Ford 2014 Annual Report Download - page 24

Item 1A. Risk Factors (Continued)
18
In recent years, we have made significant changes to our product cycle plan to improve the overall fuel economy of
vehicles we produce, thereby reducing their 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 cost to comply with existing government regulations is substantial,
and future, 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. For more discussion of the impact of such
standards on our global business, see the “Governmental Standards” discussion in “Item 1. Business” (“Item 1”) above.
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.
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.
A change in requirements under long-term supply arrangements committing Ford to purchase minimum or
fixed quantities of certain parts, or to pay a minimum amount to the seller (“take-or-pay” contracts). We have
entered into a number of long-term supply contracts that require us to purchase a fixed quantity of parts to be used in
the production of our vehicles. If our need for any of these parts were to lessen, we could still be required to purchase
a specified quantity of the part or pay a minimum amount to the seller pursuant to the take-or-pay contract, which could
have a substantial adverse effect on our financial condition or results of operations.
Adverse effects on results from a decrease in or cessation or clawback of government incentives related to
investments. 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 as we have
increased our investment and manufacturing presence in Brazil, and we expect this favorable impact to continue for
the next several years. In Brazil, 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, including a constitutional challenge of state incentives that is pending in Brazil’s Supreme Court. 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 discussion of tax proceedings in Brazil.
Inherent limitations of internal controls impacting financial statements and safeguarding of assets. Our
internal control over financial reporting and our operating internal controls may not prevent or detect misstatements or
loss of assets because of inherent limitations, including the possibility of human error, the circumvention or overriding
of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to financial
statement accuracy and safeguarding of assets.
18