Ford Motor Co. Q2 2010 Earnings Call Transcript

Jul.23.10 | About: Ford Motor (F)

Ford Motor Co. (NYSE:F)

Q2 2010 Earnings Call

July 23, 2010 9:00 am ET

Executives

Alan Mulally - President and CEO

Lewis Booth - CFO

Bob Shanks - Vice President and Controller

Neil Schloss - Vice President and Treasurer

Paul Andonian - Director of Accounting

K.R. Kent - Ford Credit's CFO

Analysts

Himanshu Patel - JPMorgan

Brian Johnson - Barclays Capital

John Murphy - Bank of America Merrill Lynch

Chris Ceraso - Credit Suisse

Steve Dyer - Craig-Hallum Capital

Colin Langan - UBS

Rod Lache - Deutsche Bank

Itay Michaeli - Citi

Dee-Ann Durbin - The Associated Press

Keith Naughton - Bloomberg

Brent Snavely - Detroit Free Press

Bernie Woodall - Reuters

Operator

Good day, ladies and gentlemen, and welcome to the Ford Motor Company Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. [Brian Harris], Director of Investor Relations. Please proceed, sir.

Brian Harris

Welcome to all of you, who are joining us today either by phone or webcast. On behalf of the entire Ford management team, I would like to thank you for spending time with us this morning.

With me here today are Alan Mulally, President and CEO of Ford Motor Company; and Lewis Booth, Chief Financial Officer, also in attendance are Bob Shanks, Vice President and Controller; Neil Schloss, Vice President and Treasurer; [Paul Andonian], Director of Accounting; and K.R. Kent, Ford Credit's CFO.

Before we begin, I would like to cover a few items. Copies of this morning's press release and the presentation slides that we will be using today have been posted on Ford's Investor and Media Website for your reference. The financial results discussed herein are presented on a preliminary basis. Final data will be included in our Form 10-Q.

The financial results presented here on a GAAP basis, and in some cases on a non-GAAP basis. The non-GAAP financial measures discussed in this call are reconciled to the US GAAP equivalent as part of the appendix to the slide deck.

Finally, today's presentation includes some forward-looking statements about our expectations for Ford's future performance. Actual results could differ materially from those suggested by our comments made here. The most significant factors that could affect future results are summarized at the end of this presentation. These risk factors and other key information are detailed in our SEC filings, including our annual, quarterly and current reports.

With that, I would now like to turn the presentation over to Ford's President and CEO, Mr. Alan Mulally.

Alan Mulally

We are pleased today to report very solid financial results for the second quarter, which underscores our ONE Ford plan is clearly working. Ford earned a pre-tax operating $2.9 billion for the quarter as each of our major business operations around the world posted improved profits compared to last year and the first quarter of 2010.

We generated positive automotive operating related cash flow of $2.6 billion and strengthened our balance sheet paying down $7 billion of debt and lowering our interest costs. At the same time, we are increasing our investments to support greater growth in the future. Overall, we are ahead of where we thought we would be after this excellent first half.

We clearly remain on track to deliver solid profits and positive automotive operating related cash flow for 2010, and we expect even better results in 2011. The driving forces behind our progress include our new products and our leaner global structure.

We have developed, we and many others believe, is our finest ever product line up. The full family of vehicles with world-class quality, fuel efficiency, safety, smart design and the best value.

I will start up this morning by providing you with an overview of our financial results and business, product and sales highlights. Then Lewis Booth will walk us through the financial results in even greater detail. Finally, I will summarize our 2010 outlook and our plan going forward.

Turning to Slide three, I'll begin by reviewing the key financial results compared with year ago. As we mentioned last quarter, based on our agreement to sell Volvo, all of our Volvo's 2010 results are reported as special items and excluded from our wholesales revenue and operating results. 2009 results include Volvo.

As show at the top of the slide, second quarter vehicle wholesales were 1.4 million units up 224,000 units. The increase was explained by higher wholesales in all of our automotive segments offset partially by the exclusion of Volvo. Excluding Volvo for 2009, the wholesale increase was 303,000 units or 27%.

Our second quarter revenue was $31.3 billion, a $4.5 billion increase. The increase was explained primarily by higher volumes, favorable net pricing and favorable exchange translation offset partially by the exclusion of Volvo. Excluding Volvo from 2009, the revenue increase was $7.4 billion or over 30% increase.

Our second quarter pre-tax operating profit excluding special items was $2.9 billion, a $3.5 billion improvement. Automotive results improved by $3.2 billion and financial services improved by $280 million.

Our second quarter net income attributable to Ford includes unfavorable pre-tax special items of $95 million was $2.6 billion, a $338 million improvement. For the first half, pre-tax operating profit excluding special items was about $5 billion, a $7.5 million improvement and net income attributable to Ford was $4.7 billion, about a $3.9 billion improvement. We ended the quarter with $21.9 billion of automotive gross cash up $1.5 billion from year ago.

Slide four details some of our key business highlights since our last earnings release. During the quarter we repaid $7 billion in automotive debt, including about $3.8 billion to the UAW Retiree Medical Benefits Trust or VEBA.

In addition we repaid $3 billion of our revolving credit facility earlier in the quarter. These actions will save Ford more than $470 million in interest costs on an annualized basis. Ford was recognized as a leader in relationships with the suppliers by key third-party studies included being awarded number one in the UBS Investment Research quarterly survey of OEM supplier relation in the United States for a second consecutive quarter.

We also announced several investments aimed at continue to strengthen our global business going forward. In Thailand we announced a $450 million investment a state-of-the-art flexible passenger vehicle manufacturing plant.

We also announced a $250 million investment in Argentina in order to out debt our Pacheco Plant. We announced $135 million investment to design, engineer and produce key components in Michigan for our next-generation hybrid-electric vehicles that go into production in 2012.

In last month we announced a plan to discontinue production of the Mercury brand in the fourth quarter of this year allowing us to increase our focus on the company's core brands in North America.

Turning to Slide five please and look at Ford's product highlights since our last earnings release. Ford continues to receive affirmation from third-parties with regard to the quality of our products. In June Ford ranked to the top non-luxury brands in J.D. Power & Associates closely watched Initial Quality Study for the US market.

We received seven Top Safety Picks in the Insurance Institute for Highway Safety Awards for the 2010 model year, high in the highest mark for the industry. On the brand front, we committed to focus more on the Lincoln brand, including seven all new or significantly refreshed models in the next four years.

During the quarter, we revealed a freshened Mondeo in Europe with restyled exterior and an upgraded interior. Mondeo was leading the way in our revolution under the hood in Europe, as that we receive a new high efficiency EcoBoost gasoline and TDCi diesel powertrains.

We also announced our plan to begin delivering the Transit Connect Electric to European customers in late summer of 2011. Also in Europe, we launched a limited edition Focus RS500, high-performance model and it quickly sold out. In Thailand, we began the production of the new Fiesta for Southeast Asian markets, representing the latest milestone in the vehicle successful global launch.

Turning to Slide six, we will look at Ford sales highlights since our last earnings release. We are very encouraged by our continuing market share gains in the United States. During the quarter, we posted a 21% year-over-year sales increase and gained a 0.5 of market share, driven by the strong retail market performance of our products including the F-Series, the Taurus and the Transit Connect.

In the Asia-Pacific and Africa region, we posted 27% year-over-year sales increase, including a 20% increase in China. Transit, Mondeo and our small car line up remain strong performance in this region.

We reported record quarterly sales in India, more than tripling sales due to strong initial demand for our Ford Figo. The vehicle launched earlier this year received 25,000 orders in its first 100 days on the market. In Canada, we strengthened our leadership position expanding market share to 17.5% during the period, up 2.1 percentage points from year ago.

Now I would like to turn it over to Lewis to provide more detail on our second quarter financial results.

Lewis Booth

Let's move on to Slide eight, which summarizes our financial results compared with a year ago. Our second quarter pre-tax operating profit excluding special items was $2.9 billion, a $3.5 billion improvement. Most of the remaining slides will focus on these pre-tax operating results.

Our pre-tax operating profit excluded unfavorable special items of $95 million, which we will cover on the next slide. We recognized $251 million of tax expense, a $266 million increase explained primarily by the non-recurrence of a prior year tax settlement.

As a reminder, our continued low effective tax rate is primarily the result of our valuation allowance against deferred tax assets. As we established a sustained period of profitability over time we will need to evaluate elimination of the present valuation allowance against deferred tax assets. This change will result in the accrual of tax expense to more normalized rate and this will impact earnings per share, but importantly will have no impact on cash flow.

Bottom line, second quarter net income attributable to Ford was $2.6 billion, a $338 million improvement, which was reduced by the non-recurrence of a prior year gain of over $3 billion on debt restructuring actions.

Slide nine covers special items, which an unfavorable pre-tax amount of $95 million in the second quarter. We recorded $229 million of personnel and dealer related charges, including primarily costs related to the discontinuation of Mercury.

The first half cost associated with Mercury discontinuation and total US dealer reductions is expected to be somewhat less than half of the total expected special items charges for these actions during the 2010 and 2011 period, but also $94 million of favorable held-for-sale adjustments for Volvo reflecting its operating profit another held-for-sale related items, including cessation of depreciation.

As shown in the memo, we had continued to report Volvo in our operating results. We would have reported the second quarter pre-tax operating profit of $53 million for Volvo. This would represent an improvement of $290 million, compared to the year ago more than explained by favorable volume and mix net, pricing in material costs offset partially by higher structural costs. This is continuing evidence that the Volvo team has returned the business to sustainable profitability.

Lastly, we recognize the $40 million gain related to the full pre-payment of our VEBA Note A debt obligation at a discount. This and other debt reduction actions will be discussed in more detail later.

Now on to slide 10, which shows our pre-tax operating results by sector. Our second quarter pre-tax operating profit was $2.9 billion. This includes a profit of $2.1 billion for the automotive sector and a profit of $875 million for financial services.

As Alan mentioned, and as shown in the memo, total company second quarter pre-tax operating results improved by $3.5 billion, compared to the year ago. In addition, this is an improvement of $932 million, compared to the first quarter of 2010.

Let's move to slide 11, which shows second quarter pre-tax operating results for each of our automotive segments and other automotive. In the second quarter, all of our automotive segments reported a profit, and as shown in the memo, showed significant improvement compared with a year ago and with first quarter 2010. We'll cover these automotive segments in more detail on the upcoming slides.

The second quarter, other automotive loss was $551 million. This includes net interest expense of $459 million, which was comprised of about $520 million of interest expense offset partially by interest income.

In addition, there was $92 million of unfavorable fair market value adjustments associated primarily with our investments in Mazda. As shown in the memo, the non-recurrence of all those prior year losses improved our pre-tax operating results by $237 million compared with a year ago.

Slide 12 shows the change in second quarter pre-tax operating results, compared with 2009 by causal factor. Overall, second quarter results improved by $3.2 billion, compared to the year ago. Volume and mix was $1.5 billion favorable, explained primarily by the non-recurrence of prior year's stock reductions to align with demand as well as higher global industry volumes.

Net pricing was $1.1 billion favorable, explained primarily by improvements in North America, including continued reductions in incentive spending on selective top line pricing. Cost decreased by $200 million reflecting primarily material cost reductions and lower warranty costs, offset partially by higher structural cost to support volume and growth through our product lines as well as higher commodity costs.

The exchange was $500 million favorable, reflecting primarily the non-recurrence of unfavorable prior year balance sheet evaluation in North America. Net interest and fair market value adjustments were $400 million unfavorable, explained by the non-recurrence of prior year favorable fair market value gains, largely attributable to our investments in Mazda and higher interest expense associated through the VEBA debt added as of the end of 2009.

Volvo's impact represents the change in reporting as we previously mentioned. As showed in the memo, the $900 million improvement compared to the first quarter 2010, reflects primarily higher volume offset partially by higher costs to support the volume increases in our product lines.

For the section of the slides, we'll cover each of the automotive segments, starting with North America on slide 13. In the second quarter, wholesale was 659,000 units, up 201,000 units from a year ago, including primarily US industry growth on the non-recurrence of a prior year reduction in dealer inventories.

Dealer inventories during the second quarter 2010 were unchanged compared to the first quarter. Second quarter US total market share for Ford, Lincoln and Mercury was 16.9%, up 0.5 of a percentage point from a year ago, which will be discussed in more detail later.

Second quarter revenue was $16.9 billion or $6.2 billion increase from a year ago, explained primarily by higher volumes and favorable net pricing. For the second quarter, North America reported a pre-tax operating profit of $1.9 billion, a $2.8 billion improvement from a year ago, and we'll cover this in more detail on the next slide.

Slide 14 provides an explanation of the change in North American results compared with 2009 by causal factor. Volume and mix was $1.4 billion favorable, reflecting primarily higher industry volumes, favorable changes in dealer stocks and market share improvements.

Net pricing was $1 billion favorable reflecting primarily continued reductions in incentive spending and selective top line pricing, consistent with the success of our of our full range of products in the marketplace. Cost increased by $100 million, reflecting primarily higher structural and commodity costs, offset partially by material cost reductions. Exchange was $400 million reflecting primarily the non-recurrence of unfavorable prior year balance sheet revaluation.

Slide 15 shows US market share for Ford, Lincoln and Mercury. In the second quarter, US total market share was 16.9%, up 0.5 percentage points from the year ago, more than explained by higher market shares of F-Series, both the F-150 and the Super Duty, new Taurus and Transit Connect.

Additionally, the US retail share of the retail industry was an estimated 14.1% in the second quarter, up 1 percentage points from the year ago. Although not shown, Canada total market share in the second quarter was 17.5%, up 2.1 percentage points from a year ago.

Improvements in quality, fuel efficiency and residual values are driving stronger consideration and demand for Ford products, enabling the company to achieve market share gains and improve revenue. In addition, customers continue to equip their vehicles with higher levels of content and technology, which also contributes to higher transaction prices on most Ford vehicles.

Now on to South America on Slide 16. In the second quarter, wholesales were 130,000 units, up 19,000 units from a year ago reflecting primarily higher dealer stocks and industry volumes offset partially by lower market share. The stock increase reflects in part achieving more normal levels in anticipation of plant shutdown

Second quarter market share was 9.5% down nine-tenths of percentage point from a year ago. The decrease includes adverse segmentation on our decision to not match escalation and competitive discounts.

Second quarter revenue was $2.6 billion, an $800 million increase from a year ago, reflecting primarily higher volumes, favorable exchange translation and favorable net pricing. For the second quarter, South America reported pre-tax operating profits of $285 million, $199 million increase from the year ago. The increase reflects primarily favorable net pricing, favorable exchange and higher volumes offset partially by higher commodity and structural costs.

The slide 17 covers Europe. In the second quarter, wholesales were 420,000 units, up 20,000 units from a year ago. Higher volume in Eastern European markets, Russia and Turkey was offset partially by lower volume in our 19 major markets. The decrease in 19 major markets reflect primarily lower market share and industry volume, offset partially by an increase in dealer stocks to return to normal planning levels.

Second quarter industry SAAR for the 19 markets that we track was 14.2 million units, down 1.2 million units from a year ago. The scrappage programs were reduced or concluded throughout the region.

Second quarter market share was 7.9%, down 1.1 percentage points from a year ago. This reflects the escalation of competitive discounts and our decision to reduce participation selectively in low margin business as well as the end of the favorable effects of scrappage program on our small cars sales.

Second quarter revenue was $7.5 billion, a $500 million increase from a year ago, reflecting primarily higher volumes and favorable mix, offset partially by unfavorable net pricing and exchange translation, and for the second quarter, Europe reported a pre-tax operating profit of $322 million, a $265 million increase from a year ago, and we'll cover this in more detail on the next slide.

Slide 18, provides an explanation of the change in Europe results compared with 2009 by causal factor. Volume and mix was unchanged compared to the year ago. Lower market share and industry volume in the 19 markets we track was offset by a stock increase to return to normal planning levels and higher volumes in Eastern European markets, Russia and Turkey.

Net pricing was $100 million unfavorable, higher vehicle pricing was more than offset by higher incentives as we selectively responded to competitive spending increases following the end of the scrappage programs and cost decreased by $300 million reflecting primarily lower material costs driven in part by a decrease in distressed supplier spending and lower warranty costs explained primarily by a favorable warranty reserve adjustment that is not expected to reoccur.

Slide 19 covers Asia-Pacific and Africa. In the second quarter, wholesales were 209,000, up 63,000 units from the year ago reflecting strong industry growth in China and India, and the introduction of the new Figo in the Indian market, as well as an increase in dealer stocks to match market demand as we recover from strong industry growth in first quarter 2010.

The second quarter industry SAAR was 28.1 million units, up 5.2 million units from a year ago explained primarily by increases in the China, India, Indonesia and Thailand. Second quarter market share was maintained at 2.4% despite strong growth in the segments in which we do not fully participate.

Second quarter revenue which excludes sales that are unconsolidated China joint ventures was $1.8 billion, a $600 million increase from a year ago. This reflects primarily higher volumes outside of China and favorable exchange translation offset partially by unfavorable mix.

For the second quarter, Asia-Pacific and Africa reported a pre-tax operating profit of $113 million, a $140 million improvement from a year ago more than explained by higher volumes reflecting primarily higher industry, lower costs and favorable exchange. This strongly quarterly profit provides a solid foundation for future growth.

Slide 20 shows automotive gross cash and operating-related cash flow. We ended the second quarter with $21.9 billion in automotive gross cash, down $3.4 billion from the first quarter of 2010, as a result of substantial debt reduction actions.

Our automotive operating-related cash flow was $2.6 billion positive in the second quarter, reflecting the automotive pre-tax operating profit of $2.1 billion, capital spending during the quarter about $1 billion equal to depreciation and amortization.

We continue to realize efficiencies in our capital spending from our global product strategy and we still expect spending to increase in the second half to support future growth. Changes in working capital of $500 million reflecting primarily high payables associated with high production. Other common differences were $300 million favorable. For the first half working capital and other timing differences were largely unchanged, and payments of $300 million in Ford Credit reflecting upfront payments of subvention.

Other major changes in second quarter automotive gross cash include separation payments of $100 million and pension contributions of $400 million. Debt reduction actions including paying down our revolving credit line and making schedule payments on our VEBA debt and fully repaying of VEBA Note A debt obligation. These actions will be discussed further on the following slides. Equity issuance of about $300 million and other cash change of $200 million, more than explained by the impacts of exchange on our non-US cash balances.

Slide 21 summarizes recent automotive sector debt reduction actions. As previously announced, we completed debt reduction initiatives during the second quarter that reduced automotive debt by $7 billion, and will lower interest expense by more than $470 million on an annualized basis.

These actions include $3 billion repayment in early April of our revolving line of credit, the $3.8 billion payments to VEBA trust in addition to our schedule payments, this fully retired our VEBA Note A obligations.

Ford Credit is $1.3 billion plus, VEBA Note A is a settlement of existing inter-company tax liabilities. However, we made $255 million cash payment to bring current previously deferred quarterly distributions on our trust preferred securities.

As part of the VEBA actions, subject to regulatory approval, we obtain greater flexibility until mid-2013 to prepay all or a portion of the remaining Note B obligations in cash and to discount.

These prepayments can be made periodically during the year. The discount is a 5% for prepayments made prior to 2012 and a 4% discount for prepayments made during 2012 and 2013. Previously, we could prepay Note B once a year at par.

Slide 22 summarizes our automotive sector's cash and debt position. At the end of the second quarter, automotive debt was $27.3 billion of which $1.1 billion matures within one year. Our gross tax net of debt, as of June 30, was $5.4 billion negative, an improvement from the $9 billion negative as of the end of March.

Total liquidity including available credit lines, $25.4 billion. This liquidity includes $3.1 billion under our secured revolving credit lines and $450 million of other affiliate wholesale exit credit lines.

Now let's turn to slide 23 and financial services. For the second quarter, the financial services sector reported a pre-tax operating profit of $875 million, a $280 million increase from a year ago and a $60 million increase compared with first quarter 2010, as shown on the memo.

Other financial services report a pre-tax operating loss of $13 million in the second quarter, a $38 million improvement from a year ago including the non-recurrence of a loss related to a real estate transaction.

For the second quarter, Ford Credit reports a pre-tax operating profit of $888 million, a $242 million increase from a year ago, which we will cover in more detail on the next slide.

Slide 24 provides an explanation of the change in Ford Credit results compared with 2009 by causal factor. Volume was $100 million unfavorable reflecting declining receivables. As shown in the memo on the lower left of the slide, Ford Credit's managed receivables at June 30, 2010 were $87 billion, $13 billion lower than the year ago.

This decline reflects primarily the transition of Jaguar, Land Rover, Mazda and Volvo financing to other finance providers, the decline in industry volumes over the past few years and changes in currency exchange rates. The decline in the provision for credit losses of $600 million reflects primarily lower credit loss reserves and improved charge-off performance.

Residual losses declined by $100 million, reflecting primarily the impact of higher auction values on vehicles returned during the quarter. Other decreased by about $300 million reflecting primarily the non-recurrence of prior year net gains related to un-hedged currency exposures.

We now expect Ford Credit's full year 2010 profits to be higher than this 2009 profits. The second half of 2010 will be lower than the first half because Ford Credit expects more improvements in the provision credit losses and depreciation expense for leased vehicles compared with the improvements during the first half.

For the full year 2011, we expect Ford Credit to continue to be solidly profitable, but at a lower level of 2010 reflecting primarily non-recurrence of lower lease depreciation expense and non-recurrence of credit loss reserve reductions of the same magnitude as of 2010.

Slide 25 covers the liquidity and funding outlook for Ford Credit. The left box shows committed liquidity programs and cash, and the utilization of liquidity sources at the end of the second quarter.

Ford Credit's liquidity exceeded utilization by about $21 billion about the same as first quarter 2010. We remain on track to achieve our full year funding plan and bringing about $6 billion of funding in the second quarter and about another $1 billion in July. Additional highlights include the US public retail transaction, pre-crisis credit spreads, $12 billion of committed capacity renewals and $2 billion of net incremental capacity.

Ford Credit's funding structure remains focused on access to public and private securitization, asset-backed commercial paper and unsecured debt.

Our liquidity remains strong and we will continue to maintain cash balances funding programs to commit to capacity to ensure liquidity adequately meets our funding requirements and at the end of the second quarter, Ford Credit's managed leverage was 6.6 to 1 and equity was $10.9 billion.

Slide 26 covers our third quarter 2010 production plans. In North America, the third quarter production schedule is 570,000 units, up 80,000 units from a year ago and unchanged from our prior guidance.

In South America, the third quarter production schedule is 130,000 units, up 15,000 units from a year ago.

For Europe, we expect third quarter production of 356,000 units, down 29,000 units from the year ago, and this decline reflects primarily the non-recurrence of prior year production increases to support European scrappage program.

For Asia-Pacific and Africa, we expect third quarter production of 213,000 units, up 60,000 units from a year ago. Overall, we expect total company third quarter production to increase by 126,000 units from a year ago, reflecting continued strong customer demand for our products, maintenance of competitive stock levels and the non-recurrence of prior year stock reductions.

Compared with the second quarter, our third quarter production was down 174,000 units. The decrease reflects planned vacation shutdowns during the third quarter that are generally use to prepare for new models.

Forth quarter production also will be affected by plant holiday shutdowns and new product changeovers of vehicles such as Focus and Explorer. Overall, our third and fourth quarter production schedule is lower than the first half, but is consistent with our strategy to match supply with demand.

Now I would like to turn it back to Alan to summarize our 2010 outlook and our plan going forward.

Alan Mulally

On Slide 28 that we provide an overview of the business environment going forward. The global economic recovery continued in the second quarter and we expect a modest pace of growth to be sustained.

This year's global industry volume is projected to be up by 5% to 10% compared with last year's level of 65 million units. Many scrappage and other government incentive programs are ending, primarily in the European markets. This impact on global volume, however, is offset by year-over-gains in China, India, the US and Brazil, as well as other emerging markets.

Market recoveries in Asia are moderating, but the markets remain very strong. We also continue to see relatively weak growth in consumer spending in the United States and Europe, reflecting weak labor markets and tight credit conditions. These conditions are improving slowly.

The debt crisis in Europe would generate significant fiscal tightening, which is likely to act as a near-term drag on growth. Central banks around the world are beginning to wind down many of the special lending programs that were implemented at the height of the financial crisis. However, low levels of interest rates in the United States and Europe will continue to support economic growth.

In China, India and Brazil, the strong rates of growth earlier this year have already generated some tightening with the monetary policy to contain inflation pressures. Commodity prices remain significantly higher than last year's lows, although the strength has moderated in recent weeks.

Crude oil prices in the $70 to $80 per barrel rates are up about 50% from last year's lows. Overall, the global business environment remains challenging, but we expect global growth to continue.

Slide 29 summarizes the status of our key planning assumptions and operational metrics for the first half and our 2010 full year outlook. First half industry volume SAAR was 11.4 million units in the United States and 15.4 million units in the 19 markets we track in Europe.

We have tightened the range of our industry outlooks based on an assessment of the first half performance. We expect full year US industry volume to be in the range of 11.5 to 12 million units. Full year European industry volume is expected to be in the range of 14.5 million to 15 million units, reflecting a stronger than expected first half offset by a weaker second half.

On the automotive operational metrics, all of our regions are on track to improve quality compared with year ago. Automotive structural costs were $350 million higher in the first half. We expect full year automotive structural costs to be about $1 billion higher to support growth and key product introductions.

Our cost structure, however, continues to improve as a percentage of revenue. Although not shown commodity costs were $400 million higher than the first half and for the full year we expect commodity costs to increase by about $1 billion.

US total market share was 16.7% and the US share of the retail market was 14.1% in the first half. Both improved compared with 2009 and we now expect full year US market share to improve.

Europe market share for the first half was 8.7% and we now expect full year European market share to be about equal to the first half of 2010, but lower than 2009 reflecting our decision to limit increases in incentives in the region.

Automotive operating related cash flow was $2.5 billion positive in the first half reflecting our improved profitability. For the full year, we remain confident about our plan to generate positive operating related cash flow.

Capital expenditures were $1.9 billion in the first half. We expect full year spending to be about $1.5 billion to support our product plan, as we continue to realize the efficiencies from our global product development processes.

We expect to have solid financial results in the second half, continue to exceed the expectations we had earlier this year. As in most years, our first half results will be stronger than the second half reflecting normal seasonality including lower second half volumes related to plant shutdowns and product launches.

This year we also expect higher investment and cost in the second half to support growth and key product introduction as well as higher commodity costs and smaller reductions in reserves at Ford Credit. Overall we expect to achieve great results for the full year provide a solid foundation for continuing growth.

For 2011 based on our present planning assumptions we expect continuing improvement in total company profitability and automotive operating-related cash flow, including improvement in our automotive operations. These improvements are driven primarily by the growing strength of our global products, continuing cost structure improvements and the gradual strengthening of the global economy.

Ford Credit will continue to be solidly profitable at lower level reflecting primarily a lower occurrence of this year's favorable factors. In addition by the end of 2011, we expect to move from an automotive net debt position to a net cash position.

Slide 30 summarizes our plan. We remain focused on delivering the key aspects of our ONE Ford plan, which are unchanged, aggressively restructure to operate profitably at the current demand and the changing model mix, accelerate development of the new products our customers want and value, finance our plan and continue to improve our balance sheet and work together effectively as one team, leveraging our global assets.

Our product momentum is growing and our leadership and quality, fuel efficiency, safety, smart design and the very best value is resonating with consumers. Going forward, we are entering another period of exciting new product introductions around the world, such as the redesigned Ford Explorer that will redefine the SUV segment with class leading fuel efficiency with an improvement of more than 30% versus the current Explorer, plus industry safety features and technology innovation.

The new global Fiesta already a success in Europe and Asia is reaching showrooms now in the US and the new Transit Connect Electric, the first of several new Ford electric vehicles is coming later this year.

In India, the new Figo was off to a very strong start. In Europe, we introduced the C-MAX and Grand C-MAX multi-activity vehicles, the first offerings of our new global C-car platform. This will eventually underpin more than 2 million vehicles a year around the world, including the new Focus that launches early next year, an important next step in our ONE Ford plan.

Overall, our performance this year gives us great confidence going forward allowing us to focus on continuing to expand our business particularly in the growth regions of the world such as China and India, improve our overall cost structure and achieve competitive cost, while strengthening further our operational excellence and taking actions to strengthen our balance sheet and becoming investment grade. We believe we are well positioned to deliver profitable growth for everyone associated with our Ford.

Now we will be happy to take your questions.

Brian Harris

Ladies and gentlemen, we are now going to start the Q&A session. We have about 45 to 50 minutes for the Q&A period. We will begin with questions from the investment community and then take questions from the media, who are also on the call. In order to allow as many questions as possible within our timeframe, please keep your questions brief. [Tuwanda], can we have the first question please?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Patrick Archambault with Goldman Sachs.

Patrick Archambault - Goldman Sachs

Congratulations on a very good quarter. I guess one place I wanted to start was just a little bit more on FMCC, which clearly came ahead of expectations. A couple of question there and I don't know if you said it already, but can you just remind us of what the dividend plan is? How much there is less? I think you had originally said $2 billion for this year? How much of that is left? Is there any intention to increase that just given the very strong results there?

The second question, I realize that you said that some of the credit quality improvement aspects would be not as positive in the second half, but I wanted to hear a little bit about that, because it seems like if we look at past credit cycles improving credit quality was indeed something that you were able to see positive tailwinds from for a while, so wanted to get your sense of that.

Then lastly, can you talk a little bit the impact of subprime, which has been in the press recently as being one of the factors responsible for lower than expected sales. Obviously we saw this large GM deal announced yesterday, so I wanted your thoughts on that as well.

Alan Mulally

Lewis will do the first question and we have K.R. with us here also and he will address the other ones.

Lewis Booth

Just for clarification on the dividend, we said it would be $2 billion for the year, and this $1.5 billion still to go. With that I'm going to pass you over to CFO of our strategy asset K.R. Kent.

K.R. Kent

Patrick, on the credit quality, I'll give you one perspective and that is on the loss to receivables and we will cover bit more in the fixed income call later today. On a world-wide basis, we had loss-to-receivables of 39 basis points for the quarter, which was extremely low.

In the past, we only had actually four quarters that were lower. For example, people are paying their bills and it's very encouraging in an environment, where you know consumers are stressed out there.

As a result of the low loss-to-receivables, we had to reduce our credit loss reserve. For the first half of the year, we reduced them for about $450 million. Our view is that it won't continue at that pace. Obviously, the reserve just can't keep going down over time, so eventually that will slowdown. That's what we are seeing in the second half that reduction will slow down.

Your last question was on subprime and how that plays into our sales. At Ford Credit, we do support subprime, we have always supported subprime. It is an important part of the market for the company to sell vehicles in that market. Effectively, we've always participated in it, we buy a broad spectrum of business and we've been successful.

I think you see it in your securitizations that are out there that are publicly traded. They include subprime, they include prime and they all perform very well.

Patrick Archambault - Goldman Sachs

Just as a follow-up to that K.R., how has subprime been behaving? I think there was some data that's been published out there that suggest that whereas credit availability has been pretty good across the board, that's one area where it's actually tightened. The idea of being that if it were to go back to more normal levels would obviously be favorable for sales. What are your thoughts on that just broadly for the market?

K.R. Kent

I really speak about for us. In total, and we do obviously have the details that we split and look at subprime versus nearprime versus prime, and in our portfolio but we don't typically express that on a public basis. Then total portfolio continues to perform very well, and that's about as far as I can go.

Operator

Your next question comes from the line of Himanshu Patel with JPMorgan.

Himanshu Patel - JPMorgan

Two questions. First, I just wanted to clarify. Did you say $1 billion rise in 2010 for both, structural cost and also commodity cost?

Lewis Booth

Yes, both.

Himanshu Patel - JPMorgan

What is driving the $1 billion increase in the structural cost? Is it capacity engineering, labor? Can you just give us some color on that?

Lewis Booth

Yeah. It's a mixture of things. It's the cost associated with increased production, so it's volume-related cost. It's increased engineering depreciation, amortization of the new products we are developing for future growth, and finally the advertising and sales promotion associated with the launch some of those new products, so it's all the things you do expect for a company that's turning into a growth period and seeing its volumes increase.

Himanshu Patel - JPMorgan

Lewis, what do you think of that number seeing another sizeable up-tick in 2011 assuming production starts rising next year as well?

Lewis Booth

Well, if production rises, we will continue to see some cost associated with it. We've got a very, very busy launch second half, so I am not sure that I see the launch as necessarily a running rate, but I haven't spent a huge amount of time looking at that for next year, Himanshu.

Himanshu Patel - JPMorgan

Can you also give us some color on European inventories, I mean, we are seeing the Western Europe SAAR sequentially softening, but a lot of this third-party vendors like CSM and J.D. Powers are upgrading their European production forecast. Where do you characterize inventories in Europe and whether it's for Ford or for industry and kind of where were they at the start of the year?

Alan Mulally

At the start of the year, we were incredibly tight on inventories. We've been struggling to build enough cars, because the scrappage programs were so strong on small cars. We continued in that vein through the first quarter with very tight inventories. We would normally have an inventory build in the second quarter for two reasons. One, because, we are getting really ready for the summer shutdowns and secondly, because we were so tight we are down about 55 days, which is a very comfortable level, lower than the typical Europe's run-up, so we feel our inventories are well under control.

Himanshu Patel - JPMorgan

One last one, coming back to Pat's question to K.R. What was described yesterday by one of your competitors was that that asset wasn't just a good strategic fit, but it was also broadly characterized as the subprime market is just a very compelling growth opportunity for them.

I am just wondering how Ford and Ford Credit view the competitive landscape in subprime right now. Have enough competitors left that space right now and have credit trends improved sufficiently where maybe it does makes sense now for Ford to try to expand penetration rates in that segment?

Alan Mulally

I think, we are a bit different from some of the other people you've been talking about. We didn't get out of the credit market. We didn't desert any of our customers across the spectrum. We are still supporting those customers. We expect to continue to support those customers as they come into our showrooms.

Operator

Your next question comes from the line of Brian Johnson with Barclays Capital.

Brian Johnson - Barclays Capital

Two questions, a pricing one in Europe for Lewis and then a more strategic one for Alan. Lewis, where would you characterize, within that $300 million of incentive activity kind of the pockets that you are the kind of flash points for incentives, either by segment BC or by geography, country?

Lewis Booth

I characterize this across the board, Brian. It's in most countries, it's in most segments. Some of the most active of our competitors I'd say are more biased towards the small end of the spectrum in terms of that product range, so they've been in booking up from centers in that area.

I think an important message for what we are doing in Europe is we are backing away from chasing some of our competitors down the very, very high levels of incentives for business that we don't is necessarily real, and you can see that at the end of each month.

The year-over-year incentive level is up, but since we saw the volumes coming down in second quarter, we have really backed away from some of this business that people started indulging in. Our unit margin actually second over first. You can't see it in the data them data up modestly, which I think implies we're doing the right thing for business. We are pursing profitable business not market share business.

Brian Johnson - Barclays Capital

Okay. And is there any particular country that accounted for the bulk of that 300 million or two countries?

Lewis Booth

No. Its spread pretty down fortunately.

Brian Johnson - Barclays Capital

A question and probably both you and Alan, which is, how do you see their light commercial van vehicle business developing in Europe, in Brazil where you are active as well that in entrée for you to grow, in china? And is that going to be a bigger part of our business going forward say over the next three years?

Alan Mulally

The commercial vehicles down to the Transit size and the Transit Connect have been as you know a wonderful business for us and we see that continuing to grow in all the regions of world, Americas, Europe and Asia-Pacific. We don't have any plans at the current time to go below that size Brian.

Brian Johnson - Barclays Capital

Okay. I mean LCV like commercial vehicle.

Lewis Booth

Yes, we do see some encouraging signs in Europe of commercial vehicle business…

Allan Mulally

Well, the commercial vehicle is down to the Transit size and the Transit Connect have been, as you know, a wonderful business for us and we see that continuing to grow in all the regions of world, the Americas, Europe and Asia-Pacific. We don't have any plans at the current time to go below that size, Brian.

Brian Johnson - Barclays Capital

Okay, and I mean LCV, light commercial vehicle.

Lewis Booth

Yes, we do see some encouraging signs in Europe of commercial vehicle business, some signs of life there. In Europe, we are very, very strongest. That's not called the transit segment for nothing, and we are working with our partner in China who has a good transit business and would continue to develop the transit business with a great low cost production facility in Turkey and we still build vehicles in Britain as well.

Allan Mulally

Very good for us.

Brian Johnson - Barclays Capital

Okay, and how much of the South America and European decent profits were really driven by LCVs, specially in Europe with a weakening, as you pointed out, car market?

Lewis Booth

I wouldn't want to go in that amount of detail, Brian. Thanks for asking, though.

Operator

Your next question comes from the line of John Murphy with Bank of America Merrill Lynch. Please proceed.

John Murphy - Bank of America Merrill Lynch

Maybe a very basic question, but I think an important one. As you guys were talking about cost inflation structural cost going up. Is it fair to say and how do you think about when you launch new products that they are higher margin than out going products? Is that fair assumption to assume as you launch a new product you expect it to be higher margin and plan for it to be higher than the outgoing product even though there might be some cost inflation as we are going forward?

Lewis Booth

Well, that's a multifaceted question. Let's just talk about the structural cost. If we build more of them, we expect to attract some structural cost associated with it. Right to the very beginning of a new product launch you have some specific structural costs associated with high levels of deprecation and amortization at the beginning of the cycle, the launch expense and the plants and the advertising and sales promotion.

In terms of the margins, we are going through a period where we are improving the competence of our products and as part of that improving the attribution of equipment levels of our products. That's the thing that's driving the positive performance on pricing with closing the gap with our Asian competitors in the US for example because we have got much more competitive products.

Along with that, thus goes some increased material costs, but typically we would be looking at the start of a cycle to have a better margin than in the last or the previous cycle.

John Murphy - Bank of America Merrill Lynch

Okay. Then the second question is on Slide 14, when you go through the walk for North America there was no mention and I may have missed this, but it's not on the slide deck of what warranty expense did in the quarter. What your performance was in the quarter and if it was negligible or you expect that improved going forward just more color around warranty expense in North America.

Lewis Booth

We are looking at our data, just one second, John.

Lewis Booth

It's a very small amount of good news. So not material in terms of the big variance explanations. We did see in the European numbers that based on the very good warranty performance that we are able to adjust the reserve in the quarter.

Operator

Your next question comes from the line of Chris Ceraso with Credit Suisse.

Chris Ceraso - Credit Suisse

I would say, probably the thing that, to me, was the most surprising and most impressive was the price performance in the quarter. I have a couple of questions on that. First what's your expectation for pricing as we get in to the second half, if I think in terms of your year-to-year profit loss like you were just talking about from slide 14? And then what you see as any risks to the pricing story and be it your product mix or introductions or any kind of competitive actions?

Lewis Booth

Well, we talked a lot about our pricing improvements being driven by improved products. We obviously have a lot of improved products coming in the second half. We don't expect to maintain the performance we saw in the first half, but we do expect to continue to see positive net pricing and included within that we do expect to incentives continue to ameliorate a little bit as our products get and more competitive.

Allan Mulally

Chris, we are also actually staying laser-focused on our plan to match our production to the real demand, which is the most important thing we do from a value point of view and the products.

Lewis Booth

Your question was primarily aimed at the North American market, but the thing, the steps we are taking in Europe not to chase through our marginal units is also important evidence of the way we are trying to run the business responsibly.

Chris Ceraso - Credit Suisse

On the increase in commodity cost, the $1 billion, you used to talk in terms of both, commodity and product cost. Is there some breakdown within the billion or is it all really just raw materials or is some of that the increased content that's going into make these new products better?

Lewis Booth

The $1 billion is raw material and that the usual suspect is still aluminum and copper and the likes.

Chris Ceraso - Credit Suisse

So, where do we see? Where are we missing the increase in the actual content, be it for regulatory or just for better components to be more competitive?

Lewis Booth

You will see it offset by material cost reductions. So it's the dog that isn't barking.

Chris Ceraso - Credit Suisse

Then just lastly, a housekeeping item. You mentioned, Lewis, the taxes would normalize at some point here. When do we start to see the average tax rates start to creep up?

Lewis Booth

We are not ready to talk about that yet, Chris.

Operator

Your next question comes from the line of Steve Dyer with Craig-Hallum.

Steve Dyer - Craig-Hallum Capital

Nice quarter guys. Just a question, your guidance for Q3 North American production, I would have thought I guess given kind of the low inventory and your market share gains and just the continuing improvement in the industry, I would have thought that there would maybe not be quiet as much seasonality as you are indicating. What are you seeing there that leads you to be to expect things to be as normal?

Allan Mulally

Well, it really starts with our assessment on the economic growth and of course the industry, the 11.5 to 12, and then staying really focused on the right inventory and supply with the dealers and so. We worked a little bit of that on the production in the first half to make sure that with the shutdowns that we normally take and new product launches that we are matching that production's demand. So, it's about right looking at the market and looking at ours gradually increasing market share too.

Steve Dyer - Craig-Hallum Capital

What's your expectation as to what are new normal inventory level will look like vis-à-vis historical?

Allan Mulally

I think overtime it will gradually come down.

Lewis Booth

As we simplify within the product line, as we simplify our product offerings, we believe we can get closer to the customer and run low inventories but it's going to take some time for us to, long time, long term we want to move from, typically we find around 60 to somewhere maybe five to ten days lower than that.

Allan Mulally

We were really encouraged with the progress we are making because not only have we simplified the product line-up, made that really clear, but also we will continue to simplify the verbal combinations to get, really package the way the customers really want it and that allows the dealers to really simply their operations.

Operator

Your next question comes from the line of Colin Langan with UBS.

Colin Langan - UBS

Looking at slide 12, what was the explanation for the positive exchange impact and the net interest adjustment? I was actually surprised that the change would be positive.

Lewis Booth

The exchange positive news is the non-recurrence of bad news last year, which was the balance sheet evaluation because of exchange rate movements. I'm sorry, your second question is about interest?

Colin Langan - UBS

Yes, the net interest in term of market value adjustments that offset that.

Lewis Booth

A couple of things. One, our interest has gone up because we have got the VEBA debt in our books compared to last year and the second element is our fair amount of market value adjustment for our investment in Mazda has done down. Last year June, the quarter was going up and this year during the quarter it was going down. So, the year-over-year looks somewhat exacerbated.

Colin Langan - UBS

On the exchange side, should we expect similar benefit in the second half or is the exchange is going to be headwind there?

Lewis Booth

No, we did have a big chunk in second quarter last year. So we are not expecting it. Who knows what you will expect on exchange rates, but based on present planning assumption we don't expect a big item like this in the second half.

Colin Langan - UBS

So just the Europe and Russia, okay, and can you talk about Europe in the second half? Pricing is getting tougher. Production is going to be down. Can you stay profitable in Europe or any sort of color on that?

Lewis Booth

We are not giving guidance. I think you can see that we're going to run the business to be profitable. If we have to yield a little bit of market share to not do business if unprofitable we will do that. I mean that we will give you performance report as we go along.

Colin Langan - UBS

Just one last one, I guess there is a lot of news around the funding asset-backed funding for Ford Credit. Is that change in your policy? How you're going to fund that business, or do you think that will be a timing issue?

Lewis Booth

A couple of things, first of all, we have credit company well funded and very diversified funding strategy for the credit company, and last night we did get a No-Action Letter from the SEC, I think will give us some solutions for the next six months to enable us to going to the public asset-backed market.

Alan Mulally

Clearly that was an un-intending consequence of the new legislation and so we're very, very confident that they'll get that straightened out quickly.

Lewis Booth

There's a lot of [NOC] from everybody to find a solution and we were very pleased with last night.

Operator

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

Rod Lache - Deutsche Bank

First, I just want to talk a little bit more about this 11% margin that you achieved in North America. I know a few analysts have asked about whether there were unusual exchange items or warranty items in there. I guess just more broadly, were there any unusual items in there. Was mix unusually strong, any thoughts about the sustainability of the business? Obviously, you do have some cost coming in, but there is a lot of operating leverage in the business as the cycle recovers.

Lewis Booth

Rod, I think the only unusual thing is looking at the margins by quarter are quite dangerous because second quarter is a very full production quarter typically. So, we don't expect to say at in 11% margin, but we look at its more instructive I think to look at it on an annual basis and see the trends there rather than, there is a lot of noise, quarter-to-quarter that isn't signaled.

Alan Mulally

Getting out of the seasonality effects, as you well know.

Rod Lache - Deutsche Bank

Right, and the cost, obviously would be coming up as the market recovers. I haven't seen the numbers on Ford Credit yet, but I did see the year-over-year variances in the credit loss provisions. Can you just tell us what those provisions were in the quarter? Was that a negative number this quarter?

Lewis Booth

I'll ask K.R. to answer that.

K.R. Kent

Yes, actually it was an improvement. The credit loss themselves were about $86 million. The reserve adjustment was a reduction of $252 million and then there is a little bit of exchange in securitization going through as well.

Rod Lache - Deutsche Bank

So the expense item was a negative $252 million, is that, am I hearing you correctly?

K.R. Kent

Sorry, the credit losses themselves were $86 million expense and then the changing reserve was $252 million reduction in the reserves.

Rod Lache - Deutsche Bank

Okay, and just lastly, there was a lot of discussion I guess over the past couple of days about the opportunity and leasing part of it because of what's been happening in the residuals and partly also with AmeriCredit in the news yesterday. I'm just curios about what is your penetration of leasing at the moment? The industry looks like its around 21% lease. Is that something that you are viewing as an opportunity right now?

Alan Mulally

We don't share our penetration and we have been out of the leasing business, we continue to satisfy the customers, who want leasing.

Operator

Your next question comes from the line of Itay Michaeli with Citi.

Itay Michaeli - Citi

Two questions on the 2011 outlook. Can you maybe directionally share what you are assuming there for net pricing year-over-year and also interesting to see that you expect continued cost structure improvements? Does that mean that the automotive structural cost just don't increase with the same rate that we maybe saw increase this year, maybe do you have any color on that?

Alan Mulally

With respect to your first question, we are pretty much aligned on the GDP growth the projections that people are making. The US just updated their guidance to 3 and 3.5 for 2010 and then moving to closer to 4 maybe in 2011. So, with that and the industry moving along with that and are increasing position on share that outlines the still to slow growth with respect to past recession, but clearly running positive thing that we are growing.

On the pricing itself our real plan is to continue to offer the quality, the fuel efficiency and the safety and the smart design that people really do want and value. So, we anticipate that the consumers like they are now really appreciate and resonate with the new product line as we continue to refresh our vehicles to get to the freshest product line. We anticipate that the customers will continue to appreciate the Ford and pay for the features they really like.

Lewis Booth

It's too early for us to give detail views of next year. We would expect the pricing component probably to be some more less than it has been this year and we continue to work on our cost competitiveness.

Itay Michaeli - Citi

On the net debt guidance for the year, obviously, impressive outlook there. Lewis, can you maybe help us directionally of where you think net debt could end 2010, just want to get better sense of some of the seasonal cash flow that you are expecting in the second half of this year?

Lewis Booth

What a great question. Somewhere between 5.4 and zero. I'm not going to tell you what the intersection point is.

Itay Michaeli - Citi

We'll try to do math ourselves. Thanks a lot guys.

Lewis Booth

Just a reminder that we still have about somewhere between $300 million and $350 million of (inaudible) that we previously declared. The rest of the net debt, this year we are certainly expected to be doing whatever we do to continued great performance of the operating business.

Itay Michaeli - Citi

Sure. Absolutely.

Operator

Ladies and gentlemen, at this time, we will now welcome questions from the media community. (Operator Instructions). Your next question comes from the line of Dee-Ann Durbin with The Associated Press.

Dee-Ann Durbin - The Associated Press

As Lewis said, you're a company that's going into to a growth period, and I'm wondering if you plan to hire any new employees or if you feel that your staff is at this point the appropriate size?

Alan Mulally

Dee-Ann, we absolutely look forward to that point, because that clearly will show that we reflect in our growth. In the near-term, we are about where we need to be and we are continuing to work our productivity, and it really is going to depend on how fast the economy comes back and industry comes back, but we are in a good position right now, but we look forward to that day.

Dee-Ann Durbin - The Associated Press

Also, Lewis, could you give the total quarterly incentive spending from last year. You said it was up this year, but how much? Up from the 300 million?

Lewis Booth

Hold on. I think we are confusing some numbers here. Just ask me the question again, Dee-Ann?

Dee-Ann Durbin - The Associated Press

The total quarterly incentive spending? You gave the 300 million figure for the quarter?

Lewis Booth

I don't recognize the 300. That's euro. Our total incentive spending was down $200 million for the corporation.

Dee-Ann Durbin - The Associated Press

Down 200?

Lewis Booth

We wouldn't give out the absolute.

Dee-Ann Durbin - The Associated Press

Okay. So you were down?

Lewis Booth

We were down $200 million for the corporation within Europe, because of the absolute high level of incentive spending. Europe is up for the year by 300.

Operator

Your next question comes from the line of Keith Naughton with Bloomberg.

Keith Naughton - Bloomberg

I am wondering if you could tell me what discontinuing Mercury will cost.

Alan Mulally

Well, we've been pretty clear in the specials. We say it will be, but the amount was showed in the specials which includes not just Mercury, but includes some other data restructuring. The amount we show here is somewhat less than half the total amount we expect to book in 2010 and 2011. We are not being any more explicit in this case.

Keith Naughton - Bloomberg

Then conversely, how much more are you planning to invest in Lincoln?

Lewis Booth

Well, we are investing in Lincoln what it takes to deliver the product programs. You will see that we don't split out our CapEx and our engineering by brand, but you see this year our CapEx going up year-over-year and you will see us continue to increase our CapEx as we go into this growth period, and we've got this plan for seven new or refreshed products in the next four years.

Alan Mulally

The investment for all of that is in the guidance for '10 and '11 also, Keith?

Lewis Booth

Just to reflect on Mercury that the on place. We are having very fruitful discussions with our dealers and I think we have about 1,700 dealers involved and I think we already have signed agreements with about 700 of them.

Keith Naughton - Bloomberg

Have there been any lawsuits?

Alan Mulally

No.

Operator

(Operations instructions) Your next question comes from the line of Brent Snavely with Detroit Free Press.

Brent Snavely - Detroit Free Press

I wanted to see if you could talk a little bit more about going from the net debt to the net cash position some time next year, and how you are doing that? How significant that is for the business?

Alan Mulally

It's clearly really positive development, because we are managing on uses of cash, and we are looking at the overall business environment, and it appears to us with all of our fundamental assumptions that we are going to be able to continue to improve the balance sheet and pay down the debt and that's why we are very pleased to give the guidance that we'll be in a net positive position in cash at the end of next year.

Lewis Booth

Brent, I misspoke a little bit early when I talked about the operating divisions and exclusively call out. Obviously the dividends from Ford Credit are big help to continue to pay down our net debt. So it's both, the automotive business units and the Ford Credit.

Unidentified Analyst

Then I also saw unemployment, it looked like North American workforce increased by about 2,000 people from the first quarter to the second quarter. So can you talk about that? Are you guys hiring, plan to continue hiring?

Allan Mulally

Yes. That really reflects adding the Explorer to Chicago, where we're going to add 1,200 new jobs and also. That's all. I think that's enough for now.

Unidentified Analyst

That wouldn't happen until later on this year.

Allan Mulally

Right, and Mexico.

Lewis Booth

Yes. It includes some hiring for the Fiesta in Mexico?

Operator

Your next question comes from the line of Bernie Woodall with Reuters.

Bernie Woodall - Reuters

You just mentioned the Fiesta, but where are you with the launch of the Fiesta in North America, and have you run into any glitches?

Allan Mulally

No, we're up to a really good start and the acceptance by the consumers is fantastic. The dealers want more as fast as they can get them.

Lewis Booth

We had a very slight transportation glitch with some damage to some rare lines but other than that, we are on track.

Bernie Woodall - Reuters

Where was this transportation glitch, Mr. Booth?

Lewis Booth

I don't know. I am not the real expert. It was, I think, in the Mexico side of the border.

Bernie Woodall - Reuters

But all okay on the production side?

Lewis Booth

We are okay on the production side.

Allan Mulally

Absolutely.

Lewis Booth

The cars looks great actually.

Operator

Ladies and gentlemen, at this time we have no further questions in queue. I would now like to turn the call over to management for closing remarks.

Brian Harris

Okay. Thank you very much, [Tuwanda]. I guess that concludes today's presentation. We would like to thank all of you for joining us here today.

Operator

Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a wonderful day.

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