Ford Motor Company (F) CEO Discusses Q2 2013 Results - Earnings Call Transcript

Jul.24.13 | About: Ford Motor (F)

Ford Motor Company (NYSE:F)

Q2 2013 Earnings Conference Call

July 24, 2013 09:00 AM ET

Executives

Alan R. Mulally - President and CEO

Robert L. Shanks - EVP and CFO

Mark Fields - COO

Stuart Rowley - Corporate Controller

Neil Schloss - Corporate Treasurer

Paul Andonian - Director of Accounting

Mike Seneski - Ford Credit CFO

George Sharp - Executive Director, IR

Analysts

Colin Langan - UBS

Patrick Archambault - Goldman Sachs

Rod Lache - Deutsche Bank Securities

John Murphy - Bank of America Merrill Lynch

Brian Johnson - Barclays Capital

Adam Jonas – Morgan Stanley

Matt Silver – Guggenheim

Craig Trudell - Bloomberg News

Vipal Monga - Wall Street Journal

Deepa Seetharaman - Thomson Reuters

Nathan Bomey - Detroit Free Press

Mike Ramsey - Wall Street Journal

Karl Henkel - The Detroit News

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter Ford Motor Company Earnings Conference Call. My name is Katrina and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I’ll now like to turn the presentation over to your host for today Mr. George Sharp, Executive Director of Investor Relations. Please proceed.

George Sharp

Thank you, Katrina, and good morning. Welcome to everyone joining us today either by phone or webcast. On behalf of the entire Ford management team I’d like to thank you for taking the time to be with us this morning so we can provide you with additional details of our second quarter 2013 financial results.

Presenting today are Alan Mulally, President and CEO of Ford Motor; and Bob Shanks, Chief Financial Officer. Also participating are Mark Fields, Chief Operating Officer; Stuart Rowley, Corporate Controller; Neil Schloss, Corporate Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO.

Now copies of this morning’s press release and presentation slides are available on Ford’s investor and media website. Please note that the financial results discussed today are preliminary and include references to non-GAAP financial measures. Final data will be included in our Form 10-Q and a non-GAAP financial measures are reconciled to the U.S. GAAP equivalent in the appendix of the slide deck.

Finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance. Of course, actual results could be different. The most significant factors that could affect future results are summarized at the end of this presentation and detailed in our SEC filings.

With that, I’d like to turn the presentation over to Alan Mulally.

Alan R. Mulally

Thank you, George, and good morning. We are pleased to review our second quarter performance and the progress we continue to make in delivering our One Ford Plan. Let’s turn to the first slide please.

Our One Ford Plan depicted here remains the foundation for everything we do. Across the Ford Enterprise we continue to aggressively restructure the business to operate profitability at the current demand and changing model mix, accelerate development of new products our customers want and value; finance our plan and continually improve our balance sheet and work together effectively as one team leveraging our global assets.

Our goal is to serve customers in all markets with a full family of best-in-class vehicles, small, medium and large cars, utilities and trucks, delivering profitable growth for all. No place is as better represented than in China, where execution of the One Ford Plan is well underway with growing evidence of our success demonstrated in our results.

As shown here on slide 2, our product portfolio is rapidly expanding in China. With five new segment launches in 2013, we’re nearly doubling our lineup by year-end and we continue to freshen our showrooms with three all new or refreshed products. Our dealer network in China is also expanding to serve our customers. We’re on track to grow from about 600 dealer outlets at the end of 2012 to more than 900 by 2015.

Strong sales of our new products grow significant market share improvements in China, stay in their record quarterly market share of 4.3% in the second quarter. In fact, our market share in China improved seven times representing its point from the first quarter and was up 1.5 percentage points from the same period last year.

To meet the growing demand for Ford vehicles in China, Changan Ford one of our joint ventures, opened a new engine plant last month in Chongqing, more than doubling Changan Ford’s annual engine capacity. The plant initially will produce the award winning 1.0-liter EcoBoost engine with our turbo charged direct injection three cylinder engine, recently named international engine of the year for the second year running as well as a 1.5-liter naturally aspirated four-cylinder engine.

Also in June, JMC another of our joint ventures, opened a new commercial vehicle assembly plant in Nanchang. This new highly flexible production facility more that doubles JMC’s annual capacity. We also announced plans to bring two new global products to JMC, an all new Ford commercial vehicle in all new Ford SUV. With the launch of these products, Ford will have a full portfolio of vehicles in China, delivering on our plan to introduce 15 new vehicles in China by 2015.

Let’s now turn from the exciting progress we’re making in China to our second quarter results. We’ll start on slide 3, with a summary of our accomplishments. The Company had an outstanding second quarter, earning operating profit of $2.6 billion, our 16th consecutive profitable quarter.

Automotive operating related cash flow was very strong at $3.3 billion, and quarterly end liquidity exceeded $37 billion. The top line has showed double-digit percentage gains in year-over-year growth in both wholesale volume and total company revenue, supported by market share gains in all regions around the world.

Among our business units, both North America and Asia Pacific had record results. In North America we had a highest second quarter and first half pre-tax results, and in Asia Pacific and Africa, we achieved our best pre-tax profit of any quarter. Ford credit, once again delivered solid performance and South America returned to profitability. Europe incurred a loss, but it was improved compared with both a year-ago and the first quarter, as we continue to execute our transformation plan leading to profitability by mid-decade.

Total automotive operating margin at 6.4%, improved 1.5 percentage points from 2012 with all regions contributing to our strong performance. Today we’re improving our full-year Company financial guidance. We now expect total Company pre-tax profit to be about equal to or higher than 2012. In automotive operating margin to be about equal to 2012. We also now expect automotive operating related cash flow to be substantially higher than last year.

Before turning to the financial details, let’s recap several other noteworthy achievements from the second quarter. As shown on Slide 4, we launched a number of products around the globe, including the refreshed Fiesta in the U.S., Brazil, and Argentina; the Tourneo Custom in Russia; the Fiesta ST in South Africa and China; the EcoSport in India; and the 1.5-liter EcoBoost in Asia Pacific and Africa.

In Russia, we started full production of Explorer in our Elabuga Assembly Plant. At the Shanghai Motor Show we introduced the Escort Concept indicating our future direction to meet the preferences of Chinese customers. We announced investment in two new engine plants, one in China at JMC and another in Russia at our Ford Sollers joint venture.

In Australia we announced the transformation of our business with plants discontinued domestic manufacturing in 2016 and serve our customers with an exciting lineup of products from around the Ford world. Meanwhile in the U.S., we celebrated the sale of more hybrid vehicles in the first five months of the year than we had sold previously in any full year.

Finally, in North America we announced the addition of over 2,000 jobs in Kansas City to support higher F-Series demand and launch of the Ford Transit. This addition along with 1,400 jobs to be added at our Flat Rock Assembly Plant enabled an increase in the straight-time capacity of 200,000 units annually to meet demand. We're also announcing the reduced summer shutdown throughout North America.

Bob Shanks will now take us through the details of our financial performance in the quarter. Bob?

Robert L. Shanks

Thanks, Alan, and good morning everyone. I'm very pleased to be able to share our second quarter results with you today. Second quarter wholesale volume was 1.7 million units, up 231,000 units or 16% from a year ago and revenue at $38.1 billion was up $4.8 billion or 15%.

Pre-tax profit was $2.6 billion, excluding special items, $726 million higher than a year ago and our after-tax earnings per share at $0.45 were $0.15 higher. Net income attributable to Ford including unfavorable pre-tax special items of $736 million was $1.2 billion, $193 million higher than a year ago.

Earnings were $0.30 a share, up $0.04. Special items in the second quarter included $442 million for separation-related actions, primarily in Europe and $294 million associated with our U.S. salary retiree voluntary lump sum payout program. You can find additional detail on these special items in Appendix 3.

Automotive operating-related cash flow was $3.3 billion marking the 13th consecutive quarter of positive performance. Automotive growth cash improved to $25.7 billion exceeding debt by $9.9 billion. Our second quarter operating effective tax rate which isn't shown was 32% consistent with prior guidance. We continue to expect our full year operating effective tax rate to be similar to 2012, which was 32%.

In the first half, vehicle wholesales and revenue increased by about 13% from a year ago and first half pre-tax operating profit, excluding special items, was $4.7 billion, a $579 million improvement. Net income was $2.8 billion, $408 million higher than a year ago.

As shown on slide 6, both of our sectors, automotive and financial services, contributed to the total company's second quarter pre-tax profit of $2.6 billion. And as shown in the memo below the chart, profit improved $726 million from a year ago driven primarily by the automotive sector. Compared with first quarter 2013, total company pre-tax profit improved $409 million reflecting higher automotive profit.

The key market factors and financial metrics for our total automotive business are shown on slide 7. The strong automotive performance reflects continued outstanding performance in North America, recovery in South America from the exchange-driven loss in the first quarter, great progress in Europe and continuing to deliver our transformation plan and as noted, the best ever quarterly profit in Asia-Pacific, Africa.

As already mentioned, total automotive second quarter wholesale volume and revenue were both up strongly from a year ago. The higher volume reflects improved market share in all regions and higher industry volume in all regions except Europe, as well as lower dealer stock reduction this year compared with the year ago.

The growth in revenue reflects higher volume in all regions and net pricing gains everywhere except Europe, offset partially by unfavorable exchange in all regions. Automotive pre-tax profit was $2.1 billion, up $722 million from the year ago, more than explained by favorable market factors and that's volume, mix and net pricing.

Operating margin at 6.4% was 1.5 percentage points higher reflecting mainly favorable market factors. As shown in the memo below the chart, first half volume and revenue were both 13% higher than a year ago and total automotive first half pre-tax profit at $3.7 billion and operating margin at 5.8% also were both higher.

The $700 million increase in total automotive second quarter pre-tax profit compared with 2012 as explained by the causal factors shown on slide 8. The improvement reflects favorable market factors across all regions, offset partially by higher cost and unfavorable exchange primarily in South America.

The cost increases mainly reflect investments in higher volume, growth and new products for this year and the future, as well as restructuring-related costs in Europe and higher pension in OPEB expense in North America and Europe. As shown in the memo, pre-tax profit was $0.5 billion higher than first quarter, more than explained by favorable volume and mix and exchange. You can find more details on the quarter-to-quarter change in Appendix 8.

Our second quarter pre-tax results for each of our automotive operations as well as other automotive are shown on slide 9. All regions were profitable except Europe and they all improved compared with the year ago. In addition, the regions outside North America achieved the best combined results since second quarter 2011.

Other automotive reflects net interest expense offset partially by a favorable fair market value adjustment on our investment in Mazda. For the full year we now expect automotive net interest expense to total about $800 million to $850 million. This is up from our prior guidance of $750 million to $800 million, primarily due to the impact of rising interest rates on the market value of our cash investments portfolio.

Now we'll look at each of the regions within the automotive sectors starting on slide 10 with North America. North America continued to perform very well achieving a pre-tax profit of $2 billion or more and an operating margin of 10% or more for the fifth time of the last six quarters.

In the second quarter, this reflects improving industry sales and a healthy full-size pickup segment, our strong product lineup, U.S. market share growth including strong growth in the East and West Coast markets, continued discipline in matching production to real demand and a lean cost structure, even as we invest more in product and capacity for future growth.

As you can see on the first two graphs on the left, North America grew strongly in the second quarter with wholesale volume and revenue each 14% higher than a year ago. The higher volume drove the revenue increase. The volume improvement mainly reflects higher U.S. industry sales increasing from SAAR of 14.5 million to 15.7 million units and the higher U.S. market share.

North America pre-tax profit was $2.3 billion, $390 million higher than a year ago and operating margin at 10.4% also was higher. Favorable market factors more than account for the improvement in both metrics. As shown in the memo below the chart, North America first half, pre-tax profit was $4.7 billion, a first half record, and operating margin was 10.7%, about the same as the year ago. Volume and revenue were both about 16% higher than the same period a year ago.

On slide 11, we show in more detail the causal factors that drove the $300 million improvement in North America second quarter pre-tax profit. As mentioned, the improvement was driven by favorable market factors offset partially by higher costs, including investment and new products and growth. As shown in the memo, pre-tax profit decreased by $100 million compared with first quarter, more than explained by higher costs.

Ford U.S. market share trends are shown on slide 12. Total U.S. market share increased in the second quarter compared with last year and the prior quarter. Retail share of the retail industry also improved from the year ago but was down from the prior quarter. Starting on the left, our total market share was 16.5%, up nine-tenths of a percentage point from the same period last year, reflecting robust F-Series sales and strong sales of the all new C-MAX and Escape.

Our share was up six-tenth of a percentage point from first quarter 2013 reflecting stronger demand for small cars and E-Series vans from our fleet customers and the higher retail sales of Lincoln MKZ and Escape. As shown on the right, our retail market share of the retail industry was 13.7% up 9/10 of a percentage point from last year reflecting increases in F-series, small cars, Escape and MKZ. This includes favorable market segmentation for full-size pickups and mid-size premium cars. Our retail market share declined from first quarter reflecting primarily lower dealer inventory of some products including Fusion and Explorer. We expect to address these constraints in the second half with the launch of Fusion at our Flat Rock assembly plant and an increase in Explorer capacity at our Chicago facility. Now turning to our full-year guidance for North America, it remains unchanged. We continue to expect higher pre-tax profit compared with last year, and an operating margin of about 10%.

Let’s turn now to slide 13, and talk about South America. In South America we’re continuing to execute our strategy of expanding our product lineup while progressively replacing legacy products with global ONE FORD offerings. Customer response to the new Ranger pickup has been strong while the all new EcoSport and Fusion are segment leaders. The recently refreshed Fiesta is also launched to a strong start. In the second quarter wholesale volume and revenue increased from a year ago by 24% and 28% respectively. The higher volume reflects favorable changes in dealer stocks, higher industry sales which increased from a SAAR of 5.3 million to 5.8 million units and higher market share. The market share increased from 9.4% to 9.6% with more than explained by strong sales of EcoSport.

South America’s growth in revenue were driven mainly by higher volume from new products and that pricing gains offset partially by unfavorable exchange. Pre-tax profit was $151 million and the operating margin was 5%. The year-over-year improvement in both metrics is more than explained by a favorable volume in mix and net pricing gain. As shown in the memo below the chart, South America first half loss was $67 million which is more than explained by the impact of the devaluation of the Venezuela and Bolivar in the first quarter. Volume and revenue were higher than last year.

On slide 14 we show more detail behind the $146 million increase in South America’s second quarter pre-tax results. As mentioned our new products are gaining momentum and contributed the favorable mix and higher net pricing in the second quarter. Higher costs and unfavorable exchange were partial offsets. As shown in the memo pre-tax results were $369 million better than first quarter explained primarily by favorable market factors and exchange offset partially by higher cost. Our full-year guidance for South America remains unchanged. We continue to expect results to be about breakeven in an environment that remains challenging across the continent.

Let’s turn now to Europe beginning on slide 15. As we’ll discuss in more detail shortly Europe is well on track in executing our transformation plan focused on product, brand and cost. In the second quarter Europe’s wholesale volume and revenue each improved about 8% from a year ago. The volume increased primarily reflects non-repeat of dealer stock reductions incurred in 2012 and higher market share. Lower industry volume was a partial offset. The SAAR declined from 14.4 million units a year ago to 13.6 million units this year. Europe’s market share improved 5/10 of a percentage point from 7.6% to 8.1% more than explained by higher share of the retail market. The increase in Europe’s revenue mainly reflects the higher volume. The pre-tax loss for Europe was $348 million and the operating margin was a negative 4.6%, both improved from a year ago despite the lower industry and the restructuring cost associated with our transformation plan. As shown in the memo below the chart, Europe’s first half loss was $810 million and operating margin was negative 5.7%, both worse than a year ago more than explained by $291 million from restructuring costs. Volume and revenue were about equal compared with last year.

Slide 16 shows more detail of the causal factors that drove the $56 million improvement in Europe’s second quarter pre-tax results from a year ago. The improvement is more than explained by a favorable volume in mix offset partially by higher structural cost mainly accelerated depreciation and a non-recurring write-off related to facilities we plan to close. The memo on the right side of the slide shows the restructuring related cost that are included in our operating results. Personnel separation related costs which were significant this quarter are captured in special items. As show in the memo below the chart pre-tax results improved $114 million compared with first quarter mainly due to favorable volume and mix.

Slide 17, which is new this quarter shows total market share for the 19 Europe markets we track as well as passenger car retail market share of the retail industry for the five major European markets, and these five major European markets represent about 75% of the 19 markets. Starting on the left, our total market share was 8.1% up 5/10 of a percentage point from the same period last year more than explained by strong sales of the all new V-Max and improvements by Transit, Kuga and Ranger. The share also was a 4/10 of a percentage point from first quarter. A key element of our European transformation plan is to focus on retail sales and to reduce reliance on short cycle rental and dealer self-registration units. This is key to our brand health, residual values and margins.

As shown in the right hand chart, our strategy is working. Our share of the retail segment of the five major European markets grew to 8.3% in the first quarter and 8.4% in the second quarter nearly two percentage points better than the same period last year. This improvement has been underpinned by the strong retail performance of our all new V-Max and Fiesta as well as retail share gains for Focus. Consistent with our strategy dealer stock day supply of new vehicles at the end of the second quarter have been reduced in line with our plan and stocks of dealer self-registered vehicles have been reduced by about 2/3 compared with prior-year. Going into the third quarter our retail order banks are very healthy and about 50% higher than prior-year in a down market.

The slide 18 shows, we continue to progress in delivering our European transformation plan. Our product acceleration remains on track with the introduction now of five new passenger and two new commercial vehicles through June. Due in part to the strength of our new products as already noted our retail share improved sharply in the second quarter and our fleet share also improved 4/10 of a percentage point. Internal data also suggest we’re improving quality and the perception on the Ford brand and the region as well. We continue to make progress on cost too including our plan to close three facilities and relocate production for a more efficient manufacturing footprint. Our Southampton Assembly plant and Dagenham Stamping and Tooling operations will close at the end of this week and we’ve completed the consultation process with the unions at our Genk, Belgium plant which is scheduled to close at the end of next year.

As mentioned earlier, special items in the second quarter shown in Appendix three include $442 million for world-wide separation related actions of which $419 million was related to separation cost per personnel at the Genk and U.K. facilities as part of our transformation plan. The total of these separation cost is estimated at about $1.2 billion all of which we expect to incur by year end 2014 with about $800 million we recognized this year including the $400 million I just mentioned for the second quarter.

Now in terms of our full-year guidance for Europe we now expect our loss to be about the same as the year ago or about $1.8 billion. This compares to our prior guidance of a loss of about $2 billion. While the outlook for the business environment in Europe continues to be uncertain, data trend suggest that economic and industry conditions may have begun to stabilize.

Let’s now turn to Asia Pacific, Africa on Slide 19. Our strategy in Asia Pacific, Africa is straight forward, to aggressively grow with an expanding portfolio of global ONE FORD products tailored for the region with manufacturing hubs in China and India and in ASEAN. Implementation of the strategy is fairly gaining momentum. As shown on the left second quarter wholesale volume was up 27% from a year ago and net revenue which excludes our China joint ventures grew 35%. The higher volume reflects mainly higher market share as well as stronger industry sales which increased from a SAAR of 33.4 million units to 35.4 million. Unfavorable changes in dealer stocks were a partial offset. Second quarter market share in the region was 3.6%, one full percentage point higher than a year ago and a quarterly record. The 38% improvement was driven by China which isn't shown where our market share improved as Alan mentioned by 1.5 percentage point to a quarterly record of 4.3% reflecting mainly strong sales of the new Focus, Kuga, and EcoSport. Asia-Pacific, Africa's higher revenue primarily reflects favorable volume and mix.

Pre-tax profit at $177 million was in any quarter record and operating margin was 5.8% both improved from last year due to favorable market factors. This was also the regions fourth consecutive quarterly profit. As shown in the memo below the chart, Asia-Pacific, Africa first half profit was $183 million with an operating margin of 3.2% both higher than a year ago. Volume and revenue also increased.

The $243 million improvement from a year ago in Asia-Pacific, Africa second quarter pre-tax results is explained by casual factor on slide 20. As we've seen in past quarters, top line related factors were favorable offset partially by higher costs as we continue to invest for future growth as well as unfavorable exchange. We also benefited from higher royalties, parts and accessories profits as well as an insurance recovery all included in other.

As shown in the memo, Asia-Pacific, Africa pre-tax results were $171 million higher than first quarter 2013 more than explained by favorable volume and mix. Given the strong first half performance and the momentum demonstrated by our business in the region, we now expect Asia-Pacific, Africa to be profitable for the full year.

Turning now to Ford Credit, slide 21 shows the $16 million increase in second quarter pre-tax results compared with the year-ago by causal factor. The results are more than explained by higher receivables and financing margin, offset partially by lower credit loss reserve reductions. As shown in the memo, Ford Credit's pre-tax results decreased by $53 million compared with first quarter due to unfavorable mark-to-market on the derivative portfolio and seasonal insurance losses.

Ford Credit remains key to our global growth strategy providing world class dealer and customer financial services, maintaining a strong balance sheet and producing solid profits and distributions. For the full year, Ford Credit continues to expect pre-tax profits to be about the same as last year and distributions to the parent of about $200 million. Ford Credit now expects year-end managed receivables to range between $97 billion and $102 billion which is within our prior range of $95 billion to $105 billion.

Next on slide 22 as our automotive gross cash and operating related cash flow, as you can see here automotive gross cash at the end of the quarter was $25.7 billion, an increase of $1.5 billion from the end of the first quarter. Automotive operating related cash flow was $3.3 billion driven primarily by automotive profits of $2.1 billion and favorable timing differences of $1.2 billion.

During the quarter, we contributed $1 billion to our worldwide funded pension plans which included about $800 million of discretionary payments to our U.S. funded plans in line with our long-term pension derisking strategy. Dividends paid in the quarter totaled about $400 million and we continued our compensation-related share repurchase program.

In the first half, our operating related cash flow was $4 billion and gross cash improved $1.4 billion. We now expect automotive operating related cash flow to be substantially higher than it was in 2012 which compares to our prior guidance of simply higher which was $3.4 billion in 2012.

Now we'll summarize our automotive sector cash and debt position at the end of the quarter which is captured on slide 23. Automotive debt at the end of the quarter totaled $15.8 billion which was $200 million lower than first quarter. In April, we took advantage of favorable market conditions by increasing our revolving credit facility from $9.3 billion to $10.7 billion and extending this maturity from November 2015 to November 2017. We entered the quarter with net cash of $9.9 billion and liquidity of $37.1 billion.

We'd now like to provide on slide 24 a special update on our pension derisking strategy. In the first half, we contributed $2.8 billion to our global funded pension plans including $2 billion in discretionary contributions to our U.S. plans. For the full year, we continue to expect contributions of $5 billion to our global funded plans including about $3.5 billion in discretionary contributions.

In the second quarter we settled $1.5 billion of obligations related to the U.S. salary retiree voluntary lump sum program with $2.7 billion settled since the inception of the program last year. As a result of the second quarter settlement, we recognized a special item charge of $294 million reflecting the acceleration of unrecognized losses in the plan. The lump sum program now is about 60% complete based on obligations and concludes by year end.

Also we've continued to progressively improve the mix of fixed income assets to our plans portfolios with the objective of reducing funded status volatility. As a result of the strategic actions we've been taking along with recent increases in discount rates, the funded status of our global funded pension plans significantly improved as of June 30 compared with the end of last year. As usual we'll provide a full update at the end of the year.

Now with that, I'd like to turn it back to Alan who'll take us through our outlook for the business environment as well as an update of our 2013 planning assumptions and key metrics.

Alan R. Mulally

Thank you, Bob. Summarize on slide 25 is our view of the business environment going forward. Overall, our outlook has not changed substantially. We project 2013 global GDP growth to be at the lower end of the 2% to 3% range. Global industry sales are projected at the higher end of an 80 million to 85 million unit range.

U.S. economic growth is expected to be in a 2.5% range with industry sales supported by continuing improvement in the housing sector and replacement demand as a result of the older age of vehicles on the road. In South America, recent developments in Brazil add uncertainty to the near-term outlook while in Argentina and Venezuela; there are escalated risks as both economies are weak with an unclear economic policy direction.

The Euro Area is in recession but incoming data suggests that economic and industry conditions may have begun to stabilize. Recent policy decisions such as the European Central Bank's rate cut and the European Union's extension of deficit targets for some markets are positive steps.

In Asia Pacific and Africa, economic indicators point towards growth in the 7% to 8% range in China this year. Growth in India on the other hand is below its full potential due partially to high inflation and interest rates. Overall, despite challenges we expect global growth to continue for 2013.

Our guidance for 2013 is detailed here on slide 26. We now expect full year industry volume to range from 15.5 million to 16 million units in the U.S., Europe to be at the higher end of 13 million to 13.5 million unit range and China to range from 20.5 million to 21.5 million units.

We project our full year market share to increase over 2012 in the U.S. and China and to be about equal to last year in Europe. But we expect our retail share of the retail market in Europe to improve.

Our total company second quarter production volume shown in Appendix 5 was about 1.7 million units, 218,000 units higher than a year ago, reflecting higher volumes in all regions. We expect total company third quarter production volume to be about $1.6 million, up 195,000 units from a year ago, also reflecting higher volumes in all regions. The outlook for quality is now mixed as we expect performance in North America, South America and Asia-Pacific to be about the same as last year but Europe to be better.

In terms of our financial performance, we now expect total company pre-tax profit to be about equal or higher than 2012, automotive operating margin to be about equal to 2012 and automotive operating related cash flow to be substantially higher than 2012 including capital spending of about $7 billion to support our industry leading product refresh rates, expansion of our portfolio in an absolute sense and across the regions and capacity actions. Overall, 2013 is proving to be another strong year for the Ford Motor Company as we continue to work towards our mid decade outlook.

In closing, our One Ford Plan is built on a compelling vision, comprehensive strategy and relentless implementation. As the results we have announced today make clear our One Ford Plan continues to deliver profitable growth around the world and we are absolutely focused on building great products, creating a stronger business and continue to contribute to a better world. We achieved outstanding results in the second quarter and we continue to expect strong results for the full-year. This includes continued strength from North America, delivery of global products in the South America for product led growth and the remainder – for the remainder of the year, even as we work to adjust to an uncertain economic environment in the region. Continued successful execution of our transformation plan for Europe for which many proof points are evident and which is proceeding as planned as we work to return to profitability by mid-decade.

Strong investment for the long-term success in Asia Pacific and Africa, which is already beginning – being reflected in improved revenue, market share and financial results and consistent performance from our valued Ford Credit operations, which delivers a world class customer service and solid bottom line results.

Now we’d be delighted to take your questions. George?

George Sharp

Thanks, Alan. Now we’ll open the lines for about a 45 minute Q&A session. We’ll begin with questions from the investment community then take questions from the media. In order to allow as many questions as possible, please keep your questions brief. Katrina, can we have the first question please?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Colin Langan representing UBS. Please proceed.

Colin Langan - UBS

Great. Thanks for taking my question. Congratulations on a great quarter.

Robert L. Shanks

Thank you, Colin.

Colin Langan - UBS

Any color on Asia Pacific results? Are there anything you meet in the quarter that’s not sustainable, anyway I think in your Investor Day couple of years ago, you highlighted that Asia Pacific would be a meaningful contributor, seems to be evidence for that, but is there anything that we should think about as that proceeds through the year?

Alan R. Mulally

Bob?

Robert L. Shanks

Hey Colin, I think the only thing that I’d just note in the result, there was an insurance recovery, but it was relatively minor. I think it was around $30 million, if you will. So, if you put that aside, $130 million profit or so, very, very strong for us. So, I think when what you’re seeing is the strong topline performance that we’ve seen for quite some time is now starting to show up, which we knew it would on the bottom line. And as we look ahead at the balance of the year and at a very, very strong market reaction to all the new products, we’ve got more coming in the second half of the year. That’s what given us the confidence built from the momentum that we’ve established in the first quarter to raise our guidance on each specifics. So, we feel very good about it and it’s a quality result we went through.

Colin Langan - UBS

Okay. And then on South America, you highlighted in your closing comments that Brazil has some uncertainty and there is risk in Argentina, Venezuela and it does seem like even within the quarter foreign currency kept working against you. What gives us confidence to maintain your guidance for that region?

Robert L. Shanks

Well a couple of things. One is the first half was largely affected by the one-time devaluation of the bolívar. That was nearly $200 million and so that’s what’s pushing us into the loss cumulatively in the first half and we don’t expect the Venezuelan government to do anything on that front in the second half of the year. So, we think that was if you will a one-timer at least from the perspective of the calendar year. So, if you put that to the side, we’d have been in at low level, but we’d been at a run rate that was profitable in the half. We think that will continue into the second half. The strong market reaction that we’re seeing for the Ranger to the EcoSport, we’ll continue, its really giving us great performance in terms of market share growth. It’s getting us favorable mix, because the margins on these products are very healthy and we’ve got the all new focus coming in the second half of the year, which we build on that. So, putting aside some anomalous events that could occur, we think that probably will get us at least a breakeven result. I should have mentioned also we’ve introduced the refreshed Fiesta, which is also doing very, very well in the marketplace. So feel pretty good about where we’re right now, and we think breakeven is the appropriate call at this point of time.

Colin Langan - UBS

Okay. Thank you very much.

Operator

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

Patrick Archambault - Goldman Sachs

Hi. Yes, good morning and congrats also on the quarter. Just wanted to follow-up on that Latin America question actually, it does seem in fact that the guidance implies a sequential pretty big drop down, right? I think it was a 150 this quarter and haven’t done the fine tuning, but it would be substantially below that ticket to breakeven on a quarterly basis in the second half. Can you tell us a little bit more? I mean, obviously you’ve got a lot going on there in terms of product, but I guess maybe the production outlook is a little bit different given some of the uncertainty you’re facing or are you actually taking schedules down a little bit, little bit more color on that sequential path.

Alan R. Mulally

Yeah, we think – if you just step back for a minute Patrick, and look at the region, clearly you’re looking at the headlines of Brazil and so there is some uncertainty in terms of what that will all mean. Its clearly we’re seeing the growth, the GDP growth of Brazil soften and its running at well below its – what should be a much stronger run rate. In the case of Venezuela, Venezuela is Venezuela and it presents a unique challenges everyday every quarter. And when you look at Argentina it’s going through one of its cyclical swoons and that presents challenges as well. So, I understand your point. We do think that we’ll be profitable obviously in the second half and we’ll work hard to make it better, but that’s just our best call at this time.

Patrick Archambault - Goldman Sachs

Okay. And then if I can ask one on Europe, may be a two part question there. Out of the $1.8 billion loss that you’re forecasting for this year, can you remind us of how much of that is really one-time related to accelerated depreciation and alike. How much of that kind of comes out once you close – once you do remove Dagenham and Southampton? And then, kind of the second part to that question is also can you tell us a little bit more about the transition cost now that you’ve got permission to close Genk, I guess you really start sort of the efforts to ramp up Valencia and sort of how big of a nut is that in terms of the cost headwind? Thanks.

Robert L. Shanks

Yeah, I will just give you an answer to the first and then may be Mark could give you a perspective on what we’re doing in terms of the footprint reconfiguration. We think that the impact this year on our restructuring cost will be $400 million, $500 million. And you can see what we’ve here in the quarter, which included a one-time write-off of some assets related to largely the Genk. So we think – and that’s what we’ve been saying. We think we’re on track to that and now moving ahead with the reconfiguration since – in fact the plants in the U.K. close this week and we’ve gotten past the information and consultation product – process in Belgium and now moving towards closure at the end of ’14. But Mark can tell you a bit more – give you some color in terms of how we’re moving forward on that.

Mark Fields

Thanks, Bob. Well, as you know we’re going to – we’ve mentioned before that as we look at the transformation plan in Europe that our structural costs over time will actually increase and that’s to support our growth strategy. And as part of that will be the cost associated with moving products around as you mentioned down to Valencia as well as Saarlouis to make sure that we can continue to produce those products in a more efficient footprint. So, we’ll report out on that as we go forward.

Patrick Archambault - Goldman Sachs

Okay, great. Thank you guys.

Alan R. Mulally

You’re welcome.

Operator

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

Rod Lache - Deutsche Bank Securities

Good morning, everybody. Congratulations.

Alan R. Mulally

Good morning, Rod.

Rod Lache - Deutsche Bank Securities

Just one quick thing, just a follow-up on that last question, what should we be thinking with respect to the accelerated D&A in Europe next year? Does that fall off?

Alan R. Mulally

We are not going to provide any guidance to next year, but we’ll continue to have the restructuring – the write-off of the restructuring related to Genk will go all the way through the closure of the facility and that will at the end of the year.

Rod Lache - Deutsche Bank Securities

Okay.

Alan R. Mulally

But U.K. will be finished with the closure of the facilities. That was by far the smaller of the effects that were included in the restructuring cost.

Rod Lache - Deutsche Bank Securities

Okay. And just jumping over to Asia, it’s pretty significant if you annualize the number from the quarter. It sounds like, just based on the SAAR expectations, that maybe you’re expecting a little bit of moderation in the back half versus what've we've seen in the first half because your full year outlook is a bit below – at least the midpoint of your full year outlook is a bit below what we did in the first half. Can you just talk about what you're seeing in that market? You have any thoughts with respect to maybe different GDP scenarios and what that would do to demand?

Robert L. Shanks

Well, when we look at – China's obviously the biggest market in the region. Our growth prospects for China, I think as Alan mentioned, are sort of 7% to 8%. It is softening at a very high level which is probably healthy for the long-term prospects for the economy. But we do see it softening a bit from where it had been in the recent years. Our call for the industry is – we've tightened a range a bit to 20.5 million to 21.5 million units in terms of the SAAR and so I think we feel pretty comfortable about that right now. It could be towards the higher end, but we think that is looking good. India is the other big market there and again we're seeing a little bit of softening in growth but it still is a pretty good rate but under what it could perform. And we're seeing as a result of high interest rates, an inflation impacts on the GDP and also on the industry there too. So it's been softening a bit but it's still large.

Alan R. Mulally

The only thing I would add to what Bob mentioned, first to put this into perspective, the China market is going to be up significantly year-over-year when you look at our ranges over 10%, but one thing we're watching very closely is in June the OEMs have a practice to pay midyear bonuses based on wholesales, so potentially what we saw is a little bit of spike up in the month of June. We'll see how July plays out. So we're factoring that into our call.

Rod Lache - Deutsche Bank Securities

Okay, thanks. And just lastly a little bit of clarification on North America, you did $1 billion of better earnings from volume on 104,000 unit increase in wholesales which is like $9,600 a unit which is obviously higher than what we've seen historically and maybe you could just clarify what you're thinking in terms of pricing? It looks quite good. We're seeing some of your competitors becoming a little bit more aggressive in small mid cars, but your inventories are constrained. So how should we be thinking about the outlook there?

Robert L. Shanks

Well, we've said – for the company itself, we're going to have positive pricing globally for the year on a year-over-year basis and we think that's the case in North America. Everyone is still performing and acting in a rather disciplined way. You're going to see some players each month depending on the vehicle item what they've got going on doing something. But in general, I think the discipline we've seen for quite sometime is still holding up. And of course associated with the new products that we introduce, we always add equipment and generally have been able to price for that. And so that's one of the things that – in fact that is exactly what's driving our pricing is new equipment. If you took the equipment out, we probably wouldn't be in positive territory. But we think in total that we'll see positive pricing continue for the full year.

Rod Lache - Deutsche Bank Securities

And the volume affect, is there anything unusual there in $9,600?

Robert L. Shanks

No, nothing unusual. As you can see on slide 11, it's just driven by the industry, the share; less of a – we've got a small change in stocks, it's not really material. There's an adverse mix actually which is a good thing, it's just the huge success that we've seen in the super segments that we've talked about, F-Series is still doing very, very well. It's just that the super segment products are doing even better and particularly on the East and West Coast, so nothing unusual.

Rod Lache - Deutsche Bank Securities

Okay, thank you.

Alan R. Mulally

Thanks, Rod.

Operator

Your next question comes from the line of John Murphy. Please proceed.

John Murphy - Bank of America Merrill Lynch

Just a first question on all the new hires, I'm just curious how many of them are tier 2 workers or are you still calling back tier 1 workers?

Mark Fields

John, this is Mark. As we mentioned, the 2,000 workers that we're bringing back this year between – in our Kansas City facility but also the other 1,400 at Flat Rock, the majority of it is the entry level wage. We've redeployed a lot of our folks but a lot of it is entry level wage and we're planning on that accordingly.

John Murphy - Bank of America Merrill Lynch

And what kind of limits do you have on those hires as far as the percentage of your work force and where would you be once you're through this wave of hiring?

Robert L. Shanks

Well, when we had the contract back in 2011, I believe the limit was 20% but we did have some exceptions to that, our facility in Rawsonville as well as another facility. So it's about 20%. We're working on our way towards that.

John Murphy - Bank of America Merrill Lynch

Okay. And then second question, Bob, just on the pensions on slide 24. I mean you gave us a good update but you talked about a material improvement. As we look at this and where rates have gone and asset returns have gone in your contributions, I mean it looks like in the U.S., the $9.7 billion underfunded status is probably at this point more than cut in half and by the end of the year, there might be a material step further. What does material mean as far as you're improving? I mean is it at least half? I mean I'm just trying to understand sort of the [tea leaves] here because this is a pretty important topic?

Robert L. Shanks

Yeah, it's very important and we're very encouraged by the progress we're seeing. I think the way that I would think about it is we've put $2.8 billion into our funds in the first half, $2 billion of which were discretionary in the U.S. plans. And then as you might recall from some of the other presentations that we've provided, if you look at a sensitivity, a one point change in U.S. discount rates would impact U.S. funded status by about $5 million and we did about 70, 80 basis points I think is the…

John Murphy - Bank of America Merrill Lynch

Okay, that's extremely helpful. Then lastly, Alan, you've kind of been very vocal about the weakness in yen and you're concerned about that from a competitive standpoint, but in U.S. we haven't seen it show up in pricing or competition yet. I'm just curious, are you seeing that in other regions and how important a topic do you think this is to really stay on top of going forward?

Alan R. Mulally

Well clearly, John, it's really an important topic not just for Ford but everybody around the world because it's just so important that the markets establish exchange rates and valuations. To answer your question specifically, we are seeing some actions primarily outside the United States. And as Bob mentioned in his comments, there have been some pretty clear indication from some of our competitors' leaders about the importance of using that in their business going forward. Now having said that I think the work that's going on internationally but especially associated with the U.S., associated with the TPP free trade agreement is really, really important because so many people now really appreciate the importance of free trade agreements that have the markets established in the currency. So I think we're going to see more attention on that subject and I think that's really positive because it's absolutely really important to free trade agreements going forward.

John Murphy - Bank of America Merrill Lynch

And lastly, just one follow-up to that, Alan. Are you seeing any change in the pricing strategy from some of your Japanese suppliers versus your North American suppliers and what their bidding levels are?

Alan R. Mulally

No, not substantially at this time.

John Murphy - Bank of America Merrill Lynch

Great. Thank you very much.

Alan R. Mulally

Thank you.

Robert L. Shanks

John, before you run away I probably wish it were $5 billion but apparently it's only $2 billion to $2.5 billion for one basis point of change. So it's still material.

John Murphy - Bank of America Merrill Lynch

I got very excited and was about to run away, but that's still pretty good. But that's still pretty good. That's still a pretty good improvement. Thank you.

Robert L. Shanks

I have dreams and aspirations. Apparently that was not coming true.

John Murphy - Bank of America Merrill Lynch

Thanks, guys.

Alan R. Mulally

Thanks a lot, John.

Operator

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

Brian Johnson - Barclays Capital

Hi. Good morning. Just to follow-up on the pension then a question on Europe. Certainly we understand because it's mechanical, the reduction in liabilities from discount rate. Yet at the same time part of your derisking strategy, as you flag, is to be in fixed income and maybe even move towards first income. A couple of questions. One, had you gone to a liability-driven investing strategy where you're attempting to match the duration of those fixed-income assets to that of your liabilities, and whether or not and if so did you pull back that duration to try to time the bond market? And regardless of that, just where is the fixed income part of your asset base performing? And what does that mean for the potential direction of the funding gap?

Robert L. Shanks

We're not going to provide any specific performance measurements around the asset returns that we've seen so far nor are we in terms of the specific number of related to the funded status but we have made really, really good progress in terms of moving towards the strategy of sort of an 80-20 fixed income versus growth asset mix. And as of the end of the half we were at 60%, so really making good progress to that objective. And as you said, Brian it is to match better the assets and the obligation so that when there are changes in discount rates and so forth we’re able to reduce the volatility and that’s exactly what we’re trying to do and we’re on path to do so.

Brian Johnson – Barclays Capital

Doesn’t that delude some of the potential closing of the funding GAAP?

Mark Fields

No, because we’re doing it progressively we’re doing it sort of inline as we get more and more funded. We are progressively improving the amount or increasing the amount of fixed assets. So we’re not moving too fast so that we can benefit from opportunities from growth assets, but that’s part of the overall strategy and don’t forget we are -- as we do that we become increasingly less exposed as discount rates change.

Brian Johnson – Barclays Capital

Okay. And then on Europe can you comment a bit on the sequential pricing environment. It appeared the week-end quarter-over-quarter, are you seeing, your order books are very full which would imply maybe a less of a need for discounting?

Mark Fields

What we’re seeing is, on a sequential basis we were adverse in terms of net pricing. That was largely driven by the timing of some rental sales. We pulled back on the rental market, but we did have some -- the timing affected some of those sales which affected the quarter. And we also had some other sort of just timing issues if you will that impacted that. What we have seen is an increase in incentives at Ford in Europe, but it is much less than what our competitors have been doing. So, again it's part of the overall story of us pulling back from those unhealthy channels enabling us to get more per unit in terms of what we’re selling.

Brian Johnson – Barclays Capital

So were these the wholesale revenue booked upon return of the program car?

Mark Fields

I don’t know. I think it was related more to just -- it was just related more to the daily rentals and the timing and there were just some deliveries that occurred in that -- in the second quarter that drove that performance along with some other …

Brian Johnson – Barclays Capital

[Indiscernible] if it was deliveries or return of cars, so it sounds like [indiscernible] okay.

Mark Fields

Yeah, no – no it was the sales. Yeah.

Brian Johnson – Barclays Capital

Okay. Thanks.

Alan R. Mulally

Okay. Thank you.

Operator

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

Adam Jonas – Morgan Stanley

For a minute I was thinking it was $5 billion for each one basis point, I was getting real excited there, but wow. So, a question on China; can you give us a capacity utilization number in China even if it's a rough one because given how much structural cost burden you’re shouldering for the growth there versus your current level production, it is tough to get a sense and can you help us out?

Mark Fields

Yeah, Adam this is Mark.

Adam Jonas – Morgan Stanley

Hi Mark.

Mark Fields

Obviously we don’t give out specific numbers, but as you can imagine we are running our facilities pretty flat out there, and at the same time building new facilities. As you know in Asia Pacific in total we’ve built about – we have either built or in a process of building 10 plants and seven of those are in China and three that we just announced. So we have four more to go and we’re using them flat out. And to give you a sense of kind of what's going on in the market place our biggest challenge right now is meeting demand. It's a true retail pull not a wholesale push. But the demand pull from the dealers is very strong, that strength is across the regions, across the multi-tiered cities. What has also helped is our full lineup of SUVs now as customers are coming in for our wonderful new Kuga, they’re seeing the Explorer, they’re seeing our EcoSport. And as you can imagine the sales as a percentage of availabilities are very high. And it's having some residual other benefits as well as you know we’re growing our dealer network there to support our growth in the Tier 2, 3, 4 and 5 cities so we’re getting actually even better candidates for our dealers, and its also helping our recruitment efforts for our employees. So overall we’re running as fast as we can there, doing it with quality and delivering those products to our customers.

Adam Jonas – Morgan Stanley

Thanks, Mark, I appreciate that, and just a couple of follow-ups, any impact the Detroit bankruptcy you wanted to highlight or dismiss?

Mark Fields

No, I think the best initiative -- an interesting thing to look at as you know we all went through our own restructuring and it's a serene experience, it's something you never forget. It seems like it goes on for ever. But as you can see from the results that we have been announcing and that we’re announcing in the past and that we’re announcing today. When you work your way through it, when you come out the other end you’re much healthier and it's just a much better -- a much better situation and we’re confident that the government leaders of Detroit and the State will move forward and address the issues of the city, it could be healthy for Ford, healthy for suppliers, healthy for the State. It's not having any direct impact on Ford, but we’re fully supportive and wish everyone the best and we’ll participate to the extent that we can help. It's just going to be good when it's all said and done. And I think we’re a good example of that ourselves. Didn’t go through bankruptcy but we went through a horrible restructuring in terms of the experience. So we know what it's like and it's going to be good.

Adam Jonas – Morgan Stanley

Thanks for that. And my last question, I would normally ask about a months results but given the model your changeover is so substantial for not this year but mainly for the -- for many of your competitors as well. Any comment on how July is progressing in the United States? Thanks very much.

Mark Fields

Yeah, I mean it looks like the SAAR is running at a very healthy rate again, maybe it's around 16 million units including medium heavy’s; we wouldn’t say anything about our own performance but we’ll talk about that in detail as usual at the beginning of August.

Adam Jonas – Morgan Stanley

Thanks very much.

Mark Fields

Thanks, Adam.

Operator

Your next question comes from the line of Matt Silver representing Guggenheim. Please proceed.

Matt Silver – Guggenheim

Thanks very much for taking the question. In your comments you described cash flow has been substantially better for the year; would that simply reflect the changes in the automotive operating guidance or is there more to that and additionally can you provide some color on the timing differences in cash flow, suppose the charges have something to do with that. But are there any other issues like incentive accruals and such?

Mark Fields

Thanks, Matt for the question. Well, in part the change in guidance simply reflects what's already in the bank. We’ve done $4 billion in the first half. We did $3.4 billion for the full-year last year. So clearly we’re going to do substantially better in 2013 than we did in 2012, and they’re acknowledging that. When you look at the details of it, clearly the stronger profits are helping. We are seeing favorable changes in working capital. And then in the quarter in particular we had very strong timing differences which is generally around marketing, warranty, our extended service programs, pension compensation those types of things where the difference between expense and cash are recognized in this category. So that’s -- but I will just remind everyone we had 8/10 negative in this category in the first quarter, so we’ve kind of equalized that plus come out ahead by about 4/10, so that’s one of the contributors as well. But it's generally happening everywhere. The only area we’ve got sort of a negative if you will within the cash flow which is a positive for the business is the net spending because of the investments for products and capacity and growth in the future, that’s obviously adversely affecting the cash flow.

Matt Silver – Guggenheim

Okay. The second question is on North America, and the results there have been quite strong. In the quarter you showed really nice volume improvement, mix has been pretty good, but it has on a year-over-year basis been just mathematically negative for the last two quarters, pricing has been positive but the gains have been declining. I guess, as I think about the second half my instinct would be that given the cadence of new product, there’s more volume but also a negative mix of pricing in the second half. Is there any reason not to believe that pricing wouldn’t be negative year-to-year in the second half?

Mark Fields

Well, as I said for the full-year we’re expecting our pricing to be favorable in North America as well as for the total Company. And when you look at the individual quarters we’ll have to wait and see where we come out, but we think that given the strength of our products that we’ve got out there and the customer response to them that at least for the full-year that will be positive and now we’ll have to wait and see what the individual quarters bring.

Matt Silver – Guggenheim

Okay. Thank you very much.

Robert L. Shanks

Thank you, Matt.

Matt Silver – Guggenheim

Okay. Thank you very much.

Operator

Ladies and gentlemen, at this time we'd like to welcome questions from the media. (Operator Instructions). Your next question comes from the line of Craig Trudell representing Bloomberg News. Please proceed.

Craig Trudell - Bloomberg News

Hi. Thanks. My question is related to the pension and sort of rising interest rate environment and you've said that you're seeing a material improvement on underfunded status. What sorts of things – does that improvement for us ought to do? Would you put more cash toward your products? Would you be able to boost the amount of cash you return to investors? What sorts of things would that free you up for?

Robert L. Shanks

Thanks, Craig. I think there's two things that come to mind when you think about the improvement in the funded status. One is the credit rating agencies look at the underfunded status and consider that as debt when they're looking at our ratings in the metrics to evaluate. So the improvement there is clearly a positive in terms of the strength of the balance sheet as viewed by the rating agencies and frankly as we look at ourselves, so that's a big positive. In addition, we have assumed – as you know, our derisking strategy is to get our global funded plans fully funded in the decade and so we have assumed there'd be a normalization over time of the discount rates which means an increase because they've been at historic low levels. So, this is simply what we have assumed in terms of the glide path. It's getting us to the point where we'll be able to have fully funded plans. We won't have to allocate as much capital to pensions as we have the last couple of years and certainly this year and that will give us the ability to take the cash that we're generating and invest it in other parts of the business that can support further growth and that's certainly what we have in mind.

Craig Trudell - Bloomberg News

Thank you.

Operator

Your next question comes from the line of Vipal Monga representing Wall Street Journal. Please proceed.

Vipal Monga - Wall Street Journal

Good morning, gentlemen. A question for you Bob. I just want to make sure I get the math right. The expectation for the lump sum payments by the end of 2013, is that 4.5 billion I'm assuming that if you're 2.7 billion right now and that's about 60% of the way, is that about the right way to think about it?

Robert L. Shanks

Well, we're not providing a specific number because it obviously depends on the remaining participants who have the individual right of selection of whether they want to participate or not, but directionally probably what you're saying is correct, but we're not actually providing specific guidance on that.

Vipal Monga - Wall Street Journal

Okay. And then just in terms of the take-up rate or the percentage of people, how is that met expectations that you might have had?

Robert L. Shanks

Again that's something that we're not going to talk about until we're completely finished. The types of individuals who remain include term vested, so it's a different kind of group of employees that have yet to make a choice, so we'll have to wait and see because again, every person's different, probably every different category of employee retiree is different, so we'll have to wait and see. But we'll give you all the details when we're all done.

Vipal Monga - Wall Street Journal

Great. And just a last follow-up on that. Any consideration of doing things that – for example Verizon and GM in terms of doing an [annuitization] as well as you attempt to derisk the pension?

Robert L. Shanks

No, we have no plans to do that at this time.

Vipal Monga - Wall Street Journal

Okay, thank you.

Operator

Your next question comes from the line of Ben Klayman representing Reuters. Please proceed.

Deepa Seetharaman - Thomson Reuters

Hi. This is actually Deepa Seetharaman. I just have two quick questions. So in the second quarter you settled about 1.5 billion of pension obligations related to the lump sum program of 2.7 overall. Why was the – why was the amount so high in the second quarter? Was it something special? Was this a particularly successful round? Why was more than half settled in this quarter?

Robert L. Shanks

It depends on the number of participants and a number of people that were involved in the second tranche programs. So again as I said, Deepa, it's very individual. We haven't said how many people have been participating in any particular tranche. We're about halfway through, so I think I can tell you that. But it really depends upon the concentration of the offers, who they are, how many people and so forth. It's been different tranche by tranche, so I wouldn't read anything into that. Based on the previous question, I think it's probably reasonable to assume we're about 60% of the way through in terms of obligation. Directionally you can probably figure out more or less where we'll end up when it's all done.

Deepa Seetharaman - Thomson Reuters

Okay. And then you guys talked about capacity constraints a lot in the first half of the year, do you have any sense as to how much more capacity you would have needed in the first half to absorb all the demand for the Fusion, Explorer and other vehicles in the U.S.?

Alan R. Mulally

Hi, Deepa. Clearly as we say we're getting a little tight on inventories on vehicles like Fusion, and as you know we're taking some actions around that. So really couldn't put an amount to it, because we probably leave a few sales on the table, probably, but we're rectifying that as we go into the second half of the year as you know, as we put the third crew on at Kansas City for F-Series and then of course launching the Flat Rock Assembly Plant which will bring on a whole another tranche of Fusions to meet the surging customer demand that's out there. So we're in the process of addressing that.

Deepa Seetharaman - Thomson Reuters

Okay, great. Thank you.

Alan R. Mulally

Thanks, Deepa.

Operator

Your next question comes from the line of Nathan Bomey representing Detroit Free Press. Please proceed.

Nathan Bomey - Detroit Free Press

Hi, guys. I was just wondering if you could provide any more color on where the market share came from in China. Do you feel like you were stealing customers away from – was it the Japanese? Are they still losing market share because of some of the issues there or are you taking it from the domestic manufacturers? Where did you see it coming from?

Robert L. Shanks

As you probably know, most of the buyers in the China are still first-time buyers. So that's one of the great things about our investments here is we're going after first-time buyers. We don't have to steal them, if you will, which is really hard. So first-time buyers and it's coming from all the new products that we'd launched. In this particular quarter it was the Escape, it was the Kuga, the Focus is still doing very, very well. The refreshed Fiesta, EcoSport I don't know if I've mentioned that. But we're expanding the lineups so quickly and I think as Mark mentioned earlier or maybe Alan, I can't remember who said it, SUVs or utilities are really popular now everywhere in the world and China's no exception. And so with the introduction of Explorer, EcoSport and Kuga which is Escape Europe, the market has really responded very, very strongly and driving the share.

Operator

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

Mike Ramsey - Wall Street Journal

Hi. Good morning. Alan, I was hoping you could answer this question which is if you had to figure out one thing that's driving your strong revenue growth around the world, can you pin it to your global product plans so that you're able to put out all these new products around the world at the same time, is that kind of the secret to how you can get 15% revenue growth in an environment where I don't think that most auto companies are anywhere close to that level of revenue growth?

Alan R. Mulally

Sure, Mike, and good morning to you. I think absolutely it's grounded in the foundation that we all put together nearly seven years ago and that was to all the customers around the world with the full family of best-in-class vehicles. And then of course clearly focus on the Ford brand and then Lincoln. And I think probably – it's kind of like what Jim Farley said – I know you remember this well that you can't build your reputation by telling people what you're going to do. So we really focus on developing world class products in every market segment and let those then lead the brand and the response has been absolutely incredible. With every new product we've watched the favorable opinion, we watched the coverage and the brand itself, Ford itself. And so I think it's a combination of these great products, a complete family of products and also our belief to introduce those products very quickly because based on our One Ford Plan, we have all those top hats off the different core platforms and we now introduced those as are needed and wanted around the world very quickly and I think that the data that we show today about the new market segment introductions in China, plus the refresh, just is a terrific proof point about that, because who’d ever thought we could be touching almost every market segments within a couple of years. So, I think absolutely the Ford – One Ford Plan and the product plan is a – absolutely key to that.

Mike Ramsey - Wall Street Journal

Thank you so much.

Alan R. Mulally

You’re welcome.

Operator

Your next question comes from the line of Karl Henkel representing Detroit News. Please proceed.

Karl Henkel - The Detroit News

Good morning. Just had a quick question. If you look at the results from this quarter, obviously Europe it seems that things are at least becoming little more certain and clear, obviously very profitable and APA. Do you get the feeling that at this point, couple of years now you could look back at, at about this timeframe in 2013 and say that this is where all four major regions were locked and loaded and ready to go and can kind of all, I guess, sort of coalesce and become profitable on a more even basis moving into the future.

Robert L. Shanks

Karl, its Bob. I think it’s a very, very important point that you’re raising. Obviously, our plan is for all parts of the Company to contribute appropriately to the bottom line, and we’re investing heavily in Asia Pacific and you’re starting to see the green shoots come through there. In the case of South America, we’ve got them back into the black. They had been profitable for nine years in a row until the first quarter. So they’re back in the black and continue to work hard to push them further into the black over time, particularly as we expand the product lineup down there with ONE Ford products. And I think Europe is such an important story, it’s a major restructuring, its an environment that is not a great environment. But we clearly are on a very good track to deliver the transformation plan that we laid out in October last year, its not just for Western Europe, but we’re growing in Eastern Europe or we’ve had a very robust activity in Russia with our partner Sollers is there. So, I think we feel very good about that and the thing its kind of interesting about what happened in the quarter, which is so exciting for us is that with the profitability that we saw in Asia Pacific which was quite meaningful and return to profitability in South America, combined with a lower loss and Europe we actually combined in those three regions effectively delivered about a breakeven, and I think in the first quarter that was a loss of over $600 million. So it just demonstrates the power of what happened when we’re able to get that part of the business contributing much more positively because with the strength of North America, the strong solid profits from Ford Credit and then to get that part of the business contributing, its just kind of – its going to be a dynamo and very, very excited about what we saw in terms of progress there in this particular quarter.

Karl Henkel - The Detroit News

Thank you.

Operator

Ladies and gentlemen, this concludes the question-and-answer session. I’d now like to give the call back to Mr. George Sharp for closing remarks.

George Sharp

Thank you, Katrina. Well, thanks everyone. That concludes today’s presentation. We are glad that you were able to join us.

Operator

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

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