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Ford Motor Company (NYSE:F)

July 2013 U.S. Sales Call

August 01, 2013 10:00 AM ET

Executives

Erich Merkle - U.S. Sales Analyst

Ken Czubay - VP, U.S. Marketing, Sales and Service;

Ellen Hughes-Cromwick - Chief Economist

Analysts

John Murphy - BofA Merrill Lynch

Colin Langan - UBS

Rod Lache - Deutsche Bank

Patrick Archambault - Goldman Sachs

Karl Henkel - Detroit News

Dee-Ann Durbin - Associated Press

Craig Trudell - Bloomberg News

Brent Snavely - Detroit Free Press

Operator

Good day, ladies and gentlemen, and welcome to the Ford monthly sales conference call. My name is Cilia and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

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

Erich Merkle

Thank you, Cilia and good morning and welcome to Ford’s July 2013 sales call. I think July can best be described as robust for the industry and for Ford. Upon review of preliminary data this morning we estimate that total vehicle sales including medium and heavy trucks came in at approximately 1.35 million vehicles in July. This equates to a total SAR in the low 16 million vehicle range for the month translating into approximately a 14% increase compared to July of last year.

Much of the strength we saw in June carried over into July. We estimate that retail SAR came in at the mid to upper end of the 13 million vehicle range making July a very strong month. When we take a look at some of the details, we saw a continuation of trends that we have discussed in the past few calls with both small vehicles and full sized pickups leading the industry this past month.

The strength in small cars continued as consumers keep downsizing with small cars coming in at 22% of the industry in July. Full sized pickups represented slightly more than 12% of the industry benefiting from both pent up demand and the continued recovery in the construction industry. We expect pickup sales to increase approximately 24% over year ago level, while Ford retail sales surged 19% in July lean inventories on some of our hottest vehicles muted the increase. And here to provide a little more perspective around what we saw on July is Ken Czubay. Ken?

Ken Czubay

Again some very tight inventories for our most popular models. Ford Motor Company delivered an 11% year-over-year gain with a 193,715 vehicles sold in July, with a 155,970 vehicles sold at retail we had our strongest July retail month since 2005, an increase of 19%, which likely outpaced industry retail sales for the month. As we have said on the previous calls Fusion supply remains very tight, with Focus to becoming markedly tighter in July. As was the case in June Ford continues to drive sheer gains on the coast.

Based on the latest pulled retail registration data, Ford brand retail share gains on the East Coast and West Coast combined are up almost 1 full percentage point. Ford brand coastal share point gains are expanding faster than any automotive brand in the United States. Much of the credit goes to Escape, small cars and our hybrid sales performance in these key areas of the country.

As Erich mentioned before Ford's product portfolio today has the ability to meet the trends we're seeing for smaller fuel efficient vehicles while also hitting the cyclical recovery in full size pickups. Ford's small car sales including Fiesta, Focus and C-Max Hybrids totaled 27,131 in July, representing a 32% gain over last year. Once again providing us with our best July monthly small car sales performance since 2000.

Fiesta retail sales in the large and small car market in the country, Los Angeles increased 71% in July, while the San Francisco region posted a 79% increase. Fiesta retail sales are now growing at more than five times the rate of the overall sub-compact segment in California. We're really excited about the redesigned Fiesta, the upcoming introduction of the high performance Fiesta ST in our award winning 1.0 liter EcoBoost engine later this year. Fiesta conquest rate continues at levels above 60%, with the cars largest conquest coming from Toyota and Honda. Fiesta is our bestselling vehicle with millennial buyers. Two-thirds of them return to buy another Ford product, usually a Focus or Escape.

Fusion retail sales were up almost 70% in July in California. Miami saw a 47% increase with low inventory and fast days supply to turn on dealer life. Fusion Titanium is turning at just 12 days in Miami, 14 days in San Francisco and 16 days in Los Angeles. Fusion Hybrid is turning at slightly more than 10 days in the4se markets. As we have mentioned Fusion inventory will remain very tight this summer until 1,400 new workers begin production at the Flat Rock assembly plant, this fall to improve availability. Inventory will be tight particularly in the west and southeast regions of first country.

Looking at utilities Escape had yet another strong month in July with 22,343 vehicles sold its best July retail sales ever. With Coastal retail sales up 26% this year Escape retail share has increased in New York region by three retail share point since 2008, faster than any domestic or full line Japanese brand. In New York, Escape’s competitive conquest request is 54% with Honda at its top competitive conquest brand. Explorer sales were up again in July with 12,742 vehicles sold. Explorer is now turning at 25 days with markets like New York and San Francisco reporting 27 and 22 days respectively. Explorer remains very much in demand. The high end Explorer Sport is now taking just 13 days to turn on dealer lots.

F-Series continue to roll in July with 60,449 trucks sold, an increase of 23% from year ago. In just three months our dealers have sold a total of 200,000 F-Series pickups just as we enter the traditional truck season. We’re moving tremendous numbers of trucks through our plants and through our dealers right now, and we will have the addition of the third crew at Kansas City truck plant to increase output of the F-150.

Taking the look at Lincoln and MKZ this month, MKZ retail sales were up 3% in July, going against a high sell-down comparison month last year. MKZ Hybrid turn rates are some of the fastest in the Ford lineup, and we’re seeing Conquest rates for the MKZ Hybrid that are 50% higher than the non-hybrid vehicles. Approximately two thirds of our retail sales volume in the Los Angeles region is made up of MKZ Hybrid which is a big factor in our decision to increase our production mix of MKZ Hybrid to 40% for the ’14 model year.

Now, one final note, we’ve been working really hard with our dealer in Ford Credit to take our certified pre-own sales to the next level, July month, the sixth consecutive month of all time sales for us. This will be an important part of our residual value building story.

That’s a look at Ford and Lincoln. Now, let’s turn things over to Ellen for an update on the economic front. Ellen?

Ellen Hughes-Cromwick

Great, thanks a lot Ken. Well, since our last monthly call in early July, the economic indicators really have continued to improve. In fact last month March, the beginning of the fifth year of this economic expansion, the economy has grown at an annual rate of 2.2% since the expansion began in the second quarter of 2009. The pace of advanced during the expansion has been uneven and slow by comparison to the prior expansions. The automotive sector of our economy has now contributed greatly to overall growth during this expansion. Auto (Output) by the way has contributed over 15% to overall GDP growth since mid-2009.

Now, let’s look at some of the key highlights for the month. In the second quarter, GDP grew in the annual rate of 1.7% compared to the first quarter, so we’re up about 1.4% on a year-over-year basis. Manufacturing wears and shipments are now expanding at a faster rate, this bodes well for second half improvements in the economy. The housing sector recovery is healthy and broad base now across the country. Job and income gains are positive and the interest rates remain relatively low. On net the U.S. economy is projected to grow in the 2% to 2.5% range this year.

Now, let’s look at some of the details. Just a moment ago, we received the U.S. Purchasing Managers' Indexes for the month of July, a key leading economic indicator. It increased to a rating of 55.4. That is the highest rating since June of 2011. Importantly, the employment component of the Purchasing Managers' Indexes sore to a rating of about 55. That was a substantial advance. The other point I wanted to really emphasize is if you look at non-defense capital goods wears, excluding aircraft again another key leading indicator. That is now growing over 6% compared to a year ago. Bookings are now running nearly $70 billion a month. That is higher now than the peak before the financial crisis.

Let’s take a look at some of the housing related data at this point. Now, if you look at home prices, the Case-Shiller Home Price Indices is up 12.2% in May. That comes out with somewhat of a lad but all 20 cities are now posting increases. New home sales are up about 38% in June, and very tight supply of new homes, just at 3.9 months. That’s lower than the historical average.

For existing home sales, June was another good month with sales up 15.2% compared to a year ago on housing starts and permits again another good month in June up 10.4% for starts and 16.1% for permits on a year over year basis. To round out some of the economic indicators the July University of Michigan Consumer Settlement Reading was up to a reading of 85.1 now this is somewhat of a watershed as it is only a few points just below the long run historical average. These readings had moved up in the last three months and signal ongoing gains in consumer spending during the months ahead.

And then finally just to look a little bit at the employment picture tomorrow we will receive the July employment report but this morning we got the four week moving average for unemployment claims and that is now at 341,250 for the week of July 27th and that is now comfortably below the 350 watermark and by the way just looking at year to date average monthly job gains we are now above 200,000 a month. Again tomorrow we’ll receive the July employment report.

So just to recap as Erich mentioned earlier July total industry sales look like they are coming in, in the 16 million unit range again that’s seasonally adjusted annual rate including medium and heavy duty trucks our full year call for the industry still is in that 15.5 million to 16 million unit range. So with that summary let me turn it back to Erich, Erich?

Erich Merkle

Thank you, Ellen. Taking care of a few housekeeping items before we get started with the questions. We’ll look at our fleets this month as a percent of total. Ford’s fleet this month as a percent of total sales was 22% overall, 12% was commercial, 5% of our total sales was from government and 5% of our total sales represents daily rental. This compares to July of 2012 one year ago 27% of our total sales were comprised of fleet, that’s 12% of our total sales for commercial, 5% of our total sales for government and 10% of our total sales at that time for daily rental. When we look at calendar year to date, calendar year to date our fleet as a percent of our total sales is at 31%. 13% of out total sales year to date are commercial, 5% are government and 13% are daily rental.

When you compare it to year to dates though July 2012 we had 33% of our total sales were fleet, 14% of our total sales came from commercial, 5% of our total sales was government and 14% of our total sales in July year to date in 2012 was made up of daily rental. One of the things that you’ll see here is when you take a look at our fleets more than 50% of our fleet comes from commercial and government sales, that’s more than any other auto maker in the industry. So with that in mind, Celia we’d like to open the call up and we’re going to start with the analysts first please.

Question-and-Answer Session

Operator

The first question comes from the line of John Murphy. Please proceed.

John Murphy - BofA Merrill Lynch

Good morning, guys. Just a first question and it seems like you guys are addressing the Fusion and Escape shortages by adding shifts and some capacity here in the short-term. But it sounds like the Focus and Explorer are starting to also run into some inventory shortages. I was just wondering if there is any focus on increasing capacity there or adding shifts to deal with the Focus and Explorer inventory problems? Also I just wanted to understand when the Fusion and Escape inventory would ramp-up. I know you're talking about the fall, but is that October, November that we see inventory rebuilt in those two products?

Ken Czubay

Hi John this is Ken good question we are really enjoying this expanding market driven by high interest rates and the age of the fleet et cetera and we are working really, really hard to expand the capacity as needed. As you know last year we expanded the capacity by 400,000 vehicles on a running rate this year we have made announcements adding an additional 200,000 vehicles on a running rate.

You point out the Explore is still red hot in the marketplace after 2.5 years we are working on the mix in Chicago to increase that and we are making progress nothing to announce right now. And similarly with focus with regard to the Fusion we are in the ramp-up right now we are really, really excited about hiring 1,400 new workers to that plant and we are in the launch phase so all launches at new plant have a launch curve and too early to predict but they will be coming online as planned.

John Murphy - BofA Merrill Lynch

Okay, then just a question on fleet. Was there anything funky going on in the month with fleet or was it just really a question of timing? Might this sort of lower fleet from July be made up in the coming months?

Erich Merkle

Yes, John, it was really just the matter of timing and calendarization. So, if you take a look at our fleet in June, you would notice that it was running about 35% of total and then in July of course it’s at 22% of total so that will be made up and we expect to see for the year, the fleet to be somewhere around 30% of our total pretty consistent with the year’s passed.

Ken Czubay

It’s right on plan, it’s in the low 30s and like Erich just said if you look at the comparison for the first seven months so they shared the first seven months last years, it’s virtually identical. It’s just timing.

John Murphy - BofA Merrill Lynch

Okay, then just one last question on pricing on the F-Series and pickups in general. Traditionally with a big changeover I think at one of your competitors it would be a weak time for pricing but it actually sounds like it's quite the contrary, given the strength in demand. I'm just curious if you can comment on pricing for the F-Series at least directionally and then also sort of what you are seeing in the competitive set there?

Erich Merkle

Sure, when you take a look at Ford’s full-sized pickup truck and incentive speed, it was down approximately $150 in July compared to June and up above $300 compared to a very low base last year but overall with the segment its remained a very quite now, so I mean it’s pricing is very favorable for the segment, at least that's what we are seeing.

Operator

We have a question from the line of Colin Langan. Please proceed, sir.

Colin Langan - UBS

Thanks for taking my questions. Any color, actually you were just talking about pickups? It seems like some of your competitors did a bit stronger results this month. Any color on what may be driving some of the share shift?

Ken Czubay

We are managing our business and as I pointed out in my comments we are very pleased with 60,000, I haven’t seen the numbers from the competitors yet and in the last three months our dealers have delivered over 200,000, very strong at retail and commercial as Erich pointed out. One of our competitors is launching a new vehicle right now and we are just all very appreciative the growth in the segment and growth in the industry overall. So, we couldn’t be happier with our year-to-day we still have leadership in truck as we have had for decades and we expect that to continue. We are right on pace with the industry segment increase, so good month for truck buyers, really good month for Ford Tuck buyers.

Colin Langan - UBS

Any color on the inventory levels there? Are there any issue on inventory on the pickups? It sounds like from your last comments that the industry pricing hasn't really changed month over month. Is that correct?

Ken Czubay

We are in a good place with inventory and we’ve announced that we added a crew, we are happy to bring more employees back to the Ford plant and we are going to increase production because we anticipate as Allen pointed out the economic indicators will continue to be very favorable and when people in America wanted to buy a truck they buy a Ford Truck.

Colin Langan - UBS

Okay, just one last question. Some of the housing data has come in a little bit softer. It is still fairly strong. Any concerns about that impacting pickup demand as we go through the rest of the year?

Ken Czubay

You know in fact this is unusual by cyclical standards to see, you know it’s a months to months volatility specially given what we here down supply chain and how some of the materials for new home building are getting a light pipeline type permitting and so forth so, this is not unusual to see some of that activity from month to month be a little volatile, so we don’t see if any retrenchment at this point especially given household formation data coming out which actually you are showing, you know as people want to start homes they want to move out of their parent’s house and move into an apartment or a condo and so that multifamily sales are continuing to grow quite strongly.

Operator

We have a question from the line of Rod Lache, please proceed sir.

Rod Lache - Deutsche Bank

Good morning, everybody. Could you just tell us what your overall average incentive spending did year-over-year? You did mention the F-Series.

Erich Merkle

Our overall incentive spend in July was competitive but it was up approximately (inaudible) compared with last year but down about $100 compare to June.

Rod Lache - Deutsche Bank

That up $200 compares with what for the industry?

Ken Czubay

Yes for the industry, it was, we are looking at about of $50 overall for the industry, year over year.

Rod Lache - Deutsche Bank

About $50, okay. Maybe you can help explain this a bit. Obviously you are talking about inventory constraints. It is probably going to result in some moderation of your market share this month based on the numbers you gave versus what we have seen year-to-date. How do we reconcile that, that you are basically in a constrained inventory situation and yet your incentives are moving higher, why wouldn't we see the same kind of phenomenon that we saw maybe like post the tsunami when we had pretty serious inventory constraints and that resulted in favorable pricing dynamics.

Ken Czubay

Well Rod, let me answer that question, this is Ken, my perspective on that is we always want to provide our dealers with competitive incentive rates and as Eric pointed out month to month we were down, we were down about $60 and month over month the industry was up a little bit, so we’re right in the ball park. So the real test is what goes on month after month and with regard to our inventories and other inventories it's always tricky at this time of year because different manufacturers introduced the new models at different times, some of our competitors are out of sync with us so we're out of sync with them on 13 mile leader transition and that impacts the incentive level, but we always want to be competitive for the consumer and we always want to be competitive up and down main street with incentives.

Rod Lache - Deutsche Bank

Okay and just one last question. Just given some of the constraints that are out there in terms of inventory, normally you see a pretty good seasonal uptick in pickup truck sales in the back half of the year and things obviously were extremely strong in the first half. Is that something that could mitigate what we normally see in terms of the seasonality for that segment? Or are you expecting a normal year?

Erich Merkle

We're planning on a pickup in pick-ups this year, Ellen keeps emphasizing the underlying strengths in the sector that would support it, and the age of the fleet, the age of the fleet is over 11 years in pickups and consumers are recognizing it's the right time to get a new pick-up and they're looking at Ford pick-ups because of the gains in fuel economy, technology. We don't anticipate that segment doing anything but slightly increasing as we approach the end of the year.

Ken Czubay

So we’re going to take one more call from the analyst committee then we’re going to turn it over to the folks in the media.

Operator

Thank you, the next question comes from the line of Patrick Archenbolt, please proceed, sir.

Patrick Archambault - Goldman Sachs

Thank you. You know, I guess just following up on the topic of interest rates that has been fairly timely for the last month, it sounds like if you look at the 10-year and other indices, you haven't really seen much of an increase at all in recent weeks. Is that something that you have seen sort of in your lending rates as well in terms of retail auto credit? Then on sort of looking at history or actually maybe not even history but your anticipation for Fed action, I should say, on a go-forward basis, what do you think about the increase in the cost of ownership and when that might actually start to impact sales? Thanks.

Erich Merkle

Okay Patrick, if you look at the latest on rate movements, 30 year fixed mortgages at about 4.59%, the 15 years at 3.65%, auto loan rates have been relatively flat, bank rates quotes are for a new auto loan for 48 months at about 2.64%. So you know just all of the external quotes on rates suggest that they're relatively low. With regard to monetary policy, it's been very effective in terms of supporting the economic recovery and ensuring the proper balance in terms of employment as well as price stability.

Patrick Archambault - Goldman Sachs

Sorry, just following up on that, your expectation based on what you see for when auto loan rates, which tend to be more correlated with the short side are likely to start ticking up?

Ken Czubay

Well again you know it really is data dependent and we're watching all of the incoming data. Again the interest rate level is relatively low and providing important credit channels to support automotive sales as well as other activity out there in the marketplace.

Erich Merkle

Celia, we're going to turn things over to the folks in the media now, take our first caller.

Operator

Thank you, the next question comes from the line of (Ben Clayman), please proceed sir.

Unidentified Analyst

I know you all led out the way beforehand the talk about the tight supplies of several of the vehicles, but given that you and several of others have come in short of expectations I was just wondering if you thought that basically the industry sort of got too optimistic on how things were going after the June results.

Ken Czubay

I think the whole piece of expectations Ben, is really completely fleet driven for us in the calendarization of fleet. When we look at retail we're up 19%, based on what we're estimating we’re likely going to be higher than the overall retail industry and the 19% puts us very much in line with expectations, so it's really a calendarization of fleet.

Erich Merkle

Okay, all right, Celia our next question please.

Operator

Thank you, the next question comes from the line of Karl Henkel. Please proceed sir.

Karl Henkel - Detroit News

Good morning guys, I just had one quick question, you’re talking about focus constrains and the flexible plan there, I’m just curious is to what your kind of hearing from the dealer in terms whether they want more C-MAXes or more Focuses and how I guess at this point are you balancing which seems to be pretty high demand for both vehicles?

Erich Merkle

Well that’s a good question Karl, keep in mind that we’re doing everything we to supply specially our coal store regions with C-MAX in our hybrid vehicles but if you take a look at focus, okay, small cars are very seasonal means that spring and summer months are really peak sale months for small cars and our inventories do get a little bit tight when we get into July seasonally around small cars particularly like with the Focus now what happen is in the fall and summertime specially hear in the northeast in the great lakes you’ll see seasonally cars start to drop off bit in favor of things like trucks and utilities, so what will happen is we’ll continue, we continue to produce full out at our Michigan assembly plan we’ll build those inventories and those stocks backup and you’ll see those stocks rise, when we get into say January of next year as we prepared for the next seasonal upturn in small car sales it really happens every year.

Karl Henkel - Detroit News

So I guess at this point is the President more building more C-MAXes because of the seasonality with Focus, does that change throughout the year, I mean, I guess not to pick favorites but is there favorite this point as to what you’re going to build a higher percentage of based on the current demand?

Erich Merkle

No, I mean, we’re really focused on building to demand, so clearly as this focus goes through it says kind of a seasonal adjustment as small cars do as we get into the fall and winter months we’ll be able to replenish those stocks and we’ll able to build C-MAXes as well the support that coastal growth. We feel pretty confident in that.

Operator

We have a question from the line of Dee-Ann Durbin.

Dee-Ann Durbin - Associated Press

Good morning, thanks for taking the call, do you have day supply for fusion and escape and I guess while we’re on the topic of Focus and also someone asked earlier when does things start to ease with the fusion and we didn’t really get an answer, are we going to see that may fourth quarter October any soon as math and can things ease at all with the escape, if you’ve already got little level on three shifts are we going to see any - is there anything you can do to get more on the ground?

Erich Merkle

Yes on the inventory question, Dee-Ann, what we’re seeing with fusion, its rate around 40 days right now but one of the interesting things as if you go out to some of our key coastal markets if you go out to LA, San Francisco, you go out to places in Miami places on the east coast we’re down to about almost 30 day supply and that’s grow stock start, so grow stocking also includes what’s on Rayo and what’s on being transported via trucks, so it’s not on all dealer lots, so you can see that fusion is still really tight, the other one I think you’ve mentioned was escape I don’t have it but we expected it probably going somewhere tomorrow when release somewhere around 50-day supply maybe closer to 40.

Ellen Hughes-Cromwick

This is Ellen; I answer the question about fusion like I said to make sure it’s clear we’re unplanned on the launch, ramp up at Flat Rock Assembly Plant. The workers are really excited 1400.

Dee-Ann Durbin - Associated Press

Yes what is unplanned mean?

Ellen Hughes-Cromwick

Well, it will be in the fall, it will be in the fall so when start up in assembly plant there is launch and we have to coordinate all the suppliers make sure that everything is on line, so we will start producing in the fall, we’ll start shipping to the dealers in the fall as in any assembly plant we start out with lower production then ramp up to full production, so our dealers will see vehicles from Falt Rock Assembly Plant arriving in the fall.

Operator

We have question from the line of Craig Trudell. Please proceed.

Craig Trudell - Bloomberg News

I had something to ask a question for Ellen, you gave data point about the annual rate of expansions since we started recovering 5 years ago, I was wondering if you could talk a little bit about just how rare it is that we’re in a rising auto sales environment given the fairly tepid stable of growth for the overall economy and sort of how long we can expect that to continue?

Ellen Hughes-Cromwick

Right again the annual rate of expansion fits the trough in the second quarter of 2009 has been about 2.2% that is below the pace of expansion in the first years of the prior three recovery, at the same time what we saw was very severe downturn in vehicle sales as well know because of the financial crises in the credit squeeze, as a result the resumption of sale from 2009 and really through 2012 we saw about 40% growth and so some of that of course was the fact that we were adding unnatural low point even the first half of the 2009 because of the financial prices so the rebound in part is a function of what presided during that very severe period. The second key point I think in terms of the auto sales recovery is this fact that we really have an old park, now some of that is because we disrupted the normal sales environment during the financial crises and people have to postpone their replacement and that age of the vehicle stock was a park as I called it does generate a lot of momentum in the selling environment and now frankly what we’re seeing is housing support sales and that replacement demand but also on the margin maybe a little bit this cautionary purchases as people bring their demand for newness, they want the content and features and Ford vehicles and the innovation that’s taking place here at this company in terms of the type of vehicle that we sell is just fantastic. So, I think customers are also starting to see they’ve restructured their balance sheet we’re really pretty much through the period of that deleveraging and I think that is adding a little bit more sales.

I think Ken wanted to add to that as well.

Ken Czubay

Let me just add little bit context to that great answer. So, when we look at the pickup truck market which is received considerable amount of very favorable attention there is 31 million pickup trucks in units and operation, the park as Ellen called it, 31 million. There is 14 million that are over 11 years old. So those are vehicles that when they replace them with Ford pickup truck they get significant improvements in fuel economy, they get the newness of technology and they get newness. So, they’ve got a service, the housing industry, the commercial construction industry, the oil service industry. They have got to have trucks that will perform and that’s the pent up demand that we see in it also flows right into the answer I gave about 10 minutes ago of do we continue to see that trend for the rest of the year and the answer is yes. So, the pickup truck is just a small example but a very important example all the data that Ellen just gave you.

Craig Trudell - Bloomberg News

Is there sort of threshold level that growth had to be sort of historically for us to be in a rising sales environment, was that 2.5%, 3% is there any sort of comparison to the past where you can say, we needed to be going at least this much in the broader economy for the auto market to keep expanding.

Erich Merkle

The historical statistics are pretty straight forward in that regards, we have had pretty much trend GDP growth that prevailed prior to the recent period of about 3% and that was pretty highly correlated with raising auto sales. But you know, some of those unfortunately GDP is not a silver bullet in terms of forecasting auto sale. There is so many different factors that play into this exciting industry. So, it’s hard to just pick out a GDP number and say that’s going to tell us what auto sales is.

Operator

We have a question from the line of Brent Snavely of Detroit Free Press. Please proceed, sir.

Brent Snavely - Detroit Free Press

Well, you guys have talked a lot today about some type of price and efforts by your Ford to add capacity in production. What kind of strain is that putting on the supplier base are you seeing, are you running into production issues either now or do you foresee them as the supply base price to keep up with this really strong demand for the industry.

Erich Merkle

So far everything is going really well. We do a great job of managing that. So, anything that we do in terms of capacity increases, we do in concern with our supply chain but so far everything is going great and we look forward brining more capacity online as we bring on Kansas City Truck and of course Flat Rock with Fusion.

Brent Snavely - Detroit Free Press

And then maybe for the different topic, every transaction prices, can you say where they were for Ford in July and what kind of trends you’re seeing there?

Erich Merkle

We don’t give out our average transaction prices for Ford. All I can tell you is that they’re doing well; we’re seeing a richer mix of products in our average transactions prices are up on a year-over-year basis.

Ken Czubay

I just had one housekeeping item. I think I may have said the July employment component of the TMI was it 55, just to be accurate, the July reading was 54.4 and that is the highest reading since June 2012. Thank you.

Erich Merkle

That’s going to ramp up the call for today. We appreciate everyone dialing in and Celia we very much appreciate your help today. Thank you very much.

Operator

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

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