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Executives

Alan Mulally - President and CEO

Robert 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

John Murphy - Bank of America Merrill Lynch

Rod Lache - Deutsche Bank

Patrick Archambault - Goldman Sachs

Itay Michaeli - Citigroup

Dee-Ann Durbin - Associated Press

Craig Trudell - Bloomberg News

Karl Henkel - The Detroit News

Mike Ramsey - Wall Street Journal

Deepa Seetharaman - Thomson Reuters

Joann Muller - Forbes

Ford Motor Company (F) Q3 2013 Earnings Conference Call October 24, 2013 9:00 AM ET

Operator

A very good day to you, ladies and gentlemen, and welcome to the Ford third quarter earnings conference call. [Operator instructions.] I would now like to turn the call over to George Sharp, executive director, investor relations. Please proceed. Thank you.

George Sharp

Thank you, operator, and good morning, everyone. Welcome to everyone joining us today either by phone or by 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 third quarter 2013 financial results.

Presenting today are Alan Mulally, president and CEO of Ford, who is linking in from our Asia Pacific Africa headquarters in Shanghai, China and Bob Shanks, CFO. 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 our 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 any 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 would like to turn the presentation over to Alan.

Alan Mulally

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

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

Our commitment remains 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. We continued to make good progress towards this goal in the third quarter, which we will now review starting on slide two, please.

The company earned a record third quarter operating profit at $2.6 billion, our 17th consecutive profitable quarter. Automotive operating related cash flow was also a third quarter record, and at quarter end, liquidity was very strong. The top line grew compared with last year, with market share gains in all regions.

This was our fourth consecutive quarter of volume and revenue growth. The company’s pretax profit was driven by our best-ever third quarter results for the automotive sector. This reflects continuing strong results in North America and combined profit for the region outside of North America for the first time since second quarter 2011.

Within these results, Asia Pacific and Africa earned a record third quarter profit. South America was profitable, and Europe substantially reduced its loss compared with last year and the second quarter. Ford Credit also contributed solid results.

Based on our year to date results, we are improving our full year financial guidance. We now expect total company pretax profit to be higher than 2012, improved from our prior guidance of equal to or higher than 2012. We also now expect automotive operating margin to be higher than last year rather than about equal.

Before turning to the financial details, let’s recap several other achievements from the third quarter. As shown on slide three, we launched a number of products around the globe in the quarter, including the Fiesta ST in the U.S., Cargo Extra Heavy Duty and the Fusion Hybrid in Brazil, Focus in Argentina, Focus Electric in Europe, and the Mondeo in China.

In Europe, we further detailed our product acceleration plans. We now plan to introduce at least 25 new vehicles within the five-year period beginning September of 2012. This is up from our previously announced plan to introduce at least 15 new vehicles over the same period.

Among the new products coming to Europe and other markets is the Transit Connect. It was recently named the 2014 International Van of the Year, marking the second consecutive year Ford won this award.

In Germany, we revealed the S-Max and the Mondeo Vignale concepts, and we also announced plans to increase production of our award-winning one liter EcoBoost engine in our Cologne plant to meet strong customer demand.

In Sydney, we announced future plans for Ford of Australia, including 11 global vehicles by 2017. In India, we announced our intention to develop the country as a global production hub, exporting to more than 50 markets around the world. In August, we shared a comprehensive capital strategy with investors. Details of our strategy are available on our website.

And finally, we were upgraded to investment grade by S&P. With this upgrade, the four major rating agencies that rate us now report Ford and Ford Credit as investment grade with a stable outlook.

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

Robert Shanks

Thanks, Alan, and good morning everyone. I’m pleased to share our third quarter results with you today. Third quarter wholesale volume was 1.5 million units, up 216,000 units or 16% from a year ago, and revenue at $36 billion was up $3.9 billion or 12%.

Pretax profit was $2.6 billion, excluding special items, $426 million higher than a year ago. After-tax earnings per share at $0.45 were $0.05 higher. Net income attributable to Ford, including pre-tax special item charges of $498 million was $1.3 billion. This was $359 million lower than a year ago. Earnings were $0.31 a share, down $0.10.

Special items in the third quarter included $250 million for separation-related actions, primarily in Europe, to support our transformation plan, and $145 million associated with our U.S. lump sum payout program as part of our pension derisking strategy.

We settled about $700 million of pension obligations in the quarter and $3.4 billion since the program began. The program is now about 80% complete and will conclude by year-end. You can find additional detail on the special items in Appendix 3.

Automotive operating related cash flow was $1.6 billion, a third quarter record, marking the 14th consecutive quarter of positive performance. Automotive gross cash was $26.1 billion, exceeding debt by $10.3 billion.

Our third quarter operating effective tax rate, which isn’t shown, was about 33%. We now expect our full year operating effective tax rate to be less than 30%, compared with 32% last year. This reflects a year to date tax rate of about 31% and a fourth quarter reduction in Ford Credit’s tax liability.

In the first nine months, vehicle wholesales increased by 14% from a year ago and revenue increased by 12%. Pretax operating profit, excluding special items, was $7.3 billion, a $1 billion improvement. Net income was $4.1 billion. This was $49 million higher.

As shown on slide five, both of our sectors, automotive and financial services, contributed to the company’s third quarter pretax profit of $2.6 billion. The memo below the charge shows that profit improved $426 million compared to 2012, more than explained by higher automotive sector results, driven by regions outside of North America.

Compared with second quarter 2013, total company pretax profit improved slightly, again driven by the automotive sector. Within financial services, Ford Credit’s results were higher in the third quarter than last year, while other financial services was lower. The third quarter loss was $64 million for other financial services, and this primarily reflects charges related to the sale of a portfolio of financed receivables that was not included in our sale of the Volvo auto business in 2010.

The key market factors and financial metrics for our total automotive business are shown on slide six. As previously mentioned, the record third quarter profit reflects continued strong performance in North America and a combined profit from the regions outside North America, including the record third quarter result in Asia Pacific Africa.

Total automotive third quarter wholesale volume and revenue were both up strongly from a year ago. The higher volume reflects higher market share in all regions, improved industry volume in all regions except South America, and favorable changes in dealer stocks in all regions.

The growth in revenue primarily reflects the higher volume, as well as the net pricing gains in all regions. Operating margin of 7% was 0.7 of a percentage point better than a year ago, and our best quarterly margin since second quarter 2011.

Automotive pretax profit was up $451 million, more than explained by favorable market factors. As shown in the memo below the chart, first nine months volume and revenue were higher than a year ago by 14% and 13% respectively.

Operating margin, at 6.2%, and total automotive pretax profit, at $6 billion, improved as well. The better results primarily reflect improved market factors across all regions, offset partially by higher cost as well as unfavorable exchange, primarily in South America.

On slide seven, we show the factors that contributed to the $500 million improvement in total automotive third quarter pretax profit. Favorable market factors, volume, mix, and net pricing across all regions were offset partially by higher costs and unfavorable exchange.

The cost increases mainly reflect investments in higher volume, like growth and new products, not only for this year but also the future, as well as restructuring related cost in Europe, higher OPEB expense in North America, and higher pension expense in Europe.

As shown in the memo, pretax profit was $200 million higher than the second quarter, more than explained by lower cost and higher net pricing, offset partially by lower volume due to seasonal plant summer shutdowns in both North America and Europe. You can find more details on the quarter to quarter change in Appendix 8.

Our third quarter pretax results for each of our automotive operations as well as other automotive are shown on slide eight. All regions were profitable except Europe, and all regions improved compared with a year ago, except North America, which was about the same.

Other automotive reflects net interest expense, offset partially by a favorable fair market value adjustment of our investment in Mazda. For the full year, we now expect automotive net interest expense to be at the lower end of our prior guidance of $800 million to $850 million.

Now we’ll look at each of the regions within the automotive sector, starting here on slide nine with North America. North America continued to perform very well, achieving a pretax profit of $2 billion or more and an operating margin of 10% or more for the sixth time out of the last seven quarters.

In the third quarter, this was driven by a strong industry and a robust full-size pickup segment, our strong product lineup, U.S. market share growth, 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 in the two graphs on the left, North America continued to grow strongly in the third quarter. Wholesale volume and revenue increased from a year ago by 13% and 12% respectively. The volume improvement mainly reflects higher U.S. industry sales, increasing from SAR of 14.8 million to 16.1 million units, favorable changes in dealer stocks, and higher U.S. market share. The higher volume drove the revenue increase.

North America’s operating margin, at 10.6%, was lower than last year, due primarily to cost increases, mainly investment and new products and growth, as well as the non-repeat of a couple of favorable items that we’ve previously disclosed.

Pretax profit was $2.3 billion, about equal to last year’s record profit. As shown in the memo below the chart, North America’s operating margin for the first nine months was 10.7%, 0.5 of a percentage point lower than a year ago, while pretax profit was $7 billion, up about $600 million. Volume and revenue both improved 15% compared with 2012.

On slide 10, we show the factors that contributed to North America’s third quarter pretax profit being unchanged from last year. Favorable market factors were offset for the most part by higher costs, including investment in new products. As shown in the memo, pretax profit also was unchanged compared with the second quarter.

Ford’s U.S. market share trends are shown on slide 11. Total U.S. market share and retail share of the retail industry both improved compared with a year ago. Both share metrics, however, were down compared with the prior quarter. Starting with the left chart, our total U.S. market share was 14.9%, up 0.1 of a percentage point from the same period last year, more than explained by F-Series.

Our share was down 1.6 percentage points through second quarter, explained primarily by lower Ford share of the fleet business, as well as lower fleet mix of the total industry, which is typical for the third quarter.

As shown on the right chart, our retail market share of the retail industry was 13.3%, up 0.6 of a percentage point from last year, reflecting F-Series, Escape, and C-Max. Our retail market share was down 0.4 of a percentage point from second quarter, reflecting primarily lower share of the small car segment and lower inventory availability of Escape.

We continue to have success with what we call the super segment vehicles. This is small vehicles and small to midsized cars, particularly on the coasts. Our super segment market share was up 0.5 percentage point in the quarter, compared to last year, with the coastal regions contributing almost all the improvement.

Our full year guidance for North America remains unchanged. We continue to expect higher pretax profit compared with 2012, and an operating margin of about 10%.

Now let’s turn to slide 12 and review 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. Our new products continue to perform very well. Customer response to the Ranger pickup and refreshed Fiesta remains strong, while EchoSport and Fusion continue to be segment leaders.

In the third quarter, wholesale volume and revenue increased strongly from a year ago, with both up 22%. The higher volume reflects increased market share and favorable changes in dealer stocks. The higher market share, 8.4% improving to 9.5%, is more than explained by EchoSport, Ranger, and Fiesta.

South America’s revenue growth was driven by the higher volume and net pricing gains, offset partially by unfavorable exchange. Operating margin was 5.6% and pretax profit was $159 million. The year over year improvement in both metrics is more than explained by favorable market factors. As shown in the memo below the chart, volume, revenue, operating margin, and profit all improved in the first nine months compared with the same period last year.

On slide 13, we show the factors driving the $150 million increase in South America’s third quarter pretax results. Market factors more than explained the improvement, with our new products having a favorable impact on volume and mix.

The higher net pricing mainly reflects efforts to recover the adverse effects of high local inflation and weaker local currencies, along with pricing associated with our new products. As shown in the memo, pretax results were about the same as second quarter.

The overall environment in South America remains uncertain, but given the performance of our business in the first nine months, we now expect to be about breakeven to profitable for the full year. This compares to our prior guidance of about breakeven.

Let’s turn now to Europe, beginning on slide 14. In the third quarter, we remained very much on track in executing our Europe transformation plan. Europe’s third quarter wholesale volume and revenue improved from a year ago by 5% and 12% respectively. This is the second consecutive quarter of year over year top line growth.

The volume increase reflects higher industry sales, lower dealer stock reductions than a year ago, and higher market share. Europe’s market share improved 0.2 of a percentage point, from 7.8% to 8%. The increase in Europe’s revenue mainly reflects the higher volume.

Europe’s operating margin was a negative 3.5% and the pretax loss was $228 million, both substantially improved from last year, despite restructuring costs associated with our transformation plan. So far, we’ve seen our business in Europe improve sequentially in each quarter this year.

As shown in the memo below the chart, Europe’s first nine months operating margin was negative 5%, and the pretax loss was $1 billion, both about the same as a year ago, despite about $400 million of restructuring costs and lower industry volume. Volume and revenue were both up slightly from a year ago.

Slide 15 shows the factors that contributed to the $240 million improvement in Europe’s third quarter pretax results from a year ago. All factors were favorable, with the exception of other costs, which is more than explained by restructuring cost, shown in the memo to the right. Personnel separation related costs, which were significant once again this quarter, are captured in special items.

As shown in the memo below the chart, pretax results improved $120 million compared with second quarter. All factors were favorable, except volume and mix, which reflects mainly lower volume due to Europe’s seasonal plant shutdowns for summer holidays.

Europe market share trends are shown on slide 16. Total market share and retail share of the retail passenger car industry improved from a year ago, but were down slightly from the prior quarter. Starting with the left chart, our total market share for the 19 European markets that we track was 8%, up 0.2 of a percentage point from the same period last year, more than explained by strong sales of B-Max. The share was down 0.1 of a percentage point for the second quarter.

As shown in the right chart, our passenger car share of the retail segment of the five major European markets was 8.3% in the third quarter. That was up 1.3 percentage points from the same period last year. This improvement was underpinned by strong retail performance of B-Max, Fiesta, and Focus. The share was down 0.1 of a percentage point from the second quarter.

For the full year, we now expect our loss in Europe to be less than 2012. This is an improvement from our prior guidance of a loss about the same as a year ago, reflecting progress the company is making on our European transformation plans.

Let’s now review Asia Pacific Africa, on slide 17. Our strategy in Asia Pacific Africa is to grow aggressively with an expanding portfolio of global One Ford products, tailored for the region, with manufacturing hubs in China, India, and ASEAN. Implementation of this strategy continues to gain momentum.

As shown on the left, third quarter wholesale volume was up 35% and net revenue, which excludes our China joint ventures, grew 7%. The higher volume reflects mainly improved market share, with the higher industry volume and the favorable changes in dealer stocks also contributing.

Third quarter market share in the region was 3.7%, 0.6 of a percentage point higher than a year ago, and a quarter record. The improvement was driven by China, which isn’t shown, where our market share improved 0.8 of a percentage point to equal last quarter’s record of 4.3%, reflecting mainly strong sales of Kuga, EchoSport, and Focus. Asia Pacific Africa’s higher revenue primarily reflects favorable volume and mix.

Operating margin was 4.4%, and pretax profit was $126 million, both improved from last year due to favorable market factors. This was the region’s fifth consecutive quarterly profit. As shown in the memo below the chart, Asia Pacific Africa first nine months volume, revenue, operating margin, and profit all improved from a year ago.

The $81 million improvement from a year ago in Asia Pacific Africa’s third quarter pretax results is explained on slide 18. 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. We also benefited from higher royalties from our joint ventures and an insurance recovery, both included in other.

As shown in the memo, Asia Pacific Africa pretax results were $51 million lower than the second quarter, more than explained by unfavorable volume and mix. Our guidance for Asia Pacific Africa is unchanged. We continue to expect to be profitable for the full year.

Turning now to Ford Credit on slide 19, we’re explaining the $34 million increase in third quarter pretax results compared with a year ago. The increase is more than explained by higher volume in North America.

The drivers of higher volume were an increase in leasing, reflecting changes in Ford’s marketing programs, as well as higher nonconsumer finance receivables due to higher dealer stocks. As shown in the memo, Ford Credit’s pretax results were $27 million lower than the second quarter.

Ford Credit remains key to our global growth strategy of providing world-class dealer and customer financial services, maintaining a strong balance sheet, and producing solid profits and distribution.

For the full year, Ford Credit continues to expect pretax profit to be about equal to 2012, but we now expect year-end managed receivables of about $100 billion, which is within our prior range of $97 billion to $102 billion, and distributions of about $400 million, which is up $200 million from what was previously planned, reflecting a fourth quarter reduction in Ford Credit’s tax liability.

Next, on slide 20, as to our automotive gross cash and operating related cash flow, automotive gross cash at the end of the quarter was $26.1 billion, an increase of $400 million from the end of the second quarter. Automotive operating related cash flow was $1.6 billion, more than explained by automotive profits.

During the quarter, we contributed $1.1 billion to our global funded pension plans, which included about $700 million of discretionary payments to our U.S. funded plans, all part of our pension derisking strategy.

Dividends paid in the quarter totaled about $400 million, and we continued our compensation related share repurchase program.

In the first nine months, our operating related cash flow was $5.6 billion, and gross cash improved $1.8 billion. We continue to expect automotive operating related cash flow to be substantially higher than last year.

Slide 21 shows that automotive debt at the end of the quarter was $15.8 billion, equal to second quarter. We ended the quarter with net cash of $10.3 billion and automotive liquidity of $37.5 billion.

This now concludes our review of the financial details of our third quarter earnings. Now I’d like to turn it back to Alan, who’s going to take us through our outlook for the business environment as well as our update of 2013 planning assumptions and key metrics. Alan?

Alan Mulally

Thank you, Bob. Slide 22 summarizes our view of the business environment. Overall, our outlook has not changed substantially. We project 2013 global economic growth to be around 2%, and global industry sales to be about 84 million units this year.

U.S. economic growth is projected to be in the 1.5% to 2% range, with industry sales supported by continued improvement in the housing sector and replacement demand as a result of the older age of vehicles on the road. Fiscal policy uncertainty poses a risk as negotiations on the debt ceiling and funding government operations have now been pushed out to the first quarter of 2014.

In South America, Brazil’s economy is relatively weak, with below-trend growth, while in Argentina and Venezuela there’s escalated risk, as both economies are weak, with unclear economic policy directions.

The euro area’s economic and industry conditions have begun to stabilize, and are consistent with a modest recovery that could occur in the near term. The European Central Bank has committed to keep interest rates low for an extended period.

In Asia Pacific and Africa, incoming economic indicators for China suggest stabilization, with growth in the 7.5% range this year. Growth in India, on the other hand, is below its full potential, due partially to elevated inflation, volatile currency, and high interest rates.

Overall, despite challenges, we expect global economic growth to continue for the remainder of this year. Our guidance for 2013 is detailed here on slide 23. We now expect full year industry volume of about 15.9 million units in the U.S., about 13.6 million units in Europe, and about 21.7 million units in China.

We project our full year market share to improve compared with 2012 in the U.S. and China, but to be about equal to last year in Europe. We continue to expect our retail share of the retail passenger car market in Europe to improve.

Our total company third quarter production volume, shown in Appendix 5, was about 1.5 million units, 187,000 units higher than a year ago, reflecting higher volumes in all regions. We expect total company fourth quarter production volume to be about 1.6 million units, 102,000 units higher than a year ago. This includes a reduction of 15,000 units from our prior guidance for North America.

The outlook for quality remains mixed. In terms of our financial performance, we now expect total company pretax profit and automotive operating margin both to be higher than 2012. We continue to expect automotive operating related cash flow to be substantially higher than 2012, including capital spending of about $6.5 billion to support our industry leading product refresh rates, the expansion and global deployment of our portfolio, and capacity actions. This compares to our prior capital spending guidance of about $7 billion.

2013 is on track to be another strong year for the Ford Motor Company as we continue to work toward our mid-decade outlook and deliver profitable growth for all.

In closing, our One Ford plan is built on a compelling vision, a comprehensive strategy, and relentless implementation. As the results we announced today made clear, our One Ford plan continues to deliver profitable growth around the world. We are absolutely focused on great products, creating a stronger business, and contributing to a better world.

We achieved record results in the third quarter, and we continue to expect strong results for the full year. This includes continued strong results from North America; South American results of about breakeven to profitability as we continue to introduce new global products to support product led growth over the remainder of the year, even as we work to adjust to an uncertain environment in the region; continued successful execution of our transformation plan for Europe, which is proceeding very well as we work towards returning to profitability by mid decade; strong investment for long term success in Asia Pacific and Africa, which already is being reflected in improved revenue, market share, and financial results; and consistent performance from our valued Ford Credit operation, which delivers world-class customer service and solid bottom line results.

Now we would be pleased to take your questions. George?

George Sharp

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

Question-and-Answer Session

Operator

[Operator instructions.] We have our first question from the line of Colin Langan from UBS.

Colin Langan - UBS

Alan, can you comment on the media reports that you’re considering leaving for Microsoft or another position? Are you still committed to staying through the end of 2014?

Alan Mulally

Yes, I’d be pleased to. There’s nothing that has changed about our plan that we announced last November, and I’m clearly excited and honored to continue to serve Ford.

Colin Langan - UBS

And any color on Europe in the quarter? Is there any sort of one-time benefit, or should we kind of consider this from a cost basis a good benchmark going forward? With Q3 volume is ticking up just a bit, should Q4 start ticking up, or is there something unique in Q3 that kind of helped the quarter out?

Robert Shanks

No, there’s nothing material that’s going on in the results. It’s very clean, as you saw. When we looked at what was happening compared to last year, and even versus the second quarter, putting aside the volume effect, because of the shutdowns on a quarter to quarter basis, everything is looking positive for growing the business.

We’re starting to see revenue, transaction prices, tick up a little bit. We’re holding the line on incentives. The team’s doing a great job on cost. We got a bit of good news on exchange. The plant closures are going very, very well. Of course the U.K. is closed, and the team is now working to kind of remap the footprint and making the investments to do that going forward.

So I think the team’s just doing a great, great job across the board, and you’re seeing the evidence of that in the results.

Colin Langan - UBS

I think in the past you’ve commented that utilization once [unintelligible] is closed, would be in the mid-80%. You’re closer to, I think, almost 100% in North America. How do you think about capacity in Europe longer term? Would you consider additional actions there to get you closer to where you are, similar to North America?

Robert Shanks

Well, as you know, we always manage the business everywhere to match production with demand, and if and when we think we need to take action, whether that’s to increase capacity or to address capacity, sort of structural capacity, excess capacity, we’ll do that. We’ve done that in the case of Europe to the degree we thought was appropriate, and in Europe, and in any part of the world, if we see the need to do anything based on how things progress or change in the future we’ll do that.

But we’re very comfortable with what we’ve done in Europe and what we’ve announced, and as I said, the implementation of that’s going smoothly, so we feel very good about where we stand, obviously in an environment of excess capacity, because that hasn’t really materially changed, although some other competitors have taken a few actions. But in terms of what we’ve done, we feel very comfortable with where we’re at.

Colin Langan - UBS

And if I could just slip one more in, cash flow year to date seems extremely strong. It’s almost at a $7.5 billion annualized base here. Is there anything unique this year that’s driving cash flow maybe a bit higher than a normalized rate? Or any color on that?

Robert Shanks

No, nothing unique. You’re just seeing the strength of the business flow through. The only thing I probably would be remiss if I didn’t mention is we have had some favorable timing effects. And part of that was we had some unfavorable effects towards the end of last year. I think we had a little bit of issues last year also with working capital, some of which is reversing out this year. So that’s probably helping us to some extent, in the absolutes this year, but really for the most part what you’re seeing is just the strength of the business flowing through into the cash flow.

Operator

We have our next question from the line of John Murphy from Bank of America Merrill Lynch. Please go ahead.

John Murphy - Bank of America Merrill Lynch

Just first on slide 9 and 10, and looking at North America, as we look at an 85,000 unit increase in volumes, and $2.2 billion higher in revenue, it’s kind of curious that we wouldn’t see at least a flat line or a slight expansion of operating margins in pretax earnings. And I can understand the [walk] that you’re showing on slide 10, but is there something going on here as far as product development behind the scenes for big launches next year that might be weighing down these results in somewhat of an unusual fashion? Because it just seems like you should be putting up slightly better results with $2.2 billion in revenue in North America.

Robert Shanks

No, I don’t think so, but let’s just go through it and [peel] it back a bit. In terms of the cost, and you can see that on slide 10, you are seeing higher manufacturing costs. That’s largely, if not entirely, associated with volume and capacity that we’ve put in place relative to where we were last year. We are investing more in engineering, but that’s across the business as we continue to invest for further growth right across the board, around the world.

The only other thing I would mention within the cost, and we talked about that earlier this year, I might have mentioned it in the second quarter as well, in North America you’ve got two other things, they’re not cash related, that are going on.

One of them is that we had the plan amendments to our OPEB for our healthcare program back in ’05 that gave us $2.5 billion of savings. That was amortized over the life of the remaining participants that were subject to those plans. That largely, if not entirely, ran off last year, so that’s giving us headwinds this year. It’s not cash, but it’s giving us headwinds and shows up in cost. And very, very similarly, we had a fixed asset impairment in North America in ’08 that again was amortized over the remaining life of the assets affected, and that was basically ran out for the most part last year, so that’s in the numbers as well.

We also have higher compensation related cost, and that’s simply due to the fact that we’re making more money, and so for example in terms of our hourly profit sharing in the U.S., we’re accruing more for that.

And the other thing I would mention is mix. We do have adverse mix effects in the quarter, which is good, because what it means is that we’re growing the business, particularly in the super segments, which have lower margins on average than, for example, our trucks and our larger utility vehicles. So that just is broadening our base, and that’s actually showing up in terms of our super segment share, which is growing in an absolute sense, but particularly on the coasts, which I mentioned.

So I think those are the factors probably that are giving you the issues that you’re trying to sort out through the numbers. But it’s still a fabulous result in terms of the margin, at 10.6%.

John Murphy - Bank of America Merrill Lynch

And then just a second question, as we look at the European results, and I think it’s on slide 15, and you’re getting closer and closer to breakeven, particularly when we exclude the restructuring cost, which at some point, I would imagine, in the future, fade. Is there the expectation that you might be able to get closer to breakeven before the sort of generally expected view of 2015?

And as we look at 2014, when do the benefits of the Genk closure ultimately roll in? Will we see those in late ’14, or will they really just not show up until 2015? So, first, you really seem to be making a lot of great progress in Europe. It seems like you might be able to get back to breakeven before you even close Genk, and just trying to understand when the Genk benefits roll in.

Robert Shanks

That’s a very good question, particularly given the 50% plus improvement in the loss versus last year. We obviously are doing a bit better than what we had expected, because we guided at the beginning of the year that our loss would be about the same as a year ago, and now we’re improving that, so the team is actually doing a better job even that what we had expected in terms of driving forward this transformation plan.

I wouldn’t get ahead of ourselves. I think this still leaves us firmly on track, maybe more firmly on track, to a profit. Not breakeven, but a profit by 2015. So we’re feeling even better about that.

Genk itself doesn’t close until the end of ’14, and so you won’t see the full benefits of the Genk closure flow through until after that. So that would be in ’15 and beyond. But I think clearly the team’s doing a wonderful job, the progress we’re making is very good, and as you noted, we have substantial restructuring charges in our numbers. We also didn’t impair any assets and things of that sort. So we’ve got very, very strong results, even with all that, and feel very confident about the direction the business is heading there.

John Murphy - Bank of America Merrill Lynch

And just simply on the Ford Credit, the receivables for Volvo that were a $64 million loss in the quarter, when do those completely roll out of the results? Is this kind of the end of that? I’m just trying to understand how we can think about maybe Ford Motor Credit just on an ongoing basis, without that noise.

Mike Seneski

Those receivables are actually held in other FSG. There was an entity that had about $1.4 billion. About $500 million or $600 million or so was actually sold to a third party. There’s about $100 million left on the books, and those will sell in tranches and be gone by the end of this year. The other amount, which was related to the Swiss entity, which is mostly Ford assets, we actually transferred to FCE, and those will be on the books as we continue to grow that business.

John Murphy - Bank of America Merrill Lynch

So that $64 million number should diminish quite dramatically in the coming quarters?

Mike Seneski

Yeah, that’s a one-timer. Going forward, we would expect other FSG to just reflect the small loss each quarter.

John Murphy - Bank of America Merrill Lynch

And then lastly, Alan, just U.S. sales have been incredibly strong. Obviously there’s some noise around some timing and potential weakness in the September numbers. But given where the economy is in general, auto sales are running way ahead of where you would expect relative to everything else that’s going on in the economy.

Obviously a lot of that has to do with replacement demand, but are you kind of of the view, without putting a fine point on numbers, that as the economy finally picks up, hopefully in the coming quarters, or even in the next year or two, that we really could see a sales level that’s way above and beyond what we’re looking at right now, and that we’re just looking at replacement right now, but when we get some real discretionary demand coming into the market that we really could have another step function improvement in auto sales, without putting an exact number on it. I’m just trying to understand how you’re thinking about the U.S. market and how you’re planning going forward.

Alan Mulally

I think you really hit the main elements that we’re looking at, really kind of starting with the fundamentals of the recovery, especially the housing and the pent up demand. Of course as we start to satisfy that pent up demand over this next couple of years, it will come down to more of a normal growth rate based on demographics and discretionary income, and we think that it’s going to be in the 16 million to 17 million range.

I think the peaks that we’ve seen in the past that were fueled by a lot of factors as you know, we don’t expect to see. And I think that nice, steady rate that reflects those fundamentals would be welcome by all. And I think that’s the way we’re looking at that right now.

Operator

We have our next question from the line of Ryan Brinkman from JPMorgan. Please go ahead.

Ryan Brinkman - JPMorgan

We’ve seen a couple of very good quarters now in a row from the international operations while North America has remained strong. And I think there were some comments out this morning, maybe by Bob, that Europe has “turned the corner.” So this would seem to suggest that your profitability has structurally improved here. I remember that being one of the preconditions for increasing the dividend, when you find yourself with capital in excess of the target, as you outlined in August.

So I realize that the dividend is a board decision, but I wonder if there’s anything you can say there. Or, if not, if you could just comment on whether you think your profitability has now structurally improved relative to a couple of quarters ago.

Robert Shanks

You hit a lot of interesting points there, if I can sort through them. I did not say that we’ve turned a corner. I think I’ve said that we’re very pleased with the progress that we’re making. I think I may have gotten a question earlier today about did we think the environment in Europe, as well as industry sales, may have turned a corner, and I think that is our point of view.

As we look at economic leading indicators, as we look at various ways of parsing the industry and run rate of [SARS] and so forth, it seems to us that we clearly have stabilized and we’re seeing signs that we should start to see very, very modest growth in the near term. So we’re feeling much more positive about that than where we’ve been the last year or year and a half.

In terms of our own business, you hit on a really important strategic point for Ford, which is to sustain the very strong performance of North America, which has been ongoing for quite a number of quarters, not just the last couple. But continue that, and then to get the rest of the automotive business up to the point where it’s pulling its fair share of the business.

And we’re far from that. We’re very confident about getting there, but we clearly see that as a huge opportunity for us. In fact, it’s interesting, when you look at the margin, which, as I said, is the best since the second quarter of ’11, and the improvement on a year over year basis, that is all explained by the operations outside of North America. So you can see the power and the opportunity that we have as these businesses continue to gain traction and move forward.

Now, relative to the dividend, what we’ve said on the dividend is our strategy is to continue to grow the dividend as earnings grow, as liquidity permits, but only up to a level that we think is sustainable over an economic cycle. And then if we have excess cash, above and beyond that level, and we don’t think we can invest that for more growth in the business, then we will be open to thinking about things like a special dividend and potentially more substantive share buyback programs.

But we’re a long ways from that, because as we’ve talked about in New York at the JPMorgan conference, we still have to get our automotive debt down to about $10 billion by mid-decade. We still have quite a bit of investment ahead of us in terms of our global funded pension plans to get them fully funded. And then we have the opportunity to address the convertible that’s outstanding in 2014.

And so all of those things are ahead of us, plus continued investment in the business in terms of growth and so forth, and new products. So I think we’re a bit away from having to worry about what to do with excess capital. But, you know, we feel good about where we are, and definitely if have the opportunity, in the interim, to improve our dividend, we certainly will, but we certainly are not talking about anything like that today.

Ryan Brinkman - JPMorgan

Maybe just a question on Asia. I’m curious if you could comment on how the different regions or countries within the Asia Pacific and Africa region are doing. Obviously I imagine China’s probably the biggest contributor to your improvement given your sales are up so much there, but you’ve also been making some pretty sizable investments in Thailand and India, which I don’t think get as much attention. Maybe you could speak, are there pressures or wind down costs associated with [unintelligible] final assembly in Australia? Maybe you can just kind of comment on what’s happening within the region?

Robert Shanks

That’s a good question. I think the way to think about it Asia Pacific, Africa in the near term is it’s being driven in terms of bottom line results by China, as well as the top line. The top line performance in China was really remarkable. Through the first nine months, wholesales were up 51%. The share was growing. Revenue strong, inventory’s in great shape. So the China story is an incredibly positive story.

We have a lot of work to do in the rest of the region. If you think about India, we have major investments underway in two facilities there, which won’t be up in terms of production for a couple of years, as we complete that construction. We’ve just launched the EchoSport, so that’s gaining traction there.

In ASEAN, we opened a new facility last year. We can build a lot more there than we are, and that will happen over time, but we’re in the early stages of filling that plant up. And as you said, in Australia, we announced a plan to restructure the business there, and that will occur by 2016, 2017, somewhere in that timeframe.

And so we have some time to get to that point, but Alan and Mark, and Jim Farley and others went down there and announced a very aggressive plan around product, just as we did in North America and in Europe, and so we feel very good about where that business ultimately will be, around outstanding products.

So I think we’re in a different phase in the rest of Asia Pacific outside China, but we feel confident about our plans for that part of our business in the future.

Operator

Our next question is from the line of Rod Lache from Deutsche Bank. Please go ahead.

Rod Lache - Deutsche Bank

A couple of things. One is I was hoping you could just speak about one part of North America. Obviously you continue to be pretty bullish on it. Alan, you just said you believe the market is going to get to 16 or 17 million. For Ford specifically, F-Series continues to go very well, and it looks like you’re now at essentially 100% capacity, on three shifts, at your F-Series plants, so not a lot of cushion for growth, especially if you take some downtime for transitioning to a new version.

Can you talk a little bit about how you’d manage that? Is some of the upside in the market going to maybe translate into pricing as opposed to volume? Is there opportunity for you guys to squeeze out more volume, even out of plants that are operating at very high levels?

Mark Fields

It’s a great question. Overall, as you mentioned, the full-size pickup segment is doing well this year, particularly versus last year. It’s up over a point, and obviously as you mentioned that’s driven a lot by the housing market. Our performance, as you mentioned, has been very good this year. Our transaction prices remain at the highest level in the segment.

As we look at the capacity, as you know we’ve added the third shift at Kansas City this year. That allowed us to produce even more to meet the demand that we’re seeing. We do have some opportunities, as you look at maybe more over time, or increasing some line speeds, but clearly our approach going forward is making sure that we have, as we’re doing right now, an orderly transition out of our ’13 model years now into our ’14 model years.

And we’re going to continue to be appropriate in the marketplace to keep our leadership position, but also at the same time preserve our transaction prices and margins while at the same time providing good value to the customer.

So we’re watching the market very closely. We’ve added production, and we’re going to keep watching that. But at some point, if the market does get even stronger, clearly we’ll react to that in one form or fashion, either more production or preserving our pricing.

Rod Lache - Deutsche Bank

And also on North America, this might be a little bit of a housekeeping thing, but if you look at that slide 10, and divide the volume related positives, $900 million on a year over year basis, by the 85,000 units of higher wholesales, it looks like a pretty phenomenal $10,600 per unit of additional profit. Just wondering if there’s anything unusual in that number.

Robert Shanks

No, there’s nothing unusual. Maybe a little bit of rounding is getting to us there, but there’s nothing unusual in the numbers.

Rod Lache - Deutsche Bank

And just lastly, sequentially both in North America and Europe you’re seeing some pretty good positives from contribution cost declines. How should we be thinking about that going forward? Are you starting to see some tailwinds maybe from commodities? Could that be more of a positive despite some of the content you’re adding into new models?

Robert Shanks

Commodities, whether on a year over year basis or quarter to quarter, are pretty benign. So no, I don’t think commodities are anything to look at. And as you know, they’ll be what they’re going to be, and we’ve had years where they’ve been pretty horrible and years when they’ve been very strong tailwinds. But this year they’re not really much of a factor.

So it’s just other parts of the business, as we continue to work on cost reductions, we see warranty expense improve, teams working on trying to optimize our material costs, just the usual three yards and a cloud of dust, just trying to make the business better and more efficient, and that’s what you’re seeing in the numbers.

Operator

We have our next question from the line of Patrick Archambault from Goldman Sachs. Please go ahead.

Patrick Archambault - Goldman Sachs

I also had just a follow up on Europe. I guess the net pricing piece, which was positive both sequentially and year on year, unless I’m mistaken, I feel that’s like the first positive pricing increase we’ve seen since last year, if I remember well. And so my first question was just could you tell us a little bit more about that? How much is that Ford product driven? How much of it is just a change in the industry? I think we did have comments from Peugeot yesterday suggesting that the environment had potentially gotten a little bit better. So just a little bit more comment on that would be helpful.

Mark Fields

It’s a great question. We have seen the past couple of quarters actually some net pricing improvements. And I think it’s a combination of the factors that you mentioned. First off is a number of the new products we’ve put into the marketplace over the last number of quarters, like our B-Max, which is doing well, and our C-Max, in the marketplace, and the Kuga.

But also at the same time, as you know, we have focused on channel mix very greatly in Europe, focusing primarily on retail and also the commercial fleet segments. And we’ve been deemphasizing daily rentals and also self-registrations, which in self-registrations we’re not only below the industry average, or actually significantly below this year.

So we’ve seen, through that channel mix, I think we’re starting to see the combination of the channel mix and the new products, despite a very intense competitive environment and pricing environment. You’re seeing some improvements there.

And I was a bit mistaken in the first and second quarters we actually did see some negative net pricing. So the good news is you’re starting to see the positive aspects of the products and the channel mix in the third quarter.

Patrick Archambault - Goldman Sachs

So it sounds like there’s some sustainability to that direction, just given these are structural factors.

Mark Fields

Well, obviously a lot of that’s going to be based on the competitive environment. And as we said, despite the fact we’re seeing stability in the markets there based on consumer and business confidence, it’s still a very competitive pricing environment. But we’re going to continue to focus on introducing those 25 new products in the next five years, of which eight have been introduced in the market so far. And we think that, and also just continuing to have the appropriate channel mix, will hopefully continue to show gains in that area.

Patrick Archambault - Goldman Sachs

And one last one, just on Latin America, if I may. You posted a pretty good number there relative to expectations. Now, I know that you guys have a fairly big commercial vehicle business in Brazil, and this was obviously a very big quarter for truck volumes. How much of the performance was driven by that, and how much of it was just improvements in light vehicles from some of those product factors you mentioned?

Robert Shanks

The cargo business is very, very profitable for us, and it does drive a lot of profitability for the region in South America, and that certainly was a factor. And as we said earlier, I think in Alan’s remarks, we did launch the new cargo extra heavy duty truck. So that was a factor. The team is working on efficiencies. We’re trying to also price as much as we possibly can to offset what I had mentioned around the high inflation effects, as well as the drag of the operating exchange impacts. But clearly the heavy truck business is important to us in South America and it did contribute.

Mark Fields

The only other thing I’d add is when you look at our performance in South America it was also driven a lot by our strategy of introducing the One Ford global products. So clearly last year, the launch of the Ranger, the EchoSport. Earlier this year we launched the Fiesta and the Fusion, which is driving pricing as well as share. And the good news is we’re just launching our Focus into the marketplace right now, which is a fairly significant segment in the region. So those things, including the heavy trucks, have helped improve our performance.

Operator

We have our next question in the queue from the line of Itay Michaeli from Citigroup. Please proceed.

Itay Michaeli - Citigroup

Just a long term question around Europe. You still do have the 6% to 8% margin outlook. How do you feel about that margin outlook today? And if we think about mid-decade, and your outlook for profitability, and with the improvements you’ve made year to date in the business, could mid-decade be anywhere in the vicinity of that 6% to 8%? Or how should we think about it? There’s a general view that maybe you’re, to an earlier question, maybe at breakeven or slightly above? How should we think about the mid-decade view relative to that long term 6% to 8% margin target?

Robert Shanks

Well, the mid-decade for the company was 8% to 9%, and I think we indicated for North America it would be 8% to 10%. For Europe, and this was sort of post-downturn, as we announced the restructuring plan, we felt over the medium term that 6% to 8% was an appropriate target.

So when we talk about profitability for 2015, I think it would be probably a stretch to get to 6% to 8% by that point in time, but certainly that’s what we’re striving to do over what we call our business planning period, and then would like to do even better than that ongoing. We’d like to see all of our automotive businesses generate something like an 8% return or so. But that’s probably ahead of us.

So I think certainly we’re very comfortable and excited about the recent return to profitability, and then we’ll continue to work on getting the margin up to the level that you just talked about.

Itay Michaeli - Citigroup

Two cash flow questions. One, Bob, do you have any update on the pension mark-to-market discount rates, where you’d kind of put them today? Maybe asset returns? And then also on the capex, I think the guidance did come down by about $500 million, but a bit surprising given the strength in earnings and cash flow to date. Is that the efficiency, timing, or just maybe a little conservatism from earlier on in the year?

Robert Shanks

On pensions, nothing new to report. At the second quarter, we talked about the fact that the funded status of our plans was much improved from the end of last year, which was underfunded to the tune of nearly $19 billion, including the plans that remain unfunded. We saw big improvement at the time of the second quarter. That is still what we’re seeing at the end of the third quarter, and it’s around the higher discount rates. We’ve put even more contributions in, obviously, subsequent to the end of the second quarter, another $1 billion plus, into the plans.

And the asset returns are much less of a factor. But we still see substantial improvement. Again, as in the second quarter, we’re not going to provide any specific numbers, but we think what we talked about there is holding as we get towards the end of the year. So we’re feeling pretty good about that.

In terms of the capex, I think it’s probably everything. If you go back and look at history, we tend to under run what we say on that. I think some of that is perhaps some conservatism. There might be a tiny bit of efficiencies. We do have some timing changes, though. The programs themselves remain on track, but we have had some timing changes on some of the programs, and that’s moving some of the spending out of this year into next year. But nothing really major. Just a number of timing changes that are just flipping over past 12/31 into next year.

Itay Michaeli - Citigroup

And then maybe on quick one, lastly. Maybe it’s a little early to ask this, but with the new pickup truck launch next year potentially having a weight reduction or additional complexity with aluminum, should we think about the changeover costs, the downtime, given your high utilization today, to maybe a little bit greater than you might have had otherwise, in previous changeovers?

Robert Shanks

Well, we haven’t said anything about future products, and we certainly wouldn’t do that today. There’s a place and time for that, and it’s not right now. We have talked, though, about the need for us to reduce the weight of our vehicles, and we actually have a plan and a strategy to do that, to the tune of roughly 350 to 700 pounds.

And so that’s certainly something that you should see from new products coming from Ford in the future, because that’s what it’s going to take in order for us to meet the regulatory requirements that we’re facing, not only here but around the world. And so that certainly is just a part of our product plan going forward.

In terms of what may or may not happen in ’14, we’ll be chatting with you in January about that.

Operator

Ladies and gentlemen, we are now going to take questions from the media. [Operator instructions.] We have our first question in the queue from the line of Dee Ann Durbin from the Associated Press. Please go ahead.

Dee-Ann Durbin - Associated Press

Alan, I’m going to circle back to the first question and ask it in a different way. Have you actually spoken to Microsoft about the CEO position?

Alan Mulally

We don’t comment on the speculation.

Dee-Ann Durbin - Associated Press

So you won’t say either way?

Alan Mulally

We have no change to our plan and I love serving at Ford. And we don’t comment on speculation.

Dee-Ann Durbin - Associated Press

And Bob, can you say how many U.S. retirees have taken the lump sum pension payments?

Robert Shanks

The total potential participants in the program are somewhere around 90,000, just a little bit more, and I think through the end of third quarter we’ve seen a bit more than 70,000 that have had the opportunity to participate. So that’s roughly 80% to 83%.

And we’re not talking about how many actually have decided to take the lump sum offer. We’ll do that when we conclude the whole program in the fourth quarter. Because we’ve actually seen quite different take rates based on different types of cohort groups, you know, term vested versus retirees, different ages and so forth. It’s quite variable, so we’ll just give an overall number once the total program has concluded. So we’ll talk about that in January.

Operator

We have the next question from the line of Craig Trudell from Bloomberg News. Please go ahead.

Craig Trudell - Bloomberg News

I have a question about in Asia, the new Mondeo coming. Can you give us an update on timing for that and what your expectations are on what that might do for pricing going forward?

Mark Fields

That’s a good question. We launched the Mondeo into the marketplace about six weeks ago. It’s off to a very good start, and it contributed, obviously to the market share or the tying of the record market share in China that we had in the second quarter as well as the third quarter. And we have about 1.5 months of sold orders, so it’s off to a great start.

Craig Trudell - Bloomberg News

Is it going to do similar to what you’ve been able to do in the U.S. with Fusion?

Mark Fields

Well, we expect it to be just as big a success in China as it has been here in the U.S.

Operator

Next question is from the line of Carl Henkel from The Detroit News. Please go ahead.

Karl Henkel - The Detroit News

Just had a quick question on Europe, and Bob I know you talked before about certain regions within Europe who have maybe bottomed out sooner than others. But I’m curious as to how that looks now from your opinion. Are the improvements that you see being driven by just certain key areas, or is it more of a broad thing?

Robert Shanks

Well, it’s not our opinion. We really have a great economics group, and they’re continually showing us the leading economic indicators for the euro area, and I touched on a couple of them, whether it’s confidence factors, industrial production, even the spreads on some of the sovereign debt in the countries that been most at risk have improved.

So there’s a number of different factors that we look at, as well as the SAR factor, as I said, on a different view of run rates and so forth. All of it suggests that first of all the economy has stabilized and there’s signs of tipping over towards very very small, modest growth, and the same holds true for the industry.

And that’s whether we look at sort of the so-called peripheral markets, so that would be Ireland, Portugal, Spain, Italy, Greece. We look at Germany, France, and the U.K. The U.K. obviously is doing very well on its own. We’ve looked at the other markets I haven’t mentioned. Whichever way we look at it, we’re just seeing signs of what I said around stabilization and ultimately a return in the near term to growth.

Operator

Next question is from the line of Mike Ramsey from The Wall Street Journal. Please go ahead.

Mike Ramsey - Wall Street Journal

Alan or Mark, I don’t know who wants to take this one, but I was just looking at your wholesale deliveries, and it looks like you’re probably going to come in a little over 6 million this year, and your forecast is to get to 8 million, I guess by 2015. And my calculation is that that would mean a more than 15% compounded growth over the next two years. Do you feel pretty confident that you’re going to be able to get that kind of wholesale growth and revenue growth over the next two years? It seems like that’s a really big increase, although I guess you’re up pretty significantly this year.

Mark Fields

First off, as you know, we have that mid-decade guidance sometime in the mid-decade, but yes, we’re quite focused on growth right now. Keep in mind, year to date we have grown our wholesales 13% in 2013, and that’s on top of growth in 2012. So clearly that’s going to have to be driven by products, and as you know, our product pipeline is very full.

At the same time, as you know, we’re in the process of adding capacity in places like Asia Pacific. As we said, in Asia Pacific we’re going to be increasing our manufacturing capacity there to 2.9 million units, up from about 1.5 million in 2011, really accelerate the growth that we’re seeing in Europe.

Industries, as well, as we’ve said, just looking back at the total industry, our view is industries are all in the range of 4% to 5% annually. So when you look at industry growth, look at our product pipeline and introductions that are coming, look at the capacity that we’re putting in place, and you look at the momentum that we have, which is so demonstrated in this quarter with growth around the world, we’re extremely excited to realize that growth going forward. But we have to have the physicals in place, and we’re working on that.

Mike Ramsey - Wall Street Journal

So you feel pretty good on the forecast that you’re going to be able to at least maintain the current revenue and wholesale delivery growth of 13% to 15% the next couple of years?

Mark Fields

Well, obviously there’s a lot of factors that we control. There’s a lot of factors that we don’t control. I’d say we feel good about the factors we do control, and we’ll manage through the business environment and continue to monitor it, keeping our goals in mind.

Operator

We have the next question from the line of Deepa Seetharaman from Reuters. Please go ahead.

Deepa Seetharaman - Thomson Reuters

I just have two quick ones. One, Lincoln, I’m just wondering, how satisfied you guys have been with the progress on Lincoln. It’s been about a year since you rebranded it the Lincoln Motor Company. And where do you see that brand on its recovery or its transformation? And second, Alan, I was just piggybacking off of Dee-Ann’s question. What do you think the prospects of you staying beyond 2014 are?

Mark Fields

On Lincoln, as we’ve said in the past, we’re absolutely committed to reinventing Lincoln into a world-class luxury brand with a client experience to match. And as we said when we launched our strategy around Lincoln, that this was going to be a journey not over a matter of months, but over a matter of years.

And we’re off to a good start, after a little bit of a rough production launch of the MKZ. When you look at the quarter, our MKZ sales were up 13%. Five out of the last six months we’ve had record sales months for MKZ. Importantly with that product we’re growing on the coasts. California is a great example, those two regions, L.A. and San Francisco are our fastest-growing regions. And interestingly, about two-thirds of those MKZ sales are hybrids.

So we’re on our way. We’ve said this will be based on product, and we have four products coming in the next four years, which started with the MKZ. So we’re pleased but not satisfied where are, but we said this was going to be a journey, and we’re off and running on that journey.

Alan Mulally

Our plan has not changed. Thank you.

Operator

We have the next question from the line of Joann Muller from Forbes. Please go ahead.

Joann Muller - Forbes

Alan, I wanted to ask you about your overall One Ford strategy. Obviously it has been working to improve your results, but my question is where do you still see opportunity to really improve the finances in the business and to save some costs, and so forth? Where else is it that you can mine?

Alan Mulally

Sure, good question, and pleased to share our perspective. I think I would start on the revenue side first. And as you have described, we continue to round out and complete our complete family of vehicles. And we are now moving into more and more covering all the market segments around the world.

There’s a couple of really exciting things about that that I know you know well, but just like on the SUVs, who’d have ever thought that we’d get such a response in the marketplace for smaller SUVs like the EchoSport, you know, SUVs on the B size, the C size, the CD size, in addition to the Explorer size. And so that’s a really good example of expanding the number of markets that we can serve with this complete family of vehicles. So I think at the very start it’s covering more of the market segments with our complete family of best-in-class vehicles.

And to your point on the second one, I think we have such an opportunity to improve our fundamental efficiency, as Bob and Mark have described, going forward. As we increase our scale, and we realize that scale, along with the changes in the footprint to optimize the flow of the goods, and in addition to our aligned business framework with all our suppliers where we’re getting the value of global suppliers, but also getting the value of all of this localized in our production.

So over time I think you’ll see us continue to improve the revenue with an expanded family of best-in-class vehicles, and I think that we’ll continue to expand the operating margins. And we feel very comfortable, as Mark and Bob have shared too, about that mid-decade guidance of 8 million vehicles and margins in the 8% to 10% range, and we feel really good about it on the revenue side and the efficiency side to achieve it.

Operator

Ladies and gentlemen, that is all the time we have for questions today. I would now like to hand it back to George Sharp for closing remarks. Please go ahead.

George Sharp

Thanks, everyone. That concludes today’s presentation. We’re glad that you were able to join us.

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