Ford 2006 Annual Report Download - page 35

Management’s Discussion and Analysis of Financial Condition and Results of Operations
33
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As indicated in the table above, we anticipate that quality will continue to improve in 2007. We anticipate that U.S.
market share will be lower as we reduce fleet sales, though new product introductions should increase market share in
most other regions. We plan to continue to reduce Automotive costs during 2007, and we remain on track to deliver about
$5 billion of cost reductions in North America by the end of 2008 as compared with 2005. We anticipate that commodity
and regulatory costs will continue to increase in 2007; that advertising and sales promotions costs will remain essentially
flat; and that other product costs, manufacturing and engineering, pension and OPEB, depreciation and amortization,
warranty and overhead costs should decrease. As previously disclosed, we anticipate that, from 2007 through 2009,
cumulative Automotive operating-related cash outflows will be about $10 billion, and cumulative restructuring expenditures
about $7 billion. We expect more than half of this $17 billion in outflow to occur during 2007. These outflows also reflect
plans to invest in new products at levels comparable to previous years, or about $7 billion annually. During the same
period, from 2007 through 2009, we also anticipate other non-operating related net Automotive cash inflows of about
$2 billion. For additional discussion of projected Automotive cash flows, see "Liquidity and Capital Resources –
Automotive Sector" above.
As previously disclosed, we expect that market share and most earnings comparisons will remain challenging through
the first three quarters of 2007. We expect that production levels will be down in the first half of 2007, before increasing
on a year-over-year basis during the second half of the year. The decline in the first half of the year primarily reflects
cessation of production of the Ford Taurus and Ford Freestar (in the fourth quarter of 2006) resulting in lower fleet and
total share, as well as lower truck production. Year-over-year third-quarter earnings comparisons will be impacted by the
non-recurrence of tax-related interest income we received in 2006. In addition, essentially no tax offsets to losses will be
recognized during 2007, which will negatively impact comparisons for the first nine months of 2007. However, we do
anticipate that special items in 2007 will be significantly lower than in 2006, with special items likely in the range of
$1 billion to $2 billion excluding any gains or losses from the sale of any operations, and that our structural-related cost
reductions will improve during the year as personnel are separated, plants are idled, and capacity is reduced.
By segment or business unit for full-year 2007, we anticipate that Ford North America will improve its results, though
still incur a substantial loss. We anticipate that PAG will be profitable, and we expect continued profits from Ford South
America, Ford Europe, and Mazda and Associated Operations. We expect that Ford Asia Pacific and Africa will report a
full-year loss, primarily due to adverse segmentation in Australia and lower industry volumes in Taiwan. Net interest
expense will be substantially higher in 2007 compared with 2006, primarily reflecting the impact of the new debt raised at
the end of 2006, as well as the absence of tax-related interest income. In 2007, we expect total Automotive results
including special items, though still a loss, to be substantially improved from 2006.
We expect Ford Credit's 2007 pre-tax profits to be substantially lower than 2006 due to higher borrowing costs, the
non-recurrence of credit loss reserve reductions in the amounts experienced in 2006, the costs associated with its North
America restructuring initiative (consolidation of its branches in the United States and Canada into regional business
centers), and the impact of lower receivable levels. Beginning with 2007, Ford Credit will suspend regular dividends. We
expect year-end managed receivables to be in the range of $140 billion to $145 billion.
We currently expect our overall results including special items, though still a net loss, to be substantially improved from
2006.