Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Ford Motor Company (NYSE:F)

Q1 2009 Earnings Call

April 24, 2009 9:00 am ET

Executives

Bill [Agney] – Director of IR

Alan Mulally – President and CEO

Lewis Booth – EVP and CFO

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

Analysts

John Murphy – Merrill Lynch

Brian Johnson – Barclays Capital

Himanshu Patel – JP Morgan

Rod Lache – Deutsche Bank

Patrick Archambault – Goldman Sachs

Chris Ceraso – Credit Suisse

Bryce Hoffman – The Detroit News

Jeff Bennett – Dow Jones Newswires

Brent Snavely – Detroit Free Press

Joe Szczesny – Oakland Press

Amy Wilson – Automotive News

Eric [Main] – [AwardAuto.com]

Itay Michaeli – Citigroup

Operator

Welcome to the Ford Motor Company first quarter earnings conference call. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Bill [Agney], Director of Investor Relations. Please proceed.

Bill Agney

Thank you and good morning, ladies and gentlemen. Welcome to all of you who are joining us either by phone or web cast. 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 Kosman, Director of Accounting and, K.R. Kent, Ford Credit CFO.

Before we begin, I’d like to review a couple of 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 Form 10Q on the first quarter.

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 appendix 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 this 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

Very good. Thank you Bill and good morning to everyone. As you all know, demand for autos across most markets remained very weak in the first quarter due to the persistent global economic slowdown and still anemic credit markets. Although policy makers around the world are making significant and important moves to jump start the economy, consumer confidence remains low. We estimate that the first quarter 2009 industry volumes for the major markets we track are down about 20% from year-ago levels.

While the difficult market conditions had a significant impact on our first quarter results, we made strong progress on our plan to transform Ford into a leading, globally integrated company poised for long-term profitable growth. Despite much lower revenues, we slowed our operating cash flow outflow significantly compared with the fourth quarter of 2008 and expect continued improvement throughout the year as we continue to reduce costs aggressively.

Strong, new, high quality fuel efficient vehicles such as the Fusion and the Fiesta helped Ford achieve strong retail market share performance in the first quarter in our two largest markets, the U.S. and Europe, as well as a lot of other markets while limiting incentives. We took further action to improve our cost structure and balance sheet by reaching new agreements with the UAW and completing a successful debt reduction initiative, both of which will pay off down the road and increase our fundamental competitiveness.

In these challenging times we remain focused on our four-point plan; aggressively restructuring the business, accelerate development of the vehicles customers want and value, finance our plan and improve our balance sheet and work together as one team, leveraging our global assets. Even in the worst of auto industry times, customers are recognizing that Ford is making progress and charting its own path. We are positioning Ford to survive the current downturn and capitalize as auto sales recover down the road.

I will start off today by providing you an overview of our first quarter results and business and product highlights. Lewis Booth will then take us through the first quarter financial results in greater detail. Finally, I will summarize our plan going forward including our outlook for the rest of this year.

Turning to slide three, I will begin by reviewing the key financial results. As shown at the top of the slide vehicle wholesales in the first quarter were at 973,000 units, down 558,000 from the same period in 2008. First quarter revenue was $24.8 billion, a $14.4 billion decrease from a year ago. The decrease is primarily explained by lower volume and unfavorable exchange partly offset by higher net pricing.

Our first quarter pre-tax operating loss excluding special items was about $2 billion, over a $2.6 billion decline from a year ago when we were profitable. This decline included $2.5 billion in automotive and $126 million at financial services. Our first quarter net loss attributable to Ford was $1.4 billion including a pre-tax special charge gain of $362 million. We ended the quarter with $21.3 billion of cash, down about $7.4 billion from a year ago. This will be discussed in more detail later.

Turning to slide four, the financial results at all operations were worse than a year ago because of the lower industry volumes beginning in the second half of 2008 and continuing into the first quarter of 2009. First quarter U.S. industry volumes were down 37% from a year ago and our other major markets were down 7-18%. Cost reductions provided a significant offset to these declines. Overall results, however, were significantly improved compared with the fourth quarter of 2008, even though we took further decisive action to reduce dealer stocks to align these stocks with current lower demand.

We reduced our automotive structural costs by $1.9 billion compared to 2008 with about $1.3 billion of that improvement coming from North America. Ford North America had an operating loss of $637 million, a $592 million decline from a year ago. Ford South America earned an operating profit of $63 million, a $194 million decline from a year ago. Ford Europe had a $550 million operating loss, about a $1.3 billion decline from a year ago.

Volvo had a $255 million operating loss, a $104 million decline from the year ago. Ford Asia Pacific and Africa had an operating loss of $96 million, a $97 million decline from a year ago. Financial Services had an operating loss of $62 million, a $126 million decline from a year ago.

Slide five details some of our key business highlights this quarter. In February we modified our Collective Bargaining Agreement with the UAW, lowering our annual U.S. labor costs by $500 million. In addition, we launched a new buyout program for U.S. hourly employees. We reached agreement in principal with the UAW subject to Court and other approvals to allow Ford to settle up to half of our cash obligations with Ford common stock. We executed actions to reduce our automotive debt obligations by $10.1 billion and lower our annual cash interest payments by more than $500 million.

In the U.S. retail market share remained steady in the first quarter compared to the first quarter of 2008. Dealer inventories decreased by 27% from a year ago, bringing day supply to very competitive levels. We launched the Ford Advantage Plan in the U.S. offering customers who lose their jobs payment protection for up to 12 months. Ford Europe’s first quarter market share rose to 9.4%, the highest level in nearly 10 years. Ford also strengthened its hold as Europe’s number two selling brand. Initial quality of Ford, Lincoln and Mercury brand vehicles in the United States improved by 5% as compared to last year, surpassing Honda and tying Toyota for the overall lead according to the latest Global Quality Research Systems’ study of U.S. vehicle quality and customer satisfaction with vehicle quality is improving in North America, Europe and Asia and it reached its highest level ever in North America and we started discussions with interested parties regarding the sale of Volvo.

Turning to slide six, during the first quarter we had a number of new product introductions and sales accomplishments as we continue to implement our product transformation plan. In Europe the Ford Fiesta became Europe’s best selling vehicle for March with sales of 52,800 vehicles. In March the Ford Ka posted its best sales since October 2004. We launched the Ford Focus RS, Ford Europe’s fastest ever production model and unveiled the Iosis MAX concept at the Geneva Auto Show, signally Ford’s design intent for multi-activity vehicles.

In North America we introduced the 2010 Ford Taurus, our new flagship sedan at the Detroit Auto Show. Taurus hits the streets this summer along with a higher performance Taurus SHO. We introduced the 2010 Ford Transit Connect in North America, a fuel efficient alternative to larger commercial vehicles which also goes on sale this summer. Next year, a battery electric version of the Transit Connect will reach the market.

We just launched the new 2010 Ford Fusion, the Mercury Milan and the Lincoln MKZ along with the Fusion and Milan hybrids. Both the gas and the hybrid versions of Fusion and Milan lead their segments in fuel economy. The new 2010 Ford Mustang is entering showrooms now. It is America’s number one muscle car with a new interior and exterior, more horsepower and updated technology. The high performance Shelby GT500 enters the market place with 40 additional horsepower and improved highway fuel economy. Production is underway for our first new EcoBoost engine, a key part of our strategy to improve fuel economy and lower CO2 emissions across our entire product line. The 3.5L V6 EcoBoost will be available on 2010 models of the Lincoln MKS, the Lincoln MKT and the Ford Flex and standard on the Ford Taurus SHO.

Finally, in Asia Pacific and Africa production of the Fiesta began in Nanjing, China. Customer demand for the Fiesta in the Asia Pacific region has been very strong as it marked successful launches in Australia, New Zealand and South Africa.

Now I will turn it over to Lewis to provide more details on our first quarter financial results.

Lewis Booth

Thanks Alan. Let’s move onto slide eight which provides more information on our financial results. Starting at the lower left, our net loss attributable to Ford for the first quarter was $1.4 billion and this excludes an income from non-controlling interest. This net loss included $204 million of tax benefits, more than explained by a recovery of prior period taxes. Excluding this recovery we incurred a tax liability in jurisdictions where we remain profitable. Adjusting for these items leaves a first quarter pre-tax loss of $1.6 billion. These results include the pre-tax special gain of $362 million which we will cover on the next slide. Excluding these special items we recorded a first quarter pre-tax operating loss of about $2 billion. The remaining slides will focus on these pre-tax operating results.

Slide nine covers special items which resulted in a pre-tax gain of $362 million in the first quarter. In North America we reported a charge of $171 million largely related to personnel reduction programs in the U.S. We recorded a gain from job security benefits of $292 million which primarily relates to the elimination of the jobs bank which was part of the modified agreement reached with the UAW. We recognized an $81 million dealer related charge which primarily reflects investment write offs related to the proposed sale of dealerships in the dealer development program. This initiative provides an opportunity for qualified operators to become private capital owners in the dealership.

We also recorded a charge of $178 million for retiree healthcare and other related costs which is primarily related to the UAW Retiree Healthcare agreement. We recognized a $1.3 billion gain primarily associated with the repurchase of $2.2 billion of our term loan debt and $234 million of unsecured notes. This reflected the difference between the book value of the debt and the market price at which the debt was repurchased.

During the second quarter we expect to realize about $3.4 billion gain on debt restructuring completed in early April. Our debt restructuring actions will be covered in more detail on the next slide.

At the end of the first quarter based on the status of our strategic review of Volvo we concluded that the criteria of held-for-sale status had been met triggering an impairment test that resulted in an impairment charge of around $700 million. This amount reflects the difference between the book value and the estimated fair market value of Volvo as held-for-sale net of estimated disposal costs.

Finally, we recorded an impairment of our equity investment and divested five financial operations partnerships of non-core lease assets.

On slide 10, as previously announced we have completed debt restructuring initiatives that have reduced automotive debt by $10.1 billion at par value although our annual interest payments are more than $500 million. Ford and Ford Credit utilized $2.6 billion in cash plus 468 million shares of Ford common stock to complete the debt restructuring. The term loan was completed on March 27th and will be reflected in our first quarter financial statements.

The other major components of the debt restructuring were completed on April 8 and will be reflected in our second quarter financial statements. This successful debt restructuring coupled with previously announced agreements with the UAW will substantially strengthen Ford’s balance sheet.

Now on to slide 11 which shows our pre-tax operating results by sector. The first quarter pre-tax operating results were a loss of about $2 billion. These results included a loss of $1.9 billion for the automotive sector and a loss of $62 million for financial services. As Alan mentioned on slide four, as show in the memo below the chart, total company results improved substantially compared to the fourth quarter of 2008.

Moving on to slide 12 which shows pre-tax operating results for each of our automotive operating segments and other automotive. We will focus here on other automotive and then cover the operations in detail on the next slide. In the first quarter other automotive was a loss of $445 million of which net interest expense represented $452 million.

Slide 13 shows the change in first quarter results compared to a year ago, a decline of $2.5 billion. Volume and mix was about $3.5 billion unfavorable primarily due to the decline in industry volumes and the impact of actions to reduce dealer stocks across all of the automotive operations. Share overall was about unchanged with improvements in retail share offset by reductions in daily rental and other fleet business. Net pricing was about $700 million favorable primarily due to higher pricing in the U.S. reflecting pricing for new features and content and limiting new incentives.

Cost changes were over $1 billion favorable reflecting structural cost reductions partly offset by higher material costs which included a non-recurrence of about $350 million of favorable mark-to-market adjustment on commodity hedges. On the next slide we will focus on our structural cost reduction initiatives. Exchange was about $100 million unfavorable primarily explained by unfavorable exchange in South America and Europe partly offset by favorable exchange at Volvo. Net interest and fair market value adjustments were $200 million unfavorable primarily due to the non-recurrence of fair market value gains and higher interest expense associated with drawing the revolver. Finally, included in the other decline of $400 million our lower subsidiary and parts profits largely related to the decline in industry volume.

Now to slide 14 which explains our automotive structural cost reductions of $1.9 billion compared to a year ago. Manufacturing and engineering costs were over $800 million lower largely reflecting the continued benefit of our restructuring actions in North America, Europe and in Volvo. Spending related costs improved by about $200 million primarily reflecting lower depreciation expense. Pension and retiree healthcare expenses were $300 million lower primarily reflecting the effect of the UAW Retiree Healthcare agreement. Overhead costs were over $300 million lower including salary personnel reductions and other restructuring actions. Advertising and sales promotions were about $300 million lower from a year ago.

For the next section of slides we will cover each of the automotive operations starting with North America on slide 15. In the first quarter wholesales were 354,000 units, down 350,000 units from a year ago primarily reflecting the 37% decline the U.S. industry saw on 15.6 million units in the first quarter to 9.8 million units in the first quarter of 2009? During the first quarter we reduced U.S. dealer stocks by 32,000 units to keep these stocks aligned with lower industry volumes.

In comparison, during the first quarter of 2008 we had an increase in dealer stocks by 32,000 units. First quarter U.S. total market share for Ford, Lincoln and Mercury was 13.9%, down 1.1 points from last year because of lower fleet sales. First quarter revenue was $10.2 billion, a $6.9 billion decrease from a year ago primarily explained by lower volumes and partly offset by improvements in net pricing. For the first quarter Ford North America reported a pre-tax loss of $637 million, a $592 million decline from a year ago. We’ll talk about this decline on the next slide.

Slide 16 provides an explanation of the change in North American results compared to the year ago. Volume and mix was $2 billion unfavorable primarily reflecting the decline in U.S. industry volumes, lower dealer stocks and lower fleet market share. Net pricing was $600 million favorable primarily reflecting pricing for new features and content and a disciplined approach that has limited our new incentives in an increasingly competitive environment. Costs decreased by $800 million, more than explained by lower structural costs including lower manufacturing and engineering, pensions and overhead and spending related costs. These structural cost reductions were partly offset by higher material costs reflecting higher product content and the non-recurrence of favorable mark-to-market adjustments from commodity hedges.

Slide 17 provides an explanation of the improvement in North America first quarter 2009 results compared to the fourth quarter 2008. Volume and mix were $300 million unfavorable more than explained by the decline in U.S. industry volumes and lower market share partly offset by favorable product mix.

Net pricing was $100 million favorable primarily reflecting higher prices in the U.S. Costs decreased by about $1.6 billion primarily reflecting lower structural costs including lower manufacturing and engineering and advertising, lower commodity costs consistent with lower prices for steel and precious metals and favorable warranty reserve adjustments. Exchange was $300 million unfavorable. Other was $200 million favorable.

Slide 18 shows the U.S. market share at Ford, Lincoln and Mercury. In the first quarter our market share was 13.9% including 10.1% for retail and 3.8% for fleet. As shown below the chart, our preliminary share of the U.S. retail market in the first quarter was about equal to the first quarter 2008. Variable share performance primarily related to the Fusion and the new F150 were offset by mix shifts that were unfavorable to Ford, primarily lower full sized pickup segmentation. In addition, it is important to note we were able to achieve this favorable retail share performance while limiting incentives in an increasingly competitive environment. Ford’s fleet share decline compared to last year was largely consistent with our planned reductions in daily rental volumes.

Now on to South America on slide 19. In the first quarter wholesales were 93,000 units, up 1,000 from a year ago reflecting market share improvement from 9.5% to 11% largely offset by the decline in industry SAAR from 4.4 million in the first quarter of 2008 to 4.1 million units in the first quarter of 2009? First quarter revenue was $1.4 billion, a $400 million decrease from a year ago primarily reflecting weakened Brazilian currency. For the first quarter Ford South America earned a pre-tax profit of $63 million, $194 million decrease from a year ago. This decrease was more than explained by unfavorable exchange and higher commodity costs partly offset by favorable net pricing.

Slide 20 covers Ford Europe. In the first quarter wholesales were 343,000 units, down 157,000 or 31% from a year ago. This reduction includes the impact of reducing production by 61,000 units to align dealer stock to lower industry volumes. First quarter industry SAAR for the 19 markets that we track was 14.8 million units, down 3.2 million units or 18% from a year ago. This is about half of the U.S. industry decline due in part to the favorable effect of government scrapping programs in major European markets.

In addition, the Russian industry SAAR was 1.9 million units, down 1.3 million units or 41% from a year ago. First quarter market share was 9.4%, up 5/10 of a point from last year, the highest level in nearly 10 years reflecting the relative strength of our product portfolio. First quarter revenues were $6 billion, $4.2 billion decrease from a year ago, more than explained by lower volume, unfavorable exchange and unfavorable product mix. For the first quarter Ford Europe reported a pre-tax loss of $550 million, a $1.3 billion decline from a year ago. We will cover this decline on the next slide.

Slide 21 provides an explanation for the change in Ford Europe results compared to a year ago. Volume and mix was about $1 billion unfavorable primarily reflecting the decline in industry volume and dealer stocks partially offset by improved market share. The industry volume decline included a significant decline in commercial vehicle volumes primarily reflecting the economy weakening in most major European markets.

Results during the first quarter were reduced by $300 million due to the impact of reducing production to align dealer stock with lower industry volumes. Net pricing was $100 million favorable compared to a year ago. This reflects favorable vehicle pricing primarily in Britain and Russia in part offset unfavorable currency exchange effects. Underlying structural cost reductions were $300 million as we progressed actions to align capacity with demand. This was more than offset however by increased distressed supplier costs, the non-recurrence of favorable mark-to-market adjustments and commodity hedges, prior product content and non-recurrence of warranty reserve changes.

Exchange was about $100 million unfavorable, mainly due to the weakening of the British Pound and the Russian Ruble compared with the Euro. Other was $200 million unfavorable explained by lower earnings in our joint ventures due to lower industry volumes.

Slide 22 covers Volvo. In the first quarter wholesales were 69,000 units, down 37,000 units or 35% from a year ago. This reduction is explained by lower industry volumes and market share primarily in the U.S. and Europe and lower dealer stocks. First quarter revenue was $2.6 billion, a $1.6 billion decrease from a year ago, more than explained by lower volumes, unfavorable exchange and unfavorable net pricing.

For the first quarter Volvo reported a pre-tax loss of $255 million, $104 million decline from a year ago. We will cover this decline on the next slide.

Slide 23 provides an explanation in the change in Volvo’s results compared to a year ago. Volume and mix was $400 million unfavorable primarily reflecting lower industry volumes, lower market share and lower dealer stock productions. Net pricing was about $100 million unfavorable compared to a year ago primarily reflecting increase incentive spending in Europe and the U.S. Costs decreased by $300 million, reflecting actins taken to reduce structural costs. Exchange was about $100 million favorable primarily associated with the weakening of the Swedish Krona compared to the U.S. dollar.

While not shown on this slide, losses in the first quarter 2009 were reduced nearly $500 million compared to the fourth quarter 2008 despite the lower volumes. This primarily is the result of structural cost reductions and favorable exchange.

Slide 24 covers Asia Pacific and Africa. In the first quarter wholesales were 114,000 units, down 15,000 units from the year ago primarily reflecting lower industry volume? First quarter industry SAAR was 20.6 million units, down 2.8 million units or 12% from a year ago. While the Chinese industry was down only slightly, industry volumes in many of our other key markets were down 20-30%. The first quarter market share was 1.8%, down 1/10th of a point from last year. The first quarter revenue which excludes sales of our joint ventures in China was $1.2 billion, a $500 million decrease from a year ago more than explained by lower volumes and unfavorable exchange.

For the first quarter Asia Pacific and Africa reported a pre-tax loss of $96 million, a $97 million decline from a year ago. The decline reflects lower industry volume and unfavorable exchange partly offset by structural cost reductions and net pricing.

Slide 25 shows automotive cash and cash flow. We ended the first quarter with $21.3 billion in gross cash, up $7.9 billion from the fourth quarter 2008. Our automotive operating related cash loans was $3.1 billion negative from the first quarter reflecting an automotive pre-tax loss of $1.9 billion. Capital expenditure in the first quarter there was about $300 million higher deprecation and amortization. Changes in working capital resulted in over $1 billion of positive cash flow due to higher payables, lower inventories and lower receivables. This improvement, however, was more than offset by timing differences in marketing, warranty, retiree healthcare benefits and in-transit receivables. Finally, payments of $500 million to Ford Credit reflect our change to up front payment cost of pension.

Excluding the impact of the change to up front pension payments our operating related cash flow was $3.2 billion negative. This outflow in the first quarter is less than half of the outflow during each of the third and fourth quarters of 2008 despite a further decline in volume in part related to actions to reduce dealer stocks. The improvement is due primarily to improved working capital, low automotive pre-tax losses and lower net spending.

Other changes in gross tax in total more than offset the operating related gross cash flow included personnel reduction programs of $300 million, pension contributions of $400 million, the net impact of the $2 billion related to the conversion of assets in the temporary assets account set aside for the ABIVA healthcare trust into a new Ford note as discussed in January. Finally, accessing our revolving credit line of credit for $10.1 billion as we also discussed in January. Including all these impacts the total increase in gross cash during the first quarter was $7.9 billion.

Now let’s turn to slide 26 and financial services. For the first quarter the financial services sector reported pre-tax loss of $62 million, $126 million decline from the year ago. Other financial services reported a loss of $26 million in the first quarter, a $58 million decline from a year ago. This decline primarily reflects non-recurrence of gains related to real estate transactions. We will cover Ford Credit in more detail on the next slide.

Slide 27 explains the change in Ford Credit’s pre-tax results for the first quarter compared with a year ago. For the first quarter the pre-tax loss was $36 million, a $68 million decline from a year ago. The decrease in earning primarily reflected lower volume and the higher provision for credit losses partly offset by lower depreciation expense for leased vehicles and lower net losses related to market valuation adjustments to derivatives. Volume was lower compared to a year ago reflecting declining managed receivables.

As shown in the memorandum, lower left of the slide, Ford Credit’s March 31, 2009 managed receivables were at $106 billion, about $42 billion lower than a year ago. This decline primarily reflects lower industry volume, lower dealer stocks, changes in currency exchange rates and the impact of divestitures and alternative business arrangements. The increase in the provision for credit losses was more than explained by higher repossessions, higher severity, lower recoveries and higher dealer related losses in the U.S. and higher credit losses in Europe.

Residual losses declined in the first quarter of 2009 compared with last year. This decline primarily reflected lower residual losses on vehicles returned in the first quarter 2009 and lower depreciation expense. Ford Credit’s first quarter auction [post] improved compared with the fourth quarter 2008 but we expect them to remain volatile.

Slide 28 covers the liquidity and funding outlook for Ford Credit. The left box shows Ford Credit’s committed liquidity programs and cash and the utilization of liquidity sources at the end of the first quarter. Ford Credit’s liquidity exceeded the utilization by about $17 billion. Ford Credit’s fund structure remains focused on maintaining liquidity to meet short-term funding obligations including holding a substantial cash balance. Ford Credit is maintaining its funding program and securitization structure, plans to renew committed capacity consistent with the size of its balance sheet and will utilize appropriate government sponsored programs for which it is eligible.

In the near-term, utilization of government sponsored programs in the U.S. and around the world will be an important component to Ford Credit’s funding plans. As useful as the U.S. commercial paper funding [inaudible] and European Central Bank liquidity facility and in March completed a $3 billion term asset backed security loan facility, TALF as you know it, and eligible auto loan securitization transaction. Gaining approval of our application for an industrial loan corporation is a component of Ford Credit’s funding plan as it will provide access to lower cost diversified funding with FDIC insured deposits.

Ford Credit will continue to explore and execute alternative business and funding arrangements in those locations where it lacks the most funding capability. At the end of the first quarter Ford Credit’s managed leverage was 10 to 1, and Ford Credit’s equity was $9.3 billion. In the first quarter of 2009 Ford Credit completed cash tender offer for a portion of Ford’s senior secured term loan with about $1.1 billion in cash including transaction fees. Ford Credit distributed this extra before it was subsequently forgiven.

Finally, Ford Credit has continued to reduce the size of its balance sheet in 2009 primarily reflecting lower industry volumes as Jaguar, Land Rover and Mazda transition to other finance providers. By the end of 2009 Ford Credit’s managed receivables will be in the range of $85-95 billion.

Slide 29 shows our 2009 second quarter production plans. In North America the second quarter production schedule is 435,000 units, down 250,000 units from 2008 but 10,000 units higher than our prior guidance. In Ford Europe we expect second quarter production of 385,000 units, down 180,000 units from a year ago. At Volvo we expect second quarter production of 82,000 units, down 30,000 units from a year ago.

Overall, production is down compared to 2008 as we respond to the decline in global industry volumes. These second quarter levels, however, are expected to be about 20% higher than the first quarter production.

Now I would like to turn it back to Alan to summarize our plans going forward.

Alan Mulally

Thank you Lewis. Slide 31 provides an overview of the business environment. We expect weak volumes this year across most markets with worldwide sales down around 15%, a record decline globally according to our data. In part this reflects that much of the 2008 weakness outside of the U.S. 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 central banks continue to provide liquidity and take actions to stabilize the banks.

Our suppliers and dealers also have been weakened by the global economic downturn and financial crisis. The decline in oil, fuel and other raw material prices will provide a partial offset to the weak demand conditions. Currencies remain volatile which poses some risk.

On slide 32, Ford is continuing to take decisive restructuring actions. For example, we reached a new agreement with the UAW to lower labor costs by about $500 million annually and subject to court and other approvals agreement in principle to allow Ford to settle up to have of its cash ABIVA obligation with Ford common stock and we executed actions to reduce automotive debt obligations by $10.1 billion and lower annual cash interest payments by more than $500 million.

In addition we are continuing to reduce collateral at our dealer levels with a 14% reduction since 2005. Working collaboratively to consolidate and realign our suppliers and continuing to reduce salaried personnel related costs and other overhead costs. Our progress in fixing the fundamentals of the business is evidenced by the $1.9 billion of automotive structural cost reduction in the first quarter and our revised plan to reduce full-year structural costs by more than $4 billion.

Overall, we are identifying and addressing issues and finding and delivering offsets. As a result based on our current planned assumptions we remain on track to meet or beat our financial targets including the target for an overall North American automotive pre-tax result to be break even or better in 2011 excluding special items.

Now on to slide 33 which shows the status of our 2009 first quarter planning assumptions and operational metrics. Total industry volume during the first quarter was equal to a SAAR of 9.8 million units in the U.S. and 14.8 million units in the 19 markets we track in Europe. We expect the full year U.S. industry volume to be at the low end of the range previously defined based on the present economic environment with potential up side in the second half of the year when government fiscal stimulus programs have a potential for fleet modernization program.

As a result of the implementation of government stimulus programs focused on replacing older vehicles with more efficient ones, European industry volume now is expected to be higher than our plan in a range of 13.5-14.5 million units. On the operational metrics, initial quality of Ford, Lincoln and Mercury brand vehicles improved in the U.S. by 5% as compared to last year, surpassing Honda and essentially tying Toyota for the overall lead according to the latest Global Quality Research Systems study of the U.S. vehicle quality.

International operations showed improvement in the latest GQRS initial quality result with the exception of Europe where we have experienced some near-term issues that we are working to address. Customer satisfaction in vehicle quality is improving in North America, Europe and Asia, reaching its highest level ever in North America. Automotive structural costs were reduced by $1.9 billion which is on track to exceed our plan.

U.S. market share was 13.9% and retail share of retail markets was 12.7% which are both consistent with our plan. Europe market share was 9.4% on track with our plan. Automotive operating related cash flow was $3.7 billion negative; on track with our plan and capital expenditures were $1.4 billion, also consistent with our plan.

Slide 34 summarizes the key aspects of our plan. These have not changed. Though times are tough and the external and competitive environment continues to evolve, we remain focused on implementing our transformation plan. We believe there is clear evidence that we have taken appropriate, decisive actions to respond to the significant challenges presented by the continuing global downturn and are making progress towards our goal to deliver longer term, profitable growth. We have taken the necessary steps to secure the capital for our continuing restructuring, invest in the great new vehicles that will continue our success in the market place and provide us a cushion against uncertain global economies.

Based on our plan assumptions we do not expect to require a bridge loan from the U.S. government barring, as we have said previously, a significantly deeper economic downturn or significant industry event such as the uncontrolled bankruptcy of a major competitor or major suppliers that causes disruption to our supply base, our dealers and creditors and cannot be funded by other forms of capital. We have maintained a laser focus on our core brand by divesting non-core assets.

We have sold Aston Martin, Jaguar, Land Rover and Hertz and reduced our ownership in Mazda. We are evaluating the potential sale of Volvo and have maintained Ford Credit as a strategic asset by substantially reducing the size by exiting brands and markets. In addition, we brought back Visteon plants that were important to our business and formed ACH to better manage the Visteon spin off.

We also continue to enhance the complete family of world class vehicles. Small, medium and large; cars, utilities, crossovers and trucks that are best in class quality, green, safe, smart and deliver the very best value to our customers. We plan to serve global markets with our high volume products allowing our team to leverage our global assets for our customers.

Going forward, our balanced portfolio, best in class vehicles produced and sold globally will provide us the flexibility to adapt more easily and quickly to changes in our environment. This will help facilitate our goal to grow profitably as the global economy rebounds. In summary, these continue to be challenging days in the automotive industry yet I remain convinced that Ford has the right plan.

Now we would like to take your questions.

Bill [Agney] – Director of IR

Thank you Alan. Ladies and gentlemen we are going to start the question-and-answer session now. We have about 45 minutes for the Q&A session. We will begin with questions from the investment community and then take questions from the media who are also on the call. To allow as many questions as possible within our time frame we ask that you keep your questions brief so that we don’t have to move people along after a couple of minutes.

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

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of John Murphy – Merrill Lynch.

John Murphy – Merrill Lynch

If you look at slide 17 and look at the volume and mix impact from the fourth quarter of 2008 to the first quarter of 2009, really kind of a negative impact considering that you had volumes down from 484,000 in the fourth quarter to 349,000 in the first quarter. How big a part did the F150 and mix play in that? As we look at the recovery in volumes going forward to that 435,000 in the second quarter should we see some extreme positives there in volume and mix as the volume really ramps up or is mix a big part of this first quarter?

Alan Mulally

We are consulting on the mix. On the mix going forward we seem pretty steady on the F series. An increase on the crossovers and on your specific question…

Lewis Booth

On the first hand mix was positive so we don’t expect to see a significant mix shift going forward. I wouldn’t be expecting to see an advantage [inaudible]. Pretty stable.

John Murphy – Merrill Lynch

So looking at first quarter to second quarter up 90,000 roughly units. A little bit more than that. That volume and mix bar should theoretically be positive? All else equal?

Lewis Booth

Yes. All other things being equal.

John Murphy – Merrill Lynch

As we look at the balance sheet you made big strides there. Is there any further restructuring on the balance sheet that you might do particularly on this $13.1 billion in notes to the UAW going forward?

Lewis Booth

We have done our deal and I think it was a very good agreement with the UAW. We have made no secret that we are going to continue to look very closely at our balance sheet because we have too much debt but we don’t have anything specific in mind at the moment. We are literally just drawing our breath from the last transaction. It is on our mind and we recognize we have to continue to improve the balance sheet but we have got other things to think about as well at the moment.

John Murphy – Merrill Lynch

Clearly I’m sure you have war rooms on GM and Chrysler dealing with that process but it sounds like GM is having some large issues with Delphi and it seems like it is given a cut in production as opposed to really causing issues. Is there any contagion you are seeing in the supply base from that pressure specifically or what we might see GM and Chrysler filing? Does it create any problems in your supply base?

Alan Mulally

I understand that completely. We are not to date but clearly the health of the supply base is probably the most critical issue as the government helps GM and Chrysler restructure. We are so interdependent as you well know that from our staying close to the task force we absolutely believe that they understand the importance of the supply base in general, the interdependencies, and some of the actions they have taken on the back stopping as you know I think they will continue to pay the highest priority as they restructure to the supply base to make sure it stays intact for all of us.

John Murphy – Merrill Lynch

Lastly a product question. Alan the EcoBoost sounds like it is coming out as sort of a high performance addition to some of your product line ups. When are you going to see that trickle down the value chain to some of your mass market products and really be focused as a fuel saving technology as opposed to a performance enhancer?

Alan Mulally

You bet. Starting in 2010 the way you described it is exactly the plan because one of the really neat things about [inaudible] and direct fuel injection and that 20% improvement in fuel efficiency and that 15% reduction in CO2 is with the volume that we have across all of our product lines and the affordability of it we can make a significant improvement very dramatically across the entire product line. So that will really start to pick up for the 2010 models.

Operator

The next question comes from Brian Johnson – Barclays Capital.

Brian Johnson – Barclays Capital

A couple of housekeeping questions for Lewis and then I would like to ask Alan having been at the SAE yesterday about a more strategic question. I guess first on the financials, can you give us the sequential walk for Volvo 4Q to 1Q? I like the way you did it in slide 17 for North America.

Lewis Booth

Let me just start by saying it was a significant amount of cost reduction. I’m just turning to my notes. I think there was about over $300 million in cost improvements first over fourth. There is maybe somewhere between $150-200 million of currency. Finally seeing a bit of benefit of currency where we have struggled so much up until now. We also got some revenue improvements quarter-over-quarter offset by volume and mix. The underlying story is Volvo really is doing fine on cost reduction.

Brian Johnson – Barclays Capital

On commodities are you at a point now where between inventory, hedges and contracts the commodities are getting close to the newer, lower market rates?

Lewis Booth

We will see that coming through in the second half. We still have a bit to go. We are not seeing anything else on our hedges but we have still got to work that all out of our inventory so we will see that in the second half.

Brian Johnson – Barclays Capital

Alan, with the lower CapEx budget and just the tough times, what are you doing with the overall engineering effort? In particular kind of with the product pipeline for 2011, 2012? How would you compare it to the downturn in the aerospace industry when you were there? How should we think about the product pipeline early next decade?

Alan Mulally

There is a lot of similarities there because as you well know the fundamental of our plan is we take the aggressive action to size ourselves to the current low demand and the changing model mix so we get back to profitability and we can keep investing. The second part of that plan is during the toughest of times we want to keep investing in the new products that people are really going to be wanting in value so we come out the other side as a turbo machine. We did it at Boeing with the 67, the 777 and the A7.

With respect to Ford, one really neat thing about going to the market 2.5 years ago is we put the financing in place not only for the restructuring to work the quality and productivity improvement but also to continue to invest in a complete product line, small, medium and large cars, utilities and trucks and through this whole thing we have not backed off one bit on that product line. Starting with the enabling technology like we just talked about with the EcoBoost, the lightweight materials, the integrated avionics, aerodynamics. We have arguably and most third-party people say we probably have the finest car line up now across the world that is coming on line.

The Ka, the Fiesta, the Focus, the Fusion, the Taurus, the Mustang in addition to the crossovers and trucks. So our plan is every year forever consistency of purpose to improve the quality, fuel efficiency and safety and value of each one of those vehicles. Especially it really picked up steam of course with the vehicles in the next few years being moved to the global platform to get the volume per platform up, get the scale with our suppliers being aligned and I think the pipeline we could not be more pleased with the pipeline we have going forward.

Brian Johnson – Barclays Capital

On the truck side, some in the pickup truck markets are looking at GMC and wondering about the commitment of the two government funded competitors to that market. How are you thinking about the pickup truck market and in particular about getting the pickup truck line up that could meet toughed café requirements as we gravitate towards the California car standards?

Alan Mulally

You bet. Well since you gave me an opening here maybe just finish on that product line a little more. Just going up to the utilities and the crossovers of course we are in terrific shape with the new Escape and Escape Hybrid. Then we move up to the Edge and the Flex and they are doing great with people movers and of course the Lincoln Mercury counterparts too. Then move into the truck and vans. As you know we are introducing around the world our new Raider which is a terrific smaller pickup. Then we move into the F series. The response we have gotten to the latest F series this last year is incredible. We really made an improvement in fuel efficiency in addition to the quality. It is clearly in a class by itself. The number one vehicle in the United States and we are going to continue that commitment on the F series. 34 years of industry leadership it has got to be a significant market. Those customers appreciate the quality, fuel efficiency and safety improvement as much as the smaller vehicles.

Then you add that to what I think is the most exciting part of our line up going forward. The introduction of the Transit vans. We have the great E series vans over time the Transit van family is going to be terrific. We are introducing the new Transit Connect this year and then all versions of the larger, more capable and with that just a substantial improvement in fuel efficiency.

Again, the Ford strategy is to have a vehicle in every one of the major segments to support all the customers’ wants and needs and to be best in class in those segments. I feel really good about this line up going forward.

Operator

The next question comes from Himanshu Patel – JP Morgan.

Himanshu Patel – JP Morgan

I wanted to go back to the North American lock on slide 16. Volume mix was $2 billion negative. Your wholesale shipments are down 350,000 units. It looks like your decremental margin was only $5,700 per vehicle and I think the last couple of quarters it was running in the $8-10,000 range. What is that? Is that entirely F150? Is that fleet sales reduction? Should we think about that $5,700 number as being more sustainable going forward?

Lewis Booth

We had some positive mix in the volume mix change and we also had some improved revenues. So as it goes forward I haven’t laid it out just quite that way you mentioned. I think we are seeing as we launch our new products very positive improvements in series mix as we specify each series in the vehicle line better and customers recognize the value they get they are buying higher series mix. That is something we have been very successful on in Europe. We have talked about that before. It is something that North America is really working hard at. That is one of the underlying reasons we are getting some pricing as well.

Himanshu Patel – JP Morgan

If we think about Chrysler if there was a liquidation there any thoughts on the near-term cash impacts for Ford in terms of what sort of supplier costs you would need to put up and what sort of pricing pressure you think the business would have to cover?

Lewis Booth

We don’t want to speculate on that. Clearly the supplier issues are a concern to us. We have been working very hard on identifying areas of concern. We are working with individual suppliers where they have concerns. Exactly what happens I think is not for us to speculate frankly in terms of in the market place?

Himanshu Patel – JP Morgan

On the cash flow, slide 25, it looks like working capital and other payment timing differences combined were negative $1 billion. I think in the press release you said the pure working capital portion was actually positive which implies the payment timing difference was about a $2 billion negative. What was that? Was that incentive accruals or warranty accruals? What was wandering around on that?

Lewis Booth

Incentives, warranty and also a bit of healthcare. The incentives and warranty, particularly over time as our volumes start picking up quarter-over-quarter we would expect to see that flip flop. The warranties are a reflection that our quality is continuing to get better on our new vehicles and therefore you will probably see that timing difference for some time. We hope for some time because as our new vehicles continue to improve quality we have to accrue a little bit less but our payment is on our older vehicles. That timing difference will stay. I view that as slightly negative on cash but it is great for customers.

Himanshu Patel – JP Morgan

Any way to quantify how much the warranty accrual was?

Lewis Booth

Let me ask Peter. I think he knows.

Peter Daniel

Part of it was a warranty accrual adjustment. It’s about [6/10].

Himanshu Patel – JP Morgan

Lastly, in Europe with the scrappage programs in place now, what are you seeing on used car prices over there? Have there been any material reductions in used vehicles that are sort of 1-5 years old?

Lewis Booth

It varies tremendously by market frankly. For example, in Germany the program includes one year old cars. So there aren’t any one year old cars left in Germany. It is too early to see any long-term effect on the residual values.

Operator

The next question comes from Rod Lache – Deutsche Bank.

Rod Lache – Deutsche Bank

Just to follow-up on this mix question on a year-over-year basis. Can you quantify what the mix improvement was versus the first quarter of last year?

Lewis Booth

Yes. Are you talking North America?

Rod Lache – Deutsche Bank

Yes, North America.

Lewis Booth

It is about $100 million.

Rod Lache – Deutsche Bank

Any comments on just working capital going forward as the production goes up? Should we anticipate just a normal working capital improvement?

Alan Mulally

Yes.

Lewis Booth

The other thing we feel that based on our expectations for the year this is probably the worst quarter for operating cash we are expecting to see the cash outflows reduce during the year.

Rod Lache – Deutsche Bank

Broadly speaking, obviously there is a lot of capacity being taken out, probably I would think it would accelerate as a result of what your domestic competitors are about to go through. Is it your view that pricing in the North American market is going to better structurally? How do you sort of seeing this playing out over the next year or two?

Lewis Booth

I think the real story on pricing the next year or two is going to be around the product, not necessarily around removing of capacity. I think if you have well specified, well accepted products there will be some pricing opportunity and you know that is what we are expecting. I think that is going to be the most important story. As products get fresher the pricing opportunity will be there. Even in these very difficult times the North American team is beginning to demonstrate that.

Rod Lache – Deutsche Bank

Flipping to capital structure you struck a deal with UAW with payments starting in December of this year. Obviously part of that was stock with the strike price of $2. If the stock stays where it is now, at $5 or more, should we be assuming that settling this for stock is kind of off the table and you would be looking at other capital structure alternatives?

Lewis Booth

The agreement with the UAW was that we can settle it in stock but we don’t have to. So we will be studying that very closely as we get towards the end of the year.

Rod Lache – Deutsche Bank

Lastly, any thoughts on the Ford Credit side on losses going forward? Obviously severity is difficult to project. You talked about how the used market is likely to be volatile but can you just talk about your thoughts on frequency and how you see that going based on your expectations for unemployment and other factors including the changes in lending criteria you made recently?

Lewis Booth

Let me ask K.R. Kent to give you a comment on that.

K.R. Kent

No problem. As far as things like the frequency of repossessions they are up. For the first quarter we had about a 3% repossession ratio, up versus last year and up versus the fourth quarter. In all likelihood we will trend with unemployment. As unemployment increases over the next 6-9 months we will see that continue to increase. You also see that in the over 60 day delinquencies which were about 29 basis points in the first quarter which was up from 22 the same time last year. As you mention, the good news is the auction market has come back for now. The severity has [drawed] pretty dramatically. We were about 10,700 severity last year in the fourth quarter. We hit about 9,300 in the first quarter of 2009. Even within the 9,300 in the first quarter by the end of the first quarter, the last month it was all the way down to $8,800 a unit. So repossessions will probably increase but severity right now is having a really good offset.

Rod Lache – Deutsche Bank

Does frequency go up linearly with unemployment and do you have a view on where that just based on your unemployment expectation where that is going to peak? Do you have a view on what the trajectory of that is going to be?

K.R. Kent

I don’t want to give a projection on where it is going to go. It should go up a little bit but like I said a lot of it is tied to unemployment.

Operator

The next question comes from Patrick Archambault – Goldman Sachs.

Patrick Archambault – Goldman Sachs

On slide 16, obviously the pricing performance was pretty strong this quarter. I wanted to just get your thoughts about the sustainability of that kind of a year-over-year increase throughout the rest of the year. I understand there is a lot of new product and that is certainly a positive but while capacity utilization is low there is a lot of competition and a lot of discounting out there. I just wanted to see if it was likely that was going to get sort of sustained for the following subsequent quarters this year? Overall how you see pricing trending for the industry thereafter would be interesting to hear as well.

Lewis Booth

It is hard for us to have sort of a flat year on that. Because it is both mixture of what we do on new products and how competitive we are in new products and then what happens in [census] across us and our competitors. We are encouraged that most dealer stocks seem pretty much under control and as dealer stocks stand in control at a level that is good for pricing opportunity. As Alan took you through the product line we feel pretty comfortable that we have a lot of product activity coming. I think it is not just the individual products themselves but it is the content within those products that make us feel those opportunities. Incentive spending does remain a concern because it is high but as we see people bring their stocks down there is obviously some de-stocking going on that ought to help over time.

Patrick Archambault – Goldman Sachs

There have been some out there who are concerned about the level of competitiveness down the road for Ford given some of the significant restructurings that are taking place at some of your major competitors, some of whom may even go through a bankruptcy to restructure. I just wanted to get your general thoughts on that and maybe more specifically should GM or Chrysler get additional concessions and I don’t want to be necessarily specific as to what they are, but generally speaking on compensation and other areas do you expect that even though are potentially not going to go through bankruptcy would you expect you would be able to get parity with those?

Alan Mulally

I understand completely. I think I would back us up to what the President and what the Auto Task Force has been charged to do and the reason we went back to support our competitors for the good of the industry because this is a really important industry for a lot of reasons, especially the confidence in the economy and we want to be part of the solution with the turnaround. They have stated very clearly it is about a viable industry going forward. Of course, the Ford plan we have been very clear about it. We started these actions a few years ago to create a viable, exciting, profit building company. We include all the stakeholders. I think we have a pretty clear track record now of working with all the stakeholders to improve the competitiveness of Ford going forward and we will continue to do that as we go forward.

Our goal is to continue to increase our competitiveness and be there for our customers. I don’t think we are going to be disadvantaged.

Patrick Archambault – Goldman Sachs

Said another way then even though you went to the unions and renegotiated equitizing some of the ABIVA and some aspects of the labor contract, it wouldn’t be a foregone conclusion that you wouldn’t be able to do that again to sort of match things that were done at some of the other auto companies?

Alan Mulally

Exactly.

Patrick Archambault – Goldman Sachs

Lastly, just more along a housekeeping guidance, can you give us a sense just to what we should be thinking about in terms of the “other” expense now that the tender offer is presumably going to have a pretty big impact on that? I guess it has been running $300-400 million but I guess I would expect it to be lower. Can you help us with that?

Lewis Booth

As we said we are going to see about a $500 million reduction in interest expense because of the debt restructuring but that is going to be mostly offset by the fact that we did draw the revolver so we are paying those. It is going to be flattish as an effect.

Operator

The next question comes from Chris Ceraso – Credit Suisse.

Chris Ceraso – Credit Suisse

Maybe one last one on the first quarter issue vis a vie the F series. How much inventory of the new product in truck did you build in the first quarter?

Lewis Booth

I don’t have it at my fingertips. I don’t think anybody else does. We can get back to you on that.

Chris Ceraso – Credit Suisse

You mentioned in your earlier remarks about the taxing in the quarter. Was that included in special items? Or was that part of the $0.60 adjusted number that you reported?

Lewis Booth

That was part of the adjusted number we showed and in terms of guidance that was mostly one of the good news. In terms of going forward we would expect to see some smaller amounts of tax paid because we are making money in some jurisdictions and we will pay tax on that.

Chris Ceraso – Credit Suisse

What exactly was that again?

Lewis Booth

The federal news was in the prior period tax recoveries.

Chris Ceraso – Credit Suisse

In past slide decks and I didn’t catch it in this one there was a more detailed walk on cost performance and the expectation of where you would land for the year versus how you did in the quarter. I didn’t see that here and I’m interested to know on both the manufacturing and engineering side as well as material costs how you see things progressing through the balance of the year and what your expectation is for the full year on those items?

Lewis Booth

In terms of structural costs we started the year with guidance and we expect to achieve about $4 billion and based on the strong start in the first quarter we expect to exceed that $4 billion target. In terms of material costs, I don’t have that in front of me but it is probably going to be a bit good, flat to a little bit good. Flat to slightly bad during the full year.

Chris Ceraso – Credit Suisse

On the engineering and manufacturing can you trace that back to X number of heads, when they were announced so we can get a feel for what to expect there?

Lewis Booth

Not in a big forum. We can give you a bit of guidance separately on that. It is not the sort of thing we want to go into.

Chris Ceraso – Credit Suisse

I remember last year you changed the way you were accruing for incentives, doing something a little bit heavier earlier in the year. Did that have any bearing on the favorable effect you showed in pricing on slide 16?

Lewis Booth

No. I don’t believe it did. No, the guys are telling me no. I’m sorry, I can answer your F series question we built 32,000 units of stock in the first quarter.

Operator

Ladies and gentlemen at this time we would like to welcome questions from the media community. (Operator Instructions) The first question comes from Bryce Hoffman – The Detroit News.

Bryce Hoffman – The Detroit News

I wanted to ask just about the detail, why are you increasing production slightly in North America?

Alan Mulally

Well, we believe the decisive actions we actually have taken over the last few quarters we have the dealer stocks well in line and what we see with the reception of new products we believe we can go up a little bit more to support demand.

Bryce Hoffman – The Detroit News

I may have missed it but did you talk about what warranty costs did over the quarter?

Lewis Booth

No we didn’t explicitly. We had a bit of a discussion about the timing differences on warranty. Our warranty costs are under control.

Alan Mulally

And reflect the higher quality too.

Operator

The next question comes from Jeff Bennett – Dow Jones Newswires.

Jeff Bennett – Dow Jones Newswires

Alan you say you don’t need a U.S. bridge loan but can you give us an update on the status of securing government funding from like Europe and other places in the world?

Alan Mulally

Starting with the United States, we are very actively involved in closing in on the 136 Department of Energy initiative that went with 2007 Energy and Events and Security Act on enabling technology for fuel efficient vehicles. We are very gratified that our enabling technology and our product line up lines up very well with the intent of that legislation. We are getting very close there. We continue to work, as you point out, with the opposing agencies in Europe. I think our present line up very well with that money.

Jeff Bennett – Dow Jones Newswires

On the suppliers, suppliers are getting paid by this federal government program but because of the health of it and some of the charges that the federal government program has put on it, would you like to see the government go back and perhaps change that program making it easier for suppliers to get in instead of having to pay 2%?

Alan Mulally

I think to your point the government really understands the criticality of the suppliers and I think as you pointed out the guarantees were a great first step. I think they will continue to look at ways to ensure that we are able to keep moving on this restructuring and keep the fundamental supply base intact.

Operator

The next question comes from Brent Snavely – Detroit Free Press.

Brent Snavely – Detroit Free Press

In slide four it looks like you said that you saved $1.9 billion in structural costs and I guess there is a goal to save $4 billion throughout the year. Can you tell us a little bit more about how you are doing that? What kind of steps you are taking and how urgent that is across the organization?

Alan Mulally

You bet. It is across all the disciplines, led by of course manufacturing and engineering. Every element of the plan, the quality, productivity, shortened cycle time, less inventory, improvement in working cap plus all the other functions too like sales and marketing, everybody has a continuous improvement quality and productivity plan and as you can see we had a target for $4 billion for the year and we are off to a very good start. We believe that we will be able to exceed that target for the year.

Brent Snavely – Detroit Free Press

You mentioned dealers a couple of times during the presentation how much it seems like that is the one area left you are still working on where there hasn’t been an actual piece of the puzzle put in place for reductions or concessions. What is the status of that?

Alan Mulally

We really have. Over the last few years we have been working very closely with our dynamite dealers to just rationalize our distribution system. As we pointed out there are just a few areas where we need to deal with especially in the big metropolitan areas where we just want to make sure we increase the throughput and the profitability of our dealers. We have been consolidating in a very thoughtful way and working with them but I would just like to say again that Ford has a tremendous dealer network in most communities around the United States and we only have a few areas where we need to continue to consolidate for the good of the dealers themselves.

Operator

The next question comes from Joe Szczesny – Oakland Press.

Joe Szczesny – Oakland Press

I was wondering if you could quantify this production increase you are setting out for the second quarter? I notice it says up 19.5% to 902,000 units. Is that worldwide or is that in North America only?

Alan Mulally

In the presentation and also in the press release we separated out North America and also Ford of Europe. In North America we are increasing to 435,000 which is a 25% increase in production. In Ford Europe we are increasing to 385,000 units which is a 13% improvement.

Joe Szczesny – Oakland Press

Is your pension fund fully funded at this point?

Alan Mulally

No it is not.

Lewis Booth

We don’t expect to need to make cash payments into the pension fund into the U.S. pension funds this year.

Operator

The next question comes from Amy Wilson – Automotive News.

Amy Wilson – Automotive News

I wanted to ask you had a salaried job cut you finished up in January but I think sales looked like they were going to be lower this year than what you thought at that time you planned that cut. Do you need to go back and look at salary headcount again in North America?

Alan Mulally

We are in pretty good shape right now. It is a little bit lower now in the first two quarters. We anticipated that the absolute level would be a little bit less than 2008. It is starting to pick up again in the third and fourth quarter so we have completed that part of the restructuring and we will continue to work our fundamental productivity but watch very carefully the market mixture that matches our production capability to demand. We look pretty good for now.

Amy Wilson – Automotive News

In terms of the UAW buyout that you are in the middle of that window, how was the acceptance rate on the packages coming along?

Alan Mulally

A little too early to tell.

Operator

The next question comes from Eric [Main] – [AwardAuto.com].

Eric [Main] – [AwardAuto.com]

Another question on the structural cost improvement if you don’t mind. You are very optimistic about the gains you expect to make. Can you identify the single area where you see the most promise? Is it in manufacturing, on advertising and sales promotions?

Alan Mulally

Yes.

Eric [Main] – [AwardAuto.com]

A single one?

Alan Mulally

No, all of the above. It really is an important question because we have been working the entire production system. I will just give you an example, as we move into our global platforms you can imagine the efficiency we are able to gain in engineering and manufacturing and as we simplify the products you have had a chance to see what we are doing to take the complexity out of the products and the align our suppliers and consolidate that it just gives us a tremendous improvement in fundamental productivity where we can do more with a lot less resources. I would characterize that as across all professional scales against the development system for the vehicles, also the production system of the vehicles and continuing to improve quality and reduce costs. The fundamental plan is to be able to provide the vehicles people want and use less time and less resources in total.

Operator

Ladies and gentlemen at this time we will conclude with one final question from the analyst community. Your final question comes from Itay Michaeli – Citigroup.

Itay Michaeli – Citigroup

I wanted to dig in a little bit more on 2011 updated forecast particularly in North America. It looks like you are gaining some more confidence there. I remember the original target had about a 15+ SAAR. Is your confidence level now that could be achieved under lower selling rate? Also if you could touch upon how much cost savings you expect between now and then?

Alan Mulally

Absolutely. I think with the progress we are making I think we can do that with somewhat lower SAAR. We are going to continue to work on it. The most important thing is each quarter and each year that we continue to improve our quality and productivity just moves us along faster.

Itay Michaeli – Citigroup

Is there a way to quantify what order of magnitude, how much cost savings or the way you show it in your slides we should be thinking about between now and then?

Alan Mulally

I think the most important thing that we have shared is that $4 billion for 2009. That was a very significant target for us and everybody has really pulled together and we are making progress as we talked about across the corporation and to be able to deliver that $1.9 during the first quarter just gets us off to a really good start and gives us a lot of confidence we will be able to continue to remove the waste from the system and improve our productivity.

Itay Michaeli – Citigroup

Quickly on South America, how have you been thinking about margins there the rest of the year? It came in a little bit lighter than what we were thinking in Q1. Any help you can shed on the cadence there?

Lewis Booth

It will very much depend on the effects of currency and the industry. South America where you have some dollar based commodities when the currency weakens you end up with a material cost problem. Obviously the industry is quite strong at the moment because it is getting some encouragement from government activity. So that is an area we are watching very close. The big hit in South America this quarter was currently growth in internal currency and obviously some transaction currency effects.

Itay Michaeli – Citigroup

Lastly, with Ford Credit reducing the size of its balance sheet how should we think about just the overall earnings power in the next year? I know there isn’t an official 2011 target for Ford Motor Credit but anything you could share in how we should be thinking about the way you are targeting it?

K.R. Kent

I don’t particularly want to give a forecast for where the earnings are going. The way I think about it is for the most part we have our margins under control. We are underwriting appropriately going forward and picking up what we think will be a right credit losses which really adds a ton of volatility to our earnings for the last year and a half in the auction industry. So that will be anthemed a bit going over time as we reduce the level of leasing that we are doing this year and it will slowly build into the portfolio as the lease portfolio comes down. I think that will take a lot of the volatility out. The other big thing we have been focusing on is getting our operating costs down to match where the lower balance sheet will end up and so that will be a nice profit improvement for us.

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.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Ford Motor Company Q1 2009 Earnings Call Transcript
This Transcript
All Transcripts