Ford Motor Company Management Discusses December 2012 U.S. Sales (Transcript)

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Ford Motor Company (NYSE:F)

December 2012 U.S. Sales Conference Call

January 3, 2013 10:00 AM ET

Executives

Erich Merkle – U.S. Sales Analyst

Ken Czubay – VP, U.S. Marketing, Sales and Service

Ellen Hughes-Cromwick – Chief Economist

Analysts

John Murphy – Bank of America Merrill Lynch

Brian Johnson – Barclays

Pat Archambault – Goldman Sachs

Adam Jonas – Morgan Stanley

Karl Henkel – The Detroit News

Alisa Priddle – Detroit Free Press

Mike Ramsey – Wall Street Journal

Jim Henry – Automotive News

Operator

Good day, ladies and gentlemen. Welcome to the Ford Monthly Sales Call. My name is Cheverly and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct the question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Erich Merkle, U.S. Sales Analyst. Please proceed, sir.

Erich Merkle

Thank you, Cheverly. Good morning and Happy New Year everyone. Welcome to Ford’s December 2012 Sales Call. We expect that December SAAR including medium and heavy trucks finish the month in the high 15 million vehicle range. Based on our calculations this would translate into about a 1.4 million to 1.42 million vehicle sales month, this again includes medium and heavy trucks and it provides an approximate 10% to 12% lift in vehicle sales compared to December of last year. Industry retail sales again represented a strong part of the overall mix at about 83% of the industry. We estimate that retail SAAR came in, in the low 13 million vehicle range in December.

For the full year 2012, we estimate a finish of 14.8 million vehicles, in line with our guidance and equating to a 14% increase over 2012 volumes. Retail sales likely finished the year at 11.8 million vehicles, representing a 15% increase over last year. Much of the retail strength came at the back half of the year with July to December retail SAAR of 12.4 million vehicles.

We have a few industry-wide observations on segmentation for the month. We saw small cars pulled back in December to approximately 21% of the overall industry. Even so, this segment continues to operate at elevated levels as they closed out the year, representing approximately 22% of the industry compared to 19% in 2011.

We saw this in Ford’s small car sales as well, which were up 29% last year, almost 10 points more than the industry overall. Full-sized pickups regained their strength in December, as the segment moved past 13% of industry making it the best month for the segment all year. For the year, the segment finished at just under 11.5% of industry, which is relatively consistent with what we saw in 2010 and 2011.

Now here for more insight on what has been happening in Ford dealer showrooms and across the nation is Ken Czubay. Ken?

Ken Czubay

Thank you, Erich, and let me add my Happy New Year to everyone, also.

Sales of the Ford brand totaled 2,168,015 vehicles for the year. For the second year in a row, the Ford brand topped the 2 million vehicle mark. It’s the only brand to do so since 2007. Ford Motor Company sold 2,250,165 vehicles for the year. In December, Ford Motor Company sold 214,222 vehicles, making it our best December sales month since 2006. Retail sales last month totaled 154,256 vehicles, which made it our best December retail month since 2006, also. What a year for Ford passenger car sales.

Ford’s sales of small cars including Focus, Fiesta and C-MAX Hybrids, provided a 29% up-tick for the year, almost 10 percentage points more than the segment that Erich just referenced and giving us our best small car sales year since 2001, over a decade. Focus sales increased 40% last year and contributed to one-third of our U.S. sales growth in 2012, more than any other vehicle.

Focus retail sales were up 83% in California, I referenced this often, because it’s America’s largest small car market. The strength of Focus extended well beyond the U.S. Focus now ranks as the world’s best-selling vehicle nameplate through September of 2012, based on new vehicle registration data provided by R. L. Polk. Not only was Focus the best-selling global vehicle, but Fiesta has been the best-selling global sub-compact car again based on global Polk new vehicle registration data; proved positive that our global One Ford Plan is working.

We are looking forward to continuing our passenger car sales momentum into 2013 with the addition of our all-new C-MAX and Fusion lineups.

On the utility front, Explorer closed the year out with its best sales numbers since 2006, totaling 158,344 vehicles, up 17% compared to last year. This is on top of 124% increase last year over the prior-year.

Escape had its best sales year ever in 2012 with 261,008 vehicles sold, beating 2011’s record by 3%. These two vehicles again helped make Ford America’s number one selling brand at utilities for the second year in a row.

On the pickup truck side, we saw really strong F-Series results as we close the year. December F-Series sales totaled 68,787, making it our best December F-Series sales month since 2006 and our 17th consecutive month over year-over-year sales gains, showing that we are incredibly consistent with our management of F-Series pickup lineups. 2012 provided F-Series with 36 straight years of pickup truck leadership and 31 years as America’s best-selling vehicle.

Commercial trucks in 2012 saw a 7% increase over 2011, which represented our best sales year for commercial trucks since 2008. Ford has been the number one maker of commercial vehicles for the last 28 years in the U.S. with over 45% of the commercial truck market and approximately 36% of total commercial vehicle sales.

Last year, Ford saw its best Transit Connect sales since its introduction in the U.S. in 2009 with 35,216 vehicles sold. You know what? Econoline vans have been the bedrock of the U.S. commercial van industry, now with 52 years in the market and 34 years of sales leadership.

This year will be important for us as we continue to apply our One Ford global plan to our line of commercial vehicles. We will expand our presence in the commercial truck space when we will add an all-new Transit Connect Van and Transit Connect Wagon, along with a replacement for the Econoline, the full-sized global Transit Van.

We expect Transit Van will be the best in fuel – best-in-class fuel economy, powered by a 3.7-liter V6, a 3.5-liter EcoBoost, that’s the one found in the F-150 and a 3.2-liter diesel providing our commercial customers with what we expect will be best-in-class fuel economy and real power of choice.

Lincoln sales were down for the month as dealers sold the remaining 2012 MKZ stock in transition to the all-new model, we’re really excited about that. Lincoln retail sales finished the year unchanged from one year ago. The all-new MKZs are arriving at dealerships now and will be returning to normal stock levels of that vehicle by the end of this quarter. We are building a high level of premium orders with more than 80% ordering Reserve or Preferred trim packages, our two highest level packages in the MKZ lineup.

Our top trim package called Preferred has more orders for the hybrid powertrain than gasoline and the Reserve package is being ordered at almost 50%. This rich mix is even more premium than we initially expected for our newest Lincoln vehicle, a very encouraging response from consumers.

Overall, we are very encouraged by our sales results across our entire lineup of fuel-efficient passenger cars, utilities and trucks. We are looking forward to a great 2013 as we begin this year with a product in capacity in place to expand our share. That’s a look at Ford and Lincoln.

Now, I’d like to turn the call over to Ellen to get an update on the latest economic developments. Ellen?

Ellen Hughes-Cromwick

Thanks a lot, Ken. Well, before we talk about some of the incoming economic indicators for the next few months, let’s take a look at a near-final assessment of 2012 performance for the U.S. economy. The economy grew just over 2% in 2012, that’s including our estimate for fourth-quarter 2012 GDP. That’s just a little bit better than 2011 growth, which came in at 1.8%. Inflation was relatively stable at around 2%. Now, that’s down 1 percentage point from 2011. That’s a very positive outturn for 2012.

Jobs grew about 1.9 million last year. That’s a pace of about 150,000 per month. Interest rates were very low last year, with the 10-year Treasury bond yield finishing the year at 1.76%. That was down just slightly from year-end 2011 of 1.8%.

Now, equity market valuations actually grew double-digit, up 13.4% from December 2011 through December 2012. Monetary policy, highly stimulative last year and likely to continue this year at near-zero policy interest rates and substantial asset purchases by the Federal Reserve.

In 2012, as Erich just mentioned, industry sales improved about 14% to an estimated 14.8 million units. Now, that again includes medium and heavy-duty truck sales. So, since the low point in vehicle sales, which was actually in 2009, sales have rebounded by over 4 million units for a total growth over that three-year period of 40%. Now this represents significant sales growth and is typically not seen when an economy is growing in the 2% range.

Well today, we are providing our 2013 new vehicle sales outlook for the U.S., Europe and for Europe it would include the 19 markets that we track, as well as China, and our global new vehicle sales outlook. These sales figures again include all types of new vehicles, including medium and heavy-duty trucks, both retail and fleet.

Overall, we expect global sales to grow this year supported by an ongoing recovery in the U.S. as well as improving sales in China. Gains in these markets are offset somewhat by the weakness in the European markets. The sales outlook for 2013 is as follows: for the U.S., we expect sales to perform in the 15 million to 16 million unit range; for the Europe 19 markets we track, 13 million to 14 million units; China, we expect to log between 19.5 million and 21.5 million units, the largest market globally; and then for total global new vehicle sales, we expect 2013 to be in the 80 million to 85 million unit range.

Now let’s just quickly turn to some of the details on the U.S. front. Since our last monthly sales call in early December, economic indicators are pointing towards modest growth near-term with signs of a better housing recovery ahead. Housing improving, jobs expected to grow around 1.4%, 1.6%. Wage growth is about 1.7% year-over-year and the unemployment rate is down.

Manufacturing sector is expanding. Capital goods orders are weak. And as you’ve seen recently, consumer confidence has been very volatile and affected by the fiscal policy debate. Overall, we expect the U.S. economy to grow in the 2% to 2.5% range this year.

Now some of those details. Yesterday, we’ve received the December manufacturing Purchasing Managers’ Index, one of the tightest stats that we have, and it showed a reading of 50.7. That indicates that over the next three to six months, we should expect an expanding rate of manufacturing activity.

Also just to kind of come back to the confidence volatility. In December, the University of Michigan consumer sentiment reading was actually down by 10 points to 72.9. So there were concerns cited about jobs but also the taxes, which weighed down consumers’ assessment of their economic and financial conditions. Even so, in that report, nearly a third of all households responded that it was a good time to buy a vehicle, ticking up slightly from the prior month’s reading.

And just to close out on the housing recovery, we received a slate of very positive news with regard to housing. We see house prices up. The very important Case-Shiller Home Price Index was actually up 4.3% over a year ago with the latest reading in October.

New home sales in November were up 15% over the same period a year ago. So that would have been November 2011 to November 2012, and housing stocks are very tight. And finally, home building activity in November was up 20% compared to a year ago, with permits for building rising at an even faster pace.

Well, let me finish up with just a few words about the Congressional tax legislation that was signed into law this morning. Nearly all of the Bush tax cuts are now permanent. For married couples with income above $450,000, as you have seen, their marginal tax rate has increased from 35% to 39.6%.

But there are many provisions in the law that are very significant for the consumer sector. Upper income tax increases, as I noted above, are important, as well as the increase in the dividend and capital gains tax hike for upper income earners.

But in point of fact, only 2% of new vehicle buyers have income in that upper income tax bracket. They do tend to purchase new vehicles even if there is a small change in their after-tax income, so we expect the effect on sales from that tax increase to be relatively small. But, more importantly, the payroll tax increase, which reverts now back to the prior rate of 6.2% represents of two percentage point increase for consumer income.

So that’s about $1,000 on average per household and it’s something that we’re looking at very carefully as it will cramp their spending being somewhat in the months ahead. And then finally let me mention just in general that the tax increase impact really has two channels when it comes to sales. Some consumers will choose to purchase vehicles that have pricing within their budget. So it won’t necessarily defer or cancel their new vehicle purchase. These impacts are incorporated in our sales guidance that I just provided to you.

So, in closing, there are several fiscal matters that remain unresolved and will continue to weigh on consumer and business confidence in the months ahead. But the housing recovery and a little more certainty at least on our tax bill is a favorable development.

Well, with that, let me turn it over to Erich. Erich?

Erich Merkle

Thank you, Ellen. To take care of a few housekeeping items and then we’ll start turning things over for Q&A. If we take a look at the month of December and we look at our total, we’d look at our total fleet as a percentage of our sales – fleet as a percentage of our sales, it was 28%. For the commercial piece, it was 14%. For government, it was 3%, and rental was 11%. This compares to December of last year when fleet was 29% of our total sales, commercial was 19% of our total sales, government was 4%, and rental was 6%.

If we take a look at the entire year for 2012, fleet as a percentage of our total sales was 30%, 14% was for commercial, 5% for government, and 11% for rental. This compares to fleet as a percentage of our total sales in 2011 at 32% for the total, 14% for commercial, 6% for government, and 12% for daily rental. Again, you can see that this is really consistent year-over-year.

When we take a look at our gross stocks, in December of 2012, we had a total of 522,000 vehicles in gross stock. 142,000 of that number was utilities, 221,000 were trucks, and 159,000 were cars. This compares to November when we had a total gross stock of 517,000, of which 139,000 were utilities, 236,000 were trucks, and 142,000 were cars. When we take a look at year ago for December of 2011, we had a total of 469,000 vehicles, of which 125,000 were utilities, 180,000 were trucks, and 164,000 were made up of cars. Our days’ supply in December of 2012 was 61; in November of 2012, it was 73; December 2011 last year was 58 days’ supply.

So that pretty much wraps up the housecleaning items. And with that, Cheverly, we’d like to turn this over to the folks in the analyst community to take our first call.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of John Murphy with Bank of America Merrill Lynch. Please proceed.

John Murphy – Bank of America Merrill Lynch

Good morning, guys and Happy New Year.

Erich Merkle

Thank you, John. Happy New Year.

John Murphy – Bank of America Merrill Lynch

First question, I mean everything seems like it’s pointing in the right direction for you in the industry, but there are two big elephants in the room and they really include the launch of the Escape and Fusion and those are two very important vehicles for you. The launches are obviously a little bit encumbered by some recalls here.

I’m just trying to understand what you guys are doing to really fix this situation and really when we’d expect the launch of these new products to really kick in and be positive to sales because when we look at this month, it looks like you gave up at least 8,000 units due to these recalls or these shortages. And that’s almost – when you look at it, it’s almost one point of market share, so just a return of these vehicles to normal would be very helpful but a benefit from them being new only vehicles would be even more helpful. So just trying to understand what you’re doing and when we’d expect those to turn the corner?

Ken Czubay

Hi, John, this is Ken. In the first half of the month, Fusion sales were adversely affected by the recall. We worked very proactively with our dealers. We provided the fix to the recall, the recalibration as we’ve discussed, and the dealers rapidly got into that toward the – we don’t use 10-day periods anymore, but toward the second 10-day period. The 1.6-liter engines were a significant part of our inventory, so we were working to get those completed as we did that, and we did that prior to Christmas. We saw the sales pace pickup after Christmas. January and February will be very big months for us. The consumers are very enthused about product, dealers are very enthused. We’ve got – we’re getting them ready and we’re going to – we’re back on track in the last post-Christmas period, and then moving into January and February.

John Murphy – Bank of America Merrill Lynch

Okay, and then on the Escape?

Ken Czubay

Same situation.

John Murphy – Bank of America Merrill Lynch

So – okay, so you’re saying at the end of December, you’re hitting on all cylinders there. So January and February, we should be looking at somewhat more normalized inventory sales?

Ken Czubay

Absolutely.

John Murphy – Bank of America Merrill Lynch

Okay.

Erich Merkle

And John, just a couple data points around that, dealer stock in December was about 44% of December of 2011. Okay? However, we currently have approximately 20,000 Fusions and Transits, so they are on their way. So we are expecting to get – bring those stocks up to more normalized level.

John Murphy – Bank of America Merrill Lynch

Okay. And then just a second question on confidence of consumers coming into your showroom, Ellen, you indicated that the intentions to buy were still pretty high. But just curious what you’re hearing from your dealers about the consumers’ confidence in your showrooms. Has it been rocked as much as University of Michigan tells us it has been?

Ken Czubay

John, I talked to a number of dealers between Christmas and New Year’s as you can imagine and the showroom activity was really high. As a matter of fact, I talked to dealers from the Intermountain area to the Southeast area and they said unusually, the weekend before Christmas, they were doing great business. Normally, it will slow down there and then the weekend before New Year’s, it was excellent business. I mean, these are vignettes, but some were saying some of the best weekends they had of the year and even going back a couples years.

So, I think it’s the product offerings that the Ford dealers have coupled with the low interest rates offered by Ford Credit, a great partner of ours, coupled by the replacements that are needed to come back into the marketplace. We had really good showroom traffic in reports from the dealers.

John Murphy – Bank of America Merrill Lynch

Great. That’s very helpful. Thank you very much.

Ken Czubay

Welcome.

Erich Merkle

Thank you, John. Cheverly, can we take our next caller please?

Operator

Sure. The next question comes from the line of Brian Johnson with Barclays. Please proceed.

Brian Johnson – Barclays

Yeah, good morning and Happy New Year. I just want to – I usually ask about pickups, but I’ll ask about small cars now. You noted the small car segment overall lost a little ground in December. We sort of expected that with pickups usually have a good month. But you have particularly strong results in Fiesta and Focus. I guess two questions, one, generally what was driving that? And two, can you give us the year-over-year fleet percentages this year and last year, so we understand to what extent that was or wasn’t a driver?

Ken Czubay

Let me – no that – this is Ken, Brian. First off, you’re absolutely right. We had the best December ever for Fiesta and we had the best December ever for Focus. We’ve talked about on previous calls how we needed to get the right inventory levels on Fiesta in particular and then get the inventory right on Focus, we did that and consumers came in.

And again, the same reason I mentioned to John about the showroom activity, right value proposition, right interest rates. Interest was very high at the retail level. On the breakout between retail, retail was up significantly on both Fiesta and Focus. So it was a solid consumer month. And you’re right, the share gets squeezed out by the annual increase in pickups and the annual increase in the premium and luxury business.

Erich Merkle

And the other thing to point out too, Brian, is when we look at California, for the year California retail sales were up 83%, which is the largest small car market in the country, as Ken pointed out. So California alone can have a tremendous impact on small car sales, and that’s really where we’re resonating so well. We’ve been talking about that on previous calls as well.

Brian Johnson – Barclays

And how about the overlap between Fiesta and Focus? You’ve cited that in prior months for some of the soft Fiesta sales.

Ken Czubay

No, I – it has been. I mean, consumers are coming in and making the choice, frankly, in what we call the super segment with Fiesta, Focus, Fusion, and Escape and they’re looking at – they come in, thinking they’re a buyer in one of the vehicles and then they determine the other fits their monthly budget a little better or they like the styling. So, there is a lot of movement, the – an incredible amount cross-shopping between those four vehicles. And, then you throw in the C-MAX Hybrid which did really well. We’ve got the stock levels right on Fiesta, and you’ll continue to see solid sales with Fiesta and Focus.

Brian Johnson – Barclays

Okay.

Erich Merkle

Yes. And, the other thing when you look at compact cars are about 21% of the industry this year so we think it certainly warrants two models in really what’s arguably the largest segment in the industry. So – okay?

Brian Johnson – Barclays

So, you’re saying really that buyer there – is it the inventory level they want – what electronics options, colors, just the right combination of color, interior and electronics? I mean, usually the Japanese and Koreans run typically very tight inventory levels in small car.

Ken Czubay

We’re going to – we are right on plan on our inventory. And, I mean, what consumers are telling us and consumers who haven’t been in a Ford showroom for a long time are telling us with the styling and the fuel economy and the technology that we’re getting more and more cross-shopping with our competitors and not only that but within the Ford brand. So, we’re pleased with the inventory levels, pleased with the mix right now.

Brian Johnson – Barclays

Thanks.

Erich Merkle

Thank you, Brian. Cheverly, could we take the next caller please?

Operator

Your next question comes from the line of Patrick Archambault with Goldman Sachs. Please proceed.

Pat Archambault – Goldman Sachs

Thank you very much and a happy New Year to you guys as well. Just a couple of quick ones; I mean, sort of another one that stands out in terms of, sort of, a positive for December’s heavy trucks. You had a big increase. I mean, volume-wise compared to the rest, it’s smaller. But, you definitely had an acceleration in December so wondering what the cause was there?

Ken Czubay

Well, let me point out, Patrick, maybe I’ll turn it over to Ellen for some economic background on it. The Ford trucks have been doing really, really well as you noted in October, November, and December. I mean, there were sequential increases every month. We were very pleased with it. We managed the business well. The incentives stayed very steady for us. We’re seeing – we talked about the age of the fleet at over 11 years in the pickup category, so we’re seeing replacement. And, we’re also seeing infrastructure activity supporting the housing and other parts of the business sector. Ellen, did you have anything to add from a economic point of view?

Ellen Hughes-Cromwick

Yes. I just think there are a couple of key factors that are starting to support this segment. We’re hearing out there that truck orders have improved. There could have been a little bit of a Sandy effect here, hard to know exactly. And, then I think the other sectoral uplift, the energy and housing recovery, are supportive.

Ken Czubay

The last item that I mentioned in conjunction with the cars is also the fuel economy story at Ford. I mean, in December which has been consistent throughout the year on the retail side, it – in the mid-40s of the percent of buyers are choosing the EcoBoost engine. They’re seeing not only the significant improvement in fuel economy, but more importantly, they’re seeing performance out of V6 engines that they’ve never seen before. So, the EcoBoost is really a big part of the story where they’re just – you’re getting greatly improved mileage versus the cars – the trucks they had from 11 years ago.

Erich Merkle

Okay. Thank you, Pat.

Pat Archambault – Goldman Sachs

Thank you.

Erich Merkle

Cheverly, next caller please.

Operator

Your next question comes from the line of Adam Jonas with Morgan Stanley. Please proceed.

Adam Jonas – Morgan Stanley

Happy New Year, everybody. A couple of questions on the trucks and the mix of business; can you tell us what the average transaction price was like in pickup trucks? Was there any – in the month of December at least versus November? Was there any marked deterioration from those strong levels in November?

Erich Merkle

Yes. Sorry, Adam, I’m just looking in the data here. But, the average transaction price is really for the pickup truck segment and I want to make sure I have it. They were – for the – when we look at sequentially, for the – now, this is again for the entire pickup truck segment; they were down a little over $100, but compared to last year, they were up about $1,000.

Adam Jonas – Morgan Stanley

Okay. And, when you say for the pickup truck segment, you mean for you?

Erich Merkle

No, I’m talking about the industry pickup truck segment. For us, we were up. We had – we showed an increase and it was in the hundreds of dollars in terms of our average transaction price and compared to last year we were up very significantly, more than the industry.

Adam Jonas – Morgan Stanley

Okay. And, how – thank you. And, how much did – has leasing and subprime financing helping – how much did it help December sales? Can you put the recent pace of penetration of leasing and subprime financing into some historical context for us?

Ken Czubay

I think it’s been very steady. This is Ken. And....

Adam Jonas – Morgan Stanley

Okay.

Ken Czubay

With interest rates, with the APRs, with the payments at historical lows, we’re seeing very steady leasing.

Erich Merkle

Yes. And really, Adam, as a part of our practice, our higher-risk business has been about 5% to 6% and it’s been that – it’s been level now and during the recession and before the recession. So, we’ve maintained a very consistent approach.

Adam Jonas – Morgan Stanley

Great. And, just one follow-up; any impact that you’ve noticed from some competitor actions on discounting their full-size pickup truck in the month of December that you, kind of, witnessed?

Erich Merkle

Well, we can’t – certainly can’t speak to competitors. But, I can tell you that Ford, our full-sized pickup truck incentive spend, it was up about $100 in December compared to November. But that was really less than the industry. Meanwhile, the industry as I mentioned was up about $300. So, we were up about $100, but the industry was up $300.

Adam Jonas – Morgan Stanley

And, this is sequential?

Erich Merkle

Yes, this is sequential.

Adam Jonas – Morgan Stanley

Great.

Ken Czubay

So, what – I’d just add a little color to that. I mean, there was a lot of visibility of some of our competitors and what they did with incentives. We continue to manage our business and it was up slightly. But, I think the important thing to point out about our F-Series business is not only was it the best December for F-Series since 2006, but it was the best month since August of 2007. And, I mean that’s going through truck months and I mean it was really – at 70,000 F-series, it was a excellent month, I mean, going – that goes back over five years. So, it was a excellent F-series month.

Erich Merkle

And, Adam, just one other quick thing; Ford pickup, where our incentives spend year-over-year was down slightly, while the overall industry was up about $100.

Adam Jonas – Morgan Stanley

Great. Thanks a lot, Erich. Thanks, Ken.

Ken Czubay

Okay.

Erich Merkle

Thanks, Adam. Okay, we’re going to take – could we – if we could turn this – the calls over to the media at this point in time, and we’ll take the first call from the folks in the media please.

Operator

Certainly. (Operator Instructions) Your first question comes from the line of Karl Henkel with Detroit News. Please proceed.

Karl Henkel – The Detroit News

Hi. Good morning, guys.

Ken Czubay

Hi, Karl.

Erich Merkle

Hi, Karl.

Karl Henkel – The Detroit News

Hi. I had one quick question on MKZ. Is there any way you can detail, kind of, the dealer penetration of how many dealers actually have these cars and when you, I guess, expect to be at full strength when it comes to dealers having the new MKZ?

Ken Czubay

Sure, Karl. We started shipping the MKZ right around Christmas. And, as you know, it’s built in Mexico so there is a bit of a transit time. We’re starting to get dealers across the country receiving them and we expect to be up to full stocking levels by the end of the quarter. We’re very excited about the product, very well received. So, there’ll be the ramp-up but it’ll be up to full stock by the end of March.

Karl Henkel – The Detroit News

Got you. Thank you.

Erich Merkle

Thank you, Karl. Cheverly, next caller from the media please.

Operator

Your next question comes from the line of Alisa Priddle with Detroit Free Press. Please proceed.

Alisa Priddle – Detroit Free Press

Good morning, gentlemen. Just looking at full year Escape and Edge and the percentage change, Edge did far better than – double the percentage increase. Escape obviously has had all the hype. Edge is, sort of, an older vehicle. So, if you could maybe just talk a little bit about what’s going on there and if some of it was the changeover for new vehicle or...?

Ken Czubay

Well, this is Ken. And, there was a changeover as you know and we also a mentioned the 1.6-liter engine that we had and recalibrating them in the beginning of the month. Edge had a really a good year. It was the best December since 2007 and it was the best – second best December ever for the vehicle. We are very excited about the Escape. It was the record year for Escape and the business kept improving and consumer acceptance kept improving as we went through the year after the new model was introduced. Dealers told us on the showroom floor that consumers were very excited about the vehicle, and our business improved in the second half of the month. So, you can expect solid performance from Escape as we start January and move throughout the first quarter.

Alisa Priddle – Detroit Free Press

So, would recall have pretty much accounted for the whole difference?

Ken Czubay

It is a significant part of it in the first half of the month.

Alisa Priddle – Detroit Free Press

And, were there any incentives or much incentives on Edge?

Ken Czubay

Just normal competitive incentives on Edge.

Alisa Priddle – Detroit Free Press

Okay, thank you.

Erich Merkle

Okay. Thank you, Alisa. Next caller please, Cheverly.

Operator

Your next question comes from the line of Mike Ramsey with Wall Street Journal. Please proceed.

Mike Ramsey – Wall Street Journal

Happy New Year, everybody.

Erich Merkle

Happy New Year.

Ken Czubay

Thanks, Mike.

Mike Ramsey – Wall Street Journal

Just real quick – actually, Ellen, I had two quick questions for you. One, I’m sorry; I missed what you said the forecast for Europe and China was. I was trying to catch up the first part and I missed the second one. Could you help me out there?

Ellen Hughes-Cromwick

For the 19 European markets that we track, we are projecting a range of 13 million to 14 million units of – that’s all new vehicles including medium and heavy-duty trucks. Again, for the U.S., just to be clear, our projection calls for 15 million to 16 million units. China, we are calling 19.5 million to 21.5 million units, the largest market globally. And, then for global new vehicle sales, we are projecting 80 million to 85 million units.

Mike Ramsey – Wall Street Journal

Okay. That’s great. And, I wanted to touch base, just – you touched on the payroll tax, I’ll call it an increase, however you want to call it but the payroll tax increase. Do you feel like that in the talks about the fiscal debate that there was so much talk about the tax increase for the top-level people that really that, kind of, got buried and now that this could actually be the thing that really does stim economic growth a bit more than really raising taxes on the rich?

Ellen Hughes-Cromwick

Well, I think it’s important. It was buried a little bit but also buried was the extension of the unemployment insurance which actually is a very sizeable additional support for those who are still looking for a job. The total payroll tax hike is estimated around $120 billion to $130 billion for the entire fiscal year and as I mentioned that does turn out to be an average of about $1,000 to $1,500. So, I think you’re right to point out it is something that we have to really gauge in terms of how consumers are going to substitute and economize on some other purchases as they look at their first quarter take-home pay.

Mike Ramsey – Wall Street Journal

Okay.

Erich Merkle

Thank you, Mike.

Mike Ramsey – Wall Street Journal

Thanks a lot.

Erich Merkle

Cheverly, we’re going to take one more call from the media, and then we’ll wrap things up.

Operator

Okay. Your next question comes from the line of Jim Henry with Automotive News. Please proceed.

Jim Henry – Automotive News

Hi. I was hoping I can get you talk a bit about consumer credit availability. I mean, is that improvement sort of old news or was it a factor for 2012 versus 2011?

Ellen Hughes-Cromwick

This is Ellen, Jim. I do think it’s a little bit in the rearview mirror at this point. People need an auto loan. In general, they’re able to go out there and buy one. So, I really don’t see automotive credit constraints at this juncture in contrast to maybe what we’re still seeing a little bit of in the housing sector.

Jim Henry – Automotive News

Okay. All right, thank you.

Erich Merkle

Okay. Thank you very much. Well, with that, thank you for joining us today on Ford Sales Call, and we look forward to speaking to everybody again next month for January’s call. Thank you, Cheverly, very much appreciate it.

Operator

You’re welcome. Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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