Hughes cromwick

2014 ECONOMIC OUTLOOK FOR THE AMERICAS BUSINESS CYCLE AND POLICY DYNAMICS Ellen Hughes-Cromwick Chief Economist Ford Motor Company Global Interdependence Center Southwest Economic Summit The Americas February 24, 2014

KEY POINTS TODAY • A favorable report card: Economies in the Americas region are poised for moderate growth in 2014 with low risk of recession • But there is a wide continuum of performance among the major markets • North America’s barometer of health is Canada, facing far fewer structural imbalances, sound banking, contained inflation, and domestic demand growth now beyond the Ontario province • While the centerpiece of the Americas – the U.S. – continues to heal from the financial crisis, Mexico is reviving and offers promise to achieve their potential in the next two years • Structural barriers to improvements in the standard of living persist in some South American markets, with severe external imbalances in Argentina and Venezuela • Brazil’s challenges in 2014 – 2015 are rotating from high inflation and interest rates to uncertainty about investment and capital spending trend • Economies of the Americas region have several precious assets: its people, trade linkages, and a valuable natural resource base

SLIDE 1

GLOBAL TRENDS

SLIDE 2

GLOBAL NEW VEHICLE SALES (Mils. Units) 81

64

66

68

72

74 68

85

77 Other

65

60

21.1 China

22.2

U.S.

15.9

Europe

13.8

4.6

17.0

17.2

2003

2005

2007

2009

2011

2013

2013 Global Sales Reached 85 Million Units SLIDE 3

GLOBAL NEW VEHICLE SALES (Mils. Units) 54.3 38.4

40.7

42.7

44.0

48.0

55.1

57.3

60.0

47.7 47.5 Rest of World

21.5

22.6

23.3

23.5

23.8

21.0 17.4

19.6

21.6

23.7

25.0

19.1 N. America 13.1 4.4

5.9 S. America

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

In 2013, Americas New Vehicle Sales Accounted For Nearly 30% of Global Sales SLIDE 4

AMERICAS ECONOMIC FUNDAMENTALS

SLIDE 5

EMERGING MARKETS CURRENCY UPDATE • Since January 2013, there have been double-digit declines in the value of several major emerging markets’ exchange rates • Several markets likely affected by the removal of U.S. monetary policy stimulus (“QE Tapering”) • The other triggers for these declines vary widely among all of these countries • Argentina and Venezuela have unique, severe imbalances • Inflationary pressures and growth slowdowns in most of these markets have contributed to currency weakness • Central banks in Brazil, Turkey, South Africa, and India have raised policy interest rates to dampen inflation and support currencies Key Takeaways • Brazil’s imbalances challenging; could be managed with appropriate policies • Argentina and Venezuela increasingly unstable, at risk for large devaluations • Russia, Turkey, and South Africa still subject to further currency weakness • India’s central bank largely successful in stemming a more severe selloff • A broad-based currency crisis similar to the late 1990s is not likely due to policy responses already underway in several markets SLIDE 6

EMERGING MARKETS CURRENCY UPDATE Volatility Range (Pct.) *

Pct. Change Since January 2013

Argentina Peso

19

(37.2)

Brazil Real Venezuela Bolivar

30

(31.8)

Russia Ruble Per Euro Turkey Lira Per Euro

(20.7)

11

(17.8)

India Rupee

Memo: Japan Yen

5

(13.7)

South Africa Rand

Thailand Baht

12

(16.7)

14

(14.6) Yen Has Fallen 26% During Last 2 Years

11 (8.4)

5

(11.5) Depreciation

10 Appreciation

* Based on 5-year currency fluctuations

Currency Sell-Offs Spurred By Capital Flows To Mature Market Safe Havens SLIDE 7

U.S. KEY ECONOMIC INDICATORS Consumer Sentiment Index

Mfg. Purchasing Managers’ Index (PMI)

85.1 59.2

79.9

57.0

81.2 51.5 74.2

72.3

72.9

50

54.1

54.2

Expansion Contraction

49.0

Preliminary February 2014 Matched January Reading at 81.2

51.3

55.8 2011

2012

2013

Unemployment Rate (Pct.)

2014 January

2011

2012

2013

Real GDP (Pct. Change, YoY)

2014 January

9.1 3.3

3.1 2.7

2.0 1.3

6.6 2011

2012

2013

2014 January

1Q 2011

1Q 2012

1Q 2013

4Q

Growth Pace Improving SLIDE 8

U.S. HOUSING UPDATE Housing Starts (SAAR, Mils.) And Home Builders’ Survey Index

30-Year Mortgage Rate (Pct.)

2.0

75 60

Housing Starts

1.5

6.5

46.0 45

5.0

4.4

1.0

0.88 30 Home Builders Survey Index (Rt. Scale)

0.5

0.0

3.5

15 0

2007

2008

2009

2010

2011

2012

2013

2014

Case-Shiller Home Prices (Pct. Change, YoY) Note: Includes 20 major metropolitan areas

13.7

2007

2008

2009

2010

2011

2012

2013

2014

New Home and Light Vehicle Sales (SAAR, Mils.)

25

2.0

Note: Based on six-month moving average

Light Vehicle Sales

20

4.6

1.5

15.5

15 1.0

(0.1)

(4.5)

10

New Home Sales (Rt. Scale)

5

0.4 0.5

(19.0) 0

2007

2008

2009

2010

2011

2012

2013

2007

0.0

2008

2009

2010

2011

2012

2013

2014

Housing Sector Recovery Key Feature Of Economic Growth This Year SLIDE 9

NORTH AMERICA VEHICLE SALES SUMMARY Total North America (Mils.)

U.S. (Mils.)

January 2014 SAAR*

19.1 16.6

15.9

14.5

2008

2009

2010

13.5

2011

2012

2013

2013

Canada (Mils.)

1.7

15.6

11.8

2008

2013

2014

Mexico (Mils.)

1.8 1.6

1.7

1.8

1.1

1.1

1.1

0.8

2008

15.6

2013 2013

2014

2008

2013

2013

1.1

2014

* January SAARs are preliminary estimates

Fiscal Austerity Led To Double Dip Recession North America Sales Projected To Grow Nearly 8% This Year The information contained herein does not constitute the Company’s forecast of financial performance and has been prepared solely for business planning purposes to determine actions the Company may take to meet its plan

SLIDE 10

MEXICO FOREIGN DIRECT INVESTMENT • Foreign direct investment (FDI) declined in 2009, concurrent with global economic downturn, on pace for full recovery in 2013 – The majority of FDI comes from the U.S. – Future FDI will depend on reforms; energy, labor and education reform particularly important – Low unit labor costs draw global manufacturers to Mexico

USD (Bils.)

40

Foreign Direct Investment

35

31.6

30 23.8*

25 20 15 10

16.6

9.5

15.5

5 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Source of Foreign Direct Investment, 2012 Rest of World 30%

Canada 10% Source: Bank of Mexico

Manufacturing Productivity

110 105

USD 15.5 Bils.

Japan 11%

Source: Bank of Mexico *Through First Half 2013

U.S. 49%

105.2

100 95

Productivity**

90

89.6

Unit Labour Costs (Pesos) 85 2007

2008

Source: OECD

2009

2010

2011

2012

** Index, 2008=100

Foreign Direct Investment Pace Improved Last Year SLIDE 11

BRAZIL KEY ECONOMIC INDICATORS Consumer Confidence Index

PMI

128.7 121.7

51.40

53.1

121.6

50.8

50 114.7 45.5

109.7 108.9 2011

2012

2013

2014 January

2011

2012

Mfg. Production (Pct. Change, YoY)

2013

Real GDP (Pct. Change, YoY)

2014 January

9.7

7.7

4.2

6.2 2.4

3.3

3.3

2.0 1.8 (2.9)

(1.1)

(5.6) 2011

2012

0.9

0.8

(2.0)

2.2

0.6 2013

December

1Q 2011

1Q 2012

1Q 2013 3Q

Economy Facing Headwinds From Rising Interest Rates SLIDE 12

BRAZIL KEY ECONOMIC INDICATORS Units Economic Activity

Index

2013 2 Months 1 Month Full Year Ago Ago

Present Level Date

145.5

146.7

145.8

143.8

Dec-13

Consumer Inflation

% Chg YOY

6.2

5.8

5.9

5.6

Jan-14

Unemployment

%

5.4

4.6

4.3

4.8

Jan-14

Confidence

Index

113.3

112.5

111.2

108.9

Jan-14

Retail Sales

% Chg YOY

4.3

5.4

7.1

3.9

Dec-13

Exchange Rates

BRL/USD, e.o.p

2.34

2.32

2.34

2.43

Jan-14

Policy Interest Rate

%, e.o.p.

10.00

10.00

10.00

10.50

Jan-14

Stock Prices

% Chg YOY

(10.2)

(8.7)

(15.5)

(20.3)

Jan-14

Financial

SLIDE 13

SOUTH AMERICA VEHICLE SALES SUMMARY Total South America (Mils.)

Brazil (Mils.)

7.7%

4.4

5.9

5.7

5.2

January 2014 SAAR*

5.9

4.4

3.8

3.7

2013

2013

4.2

2.8

2008

2009

2010

2011

2012

2013

2008

Argentina (Mils.)

2014

Venezuela (Mils.)

1.2

0.9

0.6

0.7

0.8

0.8 0.3 0.1

2008

2013 2013

2014

2008

0.1

2013

0.1

2013

0.1 0.02 2014

* January SAARs are preliminary estimates

South America Vehicle Sales Projected To Grow About 2% This Year The information contained herein does not constitute the Company’s forecast of financial performance and has been prepared solely for business planning purposes to determine actions the Company may take to meet its plan

SLIDE 12

ARGENTINA KEY CHALLENGES Commodity Prices (USD per Metric Ton)

Argentine Peso Gap between ARS Blue and ARS

Soybean

(2/18/14 spot) 11.80

ARS Blue

531

Corn

ARS

430

Wheat

374 7.77

296

211

192

4.11 4.03 2011

2012

2013

2014

168

152 2010

2011

Merchandise Trade Balance (USD Bils.)

Trade Balance Exports

Jan 2014 Dec 2013

FX Reserves: $29.6 Bils.

Import Coverage: 5.9 Mos.

23.5

Imports

19.5 13.0

19.9

2012

2013

4.2

2011

4.4

2012

3.6

25.7 9.3

32.5

25.1

14.7

3.1

4.9

(7.1)

17.7

2013

1.9

2014

Fiscal Balance (ARS Bils.)

(22.5)

(30.7)

11.1 2.0 2010

322

306

Fiscal Balance Primary Balance

2007

2008

2009

(64.5) 2010

2011

2012

2013

Peso Devaluation; Trade Balance Challenges And Severe Fiscal Deficit SLIDE 15

ARGENTINA AND BRAZIL Real GDP Cumulative % Change Since 2010 50

Industrial Production Cumulative % Change Since 2010

50

40

36

Brazil

30

30

20

30 20 13 10

10 16

10 4

0 2010

2011

5

-10 2010

2013

Argentina Measures of Inflation % Change Over Same Period a Year Ago

35 30 25 20 15 10 5 0 2010

28.9

"Genuine"*

26

0

Argentina

2012

Argentina

40

2011

11.1

10.9

60

52

* Source: J.P. Morgan

40

2013

48

48

30

Official 2011

2012

Argentina International Reserves USD Bils

50 23.4

-1

Brazil

2012

2013

2014

20 2010

30 2011

2012

2013 SLIDE 16

ARGENTINA AND BRAZIL POLICY DYNAMICS Central Bank Policy Interest Rates Interest Rates

% 35 30 Argentina Lending Rate 25 20 15 10 5 Brazil "Selic" Policy Interest Rate 0 2010 2011 2012 2013

BRA/ARS

3.50

25.96

Central Bank Policy Interest Interest Rates Inflation-Adjusted Rates %

10

4.87

Brazil

5

0.82

0 -5

Argentina

10.50 -10

-9.04

-15 2010 2014

Argentina Peso v. Brazil Real Cross Exchange Rate 3.30

2011

2012

2013

2014

Brazil Exports to Argentina BRL Bils, Annual Rate

20

16.7 15

3.00

10.3

10

2.50 5

2.00 2010

7.0

6.3

2.20 2011

2012

2013

2014

0 2010

2011

2012

2013 SLIDE 17

FINANCIAL MARKET RISK PRICING

5-Year CDS Basis Points Feb 17, 2014 Argentina Brazil Mexico

2,294 185 92

Portugal

253

Spain

130

Malaysia

102

Bank Policy InterestBond Rates Yield Brazil Central 10-Year Government %

14 12 10 8 6 4 2 0

13.11

12.89 9.20

2011

2011

2012

2013

2014

Memo: U.S.

27

SLIDE 18

2014 POLICY DYNAMICS U.S. • QE taper and forward guidance adjustments • Financial markets could price in rate increases • Fiscal drag diminished Brazil • Central bank focus on inflation targeting • Fiscal budget management • Competitiveness challenges, i.e. trade policy structure Argentina • Hyper-inflation • Substantial fiscal deficit • Capital control measures and downward pressure on currency • Credit needs in light of low FX reserves SLIDE 19

2014 SUMMARY OUTLOOK • U.S. economy likely to grow in the 2.5 – 3.0% range • Mexico’s growth is likely to trend in the 3.0 – 4.0% range • Argentina in severe recession • Brazil’s outlook is mixed – high interest rates and capital outflows, coupled with structural challenges, will limit growth to 2% range this year

SLIDE 20