Ford Motor Company's Management Hosts August 2013 U.S. Sales Conference Call (Transcript)

Sep. 4.13 | About: Ford Motor (F)

Call Start: 10:00

Call End: 10:45

Ford Motor Company (NYSE:F)

August 2013 U.S. Sales Conference Call

September 4, 2013, 10:00 AM ET

Executives

Erich Merkle - U.S. Sales Analyst

Kenneth Czubay - Vice President, U.S. Marketing, Sales and Service

Ellen Hughes-Cromwick - Chief Economist

Analysts

John Murphy - Bank of America Merrill Lynch

Adam Jonas - Morgan Stanley

Rod Lache - Deutsche Bank

Dee-Ann Durbin - Associated Press

Ben Klayman - Reuters

Craig Trudell - Bloomberg News

Mike Ramsey - Wall Street Journal

Jaclyn Trop - The New York Times

Operator

Good day, ladies and gentlemen, and welcome to the Ford monthly sales conference call. (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, Kim. Good morning, everyone, and welcome to Ford's August 2013 sales call. We found that strong momentum carried through into August with a very robust industry that again had a particularly strong retail component. Based on our early review this morning, we believe vehicle sales including medium and heavy trucks totaled about 1.53 million vehicles last month.

This would translate into a total SAAR in the mid-16 million vehicle range and approximately a 17% increase for the industry. Retail for the industry and at Ford was very robust. We estimate, retail SAAR came in at approximately 14 million vehicle in August.

Let's take a look at a few of the segment details. Last month, we saw continued strength in full sized pickups and the full sized pickup truck segment on a year-over-year basis and a significant breakout in small utilities. Small cars ran at 22% of industry last month comparable to July, but slightly lower than 2012, almost 23%.

Small utilities really broke out in August, representing approximately 15.5% of the industry, a full 2 points higher than August of last year. This was a segment that represented just 8% of the industry in 2004. It continues to grow, led primarily by baby boomer customers, as they make the transition to empty-nester status and downsize their vehicle size requirements.

Full sized pickups represented approximately 12% of the industry, fairly consistent with July and almost a percentage point higher compared to August of 2012. We estimate sales of the full sized pickup segment increased approximately 17% to 20% over year ago levels. Ford retail sales surged 20% in August under tight inventory constraints of some of our hottest new vehicles.

Here to provide you with some more perspective around the details that we saw at Ford this month is Ken Czubay. I'll turn it over to Ken. Ken?

Kenneth Czubay

Thank you, Erich, and good morning, everyone. As Erich said, notwithstanding tight inventories on some of our most popular models and a temporary pullback in fleet sales for the industry, Ford Motor Company delivered a 12% year-over-year gain with 221,270 vehicles sold in August.

Ford's retail strength really shined in August, with retail sales of 174,937 vehicles, a 20% increase and our strongest retail sales month for any month dating back to August of 2006. 1,400 new workers at the Flat Rock assembly plant will go a long way toward relieving constraints on Fusion, as we move into the fourth quarter of this year.

We are confident, our sales and share will grow as availability improves with this terrific new product. This will be particularly evident in the west and south eastern regions of the country, where we have already made significant gains so far this year. Today, Ford's strong full line portfolio from small cars to full sized pickups can meet the many needs of our customers.

Ford's small car sales, this will include Fiesta, Focus and C-MAX Hybrids totaled 30,148 vehicles in August, representing a 30% gain over last year. A retail growth on the coasts continued with small car sales up 28% on the East Coast. Year-to-date, Ford's small car retail sales on the East Coast are up 19% compared with a 4% increase for the overall industry.

On the West Coast, Ford retail sales of small cars were up 60% in August. Year-to-date, Ford's small car retail sales in the West Coast are now up 46% relative to the overall industry, which is up 11%. Ford small cars have been growing at approximately 4x the rate of overall small car segment on the West Coast this year. Sales for the C-MAX Hybrid vehicles of 3,032 moved higher compared to July. C-MAX Hybrids represents 44% of our small car growth in August. The new Fiesta is being well-received, reporting a 61% increase in August with 6,744 Fiestas sold.

Fiesta's sales success continues in the largest small car market in the country Los Angeles. Fiesta retail sales in this region posted a 90% increase. Dealers are giving us great initial feedback and early sales of Fiesta ST. Our performance Fiesta packs a 197 horsepower mated with a six-speed manual gearbox. The new Fiesta ST stands alone in its segment offering the best combination of performance, fuel efficiency and price.

With inventories remaining tight, particularly in California and Florida, Fusion was still able to produce record sales for August, with 24,653 vehicles sold, a 14% increase over year ago levels. As I mentioned, we are really excited to have our Flat Rock plant now online to help us increase availability of Fusion. With days to turn still at about 13 days in L.A., San Francisco and Miami, Fusion retail sales in California were up 94% in August. Miami, that southern part of Florida saw a 61% increase.

F-Series continued with strong momentum into August, with 71,115 trucks sold, an increase of 22% versus year ago levels. This represents the second time this year, F-Series sales were above the 70,000 vehicle mark, as May also saw F-Series top 70,000. This also represents F-Series 25th straight month of sales gain. The last time F-Series had two months of sales over the 70,000 vehicle mark was in 2006. Let me help you with the math on something. At August pace, we are selling one F-Series pickup every 42 seconds 24 x 7.

Taking a look at Lincoln and MKZ last month, MKZ sales totaled 3,652 vehicles in August, representing a 10% increase for the month and our best every August sales performance for the Lincoln MKZ. This provides us with MKZ sales records in four of the last five months. It's a solid report card for our first all-new product and the reinvention of the Lincoln brand.

MKZ is experiencing good early momentum in California, with retail sales up 71% last month. A big driver of this has been Lincoln MKZ Hybrid, which comprises more than 60% of all MKZ sales in California. We will continue to leverage our hybrid advantage in California, which is a big part of our decision to increase production of the Lincoln MKZ Hybrids to 40% for the 2014 model year. So 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

Thanks, Ken. Well, since our last monthly sales call in early August, economic indicators continue to improve. We're now two months into the fifth year of 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 contributed greatly to overall growth. Auto output has contributed over 15% to overall GDP growth since the second quarter of 2009.

Some of the highlights of the recent indicators include, second quarter GDP that was revised up to 2.5% annual rate compared to the first quarter. The economy over the last four quarters ending in the second quarter rose by 1.6%. We've seen manufacturing orders and shipments expanding, housing sector recovery healthy and broad based and job and income gains positive, but sub-par. Interest rates remain low and our net the U.S. economy is projected to grow in the 2% range this year.

Here are some of the details. August Purchasing Managers' Index, one of the best leading indicators that we have, rose to a reading of 55.7, one of the best since June of 2011. Good gains in the components of the Purchasing Managers' Indexes include orders and export.

August, University of Michigan consumer sentiment reading was down slightly from the prior month to a reading of 82.1. Even though this is lower than last month, August reading is only a few points below the long-run historical average. Indeed, nearly two-thirds of those survey assess this is a good time to buy a vehicle.

In July, non-defense capital goods orders, excluding aircraft, advanced over 9% compared with a year ago, marking the fourth consecutive month of year-on-year gains. This is a constructive development since investment spending growth signaled improving growth prospects as companies assess their end-market, which are likely to gain in momentum.

Now, let me turn to the housing related data. First up, our latest reading of home prices, it rose by 12.1% in June as compared to a year ago, with all 20 cities covered by the index, posting year-on-year increases. This marks the fourth consecutive month of double-digit price increases.

The pace of existing home sales accelerated in July, now at over 17% compared to a year ago. New home sales in July grew by nearly 7%, down from double-digit gains in prior months, largely attributed to tight supply conditions in the market and less so by the rise in mortgage rate. And then finally, July housing starts and permits, both showed good gains with increases of nearly 21% for starts and 12.4% for permits, again on a year-over-year basis.

Let me turn to some of the job market statistics. The most recent four-week moving average of initial jobless claims is now at 331,250 in the week of August 24, indicating the job market could be firming. Consensus forecast for the job reading this Friday are currently in the 150,000 to 234,000 range, according to Bloomberg. Such an increase would mark stable year-over-year growth in jobs of about 1.7%.

Now, this sort of job growth is consistent with lackluster gains in after-tax incomes, which are running at less than 1% year-over-year growth during the January to July period. As an offset, low borrowing costs and rising consumer wealth should continue to support spending growth going forward.

So to recap, as Erich mentioned earlier, the August total industry sales are estimated in the mid-16 million unit range that includes medium and heavy-duty trucks at a seasonally adjusted annual rate. Our full year call for the industry sales is in the upper end of the 15.5 million to 16 million unit range.

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

Erich Merkle

Thank you, Ellen. And to go over some housekeeping items, we're going to talk a little bit about our production guidance and we're going to look at the fourth quarter, which is generally a time we begin to build our inventories a bit for the traditional spring-selling season and so that we can continue to meet this growing demand for full size pickups.

That said, when we take a look at our data, we are projecting for the fourth quarter to produce 785,000 vehicles. That is a 50,000 vehicle increase over fourth quarter of last year that is up 7%. When we break it down, cars for the fourth quarter 287,000; utilities 235,000; and trucks 263,000.

Moving along, if we take a look at our gross stock for the month of August, our gross stock, we had a total gross stock of 535,000 vehicles that breaks down into 171,000 cars, 232,000 trucks, 132,000 utilities and a day's supply 65. Compare that to July of 2013 last month or the previous month before August, our total was 511,000 total, utilities were 126,000, trucks were 227,000 and cars were 158,000. That in July gave us day's supply of 69. August of 2012, a year ago, we had a total stock of 414,000 that is 104,000 utilities, 200,000 trucks, 110,000 cars, which gave us a day's supply in August of last year at 57.

When we start taking a look at our fleet as a percentage of total sales, for the month of August, our fleet as a percentage of total sales was 21%. The breakdown on that commercial represented 10% of our total sales, government represented 5% of our total sales and daily rental represented 6% of our total sales. This compares to August, a year ago, when 26% of our total sales came from fleets, 14% of our total sales made were comprised that's commercial, 15% of our total sales were government and 7% were rental -- I'm sorry at 5% were government. One correction the government was 5% of total sales.

When we look calendar year-to-date, so when we have look for the year through August, 30% of our fleet was a percentage of total sales, when you look at commercial was 13%, government was 5% and rental was 12%, compare that to August of last year, calendar year-to-date, 32% of our fleet comprise a total -- of those 32% of our fleet was total sales, 14% was commercial, 5% was government and 13% was daily rental. So that will take care of all of the housekeeping items.

And with that Kim, we're going to turn it over to the analyst community first and we'll start taking some questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of John Murphy from Bank of America Merrill Lynch.

John Murphy - Bank of America Merrill Lynch

A first question on the Flat Rock capacity, with the 1,400 workers that you've added there for the Fusion, what is sort of the run rate capacity you are expecting out of Flat Rock for the Fusion on an annual basis?

Erich Merkle

Its $100,000, John.

John Murphy - Bank of America Merrill Lynch

And we will see that something arriving in dealerships sometime sort of more November, December as opposed to October, correct?

Erich Merkle

Yes. You'll see it in the fall.

John Murphy - Bank of America Merrill Lynch

Second question, as we look at the F150, I was just wondering if you could give us the inventory numbers there and if you are obviously facing some capacity constraints or it appears that you're facing some capacity constraints. what the opportunities are there as far as increasing capacity as well as pricing on that truck.

Erich Merkle

Yes. I'll have to get that. We'll have inventory numbers for you tomorrow, John, but I don't have the F150 numbers with me at this point.

Kenneth Czubay

John, this is Ken. I would say on the F series, although we had just an excellent month, the second time over 70,000 this year. I don't think that we would call it an inventory situation, pickup trucks as much as it is on some of the cars and utilities. It was the great months and we were very able to match inventory to sales. And Erich will give you the inventory numbers tomorrow.

John Murphy - Bank of America Merrill Lynch

I'm sorry, in the pricing environment on that truck right now?

Kenneth Czubay

Well, the pricing environment is good. Some of our competitors are in transition in the new vehicles and we were right on the market and we're driven by demand.

John Murphy - Bank of America Merrill Lynch

Directionally?

Erich Merkle

Yes. So if you take a look at our incentive spend for full size pickups, it was up approximately a $190 in August compared with July and up about $350 compared to some very low spend of last year. If you take a look at full size pickups, we're at in terms of incentive spend it's about $4,400 per truck, which is really consistent. That's right in line with where we've been operating throughout this year about $4,200 to $4,500 per truck. And if you'd look at our average transaction price on F series trucks, they remained the highest in the industry and they're up about $800 compared to a year ago.

John Murphy - Bank of America Merrill Lynch

Then just one last question for you, Ellen, I mean looking at the production schedules and what you are talking about as far as the economic factors, I mean, it does look like you're looking at a high 15 million to approaching 16 million units SAAR for the fourth quarter. Is there any reason or anything that you're seeing out there that gives you pause as to why that rate shouldn't continue or potentially fades fully higher as we get into 2014? I mean, what are really the big potential negatives or pitfalls that we could see out there that aren't that obvious right now?

Ellen Hughes-Cromwick

Well, we want to continue, John, to have a balanced forward look at the industry, it's clear that the sales pace appears to be galloping ahead as it compares to kind of some of the consumer fundamentals. But if you look at the six months moving average, which is a really valuable trending tool. In fact, since the beginning of the year, the six months moving average has been ticking up about a 10th every month on average.

So that pace has been in train here for several months and it's quite consistent with the factors that we have identified, I think in prior calls. And I'll just remind you, we continue to see the aging PARK generate this replacement demand and that even though job growth has been somewhat disappointing and sub par, people are going back to work. So we have a demand for vehicles, because people are getting back to work and they need to have a vehicle for communing. And so I think there is a enough in terms of what's happening in the job market as well as the aged park and the housing recovery, which is the third leg to this stool that should give us some good support going forward. We just don't want to get irrationally exuberant at this juncture about the sales pace.

Kenneth Czubay

John, what I would add is, I've been talking to a lot of dealers across the country, and the interesting phenomena of the aging park as Ellen has described and we talked about for months, that the other fallout of that is when trades come in, they come in with very high mileage and they don't fuel a used vehicle inventory with low mileage.

And therefore, when the consumer comes in, he has this choice between high mileage used cars, which they don't necessarily want, and then new vehicle supported by very low interest rates, gains in fuel economy and technology. So we believe that will help sustain and even build the momentum on new vehicle sales. And we're of course very excited with all the Ford offerings that we have to meet that demand.

Erich Merkle

And just one last to your question on F-Series, we're at 68 days supply. We were able to get that number. So Kim, next caller please.

Operator

Our next question comes from the line of Adam Jonas from Morgan Stanley.

Adam Jonas - Morgan Stanley

Could you comment on the stair-step programs that we've been hearing about last month that helped move out some of those 2013s? Could you comment on where you're running them, how pervasive were they and how much you reckon they helped?

Kenneth Czubay

We do not do that as you may check with some of our competitors, the feedback from our dealers is we don't believe that's a good tool right now, we don't have to resort to that.

Adam Jonas - Morgan Stanley

But you did witness increased activity by the competition then?

Kenneth Czubay

You'd have to talk to them.

Adam Jonas - Morgan Stanley

I'll take that as a yes. Could you comment on industry incentive levels? Would you say they are normal for this time of year or where are they versus normal for this time of year for the industry?

Erich Merkle

When you look at the industry and we look at incentive spend, it's really fairly flat on a sequential basis. And let me pull the numbers here for you in a minute, Adam. So if we look at the industry, it was down, not quite $80 -- let's say $80 sequentially, and then year-over-year about flat.

Adam Jonas - Morgan Stanley

And just finally, for your team I guess, any early impact on demand from rising interest rates or kind of how are your thoughts on if we are in all else equal rising rates, how do we offset that?

Kenneth Czubay

No, we haven't experienced that. Our great partner Ford Credit just did a superb job last month, and the competition at the dealer level with other providers, other lenders still remains high. Dealers have told me, they've seen virtually no impact to that in the automobile market.

Operator

Our next question comes from the line of Rod Lache from Deutsche Bank.

Rod Lache - Deutsche Bank

A couple things. Just first of all to clarify, does the fourth quarter production guidance that you gave us reflect the full availability that you've got of some of these capacity increases with Fusion, F-Series and Explorer?

Erich Merkle

Yes, it does.

Rod Lache - Deutsche Bank

So basically this is what you would look like at a flat-out level of production there I assume?

Erich Merkle

Yes, this is everything. Well, with the exception of year-over-year you have holidays in the fourth quarter. We're looking at a year-over-year comparison.

Rod Lache - Deutsche Bank

And also can you comment on obviously retail has been very strong, but it looks like fleet has been kind of flattish here recently. What's going on in that market? Why is that not reflecting just the improved macro indicators that we have been seeing?

Erich Merkle

Yes, a lot of it is just calendarization Rod. So I mean we can see on our end, we're not very concerned about it. Clearly we had a great fleet month in June and a lot of people are asking questions about our fleet month in June, and then of course it was very soft in July and here again in August, but a lot of it just has to do with calendarization and the timing of the purchases and so.

Kenneth Czubay

Year-to-date, we're 30% and last year we were 32%. We've always operated in that area, we anticipate, that's about how the year will go. So good solid business for us, especially on the commercial side, you'll see it improve a little bit as we enter the fourth quarter. But it's been to your point, you're right, and it's been driven by very strong retail demand. But it will be the same for Florida as we closed the books.

Rod Lache - Deutsche Bank

And just lastly, I was hoping you might be able to comment or maybe Ellen can comment a little bit about, how we should think about sensitivity to fuel prices at this juncture, and the rates versus what has been fairly anemic disposable income growth. And how should we be thinking about how that affects both of those factors, rates and fuel prices affect demand and mix at this point?

Ellen Hughes-Cromwick

As you know, Rod, consumers have adjusted their expectations about fuel and that's why we've seen particularly for Ford vehicles just a really solid appetite for fuel economy regardless of the segment. And so I think there is an expectation adjustment that the consumer has made with regard to fuel. I think the latest surveys, if you look at the University of Michigan, will show you that, yes, of course there is always a concern that they're going to be higher, but they're adjusting their behavior to hedge so to speak the potential for that.

On the income front that is certainly one of the risks if you look out over the next two to three years. We are just simply not booking enough after-tax income growth out of this economy yet. So we watch that very carefully is one of the reasons why we don't want to get a too rambunctious in terms of the outlook, because that is an important element that can potentially hold back the pace of consumer spending growth.

Rod Lache - Deutsche Bank

So just to clarify, Ellen, do you think that the sensitivity to rates would be more during this recovery, just given what you're seeing in terms of disposable income growth versus prior recoveries?

Ellen Hughes-Cromwick

When you say rates, are you talking about interest rates or?

Rod Lache - Deutsche Bank

Interest rates, monthly payments, that kind of thing.

Ellen Hughes-Cromwick

Well, we've just been through a credit cycle, quite a substantial one, based on the financial crisis. So we've seen a lot of consumer balance sheet deleveraging as you know, a lot of consumers getting out of revolving credit and downsizing. So the interest rate impact on their behavior of what they are buying is somewhat I would argue are somewhat distorted at the present time, because they've just gone through this deleveraging and we're just coming out. So there looks to be a little less sensitivity on the interest rate impact. That sensitivity has been very dynamic.

And I would say, right now it looks to be relatively muted. At the same time, as you know the interest rates on auto loans haven't budged this year, despite the backup on the long-end of the treasury curve associated with some potential expectations about monetary policy.

In August through the 25th of last month, the general buy rate for contracts for retail sales in automotive was about 3.35%. So it really in fact was down a little bit from July. So I guess on net I would recap to say, we haven't seen a lot of sensitivity. We are in the process of seeing some normalization of the consumer balance sheet.

Erich Merkle

Kim, we're going to turn it over to the folks on the media now, if we could. So we'll take our first caller from the media.

Operator

(Operator Instructions) And our first question comes from the line of Dee-Ann Durbin from Associated Press.

Dee-Ann Durbin - Associated Press

I'm wondering, Erich, if you can sort of remind me about retail and fleet demand and how it cycles here? Can we expect retail demand to kind of carry us through the rest of this year or does fleet demand sort of pump-up demand in August and November?

Erich Merkle

I mean generally Dee-Ann, when you look at the overall fleet, the daily rental component is generally seasonally a little bit stronger than then first half, and then commercial is a little bit stronger towards the back half of the month. But retail as you can see from the last couple of months has been very strong for us.

Dee-Ann Durbin - Associated Press

And how much of F-Series goes into fleet versus retail, and has that changed throughout this year or are we announcing more individuals for example versus companies at towards beginning of the year?

Kenneth Czubay

Clearly, with our 70,000-plus vehicle sold last month, it was driven by retail sales. Overall, F-Series were up 22% and retail was up 32%, so a very strong performance. As we've been talking about both in urban and rural areas for the pent-up demand in the high mileage trade, so it was driven by retail this last month.

Operator

Our next question comes from the line of Ben Klayman from Reuters.

Ben Klayman - Reuters

You guys had a strong month, but I was curious as to what kind of impact the inventory shortages had on sales, what was left on the table for you guys?

Kenneth Czubay

Well, Ben, there is likely, there're few areas where we could certainly, probably have done a little bit better. I mean we're bringing up plant online in Flat Rock to produce 100,000 Fusion's a year. So clearly, that we're doing that for a reason. The other, though, if you take a look at our retail, our retail is really impressive this month. So we're at 20% and we had our best retail selling month, any month going all the way back to August of 2006. So a lot of what we had this month that albeit some on the inventory side around things like Fusion. We also had some calendarization of fleet that impacted our total sales numbers.

Ben Klayman - Reuters

And just a follow-up, why is everything so strong for everyone, I mean, I know everyone is talking about the bump from the holiday, but I mean we're seeing numbers that are even beyond, what everyone was expecting and I was just wondering, if it was -- and you said that the incentives were largely flat. So I'm just wondering, is it just going back to what Ellen was talking about that consumers even stronger then people were expecting or I mean sort of what exactly is the reason for this outperformance almost across the board?

Kenneth Czubay

Ben this is Ken. And I think it's the elements. Your keen observation on your part, we've been talking about for a couple of quarters the continuing pent-up demand, consumers are still seeing low interest rates, they're seeing more and more sinking in of advances in fuel economy and technology. And there was a lot of merchandising that went on. Over the Labor Day weekend, if we had a chance to watch any TV, I think all of the automakers were saying this is a good time to go and it really fueled talking about scores of dealers across for the country. It fueled solid demand at Ford dealerships, Thursday, Friday, Saturday, Sunday and Monday, it was good things coming together at retail.

Operator

Our next question comes from the line of Craig Trudell from Bloomberg News.

Craig Trudell - Bloomberg News

I had a question about the situation in Syria and just sort of how you guys are watching -- what and how you guys are watching in terms of what -- how that's going to affect the consumer, if at all/ Is it your gas prices? Is it your confidence and sort of what is your expectation for sort of how we will weather any action over there?

Ellen Hughes-Cromwick

Well, as you know we have seen a several episodes of events really grasp the consumer and they have been very resilient through what has been a very dynamic period of really since 2006, so we simply do not know what the reaction will be. We continue to watch and monitor and understand that the consumer has remained fairly resilient through several of events that has taken place.

Erich Merkle

Thank you, Craig. Kim, next caller, please.

Operator

The next question comes from the line of Mike Ramsey from Wall Street Journal.

Mike Ramsey - Wall Street Journal

Ellen, you answered one of the questions I had so the other question was just a little more specific, if you don't mind, obviously the Fusion is one of the vehicles that you felt like a tight inventory is on. Are the others, primarily the Escape, because you mentioned strong sales utilities that the other vehicles that you feel like you don't have quite enough of or can you name some others?

Kenneth Czubay

I would say, Focus -- you mentioned obviously the Fusion and then Escape and Explorer, we're building flat out at those also, but there is just tremendous demand for those three other vehicles.

Mike Ramsey - Wall Street Journal

It's one of the things that was mentioned and has been mentioned by a lot by Ford with your all of the work that you've done on, redoing all of your plants is the flexibility of those plants, are there any plans underway right now to test out your new flexibility and see if you could build some extra Escapes in different plants or extra Focuses or Explorers in different plants, I don't know if there is another plant that can the build Explorer.

Kenneth Czubay

But I can assure you our manufacturing team is constantly working on maximizing the production. I mean one area you're going to see that is at Chicago, where we have flexibility and we're working very hard on increasing production, using that flexibility at Chicago to help with the Explorer situation. You were absolutely right, I mean it was breathtaking to me to note that this was the best retail, any month not just August, but any month for Ford Motor Company going back to August 2006. I mean that's astounding and clearly reflects the retail demand that Ellen and I and Erich have been talking about for the last six months. Best month ever.

Erich Merkle

Kim, were going take a one more caller from the media please.

Operator

Our next question comes from the line of Jaclyn Trop from The New York Times.

Jaclyn Trop - The New York Times

Good morning. And I apologize if this is already asked, I had to step away for a second, but what was the story with leasing last month?

Erich Merkle

Sure, we can certainly talk to you a little bit about leasing. We run at a very standard rate, so when we look at our leasing, we're right around 15%. We have seen the industry move a little higher, but we maintain a very consistent approach to our leasing business, which is about 15%.

Kenneth Czubay

So this is Ken, just to add a little bit more texture, it's a very good portfolio for us. Ford credit is in there solidly to support us, what we're finding is the consumers have a good choice between leasing and utilizing the low interest rates, so the differential is not that great. So leasing has done very well for us and like Erich pointed out there has been some swings in that over the last decade or two and we're prudent in managing that business, but it's a great tool for our dealers.

Jaclyn Trop - The New York Times

But when you said that the differential is not that great, you mean between buying and leasing, right?

Kenneth Czubay

Yes, with the low interest rates, right. Many consumers want to take advantage. You know, they've held their vehicle longer, they are not uncomfortable with the longer terms because they utilize the lower interest rate. Okay. And as Ellen had -- I don't know if you miss this part, but Ellen had a very interesting fact that actually the -- with people having an eye on the interest rates, the effective interest rates were actually slightly lower in August than they were July at auto loans.

Erich Merkle

And, Kim, that's going to wrap it up for us today. Thank you everyone for joining us today and we'll look forward to chat in with everyone next month about September sales. Thank you again, everyone.

Operator

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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