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Executives

Bill Agney [ph] – Director of IR

Alan Mulally – President and CEO

Lewis Booth – EVP and CFO

Neil Schloss – VP and Treasurer

K.R. Kent – Vice Chairman and CFO of Ford Motor Credit

Analysts

Chris Ceraso – Credit Suisse

Patrick Archambault – Goldman Sachs

Himanshu Patel – JPMorgan

Itay Michaeli – Citigroup

Bryce Hoffman – The Detroit News

Jeff Bennett – Dow Jones Newswires

Tom Kirsher [ph] – Associated Press

Amy Wilson – Automotive News

Robert Schoenberger – Plain Dealer

David Bailey [ph]

David Kiley – BusinessWeek

Joann Muller – Forbes Magazine

Ford Motor Company (F) Q4 2008 Earnings Call Transcript January 29, 2009 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Ford Motor Company fourth quarter earnings conference call. My name is [Katina], and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I will now like to turn the presentation over to your host for today’s call, Mr. Bill Agney [ph], Director of Investor Relations. Please proceed.

Bill Agney

Thank you, Katina, and good morning, ladies and gentlemen. Welcome to all of you who are joining us by phone or webcast. On behalf of the entire Ford management team, I’d like to thank you for spending time with us this morning. With me this morning are Alan Mulally, President and CEO; and, Lewis Booth, Chief Financial Officer. Also in the room are Peter Daniel, Senior Vice President and Controller; Neil Schloss, Vice President and Treasurer; Mark Hoffman, Director of Accounting; and, K.R. Kent, Ford Credit CFO.

Before we begin, I’d like to review a couple of quick items. Copies of this morning’s earnings release and slides that we will be using today has been posted on Ford’s Investor and Media Web sites for your reference. The financial results discussed herein are presented on a preliminary basis. The final data will be included in our 2008 Form 10-K report.

Additionally, the financial results presented here are on a GAAP basis, and in some cases, on a non-GAAP basis. The non-GAAP financial measures discussed in this call are reconciled to their GAAP equivalents as part of the index to the slide deck.

Finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance. Actual results could differ materially from those suggested by our comments here. Additional information about the factors that could affect the future results are summarized at the end of the presentation. These risk factors are also detailed in our SEC filings, including our annual, quarterly, and current reports to the SEC.

With that, I’d like to turn the presentation over to Alan Mulally, Ford’s President and CEO.

Alan Mulally

Thanks, Bill, and good morning, everyone. As you all well know, in the fourth quarter, we faced nearly unprecedented challenges across our global markets. Demand weakened dramatically not only in North America, but also in Europe and Asia. The worldwide economic slowdown driven by tight credit markets and weak consumer confidence has shaken the foundation of even the strongest companies in the automotive sector and other industries. Clearly, at Ford, the severe economic challenges had a significant impact on our fourth quarter results, with in terms of our operating losses and our cash flow.

In response to these challenges, we took decisive actions, and we saw many positive developments that made us confident that we are on the right plan, are taking the right actions to survive this global downturn. And emerge as a lean, globally integrated company poised for long term profitable growth. In these challenging times, we remain completely focused on our four point plan, aggressively restructured the business, accelerate the development of vehicles people want and need, finance our plan and improve our balance sheet, and work together as one team, leveraging our global assets.

Customers are starting to see that Ford is really different not only because we continue to believe we are well positioned to survive this global downturn, but also because of the growing fuel efficiency, quality, safety, and smart technology we are engineering into every new vehicle.

I will start off today by providing you with an overview of last quarter’s results and our recent product and business highlights. Lewis Booth will take us through the details. I will then summarize our plan going forward, including our 2009 outlook. This will include an update of the actions that we are announcing during the third quarter call to reduce our cost structure and improve cash. We are also pursuing additional actions to further restructure our business. And we’ll be providing details of these at a later time.

Before I review last quarter’s results, this morning we announced that we have provided notice to our banks to fully draw the $10.1 billion of available funds under our secured credit lines. We took this action because of our growing concerns about the instability of the capital markets with the uncertain state of the global economy. Lewis will cover this item in more detail during his portion of the call.

Also today, we announced that the United Auto Workers Union has agreed to end the job’s bank at Ford, known as the Job Security Program. The company and the union are presently working out the details of the implementation.

Turning to slide three to review the key financial results of the quarter. As shown at the top of the slide, vehicle wholesales last quarter were over 1.1 million units, down 505,000 from the same period in 2007.

Ford’s first quarter revenue was $29.2 billion, a $16.3 billion decrease from a year ago. The decrease is primarily explained by lower volume, the sale of Jaguar Land Rover, and exchange translation.

Ford’s fourth quarter pre-tax operating loss from continuing operations, excluding special items, is almost $3.7 billion, over a $3 billion decline from a year ago. The decline included about $2.4 billion at automotive and $653 million at financial services.

Our fourth quarter net loss was almost $5.9 billion, including about $1.4 billion of pre-tax special charges. We ended the quarter with $13.4 billion of cash. This was down about $21 billion from year-end 2007 levels, with almost $16 billion of that decline occurring during the first nine months of the year.

Turning to slide four, results of all operations were worse than last year because of the sharpening lower industry volumes and our access to reduced dealer stocks to keep them in line with near term demand and expectations.

Fourth quarter US industry volumes were down 35% from the year ago, and our other major markets were down 12% to 27%. Cost reductions provided a significant offset to these declines. We reduced our automotive costs by over $1.4 billion, compared to 2007, with $1.2 billion of that improvement occurring in North America.

Since 2005, Ford North America has reduced automotive costs by more than $5 billion, exceeding our target. Ford North America incurred an operating loss of $1.9 billion, about $400 million decline from a year ago. The decline was primarily explained by lower industry volume and lower dealer stocks, partially offset by significant cost reductions.

Ford’s South America earned an operating profit of $105 million, $313 million decrease from a year ago. The decrease primarily reflects lower industry volume and higher material costs, partly offset by favorable net pricing.

Ford Europe incurred a $330 million operating loss, a $553 million decline from a year ago. The decline was more than explained by lower industry volume, unfavorable exchange, and lower dealer stocks, partly offset by cost reductions.

Volvo incurred a $736 million operating loss, compared with a breakeven a year ago. This decline primarily reflects lower industry volume, unfavorable net pricing, and unfavorable exchange.

Ford Asia Pacific and Africa incurred an operating loss of $208 million, a $218 million decline from a year ago. The decline primarily reflects lower industry volume again, unfavorable exchange, and adverse product mix.

We are in $79 million from our investment in Mazda. And changes in our financial reporting for Mazda will be discussed on the later slide.

Financial services incurred an operating loss of $384 million, a $653 million decline from a year ago. The decline was primarily explained by higher provision for credit losses, market valuation adjustments to derivatives, and lower volume.

Turning to slide five, we are continuing our rollout of new products our customers want and value. The new 2009 Ford F-150 full sized pick up truck was launched in North America, and already has earned several prestigious awards, including the North American Truck of the Year at the North American International Auto Show, and Motor Trends Truck of the Year. The new F-150 has helped Ford gain net market share in the full sized segment in the fourth quarter. And Ford’s F-Series Pick Up finished 2008 as America’s bestselling truck for 32 straight years. The F-150 also was named top safety pick by the US Insurance Institute for highway safety. And Ford now has the highest number of rating 16 top safety picks in the industry. Ford brand also has more US government five star safety rated vehicles than any other brand.

Production is under way for the 2010 Ford Fusion, Mercury Milan, and the Lincoln MKZ sedans, which go on sale this spring. Both the gasoline powered and hybrid versions of the Fusion and Milan will offer the best in fuel economy when it hit showrooms this spring. The Fusion and Milan hybrids achieve 41 miles per gallon in city driving, making it America’s most fuel efficient mid-sized sedan.

The 2010 Ford Mustang, America’s favorite muscle car debuted with an all new look, and will be in dealerships in a couple of months. We also announced an aggressive new electric vehicle plan that will bring the market new battery electric vehicles, hybrids, and plug-in hybrids during the next four years.

In Europe, Ford reached full production of the new car, and is off to a strong sales start. The new Ford Fiesta named car of the year by What Car magazine, Britain’s leading source of new car advice. Fiesta was the bestselling model in the UK in November and December, and is already the second bestselling Ford model in all of Europe. Ford Galaxy and the Ford S-MAX, both named number one in reliability among multi-activity vehicles, our German Vehicle Testing Agency’s DEKRA. Volvo launched the new XC60 in Europe, and the highly acclaimed crossover will reach US showrooms this spring.

Slide six details some of our key business highlights of the fourth quarter. In November, we began the evaluation of strategic options for Volvo cars, including a possible sale. We expect the review to take some time. And we’ll have additional details to share today. In the meantime, Volvo has continued to implement an aggressive restructuring plan, and substantially implemented its global personnel reduction of around 25% by the end of the quarter.

We sold a portion of our ownership stake in Mazda for around $530 million, while continuing our successful 30-year strategic partnership with Mazda through our ongoing joint ventures as well as sharing our platforms and power trains. Our alliance is one of the most successful in the automobile industry.

We ended the large SUV production at the Michigan truck plant, which will be one of three plants we are retooling to make small fuel efficient cars beginning in 2010 as part of our global product transformation.

In the US, the Ford, Lincoln, and Mercury brands, collectively increased market share all three months in the fourth quarter compared to the prior year. This is the first time we have achieved three consecutive months of US market share gains in 12 years. And based on preliminary sales data, we are poised to make it four months in a row when we report January sales results next Tuesday.

Ford Europe improved its fourth quarter and full year market share in the 19 markets we tracked, and became Europe’s number two overall selling brand. Europe’s performance was boosted by the strong sales start for our new global Fiesta car. We maintained sufficient liquidity and did not need to access government bridge loans.

Ford also defined its plans to the US Department of Energy to invest about $14 billion over seven years to produce advanced fuel efficient vehicles. This could allow Ford to qualify for up to $5 billion of direct loans by 2011. Similar actions are being taken with the European Investment Bank.

Now, I’ll turn over to Lewis to provide more details on our fourth quarter financials. Lewis?

Lewis Booth

Thanks, Alan. Let’s move on to slide eight, which provides more information on our results. Starting on the lower left, our net loss for the fourth quarter was about $5.9 billion. And our net loss included minority interest in affiliates. This net loss also included $874 million of tax expense, more than explained by our reversal of tax benefits recognized early in the year for accounting standards FAS 109 and relates to our deferred tax valuation allowance. This is consistent with the guidance we provided during last quarter’s call.

Adjusting for these items brings a fourth quarter pre-tax loss of over $5 billion. These results include pre-tax charges for special items or about $1.4 billion, which we’ll cover on the next slide. Excluding these special items, we recorded a fourth quarter pre-tax operating loss of almost $3.7 billion. Most of the remaining slides will focus on these pre-tax operating results.

Slide nine covers special items, which were about $1.4 billion in the fourth quarter. In North America, we recorded a charge of $329 million largely related to our personnel reduction programs in the US. International operations incurred $280 million of charges related to personnel reduction programs, primarily related to implementation of Volvo’s and Asia Pacific’s restructuring plans. We recognized a gain of $82 million due to the planned reductions in the number of employees and job security benefits reserve, primarily due to the utilization of these employees at other plant locations.

We recorded a charge of $224 million for accelerated depreciation related to AAI lease buyouts at our area and facility. And we recognized the $201 million loss on the sale of a portion of our investment in Mazda. In addition, we incurred supplier settlement and other costs at $209 million.

Finally, we recorded $356 million of retiree health care charges. We exited the ABIVA agreement with the UAW. Primarily reflecting losses on the asset accounts, these losses will be balanced upon transfer of the TIA to the new independent ABIVA.

Now on to slide ten, which has pre-tax operating results by sector. The fourth quarter pre-tax operation results were a loss of almost $3.7 billion. These results included a loss of about $3.3 billion for the automotive section – sector and a loss of $384 million financial services. The total company full year pre-tax operating results were a loss of $6.7 billion. And these results included losses of $6.2 billion for the automotive sector and $495 million for financial services.

Let’s move on to slide 11, which has pre-tax operation results for each our automotive operating segments and other automotive. We’ll focus here on other automotive and then cover the operations in detail on the next slides. In the fourth quarter, other automotive was a loss of $330 million. This loss was more than explained by net interest expense of $448 million partly offset by favorable fair market value adjustments of $118 million primarily related to the impact of changes in the exchange rates on inter-company loans.

Slide 12 shows a change in fourth quarter results compared with the year ago, a decline of $2.4 billion. A comparison of full year results is shown in the memo. Volume and mix was about $2.8 billion unfavorable primarily due to a decline in industry volumes from the impact of lower dealer stocks across all of the automotive operations, partly offset by market share improvements.

Net pricing was about $200 million unfavorable explained by declines in Volvo and in North America, offset partly by improvements in Europe and South America. Cost changes were over $1.4 billion unfavorable in the fourth quarter and $4.4 billion in the full year. And we’ll cover this in the next slide.

Exchange was about $100 million unfavorable more than explained by unfavorable exchange in Europe and Volvo, partly offset by favorable exchange in North America. Net interest and related fair market value adjustments were $200 million unfavorable primarily due to lower cash balances and lower interest income rates. And the non- recurrence of Jaguar and Land Rover profits in 2007 also adversely affected the year-over-year profit comparison by about $60 million.

Finally, included in the other decline of $400 million are lower subsidiary and parts profits largely related to the decline in volumes.

Now onto slide 13, which explains our cost reduction. Cost reduction is at $4.4 billion compared to a year ago. The fourth quarter cost reductions was at – were over $1.4 billion favorable. Full year and net product cost were over $1.1 billion higher than a year ago. And fourth quarter net product costs were up about $800 million. Both increases were more than explained by higher commodity cost and unfavorable mark-to-market adjustments on commodity hedges.

Warranty expense was over $100 million lower as a result of improved quality. The manufacturing and engineering costs were over $1.5 billion lower, largely reflecting the continued benefit of our restructuring actions in North America. Spending related costs improved by about $1.3 billion, primarily reflecting lower expense related to North America asset impairment at the end of the second quarter with the non-recurrence of accelerated depreciation and amortization for facilities that were recently closed.

Pension and retiree health care expenses were about $1.2 billion lower, primarily reflecting health care efficiencies and the effect of the US hourly retiree health care VEBA agreement. Overhead costs were over $1 billion lower primarily due to our restructuring actions. Advertising and sales promotions were about $400 million than a year ago.

For the next section of slides, we’ll cover each of the automotive operations starting with North America on slide 14. In the fourth quarter wholesales of $484,000 units, down 197,000 units from a year ago, primarily reflecting the 35% decline in the US industry SAAR from 16.3 million units in fourth quarter 2007 to 10.6 million units in the fourth quarter 2008.

During the fourth quarter we also took actions to reduce US dealer stocks by 36,000 units. At year-end, our dealer stocks were reduced by over 90,000 units or 17% from a year ago. As a result of our actions to keep production aligned with sales expectations, Ford was one of the few OEMs to reduce dealer inventory during the fourth quarter. We have amongst the lowest day supply in the industry.

Fourth quarter revenue was $11.3 billion. A $6 billion decrease from a year ago primarily explained by lower volumes and unfavorable model mix. For the fourth quarter, Ford North America reported pre-tax loss of about $1.9 billion. At the end, a $13 million decline from a year ago. And we’ll cover this change on the next slide.

So slide 15 provides an explanation of the change in North American results compared to the year ago. Volume and mix was about $1.6 billion unfavorable primarily reflecting the decline in US industry volumes, lower dealer stocks from unfavorable production mix, partly offset by higher market share. Our production mix was about $300 million worse than our mix of vehicles sold to final customers, future stock reductions on pick up trucks and large SUVs. Directionally, our losses would have been about $600 million lower if our production had been equal to our retail sales.

Net pricing was about $200 million unfavorable more than explained by higher retail incentives. And costs decreased by $1.2 billion more than explained by lower structural costs including lower manufacturing and engineering, pensions and OPEB, spending related costs and overhead. And the structural cost reductions were partly offset by higher commodity cost and product content. Exchange was $300 million favorable consistent with the strengthening of the US dollar relative to the Canadian dollar and the Mexican peso.

Slide 16 provides an explanation of the improvement in North America’s fourth quarter results compared with the third quarter. Volume and mix was $500 million favorable primarily reflecting improvement in our US market share from 12.4% to 15%, dealer stock reductions that were lower in the third quarter – than third quarter reductions. Unfavorable mix partly offset by decline in the US industry SAAR from 13.1 million units to 10.6 million units.

Net pricing was $200 million favorable consistent with higher net pricing on 2009 models. And costs increased by $100 million more than explained by increased recognition of manufacturing costs as inventories are reduced and by higher advertising costs. Exchange was $200 million favorable consistent with the strengthening of the US dollar relative to the Canadian dollar and the Mexican peso.

The slide 17 shows US market share for Ford and Lincoln Mercury. In the fourth quarter our market share was 15%, including 10% – sorry, including 10.7% for retail and 4.3% for fleet. This was the first time in 12 years that we improved our overall and retail market share in three consecutive months. Retail market share improved by 0.09% compared to over the last year. And this increase is more than explained by higher X-Series and Fusion shares from the introduction of the all new Lincoln MKS and the Ford Flex. Fleet share remained flat at 4.3% compared with last year.

Slide 18 provides a summary of cost reductions in North America. In the fourth quarter operating related cost reductions totaled $1.2 billion compared with the year ago. Net product costs were about $500 million unfavorable more than explained by higher commodity cost and product content, partly offset by material cost reductions.

Structural and other cost reductions totaled $1.7 billion in the fourth quarter compared with the year ago. This reduction includes about $250 million of reduced depreciation from the fixed asset impairment in the second quarter. We exceeded our $5 billion cost reduction target compared to 2005 by about $100 million, excluding the favorable impact of lower depreciation related to impairment.

Our salary trust loan in North America totaled 75,000 people at the end of the fourth quarter. Down 5,000 personnel from the end of the third quarter. In addition, during January we further reduced our salaried and employment levels by another 1,300 people.

Now onto South America on slide 19. In the fourth quarter wholesales were 97,000 units down 29,000 units from a year ago primarily reflecting the 27% decline in industry SAAR from 4.5 million units in the fourth quarter of 2007 to 3.3 million units in the fourth quarter of 2008. This decline is largely related to the global financial crisis that began to impact South America during the fourth quarter. Fourth quarter revenue was $1.7 billion. A $700 million decrease from a year ago primarily reflecting lower volumes and weakened Brazilian currency, partly offset by favorable net pricing. And for the fourth quarter Ford South America earned a pre-tax profit of $105 million. A $313 million decrease from a year ago. This decrease primarily reflects lower industry volume and higher net product cost; partly offset by favorable net marketing. Sorry, favorable net pricing.

Slide 20 covers Ford Europe. In the fourth quarter wholesales were 378,000 units. Down 109,000 units from a year ago. Fourth quarter industry SAAR for the 19 markets that we tracked was 14.8 million units. Down 2.5 million units or 19% from a year ago.

In addition, the Russian industry SAAR was 2.7 million units. Down 300,000 units or 10% from a year ago. The fourth quarter market share was 8.5%. Up 0.03 of a point from last year. For the full year, market share was up in most of the major markets that we tracked. But adverse country mix limited the full year improvement to 0.01%. In the fourth quarter, revenue was $7.6 billion. A $2.8 billion decrease from a year ago, primarily due to lower volume and unfavorable currency translation partly offset by favorable mix. For the fourth quarter Ford of Europe reports a pre-tax loss of $330 million. A $553 million decline from a year ago. We’ll cover this change on the next slide.

Slide 21 provides an explanation of the change in Ford Europe results compared to a year ago. Volume and mix was $500 million unfavorable more than explained by the decline in industry volume and lower dealer stocks partially offset by improved market share. Industry volume decline reflects a significant economic weakening in almost all European markets.

Net pricing was $100 million favorable compared to a year ago. This reflects favorable vehicle pricing, primarily in Britain and Germany, in part to offset unfavorable currency exchange effects. Cost decreased by $200 million, reflecting lower warranty costs driven by continued progress in quality, lower manufacturing and engineering costs to allow capacity and demand, and reduction in pension costs, partly offset by higher commodity costs.

Exchange is about $200 million unfavorable mainly due to the weakening of the British pound and the Russian ruble compared to the Euro. Other was $100 million unfavorable, primarily explained by lower earnings on joint ventures’ future lower industry volumes.

Slide 22 covers Volvo. In the fourth quarter wholesales were 80,000 units. Down 47,000 units from a year ago. This reduction is explained by the sharply lower industry volumes primarily in the UK and Europe, as described earlier, and reduction in market share.

Fourth quarter revenue was $3.3 billion. A $1.8 billion decrease from a year ago primarily explained by lower volume and favorable net pricing and unfavorable currency translation. For the fourth quarter Volvo reported a pre-tax loss of $736 million compared with break even a year ago. And we’ll cover this decline on the next slide.

Slide 23 provides an explanation of the change in Volvo’s results compared to a year ago. Volume and mix was $500 million unfavorable, primarily reflecting lower industry volume and market share. Net pricing was $200 million unfavorable compared to a year ago, primarily reflecting an increase in (inaudible) spending in Europe and Russia, but lower residual values in the US.

Cost decreased by over $100 million largely explained by actions taken to reduce structural costs. Exchange is about $100 million unfavorable. During 2008 the Volvo initiated restructuring actions reduced total personnel levels by 6,000 people or around 25%. These actions were largely implemented by the end of the fourth quarter.

But now, on to slide 24 which covers Asia Pacific, Africa and Mazda. Overall fourth quarter losses were $129 million and full year profits were $77 million. For the fourth quarter we earned $79 million from our investment in Mazda. A $4 million increase from a year ago. And this is the last quarter we will be reporting our share of Mazda profits. As a result of reducing our ownership interest in Mazda from over 33% to about 14% our remaining investment will be treated as a marketable security in our investment portfolio. This investment will be revalued quarterly to reflect share price changes in US dollars.

So slide 25 covers Asia Pacific and Africa. In the fourth quarter wholesales were 99,000 units. A decrease of 46,000 units compared with 2007, primarily reflecting industry weakness in both markets and lower dealer stocks. The fourth quarter industry SAAR was 17.9 million units. Down 2.4 million units or 12% from a year ago. And the fourth quarter revenue, which excludes sales of our joint venture in China, was $1.4 billion, a $300 million decrease from a year ago more than explained by lower volume and unfavorable currency translation.

For the fourth quarter, Asia Pacific and Africa reports a pre-tax loss of $208 million; a $218 million decline from a year ago. This decline primarily reflects low industry volumes, unfavorable exchange, adverse product mix and higher incentives partly offset by cost reductions.

Slide 26 shows automotive cash and cash flow. We ended the fourth quarter with $13.4 billion in gross cash. Down $5.5 billion from the third quarter. Our operating related cash flow was $7.2 billion negative in the fourth quarter, reflecting an automotive pre-tax loss of about $3.3 billion.

Capital spending during the quarter about $600 million higher than depreciation and amortization primarily because of spending associated with the launch of the all new F-150 and the impact of the second quarter asset impairment on depreciation and amortization. This also reflects the change in working capital and other timing differences that were $2.7 billion negative. This is primarily explained by a reduction in trade payables of about $4 billion and other timing differences as a result of lower production at the end of the quarter.

Significant reductions in inventory and receivables were offset to the lower payables. And payments of $600 million to Ford Credit, reflecting our change to upfront payment cost of pension. This outflow continues to be significantly impacted by declining global demand. And actions we’ve taken to reduce dealer stocks by over 50,000 units compared with the third quarter to better align with future expectations. Once volumes stabilize payables will stop declining and generally will grow as volumes recover.

In addition, in part because of the major F-150 launch – in part because the major F-150 launch will be behind us, we expect spending to decline in 2009. Separation programs resulted in an outflow of $200 million for the quarter. And we contributed $100 million to our non-US pension plans. We received a $1.3 billion tax related payment from Ford Credit. We also received about $500 million from divestitures, primarily the sale of our Mazda securities. Including all of these impacts, the total decline in gross cash during the fourth quarter was $5.5 billion.

Slide 27 summarizes our automotive sector’s net liquidity at December 31st, 2008. Total liquidity, including available credit lines, was $24 billion. This liquidity includes $10.1 billion available under our secured credit lines and $500 million of other automotive credit lines.

As Alan mentioned earlier, we provided a notice today to our banks to fully draw our second – our secured credit lines. We took this action because of our growing concerns about the instability of the capital markets given the uncertain state of the global economy. We believe that it is prudent to draw the secured credit lines in this environment. The $10.1 billion will be added to our cash and included in our first quarter balance sheet.

Under the terms of our credit agreements, we expect to receive funds from this borrowing next Tuesday, February the 3rd. At year-end, automotive debt was $25.8 billion, and was the less than $3 billion of the external debt matures in the next three years.

The automotive debt excludes the impact of the secured credit line draw. Also this month, as permitted by the underlying agreement, Ford converted a temporary asset account funds into a new Ford note payable at the end of this year. This will provide the flexibility to utilize over $2 billion of funds to support operations if needed within the year. As a result this amount will improve liquidity and be included in gross cash at the start of this quarter.

Now let’s turn to slide 28 in financial services. For the fourth quarter financial services sector reported a pre-tax loss of $384 million. A $653 million decline from a year ago. For the full year the pre-tax loss was $495 million. A $1.7 billion decline from a year ago.

Other financial services reports a loss of $12 billion in the fourth quarter, an $18 million decline from a year ago. For the full year, pre-tax loss was $22 million, a $31 million decline from a year ago. These declines primarily reflect non-returns of active sale. Ford credits and more details on the next slide.

Slide 29 explains the change in Ford credits pre-tax results from the fourth quarter compared to the year ago. For the fourth quarter, the pre-tax loss was $372 million or $635 million decline from a year ago. The decrease in earnings primarily reflected a high provision for credit losses. High net losses relate to the market valuation adjustment derivatives, lower volume, and lower financing margin. Also, low operating costs were largely offset by other expenses. The volume in financing margin were lower, primarily reflecting declining asset levels for the fourth quarter of 2008.

Increase in the provisions for credit losses primarily reflects high severities, higher repossessions, higher dealer rate – and a higher dealer related losses in the US, and higher losses in Europe. Residual losses were about the same in the fourth quarter of 2008, compared with last year. Also, volumes have declined significantly from last year.

The fourth quarter profit implications decline where mix (inaudible) second quarter $2.1 billion on a lease impairment charge. And we expect also values to continue to be volatile. As seen on the memo on the lower left of the slide, Ford credits December 31, 2008 managed assets were $118 billion, about $29 billion lower than a year ago. This decline primarily reflects North American receivables, change in the currency exchange rates, impacts of divestitures and all terms of business arrangements, and the second quarter 2008 impairment charge for North American operating leases.

In addition, Ford creditors restructured its US operations to meet these changing business conditions including low automotive sales and the planned reduction in the Jaguar Land Rover and Mazda receivables, and to maintain the competitive cost structure. The restructuring will affect servicing, sales, and central operations, eliminates about 1,200 jobs, and ASSI positions or about 20% the reduction for the current 2009 through attrition, retirements, and involuntary separations.

Slide 30 covers liquidity and funding outlook. The left part shows Ford Credit committed liquidity programs in cash and the utilization of liquidity sources end of the fourth quarter. Ford Credit’s liquidity exceeded utilization by about $21 billion. Ford Credit’s funding structure remains centered on maintaining liquidity doing short term funding obligations, including holding a substantial cash balance. We are maintaining our funding programs and secure transaction structures so that we’re ready to access public markets when we return. We are planning to renew our committed capacity throughout this year and we’ll utilize appropriate government sponsored programs.

Until market access returns, utilization of government sponsored programs in the US and around the world will be an important component for Ford Credit short term funding plans because utilized US commercial paper funding facility, and the European Central Banks liquidity facility, and finally to use the US asset backed securities loan facility when launched later this quarter. Any approval of our application for industrial corporation is a compounded Ford Credit’s funding plan because it will provide access to low cost diversified funding from certificates of deposits. Ford Credit will continue to explore and execute alternative business and funding arrangements in those locations where it lacks diverse funding capability.

At the end of the fourth quarter, Ford Credit’s managed leverage was 9.1% [ph] and Ford Credit’s equity was $10.6 billion. Finally, we will continue to reduce the size of our balance sheet in 2009, reflecting our strategy to focus on Ford brands with implemental alternative business arrangements as well as lower overall automotive sales. By the end of 2009, Ford Credit’s managed receivables will be in the range of $90 to $100 billion.

Slide 31 provides an update from our pension plans. Worldwide 2008 pension expense, excluding special items of $500 million was down $300 million from 2007, primarily reflecting the ongoing impact of separations and higher discount rates in 2008. At year-end 2008, our US funded funds are under funded by $4.1 billion, and worldwide, our pension plans were under funded by $11.9 billion, primarily reflecting impacts of lower asset returns in 2008. We do not have a requirement to fund our major US pension plans in 2009.

Slide 32 provides us an update on OPEB. Worldwide OPEB expense, excluding special items, was $800 million down $900 million from 2007, primarily reflecting health care efficiencies and the effect of the new UAW ABIVA agreement. Retiree benefit payments were $1.5 million in 2008.

At year-end 2008, our OPEB plans had a funding shortfall of $15.3 billion, a $7.9 billion improvement from 2007. Change in funding status primarily reflects the lower obligation from the new UAW ABIVA agreement. We have not shown cost trends this year as we capped our obligation for hourly costs as a result of UAW ABIVA agreement. And previously, we have established the company contribution limit set at 2006 levels and the US salary retiree health care benefits.

Now on to slide 33, this shows the results of our 2008 full year planning assumptions and operational metrics. Total industry volume for 2008 was $13.5 million units in the US and $16.6 million units in Europe, both down substantially from our planning assumptions. On the operational metrics, the quality of our vehicles has risen consistently for four straight years, and our vehicle satisfaction has reached an all time high.

Ford, Lincoln, and Mercury vehicles collectively reduced (inaudible) TDWs [ph] by 7.7% compared to last year. The TDW level is now at the lowest levels ever and statistically tied with the best Japanese brands. Automotive costs were reduced by $4.4 billion, significantly better than planned. And the US market cost, which were 14.2% consistent with our plans of better than our recent expectations. Actual operating cash was $19.5 billion, and this was higher than our plan. Capital expenditure was $6.5 billion.

For slide 34 covers our 2009 first quarter production plan. In North America, first quarter production schedule is 400,000 units, down 200,000 units from 2008, and 30,000 units lower than our prior guidance. Most of the decline from last year is in trucks and SUVs. For Ford Europe, we expect first quarter production 325,000 units, down 214,000 units from a year ago, in part to further reduce dealer inventories. For the Volvo, we expect first quarter production of 67,000 units, down 45,000 units from a year ago. Overall, production had knocked down greatly compared to the fourth quarter because we’ve already taken decisive actions to implement significant stock reductions for the last half of 2008 bringing our US base supply down to a level 8% below average industry.

Importantly, we’re planning much lower downtime early in the first quarter to continue to rebound dealer stocks. In comparison, much of the fourth quarter downtime, occurred late in the quarter, and this should result in our payables at the end of the first quarter being greater at the year-end levels, reducing cash – reducing cash bonds during the quarter.

And now, I would like to turn this over to Alan, to summarize our plans going forward, including our 2009 outlook.

Alan Mulally

Thank you, Lewis. On slide 36, we provide an overview of the business environment. We expect weak volumes this year across all markets with worldwide sales down over 10%, a record decline according to our data. Most of the 2008 weakness outside of the US occurred late in the year. Significant government policy stimulus has been implemented in most markets. This is expected to improve the environment for sales later this year. Financial markets remain under significant stress and further government and Central Bank actions to provide liquidity and stabilize banks are needed.

Our suppliers and dealers also had been weakened by the global economic downturn and financial crisis. The decline in oil, fuel, and other raw materials, prices will provide a partial offset to the weak demand conditions. Currencies are very volatile, which poses some risks. Of note is a substantial weakness in the British pound, Russian rubble devaluation, and some Asian currency weaknesses.

Slide 37 summarizes the key aspects of our plan. These have not changed. We are more focused than ever on informing our transformation plan to respond to the significant challenges presented by the continuing global economic downturn and deliver long return profitable growth. We are glad that we went to the capital markets at the right time to obtain liquidity to finance our plan, and that we sold nine core brands to raise credit capital, allow further focus of our resources on Ford.

I’m especially please with how the team is working together to create one Ford in leveraging our global resources. Despite the present turbulence in the worldwide economies, I continue to believe that Ford is well positioned to take advantage of our scale and global product strengths.

With a balanced portfolio of highly acclaimed and best in class vehicles and a sharp focus on the Ford global brand across the globe, we can effectively operate through the current downturn. Going forward, this balanced portfolio will allow a flexibility to adapt more easily to changes in our environment and begin to grow profitably as the global economy rebounds.

On slide 38, as we have discussed on numerous occasions, despite the financial crisis, our plan is to invest in new smaller fuel efficient vehicles and achieve a more balanced global product portfolio, remains intact. Our pipeline is full. In combination with the business improvements we achieved, we expect our One Ford corporate vision and process to deliver a broad range of highly acclaimed global vehicles or what we call the global segments B, C, CD, and commercial vans beginning this year.

As indicated before, by 2010, about 40% of our increase in North America in these segments will be shared with the Ford of Europe platform and puppets. We have complete alignment of the line-up of this segment share with Ford of Europe year by 2013. This compares with almost nothing in common today. And every new product, as evidenced by the fusion, will be the best, or among the best in the segment for fuel economy as well as quality, safety, and value.

Our new products will be assembled in plants featuring lean manufacturing techniques in the nearly all facilities flexible value shops and we’ll make them competitive with the best in the business. Importantly, longer term, we expect to have our vehicle assembly capacity to maximum demand. As we make these changes, we will also continue to fix the fundamentals of the business as evidenced by our plan to reduce automotive structural cost by another $4 billion this year.

Moving to slide 39, based on our current plan assumptions, Ford has sufficient liquidity to make it through this global downturn and to maintain our product plans without the need for government bridge loans. We would, however, require government bridge loan if there is a significantly deeper economic downturn or significant industry event, such as the bankruptcy of a major competitor because of the disruptions in the company supply base, dealers, or creditors.

We are on our way to delivering the $14 billion to $17 billion of automotive cash and prudent actions we defined in November. These actions include reducing spending inventories and achieving other working capital improvements, further reducing salary personnel related cost and achieving additional efficiencies in engineering, manufacturing, advertising, and information technology. Releasing capital consistent report create smaller balance sheet and focus on Ford brands with often incremental sources of funding, including sale of other non-core assets.

In addition, we are pursuing other restructure opportunities in conjunction with our various stakeholders, and we will have more on this as they develop. These restructuring opportunities are being pursued on a global basis. With this business units throughout the Ford world focus on restructuring its operations. Ford remains on track for both its overall and its North American automotive pre-tax results to be breakeven or profitable in 2011, excluding special items.

Slide 40 summarizes our 2009 outlook including our key automotive plan assumptions and operating metrics. We are expecting total industry sales to be in the range of 11.5 to 12.5 million units for the US, and in a range of 12.5 to 13.5 million units for Europe. These estimates include both light and heavy vehicles.

On operational metrics, we will continue to improve our quality. As mentioned previously, we will continue to reduce our automotive structural cost by about another $4 billion during 2009. We have focused this metric on the structural cost as these are the – as these are the costs largely within our control. While we continue to pursue our material cost reduction initiatives, we recognize that commodity cost and related hedging gains and losses will continue to be very volatile.

On market share, we expect that both our total US share and our share of the US retail market was stabilized, and improvements are possible with our new product lineup. We have included the second share performance measurement, the US share of retail market, as this is the most important, and traditionally, the most profitable market segment in which we participate.

In this context, we are defining the US retail market as excluding all fleet sales, including those to daily rental and governments. For 2008, we estimate that we had about a 12.1% share of the US retail market.

We anticipate total Europe share to be about equal or improved as compared to 2008. We continue to expect operating cash outflows in 2009, but these will be significantly less than those incurred in 2008. This is based on industry volumes stabilizing early in the year, and beginning to recover later in the year. This should result in improvements in both payables and a number of other factors.

In addition, the outflows related to the acceleration of (inaudible) payments to Ford Credit will decrease in 2009, and we will be realizing benefits from the actions initiated under our $14 billion to $17 billion cash improvement plan. Further, we expect to receive funding from the Department of Energy, the European Investment Bank, and other sources in support of our investments to improve fuel efficiency and reduce CO2 emissions.

Finally, as I indicated in November, capital spending will be in the range of $5 billion to $5.5 billion, down from $6.5 billion in 2008 as we complete our spending on our new F-150, and realize even greater efficiencies from our One Ford global product development initiative. Given the volatile nature of today’s market, at this time, we do not believe it will be prudent to provide any other further guidance on profitability for 2009.

Now, on to slide 41. Business conditions have deteriorated rapidly on a global scale. In fact, our One Ford plan is more right than ever. We are focused on swift and decisive actions to stay on course with the four elements of our plan. We are working on longer term restructuring actions on a global basis, and managing all elements that we control to decisively respond to the changing conditions.

And next year, our product offensive continues with the new Ford Mustang, the new Lincoln MKZ; resume gas and new hybrid versions of both the Fusion and Mercury Milan; the new Ford Tourist [ph], (inaudible), Lincoln MKS, and Ford Flex, both with equal boost engines; and an entirely new type of small commercial van market called the Traffic Connect; and, the all new Lincoln MKT trail road premium crossover. In addition, Volvo is launching its XC60 crossover in Europe now and in the US market this spring. A fresher S80 comes later this year. These vehicles are built upon innovative new products that we introduced late last year, such as the Ford F-150, the Ford Fiesta, Cougar, and the car.

In summary, these continue to be challenging days for the auto industry. Yet I remain convinced that Ford is implementing the right plan. I can continue to believe that Ford is well positioned to take advantage of our scale and our product strengths worldwide.

Now, we would like to take your questions.

Bill Agney

Thank you, Alan. Ladies and gentlemen, we’re going to start the Q&A section now. We have about 35 minutes for the Q&A. We’ll begin with questions from the investment community, and then take questions from the media who are also on the call. So we could allow as many questions as possible within our timeframe, I ask that you keep your questions brief so that we don’t have to move colors along after a couple of minutes.

So with that, Katina, can we please have the first call – question?

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Your first question comes from the line of John Murphy representing Merrill Lynch. Please proceed.

John Murphy – Merrill Lynch

Good morning, guys.

Alan Mulally

Hi, John.

John Murphy – Merrill Lynch

I just wanted to ask a question about dealing with your constituents here. I mean you have two weaker competitors. Your competitors are not as well positioned. They’re having very significant negotiations with labor at the UAW and with creditors. And thinking as they might achieve something at some point in the future through various means, I mean is this something that you’re pursuing right now? I mean particularly on the debt side. You’re burning the balance sheet quite a bit here drawing down this revolver. So I’m just wondering if there might be an opportunity to do a more equity for debt swaps or debt for debt swaps. And on the UAW, would you be able to get a similar, maybe downsized contract that GM and Chrysler might be able to achieve? And are those negotiations ongoing?

Alan Mulally

You bet. I understand that completely, John. And the way I’d characterize it is that this clearly is a restructuring of the automobile industry. And even though we’re in a different place, and as you point out, much further along, we thought it was so important that we support the industry for the good of the industry and the US economy, and our suppliers and our dealers, which is why we went with our colleagues in Washington DC to help.

Now having said that, clearly, the response we got was that this is an industry restructuring. The government wants to see a very viable automobile industry in the United States. And so, as we go forward, we – our plan is to continue to work all elements of competitiveness, including the ones that you delineated. And I really believe from the ongoing conversations that we’re having with all the stakeholders and the US government that as we go through this, we continue to take the actions that we need to take. And we will not be disadvantaged.

John Murphy – Merrill Lynch

Okay. So I mean, is there an intention or something – or negotiations that are going over? Are there talks going on right now with creditors specifically or is more on the operating side right now?

Alan Mulally

I think I’d like to pass on that, and just leave it at we’re talking to all the stakeholders, clearly, just like we have been over the years. And clearly, the elements of competitiveness, we all know very well. But I’m very – I’m very pleased with the response of all the stakeholders to this bigger restructuring.

John Murphy – Merrill Lynch

Okay. And if I could speak one other one, Chrysler is cutting labor costs at dealerships or at labor reimbursement for warranty work, and are doing some other things at their pre-owners for their dealers. Do you look at the dealership network as an opportunity to cut costs? Or do you look at them as they’re an opportunity as other dealerships are coming under pressure as a real strategic advantage here. I’m just wondering how you’re dealing with the dealership base right now.

Alan Mulally

You bet. I absolutely think of it in the latter. The Ford distribution network is a tremendous asset, as you know. The clarity of focus on the Ford, Lincoln, Mercury brand is phenomenal. The fact that we have been consolidating those – over the last few years to improve the dealers’ throughput and their profitability, we’re tremendously strong in every small and medium sized community across the United States. And the only issue that we have been working with the dealers on has been the over capacity in the large material areas. And clearly, the dealers want to work that. And this is the time to do it because they are business people, they’re entrepreneurs. And they absolutely know that we need to straighten this out in the big metropolitan areas. And that’s where we’ve been focusing. I know you know the numbers of the consolidations that we have accomplished.

And so, we’re going to continue to work with them. This is clearly led by them. There’s lots of working together we can do to help make it go easily. But I am very pleased with the progress we’re making on our distribution channel. One reason I think it makes it much easier, so to speak, is the fact that we have such a laser focus on the Ford brand.

John Murphy – Merrill Lynch

Great. Thank you very much.

Alan Mulally

You bet, John.

Operator

The next question comes from the line of Rod Lache, representing Deutsche Bank. Please proceed.

Rod Lache – Deutsche Bank

Good morning, everyone. Can you hear me?

Alan Mulally

Yes, Rod. How are you?

Rod Lache – Deutsche Bank

Okay. Thanks. Can you talk a bit about what the capital going forward, I think, Lewis, you mentioned the cadence of production could help you a bit in Q1 versus Q4, but there’s also a lot of talk about supplier distress and the potential for fast pay programs that help suppliers. So elaborate a little bit on what your expectations are? And how would you be able to increase payables from here just given the state of the union amongst suppliers?

Lewis Booth

Sure. In the fourth quarter, all our production cuts were basically towards the end of the quarter. And that means our payables run off significantly. As we look at the first quarter, our production cuts are basically as we came out of Christmas, so the beginning of the quarter. And we’d expect our payables to come back up to a more normal level in the first quarter. And as we go through the year, whatever happens that would project in the second half will have a high level of productions. And therefore, high level of payables.

Our suppliers are into some distress, and it varies by individual suppliers. It’s not a Ford problem. It’s an industry problem. And we’ll continue to work with them to solve individual problems. But we believe the payables will come back.

Rod Lache – Deutsche Bank

Is it your view that this still represents a systemic risk just given the magnitude in the cuts and the distress. There’s been a lot of talk, especially in the past week or two, that suppliers may need some federal assistance here.

Lewis Booth

Yes. I think the whole industry is concerned about the low level of production, which affects all the suppliers and (inaudible) inter-dependents. And it’s not just the domestic brand that’s – the transfer brands as well are all dependent on a very similar supply base. And we’re all very carefully watching the situation.

Rod Lache – Deutsche Bank

Okay. Can you also elaborate on the $4 billion cost reduction objective. How does that break down, North America, Europe, Volvo? And just also clarify if that’s still a net cost reduction objective?

Lewis Booth

We won’t give you the detail by business unit, Rod. But it is a net cost reduction on structural cost. It does not include material cost changes.

Rod Lache – Deutsche Bank

Okay. What’s your preliminary view on material cost? Is it a plus or minus looking into ’09?

Lewis Booth

We expect to see our material cost relate to the commodity cost increases we saw last year continue through the first half as we see some of our contracts rolling through, and the second half to come back down a little bit as the provider of commodities in past levels start feeding through into our supply contracts.

Rod Lache – Deutsche Bank

Okay. Just lastly, when do you expect to hear back on this IOC application? Is there any guidance that you’ve been given on what the status of that application would be?

Lewis Booth

No.

Alan Mulally

No. Active negotiations.

Lewis Booth

Active negotiations.

Alan Mulally

Rod, I might also add on the – on your supplier comments. I think it’s really important. We’ll continue to see – I think we’ll continue to see more consolidations as they take out the over capacity and they focus on the three big companies.

Rod Lache – Deutsche Bank

Okay. Thank you.

Alan Mulally

Thank you, Rod.

Operator

The next question will come from the line of Chris Ceraso, representing Credit Suisse. Please proceed.

Chris Ceraso – Credit Suisse

Thanks, good morning.

Alan Mulally

Good morning.

Lewis Booth

Good morning.

Chris Ceraso – Credit Suisse

One thing maybe you can help to clarify, when you talk about these structural cost savings, for example the $5 billion, over the past few years. You say it’s on a constant volume basis. Does that mean that it was actually greater than that but because volume was lower, you’ve adjusted it? Or I’m wondering if you shouldn’t have saved a lot more considering the big drop in volume and the cost that would go away naturally because of the drop in volume.

Lewis Booth

Yes. The volume adjustments many work are variable. And when we do the analysis, we take out the volume adjustments first, and then we do the cost structures at constant volume. Otherwise, it changes whether the volumes are going up or going down. So that’s why we do it. We think that’s a much more representative way of explaining material cost changes. The large part of the cost savings were not variable at all. They were true fixed costs. So any area that may get into that is a bit of exchange rate movement.

Chris Ceraso – Credit Suisse

Okay. You outlined the change in pension funded status year-end ’08 versus ’07, but you didn’t give us your expectation for pension expense in ’09. Can you share that?

Lewis Booth

For the US, we don’t expect earning expense this year. We’re still – sorry, I’m using the wrong terms that Alan pointed out, contributions. For the US affiliates, we’re still updating that, and we’ll have that in the 10-K.

Chris Ceraso – Credit Suisse

But on a P&L basis, not a cash basis?

Lewis Booth

Yes. We’ll tell you in the 10-K.

Chris Ceraso – Credit Suisse

Okay. The Volvo, what’s – do you think you’re going to have to fix this? I mean how do you expect to sell it when you’re generating these kinds of losses. Do you think maybe you have to pull back and fix it before you can get interested buyers?

Lewis Booth

What we have said is we are exploring our strategic alternatives. Our management team at Volvo is completely consumed with fixing the business and continue to get large amounts of support from the rest of the Ford team. So whatever the results of our deliberations, the local team and the encouragement they get from Dearborn is to fix the business, that needs to be done whatever happens.

Chris Ceraso – Credit Suisse

Okay. Thanks for your help.

Alan Mulally

You bet.

Operator

The next question comes from the line of Patrick Archambault, representing Goldman Sachs. Please proceed.

Patrick Archambault – Goldman Sachs

Hi. Yes, can you hear me?

Alan Mulally

Yes. Hi, Patrick, we can hear you well.

Patrick Archambault – Goldman Sachs

Just on the supplier issue, obviously there has been a lot written in the press about Visteon. And I just was wondering if you could comment, have there been any discussions between you and them in terms of trying to get ahead of what some people have speculated to be a filing within the coming weeks and how do you react to people who sort of look parallel between Delphi and how involved GM had to get in that in sort of the attempt to turn around, are those parallels accurate or is the situation very different having gone through several restructuring with Visteon already.

Alan Mulally

I understand Patrick. I think that Visteon and Ford are clearly in a different place. We completed those transactions and we took care of part of the plans and they started Visteon. They have really diversified their portfolio and so they are in a much different place. Now, with respect to your first question, we along with Visteon with all of our suppliers, we are talking to all of them weekly because the most important thing we do is continue to make progress and deal with this overcapacity and keep the supply chain going but they are I think clearly in a different place Patrick.

Patrick Archambault – Goldman Sachs

And any chance you could give us a sense of kind of the dollar amount of – I mean, things have changed so much, the dollar amount of parts that you guys do count on them for on an annual basis?

Alan Mulally

No, but I would just emphasize that you can probably get maybe more insight from Visteon but they have clearly moved to dramatically diversified.

Patrick Archambault – Goldman Sachs

Okay, thanks. I had one on the UAW ABIVA, I guess you have replaced cash with notes it sounds like, if I am interpreting it correctly, giving you access to that liquidity for the year, is that something that you negotiated with the UAW in recent weeks or was that just part of the original contract that you just decided to exercise?

Lewis Booth

It was in the terms of the agreement, and we obviously, in consultation with the UAW agreed to access it really to help us through the first quarter with the January slow start ups, very cooperative discussions with the UAW there.

Patrick Archambault – Goldman Sachs

Okay. So it was done in consultation with them.

Alan Mulally

Yes, absolutely.

Patrick Archambault – Goldman Sachs

Okay. I guess one last one I guess is housekeeping, how come you did not draw down the entire $10.6 billion credit facility because I believe the number you have mentioned in the press release was $10.1 billion.

Alan Mulally

Yes, Neil, maybe you could speak on that.

Neil Schloss

Yes. That $10.6 billion includes letter of credit facilities that we have used so the net available for us on the facility is $10.1 billion. So we did draw the full amount available.

Patrick Archambault – Goldman Sachs

Got it. Okay. Thanks a lot guys.

Neil Schloss

You bet.

Lewis Booth

I just want to clarify my comments to Credit Suisse, in terms of what we will give you in the 10-K, we will give you our total pension contribution not expense, sorry for the confusion.

Alan Mulally

I might add on the drawing down our credit facility that our plan is to not use that money to fund the ongoing operations and we think we also have sufficient liquidity to maintain our minimum cash balance without using that facility. What we try to say really clearly is that we thought it was just at this time very prudent with the volatility in the credit markets due to the uncertainty in the global economy that it was just the prudent time to move that asset over to us.

Operator

Your next question comes from the line of Himanshu Patel representing JPMorgan. Please proceed.

Himanshu Patel – JPMorgan

Hi. Good morning, guys.

Alan Mulally

Good morning.

Himanshu Patel – JPMorgan

There have been some actions I think actions taken outside of the US by various governments to stimulate sales, I think there is some scrapping incentives in Germany and tax holiday in Brazil, can you give us an update on whether any of these have had any sort of immediate impact?

Lewis Booth

We had some impacts in Brazil at the very end of the fourth quarter and we are seeing significantly increased (inaudible) traffic in Germany as a result of that. I must admit I have not spoken directly to the Germans to find out how much of that has been translated into sales although it looks like they are having a good month, so I think we are modestly encouraged by the German action.

Himanshu Patel – JPMorgan

Okay and then I don’t know if Neil is there but on the ILC, can you give us an update on – I am just trying to quantify how much that could help you buy in terms of providing low cost funding, should we still think about maybe $12 billion to $18 billion worth or so per year?

K.R. Kent

This is K.R. To be clear on the ILC, the ILC was never expected to be a big portion of our overall funding plan. We have talked in the past that looking at out banks that would grow over time to somewhere $10 billion, $12 billion or so. They actually grew up over time it was not one time.

Alan Mulally

And I think initially that the plan was to use retail assets and so I think we still have numerous options from a standpoint of those assets and how they get funded.

Himanshu Patel – JPMorgan

Can you talk a little bit about the TARP, how meaningful do you think that would be, I mean there is obviously a lot of excitement in the marketplace about that being something that could be effective on the ABS market but I guess in the case of Ford you have got some conduits lined through Ford Credit that are running off, I mean do you view some sort of improved access to ABS as essentially sort of offsetting that?

K.R. Kent

I think from our perspective we are pretty excited about the TARP program in general because it clearly is a broad asset program each term and we have gotten a lot of interest already from investors for TARP eligible securitization. So we are working with the New York Fed and we expect to have something up and running in sort of mid February.

Himanshu Patel – JPMorgan

Okay, great. Thank you.

Operator

Your next question comes from the line of Itay Michaeli representing Citigroup. Please proceed.

Itay Michaeli – Citigroup

Thank you, good morning. Just a couple of questions on cash flow and liquidity, just for clarification on the $14 billion to $17 billion of cash improvement, how much might you expect it to generate in ’09 and is the $4 billion of structural cost savings that you are guiding embedded in the $14 billion to $17 billion as well or is that incremental?

Lewis Booth

It is roughly half and half 2009 and 2010, the $14 billion to $17 billion and the $4 billion is embedded in 2009 that is part of 2009 but as Alan said we will continue to look at restructuring, we are just not ready to talk about the details.

Itay Michaeli – Citigroup

Okay on liquidity, if I kind of take the comments on the revolver draw down as back up for the operation to the post actually to be used in the operations, if I just did very simple math, you may own $15 billion of cash. Let’s say you need $7 billion to $8 billion of minimum cash, shall we roughly assume $7 billion to $8 billion is kind of what you are thinking for ’09 cash burn or am I missing something there?

Lewis Booth

We would not go into the math because we are not about to declare the minimum cash levels but we expect 2009 cash burn to be much, much lower than 2008. There are some significant run offs like the ABIVA payment in 2008, there is the payables impact as we go through the year with a gradually increasing volume or declining volume. Our CapEx is down $1 billion to $1.5 billion and we are as you heard us say applying for both Section 136 loans from the Energy Independence and Security Act and also applying to the European Investment Bank for CO2 related loans.

Itay Michaeli – Citigroup

Okay. I see that is helpful. And then just finally, just a point of clarification on the stakeholder negotiation, I know you can’t really get into any detail but shall we assume these are just simply Ford Motor Company stakeholders or you are also speaking with stakeholders specific to Ford Motor Credit, specifically creditors there?

Lewis Booth

Our actions are around being competitive in the auto industry so the discussions that Alan was talking about specifically were Ford Motor Company stakeholders. We are doing a number of things about Ford Credit, not just financing actions but also we are having discussions on different business arrangements in various countries where funding is difficult to achieve. For example we have just announced that we have withdrawn from retail financing in Australia and we are about the last person to withdraw. We made different arrangements in some parts of Northern Europe. Obviously as the Jaguar Land Rover divestiture occurred, we are making different arrangements for Jaguar Land Rover finance. So there are different actions happening with Ford Credit and as you know today the US part of Ford Credit announced a 20% personnel reduction during this first-half of the year.

Itay Michaeli – Citigroup

Great, thank you.

Lewis Booth

Welcome.

Operator

Ladies and gentlemen, at this time we would like to welcome questions from the media community. (Operator instructions) Your first question comes from the line of Bryce Hoffman representing The Detroit News. Please proceed.

Bryce Hoffman – The Detroit News

Good morning, gentlemen.

Alan Mulally

Hi, Bryce.

Bryce Hoffman – The Detroit News

Am I understanding correctly that you have just lowered your SAR estimate by about 1 million units for the year, correct?

Lewis Booth

We provided a range when we were in Washington on December 2 we provided 12.5, we are now providing of 11.5 to 12.5. You know, it is very volatile. We don’t just know whereabouts in that range it will be but the fact that we have identified a range suggests that within 12.5 is towards the top end of probability.

Bryce Hoffman – The Detroit News

And Lewis, just following up on that, you guys have said that you would not need to go to seek Federal assistance if the domestic market did not significantly deteriorate from your planning assumptions, isn’t this a significant deterioration potentially from those assumptions, can you explain a little bit more how you remain confident in your ability to proceed without aid from Washington given that?

Lewis Booth

Specifically, it is not what we would regard as significant deterioration. Obviously as volumes come down a little bit we have to work harder on other aspects of the business and I think you have seen in the past we are relentless if we are acting to the providing demand and that is what we are doing and that is not just around the US, it is around Europe and South America and Asia Pacific.

Bryce Hoffman – The Detroit News

Got you. One just clarification, following up on the analyst question about Visteon, I just wanted to be clear, you guys are not anticipating any sort of kind of dramatic rescue action with regards to Visteon, correct?

Lewis Booth

No what we have seen in the press reports we are not contemplating dramatic action.

Bryce Hoffman – The Detroit News

Great, thank you.

Alan Mulally

You bet.

Lewis Booth

I want to explain my response to the price on industry volumes. As we said in Washington, it is not just around the absolute volume, it is also around the length of the downturn and when the recovery starts. We still feel that with the amount of stimulus that is going on in the US market we will see some improvement in the second-half of this year.

Alan Mulally

You bet.

Operator

The question will come from the line of Jeff Bennett representing Dow Jones Newswires. Please proceed.

Jeff Bennett – Dow Jones Newswires

Lou, it’s just a quick question, my line cut out, so you are not anticipating making any kind of cash contributions into Visteon to keep it running, it’s basically on its own from your standpoint?

Lewis Booth

Visteon is a stand alone company. And like all our suppliers, we talk to them, we talk to our suppliers when they have problems and try and work with them but they are a stand-alone company.

Jeff Bennett – Dow Jones Newswires

Do you anticipate in the structural cost that that would include more involuntary lay-offs and plant idling or where would that kind of focus in on?

Alan Mulally

I think it really Jeff is going to be determined by the market and the industry and the volumes going forward. We are about where we need to be right now but we are going to, like we have, we are going to monitor it very closely and take decisive action. The most important thing we do is match our production with the real demand.

Jeff Bennett – Dow Jones Newswires

Okay. Thank you.

Alan Mulally

You bet.

Operator

Your next question comes from the line of Tom Kirsher [ph] representing Associated Press. Please proceed.

Tom Kirsher – Associated Press

Hello, gentlemen.

Alan Mulally

Hi, Tom.

Tom Kirsher – Associated Press

I was wondering if the restructuring your $4 billion structural cost reductions for ’09, does that include anything you might net out of the Treasury Department’s demand that you are trying to seek parity with Chrysler and GM?

Lewis Booth

First of all, there are no demands on Ford or we don’t request government assistance, the demands on Ford are self-induced to remain competitive and anything we do to improve our competitiveness will go towards achieving or over-achieving on the $4 billion cost reduction.

Tom Kirsher – Associated Press

Okay. And the 30,000 units of production that you plan to take out beyond your prior estimates, how would you achieve that, would there be any plant closures or is that blind rate reductions and more gradual things since it is a relatively smaller number.

Lewis Booth

This is a relatively small in that day-to-day production adjustment, it will be a bit of down time I think.

Tom Kirsher – Associated Press

Very good, thank you.

Alan Mulally

You are welcome.

Operator

Your next question comes from the line of Amy Wilson representing Automotive News. Please proceed.

Amy Wilson – Automotive News

Good morning.

Alan Mulally

Hi, Amy.

Amy Wilson – Automotive News

I wanted to ask when is the soonest that you think you can go out the deal you fund and how much would you expect to get in an initial disbursement there?

Alan Mulally

We don’t know the exact timing of that Amy but I think it is going to be relatively soon. We feedback that we have gotten is that we are in very good shape with our sub metal, our enabling technology is very much lined up with the intent of the 2007 Energy Independence and Security Act. So we are continuing now answering questions for clarifications but I think it will be relatively soon. And I can’t give you an estimate on the amount yet but I just might say that I think it is really meeting the intent of the bill that was passed in 2007 because it really is going to help (inaudible) technology that the congress really wanted to support, so it will be substantial.

Amy Wilson – Automotive News

Okay, so we understand correctly, it is something that could help bolster your liquidity position during this calendar year as well.

Alan Mulally

Yes, absolutely.

Amy Wilson – Automotive News

Okay. I just wanted to ask, why is the CapEx higher, $0.5 billion higher than the plan?

Alan Mulally

Mainly completing the launch of the F-150.

Amy Wilson – Automotive News

That was more expensive than you had budgeted for?

Alan Mulally

No, not so much that it was more expensive but as we continued to develop our whole product cycle plan, we just ended up where it was about – we want to spend that much to further solidify the product strategy going forward.

Lewis Booth

CapEx spending forecasting towards the year end is really hard, sometimes the bills pop over to the next year. When we set the objective, I think it was a rounded $6 billion and we are pretty close.

Amy Wilson – Automotive News

Okay, thanks.

Alan Mulally

You bet.

Operator

The next question comes from the line of Robert Schoenberger representing the Plain Dealer. Please proceed.

Robert Schoenberger – Plain Dealer

Good morning. I have a technical question a more serious one on the technical side, jobs tank, how many people are in there right now?

Lewis Booth

About 1500 right now, we expect that to reduce significantly in the first quarter as some people move to different plants where we have opportunities.

Robert Schoenberger – Plain Dealer

And at the Detroit show Jim Farley mentioned that January sales were looking a bit healthier than December, is that trend continued or is there any hope for any kind of even modest recovery in the first few months of this year?

Alan Mulally

It is about the same.

Robert Schoenberger – Plain Dealer

Really about the same as December or –

Alan Mulally

As December.

Robert Schoenberger – Plain Dealer

Great. Thank you very much.

Operator

Your next question comes from the line of David Bailey [ph].

Alan Mulally

Next question please. We can’t hear David if he is online. David are you on?

David Bailey

Yes I am.

Alan Mulally

We didn’t hear your question.

David Bailey

Okay, the question was do you expect the Volvo VOX to go out in the next few weeks in terms of the potential sale of the brand?

Lewis Booth

We are not giving any details of (inaudible) strategic options.

David Bailey

No, it is a further question about the supply base, certainly we talked a little about Visteon but how much have you broken out, how much money you expect to need to put into the supply base this year to keep it running given the stresses you discussed.

Alan Mulally

No.

David Bailey

Thank you very much.

Alan Mulally

You bet.

Operator

Your next question comes from the line of David Kiley representing BusinessWeek magazine. Please proceed.

David Kiley – BusinessWeek

Good morning gentlemen.

Alan Mulally

Hi, David. (inaudible).

David Kiley – BusinessWeek

Yes I have as a matter of fact. Two questions here, one on cash burn for the year, the first question is if you could give me a little color on that $9.4 billion line item and exactly what goes into that and then secondly if you could do a little color on how the production mix in the first quarter is going to impact cash burn because I believe that you are doing a lot more trucks and I wondered how that is going to impact your cash burn for the first quarter.

Lewis Booth

Yes the $9.4 billion more than $5 billion or about $5 billion was accounted for by Tried [ph] declines.

David Kiley – BusinessWeek

Tried declines, so that is the biggest element of it.

Lewis Booth

We are reducing the production. It really reflects the reduced production and the factor that the last few weeks of December we had very little production taking place. I am sorry I didn’t hear your question on mix in the first quarter.

David Kiley – BusinessWeek

I wondered if you could – because you have said that your cash burn will be much improved and I wondered in the first quarter, I believe that production of the F series is going to be a much more pronounced part of production in the first quarter and I wondered if you can give some color on how that is going to impact cash burn and also what are your dealers telling you about demand for the new F series.

Lewis Booth

I think the bigger impact on cash burn in the first quarter will be around total production and this will be a secondary impact. In terms of response from dealers we are hearing very encouraging things about the reception of the F-150, very, very strong hi series mix which is encouraging so we have had an encouraging start.

Alan Mulally

David I might add just a little bit more color, one of the positive things about taking decisive and aggressive action in the fourth quarter on production to match the production to the real demand is that we kind of got that behind us now and as we go along here stabilized at these lower rates the first two quarters and start to come back in the second-half of the year that really, really helps us significantly reduce the cash burn.

David Kiley – BusinessWeek

I am going to just sneak a quick one in here, as far as dealing with the government right now, since you are not accessing loans per se but have this application outstanding for a line of credit, are you having to meet basically all the same parameters of financial viability as GM and Chrysler for the actual loans by February 17 and by March 31?

Alan Mulally

No, not at all. We are not in that process, we stay involved, we will continue to update them on our continuing restructuring of Ford. Also I might just point out David that at the end of the year last year, the Treasury put in place an automotive financing act for vehicle their intent was that anybody that needed to see them without hurting the automotive recovery, there is a vehicle for them to come and see them. So we don’t have a standing line of credit but we have a vehicle that if we ever needed access to money that we could use. We are not in that process because we are not taking any tax for the money.

Unidentified Speaker

We have time for one more question please.

Operator

Thank you. Your final question comes from the line of Joann Muller representing Forbes Magazine. Please proceed.

Joann Muller – Forbes Magazine

Hi there.

Alan Mulally

Hi Joann.

Joann Muller – Forbes Magazine

Hi Alan, you said that you still believe Ford does not have to access any government funds unless there is a significant event. Could you be a little more specific about what you would define as a significant event.

Alan Mulally

No because it could be many things, it could be the economy itself, it could be the industry, it could be share, it could be the credit. We have not scoped that. The best thing we did as you know during the hearings is that the congress asked us for a range of outcomes, so we gave them a range of three different outcomes. They kind of bracketed the whole thing and we are clearly moving along on the bottom side of those scenarios.

Joann Muller – Forbes Magazine

The bottom side of it you said.

Alan Mulally

For the first half and then coming back in the second half.

Joann Muller – Forbes Magazine

I mean, just to be clear, it sounds like the door is still wide open and that you might need to go and ask for some assistance with so many things that you just kicked off there that could go the wrong way.

Alan Mulally

It is a very volatile time for all of us but I think that with the actions that were taken on the fiscal policy and the monetary policy that we could just can know if this is going to support the economic turn around and it is not our plan at all to access the government money and as we share today, we put this plan in place including the line of credit so we have sufficient cash to continue to finance our product development and our restructuring. So we have no plans at this time and I don’t anticipate using the government funds.

Joann Muller – Forbes Magazine

One last thing on Ford Credit, you talk about it as a strategic asset. General Motors of course as the result of the aid of (inaudible) will no longer have capital [ph] finance at all, I suppose you could argue that they did not when they sold controlling interest but nonetheless they are going to wind down to almost nothing. How do you think that will put forth at its advantage to have its own capital finance company?

Alan Mulally

We believe more than ever Joann that Ford Motor Credit is a strategic asset of the Ford Motor Company. The dealers just absolutely love an integrated approach to being able to finance the cars, finance the show room and have one-stop shopping that is completely integrated when you work with Ford. We are more positive than ever that Ford Motor Company really is a strategic asset for Ford.

Joann Muller – Forbes Magazine

Your write-downs, any idea what the total write-downs have been for credit losses over the last year?

Alan Mulally

Jo I think they are going to do a credit call pretty soon, might be a good time to – it will be a good place to help you out, you will have all the experts there on credit.

Joann Muller – Forbes Magazine

Okay. Thank you.

Alan Mulally

Very good. Watch out for that dog.

Joann Muller – Forbes Magazine

That was my collie.

Alan Mulally

Thanks, Joann.

Bill Agney

That concludes today’s presentation. Thank you for joining us.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your presentation, you may now disconnect. Good day.

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Source: Ford Motor Company Q4 2008 Earnings Call Transcript
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