed decisions and socially responsible and mainstream investors. progress. We improved the current analysis judgments about the Company’s compared to the analysis for our 2004/5 report commitment to environmental, social and Prioritization of the issues in several ways. First, we expanded the number economic progress. Thus, materiality as used We noted the frequency with which issues were of issues rated from 34 to 505, primarily by in this sustainability report does not share raised in the source documents and rated each analyzing them at a more granular level. We the meaning of the concept for the purposes issue as low, moderate or high for (1) current or added source documents - and in some cases, of financial reporting. potential impact on the Company in a three- to consultations - to better represent the views five-year timeframe, (2) degree of concern to of our full range of stakeholders, including stakeholders (by stakeholder group) and suppliers, dealers and communities, who were (3) Ford’s degree of control over the issue. not well represented in our prior analysis. We The ratings were averaged for Ford and also significantly strengthened the internal and SOURCES OF FURTHER stakeholders (with extra weight assigned external review of the draft matrix to subject it INFORMATION INCLUDE: to investors and multi-stakeholder inputs as to more rigorous “reality testing.” they are key audiences of our reporting) AccountAbility’s “The Materiality Report” to arrive at ratings for each issue. The issues But shortcomings remain. Sustainability issues and their ratings were then plotted on a are not discrete. Rather, they overlap and and the GRI reporting principles “materiality matrix,” found on the facing page. interconnect in a complex system that is We consider the issues in the upper right difficult to capture in a list of issues. Analyzing sector to be the most material. None of the issues by stakeholder group adds depth to our issues is unimportant; the position of each understanding of who is concerned about which in the matrix simply represents our issues and why, but in the process of placing understanding of its relative importance them on a two-dimensional matrix, some of that to the Company and its stakeholders. nuance is lost. Finally, an element of subjectivity is inevitable. 4
  7. 7. CONTROL OR INFLUENCE OF ISSUES Setting the agenda for the print section of ••• HIGH level of control or influence this report •• MID level of control or influence Ratings of control or influence reflect Ford’s contribution to an issue through its operations and Setting the agenda for the rest of the report • LOW level of control or influence product offerings. Factors that can reduce Ford’s at and control or influence include, among other things, future reporting technology limitations, costs and consumer demand. Community Climate change Community engagement ••• Low carbon strategy ••• Vehicle GHG emissions •• Community impacts and contributions ••• Fuel economy ••• Advanced cleaner technologies •• HIGH Climate change Clean/alternative fuels •• Public policy: GHG /fuel Physical risks •• economy regulation •• Energy security • Mobility and emerging markets Products and services strategy ••• Role in emerging markets •• Safety Vehicle safety •• Ford financial viability Managing downsizing ••• Profitability level and timing •• Legacy and health care costs •• Other costs •• Competitive factors •• Product competitiveness ••• Risks • Quality ••• Human rights Supply chain practices ••• Other issues •• CONCERN TO STAKEHOLDERS Governance Sustainability strategy Sustainability strategy Shareholder concerns (resolutions) ••• Sustainability reporting ••• Sustainability vision and management ••• Operations Public policy Governance Hazardous pollutants ••• Political payments/contributions ••• Ethical business practices ••• Land and nature ••• Operations Operations Other environmental issues: spills, nuisances, Environmental management ••• Environmental Energy use/oil consumption ••• Water use ••• logistics ••• compliance ••• GHG emissions ••• Mobility and emerging markets Product Product Emerging markets vehicle and road safety •• Life cycle assessment ••• In-vehicle air quality ••• Tailpipe emissions •• Materials use ••• MEDIUM Product Ford as employer End of Life management •• Product compliance ••• Noise •• Employees/labor practices/decent work ••• Safety Diversity: equal opportunity ••• Workplace health and safety ••• Product Supply chain Marketing communications/demand Supplier relationships •• creation/advertising ••• Mobility and emerging markets Congestion • Ford financial viability Future availability of fossil fuels • Product Product Public policy Labeling ••• Customer privacy ••• Increasing and inconsistent global environment Foreign v. domestic vehicles • Supply chain and safety regulations •• Energy, materials, waste in supply chain •• Operations Ford as employer Air emissions (other than GHGs) ••• Waste Diversity: advertising practices •• generation and management ••• Ford as employer Employee morale and teamwork ••• Ford financial viability Dealer relationships •• LOW LOW MEDIUM HIGH CURRENT OR POTENTIAL IMPACT ON COMPANY 5
  8. 8. Mobility Several trends within our industry – and the global economy broadly – have led Ford to reexamine the concept of mobility and, with that, the products and services we offer. For example, as developing countries gain economic momentum, their citizens are seeking levels of personal mobility long enjoyed by people in the developed world. This poses opportunities and challenges for Ford, and for society more generally. BRIGADE ROAD, BANGALORE, INDIA If developing countries adopt the same unsustainable approaches to mobility that have been used in developed countries, it will further strain environmental and social systems. At the same time, meeting mobility needs in these markets will help improve economic opportunity and quality of life. For Ford, developing markets represent a significant business opportunity. However, economic and cultural differences between those markets and the developed markets we have traditionally served mean we need to fundamentally rethink how we meet their needs. This section describes what Ford is doing to deepen our understanding of the future of mobility and develop new products, services and business models to effectively and profitably offer sustainable mobility solutions for all of our global customers. ON THE WEB SITE IN THE PRODUCTS AND CUSTOMERS SECTION Responding to changing markets Leading with products Advanced clean technologies Improving quality and customer satisfaction Nanotechnology The Piquette project 6
  9. 9. DEVELOPING SUSTAINABLE All of these types of emerging markets Ultimately, sustainable represent a significant business opportunity for MOBILITY STRATEGIES FOR mobility solutions will be Ford, and also offer us the chance to provide EMERGING MARKETS personal mobility options that improve required across all markets. Emerging markets are an important environmental and social well-being. In source of growth in the automotive developing countries and revitalizing economies, But the development of more industry. We have been focusing on three customers are actively seeking increased access sustainable options – whether to personal mobility. Meeting the needs of these primary types of emerging markets: customers will help them to improve their for developing country markets economic opportunity and quality of life. In or high-growth niches in the developed markets, increased demand for 1. Developing countries such as China, India hybrids and other advanced clean technologies United States or Europe – and Brazil, where economies are growing enable us to bring to market technological requires a significant rapidly. Developing countries are innovations that not only reduce environmental impacts today, but also have the potential to investment in new technologies projected to account for the highest growth in demand for vehicles and improve the environmental performance of all and coordination between personal mobility. our products over the long term. automotive companies, fuel Emerging markets also pose challenges. For and energy companies, 2. Revitalizing economies including example, the majority of potential consumers in governments and consumers. developing countries survive on less than five countries such as Russia that are dollars a day. As a result, Ford will need to experiencing periods of high growth develop new products, services and business after prolonged periods of economic To date, Ford is focusing models that are accessible to these consumers, stagnation. Revitalizing economies also include areas within developed economies and effectively and profitably meet their efforts on: mobility needs. that have experienced decline but are Expanding our product offerings undergoing economic renaissance. More importantly, unless developing countries in developing countries and adopt more sustainable approaches to personal revitalizing economies mobility than those used in developed 3. High-growth niches within developed countries, greenhouse gas emissions and Taking a new approach to personal markets such as the United States and traffic-related fatalities will continue to mobility in developing countries Europe, which overall show little growth increase, and congestion will bring mobility in in sales volume. Some of these niches growing cities to a grinding halt. Developing advanced clean technologies include hybrid vehicles and other that meet market needs and improve advanced clean technologies; smaller, environmental performance more fuel-efficient vehicles; luxury 200,000 vehicles; crossover vehicles; and vehicles that run on flexible or alternative fuels such as ethanol and biodiesel. Many of the high-growth segments in developed automotive markets reflect increased demand for units of additional capacity more sustainable mobility solutions. in China in 2006 for Ford (see page 8) 7
  10. 10. 92% EXPANDING OUR PRODUCT Given our knowledge and experience, OFFERINGS IN DEVELOPING we also believe this is an area in which COUNTRIES AND Ford may be able to have particular REVITALIZING ECONOMIES positive impact. increase in sales of Ford-brand We know that the highest growth in vehicles in Russia in 2006 IDENTIFYING MEGA-TRENDS demand for vehicles will be in Over the past year, Ford has undertaken an developing countries such as China and intensive research effort to identify and India. In response, we are increasing our In India, we recently launched the Fusion, a small understand global “mega-trends” that we must SUV, and the Fiesta sedan, with great customer respond to if we are to deliver sustainable production capacity in China, India and feedback. In fact, Ford ranked second for mobility solutions. the rest of Asia, as well as launching Customer Satisfaction in India by J.D. Power new products in these and other Asia Pacific. In 2007, we will begin producing The top five mega-trends, which are changing developing markets to meet consumer and selling the S-MAX multi-purpose vehicle and transportation and business realities across the Volvo S40 in China. We have experienced rapid globe, are as follows: needs and remain competitive. growth in some of these developing and revitalizing markets. Ford’s share of the Turkish Last year, we increased our production capacity in China to 200,000 units annually at the market increased to 17.1 percent – the fifth year in a row that the Ford brand has led the 1 Climate change and greenhouse gas emissions Changan Ford plant in Chongqing. This plant market in sales in Turkey. In Russia, sales of produces the Mazda 3 and Volvo S40, among other vehicles. We also completed a new Ford-brand vehicles increased approximately 92 percent to 116,000 units in 2006. Our sales 2 Rapid urbanization assembly and engine plant in conjunction with in the Asia Pacific region were up 9 percent in Mazda in Nanjing, China. This plant will produce 160,000 vehicles annually at the outset and 2006, with the majority of the growth occurring 3 Congestion associated with a rapid increase in vehicles and in China and India. Sales in South America were traffic in urban areas could increase to 200,000 annually. up 14 percent in 2006, from 335,000 to FORD PLANT, CHINA 381,000 units sold. 4 Social inequality, including increasing income inequality and This recent sales growth represents a significant associated social issues achievement for the Company. At the same time, we know that our long-term success in these developing and revitalizing economies will 5 Shifting demographics, especially an increase in older populations depend on our offering new types of mobility in developed countries and an solutions that are increasingly sustainable and increase in younger populations tailored to the unique needs of these markets. in developing countries Our sustainable mobility strategy is aimed at ensuring we do just that. These mega-trends are especially important in developing countries, where the negative ADDITIONAL WEB CONTENT impacts of a rapid increase in vehicles are outpacing the positive impacts of mobility 2006-07/additional.htm in many areas. In fact, in many developing countries, these trends are combining in massive TAKING A NEW APPROACH TO and rapidly growing urban conglomerations called “mega-cities,” which are a primary focus of PERSONAL MOBILITY IN our efforts to develop sustainable mobility DEVELOPING COUNTRIES solutions in emerging markets. We believe that providing sustainable mobility solutions for customers in developing countries is one of the key business, social and environmental challenges of the 21st century. 8
  11. 11. CONGESTION IN MUMBAI MEGA-CITIES: THE ICON OF PERSONAL MOBILITY CHALLENGES Mega-cities are urban areas with more than 10 million residents. There are already at least 25 mega-cities worldwide. Twenty are located in the developing world, as are seven of the nine most populous. By 2015, there are projected to be at least 35 mega-cities, with virtually all the growth in developing countries. Mega-cities often experience a wide range of social and environmental problems, many of them related to mobility. 35 mega-cities by 2015 with more than 10 million residents each All of the mega-trends we have identified, Additionally, we appreciate that it will require The WBCSD defines sustainable mobility as well as other challenges to sustainable us to explore new types of business and broadly as the need for individuals and societies mobility, are at their worst in mega-cities, partnership models to develop and bring to to move freely, gain access, communicate, trade including paralyzing traffic congestion, air market successful mobility solutions in and establish relationships, without sacrificing pollution, vehicle-related injuries and fatalities, developing countries. other essential human and ecological values. and health problems. Furthermore, social This broad definition and systems-thinking inequality and the dislocation of families and approach has guided our approach to meeting communities are increasing as people move ADDITIONAL WEB CONTENT the challenges of providing sustainable mobility from rural areas to mega-cities seeking in developing countries. economic opportunities. Developing mega-city 2006-07/additional.htm mobility strategies will require addressing the In addition to our engagement with the WBCSD, mobility needs of rural as well as urban Ford participates in a number of other initiatives residents, as many mega-city problems could PARTNERSHIPS AS AVENUES FOR aimed at developing more sustainable be improved by developing new approaches to LEARNING AND ACTION approaches to mobility in emerging markets. the transportation of people and goods In our view, developing practical, broad-based For example: between rural and urban areas, and by sustainable mobility solutions will require the reducing the need for rural–urban migration. combined efforts of transportation companies, The World Resources Institute/EMBARQ energy companies, governments and consumers. project, which is working to develop NEW APPROACHES TO DEVELOPING MARKETS That is why partnerships have been a key sustainable mobility solutions for urban areas We are exploring new strategies for element of Ford’s sustainable mobility strategy. in developing countries. Our first joint project developing country markets that take into is working to reduce vehicle emissions and consideration these economic, cultural and For the past six years, Ford has been a sponsor traffic congestion in Istanbul, Turkey, by infrastructure characteristics. Central to our and participant in the Sustainable Mobility understanding mobility patterns, needs and approach is the recognition that, because project of the World Business Council for opportunities. these markets are different than the ones Sustainable Development (WBCSD). This project Ford has historically served, we need to brings together the insights and viewpoints of a The Global Road Safety Initiative, conduct extensive stakeholder engagement to wide range of corporations and global thought a collaboration with multiple companies and help us understand the wants and needs of leaders to develop a vision for sustainable governmental agencies that aims to reduce consumers in developing countries. mobility and to define the challenges and traffic-related fatalities through best- possible pathways for reaching this vision. practice transfer and educational outreach. 9
  12. 12. Sustainable Mobility and Accessibility In the coming year, we plan to identify in which Research and Transformation (SMART), developing markets we will initially pilot some a joint project with the University of of these new approaches to sustainable Michigan that uses a collaborative, systems- mobility. We recognize that having the trust and thinking approach to meet future mobility interest of local communities, governments and and accessibility needs in an ecologically consumers in these markets will be critical to sound and socially sustainable manner. our ability to test and launch these new approaches. As a result, we intend to focus on The Prince of Wales Forum, a gathering of locations where Ford already has a presence global businesses that aims to promote and has developed a strong reputation for responsible business leadership and ethical behavior, respecting human rights and partnerships for social, economic and contributing to the local community. We are environmentally sustainable international working with the University of Michigan’s joint development, particularly in new and emerging Business and Environment program – the Erb market economies. Ford has participated in Institute for Global Sustainable Enterprise – to the Forum’s Business and Environment and develop a set of criteria for evaluating the best Business and Poverty programs. markets in which to pilot new approaches. To help us identify how Ford can best Once we have identified specific markets, we plan contribute to the development of sustainable to undertake extensive research and stakeholder “The overarching message of the future of mobility is mobility solutions, we are integrating what engagement with new and existing partners, connectivity – among technologies, modes and services, we learn from our involvement in these community members and others to help us across government departments and among various partnerships with our own research on global understand the mobility needs, opportunities and industry sectors that can innovate (and benefit from) the development of a vital “New Mobility” industry. This isn’t trends and advanced technologies. challenges in those locations. This input will help necessarily going to be easy, but in the case of New us develop new products, services and business Mobility, even incremental changes that come from models to better meet the needs of consumers in connecting the dots can have dramatic effects.” ADDITIONAL WEB CONTENT those and other developing countries. For more commentary visit go/sustainability 2006-07/additional.htm SUSAN ZIELINSKI Managing Director, Sustainable Mobility and Accessibility Research and Transformation (SMART), University of Michigan in Ann Arbor PLANS FOR THE FUTURE Over the long term, we believe that successful and sustainable mobility may require radical ISTANBUL, TURKEY redefinitions of traditional mobility products and vehicle transactions, and whole new categories of mobility services may evolve. Towards this end, Ford is developing a portfolio of new approaches to personal mobility, incorporating input from our global operations and sustainable mobility partners, which includes ideas for everything from advanced powertrains and fuels to closed-loop materials to new business models for approaching personal transportation. 10
  13. 13. ADVANCED CLEAN TECHNOLOGIES Technological innovation is central to its Ford, Jaguar, Land Rover and Volvo brands. in areas such as hybrids, advanced clean Ford’s strategy to develop sustainable This is the largest commitment ever to the diesels, biofueled vehicles, hydrogen internal- environment by an automaker in the UK. This combustion engines and hydrogen fuel cell mobility solutions that meet current and work will be focused on implementing as many vehicles. We are also researching the viability of emerging market needs, and improve the new technologies on as many production plug-in hybrids, though major hurdles remain in environmental performance of our vehicles as possible in order to make a battery technology. We believe it is important significant and near-term impact on carbon to develop a variety of different engine and fuel products, including their impact on dioxide emissions. Specific technologies under technologies, as different technologies will be climate change. development include next-generation aluminum appropriate for different regions and driver lightweight vehicles; hybrid technologies; operating conditions. We believe that demand for clean, fuel-efficient downsized direct-injection gasoline engines; vehicles will continue to increase, driven by advanced diesel engines; Powershift Further information about these technologies concerns about energy security and climate transmission and other new transmission can be found in the table on the following pages change, along with consumers’ growing interest technologies that will significantly reduce and on the Web site. in fuel economy. In response, we are developing greenhouse gas emissions; and a range of and implementing new products and advanced technologies to encourage more fuel-efficient technologies to both meet market demands driving behavior, including information systems ADDITIONAL WEB CONTENT and help contribute to climate stabilization. and fuel-efficient driving modes. (See page 19 for further discussion of how 2006-07/additional.htm Ford is using technology to help address MEETING THE DEMANDS OF HIGH-GROWTH climate change.) NICHE MARKETS For the longer term, our Sustainable Mobility IMPROVEMENTS IN OUR CURRENT FLEET Group is coordinating the development of next- In the short term, we are working to better generation, advanced technologies to achieve the fuel economy of our existing products breakthrough advances in fuel efficiency, through incremental improvements in emissions reduction and energy independence internal-combustion technology, such as direct injection turbocharged gasoline engines and new transmission technologies. For example, the “Twin Force” Duratec, a 3.5-liter DEVELOPING TECHNOLOGIES TO REDUCE VEHICLE EMISSIONS turbocharged gas engine with direct fuel injection, will deliver V-8 power and RENEWABLE DIESEL ADVANCED CURRENT performance with better fuel economy. DIESEL HYBRID DIESEL GASOLINE Powershift, a dual clutch system, will provide 0.07 fuel economy comparable to a manual TIER 2 BIN 5 STAGE V transmission with the driving ease and LIMIT OF POWERTRAIN TECHNOLOGY Tailpipe NOx emissions (g/mile) convenience of an automatic. To achieve advances approaching zero CO2 will require infrastructure changes: Several fuel-saving measures can be applied • Renewable fuels (hydrogen or biofuels) regardless of engine type, including reducing • Carbon sequestration the vehicle’s weight, decreasing tire rolling resistance and improving aerodynamics. 0.02 We are using these approaches in current GASOLINE ADVANCED HYDROGEN PZEV RENEWABLE vehicles and those under development to the SPARK IGNITION HYBRID GASOLINE NATURAL GAS SPARK IGNITION extent possible. 0 ZEV RENEWABLE HYDROGEN In addition, Ford’s division in Europe recently HYDROGEN NATURAL GAS FUEL CELL FUEL CELL announced plans to spend at least £1 billion (approximately $2 billion) developing a range of 0 50 100 150 200 250 300 global environmental technologies in the UK for Well-to-wheels CO2 (g/km) 11
  14. 14. ADVANCED CLEAN TECHNOLOGIES Ford Focus Mercury Mariner Ford 2008 F-Series Super Duty IMPROVING FUEL ECONOMY OF CURRENT VEHICLES HYBRID ELECTRIC VEHICLES ADVANCED CLEAN DIESELS OVERVIEW OVERVIEW OVERVIEW Smaller cars and crossovers provide more fuel-efficient Ford’s hybrids use both a gas and an electric engine Clean diesel technologies utilize ultra-low sulfur diesel fuels vehicle options to improve fuel efficiency and advancements in transmission and powertrain Fuel economy can also be improved through refinements to The electric engine is recharged by capturing technologies to provide cleaner, more fuel-efficient vehicles engine technologies and transmissions, better aerodynamics braking energy and use of lightweight materials, low-rolling-resistance tires and other technologies BENEFITS BENEFITS BENEFITS Provides more fuel-efficient vehicle options immediately The 2008 MY2.3L Escape Hybrid has 89 percent better fuel economy Diesel vehicles can increase fuel economy by up to 30 percent No compromise in functionality, style or performance in city driving when compared to the 3.0LV6 gasoline model which has and reduce greenhouse gas emissions by approximately New transmission technology will significantly improve similar engine performance. When compared to the 2.3L Escape I4 20 percent fuel economy gasoline, the hybrid powertrain still offers a fuel economy improvement Clean diesel fuel is widely available in the United States Uses existing fuel and fueling infrastructure in city driving of 70 percent while offering superior power. and Europe, and is becoming available in other regions Technology is available and on the road today Uses existing fuel and fueling infrastructure KEY CHALLENGES KEY CHALLENGES KEY CHALLENGES Some technologies increase costs There is a substantial purchase cost premium Consumers have lingering negative misperceptions about Smaller vehicles may not meet the capacity and hauling needs Battery technology needs to be improved to provide diesel vehicles, especially in the United States of some customers longer electric power range and reduce the size of Fuel-quality improvements are required globally to take battery storage full advantage of advanced diesel technology Battery costs need to be reduced significantly to make hybrid Difficult to meet stringent U.S. emissions standards for electric vehicles more competitive with conventional vehicles air-quality pollutants, even with cleaner diesel fuels Incremental purchase price increase for consumers ON THE ROAD ON THE ROAD ON THE ROAD In all of our global markets, we offer a variety of small vehicles Ford has two hybrid vehicles on the road today: the Ford Escape Diesel vehicles are widely used globally – for example, they including the Ford Focus, Ford Fiesta and Ford Ka and Mercury Mariner Hybrid compact SUVs make up 50 percent of the total new vehicle fleet in Europe In 2006, we introduced the Ford Fusion, Mercury Milan and In 2007, we will launch a hybrid version of the Mazda Ford’s 2008 F-Series Super Duty pickup trucks will use the Lincoln MKZ sedans and the Ford Edge and Lincoln MKX Tribute SUV first of a new generation of cleaner, quieter, advanced diesel crossovers in North America. These vehicles provide much of In 2008, we will launch hybrid versions of the Ford Fusion engines for the North American market the functionality of SUVs in a more fuel-efficient package and Mercury Milan sedans In 2007, European Volvo V50 and S40 diesel models will be In Europe, South America and Asia, we offer a smaller available with Powershift dual clutch technology, which “B-car” vehicle improves fuel economy over conventional transmissions In 2007, the Volvo S40 and V50 diesel models will have the A diesel version of the Ford F-150 pickup truck has Powershift dual clutch system been announced Please see Global Product chart on the Web for details of diesel models and global availability UNDER DEVELOPMENT UNDER DEVELOPMENT UNDER DEVELOPMENT We are improving fuel economy across our products globally We are working on developing next-generation hybrid technology Ford engineers are working on next-generation clean In 2008, a redesigned Ford Focus sedan will be launched in including plug-in hybrids and combining hybrid technologies with diesel technologies that will further reduce emissions from North America Flexifuel and diesel technology and hydrogen fuel cells diesel vehicles We are developing more crossover vehicles We announced a new Ford “B-car” smaller sedan for North America 12
  15. 15. Ford F-150 Sport H2ICE Shuttle Bus Ford Focus Fuel Cell BIOFUELED VEHICLES HYDROGEN INTERNAL-COMBUSTION ENGINE (H2ICE)VEHICLES HYDROGEN FUEL CELL VEHICLES OVERVIEW OVERVIEW OVERVIEW Biofueled vehicles run on bio-ethanol, a gasoline equivalent, These vehicles can burn hydrogen fuel in existing Fuel cell vehicles use super-efficient energy production and biodiesel, a diesel equivalent. These fuels are currently internal-combustion engine technology technologies and provide extremely low emissions derived from plant sugars BENEFITS BENEFITS BENEFITS Requires relatively inexpensive changes to vehicle technology Provides a near-zero emission vehicle (tailpipe) Provides a completely zero-emission vehicle compared to other alternative fuels such as hydrogen Provides a bridge from existing internal-combustion engine (tailpipe emissions) Little increase in vehicle purchase cost or fuel costs technology to hydrogen fuel cell vehicles Provides breakthrough reductions in fuel economy compared to other alternative fuels such as hydrogen Could drive development of hydrogen fuel infrastructure A renewable fuel source that reduces life cycle greenhouse gas emissions and, if produced locally, can increase energy independence KEY CHALLENGES KEY CHALLENGES KEY CHALLENGES Full realization of environmental and economic Hydrogen ICE technology is not currently cost- Costs must be reduced by orders of magnitude to make this benefits will require development of next-generation competitive with traditional vehicles technology competitive biofuels that can be produced more efficiently and On-board hydrogen fuel storage limits passenger and See challenges listed for Hydrogen Internal-Combustion utilize cellulosic and waste materials as feed stocks cargo capacity Engine vehicles for fuel production Current hydrogen storage technology does not allow Widespread use will require investment in biofuels acceptable driving range between refuelings transportation and fueling infrastructure Hydrogen infrastructure is in its infancy Hydrogen must be made from renewable sources to provide a “well-to-wheels” emissions reduction ON THE ROAD ON THE ROAD ON THE ROAD Ford has more than 5 million vehicles on the road capable Ford has a fleet of 30 H2ICE shuttle buses on the road Ford has a fleet of 30 Focus Fuel Cell vehicles on the road of running on high blends of ethanol, mostly in Brazil and today in Florida as part of that state’s Hydrogen Highway today collecting real-world information on driving North America initiative and in Canada as part of the national government’s performance. We will accumulate 30,000 miles on each of All of Ford’s diesel vehicles can run on up to 5 percent biodiesel hydrogen advancement program the 30 FCVs over a three-year demonstration project We have committed to producing 50 percent of our vehicles as Flexifuel capable in North America by 2012 if market demand and fueling infrastructure support it We are working to expand access to biofuels in the United States through partnerships with BP and VeraSun, including in the E85 ethanol corridor In Europe, we have multiple partnerships to increase availability of biofuels, including BioEthanol for Sustainable Transport, or BEST, and PROCURA Ford currently sells 14 Flexifuel vehicle models: the Ford Crown Victoria, Mercury Grand Marquis, Lincoln Town Car and Ford F-150 in North America; the Ford Mondeo, S-MAX, Galaxy, C-MAX and Focus, and the Volvo XC60 in Europe; and the Fiesta, EcoSport and Focus in Brazil UNDER DEVELOPMENT UNDER DEVELOPMENT UNDER DEVELOPMENT We are supporting development of the next generation of Ford engineers are continuing to improve H2ICE Ford is working on next-generation fuel cell technologies biofuels and developing vehicles capable of utilizing technologies and better understand hydrogen including using nanotechnology to develop more efficient fuel cellulosic biofuels and other advanced biofuels. These infrastructure challenges cells and hydrogen storage fuels will continue to improve the environmental, climate change and energy security benefits of biofuels 13
  16. 16. Climate Change The growing weight of evidence holds that man-made greenhouse gas emissions are starting to influence the world’s climate in ways that affect all parts of the globe. With the publication of the Intergovernmental Panel on Climate Change report in February 2007, the scientific consensus around the likelihood of climate change and the need for timely action has strengthened. Concerns about climate change – along with growing concerns over the use and availability of fossil carbon- based fuels – affect our operations, our customers, our investors and our communities. WIND POWER AT DAGENHAM DIESEL CENTRE ON THE WEB SITE IN THE ENVIRONMENT SECTION Environmental management Water use Greenhouse gas emissions/fuel economy VOCs Tailpipe emissions Waste generation Materials Land use Manufacturing energy use Environmental compliance and remediation 14
  17. 17. CLIMATE CHANGE RISKS AND advanced vehicle technologies. The climate These market shifts and regional concerns change issue is also linked to concerns about are very significant to our Company. In North OPPORTUNITIES and actions to address congestion, particularly America, although our sales market share for The business climate is also changing. in city centers. cars increased in 2006, the shift away from Since our last report, governments, SUVs and light trucks, our most profitable companies, investors and consumers In the markets in which we operate in Asia, the vehicles, contributed to our loss of revenue rapid growth in vehicle sales is raising concern and overall market share. Elsewhere in the have tackled climate change in about emissions and congestion. A focus on world, where our profitability is less dependent ways that present new risks and energy independence is also growing along on large vehicles, we have been less affected. opportunities, and place the issue with the rapid rise in demand for energy. Everywhere we operate, the future financial squarely on the agenda for global health of our Company depends on our ability In Brazil, consumers have embraced renewable to predict market shifts of all kinds, including companies. This section summarizes ethanol as an economical, locally produced those resulting from consumer concerns over current market, regulatory, investment, alternative to imported oil. This has come about fuel prices, greenhouse gas (GHG) emissions and physical risks and opportunities, via 30 years of coordinated effort between and energy security, and our ability to be the government, consumers, fuel providers ready with the products and services our while the following section summarizes and automakers. customers demand. our strategic response. ADDITIONAL WEB CONTENT ADDITIONAL WEB CONTENT 2006-07/additional.htm 2006-07/additional.htm MARKETS The United States, once a major producer and exporter of oil, has seen oil production decline at the same time that gasoline and other U.S. ENERGY SECURITY oil consumption has continued to grow, making the country steadily more dependent on 2.9 trillion imported oil and leading to concerns over energy security. (See box at right.) Coupled with 719 billion the rapid rise in gasoline prices during 2005 and 2006, this has led to greater consumer interest TOTAL MILES TRAVELED in more fuel-efficient vehicles. Concerns about fuel economy track fuel prices and drive buyers to shift from larger vehicles and light trucks to smaller vehicles, cars and 13% 38% 63% crossovers. During 2006, small cars and crossover utility vehicles, which generally have CRUDE OIL better fuel economy than large cars and truck- IMPORTS based SUVs, were the fastest (and some of the only) growing segments of the U.S. market. 137 In Europe, where awareness of climate change 101 and vehicle CO2 emissions is relatively high and 61 growing, already high fuel prices have also risen GASOLINE sharply in recent years. This has continued to CONSUMED (Billions of gallons) reinforce interest in diesel-powered vehicles, which now account for around half of new 1960s 1970s 1980s 1990s 2000s vehicle sales in the EU, and other environmentally 15
  18. 18. REGULATIONS Ford’s product offerings comply with the Our response to the issue is an additional – and As a global automobile manufacturing company, appropriate 2005 MY standards and are fully increasingly important – element of our overall regulations related to GHGs affect many areas expected to comply with the 2008 MY competitiveness. Thus, providing climate of our business, including our manufacturing standards as well. change-relevant information to investors and facilities and the emissions from our vehicles. shaping our business strategy with climate Other countries in the Asia Pacific region change in mind are important elements of The GHG regulatory landscape is changing rapidly: have introduced stringent fuel economy maintaining access to capital. requirements, including Japan (2010) and In the United States, CO2 emissions from Korea (2006/2009). PHYSICAL RISKS vehicles have been regulated through Extreme weather such as the severe hurricanes Corporate Average Fuel Economy (CAFE)1 We have established global roles, responsibilities, the United States experienced in the Gulf of requirements for more than 30 years. Unlike policies and procedures to help ensure Mexico in 2005 disrupts the production of some of our competitors, Ford has complied compliance with emissions requirements and natural gas, a fuel necessary for the with CAFE standards throughout the life of the participate in trading initiatives worldwide. manufacture of vehicles. Supply disruptions program. New light truck CAFE standards were raise market rates and jeopardize the recently promulgated, and they are set to The regulation of vehicle fuel economy and GHG consistency of vehicle production. To minimize increase each year from 2005 through 2011. emissions has a significant impact on our the risk of production interruptions, Ford has These will pose a significant challenge for current and future product offerings. We expect established firm delivery contracts with natural companies like Ford that produce light trucks. regulation to increase in the future, and it is in gas suppliers and installed propane tank farms California and several other states have the interest of our Company and society to at key manufacturing facilities as a source of adopted regulations limiting GHG emissions reduce the uncertainty and increase the backup fuel. from motor vehicles, a move that both the predictability of policy frameworks and market automobile industry and the federal conditions around the issue of climate change. Although increased energy rates have a government believe is preempted by the We are committed to being a constructive significant cost impact to the Company, they do federal CAFE law. The litigation over these participant in the formulation of policies to increase awareness of energy conservation, its regulations is discussed in more detail on reduce GHG emissions across the entire impact on the environment and the need for page 21 and in our full Web report. economy and promote energy security. alternative energy solutions. Increased utility rates have prompted Ford Motor Company to In Europe, GHG emissions from INVESTMENT COMMUNITY revisit energy efficiency actions that previously manufacturing facilities are regulated Both mainstream investment analysts and those did not meet our internal rate of return. These through a combination of emission limits and who practice “Socially Responsible Investing” projects include the replacement or upgrade of market-based mechanisms. The EU Emission (SRI) have begun to assess companies in the heating, ventilating and cooling systems, Trading Scheme regulations apply to 15 auto sector for their exposure to climate risks lighting and vehicle painting systems. Ford Motor Company (including Premier and their positioning to take advantage of Automotive Group) facilities in the UK, opportunities created by the issue. The Carbon HEIGHTENED RISK AND OPPORTUNITY Belgium, Sweden, Spain and Germany. Ford Disclosure Project, for example, provides Altogether, this changing landscape presents anticipated the start of the EU Emission investors with a standard set of disclosures significant risks for our Company, particularly in Trading Scheme and established internal about company responses to climate change. the short term due to market shifts and business plans and objectives to maintain We have participated in the project since its regulatory trends. In the longer term, the steps compliance with the new regulatory inception and have submitted four publicly described below will put our Company in a good requirements. The EU has taken steps to available reports ( position to offer innovative products and propose stringent regulation of CO2 services to serve the mobility needs of emissions from vehicles, following the 2008 established and emerging markets. Also see end of a voluntary reduction commitment ADDITIONAL WEB CONTENT the Mobility section. by the European auto industry. The proposed regulation is planned to be effective 2006-07/additional.htm FORD RESPONSE TO THE RISKS AND from 2012. The feedback we receive from regular OPPORTUNITIES OF CLIMATE CHANGE The Chinese government has introduced communications with mainstream investors We take the issue of climate change weight-based fuel consumption standards suggests that their primary interest at this seriously, and we have for some time. for passenger cars and trucks. The standards point is in our plans to return to profitability. began with 2005 model year (MY) passenger However, these investors recognize, as we do, Ford was the first automaker to estimate its vehicles and increase in stringency for 2008 that the success of those plans is affected by total GHG emissions from our facilities and MY vehicles. Proposed standards for growing carbon constraints and market shifts Ford vehicles. We have updated that estimate commercial trucks start in 2008. All of influenced by concerns over climate change. for this year. (See box above right.) 16