Notes to the Financial Statements

NOTE 10. INVENTORIES

All inventories are stated at the lower of cost or market. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out ("LIFO") basis. LIFO was used for approximately 31% and 26% of inventories at December 31, 2010 and 2009, respectively. Cost of other inventories is determined on a first-in, first-out ("FIFO") basis.

Inventories at December 31 were as follows (in millions):

2010 2009 Raw materials, work-in-process and supplies ...... $ 2,812 $ 2,456 Finished products...... 3,970 3,383 Total inventories under FIFO...... 6,782 5,839 Less: LIFO adjustment...... (865) (798) Total inventories...... $ 5,917 $ 5,041

At December 31, 2010 and 2009, LIFO inventory quantities were reduced, resulting in a liquidation of inventory quantities carried at lower costs prevailing in prior years as compared with the cost of purchases, the effect of which decreased Automotive cost of sales by about $4 million and $33 million, respectively.

NOTE 11. EQUITY IN NET ASSETS OF AFFILIATED COMPANIES

We use the equity method of accounting for our investments in entities over which we do not have control or of which we are not the primary beneficiary, but over whose operating and financial policies we are able to exercise significant influence.

Ownership Percentages and Investment Balances

The following table reflects our ownership percentages at December 31, 2010, and balances of equity method investments at December 31, 2010 and 2009 (in millions, except percentages):

Investment Balance Ownership Automotive Sector PerPercentagecentage 2220200010101010 2009 Ford Otomotiv Sanayi Anonim Sirketi ("")...... 41.0% $ 414 $ 395 AutoAlliance International, Inc ("AAI") ...... 50.0 293 229 AutoAlliance () Co., Ltd ("AAT")...... 50.0 338 301 Automobile Corporation, Ltd ...... 35.0 313 247 Corporation, Ltd ...... 30.0 307 238 Getrag Ford Transmissions GmbH ("GFT") ...... 50.0 227 215 S.C. Automobile Craiova SA. ("ACSA") * ...... 100.0 223 289 Capital Trust II ("Trust II") ...... 5.0 157 155 Tenedora Nemak, S.A. de C.V...... 6.8 67 64 Engine Company, Ltd...... 25.0 32 19 DealerDirect LLC ...... 97.7 20 12 OEConnection LLC ...... 33.0 13 10 Vehicles Pty Ltd...... 49.0 9 9 Percepta, LLC...... 45.0 6 6 Blue Diamond Parts, LLC ...... 25.0 6 5 Blue Diamond Truck, S. de R.L. de C.V...... 25.0 6 45 Automotive Fuel Cell Cooperation Corporation ("AFCC")...... 30.0 4 3 Other...... Various 6 4 Total Automotive sector ...... 2,441 2,246 Financial Services Sector Forso Nordic AB...... 50.0 71 67 FFS Finance South Africa (Pty) Limited ...... 50.0 39 32 RouteOne LLC...... 30.0 14 18 Other...... Various 4 4 Total Financial Services sector ...... 128 121 Total Company ...... $ 2,569 $ 2,367 ______* See Note 24 for discussion of this entity.

112 Ford Motor Company | 2010 Annual Report