Item 6. Selected Financial Data.

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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/(LOSS)	2016		2017		2018		2019		2020
Total revenues	$	151,800	$	156,776	$	160,338	$	155,900	$	127,144

Income/(Loss) before income taxes	$	6,784	$	8,159	$	4,345	$	(640)	$	(1,116)
Provision for/(Benefit from) income taxes	2,184		402		650		(724)		160
Net income/(loss)	4,600		7,757		3,695		84		(1,276)
Less: Income/(Loss) attributable to noncontrolling interests	11		26		18		37		3
Net income/(loss) attributable to Ford Motor Company	$	4,589	$	7,731	$	3,677	$	47	$	(1,279)

Earnings/(Loss) 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)	3,973		3,975		3,974		3,972		3,973

Basic income/(loss)	$	1.16	$	1.94	$	0.93	$	0.01	$	(0.32)
Diluted income/(loss)	1.15		1.93		0.92		0.01		(0.32)

Cash dividends declared	0.85		0.65		0.73		0.60		0.15

BALANCE SHEET DATA AT YEAR END
Total assets	$	238,510	$	258,496	$	256,540	$	258,537	$	267,261

Automotive debt	$	15,907	$	15,931	$	13,547	$	14,678	$	23,536
Ford Credit debt	126,464		137,757		140,066		140,029		137,677
Other debt	599		599		600		600		471

Total equity	$	29,746	$	35,606	$	35,966	$	33,230	$	30,811

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

Key Trends and Economic Factors Affecting Ford and the Automotive Industry

COVID-19. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Although restrictions have been eased in many locations, some areas that had previously eased restrictions have reverted to more stringent limitations on daily activities. Further, if new strains of COVID-19 develop or sufficient amounts of vaccines are not available, not widely administered for a significant period of time, or otherwise prove ineffective, the impact of COVID-19 on the global economy, and, in turn, on Ford, could be material.

Consistent with the actions taken by governmental authorities, in late March 2020, we idled our manufacturing operations in regions around the world other than China, where manufacturing operations were suspended in January and February before beginning to resume operations in March. A successful phased restart of our manufacturing plants, supply network, and other dependent functions occurred in the second quarter of 2020.

The remote work arrangements that we implemented in 2020 remain in place in most locations. Our remote work arrangements have been designed to allow for continued operation of non-production business-critical functions, including financial reporting systems and internal control. Our controls and procedures have incorporated remote work arrangements using appropriate digital tools.

When we returned to work, we established new protocols to help protect the health and safety of our workforce. Those measures remain in place today, including a daily, online health self-certification, a no-touch temperature scan upon entering our facilities, a policy requiring the use of face masks in our facilities, and measures to provide additional personal protective equipment, including face shields, when employees’ jobs do not allow them to socially distance. We have also enhanced our cleaning protocols and adjusted our operating patterns and breaks to reduce potential employee interaction where possible.

We continue to produce medical masks for our employees and dealers. To date, we have produced more than 50 million medical-grade face masks, and we are more than halfway to reaching our goal of donating 100 million masks to communities in need across the United States.

The full impact of COVID-19 on future results depends on future developments, such as the ultimate duration and scope of the outbreak (including any potential future waves and the success of vaccination programs) and its impact on our customers, dealers, and suppliers. Despite the successful restart of our manufacturing operations in 2020, we continue to experience higher than normal levels of absenteeism at our manufacturing facilities and intermittent COVID-19-related disruptions in our supply chain. Moreover, new restrictions could have an adverse effect on production, supply chains, distribution, and demand for vehicles. For additional information on the impact and potential impact of COVID-19 on us, please see Item 1A. Risk Factors on page 15.

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

Supplier Disruptions. The automotive industry has a complex supply network with each manufacturers’ products containing components sourced from suppliers who, in turn, source components from their suppliers. When there is a shortage of a key component in our supply chain, and the component cannot be easily sourced from a different supplier, the shortage may disrupt our production. In 2020, although we resumed production at our plants around the world following the COVID-19-related suspension, we continued to experience disruptions due to suppliers who had production difficulties. In 2021, the automotive industry is facing a significant shortage of semiconductors. With up to fifty modules on a vehicle, we and our competitors who need integrated circuits are experiencing various levels of semiconductor impact. The semiconductor supply chain is complex, and a constrained wafer capacity is occurring deep in the chain. Global semiconductor makers allocated more capacity to meet surging demand for consumer electronics during the COVID-19 pandemic as automotive OEMs experienced industry-wide plant closures. At the same time, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels needed to support demand from all of their customers. Wafers have a long lead time for production, in some cases up to 30 weeks, which further exacerbates the shortage. When global automakers resumed vehicle production in 2020 – even more quickly than some expected – semiconductor supplies became further strained. A combination of these factors, including increased demand for consumer electronics, automotive shutdowns due to COVID-19, the rapid recovery of demand for vehicles, and long lead times for wafer production, is contributing to the shortage of semiconductors. We have already experienced production disruptions at certain locations as a result of the semiconductor shortage. For additional information on the impact of the semiconductor shortage, see the Outlook section on page 67.

Global Redesign. We previously announced our plan for the global redesign of our business, pursuant to which we are working to turn around automotive operations, compete like a challenger, and capitalize on our strengths by allocating more capital, more resources, and more talent to our strongest business and vehicle franchises. Pursuant to the plan, we expect to incur about $11 billion of EBIT charges and about $7 billion of cash effects related to our global redesign. During the 2018 through 2021 period, we expect to have incurred about $10 billion of EBIT charges and about $5 billion of cash effects related to our global redesign, and sold or closed ten manufacturing sites.

In December 2020, Ford Motor Company Brasil Ltda. (“Ford Brazil”), our subsidiary in Brazil, committed to a plan to exit manufacturing operations in Brazil, which will result in the closure of facilities in Camaçari, Taubaté, and Troller in 2021 as South America moves to an asset-light business model. Production in Camaçari and Taubaté to support new vehicle sales ceased in January 2021, with a limited amount of parts production continuing for a few months to support inventories for aftermarket sales. The Troller plant will cease operations in the fourth quarter of 2021. In connection with this announcement, the Company currently expects to record pre-tax special item charges of about $4.1 billion, including $2.4 billion in 2020 and about $1.7 billion in 2021. The charges will include about $1.6 billion of non-cash charges related to writing-off certain tax receivables and for accelerated depreciation and amortization. The remaining charges of about $2.5 billion will be paid in cash primarily in 2021 and are attributable to separation, termination, settlement, and other payments.

Currency Exchange Rate Volatility. The U.S. Federal Reserve lowered its policy interest rate twice in March 2020, by a total of one and one half percentage points, in response to the market risks emanating from the global pandemic. This returned the rate to its recent historical low of zero to one quarter of a percentage point and was combined with asset purchases and other emergency funding mechanisms to maintain the flow of credit throughout the economy. Central banks in other developed markets took similarly aggressive actions to maintain market functioning in the face of an unprecedented, synchronized global shock. 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, exposure to commodity prices and political instability, contributing to unpredictable movements in the value of their exchange rates. 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 and Korean won. 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.

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

Excess Capacity. According to IHS Automotive, an automotive research firm, the estimated automotive industry global production capacity for light vehicles of about 123 million units exceeded global production by about 49 million units in 2020. Even though global production capacity was reduced by about 7 million units in 2020 compared with 2019, excess capacity rose by nearly 8 million units, including increases in North America, Europe, and South America. In North America and Europe, two regions where a significant share of industry revenue is earned, excess capacity as a percent of production in 2020 increased to 58% and 70%, respectively, though a significant portion of these increases are expected to be temporary due to demand and supply disruptions in 2020 related to the global pandemic. In China, the auto industry witnessed excess capacity at a lower rate compared with the prior year, at 50% in 2020, as capacity was more rapidly taken out of commission. According to production capacity data projected by IHS Automotive, global excess capacity conditions could decline materially, to 40 million units in 2021, and average about 35 million units in the following five years from 2022 to 2026.

Pricing Pressure. Excess capacity, with recent capacity constraints as a result of the impacts of COVID-19 being a temporary exception, coupled with a proliferation of new products being introduced in key segments, will keep pressure on manufacturers’ ability to set 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 has been exacerbated by the nominal reductions in existing capacity, such that negative pricing pressure is expected to continue for the foreseeable future.

Commodity and Energy Price Changes. Changes in market expectations for global demand, notably weaker growth in China, along with geopolitical tensions have generated volatility in energy prices, though they remain at a relatively low level compared with historical performance. Oil prices are expected to remain volatile, and on a lower long-term trend than in prior commodity cycles. Prices for other commodities have also been volatile, as fluctuating global demand and differences in sectoral performance due to the pandemic have generated divergence in price movements across different commodities.

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 125% 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), and other factors that accelerate the transition to electrified vehicles, may increase the cost of vehicles by more than the perceived benefit to consumers and dampen margins.

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 other markets. While we believe the long-term trend will support the growth of free trade, we have noted with concern recent developments in a number of regions. In Asia Pacific, a weak yen significantly reduces the cost of exports into the United States, Europe, and other global markets by Japanese manufacturers, and, over a period of time, 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 believe the primary focus of the Biden administration will be addressing the COVID-19 pandemic and moving ahead with economic stimulus. We will continue to monitor and address developing issues.

Other Economic Factors. Interest rates, notably 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)

Regulatory Matters. Many governmental standards and regulations relating to safety, fuel economy, and emissions control, among others, are applicable to the automotive industry, and we spend substantial resources ensuring that we comply with such regulations. 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. The cost of recall and customer satisfaction actions to remedy defects in vehicles that have been sold could be substantial, particularly if the actions relate to global platforms or involve defects that are identified years after production. For example, on January 21, 2021, we announced we will be conducting a field service action to replace Takata airbag inflators in certain model year 2006 through 2012 vehicles, the costs of which is estimated to be $610 million and is reflected in our fourth quarter 2020 results. In addition, NHTSA and the automotive industry are currently engaged in a study of the safety of approximately 56 million Takata desiccated airbag inflators in the United States. Of these, approximately three and a half million of the inflators are in our vehicles. Should NHTSA determine that the inflators contain a safety defect, Ford and other manufacturers could potentially face significant incremental recall costs.

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 contracts 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 buyer.

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 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 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 date the related vehicle sales to our dealers are recorded. 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 Ford Credit segments.

Costs and Expenses

Our income statement classifies our Company excluding Ford Credit 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, production, and distribution of our vehicles, parts, accessories, and services. 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 production of our vehicles, parts, accessories, and services; 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 production of our vehicles, parts, accessories, and services, including such expenses as advertising and sales promotion costs.

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

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). 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.

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 (including 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.

We consider certain structural costs to be a direct investment in future growth and revenue. For example, structural costs are necessary to grow our business and improve profitability, 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 2020 were $122.9 billion. Our Automotive segment’s material and commodity costs make up the largest portion of these costs and expenses, followed by structural costs. Although material costs are our largest absolute cost, our margins can be affected significantly by changes in any category of costs.

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

RESULTS OF OPERATIONS - 2020

The net loss attributable to Ford Motor Company was $1,279 million in 2020. Company adjusted EBIT was $2,779 million.

Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 26 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions):


	2019		2020
Global Redesign
Europe excl. Russia	$	(1,246)	$	(727)
India	(804)		(23)
South America	(566)		(2,486)
Russia	(357)		18
China	(101)		(56)
Separations and Other (not included above)	(107)		(94)
Subtotal Global Redesign	$	(3,181)	$	(3,368)
Other Items
Gain on transaction with Argo AI and VW	$	—	$	3,454
Takata field service action	—		(610)
Other incl. Focus cancellation, Transit Connect customs ruling, North America hourly buyouts, and Chariot	(273)		(226)
Subtotal Other Items	$	(273)	$	2,618
Pension and OPEB Gain/(Loss)
Pension and OPEB remeasurement	$	(2,500)	$	(1,435)
Pension settlements and curtailments	(45)		(61)
Subtotal Pension and OPEB Gain/(Loss)	$	(2,545)	$	(1,496)
Total EBIT Special Items	$	(5,999)	$	(2,246)

Cash effect of Global Redesign (incl. separations)	$	(911)	$	(503)

Provision for/(Benefit from) tax special items (a)	$	(1,323)	$	670

(a)Includes related tax effect on special items and tax special items.

We recorded $2.2 billion of pre-tax special item charges in 2020, primarily reflecting Global Redesign actions in South America and Europe, mark-to-market adjustments for our global pension and OPEB plans, and the field service action for Takata airbag inflators, partially offset by the gain on our investment in Argo AI as a result of the transaction with Argo AI and Volkswagen in the second quarter of 2020.

In Note 26 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.

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

COMPANY KEY METRICS

The table below shows our full year 2020 key metrics for the Company compared to a year ago.


	2019		2020			H / (L)
GAAP Financial Measures
Cash Flows from Operating Activities ($B)	$	17.6	$	24.3		$	6.6
Revenue ($M)	155,900		127,144			(18)		%
Net Income/(Loss) ($M)	47		(1,279)			$	(1,326)
Net Income/(Loss) Margin (%)	0.0%		(1.0)		%	(1.0) ppts
EPS (Diluted)	$	0.01	$	(0.32)		$	(0.33)

Non-GAAP Financial Measures (a)
Company Adj. Free Cash Flow ($B)	$	2.8	$	0.7		$	(2.1)
Company Adj. EBIT ($M)	6,379		2,779			(3,600)
Company Adj. EBIT Margin (%)	4.1%		2.2%			(1.9) ppts
Adjusted EPS (Diluted)	$	1.19	$	0.41		$	(0.78)
Adjusted ROIC (Trailing Four Qtrs)	7.8%		1.0%			(6.8) ppts

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

For full year 2020, revenue was down 18 percent to $127.1 billion.

In 2020, our diluted earnings per share of Common and Class B Stock was a loss of $0.32 and our diluted adjusted earnings per share was $0.41.

Net income/(loss) margin was negative 1.0 percent in 2020, down from 0.0 percent a year ago. Company adjusted EBIT margin was 2.2 percent in 2020, down from 4.1 percent a year ago.

The table below shows our full year 2020 net income/(loss) attributable to Ford and Company adjusted EBIT by segment (in millions).


	2019		2020		H / (L)
Automotive	$	4,926	$	1,633	$	(3,293)
Mobility	(1,186)		(1,274)		(88)
Ford Credit	2,998		2,608		(390)
Corporate Other	(359)		(188)		171
Company Adjusted EBIT (a)	6,379		2,779		(3,600)
Interest on Debt	(1,020)		(1,649)		629
Special Items	(5,999)		(2,246)		(3,753)
Taxes / Noncontrolling Interests	687		(163)		850
Net Income/(Loss)	$	47	$	(1,279)	$	(1,326)

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

The year-over-year declines of $1.3 billion in net income/(loss) and $3.6 billion in Company adjusted EBIT in 2020 were driven by decreases in Automotive EBIT and Ford Credit EBT, primarily reflecting the impact of COVID-19. Our net loss in 2020 includes the effect of special items, including Global Redesign actions in South America and Europe, mark-to-market adjustments for our global pension and OPEB plans, and the field service action for Takata airbag inflators, partially offset by the gain on our investment in Argo AI.

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

Automotive Segment

The table below shows our full year 2020 Automotive segment EBIT by business unit (in millions).


	2019		2020		H / (L)
North America	$	6,612	$	3,625	$	(2,987)
South America	(704)		(491)		213
Europe	123		(834)		(957)
China (including Taiwan)	(771)		(501)		270
International Markets Group	(334)		(166)		168
Automotive Segment	$	4,926	$	1,633	$	(3,293)

The tables below and on the following pages provide full year 2020 key metrics and the change in full year 2020 EBIT compared with full year 2019 by causal factor for our Automotive segment and its regional business units. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors.


	2019			2020			H / (L)
Key Metrics
Market Share (%)	6.0		%	5.8		%	(0.2) ppts
Wholesale Units (000)	5,386			4,187			(1,199)
Revenue ($M)	$	143,599		$	115,885		$	(27,714)
EBIT ($M)	4,926			1,633			(3,293)
EBIT Margin (%)	3.4		%	1.4		%	(2.0) ppts


Change in EBIT by Causal Factor (in millions)
2019 Full Year EBIT	$	4,926
Volume / Mix	(9,417)
Net Pricing	4,985
Cost	904
Exchange	(312)
Other	547
2020 Full Year EBIT	$	1,633

In 2020, wholesales in our Automotive segment declined 22 percent from a year ago, reflecting a decrease in each business unit other than China. Full year 2020 Automotive revenue decreased 19 percent from a year ago.

Our full year 2020 Automotive segment EBIT decreased $3.3 billion from a year ago with an EBIT margin of 1.4 percent. Higher net pricing and favorable mix were more than offset by the impact of COVID-related lower industry volume and the changeover to the all-new F-150. Structural costs were significantly lower, primarily reflecting the impact of our suspension of production earlier in the year due to COVID-19.

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

North America


	2019			2020			H / (L)
Key Metrics
Market Share (%)	13.2		%	13.2		%	— ppts
Wholesale Units (000)	2,765			2,081			(684)
Revenue ($M)	$	98,053		$	80,035		$	(18,018)
EBIT ($M)	6,612			3,625			(2,987)
EBIT Margin (%)	6.7		%	4.5		%	(2.2) ppts


Change in EBIT by Causal Factor (in millions)
2019 Full Year EBIT	$	6,612
Volume / Mix	(6,776)
Net Pricing	3,041
Cost	366
Exchange	(64)
Other	446
2020 Full Year EBIT	$	3,625

In North America, 2020 wholesales declined 25 percent from a year ago, driven by COVID-related lower industry volume and the changeover to the all-new F-150. Full year 2020 revenue decreased 18 percent year over year, driven by lower volume, partially offset by higher net pricing and favorable series and option mix.

North America’s 2020 EBIT decreased $3 billion from a year ago with an EBIT margin of 4.5 percent. The lower EBIT was driven by lower volume, higher material cost, and higher warranty expense. Higher net pricing, favorable mix, and lower structural costs were partial offsets.

South America


	2019			2020			H / (L)
Key Metrics
Market Share (%)	7.2%			6.2%			(1.0) ppts
Wholesale Units (000)	295			185			(111)
Revenue ($M)	$	3,893		$	2,463		$	(1,430)
EBIT ($M)	(704)			(491)			213
EBIT Margin (%)	(18.1)		%	(19.9)		%	(1.8) ppts


Change in EBIT by Causal Factor (in millions)
2019 Full Year EBIT	$	(704)
Volume / Mix	(143)
Net Pricing	513
Cost	89
Exchange	(232)
Other	(14)
2020 Full Year EBIT	$	(491)

In South America, 2020 wholesales declined 38 percent from a year ago, driven by COVID-related lower industry volume. Full year 2020 revenue declined 37 percent year over year, driven by lower volume and weaker currencies, partially offset by higher net pricing and favorable vehicle mix.

South America’s 2020 EBIT loss improved $213 million from a year ago with an EBIT margin of negative 19.9%. The EBIT improvement was driven by higher net pricing and cost reductions.

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

Europe


	2019		2020			H / (L)
Key Metrics
Market Share (%)	7.3%		7.2%			(0.1) ppts
Wholesale Units (000) (a)	1,390		1,020			(370)
Revenue ($M)	$	28,150	$	22,644		$	(5,506)
EBIT ($M)	123		(834)			(957)
EBIT Margin (%)	0.4%		(3.7)		%	(4.1) ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 34,000 units in 2019 and 72,000 units in 2020); revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
2019 Full Year EBIT	$	123
Volume / Mix	(1,973)
Net Pricing	1,354
Cost	(190)
Exchange	74
Other	(222)
2020 Full Year EBIT	$	(834)

In Europe, 2020 wholesales declined 27 percent from a year ago, driven by COVID-19 related lower industry volume. Full year 2020 revenue declined 20 percent year over year, driven by lower volume, partially offset by higher net pricing and favorable series and option mix.

Europe’s 2020 EBIT decreased $957 million from a year ago with an EBIT margin of negative 3.7 percent. The lower EBIT was more than explained by COVID-19 related lower industry volume and the Kuga PHEV recall in the third quarter of 2020.

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

China (Including Taiwan)


	2019			2020			H / (L)
Key Metrics
Market Share (%)	2.2%			2.4%			0.2 ppts
Wholesale Units (000) (a)	535			617			83
Revenue ($M)	$	3,615		$	3,202		$	(413)
EBIT ($M)	(771)			(501)			270
EBIT Margin (%)	(21.3)		%	(15.6)		%	5.7 ppts

China Unconsolidated Affiliates
Wholesale Units (000)	462			564			102
Ford Equity Income/(Loss) ($M)	$	(161)		$	49		$	210

(a)Includes Ford brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates. Revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
2019 Full Year EBIT	$	(771)
Volume / Mix	(137)
Net Pricing	(15)
Cost	193
Exchange	(113)
Other	342
2020 Full Year EBIT	$	(501)

In China, 2020 wholesales increased 16 percent from a year ago, driven by higher joint venture volumes. Full year 2020 consolidated revenue declined 11 percent year over year, driven by lower volume, partially offset by higher component sales to our joint ventures in China and favorable series and option mix.

China’s 2020 EBIT loss improved $270 million from a year ago with an EBIT margin of negative 15.6 percent. The improved EBIT was driven by higher joint venture profits and royalties and lower structural costs.

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

International Markets Group


	2019			2020			H / (L)
Key Metrics
Market Share (%)	1.9%			1.7%			(0.2) ppts
Wholesale Units (000) (a)	401			284			(117)
Revenue ($M)	$	9,888		$	7,541		$	(2,347)
EBIT ($M)	(334)			(166)			168
EBIT Margin (%)	(3.4)		%	(2.2)		%	1.2 ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 28,000 units in 2019 and 14,000 units in 2020). Revenue after Q2 2019 does not include these sales.


Change in EBIT by Causal Factor (in millions)
2019 Full Year EBIT	$	(334)
Volume / Mix	(388)
Net Pricing	91
Cost	446
Exchange	22
Other	(3)
2020 Full Year EBIT	$	(166)

In our International Markets Group, 2020 wholesales declined 29 percent from a year ago, driven by COVID-related lower industry volume. Full year 2020 revenue declined 24 percent year over year, driven by lower volume and weaker currencies, partially offset by higher net pricing and favorable series and option mix.

Our International Market Group’s 2020 EBIT loss improved $168 million from a year ago with an EBIT margin of negative 2.2 percent. The improved EBIT was driven by cost reductions, higher net pricing, and favorable mix, partially offset by lower volume.

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

Definitions and Information Regarding Automotive Causal Factors

In general, we measure year-over-year change in Automotive segment 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 wholesale units):

*◦*Volume and Mix – primarily measures EBIT variance from changes in wholesale unit volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the 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 EBIT variance driven by changes in wholesale unit prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory

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 - 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

*▪*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 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

*•*Other – includes a variety of items, such as parts and services earnings, royalties, government incentives, and compensation-related changes

In addition, definitions and calculations used in this 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

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

SAAR – seasonally adjusted annual rate

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

Mobility Segment

The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments (including Spin, a micro-mobility service provider).

In our Mobility segment, our 2020 EBIT decreased $88 million from a year ago. The $1.3 billion EBIT loss reflects our strategic investments in 2020 as we continued to expand our capabilities in autonomous vehicles and mobility businesses.

Ford Credit Segment

The tables below provide full year 2020 key metrics and the change in full year 2020 EBT compared with full year 2019 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors.


	2019		2020		H / (L)
GAAP Financial Measures
Total Net Receivables ($B)	$	142	$	132	(7)		%
Loss-to-Receivables (bps) (a)	52		36		(16)
Auction Values (b)	$	19,305	$	19,950	3%
EBT ($M)	2,998		2,608		$	(390)
ROE (%)	15%		14%		(1) ppt

Other Balance Sheet Metrics
Debt ($B)	$	140	$	138	(1)		%
Net Liquidity ($B)	33		35		(6)		%
Financial Statement Leverage (to 1)	9.8		9.8		—

(a)U.S. retail financing only.

(b)U.S. 36-month off-lease auction values at full year 2020 mix.


	2019		2020		H / (L)
Non-GAAP Financial Measures
Managed Receivables ($B) (a)	$	152	$	141	(7)	%
Managed Leverage (to 1) (b)	8.9		8.3		(0.6)

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

(b)See Liquidity and Capital Resources - Ford Credit Segment section for reconciliation to GAAP.


Change in EBT by Causal Factor (in millions)
2019 Full Year EBT	$	2,998
Volume / Mix	(173)
Financing Margin	20
Credit Loss	(539)
Lease Residual	304
Exchange	(9)
Other	7
2020 Full Year EBT	$	2,608

Ford Credit’s loss metrics reflected healthy and stable consumer credit conditions, and auction values for off-lease vehicles were 3 percent higher than a year ago. We are planning for full year 2021 auction values to be lower than 2020. Receivables at December 31, 2020 were lower year over year.

Ford Credit’s 2020 EBT decreased $390 million from a year ago, primarily driven by an increase to the credit loss reserve due to COVID-19 and unfavorable volume and mix due to lower receivables, partially offset by favorable lease residual performance due to improved auction values.

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

Definitions and Information Regarding Ford Credit Causal Factors.

In general, we measure year-over-year changes in Ford Credit’s 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 vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating 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

◦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 within each 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 forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2020 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 Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. For additional information, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2020 Form 10-K Report

Exchange:

◦Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars

*•*Other:

◦Primarily includes operating expenses, other revenue, 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 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:

Cash (as shown in the Funding and Liquidity and Leverage sections) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities
Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. 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
Earnings Before Taxes (EBT) – Reflects Ford Credit’s income before income taxes
Return on Equity (ROE) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period
Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash held for the benefit of the securitization investors (for example, a reserve fund). Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements
Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada
Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements
Total Net Receivables (as shown in the Key Metrics and Ford Credit Net Receivables Reconciliation To Managed Receivables tables) – Includes finance receivables (retail financing 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

Corporate Other

Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, marketable securities and other investments, and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, and are not allocated to specific Automotive business units or operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. For full year 2020, Corporate Other had a $188 million loss, compared with a $359 million loss in 2019. The year-over-year improvement was driven by mark-to-market gains on our investments, partially offset by lower interest income.

Interest on Debt

Interest on Debt consists of interest expense on Automotive and Other debt. Our full year 2020 interest expense on Automotive and Other debt was $1,649 million, $629 million higher than in 2019, more than explained by higher U.S. debt interest expense.

Taxes

Our Provision for/(Benefit from) income taxes for full year 2020 was a $160 million provision, resulting in an effective tax rate of negative 14.3%. This includes expenses to establish $1.3 billion of valuation allowances primarily against U.S. tax credits recorded as deferred tax assets.

Our full year 2020 adjusted effective tax rate, which excludes special items, was negative 45.1%.

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

RESULTS OF OPERATIONS - 2019

Net income attributable to Ford Motor Company was $47 million in 2019. Company adjusted EBIT was $6,379 million.

Net income includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 26 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions):


	2018		2019
Global Redesign
Europe excl. Russia	$	(309)	$	(1,246)
India	—		(804)
South America	(65)		(566)
Russia	—		(357)
China	—		(101)
Separations and Other (not included above)	(163)		(107)
Subtotal Global Redesign	$	(537)	$	(3,181)
Other Items
Focus cancellation	$	(16)	$	(72)
Other, including Transit Connect customs ruling and Chariot	(40)		(201)
Subtotal Other Items	$	(56)	$	(273)
Pension and OPEB Gain/(Loss)
Pension and OPEB remeasurement	$	(851)	$	(2,500)
Pension curtailment	15		(45)
Subtotal Pension and OPEB Gain/(Loss)	$	(836)	$	(2,545)
Total EBIT Special Items	$	(1,429)	$	(5,999)

Cash effect of Global Redesign (incl. separations)	$	(196)	$	(911)

Provision for/(Benefit from) tax special items (a)	$	88	$	(1,323)

(a)Includes related tax effect on special items and tax special items.

We recorded $6 billion of special item charges in 2019. Actions related to our Global Redesign accounted for $3.2 billion of the special items, including European restructuring, with cash effects of $911 million. Special item charges also included $2.5 billion for pension and OPEB remeasurement losses. The remeasurement loss did not have an impact on our cash in 2019.

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

COMPANY KEY METRICS

The table below shows our full year 2019 key metrics for the Company compared with full year 2018.


	2018		2019		H / (L)
GAAP Financial Measures
Cash Flows from Operating Activities ($B)	$	15.0	$	17.6	$	2.6
Revenue ($M)	160,338		155,900		(3)		%
Net Income ($M)	3,677		47		$	(3,630)
Net Income Margin (%)	2.3%		0.0%		(2.3) ppts
EPS (Diluted)	$	0.92	$	0.01	$	(0.91)

Non-GAAP Financial Measures (a)
Company Adj. Free Cash Flow ($B)	$	2.8	$	2.8	$	—
Company Adj. EBIT ($M)	7,002		6,379		(623)
Company Adj. EBIT Margin (%)	4.4%		4.1%		(0.3) ppts
Adjusted EPS (Diluted)	$	1.30	$	1.19	$	(0.11)
Adjusted ROIC (Trailing Four Qtrs)	7.1%		7.8%		0.7 ppts

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

For full year 2019, revenue was down 3 percent, or 1 percent excluding the impact of exchange, to $155.9 billion.

In 2019, our diluted earnings per share of Common and Class B Stock was $0.01 and our diluted adjusted earnings per share was $1.19.

Net income margin was 0.0 percent in 2019, down from 2.3 percent in 2018. Company adjusted EBIT margin was 4.1 percent in 2019, down from 4.4 percent in 2018.

The table below shows our full year 2019 net income attributable to Ford and Company adjusted EBIT by segment (in millions).


	2018		2019		H / (L)
Automotive	$	5,422	$	4,926	$	(496)
Mobility	(674)		(1,186)		(512)
Ford Credit	2,627		2,998		371
Corporate Other	(373)		(359)		14
Company Adjusted EBIT (a)	7,002		6,379		(623)
Interest on Debt	(1,228)		(1,020)		208
Special Items	(1,429)		(5,999)		(4,570)
Taxes / Noncontrolling Interests	(668)		687		1,355
Net Income/(Loss)	$	3,677	$	47	$	(3,630)

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

The $3.6 billion year-over-year decline in net income in 2019 is more than explained by the $6 billion of special item charges discussed in more detail above under “Results of Operations - 2019.”

Company adjusted EBIT decreased about 9 percent in 2019 compared with 2018, driven by higher investments in Mobility and lower Automotive EBIT, offset partially by improved Ford Credit EBT.

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

Automotive Segment

The table below shows our full year 2019 Automotive segment EBIT by business unit (in millions).


	2018		2019		H / (L)
North America	$	7,607	$	6,612	$	(995)
South America	(678)		(704)		(26)
Europe	(210)		123		333
China (including Taiwan)	(1,545)		(771)		774
International Markets Group	248		(334)		(582)
Automotive Segment	$	5,422	$	4,926	$	(496)

The tables below and on the following pages provide full year 2019 key metrics and the change in full year 2019 EBIT compared with full year 2018 by causal factor for our Automotive segment and its regional business units. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors.


	2018			2019			H / (L)
Key Metrics
Market Share (%)	6.3		%	6.0		%	(0.3) ppts
Wholesale Units (000)	5,982			5,386			(596)
Revenue ($M)	$	148,294		$	143,599		$	(4,695)
EBIT ($M)	5,422			4,926			(496)
EBIT Margin (%)	3.7		%	3.4		%	(0.3) ppts


Change in EBIT by Causal Factor (in millions)
2018 Full Year EBIT	$	5,422
Volume / Mix	(720)
Net Pricing	3,093
Cost	(1,552)
Exchange	(904)
Other	(413)
2019 Full Year EBIT	$	4,926

In 2019, wholesales in our Automotive segment declined 596,000 units year-over-year, reflecting decreases in each business unit, while Automotive revenue was down 3.2 percent from 2018.

Our full year 2019 Automotive segment EBIT was $4.9 billion, down $496 million from 2018, and EBIT margin was 3.4 percent. Favorable mix was more than offset by the impact of lower volume, including the effects of new product launches. We had higher net pricing across most business units. Costs were higher, driven by higher material and warranty costs, while structural costs, excluding pension and OPEB, were lower, primarily as a result of improved fitness and global redesign actions. Exchange was unfavorable, and other adverse impacts included UAW contract ratification costs.

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

North America


	2018			2019			H / (L)
Key Metrics
Market Share (%)	13.4		%	13.2		%	(0.2) ppts
Wholesale Units (000)	2,920			2,765			(155)
Revenue ($M)	$	96,617		$	98,053		$	1,436
EBIT ($M)	7,607			6,612			(995)
EBIT Margin (%)	7.9		%	6.7		%	(1.2) ppts


Change in EBIT by Causal Factor (in millions)
2018 Full Year EBIT	$	7,607
Volume / Mix	(241)
Net Pricing	1,910
Cost	(1,865)
Exchange	(174)
Other	(625)
2019 Full Year EBIT	$	6,612

In North America, 2019 wholesales declined 5 percent from 2018, driven by the impact of major product launches. Full year 2019 revenue increased 1 percent year over year, driven by improved mix and higher net pricing, offset partially by lower volume.

North America’s 2019 EBIT decreased 13 percent from 2018 with an EBIT margin of 6.7 percent, driven by UAW contract-related bonuses, higher warranty expenses, and lower wholesales. Higher net pricing and favorable mix were partial offsets.

South America


	2018		2019		H / (L)
Key Metrics
Market Share (%)	8.3%		7.2%		(1.1) ppts
Wholesale Units (000)	365		295		(70)
Revenue ($M)	$	5,288	$	3,893	$	(1,395)
EBIT ($M)	(678)		(704)		(26)
EBIT Margin (%)	(12.8)%		(18.1)%		(5.2) ppts


Change in EBIT by Causal Factor (in millions)
2018 Full Year EBIT	$	(678)
Volume / Mix	(180)
Net Pricing	626
Cost	(350)
Exchange	(175)
Other	53
2019 Full Year EBIT	$	(704)

In South America, 2019 wholesales declined 19 percent from 2018, driven by the discontinuation of heavy trucks, Fiesta, and Focus. Full year 2019 revenue declined 26 percent year over year, driven by lower volume and adverse exchange.

South America’s 2019 EBIT loss of $704 million was 4 percent higher than in 2018, driven by lower wholesales.

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

Europe


	2018		2019		H / (L)
Key Metrics
Market Share (%)	7.6%		7.3%		(0.3) ppts
Wholesale Units (000) (a)	1,482		1,390		(92)
Revenue ($M)	$	30,195	$	28,150	$	(2,045)
EBIT ($M)	(210)		123		333
EBIT Margin (%)	(0.7)%		0.4%		1.1 ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 44,000 units in 2018 and 34,000 units in 2019); revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
2018 Full Year EBIT	$	(210)
Volume / Mix	(42)
Net Pricing	350
Cost	100
Exchange	(325)
Other	250
2019 Full Year EBIT	$	123

In Europe, 2019 wholesales declined 6 percent from 2018, driven by lower share from planned actions to drive gross margin and improve EBIT. Full year 2019 revenue declined 7 percent year over year, driven by adverse exchange and planned lower share from our business redesign.

Europe’s 2019 EBIT improved $333 million year over year, driven by higher net pricing and lower structural costs.

China (Including Taiwan)


	2018		2019		H / (L)
Key Metrics
Market Share (%)	2.9%		2.2%		(0.7) ppts
Wholesale Units (000) (a)	732		535		(197)
Revenue ($M)	$	4,619	$	3,615	$	(1,004)
EBIT ($M)	(1,545)		(771)		774
EBIT Margin (%)	(33.4)%		(21.3)%		12.1 ppts

China Unconsolidated Affiliates
Wholesale Units (000)	651		462		(189)
Ford Equity Income/(Loss) ($M)	$	(110)	$	(161)	$	(51)

(a)Wholesale units include Ford brand and JMC brand vehicles produced and sold in China by our unconsolidated affiliates; revenue does not include these sales.


Change in EBIT by Causal Factor (in millions)
2018 Full Year EBIT	$	(1,545)
Volume / Mix	7
Net Pricing	61
Cost	612
Exchange	143
Other	(49)
2019 Full Year EBIT	$	(771)

In China, 2019 wholesales declined 27 percent from 2018, driven by lower joint venture volumes. Full year 2019 consolidated revenue declined 22 percent year over year, driven primarily by lower component sales to our joint ventures in China and lower volume.

China’s 2019 EBIT loss narrowed by 50 percent year over year, driven by lower structural costs, favorable exchange, lower tariffs, and higher net pricing.

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

International Markets Group


	2018		2019			H / (L)
Key Metrics
Market Share (%)	2.2%		1.9%			(0.3) ppts
Wholesale Units* (000)	483		401			(82)
Revenue ($M)	$	11,575	$	9,888		$	(1,687)
EBIT ($M)	248		(334)			(582)
EBIT Margin (%)	2.1%		(3.4)		%	(5.5) ppts

(a)Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 51,000 units in 2018 and 28,000 units in 2019). Revenue after Q2 2019 does not include these sales.


Change in EBIT by Causal Factor (in millions)
2018 Full Year EBIT	$	248
Volume / Mix	(264)
Net Pricing	147
Cost	(49)
Exchange	(373)
Other	(43)
2019 Full Year EBIT	$	(334)

In our International Markets Group, 2019 wholesales declined 17 percent from 2018, driven by lower share and industry. Full year 2019 revenue declined 15 percent year over year, driven by lower volume and adverse exchange.

Our International Markets Group’s 2019 EBIT was $582 million lower than in 2018, with a $334 million loss driven by adverse exchange and lower volume and mix, driven by lower industry volume. The adverse exchange was driven by the Australian dollar, South African rand, and Thai baht.

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

Mobility Segment

In our Mobility segment, our 2019 EBIT loss was $1.2 billion, a $512 million higher loss than in 2018. Our strategic investments in Mobility in 2019 increased by more than 75 percent year over year as we continued to expand our capabilities in mobility and autonomous vehicles.

Ford Credit Segment

The tables below provide full year 2019 key metrics and the change in full year 2019 EBT compared with full year 2018 by causal factor for the Ford Credit segment.


	2018		2019		H / (L)
GAAP Financial Measures
Total Net Receivables ($B)	$	146	$	142	(3)		%
Loss-to-Receivables (bps) (a)	55		52		(3)
Auction Values (b)	$	19,770	$	19,305	(2)		%
EBT ($M)	2,627		2,998		$	371
ROE (%)	14%		15%		1 ppt

Other Balance Sheet Metrics
Debt ($B)	$	140	$	140	—%
Net Liquidity ($B)	27		33		22%
Financial Statement Leverage (to 1)	9.4		9.8		0.4

(a)U.S. retail financing only.

(b)U.S. 36-month off-lease auction values at full year 2020 mix.


	2018		2019		H / (L)
Non-GAAP Financial Measures
Managed Receivables ($B) (a)	$	155	$	152	(2)	%
Managed Leverage (to 1) (b)	8.8		8.9		0.1

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

(b)See Liquidity and Capital Resources – Ford Credit Segment section for reconciliation to GAAP.


Change in EBT by Causal Factor (in millions)
2018 Full Year EBT	$	2,627
Volume / Mix	(38)
Financing Margin	(86)
Credit Loss	127
Lease Residual	249
Exchange	(71)
Other	190
2019 Full Year EBT	$	2,998

Ford Credit’s loss metrics in 2019 reflected healthy and stable consumer credit conditions, and auction values for off-lease vehicles were slightly better than expected. Receivables at December 31, 2019 were lower year over year.

Ford Credit delivered $3 billion of EBT in 2019, a 14 percent increase from 2018, driven by favorable lease residual, credit loss, and derivatives performance.

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

Corporate Other

For full year 2019, Corporate Other had a $359 million loss, compared with a $373 million loss in 2018. The year-over-year improvement was driven by fair market value adjustments, partially offset by higher interest expense on income taxes.

Interest on Debt

Our full year 2019 interest expense on Automotive and Other debt was $1,020 million, which was $208 million lower than in 2018, more than explained by lower foreign debt interest expense, reflecting our repayment of higher-cost affiliate debt and the extinguishment of Ford Sollers debt.

Taxes

Our Provision for/(Benefit from) income taxes for full year 2019 was a $724 million benefit, resulting in an effective tax rate of 113%. This includes a one-time benefit arising from restructuring in our European operations.

Our full year 2019 adjusted effective tax rate, which excludes special items, was 11.2%.

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

LIQUIDITY AND CAPITAL RESOURCES

COVID-19 has created significant volatility in the global economy, led to reduced economic activity, and adversely affected our operations in the first half of 2020. Moreover, our suspension of production earlier this year put pressure on our Automotive liquidity. By May 2020, we restarted manufacturing operations in a phased manner at locations around the world. Throughout, we were proactive in our response and demonstrated discipline in the management of our balance sheet. We continued to maintain strong liquidity to ensure financial flexibility in these uncertain times by, among other things, drawing, extending the maturity of, and subsequently repaying our corporate and supplemental revolving credit facilities and issuing $8 billion of unsecured debt. As discussed in more detail below, we ended 2020 with $46.9 billion of liquidity and $30.8 billion of cash, both significantly higher than year-end 2019.

We consider our key balance sheet metrics to be: (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, excluding Ford Credit’s total available committed credit lines.

Company excluding Ford Credit


	December 31, 2019		December 31, 2020
Balance Sheet ($B)
Company Cash	$	22.3	$	30.8
Liquidity	35.4		46.9
Debt	$	(15.3)	$	(24.0)
Cash Net of Debt	7.0		6.8

Pension Funded Status ($B)
Funded Plans	$	(0.4)	$	0.3
Unfunded Plans	(6.4)		(7.0)
Total Global Pension	$	(6.8)	$	(6.7)

Total Funded Status OPEB	$	(6.1)	$	(6.6)

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. At December 31, 2020, we had Company cash of $30.8 billion, an increase of $8.5 billion compared with December 31, 2019, primarily due to our unsecured debt issuance in the second quarter of 2020, with about 90% of Company cash held by consolidated entities domiciled in the United States. To be prepared for an economic downturn, we target an ongoing Company cash balance at or above $20 billion plus significant additional liquidity above our Company cash target. We expect to have periods when we will be above or below this amount due to: (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 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 commercial paper, 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 adjusted based on market conditions and liquidity needs. We monitor our Company cash levels and average maturity on a daily basis.

At December 31, 2020, we had $46.9 billion of Company liquidity, an increase of $11.5 billion from December 31, 2019, primarily explained by our higher cash balance.

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

Changes in Company Cash. In managing our business, we classify changes in Company cash into operating and non-operating items. Operating items include: Company adjusted EBIT excluding Ford Credit EBT, capital spending, depreciation and tooling amortization, changes in working capital, Ford Credit distributions, and all other and timing differences. Non-operating items include: Global Redesign (including separation payments), changes in Automotive and Other debt, contributions to funded pension plans, shareholder distributions, and other items (including acquisitions and divestitures and other transactions with Ford Credit).

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 the sale of vehicles to dealers, which generally occurs shortly after being produced. In contrast, our Automotive trade payables are based primarily on industry-standard production supplier payment terms of generally about 45 days. As a result, our cash flow tends to improve as wholesale volumes increase, but can deteriorate when wholesale volumes sharply decrease. The suspension of production at most of our assembly plants earlier in the year and lower industry volumes due to COVID-19 resulted in a deterioration of our cash flow in the second quarter of 2020, while the subsequent resumption of manufacturing operations and return to pre-COVID-19 production levels at most of our assembly plants resulted in an improvement of our cash flow in the third quarter of 2020. Even in normal economic conditions, however, 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.

A financial institution offers a supply chain finance (“SCF”) program that enables our suppliers, at their sole discretion, to sell their Ford receivables (i.e., our payment obligations to the suppliers) to the financial institution on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the SCF program has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the SCF program, and we have no direct financial relationship with the SCF financial institution. Moreover, we do not provide any guarantees in connection with the SCF program. As of December 31, 2020, the outstanding amount of Ford receivables that suppliers elected to sell to the SCF financial institution was $178 million. The amount settled through the SCF program during 2020 was $530 million.

Changes in Company cash excluding Ford Credit are summarized below (in billions):


	December 31, 2018		December 31, 2019		December 31, 2020
Company Excluding Ford Credit
Company Adjusted EBIT excluding Ford Credit (a)	$	4.4	$	3.4	$	0.2

Capital spending	$	(7.7)	$	(7.6)	$	(5.7)
Depreciation and tooling amortization	5.4		5.5		5.3
Net spending	$	(2.4)	$	(2.1)	$	(0.4)

Receivables	$	0.1	$	(0.1)	$	0.4
Inventory	(0.8)		0.1		0.3
Trade Payables	(0.2)		(0.6)		1.3
Changes in working capital	$	(0.9)	$	(0.6)	$	2.0

Ford Credit distributions	2.7		2.9		2.4
All other and timing differences	(1.1)		(0.8)		(3.5)
Company adjusted free cash flow (a)	$	2.8	$	2.8	$	0.7

Global Redesign (including separations)	(0.2)		(0.9)		(0.5)
Changes in debt	(1.8)		1.1		8.4
Funded pension contributions	(0.4)		(0.7)		(0.6)
Shareholder distributions	(3.1)		(2.6)		(0.6)
All other (including acquisitions and divestitures)	(0.7)		(0.3)		1.1
Change in cash	$	(3.4)	$	(0.8)	$	8.5

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

Note: Numbers may not sum due to rounding.

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

Our full year 2020 Net cash provided by/(used in) operating activities was up $6.6 billion year over year, more than explained by higher Ford Credit operating cash flows. Company adjusted free cash flow was down $2.1 billion year-over-year, more than explained by lower adjusted EBIT driven by the impact of the COVID-19 pandemic.

Capital spending was $5.7 billion in 2020, $1.9 billion lower than a year ago. The year-over-year reduction reflects unavoidable delays due to the global pandemic, austerity measures implemented in response to the business environment, and continued efficiencies. Capital spending to support product development, growth, and infrastructure is expected to be in the range of $6.0 billion to $6.5 billion in 2021.

Full year 2020 working capital was $2.0 billion positive, explained by higher trade payables and lower receivables and inventory than in 2019.

Full year 2020 all other and timing differences were negative $3.5 billion, reflecting assorted timing differences between accrual-based EBIT and the associated cash flows (e.g., marketing incentive and warranty payments to dealers), interest payments on Automotive and Other debt, and cash taxes.

Shareholder distributions were $595 million in 2020, all of which were attributable to our regular quarterly dividend in the first quarter.

We previously announced our plan for the global redesign of our business, pursuant to which we are working to turn around automotive operations, compete like a challenger, and capitalize on our strengths by allocating more capital, more resources, and more talent to our strongest business and vehicle franchises. Beginning with the actions we took in 2018, we expect our global redesign to have a potential cash effect of about $7 billion. The cash effect related to our global redesign activities was $1.6 billion through December 31, 2020 and is expected to be about $5 billion through December 31, 2021.

As discussed in the *“*Key Trends and Economic Factors Affecting Ford and the Automotive Industry” section above, Ford Brazil’s decision to exit manufacturing operations is expected to result in charges of about $2.5 billion that will be paid in cash primarily in 2021. In addition, Ford offers a purchase program in South America pursuant to which members of the program make payments over 84 months to purchase certain Ford vehicles. Each month, two vehicles are allocated to members of each group. For groups that planned to purchase Ford vehicles that will no longer be available due to Ford Brazil exiting manufacturing (e.g., Ford Ka), Ford will reimburse, or offer an alternative product, to the members who have paid into the program and have not received a vehicle. The cash impact in 2021 is expected to be between $0.2 billion and $0.3 billion.

Available Credit Lines. Total Company committed credit lines, excluding Ford Credit, at December 31, 2020 were $18.6 billion, consisting of $13.5 billion of our corporate credit facility, $2 billion of our supplemental revolving credit facility, $1.5 billion of our delayed draw term loan facility, and $1.6 billion of local credit facilities. In the first quarter of 2020, we submitted borrowing notices to our lenders for the full amounts of both our corporate credit facility and our supplemental revolving credit facility, and by the third quarter of 2020, we repaid the full amounts outstanding under each facility. At December 31, 2020, the utilized portion of the corporate credit facility was $27 million, representing amounts utilized for letters of credit, and no portion of the supplemental revolving credit facility was utilized. The $1.5 billion delayed draw term loan facility was drawn in full in 2019 and remains outstanding. In addition, $0.7 billion of committed Company credit lines, excluding Ford Credit, was available under local credit facilities for our affiliates as of December 31, 2020.

Lenders under our corporate credit facility have $0.4 billion of commitments maturing on April 30, 2022, $3 billion of commitments maturing on July 27, 2023, and $10.1 billion of commitments maturing on April 30, 2024. Lenders under our supplemental revolving credit facility have $0.2 billion of commitments maturing on April 30, 2022 and $1.8 billion of commitments maturing on July 27, 2023.

The corporate credit facility is unsecured and free of material adverse change conditions to borrowing, restrictive financial covenants (for example, interest or fixed-charge coverage ratio, debt-to-equity ratio, and minimum net worth requirements), and credit rating triggers that could limit our ability to obtain funding or trigger early repayment. The corporate credit facility contains a liquidity covenant that requires us to maintain a minimum of $4 billion in aggregate of domestic cash, cash equivalents, and loaned and marketable securities and/or availability under the facility. Further, the terms of the corporate and supplemental revolving credit facilities prohibit share repurchases (with limited exceptions) while any portion of either facility is outstanding and the payment of dividends on our common or Class B stock while more than 50% of the aggregate amount of commitments under the two facilities is utilized. The terms and conditions of the delayed draw term loan (other than the restrictions on share repurchases and dividends) and the supplemental revolving credit facility are consistent with our corporate credit facility.

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

Each of the corporate credit facility, supplemental revolving credit facility, delayed draw term loan, and our Loan Arrangement and Reimbursement Agreement with the U.S. Department of Energy (the “DOE”) include a covenant that requires us to provide guarantees from certain of our subsidiaries in the event that our senior, unsecured, long-term debt does not maintain at least two investment grade ratings from Fitch, Moody’s, and S&P. The following subsidiaries have provided unsecured guarantees to the lenders under the credit facilities and to the DOE: Ford Component Sales, LLC; Ford European Holdings LLC; Ford Global Technologies, LLC; Ford Holdings LLC (the parent company of Ford Credit); Ford International Capital LLC; Ford Mexico Holdings LLC; Ford Motor Service Company; Ford Smart Mobility LLC; and Ford Trading Company, LLC.

During 2020, Ford Motor Company Limited, our operating subsidiary in the United Kingdom (“Ford of Britain”), entered into, and drew in full, a £625 million term loan credit facility with a syndicate of banks to support Ford of Britain’s general export activities. Accordingly, U.K. Export Finance (“UKEF”) provided a £500 million guarantee of the credit facility under its Export Development Guarantee scheme, which supports high value commercial lending to U.K. exporters. We have also guaranteed Ford of Britain’s obligations under the credit facility to the lenders. As of December 31, 2020, the full £625 million remained outstanding. This five-year, non-amortizing loan matures on June 30, 2025.

Debt. As shown in Note 19 of the Notes to the Financial Statements, at December 31, 2020, Company debt excluding Ford Credit was $24 billion, including Automotive debt of $23.5 billion. These December 31, 2020 balances were $8.7 billion and $8.9 billion, respectively, higher than at December 31, 2019, primarily reflecting our $8 billion unsecured debt issuance in April 2020.

DOE Advanced Technology Vehicle Manufacturer (“ATVM”) Incentive Program. See Note 19 of the Notes to the Financial Statements for information regarding the ATVM loan.

Leverage. We manage Company debt (excluding Ford Credit) levels with a leverage framework that targets investment grade credit ratings through a normal business cycle; however, during these uncertain times, we have increased our debt balance and prioritized actions that preserve or improve our cash balance. The leverage framework includes a ratio of total company debt (excluding Ford Credit), underfunded pension liabilities, operating leases, and other adjustments, divided by Company adjusted EBIT (excluding Ford Credit EBT), and further adjusted to exclude depreciation and tooling amortization (excluding Ford Credit).

Ford Credit’s leverage is calculated as a separate business as described in the Liquidity - Ford Credit Segment section of Item 7. Ford Credit is self-funding and its debt, which is used to fund its operations, is separate from our Automotive and Other debt.

Ford Credit Segment

Ford Credit ended 2020 with $35.4 billion of liquidity. During the year, Ford Credit completed $27 billion of public term funding.

Key elements of Ford Credit’s funding strategy include:

Maintain strong liquidity; continue to renew and expand committed ABS capacity
Prudently access public markets
Flexibility to increase ABS mix as needed; preserving assets and committed capacity
Target managed leverage of 8:1 to 9:1
Maintain self-liquidating balance sheet

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 regularly stress tests its balance sheet and liquidity to ensure that it can continue 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 and other financial institutions in the United States and international capital markets.

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

Ford Credit obtains short-term unsecured funding from the sale of demand notes under its Ford Interest Advantage program and through the retail deposit programs at FCE Bank plc (“FCE”) and Ford Bank GmbH (“Ford Bank”). At December 31, 2020, 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 and Ford Bank deposits was $6 billion. Ford Credit maintains multiple sources of readily available liquidity to fund the payment of its unsecured short-term debt obligations.

The following table shows funding for Ford Credit’s managed receivables (in billions):


	December 31, 2018			December 31, 2019			December 31, 2020
Funding Structure
Term Debt (incl. Bank Borrowings)	$	70		$	73		$	77
Term Asset-Backed Securities	60			57			55
Commercial Paper	4			4			—
Ford Interest Advantage / Deposits	6			7			6
Other	10			9			7
Equity	15			14			14
Adjustments for Cash	(10)			(12)			(18)
Total Managed Receivables (a)	$	155		$	152		$	141

Securitized Funding as Percent of Managed Receivables	39		%	38		%	39		%

(a)See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP.

Managed receivables were $141 billion at December 31, 2020 and were funded primarily with term debt and term asset-backed securities. Securitized funding as a percent of managed receivables was 39%. The calendarization of the funding plan will result in quarterly fluctuations of the securitized funding percentage.

Public Term Funding Plan. The following table shows Ford Credit’s issuances for full year 2018, 2019, and 2020, and planned issuances for full year 2021, excluding short-term funding programs (in billions):


	2018 Actual		2019 Actual		2020 Actual		2021 Forecast

Unsecured	$	13	$	17	$	14	$ 7 - 11
Securitizations (a)	14		14		13		11 - 14
Total public	$	27	$	31	$	27	$ 18 - 25

(a)See Definitions and Information Regarding Ford Credit Causal Factors section.

Note: Numbers may not sum due to rounding.

In 2020, Ford Credit completed $27 billion of public term funding. For 2021, Ford Credit projects full year public term funding in the range of $18 billion to $25 billion. Through February 3, 2021, Ford Credit has completed $1 billion of public term issuances.

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

Liquidity. The following table shows Ford Credit’s liquidity sources and utilization (in billions):


	December 31, 2018		December 31, 2019		December 31, 2020
Liquidity Sources (a)
Cash	$	10.2	$	11.7	$	18.5
Committed asset-backed facilities	35.4		36.6		38.1
Other unsecured credit facilities	3.0		3.0		2.5
Ford corporate credit facility allocation	3.0		3.0		—
Total liquidity sources	$	51.6	$	54.3	$	59.1

Utilization of Liquidity (a)
Securitization cash and restricted cash	$	(3.1)	$	(3.6)	$	(3.9)
Committed asset-backed facilities	(20.7)		(17.3)		(16.7)
Other unsecured credit facilities	(0.7)		(0.8)		(0.5)
Ford corporate credit facility allocation	—		—		—
Total utilization of liquidity	$	(24.5)	$	(21.7)	$	(21.1)

Gross liquidity	$	27.1	$	32.6	$	38.0
Asset-backed capacity in excess of eligible receivables and other adjustments	0.1		0.4		(2.6)
Net liquidity available for use	$	27.2	$	33.0	$	35.4

(a)See Definitions and Information Regarding Ford Credit Causal Factors section.

Ford Credit’s net liquidity available for use will fluctuate quarterly based on factors including near-term debt maturities, receivable growth, and timing of funding transactions. At December 31, 2020, Ford Credit’s net liquidity available for use was $35.4 billion, $2.4 billion higher than year-end 2019. Ford Credit’s sources of liquidity include cash, committed asset-backed facilities, and unsecured credit facilities. At December 31, 2020, Ford Credit’s liquidity sources totaled $59.1 billion, up $4.8 billion from year-end 2019.

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

Balance Sheet Liquidity Profile. Ford Credit defines its balance sheet liquidity profile as the cumulative maturities, including the impact of expected prepayments and allowance for credit losses, of its finance receivables, investment in operating leases, and cash, less the cumulative debt maturities over upcoming annual periods. 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 and is in addition to its liquidity stress test.

The following table shows Ford Credit’s cumulative maturities for assets and total debt for the periods presented and unsecured long-term debt maturities in the individual periods presented (in billions):


	2021		2022		2023		2024 and Beyond
Balance Sheet Liquidity Profile
Assets (a)	$	80	$	111	$	135	$	157
Total debt (b)	60		86		103		136
Memo: Unsecured long-term debt maturities	17		14		11		29

(a)Includes gross finance receivables less the allowance for credit losses (including certain finance receivables that are reclassified in consolidation to Trade and other receivables), investment in operating leases net of accumulated depreciation, cash and cash equivalents, and marketable securities (excluding amounts related to insurance activities). Amounts shown include the impact of expected prepayments.

(b)Excludes unamortized debt (discount)/premium, unamortized issuance costs, and fair value adjustments.

Maturities of investment in operating leases consist primarily of the portion of rental payments attributable to depreciation over the remaining life of the lease and the expected residual value at lease termination. Maturities of finance receivables and investment in operating leases in the table above include expected prepayments for Ford Credit’s retail installment sale contracts and investment in operating leases. The table above also reflects adjustments to debt maturities to match the asset-backed debt maturities with the underlying asset maturities.

All wholesale securitization transactions and wholesale receivables are shown maturing in the next 12 months, even if the maturities extend beyond 2021. The retail securitization transactions under certain committed asset-backed facilities are assumed to amortize immediately rather than amortizing after the expiration of the commitment period. As of December 31, 2020, Ford Credit had $157 billion of assets, $81 billion of which were unencumbered.

Funding and Liquidity Risks. Ford Credit’s funding plan is subject to risks and uncertainties, many of which are beyond its control, including disruption in the capital markets (such as from the impact of COVID-19) that could impact both unsecured debt and asset-backed securities and the effects of regulatory changes on the financial markets.

Despite Ford Credit’s diverse sources of funding and liquidity, its ability to maintain liquidity may be affected by, among others, the following factors (not necessarily listed in order of importance or probability of occurrence):

Prolonged disruption of the debt and securitization markets;
Global capital market volatility;
Credit ratings assigned to Ford and Ford Credit;
Market capacity for Ford- and Ford Credit-sponsored investments;
General demand for the type of securities Ford Credit offers;
Ford Credit’s ability to continue funding through asset-backed financing structures;
Performance of the underlying assets within Ford Credit’s asset-backed financing structures;
Inability to obtain hedging instruments;
Accounting and regulatory changes (including LIBOR); and
Ford Credit’s ability to maintain credit facilities and committed asset-backed facilities.

Stress Tests. Ford Credit regularly conducts stress testing on its funding and liquidity sources to ensure it can continue to meet financial obligations and support the sale of Ford and Lincoln vehicles during firm-specific and market-wide stress events. Stress tests are intended to quantify the potential impact of various adverse scenarios on the balance sheet and liquidity. These scenarios include assumptions on access to unsecured and secured debt markets, runoff of short-term funding, and ability to renew expiring liquidity commitments and are measured over various time periods, including 30 days, 90 days, and longer term. Ford Credit’s stress test does not assume any additional funding, liquidity, or capital support from Ford. Ford Credit routinely develops contingency funding plans as part of its liquidity stress testing.

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 table below shows the calculation of Ford Credit’s financial statement leverage and managed leverage (in billions):


	December 31, 2018		December 31, 2019		December 31, 2020
Leverage Calculation
Debt	$	140.1	$	140.0	$	137.7
Adjustments for cash	(10.2)		(11.7)		(18.5)
Adjustments for derivative accounting (a)	0.2		(0.5)		(1.5)
Total adjusted debt	$	130.1	$	127.8	$	117.7

Equity (b)	$	15.0	$	14.3	$	14.0
Adjustments for derivative accounting (a)	(0.2)		—		0.1
Total adjusted equity	$	14.8	$	14.3	$	14.1

Financial statement leverage (to 1) (GAAP)	9.4		9.8		9.8
Managed leverage (to 1) (Non-GAAP)	8.8		8.9		8.3

(a)Related primarily to market valuation adjustments to derivatives due to movements in interest rates. Adjustments to debt are related to hedging activity and adjustments to equity are related to retained earnings.

(b)Total shareholder’s interest reported on Ford Credit’s balance sheets.

Ford Credit plans its managed leverage by considering market conditions and the risk characteristics of its business. At December 31, 2019 and 2020, Ford Credit’s financial statement leverage was 9.8:1 and 9.8:1, respectively, and managed leverage was 8.9:1 and 8.3:1, respectively. Managed leverage decreased relative to financial statement leverage primarily due to the higher cash balance at year-end 2020. 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. Going forward, we expect to:

Limit our pension contributions to offset ongoing service cost or meet regulatory requirements, if any;
Maintain target asset allocation of about 80% fixed income investments and 20% growth assets, which better matches 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


	2019			2020			2020 B / (W) 2019
Pension Funded Status ($B)
U.S. Plans	$	(1.4)		$	(0.7)		$	0.7
Non-U.S. Plans	(5.4)			(6.0)			(0.6)
Total Global Pension	$	(6.8)		$	(6.7)		$	0.1

Year-End Discount Rate (Weighted Average)
U.S. Plans	3.32		%	2.56		%	(0.76) ppts
Non-U.S. Plans	1.74		%	1.23		%	(0.51) ppts

Actual Asset Returns
U.S. Plans	20.43		%	16.44		%	(3.99) ppts
Non-U.S. Plans	10.72		%	10.96		%	0.24 ppts

Pension - Funded Plans Only ($B)
Funded Status	$	(0.4)		$	0.3		$	0.7
Contributions for Funded Plans	0.7			0.6			0.1

Worldwide, our defined benefit pension plans were underfunded by $6.7 billion at December 31, 2020, an improvement of $100 million from December 31, 2019, primarily as a result of asset returns in excess of our assumptions, partially offset by lower discount rates. Of the $6.7 billion underfunded status at year-end 2020, $7.0 billion is associated with our unfunded plans. These are “pay as you go,” with benefits paid from Company cash. These unfunded plans primarily include certain plans in Germany, and U.S. defined benefit plans for senior management.

The fixed income mix was 80% in our U.S. plans and 82% in our non-U.S. plans at year-end 2020.

In 2020, we contributed $570 million to our global funded pension plans, a decrease of $160 million compared with 2019. During 2021, we expect to contribute between $600 million and $800 million of cash to our global funded pension plans. We also expect to make about $390 million of benefit payments to participants in unfunded plans. Based on current assumptions and regulations, we do not expect to have a legal requirement to fund our major U.S. plans in 2021. Our global funded plans remain fully funded in aggregate, 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.

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

Return on Invested Capital (“ROIC”). We analyze total Company performance using an adjusted ROIC financial metric based on an after-tax rolling four quarter average. The following table contains the calculation of our ROIC for the years shown (in billions):


	December 31, 2018			December 31, 2019			December 31, 2020
Adjusted Net Operating Profit After Cash Tax
Net income/(loss) attributable to Ford	$	3.7		$	—		$	(1.3)
Add: Noncontrolling interest	—			—			—
Less: Income tax	(0.7)			0.7			(0.2)
Add: Cash tax	(0.8)			(0.6)			(0.4)
Less: Interest on debt	(1.2)			(1.0)			(1.6)
Less: Total pension / OPEB income / (cost)	(0.4)			(2.6)			(1.0)
Add: Pension / OPEB service costs	(1.2)			(1.0)			(1.1)
Net operating profit after cash tax	$	4.0		$	1.4		$	0.1
Less: Special items (excl. pension / OPEB) pre-tax	(0.6)			(3.5)			(0.7)
Adjusted net operating profit after cash tax	$	4.6		$	4.8		$	0.7

Invested Capital
Equity	$	36.0		$	33.2		$	30.8
Redeemable noncontrolling interest	0.1			—			—
Debt (excl. Ford Credit)	14.1			15.3			24.0
Net pension and OPEB liability	11.9			12.9			13.3
Invested capital (end of period)	$	62.1		$	61.4		$	68.1
Average invested capital	$	64.0		$	61.7		$	70.7

ROIC (a)	6.2		%	2.2		%	0.1		%
Adjusted ROIC (Non-GAAP) (b)	7.1		%	7.8		%	1.0		%

(a)Calculated as the sum of net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

(b)Calculated as the sum of adjusted net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters.

Note: Numbers may not sum due to rounding.

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, Fitch, Moody’s, and S&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.

There have been no rating actions taken by these NRSROs since the filing of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

The following table 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	BB (high)	BB (high)	Negative	BB (high)	R-4	Negative	BBB (low)
Fitch	BB+	BB+	Negative	BB+	B	Negative	BBB-
Moody’s	N/A	Ba2	Negative	Ba2	NP	Negative	Baa3
S&P	BB+	BB+	Negative	BB+	B	Negative	BBB-

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

OUTLOOK

We provided 2021 Company guidance in our earnings release furnished on Form 8-K dated February 4, 2021. The guidance is based on our expectations as of February 4, 2021, and (i) excludes the impact of the semi-conductor shortage (see below for a discussion of the shortage); (ii) includes a non-cash gain of about $900 million in the first quarter of 2021 on our investment in Rivian; and (iii) assumes no material change in the current economic environment, including foreign exchange and tariffs. Our actual results could differ materially from our guidance due to risks, uncertainties, and other factors, including those set forth in “Risk Factors” in Item 1A of Part I.


						2021 Guidance
Total Company
Adjusted EBIT (a)						$8.0 - $9.0 billion
Adjusted Free Cash Flow (a)						$3.5 - $4.5 billion
Capital spending						$6.0 - $6.5 billion
Pension contributions						$0.6 - $0.8 billion
Global Redesign EBIT charges						$2.2 - $2.7 billion
Global Redesign cash effects						$3.0 - $3.5 billion
Ford Credit
EBT						Improved compared to 2020
Ford Credit auction values (b)						Lower

(a)When we provide guidance for Adjusted EBIT and Adjusted Free Cash Flow, we do not provide guidance for the most comparable GAAP measures because, as described in more detail below in “Non-GAAP Measures That Supplement GAAP Measures,” they include items that are difficult to predict with reasonable certainty.

(b)On average compared with full year 2020 at constant mix.

The global semiconductor shortage is creating uncertainty across multiple industries, including the automotive industry, and will influence our operating results this year. The situation is fluid and we believe it is premature to quantify the full year impact on our adjusted EBIT and adjusted free cash flow. At present, though, current estimates from suppliers support a scenario where we could lose 10% to 20% of our planned first quarter production. If that scenario is extended through the first half of the year, the impact could adversely affect our full year adjusted EBIT by between $1.0 billion and $2.5 billion, net of reasonable cost recoveries and some production make-up in the second half of the year. Full year EBIT and cash effects due to the shortage would be about equal, with quarterly cash implications more volatile given the mechanics of our working capital.

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, without limitation:

Ford and Ford Credit’s financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19;
Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule, and a shortage of key components, such as semiconductors, can disrupt Ford’s production of vehicles;
Ford’s long-term competitiveness depends on the successful execution of its Plan;
Ford’s vehicles could be affected by defects that result in delays in new model launches, recall campaigns, or increased warranty costs;
Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or new business strategies;
Operational systems, security systems, and vehicles could be affected by cyber incidents and other disruptions;
Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, or other factors;
Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints;
Ford’s ability to attract and retain talented, diverse, and highly skilled employees is critical to its success and competitiveness;
Ford’s new and existing products and mobility services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and mobility industries;
Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;
With a global footprint, Ford’s results could be adversely affected by economic, geopolitical, protectionist trade policies, or other events, including tariffs;
Industry sales volume in any of Ford’s key markets can be volatile and could decline if there is a financial crisis, recession, or significant geopolitical event;
Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors;
Fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments can have a significant effect on results;
Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;
Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;
Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;
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;
Pension and other postretirement liabilities could adversely affect Ford’s liquidity and financial condition;
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 may need to substantially modify its product plans to comply with safety, emissions, fuel economy, autonomous vehicle, and other regulations;
Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, and data protection laws and regulations as well as consumers’ heightened expectations to safeguard their personal information; and
Ford Credit could be subject to new or increased credit regulations, consumer 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 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 EBIT (Most Comparable GAAP Measure: Net Income/(Loss) Attributable to Ford) – Earnings before interest and taxes (EBIT) 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 operating results aligned with industry reporting. Our management ordinarily excludes special items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. Our categories of pre-tax special items and the applicable significance guideline for each item (which may consist of a group of items related to a single event or action) are as follows:


Pre-Tax Special Item						Significance Guideline
∘ Pension and OPEB remeasurement gains and losses						∘ No minimum

∘ Personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix						∘ Generally $100 million or more

∘ Other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities						∘ $500 million or more for individual field service actions; generally $100 million or more for other items

When we provide guidance for adjusted 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/(Loss) 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 aligned with industry reporting.

*•*Adjusted Earnings/(Loss) Per Share (Most Comparable GAAP Measure: Earnings/(Loss) Per Share) – Measure of Company’s diluted net earnings/(loss) per share adjusted for impact of pre-tax special items (described above), tax special items, and restructuring impacts in noncontrolling interests. 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/(loss) per share, we do not provide guidance on an earnings/(loss) 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.

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

Company Adjusted Free 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 funded pension contributions, global redesign (including separations), and other items that are considered operating cash flows 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 free 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.

*•*Adjusted ROIC – Calculated as the sum of adjusted net operating profit after cash tax from the last four quarters, divided by the average invested capital over the last four quarters. Adjusted Return on Invested Capital (“Adjusted 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.

*•*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.

*•*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.

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

NON-GAAP FINANCIAL MEASURE RECONCILIATIONS

The following tables show our Non-GAAP financial measure reconciliations. The GAAP reconciliation for Ford Credit Managed Leverage can be found in the Ford Credit Segment section of “Liquidity and Capital Resources.”

Net Income/(Loss) Reconciliation to Adjusted EBIT ($M)


	2018		2019		2020

Net income/(loss) attributable to Ford (GAAP)	$	3,677	$	47	$	(1,279)
Income/(Loss) attributable to noncontrolling interests	18		37		3
Net income/(loss)	$	3,695	$	84	$	(1,276)
Less: (Provision for)/Benefit from income taxes	(650)		724		(160)
Income/(Loss) before income taxes	$	4,345	$	(640)	$	(1,116)
Less: Special items pre-tax	(1,429)		(5,999)		(2,246)
Income/(Loss) before special items pre-tax	$	5,774	$	5,359	$	1,130
Less: Interest on debt	(1,228)		(1,020)		(1,649)
Adjusted EBIT (Non-GAAP)	$	7,002	$	6,379	$	2,779

Memo:
Revenue ($B)	$	160.3	$	155.9	$	127.1
Net income/(loss) margin (%)	2.3%		0.0%		(1.0)		%
Adjusted EBIT margin (%)	4.4%		4.1%		2.2%

Earnings/(Loss) per Share Reconciliation to Adjusted Earnings/(Loss) per Share


	2018		2019		2020
Diluted After-Tax Results ($M)
Diluted after-tax results (GAAP)	$	3,677	$	47	$	(1,279)
Less: Impact of pre-tax and tax special items	(1,517)		(4,676)		(2,916)
Less: Noncontrolling interests impact of Russia restructuring	—		(35)		—
Adjusted net income - Diluted (Non-GAAP)	$	5,194	$	4,758	$	1,637

Basic and Diluted Shares (M)
Basic shares (average shares outstanding)	3,974		3,972		3,973
Net dilutive options, unvested restricted stock units, and restricted stock	24		32		29
Diluted shares	3,998		4,004		4,002

Earnings/(Loss) per share - diluted (GAAP) (a)	$	0.92	$	0.01	$	(0.32)
Less: Net impact of adjustments	(0.38)		(1.18)		(0.73)
Adjusted earnings per share - diluted (Non-GAAP)	$	1.30	$	1.19	$	0.41

(a)The 2020 calculation excludes the 29 million shares of net dilutive options, unvested restricted stock units, and restricted stock due to their antidilutive effect.

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

Effective Tax Rate Reconciliation to Adjusted Effective Tax Rate


	2018		2019		2020
Pre-Tax Results ($M)
Income/(Loss) before income taxes (GAAP)	$	4,345	$	(640)	$	(1,116)
Less: Impact of special items	(1,429)		(5,999)		(2,246)
Adjusted earnings before taxes (Non-GAAP)	$	5,774	$	5,359	$	1,130

Taxes ($M)
(Provision for)/Benefit from income taxes (GAAP)	$	(650)	$	724	$	(160)
Less: Impact of special items (a)	(88)		1,323		(670)
Adjusted (provision for)/benefit from income taxes (Non-GAAP)	$	(562)	$	(599)	$	510

Tax Rate (%)
Effective tax rate (GAAP)	15.0%		113.1%		(14.3)		%
Adjusted effective tax rate (Non-GAAP)	9.7%		11.2%		(45.1)		%

(a)2020 includes $(1.3) billion related to the establishment of valuation allowances against primarily U.S. tax credits.

Net Cash Provided by/(Used in) Operating Activities Reconciliation to Company Adjusted Free Cash Flow ($M)


	2018		2019		2020

Net cash provided by/(used in) operating activities (GAAP)	$	15,022	$	17,639	$	24,269

Less: Items not included in Company Adjusted Free Cash Flows
Ford Credit operating cash flows	$	8,171	$	11,531	$	20,717
Funded pension contributions	(437)		(730)		(570)
Global Redesign (including separations)	(196)		(911)		(503)
Ford Credit tax payments/(refunds) under tax sharing agreement	—		391		1,352
Other, net	82		(1)		(837)

Add: Items included in Company Adjusted Free Cash Flows
Automotive and Mobility capital spending	(7,737)		(7,580)		(5,702)
Ford Credit distributions	2,723		2,900		2,415
Settlement of derivatives	132		107		(171)
Pivotal conversion to a marketable security	263		—		—
Company adjusted free cash flow (Non-GAAP)	$	2,781	$	2,785	$	652

Note: Numbers may not sum due to rounding.

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

Ford Credit Net Receivables Reconciliation to Managed Receivables ($B)


	2018		2019		2020

Ford Credit finance receivables, net (GAAP) (a)	$	109.9	$	107.4	$	97.7
Net investments in operating leases (GAAP) (a)	27.4		27.6		26.6
Consolidating adjustments (b)	8.9		7.0		7.4
Total net receivables	$	146.2	$	142.0	$	131.7

Held-for-sale receivables (GAAP)	—		1.5		—
Ford Credit unearned interest supplements and residual support	6.8		6.7		6.5
Allowance for credit losses	0.6		0.5		1.3
Other, primarily accumulated supplemental depreciation	1.2		1.0		1.0
Total managed receivables (Non-GAAP)	$	154.9	$	151.7	$	140.5

(a)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 sheets 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.

(b)Primarily includes Automotive segment receivables purchased by Ford Credit which are classified to Trade and other receivables on our consolidated balance sheets. Also includes eliminations of intersegment transactions.

Note: Numbers may not sum due to rounding.

Previous: Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. · Next: Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)