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Analysts:

Nicholas Barry

nicholas-barry@uiowa.edu

Austin Moss

austin-moss@uiowa.edu

Company Overview:

Ford Motor Company (F) is a leader in the automobile

manufacturing industry whose core business processes are to

design, manufacture, market, finance, and service both Ford-

branded vehicles and their luxury vehicles brand, Lincoln. With

global operations in North America, South America, Europe,

Asia-Pacific, and the Middle East & Africa, Ford’s diversified

outreach spans across all populated continents. Their two

operating segments, Ford Motor and Ford Credit, work

collaboratively in order to structure an environment focused on the

end consumer. Ford’s FY2015 performance was one of record

proportions, inclusive of $10.8B in pre-tax profit and over 312,000

more vehicles sold than 2014.

Stock Performance Highlights 52 week High $16.10

52 week Low $10.44

Beta Value 1.34

Average Daily Volume 38.13M

Share Highlights Current Trading Price (4/18/2016) $13.25 Market Capitalization $51.53B

Shares Outstanding 3.91B

Book Value per Share $7.22

EPS (FY2015) $1.86

Trailing P/E Ratio 7.03

Dividend Yield 4.64%

Dividend Payout Ratio 32.26%

Company Performance Highlights ROA 3.53%

ROE 29.72%

Automotive Revenues $140.57B

Financial Ratios Current Ratio 1.92

Debt to Equity 86.82%

Target Price: $16.00 – $17.00

Current Price: $13.25

Future Opportunities Reap Diversification

Proven domestic leader: Ford’s best-selling vehicle, the F-150,

is thriving in today’s market environment of low borrowing

costs, low oil prices, and high consumer confidence. With a

contribution margin that is 135% of their average vehicle sold,

the F-150 will continue to drive margins in the near term. As of

April 1, 2016, Ford has seen F-150 sales exceed the second best-

selling, North American vehicle by 57,156 units.

Structured innovation in mobility: A new initiative, Ford

SmartMobility, is pressing into areas such as autonomous

research, ride-sharing, and connectivity. We believe this

positions Ford to be a leader in these spaces, creating value from

the start of any transportation shift that may occur. Ford is

currently spending more than the competition in R&D

expenditure as a percent of sales and vows to continue this

strategy as they triple their fleet of autonomous vehicles in 2016.

Operational efficiency focused on change: Since the financial

crisis, Ford has put an emphasis on operational efficiency. With

an inventory turnover ratio of 14.34 times, Ford has the ability

to continually redesign their products to meet market conditions.

As environmental regulations increase globally, Ford will be

able to adapt and produce according to standard. Of United

States of America (U.S.) producers, Ford’s 2015 truck line-up

has the highest preliminary fuel economy with an average of

20.4 mpg.

Weakness in long-term cyclicality: As market conditions shift,

as we project, to accommodate smaller growth in Ford’s large-

vehicle segment, their top-line will negatively react. Even with

these adverse effects of cyclicality, accounted for in our model,

we believe Ford to be undervalued.

One Year Stock Performance

Source: Yahoo Finance

xli

Consumer Discretionary Ford Motor Co. (NYSE:F)

Krause Fund Research Spring 2016

Recommendation: BUY April 19, 2016

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Executive Summary We are issuing a buy rating for Ford Motor Company (F) for the

Krause Fund portfolio. This decision is based on Ford’s leading

market position, organic growth prospects, and forward-looking

operational standards. Ford’s recent year-over-year growth in

vehicle sales, U.S. market share, and revenues has supported value

creation greater than that of its nearest competitors.

Our valuation models represent these forecasts accordingly, and

support our issuance of a buy rating. We forecast increased

revenues to a peak of $160.98B in 2017 as high-margin sales

persist. In the long-run our predicted downtick in North American

revenue growth reduces our top-line, but is overcome by

increasingly efficient production processes. We believe these,

amongst other key forecasts, will drive Ford’s stock price to our

target area of $16.00-$17.00.

Macroeconomic Outlook

U.S. Gross Domestic Product

The real gross domestic product (GDP) is a measure of the goods

and services produced in a country during a given period of time,

after adjusting for inflation. GDP is an important statistic to look

at because it reflects the state of an economy fairly accurately. This

is important because consumers are more likely to spend money

on discretionary items such as automobiles, vacations, and other

luxury goods when the economy is doing well and they have

excess money to spendi.

Since the financial crisis of 2009, parts of the economy have been

recovering rapidly, but GDP growth has been stagnant between

1.5% and 2.5% over the last six years. This GDP data could

indicate a mediocre period for discretionary sales, but 2015

boasted a record breaking year for automobile sales in the United

States. Our team believes that, while Real GDP is usually a good

indicator for discretionary sales, other indicators such as consumer

confidence, interest rates, oil prices, and employment statistics are

currently better measurements and indicators because they are

more closely related to consumers.

Source: Fred Economic Dataii

Going forward, our estimate for 2016 GDP growth is 1.8%

because of headwinds from rising interest rates and the economic

uncertainty that has lead the S&P 500 index into a near 14%

decline from its 2100 level in October, 2015 before rebounding in

March 2016 to 2,094 as of April 18, 2016. Additionally, we predict

global geopolitical risks and the slowing of global growth will

negatively impact U.S. GDP.

U.S. Consumer Confidence

Consumer confidence, a gauge of consumer’s feelings on the

economy, political stabilization, and future outlook for their

financial health is one of the most important indicators to look at

when forecasting the future of automobile sales. When consumer

confidence is high, the average consumer feels that their future

financial health is stable or rising and is therefore more likely to

spend money on discretionary items. The specific numerical value

of the consumer confidence index is not as important as the general

trend of the index. The general trend of the consumer confidence

index is one of the most important indicators of U.S. vehicle sales

because vehicle sales follow the same trend as the consumer

confidence index.

Source: U of Michigan, FRED Economic Dataiii

Given recent consumer confidence levels it should not be a

surprise that 2015 was a record year for automobile sales. When

consumers are confident that they are in a financially stable

environment they are more likely to take on risk (debt) than if they

were unsure about their job security, future inflation rates, or

political instability.

We believe that the slight downtick in the consumer confidence

index in January and February were reflections of the poor equity

market performance and expect that consumer confidence will rise

to its 2015 highs in 2016. This is important to our model because

we expect North American automobile sales to grow slightly in

2016 from an already record 2015.

U.S. Interest Rates

The U.S. and global economies are in a peculiar time for monetary

policies. Never before has the world seen such intervention by

central banks to influence interest rates around the world. The U.S.

Fed raised its Fed Funds rate by 0.25%, from 0.25% to 0.5%, in

December 2015. Originally, the Fed stated that it intended to raise

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its rates by 0.25% four times in 2016. However, with the early

volatility in the markets, the Fed has backed away from that stance

and failed to raise rates in March. Fed Chairwoman, Janet Yellen,

has also seemed to be taking a more dovish stance on raising rates

and signaled that the Fed now plans to do so only twice during

2016. As you can see, a 10-year treasury note yielded about 5%

before the recession, but now yields only 1.8%. This marked

decrease in interest rates have propelled the recovering economy

forward, but if the Fed waits too long, inflation could get out of

control and put the U.S. right back into a recession.

Source: FRED Economic Dataiv

Interest rates are a very important factor in a consumer’s decision

to purchase a vehicle. Vehicles are primarily purchased using

some type of financing, and the lower the interest rates the more

affordable a new vehicle is to the everyday consumer. We expect

the Fed to continue to influence interest rates upward over the next

several years, but we think that they will remain dovish during

2016, raising the Fed Funds rate only once. Our model builds this

expectation into the sales of cars by moving future purchases to

2016. We think that the marginal consumer who may be ready to

purchase a car in 2017, 2018, or 2019 may consider moving their

car purchase forward to 2016 because of the expectation of future

higher interest rates. This expectation leads to more car sales in

2016 and a decline in car sales in 2018 and 2019.

Source: Fred Economic Datav

We also take the expectation of higher interest rates into

consideration when forecasting capital expenditures. Ford is

looking into branching out of the typical automobile

manufacturer’s role and expand into new areas such as public

transit and mobility. We believe that the expectation of rising

interest rates may lead Ford to borrow and invest more now so that

they can avoid the higher rates several years from now.

Global Oil Prices

Oil prices were in freefall from the summer of 2014 to mid-

February 2016. This sharp price decline erased $80 from a barrel

of oil when it hit its low of $26. Since mid-February, oil has rallied

to as high as $43 a barrel and now sits around $40. Lower oil has

many effects on our outlook for Ford because it can be seen in so

many different indicators. But, it mainly affects these indicators

through its production into gasoline.

Gasoline may be one of the largest expenses a household has and

is definitely one of the most visible and volatile. We believe that

lower gasoline prices are one of the reasons that consumer

confidence has been so high over the last year. The lower gas

prices put more money into consumer’s pockets and make them

better off financially. This, in turn, raises the consumer confidence

index. With the U.S. personal savings rate at only 5.5%, it leads

us to believe that 94.5% of the money saved at the pump is being

spent in the economyvi. Since this is excess money, that a

consumer probably did not budget for, it is more likely that they

will spend it on discretionary items such as automobiles. We

believe that the combination of a high consumer confidence index

and low gasoline prices is a major indication that automobile sales

will continue to increase in 2016.

Oil will continue to be volatile throughout 2016, but won’t begin

to make significant price movements upward until Q2 2017. We

believe this based on our analysis of oil production and demand.

The below EIA graph shows this imbalance between supply and

demand and when the excess supply should be eliminated. In

addition to the EIA forecast, we believe that Iranian oil coming to

market will keep oil prices around the mid-$30s to low-$40s

during 2016.

Source: EIA Datavii

In the long-run, we believe that oil will not get much higher than

$55 per barrel throughout our forecast horizon, to 2021. This will

still translate into relatively cheap gasoline prices when compared

to the $4-5 per gallon we saw when oil was more than $100 per

barrel. We forecast that oil will remain below $60 per barrel

because that is the typical break-even price for most American

fracking companies from exploration to extraction. The slowdown

in supply that people were expecting from lower prices isn’t

occurring because existing fracking-wells have a break-even price

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of around $28 per barrel. We expect for oil prices to remain

between $30 and $60 for the foreseeable future. Near the lower

end of this price corridor we estimate that automobile sales will

continue to be strong. As oil approaches the upper-end of the

corridor, automobile sales will simply be “okay” and decline from

their record-highs.

U.S. Current Employment Statistics As previously discussed, discretionary spending is highly-linked

to the strength of the spending environment. There are three main

requirements, which apply to the average consumer, for spending

money on discretionary items.

1. Employed

2. Making a fair wage

3. Confidence in their future employment status

We believe that these are the three main items that lead consumers

to spend more freelyviii.

Employed: Currently, the official unemployment rate sits at 5.0%, which is

still slightly higher than the unemployment rate before the

financial crisis, 4.6%. With interest rates remaining low for the

near future we see the trend in unemployment continuing

downward to about 4.6% within the next two to three years.

Source: FRED Economic Dataix

As the unemployment rate continues to near 4.5%, which we

believe to be the full-employment rate, the pressure that this puts

on wage growth will begin to increase America’s wages.

Making a Fair Wage: Much of this political season has revolved around families and

workers who believe that they are not being paid a fair wage. This

unfair wage could be due to a national lack of wage growth or

because the minimum wage is too low. Either way, we believe that

both will be increasing in the near future.

The national stagnation of wages has mostly occurred because

there are many people still searching for jobs, post-recession.

When there is a supply of qualified labor there is no incentive for

businesses to raise wages to attract the most-qualified. However,

now that the US is approaching full employment, businesses are

running out of qualified labor and will have to begin to raise wages

to attract qualified talent to their businesses.

We also believe that the minimum wage is likely to rise. There are

already cities and states that are raising the minimum wage above

the $7.25 national minimum and we expect this trend to continue

as it becomes an even bigger issue as the U.S. approaches the 2016

presidential elections. California has recently raised its minimum

wage to $15 and we suspect that economists and politicians will

be looking at the outcome of this “experiment” to determine if it

would be beneficial for the entire nation. Both Democratic

candidates have raising the minimum wage as a key issue in their

platforms and we suspect that this will be one of their first

priorities if they become President of the United States.

A rise in wages, whether from market-forces or political

interaction, will have positive effects on discretionary spending.

Effects from a higher national minimum wage could have a

substantial effect because these employees will have a higher

percentage increase in income (some up to 100%), which they will

likely spend on upgrades to items such as housing and

automobiles.

Confidence for the Future: The third item that is a large influencer of discretionary spending

is the consumer’s confidence in their future financial stability.

With wages rising and unemployment falling or remaining flat we

expect that consumers will remain as confident, if not more

confident, when compared to today. Certain issues could

negatively affect confidence for the future such as political

instability, rising inflation rates, and stock market turmoil.

However, within the next two years we believe that the only

possibility of a marked decrease in confidence is in the event of a

prolonged stock market downturn.

Overall, the employment statistics and outlook are very good for

the discretionary sector and automobile manufacturers. We expect

that a falling unemployment rate, higher wages, and a flat to rising

confidence in the future will positively impact Ford and the sales

of their higher-margin vehicles, such as the F-150.

Europe

Overall, Europe has not been able to recover from the Global

Financial Crisis as quickly as the United States. With an

annualized growth in GDP of only 0.3% in Q3 and Q4 2015,

several economists are moving their GDP forecasts down 0.1% for

2016 and 2017 to 1.5% and 1.6%, respectively. We believe that

the European Union will see worse-than-expected GDP data,

around 1.3% for 2016, because of some political uncertainties

within the Union. More specifically, the possibility of Britain

leaving the European Union will damper investment until the

political uncertainty is taken care of on June 23rd.

European Central Bank (ECB) Chief, Mario Draghi, recently cut

the ECB’s main interest rate to 0% while expanding quantitative

easing to €80 billion per month, which will now include the

purchase of corporate bonds. The quantitative easing will last until

at least March 2017, while Mr. Draghi also said that interest rates

will remain “very, very low” beyond quantitative easing. For

2016, this will have a positive impact on Ford because of the low

cost for consumers to finance their vehicles. It also allows Ford to

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run incentive programs, such as 0% financing, at much cheaper

costs. However, if the European Union growth remains stagnant,

our team believes that the ECB and other central banks, such as

Japan’s central bank, may be running out of ammunition to combat

deflationx. This would ultimately hurt Ford due to the global

recession that would likely ensue.

Asia-Pacific

Asia-Pacific is the only geographical region where GDP growth is

expected to be over 4% for the foreseeable future. The largest

opportunity for Ford in this region is China and is where we expect

Ford to realize the majority of its global growth over the next five

years.

Although China’s GDP growth has been slowing recently, it is still

growing faster than any other nation of decent size. One of the

reasons that China’s GDP growth is slowing is because of the

transition to a nation that is more consuming in nature. Though

this transition will hurt China GDP outlooks, we believe that it is

a positive development for Ford because the people of China are

starting to reap the benefits of being a prosperous nation and being

able to consume more goods and services.

While China struggles with some political risk factors, the Chinese

government is becoming more transparent and more like

democratic nations every year. While there is a risk for companies

who become dependent on China, we believe that this is minuscule

risk because of the position that China is trying to take amongst

the top economies in the global economy. This rise to political

power will only allow more transparency into the country and will

ultimately help more Chinese citizens rise to the middle- and

upper-classes.

South America Our outlook on South America is very negative for 2016 and the

following three years because many of the economies are very

dependent on commodities. This dependence on commodities has

lead for very cyclical economies in South America. Currently,

with most commodity prices near multi-year lows the

governments are running large budget-deficits and some countries

are experiencing inflation that is out of control. In Q4 2015, South

American economies began to contract at an increasing rate of

1.2% from 0.5% in Q3. Overall, contraction for 2015 was 0.1%,

mostly due to the weakness of its largest economy, Brazil, who

had its worst economic performance in decadesxi.

Due to our outlook for slightly higher oil and other commodity

prices, the political instability in Brazil, and overall economic

weakness, we believe that South American economies will grow

at only 0.5% in 2016 and 1% in 2017. We believe that the

economic weakness in South America is much different than the

economic weaknesses in North America and Europe because the

consumers are being effected more in South America, by things

such as high inflation rates, and is an area of the world where there

is not an “economic cushion” like that enjoyed by North American

and European consumers.

Middle East & Africa The Middle East & Africa (ME&A) are two regions of the world

where many of the economies are heavily dependent on revenues

from oil production. Many of these countries use oil revenues to

pay for their government budgets. In addition to a heavy

dependency on oil, the Middle East & Africa are the most

politically unstable and least democratic regions in the world. Ford

does not have any key markets in the ME&A region.

Non-oil producing countries in ME&A have had a pick-up in

economic activity, helping the broader ME&A grow about 2.5%

in Q4 2015, and 2.6% on the year. Saudi Arabia and UAE, two of

the largest oil producers in the world, were able to hold GDP

growth relatively steady, when taking into consideration the steep

drop in oil prices, as low oil prices stimulated investment into the

non-hydrocarbon industryxii. Due to lower oil prices, several of the

governments in these regions are no longer able to spend as much

on infrastructure and social programs. The cuts that the

government will have to make to these initiatives will cause 2016

to be another year below ME&A’s historical growth trend. We

expect 2016 GDP to be 2.6% as some nations continue the increase

in economic activity, while others are forced to cut spending

because of their budget deficits.

Market Outlook

This year began with high market volatility and a 10.7% drop in

the S&P 500 from January 1st to February 11th. Since then,

however, stocks have rallied to post gains, up 2.74% YTD, with

the S&P 500 around 2,094. With the Fed signaling a more dovish

position on interest rate hikes we forecast that the S&P 500 will

trade in the 2,000 to 2,125 range for the year as the markets worry

about interest rate hikes later in the year. We believe that the

movements of the overall market will have a negligible effect on

Ford during 2016 unless another unexpected drop in stocks occurs,

in which Ford will be negatively impacted due to the perceived

correlation between stock market health and economic health.

Industry Analysis

Overview

Our team identifies Ford to be operating in the automobile

manufacturing industry, which is primarily attributed with the

design, manufacturing and subsequent selling of motor vehicles.

Most automakers, Ford included, are connected to the vehicle after

the initial selling point by means of regular service schedules.

Revenue streams through a wide customer base that includes

individual consumers, as well as, more fleet-type channels.

Aggregately this industry’s product line is comprised of, but not

limited to, sedans, compact cars, luxury cars, SUVs, and pickup

trucks.xiii Though Ford sells products in the majority of these

categories, our team believes they feel most secure with their

pickup truck sales. According to their 10-K, their average

contribution margin on large vehicle sales is 135% of their total

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average contribution margin across all vehicles.xiv As of April 3rd,

2016, Ford has seen its F-Series trucks become the most purchased

vehicle in the U.S., during 2016, with approximately 186,121 sold

thus far.xv

Source: WSJ Market Dataxvi

Industry Trends

Domestic Demand Recovery: Within the United States, vehicle sales have recovered since the

economic crisis of 2008. As the graph below indicates, vehicle

sales are as high, if not exceeding, those of the pre-recession

environment. In 2006 and 2015 Ford sold approximately 3.123

and 3.073 million vehicles, respectively. Over our historical time

period, both data sets dropped approximately 38% from their 2006

high to their 2009 low.xvii Ford’s recovery has been closely

correlated to the overall automotive market, though it does slightly

outperform it, as its vehicle sales post-recession have outgrown

the market in four of six years. In the first growth year, 2010, Ford

outperformed the market by 13.9%. While more recently Ford’s

2015 YoY growth was 2.18% higher than that of the market.

Source: FRED Economic Dataxvii

Over the last three fiscal years, trucks have accounted for 52.2%,

54.4%, and 56.8% of total retail vehicle sales in the United

States.xviii When oil prices are lower the consumer is more inclined

to purchase larger vehicles, even though they are generally more

expensive. The reality of an increased demand for these vehicles

throughout the recovery is pertinent to Ford’s success on their

margins. We forecasted this assumption accordingly in our North

American revenues by slightly increasing the average selling price

of vehicles sold in the short term.

Age as a Key Determinant: Throughout the recovery and into the forecast horizon, our team

feels that the movement to a car-buying environment led by

Millennials will bode well for Ford. According to J.D. Power and

Associates, as cited within a Standard & Poors research article,

millennials accounted for 28% of automotive sales in 2014, while

Generation-X buyers only accounted for 24% of the total.xviii

Though their margins aren’t as high as larger vehicles, there is a

transformation taking place in the way consumers move from one

place to another.

Ride-sharing, fleet-type services are becoming highly popular,

largely due to companies such as Uber and Lyft and the

Millennials who are rapidly adopting this new industry. As Ford

presses into this industry with initiatives like GoDrive, we see

Ford entering these markets as an insurance policy against global

declines in automobile sales if ride-sharing becomes a widely-

popular option for people across the globe. The demographic shift

in the automotive industry has plenty of potential opportunity

available, but, this would have negative effects on both wholesale

units and average selling price. We have forecasted this possible

shift, in how people use transportation, to continue to gain in

popularity and have considered this when forecasting decreasing

revenues in North America, while slowing growth—compared to

what it could have been—in Asia-Pacific and Europe.

Similarly, the age of vehicles on the road has been increasing over

the past couple of years to an average of approximately 11.5 years

in 2015.xviii High average age points to signs of potential vehicle

replacement in the near future. As a majority of millennials are just

entering the market, we assume these older cars to be held by the

Gen-X generation. In Ford’s advantage, the age of Gen-Xers puts

them in a more likely spot to buy SUVs and larger vehicles. Due

to the potential for an increase in the cost of borrowing, these Gen-

Xers might opt to purchase now and lock in a lower rate for their

financing plan. In the near term, this idea relates to our assumption

of a higher average selling price, specifically 3.00%, in North

America.

Recalls: Of high concern to both our team and consumers looking to

purchase a new vehicle is the issue with vehicle recalls. As cited

from the National Highway and Traffic Safety Administration

(NHTSA)xix, vehicle recalls have trended upward over the past

several years to 51 million vehicles being affected in 2015, 64

million in 2014, 22.1 million in 2013, and 16.5 million in 2012.xx

Within Ford’s competitors, Ford recalled the least number of

vehicles in 2014, totaling just 4.78 million vehicles. For a

perspective, General Motors recalled 28.83 million vehicles over

the same span and Honda recalled 9.04 million.xx Though Ford has

had a history with large recalls, more recently they seem to have

overcome their faults and produced according to standards.

We forecast an increased regulatory environment moving forward,

but Ford’s ability to actively change inventory leaves them ahead

of the curve when new regulations hit the market.

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Source: National Highway Traffic Safety Administrationxx

The NHTSA is currently investigating the 2013 and 2014 Ford F-

150 due to a potential failure in braking systems. xxi It is estimated

to affect close to 420,000 vehicles in the United States. As this is

not considered a recall yet, our team is watching this story with a

close eye. Similarly, the 2016 F-150 is also under recall for airbag

deployment defects, for which Ford began the remedy process on

March 11th, 2016.xxi

Undoubtedly, the impacts of the recent recall environment have

made their way into the market. We believe consumers, though

discouraged by the press releases, will continue to assume the risk

associated with owning a vehicle. Our team predicts that Ford’s

well below-average level of recalls might be a defining factor for

those consumers most concerned, and result in further market

penetration.

Competitive Environment

Comparable Company Analysis: Within the industry our team identified four primary competitors:

General Motors Company (GM), Toyota Motor Corporation,

Honda Motor Company, and Fiat-Chrysler Automobiles. We

selected these companies under the primary characteristics of size,

market outreach, and global recognition. All of these companies

are considered to be major competitors to each other. The

following metrics were chosen at the discretion of our team, as we

felt they were best suited to help describe the broad industry

environment in which Ford operates.

Source: WSJ Market Dataxvi

Though Ford isn’t on the top of the U.S. market, they do show

growth from last year’s number. More specifically, Ford has sold

49,687 more vehicles in Q1 2016 than in the previous year. For

this same comparison, GM fell 341 vehicles and Toyota fell 6,541

vehicles. Our team is suggesting that, while Ford isn’t the number-

one aggregate seller, their growth of 8.4%, which is the most

across automotive sellers, is promising.xvi This growth is

occurring, partly, due to the impressive performance of Ford’s F-

150 and SUVs.

Source: WSJ Market Dataxvi

Also positive for Ford’s U.S. operations, as compared to its

competitors, is their domestic market share. As shown in the chart

below, Ford is growing in market share due to their recent sales

spike. At this point in 2015, Ford was in control of about 15.0%

of the market, whereas, in 2016, they control about 15.7%. This

increase of roughly 4.7% further solidifies their growth potential

in a time where most competitors are lagging in sales. GM has lost

3.5% of U.S. market share in 2016.xvi Our team forecasts further

market share growth in the domestic market where others, such as

Volkswagen, are losing. Additionally, though Ford lacks in global

market share, by about 6% when compared to GM and Toyota, we

feel their domestic presence strengthens their position to move

forward in emerging markets.

Source: Bloomberg Dataxxxix

As seen in the table above Ford is competitive in multiple industry-

related metrics. Ford’s low gross margin percentage of 15.9% is a

reason Ford is focusing on operational efficiency. Also

noteworthy, is Ford’s 5-year sales CAGR which is approximately

5.0%. When compared to its nearest competitor in the United

States, GM, it exceeds it by 2.3%, which is the result of a

promising shift in domestic consumer behavior.

Notable, due to the high fixed assets associated with this industry,

is the return on assets (ROA) of each firm. Ford’s ROA of 3.36%

lacks behind competitors GM and Toyota, but our team still

interprets this as a strong metric for Ford. Through further

Company  Ford  GM  Toyota  Honda Fiat-Chrys 

Gross Margin%  15.90%  17.50%  21.90%  22.80% 10.80% 

Market Share  11.56%  17.35%  17.69%  3.90% 8.03% 

5 YR Sales CAGR  5.00%  2.70%  8.10%  11.40% N/A 

Price/Sales  0.3  0.3  0.7  0.4 0.1 

ROA 3.36% 5.21% 4.87% 2.96% 0.32%

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analysis, we found that this metric is lower primarily because of

financing practices across the companies. In 2015, Ford had

$90.7B in financing receivables while GM had just $18.1B and

Toyota had approximately $51.6B. If the excess $40B were

extracted in an act of comparative statistics, Ford’s ROA would

increase to a more comparable 4.38%.

Interestingly enough, it appears that Ford, GM, and Honda have

roughly the same price-to-sales ratio. As Ford’s ratio, 0.3, is right

on par with competitors, our team assumes Ford is currently not

being overvalued on a sales basis.

Source: Company Annual Reportsxivxxxxxiixxiiixxiv

Though Ford’s gross margin is lagging behind two of their

competitors, our team feels this is overcome by their inventory

turnover ratio. Ford’s ratio of 14.34 times exceeds its nearest

competitor, GM, by approximately 5 flows a year. This is

representative of the recent move to implement lean operations at

Ford, which we expect will improve gross margins overtime. As

cited in their 10-K, “…we build to order, not for inventory”.xiv

They generally have an order produced and shipped within 20 days

after the order is logged.xiv This is especially important because

inventories throughout the industry have been growing steadily in

the recent past as shown by the following graph. Similarly, Ford’s

value of inventory has been rising as of late, too. From their 2009

low of $5.04 billion to its most recent 2015 measure of $8.32

billion, Ford has continued to efficiently handle their inventory

even with growing inventory levels. This turnover coupled with a

solid gross margin leaves Ford with an efficient, lean production

process structured for the long-term.

Source: Fred Economic Dataxxv

In summation, our team feels as if Ford is well positioned within

this highly-competitive industry. Due to their increase in sales,

growth in market share, and versatile inventory management

practices, Ford is setting the stage for an advantageous operating

environment in the coming years.

Porter’s Five Forces: Threat of New Entrants: Moderate

Our team feels the capital-intensive, highly regulated, and

technologically advanced nature of the industry will prevent new

entrants. However, if non-automotive companies, such as Google

or Apple, do develop a self-driving vehicle, the need for this

technology will allow for a smaller manufacturer rise to the top.

Threat of Substitution: Weak

Realistically, there is no real substitute for a vehicle. The less

feasible substitutions of motorcycles and bicycles hold little power

in the market and we don’t foresee them overcoming the vehicle’s

popularity.

Power of Suppliers: Moderate

Suppliers in this industry play a vital role within the production

timeline, but are constricted by contracts. These contracts set forth

by the manufacturers reduce the suppliers’ ability to bargain. Our

team feels the global supply chains these companies operate on

vastly increase competition for supply and decrease the chance for

domination by one supplier.

Power of Buyers: High

Individual consumers are generally the buyers and they have a

considerable amount of power. Because there are many options

available, there is nothing keeping a consumer with a company.

For this reason, manufacturers must be aware of their lack of

bargaining power and compete for the consumer’s business.

Competitive Rivalry: High

According to IBIS World, the competitive forces driving the

competition in this industry are primarily price, reliability, fuel

economy, utility, and styling.xiii As vehicles have been a necessity

within our society for some time now, we feel that the means by

which companies compete have been steady. Winning over

consumers in this industry has been, and will be for the foreseeable

future, very difficult.

Catalysts for Growth & Change

Connective Technology: Internet research has dramatically changed how the car purchasing

process flows, and industry super-giants must move with the trend.

As reported by S&P, approximately 70% of millennials that go to

a dealership to purchase a car already know what they want.xviii

Many dealerships offer salespeople tablets and other technological

devices to make the selling process more interactive. Though this

helps, we don’t feel like it totally uses the opportunity lying in this

new-age trend. Instead of continually attempting to compete

against online automobile information companies such as TrueCar

or Edmunds, the industry leaders should attempt to forge

relationships with them. Through some research, we found that

TrueCar attempts to partner with dealers, and this is important. As

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more and more people shift to researching before visiting, most

likely a number close to 100%, we feel it is vital for manufacturers

to tap into this revolution. We foresee the best performers going

forward will be those tied closely with the research agencies.

Moreover, our team feels the idea of a more collaborative lifestyle

for the up-and-coming population ties directly into constant

connectivity. Within this space, Ford is pressing ahead with

initiatives like FordPass and SYNC. By 2020, Ford estimates more

than 10 million vehicles in the U.S. will be connected by way of

SYNC. Coupled with FordPass, these programs attempt to match

consumers with everyday services like parking facilities, dining

options, and gas stations.xiv

Emerging Markets:

Source: Statistaxxvi

In order to gain global market share, players in this industry must

focus on tapping into emerging market possibilities. As the turmoil

in South America continues, our team agrees with consensus and

sees the Asia-Pacific region as being most promising in terms of

future growth. In 2014 not only did this market grab 47.5% of total

automotive sales, it also produced close to half of the world’s

automobiles.xviii As compared to North America’s 2014 production

of 16.9 million vehicles, Asia-Pacific dominated this industry by

producing approximately 44.3 million vehicles.xiii This is just one

instance of this region dominating in manufacturing, a trend that

has become relevant in more than just the automotive industry. As

money flows in, money is also flowing out rapidly.

As seen in the above chart obtained from Statista, the Asia-Pacific

region has grown exponentially in just the past four years alone.

With China being a big player in this region, we see recent

government regulations such as a reduction of small-vehicle tax

by half as a huge opportunity.xxvii We forecast Ford to grow in this

region by 21.90% in 2016 and 10.24% in 2017 based on the idea

of their strong presence in the region. With 12 of their 67 global

manufacturing plants in the segment, Ford is expanding

organically into the region.xiv

Company Analysis

General Information

Overview: Ford is an established automaker whose core business is to design,

manufacture, market, finance, and service both Ford and Lincoln

luxury vehicles.xiv They operate with two primary arms: Ford

Motor and Ford Credit. Ford Motor produces and sells vehicles

while Ford Credit focuses on financing options for customers.

With operations in North America, South America, Europe, the

Middle East & Africa, and the Asia-Pacific, their operations are

diversified across the globe. With strong revenue generation

coming from North America, approximately 65% in 2015, Ford’s

overall success is tightly tied to U.S. market forces. Additionally,

our team identified the Asia-Pacific region as being the fastest

growing region in which Ford operates. Moving forward, our

team identified these trends and accounted for them in a way that

correctly encompasses our view on growth opportunities for the

firm.

Source: Ford FY 2015 10-Kxiv

Corporate Strategy: Ford’s corporate strategy is primarily focused on driving growth

within its core business by offering reliable, quality vehicles at a

competitive price.xiv The strength of their business model lies

primarily in this type of organic brand growth. With promising

core business growth prospects, Ford aims to connect their

strengths with emerging opportunities as a means to create

experience for customers.

From a top-level perspective, this plan is defined as an initiative

to become a leaner, more inclusive, and innovative workplace in

preparation for the many emerging opportunities. Ford is pushing

into these spaces with their Ford SmartMobility program, which is

discussed in depth at a later point in this analysis.xiv

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Life Cycle: As assessed by our team, Ford is currently in the mature stage of

their life cycle. Officially incorporated in 1919, with the

acquisition of a Ford Motor Company, Ford has over a century of

market experience.xiv Additionally, their production processes

have welcomed the technological revolution with open arms,

improving efficiency and further establishing the manufacturing

process. The market knows Ford, and Ford knows the market.

With strong presence across the globe, we foresee Ford as a

company that will continue to grow and disrupt the automobile

industry.

Products and Markets

Product Lines: Automotive products include cars, trucks, SUVs, and electric

vehicles such as the F-150, Explorer, Focus, and Mustang. They

released 16 products in 2015, and plan to add another 12

throughout 2016.xiv As discussed throughout the report, our team

feels the most vital part of their business is offering new,

innovative products in order to attract consumers. They offer these

to the average consumer, but also to institutions such as

governments, rental car companies, and businesses seeking fleet-

type transportation. Ford’s top three vehicles as of April 1st, 2016 is led by the F-150

with 186,121 units, followed by the Fusion with 74,994 units, and

the Escape with 71,594 units. This distribution, inclusive of a

truck, a sedan, and an SUV is representative of Ford’s diverse sales

structure. Though the margin on the F-150 drives a majority of

profits, Ford also excels in selling other vehicle types across the

board.xxviii

Ford Credit offers financing through two primary segments:

consumer and non-consumer. Consumer financing is related to

getting the vehicle to the end customer. Non-consumer financing

focuses on inventory needs, dealership improvements, and various

working capital issues.xiv

Revenue Generation: Revenue streams through a variety of channels, all stemming from

vehicle sales at dealerships. Primarily, their revenue is obtained

through the direct sale of, and subsequent financing of vehicles,

parts, and accessories. More specifically, Ford receives revenue

from both arms of its operating structure, though in varying

amounts. When dealerships build inventory, they finance the

inventory through a contract with Ford Credit. Subsequently,

when the dealership sells the vehicle to a consumer they pay the

finance receivable that was previously originated.xiv

Source: Ford FY 2015 10-Kxiv

As shown in the chart above, it’s obvious that market conditions

directly affect the amount of revenue that Ford generates from

each separate operating division. In the post-recession, low rate

environment, Ford Credit has seen financing revenues drop

approximately 46.53%. Over our historical data period, financing

receivable income went from $16,816 million in 2006 to

approximately $8,992 million in 2015.xiv Even with a post-

recession revenue recovery of approximately $30 billion, Ford has

seen the majority of this come from automotive sales. Our team

predicts this revenue trend to reverse and for financial revenues to

have a larger impact on Ford’s bottom line. We forecast financial

services revenue to bounce back to about $13,764 million by 2021.

Analysis of Recent Earnings and Guidance

In late January of this year the Q4 and FY 2015 reports were filed

and, for the 34th straight year, the Ford F-Series pickup was the

best-selling vehicle in the U.S. Additionally, Ford reported record

years in multiple relevant financial metrics. They reported $10.8

billion in pre-tax income and an increase of $3.3 billion in

automotive income on the back of strong sales numbers with YoY

growth of 312,000 vehicles sold.xxix Ford saw profitability in all

operating segments except for South America, with the strongest

gains in North America. We feel this domestic trend, as backed by

an operating margin of 10.2%, stems from strong economic factors

such as low oil prices and the ease of borrowing pushing higher

margin vehicle purchases. Along with SUV and truck sales, Ford

saw their Lincoln luxury brand boost 21% in the most recent fiscal

year. Operating margins in other areas were lower, with 7.1% in

the Asia-Pacific, 0.8% in the Middle East, 0.9% in Europe, and -

14.4% in South America.xxix Our team feels that Ford has some risk

being so focused on the North American economy, however, Ford

is working on increasing their presence in Europe, Asia-Pacific,

and Middle East & Africa.

Production and Distribution

Distribution Channels: As stated in their annual report, Ford has no major customer that,

if halted business with Ford, would have a major adverse effect on

operations.xiv This diversified approach reduces their potential risk

associated with a small distribution channel. To distribute vehicles

to both individual and fleet customers, Ford operates through a

global network of approximately 11,971 dealerships.

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Operating Margins:

Source: Ford Financial Statementsxiv

Over the last four years, Ford has generally been improving in both

operating and cash flow margins. Their cash flow margin has

improved to 11.50% from 7.63% in 2011. Similarly, operating

margins have improved even in an environment of rising cost of

sales to most recently 17.42%. This increase in margins has shown

to be very profitable for the business in an environment of

increasing revenues. As previously discussed, these margins are

primarily driven by the sale of large vehicles, which we forecast

to continue in the near term.

Variable Cost of Sales:

Source: Forecasted Financial Statements

Higher margins, coupled with increased political tension

surrounding the wage debate made for labor conflicts in FY2015.

Within both major U.S. automakers, Ford and GM, labor contracts

were negotiated and have been cited to increase labor costs by less

than 1.5% a year.xxx,xiv As the labor contracts are locked for four

years, we forecast increased foreign production as a solution to

demand fluctuations in the near term. As expected, Ford’s public

announcement of a $2.5 billion investment into Mexico for a

manufacturing facility is experiencing drag from the media. Ford

supported this decision with the initiative to become a more

globally involved company.

However, we forecast Ford to experience increasing margins yet

again throughout the forecast horizon. The wage increase will

have a minimal adverse effect on their operations, as 38 of their

manufacturing facilities are located internationally. Similarly, the

majority of COGS, roughly two-thirds, is attributed to commodity

and material related expenditures. As Ford’s cost management

practices push forward with economies of scale in emerging

markets, we foresee the margin to hit a bottom, then gradually

increase.

Competition

Profit Margins: Due to the nature of the automobile industry, as it is driven

primarily on sales of vehicles, our team felt it necessary to discuss

the ratio of net income to sales across our competitors. In the graph

shown below, we have constructed a graph of this metric over the

last 3 years.

Source: Company Annual Reports

As shown in the above chart, Ford has beat the average of all

competitors in two of the three years analyzed. Their profit margin

of 8.14% in 2013 exceeded the industry average by almost 3.59%.

Similarly, their 2015 profit margin also beat the industry average

and was a huge increase from 2014, up almost 477% YoY, due to

a rebound in demand. Aggregately across the time span, Ford’s

average profit margin of 4.64% was larger than its strongest

competitor, GM, who had an average margin of 4.11%. This

average was inclusive of the off-year Ford had in 2014, and goes

to show that when the market is clicking, Ford exceeds its biggest

domestic competitor.

Return on Equity:

Ford excels in its ROE as it surpassed the industry average by a

margin of 12.42%. Compared to the average of its competitors,

Ford returned almost 13 cents more per dollar of stockholder’s

equity. Ford’s exceptional metric of 27.53% is noteworthy

because what Ford lacks in market presence, compared to some of

the competition, they make up for with quality returns that

investors enjoy.

Source: Yahoo Financexli

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Catalysts for Growth & Change

Research and Development: We believe that moving forward into a changing automotive

environment, Ford must continue to pursue new technologies and

innovative solutions. They are tackling this situation with their

Ford SmartMobility program. This program is aimed to increase

efficiency in areas like connectivity, autonomous vehicles, and

mass transit solutions.xiv

Source: Company Annual Reports

As compared to the other companies analyzed, Ford’s R&D

expenditures as a percentage of revenues has exceeded that of the

average competitor by 0.30% in 2015, 0.49% in 2014, and 0.05%

in 2013. Similarly, Ford has received an average of $1.07 in

income per dollar used in R&D. This exceed its nearest

competitor, GM, by approximately $0.22. They have also beat the

competitor average in this space by close to $0.05. We interpret

these results as a strong indicator that Ford is not only beating the

benchmark in dollars spent on R&D, but also returning more to

shareholders in net income per expensed R&D dollar.

Source: Company Annual Reports

Tied back to Ford's lean operations, our team projects Ford as

being the best able to shift with demand fluctuations because of its

high turnover ratio. If changes are to be implemented, Ford can

actively insert them in the production process without being

lagged by a bulky production process.

As Ford is very strong in this space, we feel it necessary to discuss

some of the ongoing projects Ford has been working on lately. In

the space of autonomous vehicle research, Ford has taken the lead

by vowing to triple its fleet of autonomous Fusion Hybrids in

2016.xiv This increase leaves Ford with the largest autonomous

research fleet of all automakers.

In the future, we forecast an increase in the use of ride-sharing

technology, which Ford is currently investing in. Ford CEO, Mark

Fields, has publicly stated that Ford is looking to not only sell

autonomous vehicles, but also use them as a service. They

launched a ride-sharing experiment, GoDrive, in London in early

2015. This was nearly a full year prior to GM’s first experiment

that launched in Ann Arbor in January of this year.xxxi

Government Regulations:

Source: United States EPAxxxii

In an increasingly regulated automotive environment, it’s vital for

Ford to continue working towards an improved fuel economy. As

part of the One National Program through both EPA and NHSTA

intervention, manufacturers must achieve an industry-wide fuel

economy of 35.5mpg by 2016, 45mpg by 2021, and 54.5mpg by

2025.xiv Though these averages are weighted by the mix of

vehicles sold, our team agrees with industry leaders in saying that

recent economic trends slightly skew the feasibility of this. Low

oil prices are pushing consumers to purchase larger, less fuel

efficient vehicles. By 2018, the NHSTA will complete midterm

evaluations of these ideal fuel economy standards and decide as to

whether or not they are still feasible given recent trends.

As shown in the graph above, Ford is excelling in fuel economy

as compared to its peers across all time periods. But, most recently

its projected car fuel economy of 27.7 mpg beats its competitors,

GM and Fiat-Chrysler. They have a similar competitive advantage

in truck fuel economy as their projected 20.4 mpg metric is second

behind only Honda.xxxii Our team projects a continued upward

trend in fuel economy for Ford, and we have confidence it can

continue to beat its competitors. As we foresee higher oil prices

and more ride-sharing technology, Ford will see less large-vehicle

sales in the future, allowing them to more easily obtain these EPA

standards.

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S.W.O.T. Analysis

Strengths: Ford’s biggest strength is its control of the domestic truck market.

On the backs of amazing F-150 sales year after year, they only

need to raise margins, which they are doing, in order to add value.

We feel as if their financials are strong, with enough capital

resources to fund promising research and development projects

moving forward. Additionally, their cost-effective inventory and

production measures will only continue to provide them with

flexible production options.

Weaknesses: Ford’s dominance of the American market, can also be seen as its

biggest weakness. Historically, the U.S. economy is very cyclical,

and so is Ford’s performance. When the market performs well,

Ford does too, and vice versa. In addition, Ford needs to work to

increase margins on smaller, more environmentally-friendly

vehicles.

Opportunities: We feel Ford has great opportunities in both the autonomous

space, as well as, the ride-sharing space. With the largest

autonomous fleet and a fully launched ride-sharing experiment,

Ford is attempting to become a first mover into these novel spaces.

Similarly, with strong financials and access to debt markets, Ford

is in a position to potentially partner with new-age technologies as

they come about.

Threats: The biggest threat to Ford’s future success lies in the regulatory

standards set in place by the EPA and NHSTA. With the majority

of Ford’s margin success lying in the fact that they sell a lot of F-

150’s, they have little room for error. Worst case scenario lies in

the scenario that automakers, Ford included, would have to stop

offering vehicle choices that don’t make the cut.

Valuation Analysis

Valuation Summary

After our analysis of the economy, industry, and Ford we are

issuing a BUY rating on the Ford Motor Company (F). We arrived

at our target price range, of $16.00-$17.00, by finding the intrinsic

value of the stock using several different valuation techniques.

While we did value Ford several ways, including, Discounted

Cash Flow Model, Dividend Discount Model, relative valuation,

and an Economic Profit Model, we believe that the DCF analysis

allowed us to best represent the opinions we have surrounding the

operations of Ford moving forward. Our models estimate the

intrinsic stock price as of April 18th, 2016.

Forecasting Revenues Ford receives revenues from two major functions: automobile

manufacturing and financing their customer’s purchases of Ford

vehicles. After analyzing historical financial statements we found

that the majority of items are driven by automobile manufacturing

revenues.

Automotive Revenues:

These automotive revenues consist of two key components:

number of cars sold and average realizable value for each car sold.

Since the information was broken down by geographical region,

we believed that our model would be most accurate if we

forecasted these two numbers separately for each region. This

allowed us to fine-tune our model’s growth assumptions for each

geographic region based on our economic, industry, and company-

specific analysis for each location, rather than assigning global

assumptions.

North America

Our economic outlook for the United States, which makes up the

vast majority of sales in North America, where 65% of global

automobile revenues occur, is positive because of the economic

indicators and conditions that include: 5% unemployment rate, the

Fed’s more dovish stance on interest rate hikes, low oil prices, and

high consumer confidence. These situations, along with our short-

term outlook on the demand for Ford vehicles, and our expectation

that Ford will gain some of Volkswagen’s lost market share

throughout 2016, continue to push car sales upward in 2016 with

a 5% increase in cars sold and 3% increase in the average sales

price (3,227,000 vehicles at an average price of $30,793) for an

8.15% increase in automotive revenues ($99.4 billion).

After another record year for automobile sales in 2016, we believe

that North American automotive revenues will begin to decrease

in 2017 and continue to decrease for the next three years,

decreasing from $99 billion in 2016 to $77 billion in 2020. There

are several reasons for this decrease and they include rising

interest rates, market satiety, and higher oil prices expected to

reach $55-$65 a barrel, all of which put pressure on both

components of automotive revenue: number of cars sold and

average realizable value per vehicle.

We predict additional downward pressure on the U.S. automobile

market due to the increased feasibility of ride-sharing

technologies. This trend isn’t going away, and realizing that, we

believe Ford will feel these impacts like the rest of the market.

However, with increasing organic growth into the space, this

downside can be mitigated.

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We expect the number of vehicles sold in North America to

decrease 2%, 4%, 4%, and 1% in 2017-2020, respectively. While

expecting the average realizable value of each car sold to decrease

1%, 4%, 6%, and 3% during that same time period. This will lower

North American automotive revenues over that time period by 3%,

7.8%, 9.8%, and 4%.

Europe

The European Union accounts for 20% of Ford’s automotive

revenues at $28.1 billion in revenue during 2015. Our outlook for

Ford’s growth in this region are due to the aggressive efforts that

the ECB and central banks are taking to prod growth in the

European Union. One such action that the ECB has taken recently

is to allow banks to borrow from it at negative interest rates, which

make it easier and more profitable for banks to lend to consumers.

We believe that central bank actions like this will outweigh the

political uncertainty that parts of the European Union face in 2016.

Europe, like North America, is also a region that we believe will

see higher vehicle sales than what the GDP data may imply. While

growth on an economy scale is stagnant to slow, consumers are

still better off now than they have been in history. Many European

consumers also benefit from government social-aid programs,

which can help the marginal consumer afford a new vehicle in a

mediocre growth environment.

With our analysis of the European economy and the recent

strength of vehicle sales in Europe, we believe that European

vehicle sales will increase 4%, while prices increase 3% in 2016.

This price increase is sustainable for a longer period of time as we

predict rising oil prices will have a lesser impact on European

revenues because the sales mix is already skewed towards small,

cheap vehicles. This puts overall, automotive revenue growth at

7.12%.

Due to European car sales having not yet recovered to its pre-crisis

numbers, we believe that the European revenues have more room

to grow than North American sales, which are already at record-

highs. With this in mind, along with our economic outlook, and

the ability for Ford to capture market share that was lost by

Volkswagen, we forecast automotive revenues to grow 3%, -1.5%,

1.97%, 4%, and 1% from 2017-21. European automotive revenues

will increase from 28.2B in 2015 to 32.8B in 2021, an increase of

16%.

Asia-Pacific

With the highest growth potential and expectations, Asia-Pacific

is a region where economies are growing at a pace not seen in other

parts of the world. In addition to this growth, these economies are

moving many people into the middle- and upper-classes where

people are more easily able to afford a new car. Asia-Pacific

region GDP is expected to grow at rates much higher than that of

North America and has been doing so for a while.

Source: International Monetary Fundxxxiii

Although Asia-Pacific’s largest economy’s growth is slowing,

China, we expect Asia-Pacific GDP growth rates to be around

6.1% for 2016 and 5.9% throughout our forecast horizon. In

contrast to North America and Europe, we believe that GDP is a

good indicator for the level of automobile sales we can expect to

see in these countries. This is because the higher levels of growth

in the Asia-Pacific region are allowing people in these countries

to have wealth that was previously not present on a massive-scale,

whereas lower GDP growth in Europe and North America are not

pushing people into poverty, but is rather keeping most people

stagnant.

Ford is working on establishing dealerships in other countries too,

such as New Zealand and Vietnam, where Q1 2016 sales rose 30%

and 69%, respectively, over the same quarter one year agoxxxiv,xxxv.

In 2016, we expect Ford to sell 15% more vehicles in Asia-Pacific

than 2015, taking the number of vehicles sold from 1.5 million

vehicles to 1.7 million vehicles. While very small, cheap cars

remain the majority of vehicles sold in China and the rest of the

region, there is a rising demand for Ford SUVs. In Q1 2016, SUV

sales were up 38% compared to Q1 2015. This appetite for larger

cars leads us to believe that Ford will be able to increase their

average realizable value per car 6% in 2016. Together, it is

expected that Asia-Pacific’s automotive revenues will increase

21.9%. In 2015, Asia-Pacific revenues account for 7.65% of

Ford’s automotive revenues and by 2021 we expect this figure to

grow to 13.49%.

Our outlook on the Asia-Pacific region is positive for our entire

forecast horizon. As economies continue to grow, more and more

people will be able to afford new vehicles, boosting Ford’s

revenues. Due to the sheer size of the population, low market

satiety, and economic rise of the region’s consumers we forecast

that automotive revenues will increase $7.8B, or 72.6%, from

2015 to 2021.

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South America

South America only accounts for 4% of revenues and is a weak-

spot for Ford. With the economies in this region being so closely-

linked to commodities, having unstable governments, high

inflation rates (weaker currencies), and increasing interest rates we

believe that this will remain a very weak region over the next six

years for automobile sales. We forecast a down year in revenue to

$4.1B in 2016, down 28% from the previous year. However, we

believe revenues will stagnate around these levels because of a

slight rebound in commodity prices, helping these commodity-rich

economies.

Middle East & Africa

Along with South America, the Middle East & Africa

geographical regions do not have particularly strong and robust

economies where a large portion of the population can afford

vehicles. This is a huge concern for Ford, who prospers from

economies with proportionally-large middle- and upper-classes.

These are the social classes that are the most likely and able to

afford new vehicles.

Ford currently sells very few vehicles in the Middle East & Africa

and does not list any key markets in the area. We believe that

Ford’s sales in these regions are pretty spread out amongst the

countries, with the purchases being made by relatively few people

who are a part of the upper-class. While lower oil prices are

certainly hurting much of the upper-class in these countries, most

of them have not been economically hurt to the point where they

may no longer buy a car. For this reason, coupled with a decent

growth outlook, we believe that the decrease in automotive revenues for 2016 will only be 3.1%. Over our forecast horizon,

as oil creeps towards $60 per barrel and economic growth returns

to the more historical trend of 3.5-4.5%, we forecast that

automotive revenues will grow 1.85%, 5.06%, 7.06%, 1.92%, and

3.02% from 2017-21. This will cause automotive revenues to

increase from $4.01B in 2015 to $4.67B in 2021, an increase of

16.6%.

Summary of Global Automotive Revenues

Due to the cyclicality of the automobile manufacturing business

we felt that our model should represent our overall outlook for

global growth over our forecast horizon. By breaking down

revenues into geographical regions our growth assumptions were

weighted proportionally to the revenue that Ford earns in each

region. This is imperative because the top three geographical

regions, North America, Europe, and Asia-Pacific are in very

different places for automotive revenues looking forward.

North American revenues, having just set a record for

vehicle sales in 2015, decreases over our forecast horizon

$14B to $78B because of lower truck/SUV sales, higher

interest rates, and market satiety.

European automobile sales have not fully recovered

from the financial crisis, leaving less market satiety risks,

allowing for more growth as the European Union

continues to recover.

European automotive revenues grow to $33B by 2021,

still $5B less than 2008 revenues.

Asia-Pacific is an emerging geographical region where

many citizens will become the first in their families to be

able to afford a new vehicle. This will be large factor for

Ford’s growth in the region.

Asia-Pacific region will reach $18B in automotive

revenue by 2021, fueled by a large population and their

economic rise.

North America, Europe, and Asia-Pacific regions accounted for

93% of 2015 automotive revenues.

Source: Forecasted Financial Statements

Overall, automotive revenues see an increase of 7.16% in 2016,

on steady growth in North America and Europe, and substantial

growth in Asia-Pacific. Ford will then see revenue declines until

2021 to $137B, mostly because of a reversion from the 2015 and

2016 record-breaking sales to our projected long-term annual

automobile sales in North America. This $137B in forecasted

automotive revenue in 2021 is in-line with our three key outlooks

that will effect Ford’s revenues: slow global growth (especially in

North America & Europe), North American revenues coming

down from the peak of an automobile sales cycle, and significant

growth in Asia-Pacific.

Financial Revenues:

The other function that produces substantial revenue for Ford is

their financing arm. When analyzing historical data of financing

revenues we could see that there was a large change in the

proportion of Ford’s total revenues that was produced by the

financing arm when comparing pre- and post-financial crisis

revenues. This decrease was caused by the historically low interest

rates of the past few years causing a narrowing of the spread

between the rate at which Ford Credit can borrow at and the return

on their portfolio of vehicle loans. Therefore, our interest rate

forecasts are instrumental in projecting the financial revenues.

16 | P a g e

Source: FRED Economic Dataxxxvi

Although interest rates are an important driver of financial

revenues, automotive revenues are the key driver—albeit

indirectly through the balance sheet item, finance receivables. To

forecast the financial revenues, we looked at the historical

financial revenues as a percentage of automotive revenues and as

a percentage of finance receivables. Using both of these historical

ratios together we were able to determine a proper growth rate for

financial revenues that are in-line with our interest rate forecast.

Source: Ford FY 2015 10-K

It was important to the model, and our forecasts, that our financial

revenues as a percentage of total revenues and as a percentage of

finance receivables were in line with the historical ratios from a

time period where interest rates were similar. Due to the nature of

automobile loans being relatively short debt obligations, with a

loan typically being 3-5 years, these ratios should reach 2006-08

levels by 2021.

Source: Ford FY 2015 10-K

Forecasting Automotive Cost of Sales

Automotive cost of sales (COGS) is directly impacted by

automotive revenues, so using a historical average of COGS as a

percentage of automotive revenues and adjusting that rate slightly,

based on our outlook for future expenses, would give us a good

estimate for future COGS. For our forecasts, we started with a

base-rate of 85.84% for our 2016 COGS. The following items are

what we considered when forecasting COGS:

Special incentive programs are charged as a direct

reduction to automotive revenues, not affecting COGS.

R&D is expensed to COGS. Vehicles are also becoming

more technologically advanced every model-year, so we

expect for this cost to continue its rise.

Signed a four year contract with UAW, a union that

covers nearly all of the US employees.

Ford is making operational adjustments and investments

to become more nimble and better-able to cut costs in the

next economic downturn.

Research & development expenses were $6.7B for both 2014 and

2015. Due to a planned three-fold increase in Ford’s autonomous

fleet, research into more fuel efficient vehicles, and continued

research into the “connectivity” technologies, we expect R&D to

increase to $7B in 2016 and reach $8B by 2021.

Employee wages is a significant part of COGS, but not in

comparison to materials and commodity costs which make up

roughly two-thirds of automotive cost of sales. The majority of

high-paying labor expenses are occurred in the United States,

where Ford just signed a four-year contract with the labor union

that covers 99% of its hourly workers. This new contract is

expected to increase U.S. labor costs less than 1.5% per year.

What we believe will have the largest impact on automotive cost

of sales is Ford’s stated goal to become more operationally

efficient, “producing at the currently demanded sales mix and

volume profitably”xxxvii. Ford has begun to do this by moving

production of smaller, less profitable vehicles to countries with

low labor costs, such as Mexico and the new $2.5B plant that it is

building there. In addition, much of the growth in automotive sales

will be coming from the Asia-Pacific region, where low cost labor

is prevalent. We believe that these decreases in labor costs will

effectively offset any increases in labor from the U.S. or other

developed nations. Moreover, the quality inventory management

practices currently in place will only become more refined with

time.

With Ford’s recent trend of increasing efficiency and no

foreseeable risks of a significant increase in costs, we forecast that

COGS will be 85.24% of automotive revenues in 2016 and that

Ford will become 0.5% more efficient each year of our time

horizon. Since 2011, this percentage has ranged from 81.54% and

86.61%, so we believe that our forecast for COGS is conservative,

but also accurately reflects our outlook on Ford’s costs. In 2021,

Ford’s cost of automotive sales will be 83.71%, slightly higher

than 2015’s percentage of 82.58%.

17 | P a g e

Capital Expenditures

For forecasting capital expenditures, we used the historical

investing cash flows, managerial guidance, and our outlook for

investments in new opportunities. By 2017, we expect Ford to

have a net PP&E balance of $33B, primarily driven by

investments in emerging opportunities. These emerging

opportunities and investments include: ride-sharing technologies,

autonomous vehicle research, new manufacturing facilities, and

fixed asset improvements.

Weighted Average Cost of Capital Calculation

We calculated Ford’s weight average cost of capital assuming a

capital structure of 7.98% automotive debt, 64.63% financial debt,

and 27.39% equity. We believe that this will stay pretty consistent

as Ford continues to operate. Our model assumes a weighted

average cost of capital of 4.89%.

Cost of Debt:

In order to find Ford’s cost of debt, it was necessary to break their

debt into automotive and financial because of the differing yields

on their bonds. For the automotive cost of debt we were able to

find the yield of a bond that matures on 2/15/2047, the closest bond

with a maturity of the same length as our risk-free rate, 30 years.

The yield on this bond is 6.945% and after adjusting for taxes the

automotive cost of debt is 4.51%.

To find Ford Credit’s cost of debt we looked at companies that

provided similar functions as Ford Credit because they had no

bonds maturing close to 2046. We were able to find a similarly-

rated, Morgan Stanley bonds that matured in both 10 and 30 years,

yielding 3.53% and 4.99%, respectively. To calculate Ford

Credit’s cost of debt, we subtracted the equivalent treasury yield

from each Morgan Stanley bond in order to find the additional risk

premium that was attached to the 30-year bond over the 10-year

bond. We found that the additional premium was roughly 0.75%.

This made Ford Credit’s equivalent 30-year yield 5.14% and its

cost of debt 3.34%.

Cost of Equity:

To find Ford’s cost of equity we used the Capital Asset Pricing

Model (CAPM). We found beta using the average of several

different time intervals: one-year weekly, two-year weekly, two-

year monthly, 5-year weekly, and 5-year monthly. Our beta

assumption is 1.3358. Our risk-free rate assumption is 2.56%, the

yield on a 30-year treasury security. To determine the equity risk

premium of 4.57%, we used the normalized earnings equity risk

premium from Aswath Damodaran’s websitexxxviii.

Discounted Cash Flows & Economic Profit Models The models that we believe are the most accurate are our

discounted cash flows and economic profit models. These models

estimate the intrinsic value of Ford’s stock to be the same, $16.44.

Compared to Friday, April 15, 2016 closing price of $13.25 this

gives an upside of 24.1%.

Our forecasts for revenue and expenses are most visible here, with

an increasing value of NOPLAT in the continuing value year of

$6.997B. We have forecasted average free cash flow in the time

horizon equal to $5,119 million per year. This is an increase from

the 2015 FCF of $3,175 million. In our first forecast year, 2016,

our model experiences a negative Economic Profit. This is

primarily due to the vast increase of finance receivables, which

increases our invested capital, thus ultimately decreasing ROIC.

However, the revenues from these receivables hit the income

statement the following year, significantly increasing our revenue

number.

We believe that the both models are intuitive because of what each

model represents. The economic profit model represents the value

that Ford is adding in excess of its opportunity cost of capital.

While the DCF model represents the future free cash flows earned

each year.

Dividend Discount Model

According to the dividend discount model, Ford stock should be

trading at $20.14, an upside of 56%. We believe that the accuracy

of the dividend discount model is not as good as our DCF model

because our dividend growth forecast is based on a relatively small

dividend-paying window as Ford only just began paying a

dividend in 2011 after stopping dividend payments in 2006. We

were, however, able to use management’s outlook on the level of

cash and marketable securities they wanted to maintain to help us

determine the cash available for dividend payments.

Relative Valuation

Relative valuation can be very effective in finding stock price

discrepancies in the short-term, because most industries trade

together on a metric that is important to the industry. In the

automobile manufacturing industry this metric is often price-to-

earnings and price-to-sales. Sales is an important metric in the

automobile industry because it is very capital-intensive and

reaching economies of scale is important to producing vehicles

efficiently and turning a profit.

Price to Earnings:

Our projected 2016 price on a relative P/E basis was $9.07;

calculated with an average P/E ratio amongst competitors equal to

8.9. As we increased the cost of sales, our forecasted income

decreased, therefore declining our estimated 2016 EPS to $1.02.

We believe this unusually low price target is a function of how we

forecasted income streams compared to other analysts. Our lower

initial expectations had an adverse impact on the relative

valuation. However, we believe EPS will recover throughout the

forecast horizon, making this valuation viable in future analysis.

Price to Sales:

We compared Ford against other automobile companies: Toyota

($252,630M 2016E revenues), Fiat-Chrysler ($115,410M),

General Motors ($153,760M), Volkswagen ($233,970M), and

Honda ($123,000M). The average price-to-sales ratio for the

above industry peers is 0.335. If Ford traded at this valuation, with

2016 revenues estimated at $160,424M, the stock would trade at

18 | P a g e

$13.55. The problem with relative valuation is that the company

gets valued at expectations for the industry as a whole, rather than

looking at its specifics. We believe that Ford should be valued at

a premium to the industry because of its growth opportunities,

knack for disruption, and having the lowest amount of recalls

amongst its major competitorsxx.

Sensitivity Analysis

Beta vs. CV NOPLAT Growth: By comparing beta to our CV NOPLAT growth, our team suggests

that in good times, in which the market performs well and Ford

experiences cyclical returns, we see marginal downside. With

anywhere between a 0.09 and 0.31 increase in beta, and at least the

same growth of NOPLAT, the stock value lies between $11.12 and

$14.35. This downside risk in the worst case scenario leaves the

value 16.08% below the current trading price. Although the stock

price is highly sensitive to both of these metrics, they also mitigate

each other well. A 10 bps increase in both metrics would leave for

an intrinsic value of $15.17, a 14.49% upside to current price.

%SG&A of Sales vs. %COGS of Sales: By far our most sensitive metric due to the nature of the tight

margins with which Ford maintains profit, is that of our cost

assumptions. A slight increase of 10 basis points in COGS as a

percent of revenue, our team found that our stock price dropped

approximately 77 cents. However, decreasing the COGS

percentage by 30 bps, ceteris paribus, increased our intrinsic value

to $18.64. The difference between our best case scenario of $21.11

and worst case scenario of $11.67 across all sensitivity tables, lies

directly in Ford’s cost management abilities moving forward.

They actively add value through sensible and lean cost

management practices. As shown in the cells just touching our

target price, we feel that even if cost management strategies falter

moving forward a little bit, there is still substantial upside potential

of approximately 11.77% in a target price of $14.81.

WACC vs. CV ROIC Growth: As seen in this sensitivity table, our stock price is also highly

determined by the WACC. A 20 bps increase in WACC drops our

intrinsic value to $13.63. Though a dramatic decrease nonetheless,

our team feels as if the rate environment currently surrounding the

market will not be too worrisome moving forward. Moreover, we

saw that with a rise of 40 bps in CV ROIC, our stock price jumped

approximately 32 cents. We found that through the Invested

Capital calculation, which is directly tied to our CV ROIC, the

structure of financing options displays itself widely. This table

shows that offset by continual growth in the organization,

specifically related to their financing assets, Ford can mitigate rate

increases throughout the forecast horizon. A 20 bps increase in

both metrics leaves a target value of $15.17, well above current

trading prices.

%COGS of Sales vs. CV ROIC Growth: This table is also representative of the impact our COGS

assumption makes on our model. However, we feel this margin

discrepancy can be mitigated best by increased ROIC growth

relative to specific inventory metrics. As shown in the table, in our

worst case scenario of margin loss, ceteris paribus, our stock price

falls to just $14.55, which is still 9.8% current market price.

Moreover, with the highest increase in COGS as a percet of sales,

we found that increasing CV ROIC by just 20 bps lessens our

downside risk by 15 cents a share. As we feel Ford can increase

growth if efficient, both of these risks will be lessened in the

coming years.

WACC vs CV NOPLAT Growth: In comparing these two metrics, our team was attempting to show

a comparison with the cost of borrowing for the organization and

its flow through sales growth. As our CV NOPLAT number is

pulled directly from our CV year revenue growth, we found that

being able to borrow cheaply as a means to expand sales would

mitigate rate increases. On the upside, a 20 bps increase in

NOPLAT growth, with at least as high of a WACC, would give us

an increased value of $1.91, or approximately 11.62%. On the

downside, an increase of anywhere between 10 and 30 bps in

WACC would leave our target price in the range of $12.33 and

$15.01. However, with expanded operations financed by the

WACC, we forecast a mitigation of the worst-case scenario

downside risk equal to $2.23.

Marginal Tax Rate vs. Equity Risk Premium: With increased regulatory standards, our team felt it necessary to

compare the market’s returns with the rate by which corporations

are taxed. In Ford’s case, the increase of a tax rate could be

beneficial to their borrowing costs. An increase of 1.00% in the

tax rate would actually raise Ford’s intrinsic stock price by 76

cents, while decreasing this rate would lower it approximately

4.50%. We feel this is strongly backed by their strong debt

leverage, and with an increased tax rate, they feel the after-tax cost

of debt less. Moreover, we found that with a higher ERP of 10 bps,

Ford sees a decrease in value of about 3.53%. The returns in the

market are tied to the sentiment regarding companies, and Ford’s

cyclicality as measured through the ERP has a minimal adverse

effect as this premium flows through their cost of equity. This

higher cost of equity, which may be coupled with increased tax

regulation, actually balances out the value of the stock as

determined by our team.

19 | P a g e

Other Data Sources Bloomberg Terminalxxxix

FactSetxl

Yahoo Financexli

Important Disclaimer

This report was created by students enrolled in the Security

Analysis (6F:112) class at the University of Iowa. The report was

originally created to offer an internal investment recommendation

for the University of Iowa Krause Fund and its advisory board.

The report also provides potential employers and other interested

parties an example of the students’ skills, knowledge and abilities.

Members of the Krause Fund are not registered investment

advisors, brokers or officially licensed financial professionals. The

investment advice contained in this report does not represent an

offer or solicitation to buy or sell any of the securities mentioned.

Unless otherwise noted, facts and figures included in this report

are from publicly available sources. This report is not a complete

compilation of data, and its accuracy is not guaranteed. From time

to time, the University of Iowa, its faculty, staff, students, or the

Krause Fund may hold a financial interest in the companies

mentioned in this report.

20 | P a g e

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2015. Web. 02 Feb. 2016

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Public Awareness Campaign ." National Highway Traffic Safety

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Ford Motor Co.Key Assumptions of Valuation Model

Ticker Symbol FCurrent Share Price $13.25Current Model Date 4/18/2016Fiscal Year End Dec. 31

Beta 1.34 Equity Risk Premium 4.57%10 Year T-Bond 1.75%30 Year T-Bond 2.56%WACC 4.94%CV Growth ROE 20.22%CV Growth NOPLAT 2.00%CV Growth EPS 2.00%CV ROIC 10.81%Marginal Tax Rate 35.00%Effective Tax Rate 31.00%

Ford Motor Co.Revenue Decomposition

CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ERevenues (Thousands)Automotive RevenuesNorth America 86,494,000 82,376,000 91,870,000 99,357,405 96,396,554 88,839,064 80,168,372 76,985,687 77,757,469 % Change in revenues 11.80% -4.76% 11.53% 8.15% -2.98% -7.84% -9.76% -3.97% 1.00%South America 10,847,000 8,799,000 5,766,000 4,108,275 3,863,833 3,744,054 3,780,746 3,818,553 3,856,834 % Change in revenues 7.60% -18.88% -34.47% -28.75% -5.95% -3.10% 0.98% 1.00% 1.00%Europe 27,255,000 29,457,000 28,170,000 30,175,704 31,080,975 30,616,315 31,219,456 32,468,234 32,793,728 % Change in revenues 5.81% 8.08% -4.37% 7.12% 3.00% -1.50% 1.97% 4.00% 1.00%Middle East & Africa 4,533,000 4,406,000 4,005,000 3,880,845 3,952,641 4,152,644 4,445,821 4,531,181 4,668,022 % Change in revenues - -2.80% -9.10% -3.10% 1.85% 5.06% 7.06% 1.92% 3.02%Asia Pacific 10,240,000 10,744,000 10,755,000 13,110,345 14,452,844 15,630,751 16,904,657 17,760,033 18,567,227 % Change in revenues 0.00% 4.92% 0.10% 21.90% 10.24% 8.15% 8.15% 5.06% 4.54%Total Automotive Revenues 139,369,000 135,782,000 140,566,000 150,632,574 149,746,847 142,982,828 136,519,052 135,563,688 137,643,280 % Change in revenues 10.11% -2.57% 3.52% 7.16% -0.59% -4.52% -4.52% -0.70% 1.53%

Financial RevenuesRevenues 7,548,000 8,295,000 8,992,000 9,791,117 11,231,014 12,153,540 12,286,715 12,878,550 13,764,328 % of Automotive Revenues 5.42% 6.11% 6.40% 6.50% 7.50% 8.50% 9.00% 9.50% 10.00%% Change in Financial Revenues 7.95% 9.90% 8.40% 8.89% 14.71% 8.21% 1.10% 4.82% 6.88%

TOTAL REVENUES 146,917,000 144,077,000 149,558,000 160,423,691 160,977,861 155,136,369 148,805,766 148,442,239 151,407,608 % Change in Total Revenues 10.00% -1.93% 3.80% 7.27% 0.35% -3.63% -4.08% -0.24% 2.00%

Wholesale Units (Thousands)North America 3,006 2,842 3,073 3227 3162 3036 2914 2885 2899% Change in wholesale units 7.97% -5.46% 8.13% 5.00% -2.00% -4.00% -4.00% -1.00% 0.50%South America 538 463 381 286 271 258 255 255 257 % Change in wholesale units 8.03% -13.94% -17.71% -25.00% -5.00% -5.00% -1.00% 0.00% 0.50%Europe 1,317 1,387 1,530 1,591 1,639 1,623 1,606 1,606 1,614 % Change in wholesale units -2.66% 5.32% 10.31% 4.00% 3.00% -1.00% -1.00% 0.00% 0.50%Middle East & Africa 199 192 187 178 172 176 186 194 198 % Change in wholesale units - -3.52% -2.60% -5.00% -3.00% 2.00% 6.00% 4.00% 2.00%Asia Pacific 1,270 1,439 1,464 1,684 1,785 1,874 1,968 2,027 2,087 % Change in wholesale units - 13.31% 1.74% 15.00% 6.00% 5.00% 5.00% 3.00% 3.00%Total Wholesale Volume 6,330 6,323 6,635 6,965 7,029 6,966 6,930 6,967 7,055 % Change in wholesale units 11.68% -0.11% 4.93% 4.97% 0.93% -0.91% -0.52% 0.54% 1.27%

Average PriceNorth America 28,774 28,985 29,896 30,793 30,485 29,265 27,509 26,684 26,818 % Change in average price 3.54% 0.73% 3.14% 3.00% -1.00% -4.00% -6.00% -3.00% 0.50%South America 20,162 19,004 15,134 14,377 14,233 14,518 14,808 14,957 15,031 % Change in average price -0.40% -5.74% -20.37% -5.00% -1.00% 2.00% 2.00% 1.00% 0.50%Europe 20,695 21,238 18,412 18,964 18,964 18,869 19,435 20,213 20,314 % Change in average price 8.70% 2.62% -13.31% 3.00% 0.00% -0.50% 3.00% 4.00% 0.50%Middle East & Africa 22,779 22,948 21,417 21,845 22,938 23,626 23,862 23,385 23,619 % Change in average price - 0.74% -6.67% 2.00% 5.00% 3.00% 1.00% -2.00% 1.00%Asia Pacific 8,063 7,466 7,346 7,787 8,099 8,342 8,592 8,764 8,895 % Change in average price - -7.40% -1.61% 6.00% 4.00% 3.00% 3.00% 2.00% 1.50%Global Average Price 22,017 21,474 21,186 21,628 21,303 20,527 19,701 19,458 19,509 % Change in average price -1.40% -2.47% -1.34% 2.09% -1.50% -3.64% -4.02% -1.23% 0.26%

Ford Motor Co.Income StatementIn Millions CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ERevenuesAutomotive 139,369 135,782 140,566 150,633 149,747 142,983 136,519 135,564 137,643 Financial services 7,548 8,295 8,992 9,791 11,231 12,154 12,287 12,879 13,764 Total revenues 146,917 144,077 149,558 160,424 160,978 155,136 148,806 148,442 151,408 Costs and ExpensesAutomotive cost of sales 113,646 117,602 116,075 129,298 127,895 121,507 115,434 114,053 115,224 Depreciation and Amortization 6,544 7,423 7,966 7,515 7,994 8,222 8,117 7,971 8,137 Selling, administrative, and other expenses 10,850 15,716 14,999 16,759 16,816 16,206 15,545 15,507 15,817 Financial services interest expense 2,860 2,699 2,454 2,880 2,865 2,848 2,720 2,597 2,579 Financial services provision for credit and insurance losses 208 305 417 298 342 370 374 392 419 Total costs and expenses 134,108 143,745 141,911 156,750 155,912 149,154 142,190 140,520 142,175 Automotive interest expense 829 797 773 892 1,154 1,166 1,143 1,117 1,124 Automotive interest income and other income / (loss), net 974 76 1,188 901 849 875 910 950 1,000 Financial services other income / loss, net 348 348 372 362 362 362 362 362 362 Equity in net income / loss of affiliated companies 1,069 1,275 1,818 1,818 1,818 1,818 1,818 1,818 1,818 Income / (loss) before income taxes 14,371 1,234 10,252 5,862 6,939 7,872 8,563 9,934 11,288 Provision for / (benefit from) income taxes 2,425 4 2,881 1,817 2,151 2,440 2,655 3,080 3,499 Income / (loss) from continuing operations 11,946 1,230 7,371 4,045 4,788 5,431 5,909 6,855 7,789 Income / (loss) from discontinued operations - - - Net income / (loss) 11,946 1,230 7,371 4,045 4,788 5,431 5,909 6,855 7,789 Less: Income / (loss) attributable to non-controlling interests (7) (1) (2) Net income / (loss) attributable to Ford Motor Company 11,953 1,231 7,373 4,045 4,788 5,431 5,909 6,855 7,789

Basic Earnings per Share 3.04 0.31 1.86 1.014 1.195 1.350 1.463 1.691 1.915 Shares Outstanding 3,935 3,912 3,969 3,988 4,006 4,022 4,038 4,054 4,068 Dividends per Share 0.40 0.50 0.60 0.69 0.79 0.91 1.00 1.10 1.21

Ford Motor Co.Balance SheetIn Millions CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EASSETSCash and cash equivalents 14,468 10,757 14,272 10,015 10,987 13,188 15,648 17,676 20,228 Marketable securities 22,100 20,393 20,904 23,130 23,210 22,368 21,455 21,403 21,830 Finance receivables, net 77,481 81,111 90,691 96,530 95,962 91,627 87,485 86,873 88,206 Automotive receivables, net 9,828 11,708 11,284 11,743 11,674 11,147 10,643 10,568 10,730 Inventories 7,708 7,870 8,319 8,511 8,461 8,079 7,714 7,660 7,777 Other Current Assets 1,034 1,347 1,851 1,442 1,447 1,395 1,338 1,334 1,361 Total Current Assets 132,619 133,186 147,321 151,371 151,741 147,804 144,283 145,514 150,132 Net property 27,616 30,126 30,163 32,085 33,000 32,579 31,993 32,657 33,310 Net intangible assets 85 133 124 106 106 106 106 106 106 Net investment in operating leases 19,984 23,217 27,093 27,302 27,512 27,724 27,938 28,153 28,370 Equity in net assets of affiliated companies 3,679 3,357 3,224 2,862 2,862 2,862 2,862 2,862 2,862 Deferred income taxes 13,468 14,024 11,509 10,933.55 10,386.87 9,867.53 9,374.15 8,905.44 8,460.17 Other assets 4,728 4,572 5,491 5,152 5,170 4,982 4,779 4,767 4,862 Total assets 202,179 208,615 224,925 229,811 230,778 225,924 221,334 222,965 228,102 LIABILITIESAutomotive Payables 18,035 18,876 19,168 19,922 19,805 18,910 18,055 17,929 18,204 Financing Payables 1,496 1,159 1,104 1,303 1,494 1,617 1,635 1,713 1,831 Other liabilities and deferred revenue 26,024 27,850 28,663 29,179 29,704 30,239 30,783 31,337 31,901 Underfunded Pension Liability 14,862 16,182 13,883 13,189 12,529 11,903 11,308 10,742 10,205 Short Term Automotive debt 1,257 2,501 1,779 1,478 1,493 1,463 1,430 1,440 1,463 Short Term Financial services debt 14,994 11,138 12,123 14,325 14,241 13,598 12,983 12,892 13,090 Total Current Liabilities 76,668 77,706 76,720 79,396 79,266 77,730 76,195 76,054 76,695 Long Term Automotive debt 14,426 11,323 11,060 15,140 15,294 14,989 14,655 14,750 14,985 Long Term Financial services debt 84,011 94,209 107,892 105,060 104,442 99,725 95,217 94,550 96,001 Deferred income taxes 598 570 502 269 319 361 393 456 518 Total liabilities 175,703 183,808 196,174 199,865 199,321 192,805 186,459 185,810 188,198 EQUITYCapital stock 21,462 21,129 21,462 21,526 21,590 21,653 21,717 21,781 21,845 Retained earnings / accumulated deficit 23,386 9,422 14,414 15,707 17,317 19,078 20,933 23,312 26,159 Accumulated other comprehensive income / loss (18,230) (5,265) (6,257) (6,257) (6,257) (6,257) (6,257) (6,257) (6,257) Treasury stock (506) (848) (977) (1,140) (1,302) (1,465) (1,627) (1,790) (1,952) Total equity / deficit attributable to Ford Motor Company 26,112 24,438 28,642 29,837 31,348 33,010 34,766 37,046 39,795 Equity / deficit attributable to noncontrolling interests 364 369 109 109 109 109 109 109 109 Total equity / deficit 26,476 24,807 28,751 29,946 31,457 33,119 34,875 37,155 39,904 Total liabilities and equity 202,179 208,615 224,925 229,811 230,778 225,924 221,334 222,965 228,102

Ford Motor Co.Cash Flow StatementIn Millions 10444 14507 16170Fiscal Years Ending Dec. 31 2013 2014 2015Cash Flows from Operating Activities: Net income 11,946 1,230 7,371 Depreciation and tooling amortization 6,504 7,385 7,993 Other amortization 40 38 (27) Provision for credit and insurance losses 210 305 418 Pension and OPEB expense (4,930) 4,429 511 Equity investment earnings / losses in excess of dividends received (543) 189 (333) Foreign currency adjustments 228 825 710 Net gain / loss on changes in investment securities 113 798 (42) Stock compensation 159 180 199 Net change in wholesale and other receivables (3,044) (2,208) (5,090) Provision for deferred income taxes 1,585 (94) 2,120 Decrease / increase in accounts receivable and other assets (1,913) (2,896) (3,563) Decrease / increase in inventory (437) (936) (1,155) Increase / decrease in accounts payable and accrued and other liabilities 1,232 5,729 7,758 Other (706) (467) (700) Net cash provided by / used in operating activities 10,444 14,507 16,170

Cash Flows from Investing Activities: Capital spending (6,597) (7,463) (7,196) Acquisitions of finance receivables and operating leases (45,822) (51,673) (57,217) Collections of finance receivables and operating leases 33,966 36,497 38,130 Purchases of marketable securities (119,993) (48,694) (41,279) Sales and maturities of marketable securities 118,247 50,264 40,766 Proceeds from sales of retail and other finance receivables and operating leases 495 - - Other (27) (55) 634 Settlements of derivatives (217) 281 134 Other excluding settlements of derivatives 190 141 500 Net cash provided by / used in investing activities (19,731) (21,124) (26,162)

Cash Flows from Financing Activities: Cash dividends (1,574) (1,952) (2,380) Purchases of common stock (213) (1,964) (129) Net changes in short-term debt (2,927) (3,870) 1,646 Proceeds from issuance of other debt 40,543 40,043 48,860 Principal payments on other debt (27,953) (28,859) (33,358) Other 257 25 (317) Effect of exchange rate changes on cash and cash equivalents (37) (517) (815) Net cash provided by / used in financing activities 8,133 3,423 14,322

Net increase / decrease in cash and cash equivalents from continuing operations (1,191) (3,711) 3,515 Net increase / decrease in cash and cash equivalents (1,191) (3,711) 3,515 Cash and cash equivalents at beginning of period 15,659 14,468 10,757 Cash and cash equivalents at end of period 14,468 10,757 14,272

Ford Motor Co.Cash Flow StatementIn Millions CVFiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021ECash Flows from Operating Activities:Net income 4,045 4,788 5,431 5,909 6,855 7,789 Adjustments to reconcile net income to cash from Operating Activities: Add: Depreciation & Amortization Expense 7,515 7,994 8,222 8,117 7,971 8,137 Increase/(Decrease) in Deferred Income Tax Liabilities (233) 49 43 32 63 62 (Increase)/Decrease in Deferred Income Tax Assets 575 547 519 493 469 445 Add: Changes in working capital accounts: (Increase)/Decrease in Automotive Receivables (459) 69 527 504 74 (162) (Increase)/Decrease in Inventories (192) 50 382 365 54 (118) (Increase)/Decrease in Other Current Assets 409 (5) 53 57 3 (27) Increase/(Decrease) in Automotive Payables 754 (117) (895) (855) (126) 275 Increase/(Decrease) in Finance Payables 199 192 123 18 79 118 Increase/(Decrease) in Other Liabilities & Deferred Revenues 516 525 535 544 554 564 Increase/(Decrease) in Underfunded Pension Plan (694) (659) (626) (595) (565) (537) Total Cash Provided (Used) by Operating Activities 12,435 13,433 14,314 14,589 15,430 16,547

Cash Flows from Investing Activities: (Increase)/Decrease in Marketable Securities (2,226) (80) 842 913 52 (428) (Increase)/Decrease in Finance Receivables (5,839) 568 4,335 4,142 612 (1,333) Capital Spending (9,437) (8,910) (7,800) (7,532) (8,635) (8,789) (Increase)/Decrease in Intangible Assets 18 - - - - - (Increase)/Decrease in Investments in Operating Leases (209) (210) (212) (214) (215) (217) (Increase)/Decrease in Equity in Net Assets of Affiliated Companies 362 - - - - - (Increase)/Decrease in Other Assets 339 (18) 188 203 12 (95) Total Cash Provided (Used) by Investing Activities (16,991) (8,650) (2,648) (2,487) (8,174) (10,861)

Cash Flows from Financing Activities: Increase/(Decrease) in Short-term Automotive Debt (301) 15 (30) (33) 9 23 Increase/(Decrease) in Short-term Financial Services Debt 2,202 (84) (643) (615) (91) 198 Increase/(Decrease) in Long-term Automotive Debt 4,080 153 (305) (334) 95 235 Increase/(Decrease) in Long-term Financial Services Debt (2,832) (618) (4,718) (4,508) (666) 1,450 Employee Stock Options Plan 64 64 64 64 64 64 Puirchase of Common Stock (163) (163) (163) (163) (163) (163) Cash Dividends Paid (2,752) (3,178) (3,671) (4,054) (4,476) (4,941) Total Cash Provided (Used) by Financing Activities 299 (3,811) (9,464) (9,642) (5,228) (3,134)

Total Cash Provided (Used) (4,257) 972 2,202 2,460 2,028 2,551 Cash at the Beginning of the Year 14,272 10,015 10,987 13,188 15,648 17,676 Cash at the End of the Year 10,015 10,987 13,188 15,648 17,676 20,228

Ford Motor Co.Common Size Income Statement

CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021ERevenuesAutomotive 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Financial services 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Total revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Costs and ExpensesAutomotive cost of sales 81.54% 86.61% 82.58% 85.84% 85.41% 84.98% 84.56% 84.13% 83.71%Depreciation and Amortization 4.45% 5.15% 5.33% 4.68% 4.97% 5.30% 5.45% 5.37% 5.37%Selling, administrative, and other expenses 7.39% 10.91% 10.03% 10.45% 10.45% 10.45% 10.45% 10.45% 10.45%Financial services interest expense 37.89% 32.54% 27.29% 29.42% 25.51% 23.44% 22.14% 20.16% 18.73%Financial services provision for credit and insurance losses 2.76% 3.68% 4.64% 3.04% 3.04% 3.04% 3.04% 3.04% 3.04% Total costs and expenses 91.28% 99.77% 94.89% 97.71% 96.85% 96.14% 95.55% 94.66% 93.90%Automotive interest expense 0.59% 0.59% 0.55% 0.59% 0.77% 0.82% 0.84% 0.82% 0.82%Automotive interest income and other income / (loss), net 0.70% 0.06% 0.85% 0.60% 0.57% 0.61% 0.67% 0.70% 0.73%Financial services other income / loss, net 4.61% 4.20% 4.14% 3.69% 3.22% 2.98% 2.94% 2.81% 2.63%Equity in net income / loss of affiliated companies 0.73% 0.88% 1.22% 1.13% 1.13% 1.17% 1.22% 1.22% 1.20%Income / (loss) before income taxes 9.78% 0.86% 6.85% 3.65% 4.31% 5.07% 5.75% 6.69% 7.46%Provision for / (benefit from) income taxes 1.65% 0.00% 1.93% 1.13% 1.34% 1.57% 1.78% 2.07% 2.31%Income / (loss) from continuing operations 8.13% 0.85% 4.93% 2.52% 2.97% 3.50% 3.97% 4.62% 5.14%Income / (loss) from discontinued operations 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net income / (loss) 8.13% 0.85% 4.93% 2.52% 2.97% 3.50% 3.97% 4.62% 5.14%Less: Income / (loss) attributable to non-controlling interests 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net income / (loss) attributable to Ford Motor Company 8.14% 0.85% 4.93% 2.52% 2.97% 3.50% 3.97% 4.62% 5.14%

Ford Motor Co.Common Size Balance Sheet

CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EASSETSCash and cash equivalents 9.85% 7.47% 9.54% 6.24% 6.82% 8.50% 10.52% 11.91% 13.36%Marketable securities 15.04% 14.15% 13.98% 14.42% 14.42% 14.42% 14.42% 14.42% 14.42%Finance receivables, net 1026.51% 977.83% 1008.57% 985.89% 854.44% 753.92% 712.03% 674.56% 640.83%Other receivables, net 7.05% 8.62% 8.03% 7.80% 7.80% 7.80% 7.80% 7.80% 7.80%Inventories 5.53% 5.80% 5.92% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65%Other Current Assets 0.70% 0.93% 1.24% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Total Current Assets 90.27% 92.44% 98.50% 94.36% 94.26% 95.27% 96.96% 98.03% 99.16%Net property 18.80% 20.91% 20.17% 20.00% 20.50% 21.00% 21.50% 22.00% 22.00%Net intangible assets 0.06% 0.09% 0.08% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%Net investment in operating leases 14.34% 17.10% 19.27% 18.12% 18.37% 19.39% 20.46% 20.77% 20.61%Equity in net assets of affiliated companies 2.50% 2.33% 2.16% 1.78% 1.78% 1.84% 1.92% 1.93% 1.89%Deferred income taxes 9.17% 9.73% 7.70% 7.31% 6.95% 6.60% 6.27% 5.95% 5.66%Other assets 3.22% 3.17% 3.67% 3.21% 3.21% 3.21% 3.21% 3.21% 3.21% Total assets 137.61% 144.79% 150.39% 143.25% 143.36% 145.63% 148.74% 150.20% 150.65%LIABILITIESAutomotive Payables 12.94% 13.90% 13.64% 13.23% 13.23% 13.23% 13.23% 13.23% 13.23%Financing Payables 19.82% 13.97% 12.28% 13.30% 13.30% 13.30% 13.30% 13.30% 13.30%Other liabilities and deferred revenue 18.67% 20.51% 20.39% 19.37% 19.84% 21.15% 22.55% 23.12% 23.18%Underfunded Pension Liability 10.66% 11.92% 9.88% 8.76% 8.37% 8.32% 8.28% 7.92% 7.41%Short Term Automotive debt 0.90% 1.84% 1.27% 0.98% 1.00% 1.02% 1.05% 1.06% 1.06%Short Term Financial services debt 198.65% 134.27% 134.82% 146.31% 126.80% 111.88% 105.67% 100.11% 95.10% Total Current Liabilities 52.18% 53.93% 51.30% 49.49% 49.24% 50.10% 51.20% 51.23% 50.65%Long Term Automotive debt 10.35% 8.34% 7.87% 10.05% 10.21% 10.48% 10.73% 10.88% 10.89%Long Term Financial services debt 1113.02% 1135.73% 1199.87% 1073.01% 929.95% 820.54% 774.96% 734.17% 697.46%Deferred income taxes 0.41% 0.40% 0.34% 0.17% 0.20% 0.23% 0.26% 0.31% 0.34% Total liabilities 119.59% 127.58% 131.17% 124.59% 123.82% 124.28% 125.30% 125.17% 124.30%EQUITYCapital stock 14.61% 14.67% 14.35% 13.42% 13.41% 13.96% 14.59% 14.67% 14.43%Retained earnings / accumulated deficit 15.92% 6.54% 9.64% 9.79% 10.76% 12.30% 14.07% 15.70% 17.28%Accumulated other comprehensive income / loss -12.41% -3.65% -4.18% -3.90% -3.89% -4.03% -4.20% -4.22% -4.13%Treasury stock -0.34% -0.59% -0.65% -0.71% -0.81% -0.94% -1.09% -1.21% -1.29% Total equity / deficit attributable to Ford Motor Company 17.77% 16.96% 19.15% 18.60% 19.47% 21.28% 23.36% 24.96% 26.28%Equity / deficit attributable to noncontrolling interests 0.25% 0.26% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% Total equity / deficit 18.02% 17.22% 19.22% 18.67% 19.54% 21.35% 23.44% 25.03% 26.36% Total liabilities and equity 137.61% 144.79% 150.39% 143.25% 143.36% 145.63% 148.74% 150.20% 150.65%

Ford Motor Co.Value Driver EstimationIn Millions CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021EASSUMPTIONS:Marginal Tax Rate 34.90% 38.30% 34.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%WACC 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% 4.94%Normal Cash (% of Sales) 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%Cost of Debt 4.51% 4.51% 4.51% 4.51% 4.51% 4.51% 4.51% 4.51% 4.51%Amount of Securitized Financial Receivables 51,600 46,200 53,700 50,675 50,675 50,675 50,675 50,675 50,675 NOPLAT CALCULATION Automotive Revenues 139,369 135,782 140,566 150,633 149,747 142,983 136,519 135,564 137,643Financial Revenues 7,548 8,295 8,992 9,791 11,231 12,154 12,287 12,879 13,764 Total Revenues 146,917 144,077 149,558 160,424 160,978 155,136 148,806 148,442 151,408Automotive Costs of Sales 113,646 117,602 116,075 129,298 127,895 121,507 115,434 114,053 115,224Depreciation and Amortization 6,544 7,423 7,966 7,515 7,994 8,222 8,117 7,971 8,137Selling, General, and Administrative 10,850 15,716 14,999 16,759 16,816 16,206 15,545 15,507 15,817Financial Services Interest Expense 2,860 2,699 2,454 2,880 2,865 2,848 2,720 2,597 2,579Financial Services provision for credit/insurance losses 208 305 417 298 342 370 374 392 419 Total Operating Expenses 134,108 143,745 141,911 156,750 155,912 149,154 142,190 140,520 142,175Plus: Implied Interest on Op. Leases 40 36 33 34 37 38 37 36 37EBITA 12,849 368 7,680 3,708 5,102 6,020 6,653 7,958 9,270Adjusted Taxes:Provision for/ (Benefit from) Income Taxes 2,425 4 2,881 1,817 2,151 2,440 2,655 3,080 3,499Plus: Tax shield on automotive interest expense 289 305 263 312 404 408 400 391 394Plus: Tax shield on Goodwill impariment 0 0 0 0 0 0 0 0 0Less: Tax on automotive investment income 340 29 404 315 297 306 319 332 350Less: Tax on other financial services income 121 133 126 127 127 127 127 127 127 Less: Tax on equity in net income of affiliates 373 488 618 636 636 636 636 636 636Less: Total Adjusted Taxes 1,880 (341) 1,995 1,051 1,495 1,779 1,973 2,375 2,780Plus: Change in Deferred Taxes 1,845 (584) 2,447 343 596 562 525 532 507NOPLAT 12,814 125 8,132 2,999 4,203 4,803 5,205 6,115 6,997

INVESTED CAPITAL CALCULATIONOperating Current Assets: Normal Cash 11,019 10,757 11,217 10,015 10,987 11,635 11,160 11,133 11,356 Finance Receivables, net 25,881 34,911 36,991 45,855 45,287 40,952 36,810 36,198 37,531 Other Receivables, net 9,828 11,708 11,284 11,743 11,674 11,147 10,643 10,568 10,730 Inventories 7,708 7,870 8,319 8,511 8,461 8,079 7,714 7,660 7,777 Other Current Assets 1,034 1,347 1,851 1,442 1,447 1,395 1,338 1,334 1,361 Total Op. CA 55,470 66,593 69,662 77,566 77,856 73,208 67,665 66,894 68,755Operating Current Liabilities: Automotive Payables 18,035 18,876 19,168 19,922 19,805 18,910 18,055 17,929 18,204 Financing Payables 1,496 1,159 1,104 1,303 1,494 1,617 1,635 1,713 1,831 Other Liabilities and deferred revenue 26,024 27,850 28,663 29,179 29,704 30,239 30,783 31,337 31,901 ST Financing Debt 14,994 11,138 12,123 14,325 14,241 13,598 12,983 12,892 13,090 Total Op. CL 60,549 59,023 61,058 64,729 65,244 64,364 63,456 63,872 65,027Net Operating Working Capital (5,079) 7,570 8,604 12,837 12,611 8,844 4,209 3,022 3,728Plus: Net PP&E 27,616 30,126 30,163 32,085 33,000 32,579 31,993 32,657 33,310Plus: PV of Operating Leases 796 741 760 809 832 821 806 823 840Plus: Net Investment in Operating Leases 19,984 23,217 27,093 27,302 27,512 27,724 27,938 28,153 28,370Plus: Net Other Op AssetsPlus: Net Intangibles 85 133 124 106 106 106 106 106 106 INVESTED CAPITAL 43,402 61,787 66,744 73,138 74,062 70,074 65,052 64,761 66,353

VALUE DRIVERS:ROIC Calculation: NOPLAT/Beg. ICNOPLAT 12,814 125 8,132 2,999 4,203 4,803 5,205 6,115 6,997Beginning Invested Capital 30,611 43,402 61,787 66,744 73,138 74,062 70,074 65,052 64,761 ROIC 41.86% 0.29% 13.16% 4.49% 5.75% 6.49% 7.43% 9.40% 10.81%

EP Calculation: Beg. IC*(ROIC-WACC)Beginning Invested Capital 30,611 43,402 61,787 66,744 73,138 74,062 70,074 65,052 64,761 ROIC 41.86% 0.29% 13.16% 4.49% 5.75% 6.49% 7.43% 9.40% 10.81%WACC 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% 4.94% Economic Profit 11,301 (2,020) 5,078 (300) 588 1,142 1,741 2,899 3,796

FCF Calculation: NOPLAT - CAPEXNOPLAT 12,814 125 8,132 2,999 4,203 4,803 5,205 6,115 6,997 CAPEX (Ending IC - Beginning IC) 12,791 18,385 4,957 6,394 924 (3,988) (5,022) (291) 1,592 FCF 24 (18,260) 3,175 (3,394) 3,279 8,791 10,227 6,406 5,405

Ford Motor Co.Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity (re)Risk-free rate (30 yr T-Bond) 2.5600%Risk Premium 4.57%Beta 1.3358Cost of Equity 8.665% Ford Cred Bond Matures on (8/04/2026) 3.64%

- 10 Year Treasury 1.75%Cost of Debt (rd) + 30 Year Treasury 2.56%Ford Motor 30 Yr. Bond YTM (02 6.945% + Maturity Default Risk Premium 0.75%Ford Credit Cost of Debt 5.20% FC Cost of Debt 5.20%Marginal Tax Rate 35%Automotive AT Cost of Debt 4.514%Financial AT Cost of Debt 3.381%

Total Equity $52,589.25# of Shares 3,969.00 Share Price $13.25Total Debt 136,129.35$ Fair Value Automotive 14,199.00 PV Operating Leases 760.35 Fair Value Financial 121,170.00 Total Value $188,718.60Weight of Equity 27.866% * Cost of Equity 8.665%Weight of Automotive Debt 7.927% * Automotive AT Cost of Debt 4.514%Weight of Financial Debt 64.207% * Financial AT Cost of Debt 3.381%

WACC 4.943%

Ford Motor Co.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 2.00% CV ROIC 10.81% WACC 4.94% Cost of Equity 8.66%

CVFiscal Years Ending Dec. 31 2015 2016E 2017E 2018E 2019E 2020E 2021E

Discounted Cash Flow ModelNOPLAT 2,999 4,203 4,803 5,205 6,115 6,997 ROIC 4.49% 5.75% 6.49% 7.43% 9.40% 10.81%CAPEX (Change in IC) 6,394 924 (3,988) (5,022) (291) 1,592 Free Cash Flow (3,394) 3,279 8,791 10,227 6,406 5,405 Continuing Value 193,656

CF to Discount (3,394) 3,279 8,791 10,227 6,406 193,656 Periods to Discount 1 2 3 4 5 5PV of Free Cash Flows (3,234) 2,977 7,606 8,432 5,033 152,147

PV of Operating Assets 172,962 Excess Cash 3,055 Marketable securities 20,904 Equity in net assets of affiliated companies 3,224 Short Term Automotive debt (1,779) Long Term Automotive debt (11,060) Long Term Financial services debt (107,892) PV of Operating Leases (760) Underfunded Pension (13,883) Employee Stock Options Plan (193) Equity attributable to non-controlling interest (109) Value of Equity 64,468 Shares Outstanding 3,969 Intrinsic Stock Price as of 12/31/15 16.24$

Economic Profit ModelEconomic Profit (300) 588 1,142 1,741 2,899 3,796 Continuing Value 128,895 Periods to Discount 1 2 3 4 5 5CF to Discount (300) 588 1,142 1,741 2,899 128,895 PV of Cash Flows (286) 534 988 1,436 2,278 101,268

PV of Economic Profit 106,217 Plus: Beginning IC 66,744 PV of Operating Assets 172,962 Excess Cash 3,055 Marketable securities 20,904 Equity in net assets of affiliated companies 3,224 Short Term Automotive debt (1,779) Long Term Automotive debt (11,060) Long Term Financial services debt (107,892) PV of Operating Leases (760) Underfunded Pension (13,883) Employee Stock Options Plan (193) Equity attributable to non-controlling interest (109) Value of Equity 64,468 Shares Outstanding 3,969 Intrinsic Stok Price as of 12/31/15 16.24$

Intrinsic Stock Price as of 12/31/15 16.24$ R*e 4.14%Elapsed Fraction 0.298 Adjusted Stock Price as of 4/18/2016 16.44$

Ford Motor Co.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

CVFiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E

EPS 1.01 1.20 1.35 1.46 1.69 1.91

Key Assumptions CV growth 2.00% CV ROE 20.22% Cost of Equity 8.66%

Future Cash Flows P/E Multiple (CV Year) 13.52 EPS (CV Year) 1.91 Future Stock Price 25.88 Dividends Per Share 0.69 0.79 0.91 1.00 1.10 1.21 Future Cash Flows 0.69 0.79 0.91 1.00 1.10 25.88 Periods to Discount 1 2 3 4 5 5 Discounted Cash Flows 0.63 0.67 0.71 0.72 0.73 17.08

Intrinsic Value as of 12/31/15 19.91$ R*e 4.14%Elapsed Fraction 0.298Adjusted Stock Price (4/18/16) 20.15$

Ford Motor Co.Relative Valuation Models

EPS EPS Sales Sales SharesTicker Company Price 2016E 2017E P/E 16 P/E 17 2016E 2017E Outstanding P/S 16 P/S 17TM Toyota $103.36 $13.32 $13.66 7.8 7.6 252,630 266,080 1,540 0.630 0.598 FCAU Fiat-Chrysler $7.76 $1.33 $1.67 5.8 4.6 115,410 120,410 1,290 0.087 0.083 GM General Mortors $31.31 $5.48 $5.74 5.7 5.5 153,760 152,050 1,550 0.316 0.319 VLKAY Volkswagen $28.31 $2.15 $2.15 13.2 13.2 233,970 231,170 2,380 0.288 0.291 HMC Honda $27.88 $2.28 $2.94 12.2 9.5 123,000 127,040 1,800 0.408 0.395

Average 8.9 8.1 0.346 0.337

F Ford Motor Co. $13.25 $1.01 $1.20 13.1 11.1 160,424 160,978 3,969 0.328 0.327

Implied Value: Relative P/E (EPS16) $ 9.07 Relative P/E (EPS17) 9.64$ Relative P/S (Est16) 13.97$ Relative P/S (Est17) 13.68$

Ford Motor Co.Key Management Ratios

CVFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E

Liquidity RatiosCurrent Ratio Current Assets/Current Liabilities 1.73 1.71 1.92 1.91 1.91 1.90 1.89 1.91 1.96Quick Ratio (CA - Inventories)/CL 1.63 1.61 1.81 1.80 1.81 1.80 1.79 1.81 1.86Cash Ratio (Cash + Marketable Sec)/CL 0.48 0.40 0.46 0.42 0.43 0.46 0.49 0.51 0.55

Activity or Asset-Management RatiosAutomotive Inventory Turnover Automotive Cost of Sales/Avg. Inventory 15.08 15.10 14.34 15.36 15.07 14.69 14.62 14.84 14.93Receivables Turnover Sales/Avg. A/R 1.74 1.60 1.54 1.53 1.49 1.47 1.48 1.52 1.54Total Asset Turnover Sales/Avg. Total Assets 0.75 0.70 0.69 0.71 0.70 0.68 0.67 0.67 0.67

Financial Leverage RatiosDebt to Equity Ratio (X LT Fin Debt) Total Debt/Shareholder's Equity 115.87% 100.62% 86.82% 103.33% 98.64% 90.73% 83.35% 78.27% 74.02%Debt Ratio Total Liabilities/Total Assets 0.87 0.88 0.87 0.87 0.86 0.85 0.84 0.83 0.83Interest Coverage Ratio Operating Income/Interest Expense 5.28 83.00 2.65 2.02 2.35 2.45 2.49 2.57 2.64

Profitability RatiosAutomotive Gross Profit Margin (Auto Rev - Auto COS)/Auto Rev 18.46% 13.39% 17.42% 14.16% 14.59% 15.02% 15.44% 15.87% 16.29%Return on Equity Ratio Net Income/Beg. Shareholders Equity 73.28% 4.65% 29.72% 14.07% 15.99% 17.27% 17.84% 19.66% 20.96%Return on Assets Net Income/Beg. Total Assets 6.31% 0.61% 3.53% 1.80% 2.08% 2.35% 2.62% 3.10% 3.49%Cash Flow Margin Net Op. Cash Flow/Auto Rev 7.49% 10.68% 11.50% 8.25% 8.97% 10.01% 10.69% 11.38% 12.02%

Payout Policy RatiosPayout Ratio Dividends Per Share/EPS 13.16% 161.29% 32.26% 68.03% 66.38% 67.58% 68.61% 65.30% 63.44%Dividend Coverage Ratio EPS/Dividents Per Share 7.60 0.62 3.10 1.47 1.51 1.48 1.46 1.53 1.58

Beta CV ROIC Growth16.44$ 1.05 1.15 1.25 1.34 1.45 1.55 1.65 16.44$ 10.21% 10.41% 10.61% 10.81% 11.01% 11.21% 11.41%1.70% 19.40$ 17.39$ 15.54$ 14.07$ 12.25$ 10.78$ 9.41$ 85.54% 17.76$ 17.94$ 18.12$ 18.29$ 18.46$ 18.62$ 18.78$ 1.80% 20.42$ 18.30$ 16.36$ 14.82$ 12.92$ 11.38$ 9.96$ 85.64% 17.14$ 17.32$ 17.50$ 17.67$ 17.84$ 17.99$ 18.15$ 1.90% 21.52$ 19.28$ 17.23$ 15.61$ 13.62$ 12.02$ 10.53$ 85.74% 16.52$ 16.70$ 16.88$ 17.04$ 17.21$ 17.37$ 17.52$ 2.00% 22.68$ 20.31$ 18.15$ 16.44$ 14.35$ 12.67$ 11.12$ 85.84% 15.93$ 16.11$ 16.28$ 16.44$ 16.60$ 16.76$ 16.91$ 2.10% 23.99$ 21.46$ 19.17$ 17.37$ 15.17$ 13.41$ 11.78$ 85.94% 15.29$ 15.47$ 15.64$ 15.79$ 15.96$ 16.11$ 16.25$ 2.20% 25.37$ 22.69$ 20.25$ 18.35$ 16.02$ 14.17$ 12.46$ 86.04% 14.67$ 14.85$ 15.01$ 15.17$ 15.33$ 15.48$ 15.62$ 2.30% 26.89$ 24.01$ 21.42$ 19.39$ 16.94$ 14.99$ 13.19$ 86.14% 14.05$ 14.23$ 14.39$ 14.55$ 14.70$ 14.85$ 14.99$

COGS as a % of Sales WACC16.44$ 85.54% 85.64% 85.74% 85.84% 85.94% 86.04% 86.14% 16.44$ 4.64% 4.74% 4.84% 4.94% 5.04% 5.14% 5.24%

10.15% 21.11$ 20.37$ 19.63$ 18.91$ 18.14$ 17.40$ 16.66$ 1.70% 18.47$ 16.92$ 15.47$ 14.07$ 12.83$ 11.62$ 10.48$ 10.25% 20.28$ 19.53$ 18.79$ 18.08$ 17.31$ 16.57$ 15.83$ 1.80% 19.44$ 17.81$ 16.29$ 14.82$ 13.52$ 12.26$ 11.07$ 10.35% 19.44$ 18.70$ 17.96$ 17.24$ 16.48$ 15.73$ 14.99$ 1.90% 20.49$ 18.76$ 17.16$ 15.61$ 14.25$ 12.93$ 11.69$ 10.45% 18.64$ 17.90$ 17.16$ 16.44$ 15.67$ 14.93$ 14.19$ 2.00% 21.58$ 19.76$ 18.06$ 16.44$ 15.01$ 13.63$ 12.33$ 10.55% 17.78$ 17.04$ 16.29$ 15.58$ 14.81$ 14.07$ 13.33$ 2.10% 22.82$ 20.88$ 19.09$ 17.37$ 15.86$ 14.41$ 13.05$ 10.65% 16.94$ 16.20$ 15.46$ 14.74$ 13.98$ 13.24$ 12.50$ 2.20% 24.13$ 22.07$ 20.16$ 18.35$ 16.75$ 15.22$ 13.79$ 10.75% 16.11$ 15.37$ 14.63$ 13.91$ 13.15$ 12.40$ 11.67$ 2.30% 25.55$ 23.35$ 21.32$ 19.39$ 17.71$ 16.09$ 14.59$

CV ROIC Growth Equity Risk Premium16.44$ 10.21% 10.41% 10.61% 10.81% 11.01% 11.21% 11.41% 16.44$ 4.27% 4.37% 4.47% 4.57% 4.67% 4.77% 4.87%4.64% 21.00$ 21.20$ 21.40$ 21.58$ 21.77$ 21.94$ 22.11$ 32.00% 15.87$ 15.33$ 14.80$ 14.28$ 13.77$ 13.27$ 12.79$ 4.74% 19.20$ 19.40$ 19.58$ 19.76$ 19.94$ 20.10$ 20.26$ 33.00% 16.62$ 16.06$ 15.51$ 14.98$ 14.46$ 13.95$ 13.45$ 4.84% 17.53$ 17.72$ 17.90$ 18.06$ 18.24$ 18.40$ 18.55$ 34.00% 17.39$ 16.82$ 16.25$ 15.70$ 15.16$ 14.64$ 14.13$

WACC 4.94% 15.93$ 16.11$ 16.28$ 16.44$ 16.60$ 16.76$ 16.91$ 35.00% 18.19$ 17.59$ 17.01$ 16.44$ 15.89$ 15.35$ 14.82$ 5.04% 14.52$ 14.69$ 14.85$ 15.01$ 15.17$ 15.32$ 15.46$ 36.00% 19.00$ 18.38$ 17.78$ 17.20$ 16.63$ 16.07$ 15.53$ 5.14% 13.15$ 13.32$ 13.48$ 13.63$ 13.78$ 13.92$ 14.06$ 37.00% 19.84$ 19.20$ 18.58$ 17.98$ 17.39$ 16.82$ 16.26$ 5.24% 11.87$ 12.03$ 12.19$ 12.33$ 12.48$ 12.62$ 12.75$ 38.00% 20.70$ 20.04$ 19.40$ 18.78$ 18.18$ 17.58$ 17.01$

CV NOPLAT Growth

Marginal Tax Rate

CV NOPLAT Growth

SG&A as a % of Sales

COGS as a % of Sales

Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases2016 275 2015 268 2014 2462017 188 2016 189 2015 1892018 188 2017 189 2016 1892019 89 2018 78 2017 992020 89 2019 78 2018 99Thereafter 80 Thereafter 83 Thereafter 152Total Minimum Payments 909 Total Minimum Payments 885 Total Minimum Payments 974Less: Interest 149 Less: Interest 144 Less: Interest 178PV of Minimum Payments 760 PV of Minimum Payments 741 PV of Minimum Payments 796

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 45,400,000Average Time to Maturity (years): 7.00Expected Annual Number of Options Exercised: 6,485,714

Current Average Strike Price: 9.83$ Cost of Equity: 8.66%Current Stock Price: $13.25

CV2016E 2017E 2018E 2019E 2020E 2021E

Increase in Shares Outstanding: 6,485,714 6,485,714 6,485,714 6,485,714 6,485,714 6,485,714Average Strike Price: 9.83$ 9.83$ 9.83$ 9.83$ 9.83$ 9.83$ Increase in Common Stock Account: 63,754,571 63,754,571 63,754,571 63,754,571 63,754,571 63,754,571

Change in Treasury Stock -162,500,000 -162,500,000 -162,500,000 -162,500,000 -162,500,000 -162,500,000Expected Price of Repurchased Shares: 13.25$ 14.40$ 15.65$ 17.00$ 18.47$ 20.08$ Number of Shares Repurchased: (12,264,151) (11,286,242) (10,386,310) (9,558,135) (8,795,997) (8,094,629)

Shares Outstanding (beginning of the year) 3,969,000,000 3,987,749,865 4,005,521,822 4,022,393,846 4,038,437,695 4,053,719,406Plus: Shares Issued Through ESOP 6,485,714 6,485,714 6,485,714 6,485,714 6,485,714 6,485,714Less: Shares Repurchased in Treasury (12,264,151) (11,286,242) (10,386,310) (9,558,135) (8,795,997) (8,094,629) Shares Outstanding (end of the year) 3,987,749,865 4,005,521,822 4,022,393,846 4,038,437,695 4,053,719,406 4,068,299,749

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol FCurrent Stock Price $13.25Risk Free Rate 2.56%Current Dividend Yield 4.53%Annualized St. Dev. of Stock Returns 38.80%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 45,400,000 9.83 7.00 4.26$ 193,406,203$ Total 45,400,000 9.83$ 7.00 6.95$ 193,406,203$