Ford January 2007 Sales Call Transcript

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Ford Motor Company (F)
January 2007 Sales Call
February 1, 2007 1:00 pm ET

Executives

George Pipas - U.S. Sales Analysis Manager
Emily Kolinsky - Senior Economist

Analysts

Rod Lache - Deutsche Bank
Chris Ceraso - Credit Suisse
Robert Barry - Goldman Sachs
Rob Hinchliffe - UBS Securities
Ronald Tadross - Banc of America
John Murphy - Merrill Lynch
Tom Krisher - Associated Press
Bryce Hoffman - The Detroit News
Michael Strong - Debtwire
Chris Woodard - USA Today
Robert Schaumburg - The Carrier Journal
Terry Kosdrosky - Dow Jones Newswire
Ranjeet Unnithan - JP Morgan

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Ford monthly sales call. My name is Cyndi and I will be your coordinator for today. At this is time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of today's presentation. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. George Pipas. Please proceed, sir.

George Pipas

Thank you, Cindy, and good afternoon everybody. Thanks for participating in Ford's January sales conference call. First off, I want to apologize that the release didn't hit the Wire until just a few minutes before the conference call. We did get it up on the website, and did distribute it to the investment community several minutes prior to the call, but I had a bad hair day. And for those of you who know me, you can probably see the humor in that. But it -- things were just weren't going well for me today. In any case, I hope this goes better and may be helped up a little bit by the fact that we did conduct a media briefing yesterday in Dearborn for members of the automotive press. And at that time, we provided some pretty explicit expectations for the month of January and also going forward, particularly as it related to our fleet business.

Now, the previous guidance that I had given you for full year fleet sales, specifically that total fleet sales would be down 20% for the year and that daily rental business would be off 30% for the year, was articulated yesterday along with the fact that January is a month, but it won't be the only one in which it's even a more unfavorable fleet comparison than what we are going to see in the full year.

In fact, in January, sales to daily rental companies were cut by 65% compared with the same period a year ago. And as a result, the total decline was 19%. Our retail business was off 5%, coming fairly close to a year ago, but falling a little bit short, I think 5% worth about 6,000 units. And so, we've got the total results here now.

What I am going to do is as most of the coverage that I read this morning accurately reported the comments and the insights in yesterday's call, I think I am going to ask Emily Kolinsky to make some comments upon the incoming economic data and then I'll come back and take care of some house cleaning, so that we can devote more time in this call to your questions and answers, so -- or my answers or Emily's answers. You can see it's still not going real well for me. Emily, why don't you help me out here.

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Emily Kolinsky

I'll just try to turn it around here.

George Pipas

Yeah.

Emily Kolinsky

As many of you heard from Alan in his comments yesterday, he did indicate that we have seen some more positive economic news emerging in the past few weeks, including a strong finish to real GDP growth in 2006 and a moderation of inflation pressure. However, we do see the manufacturing sector including but not limited to automotive remains under pressure and it also remains to be seen how much of the stabilization and housing market indicator is attributable to the unseasonably warm whether that much of the country experienced over the past few months.

Some of the recent good news for consumers has also been [falling] oil and gas prices. However, as events have repeatedly demonstrated, the salient feature of these markets is volatility. So, in this regard, we believe that the impact of higher gas prices on segmentation in the new vehicle market is likely to remain in place, as many consumers have adjusted their expectations for future gas prices to reflect the continued risk of price hike.

On balance, we still expect that growth will be sock in the first half of this year as manufacturers and homebuilders rebounce their inventory and consumers wait spending decisions in light of higher interest rates on floating rate debt and flat to declining home prices. We expect a similar pattern for vehicle sales.

The six months moving average has been sitting around 69 million to 70 million units for the past several months. January's preliminary reading appears to be right in that range. And we expect to remain around that level as we move into the late winter month. Our full year forecast remains at 16.8 million units, and that's for total industry sales including medium and heavy trucks.

George Pipas

Okay. Thank you, Emily. Let me just provide some additional details here on our fleet business. Right in the headline, you have the cost that I mentioned in the daily rental sales with 65% total fleet sales we are off 42% year-to-year. And that includes the other sectors of our -- that we do business in. Namely, the commercial fleet and the government fleet business.

Now, if you look at fleet mix, which is something we always mention, last year in January our fleet mix was 39%. This year with this reduction, our fleet mix is 28%. So, that’s some good news in terms of the mix of our business. That means last year 61% was retail and this -- in this January, 72% is retail. So, that is a positive sign. Further within the fleet business, last year 60% of the business that we did conduct in the fleet channel, 60% was to daily rental customers and 40% was to commercial and government customers. This January, 36% of the business went to daily rental customers and 60% went to commercial and fleet -- commercial and government customers.

Now, with regard to the retail business, the strength -- pocket of strength that we did see that kept retail sales pretty close to a year ago was in areas that we had seen for the most part during 2006 and that is the mid-sized cars, the Ford Fusion, the Mercury Milan, Lincoln MKZ, Ford Focus was up at retail, even though it was down sharply in total. That’s a very good example of the reductions that we saw in daily rental were not just limited Taurus, which was only 14,000 units last year and doesn’t even come close to describing the total fleet. We saw fleet reduction in many products throughout the lineup, both car and truck in the daily rental channel. And so, you see -- if you look on the scorecard, you will see Focus sales were down 35%, but the retail business was up 10%. So small cars, mid-size cars, obviously in the crossover category, the Ford Escape and Mercury Milan were up in retail, although the Escape was down in total owing to a decline in deliveries to daily rental customers. And then, of course, we have the Ford Edge and Lincoln MKX which had their first months on sale in the United States in the month of January, as they just started arriving in dealer showrooms right at the end of December.

Two other products, Ford Super Duty, we commenced shipments of the 2008 model Super Duty and although there are very few in stock, I think we reported that our first customer took delivery of his Super Duty truck, the customer lived in Winchester, Kentucky, I think it was. And at least those models now are starting to flow from the factory at the Kentucky truck plant near Louisville to our dealers. And I just received word this morning that the Escape and Mariner, the 2008 model redesigned versions that we showed at the North American Auto Show -- International Auto Show here in Detroit, earlier in January have also have started being shipped.

So the new product not just the crossovers, but also these two other product lines are now on their way to Ford and Lincoln Mercury dealers. So that was the -- that was what helped. Now, you can see if you look at our results that Explorer was down in January, continuing -- for the most part continuing the trend that we saw last year. Offsetting that a little bit was higher sales for the Expedition and Navigator. For fifth month in a row, the Expedition sales has increased corresponding to the introduction of the redesigned model with its extended- length version, and Navigator has been up four months in a row.

But, in addition to Explorer being down, coming back to areas that didn’t measure up to a year ago, another one is F-Series. We got off to a very strong start in F-Series throughout the first quarter of last year, probably no -- in no small part by the activity -- the reconstruction activity in the Gulf Coast following Hurricane Katrina. So, the first quarter was a very strong quarter of F-Series, and I think when we closed out the quarter, it was running 5% or 6% ahead of the 2005 pace. But then, the weakness in the housing market and an increase in gas prices slowed things down in that whole category. As you know, the category finished 10% lower than a year ago for 2006 versus 2005. And we continue to see some softness in the full size -- at least in our full-size pickup in the month of January. Honestly, that’s a concern. We are looking for -- we see the possibility in that second half of the year not only for this category for the economy as well -- economic growth might pickup as progress through the year. I think our general feeling is probably we'll have little weaker first half and the potential for a stronger second half, we'll just have to see how that develops and we'll keep you appraised as to what our thinking is.

From an inventory standpoint, we ended the month at the same level of inventories that we were at in December. Which means that, at the end of January, 591,000 cars and trucks are at Lincoln and Mercury dealers and that is 179,000 fewer than what were in inventory a year ago.

Yesterday on the call, I said that probably by the end of the first quarter, which is a more convenient point to look at I think. At the end of the first quarter, our inventories would be up to a 170,000 units fewer. And so, maybe I was a little conservative about that, and the impact of our production cut that we announced in the first quarter on December 1st and updated in the middle of January, when we announced earnings. But that's where we are, a 179,000 fewer units than we were at the end of the January a year ago.

And there too, a comment that I made yesterday was that if the economy does -- if the pace of economic growth picks up as we progress through the year, then in the second half with this linear level of inventory I think we have some opportunity to start thinking about this is what Don Leclair alluded to in the conference call that we might see a pick up in production towards the end of the year. But we'll leave that until then and we'll just see how this materializes. But I do think that our inventories are at very good shape here as we close out the month and head into February on an overall basis.

Now, Cindy, let's go. Let's get into the Q&A period, okay?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And sir, your first question will come from the line of Rod Lache of Deutsche Bank. Please proceed.

Rod Lache - Deutsche Bank

Good afternoon.

George Pipas

Hi, Rod.

Rod Lache - Deutsche Bank

A couple of things. First of all on the retail sales trend, last year retail was down 15% for you guys, and I am wondering whether you are seeing signs here that it's slowing? Is there a point in time this year with the new products that you would expect the retail comps to be pretty close to flat?

George Pipas

I think we will see that as we go through the year Rod. And when you said 15%, were you referring to the full year?

Rod Lache - Deutsche Bank

Yes.

George Pipas

Yeah, right. No, I think that's a correct assessment. Actually I've got last year's retail sales being off 13%. But I mean the point that you are making is, is that this year's comparison in January is at least narrower closer to being flat than we experienced for most of last year and I share that view.

Rod Lache - Deutsche Bank

When would you expect to start looking for that crossover point?

George Pipas

I think that probably in the second half we would see it on a more consistent basis. But I wouldn't rule out seeing some increases in retail business during the first half, much will depend on just where the pace of the economy goes. Emily mentioned that industry sales are off 5% or 6%. If she didn't, that's our estimate.

Rod Lache - Deutsche Bank

That's in retail?

George Pipas

In the month of January, it looks like industry sales might be off 5% or 6% in total. And as you know, we are trying to -- our goal is to stabilize our retail sales as a percentage of industry business. And it looks like we may have done that, but we fell short to matching last year's level. I think this was a pretty good result at retail with the F-Series obviously a big portion of our business. I think that was probably one of the contributing factors here in just falling short.

Rod Lache - Deutsche Bank

Just as a follow-up, George, that 5% to 6% number that you are quoting, is that retail or overall? And what's happening to pricing, is that a driver here?

George Pipas

No, I wouldn't want to comment on the pricing thing that either for the industry or for Ford in a particular month. However, the 5% to 6% reduction that I referred to was for the time being here in total sales including fleet.

Rod Lache - Deutsche Bank

Okay. Thank you.

George Pipas

Okay. Next question, Cindy?

Operator

Thank you. Yes sir. Next question is from Chris Ceraso of Credit Suisse. Please proceed.

Chris Ceraso - Credit Suisse

Hey thanks. Good afternoon, George.

George Pipas

Hi, Chris.

Chris Ceraso - Credit Suisse

A few things, first the Freestyle was down very sharply, can you give us a feel for how much of that was a fleet decline and how much may be is the cannibalization coming from the Edge?

George Pipas

I don't think we can throw it off on the Edge, because Chris, the Chicago portfolio of products, the 500 and the Montego and the Freestar were all down at retail last year in the double-digit range. So, what we're seeing here; however, the magnitude of the decline, we -- some of the areas where we have planned reductions in daily rental sales have been in that same, have been in that product lineup. So, for Freestyle and for 500 and for Montego as well, there were very sharp reductions in daily rental sales. So, that’s part of what you're seeing here with the magnitude of the decline. But the retail business was basically of about what it was in 2006. So, I don’t think we can put that off on the Edge. I don’t dismiss the fact at all. I share your view that I -- that the new product in the showroom is going to get the attention and the buzz and probably the consumer interest. But I don’t think what we saw here in January was necessarily related to that.

Chris Ceraso - Credit Suisse

On a full-year view, George, what are your thoughts about the Edge, as it relates to not only the Freestyle, but also the Explorer? How much of the --

George Pipas

I think we better walk through it and just - and just see that as we go through, Chris. I mean we certainly have an expectation that our sales for the year on the Edge will be in the 100,000 unit range, not ready to go off from that estimate yet. But the extent to which it cannibalizes, I mean hey, the Explorer was going to have lower sales anyway.

Chris Ceraso - Credit Suisse

Right.

George Pipas

I mean with or without the Edge, the mid-size traditional SUV category has been declining and I suspect is going to continue to decline as we go through the year.

Chris Ceraso - Credit Suisse

One more quick one if I can, you said the retail sales were down 5% overall, what was the car and truck retail comparison?

George Pipas

This was an interesting one. Despite the increases that we did see in the products that I had mentioned at the top of the call. For the first time in quite some time maybe because the comp was this year, we actually saw a 3% decline in truck retail sales and 11% decline in Ford, Lincoln, Mercury car retail sales. Now, clearly some of that -- some of the fact that truck seem to outperform as where cars is due to the first month of -- first full month of Edge and MKX. Having said that, this is the first time in quite some time that trucks have outperformed cars year-to-year.

Chris Ceraso - Credit Suisse

Thanks.

George Pipas

Okay. Our next question.

Operator

Your next question is from the line of Robert Barry of Goldman Sachs. Please proceed.

Robert Barry - Goldman Sachs

Hi George.

George Pipas

Yeah, hi Robert.

Robert Barry - Goldman Sachs

So, it's look like in total, daily rental is about 14% of the total sales in the month, is that -- I mean that's definitely moving in the right direction, but still a lot higher than some of the Japanese for example, what is the good target for where you'd like that to?

George Pipas

For the year -- for the year, the 20% reduction in total fleet along with the 30% reduction in daily rental would leave us in the low double-digit range, okay. And by purpose -- by way of comparison, last year daily rental was 16% of total Ford Lincoln, Mercury sales. So, with our planned reductions that would be reduced to somewhere in the low double-digit range this year.

Robert Barry - Goldman Sachs

Okay, good. And question on -- you stated in the press release some residuals and I am wondering how we should really interpret that? I see that the '07 models are slightly better -- I guess I would expect that to be the case anyway because they are new and maybe they even have more content on them.

George Pipas

Well, it's the latter thing. I mean, precisely thing by its content and it’s the desire on our part to not go crazy on production. Maintaining production at a level that’s more consistent with consumer demand is one of the real keys to improving residual values. It's excessive inventories which leads to excessive discounting and offloading the stuff to the daily rental channel is what -- is what ruins your residuals. So, on the 2007 model, Fusion for example, the improvement there was 2 percentage points off an already very competitive resale value for the first year 2006 model, and I would say in that instance you are looking at the impact of standard side airbags, the availability of all-wheel drive and standard ABS. So, I think it’s a combination of things, and Expedition and Navigator, the value that was build in that because we reduced the price on the Expedition 4000, and instead of deciding that we were just going to go crazy on production, we decided to single shift Michigan truck and keep the screws on productions and inventories. Okay.

Robert Barry - Goldman Sachs

And is it fair to say that on most of these new models you are adding content, and…?

George Pipas

Reducing price.

Robert Barry - Goldman Sachs

And reducing the price?

George Pipas

That's right.

Robert Barry - Goldman Sachs

Yeah.

George Pipas

That's the answer. Okay.

Robert Barry - Goldman Sachs

One last quick one, George, I just wondered when will the Super Duty be fully ramped up from a production sense?

George Pipas

Probably not -- fully ramped up in terms of production?

Robert Barry - Goldman Sachs

Yeah.

George Pipas

Probably in the late February, early March timeframe. But probably, won't get to where we want to be on inventories on the 2008 model. I would say not until the end of April.

Robert Barry - Goldman Sachs

Okay. Thank you.

George Pipas

Okay. Next question, Cindy?

Operator

And your next question will come from line of Rob Hinchliffe of UBS. Please proceed.

George Pipas

Yeah. Hi, Rob.

Rob Hinchliffe - UBS Securities

Hey, George. Couple of quick ones. Sticking with the Super Duty collection there, when you sort of dig into the yesterday's results of this month, is there any indication that you see that folks are pushing off buying a -- and that's why the Super Duty right now waiting for the new one or is it really -- how it's doing on those sorts of things?

George Pipas

It depends. I don't think you can generalize, Rob, because some buyers are in the market where price is more of a consideration than for other buyers.

Rob Hinchliffe - UBS Securities

So the numbers is -- it's a fair number of this month's earnings cycle?

George Pipas

I beg your pardon.

Rob Hinchliffe - UBS Securities

The number we are seeing this month is in fact a legitimate number. It's not off because of the run out of the old [to new check]?

George Pipas.

No, no, no. I'd just say, with some people, for any product in the market, some people are more interested in pricing by towards the end of the model year and the run out of the old and some people will wait for the new.

Rob Hinchliffe - UBS Securities

And a quick one on cars, you said retail down 11% for cars. And I think during your prepared comments you said the Focus was up, the Fusion, Milan, MKZ did well. So, what was…

George Pipas

Chicago.

Rob Hinchliffe - UBS Securities

How about the Mustang too?

George Pipas

And the Mustang, thanks for bringing that up. Both of those products were down at retail year-on-year

Rob Hinchliffe - UBS Securities

Okay. Thank you.

George Pipas

Okay. Next question, Cindy?

Operator

Thank you, sir. Here is Ronald Tadross from Banc of America. Please proceed.

George Pipas

Hi, Ron.

Ronald Tadross - Banc of America

Hi, George. On the F-Series, you said that it will probably be a little better in the second half. Can you give us an idea of how we should think about January versus the next five months of the first half, like was January an easier comp or a tough comp?

George Pipas

The entire first quarter was pretty strong for Ford. In fact, I don't know if we were the -- in January for example, we were up and all of the major players were sort of down double-digit. In the first quarter, we were up 6% or 7% and I think that was equal to a year ago through the first quarter. GM was down. The segment was definitely down through the first quarter. Now, we started to see declines pretty much consistent with the rest of the business beginning in April. So…

Ronald Tadross - Banc of America

Okay.

George Pipas

On that standpoint, I would say the comps get easier beginning in April. But the question will be is -- will relate to the pace of economic growth, the timing, and not only the pace of growth, but in terms when the consumers respond to that. Because at the first sign of a housing recovery, let's say, that doesn't mean you are going to see a bunch of people going out and buying new trucks. They don't want to see it for maybe a couple of months, so I want to see some sustainability. So, we just have to say, I can't speak…

Ronald Tadross - Banc of America

One other quick thing, the retail mix on the Freestar and the Ranger, I know, you are exiting those programs at least for a while, but can you just give us an idea of what the retail mix is on those programs?

George Pipas

On which program?

Ronald Tadross - Banc of America

The Freestar minivan and the Ranger pickups.

George Pipas

Unlike last year, the Freestar actually had more retail business than fleet business this year. But through all of last year that was not the case. It was much more loaded towards fleet.

Ronald Tadross - Banc of America

So, it's like 50-50 range.

George Pipas

Actually, on the Freestar it's about two-thirds retail, what little there is, there is only about what, 1000 units?

Ronald Tadross - Banc of America

Okay.

George Pipas

So, it's about two-thirds retail, whereas last year, it was about 80% fleet.

Ronald Tadross - Banc of America

And then, what about Ranger?

George Pipas

Ranger is more tilted towards retail. There was less than a 1,000 fleet units in this year's Ranger number.

Ronald Tadross - Banc of America

Okay. Thanks a lot.

George Pipas

It's a pretty small fleet product. Okay. Next question, Cindy?

Operator

Your next question is from the line of John Murphy of Merrill Lynch. Please proceed.

John Murphy - Merrill Lynch

Good afternoon, George.

George Pipas

Hi, John.

John Murphy - Merrill Lynch

Two questions for you, first on CUV front, I mean clearly that's a segment that's expanding and the Edge is a great new product there. I was just wondering if you think your current product lineup is sufficient to compete in that segment or if you need, if you are going to be adding more products there? I think you need to add more products. And second, on your inventory levels you are running pretty lean here. I was just wondering, if that is a result of your pushback as interest rates are rising and the cost of carrying inventory is getting a little heavy for these dealers. I mean are we seeing a frame shift in running with lower inventory at Ford?

George Pipas

Well, let me answer the first question first. We will add more CUVs. And, in fact, we showed a new Ford model and I don’t know if -- well, I guess did the Lincoln model at -- well, I guess we did. I forgot what we had showed. But the answer to your question is, we will be adding cars and more CUVs, as each year passes to the Ford Mercury and Lincoln lineups now.

Now, with regard to inventory, we announced back on August 18, our production cut and most of it was in the fourth quarter. Our feeling about that, when it became clear to that the economy was slowing and particularly in housing because a lot of our cut was directed towards the F-series product, we are very tuned in to our dealers, the present level of profitability. Having strong retailers is vital to our success and much of what we're doing is not only in Ford's best interest but it's in our dealers' best interest. I don’t know we were getting push backs, but we just -- way back when we decided it's time to act. We do not want to carry that much -- our retailers to carry that much inventory. And I think, yes, we will be operating with lower levels of inventory on a go forward basis.

John Murphy - Merrill Lynch

So, it's fair to characterize the production cut we 're seeing is more focused on sort of a one-step downward move in inventory, now you can see you are going to remain there, then as we move forward with that pressure?

George Pipas

That's what we are aiming for. We are not trying to -- we don't want to have Chinese water torture here where it take us three years to get our inventories inline with demand and not just on an overall basis, John, but on a product-by-product basis and so are as painful as it was. And having just looked at our income statement in the fourth quarter, I am sure would agree about the pain. As painful it was, our strategy this summer was to say let's try to get this behind us as quickly as we can, so we can move forward.

John Murphy - Merrill Lynch

No pain, no gain. Thanks a lot George.

Okay, next question, Cindy, I need to move over to the journalists, okay?

Operator

Certainly, sir.

George Pipas

Thank you.

Operator

Your next question will come from the line of Tom Krisher from the Associated Press. Please proceed.

Tom Krisher - Associated Press

Hi, George.

George Pipas

Hi, Tom.

Tom Krisher - Associated Press

Okay. I was just wondering the F-series, do you think that it was hurt by the overall market, or did the T900 have much of an impact on it?

George Pipas

The who?

Tom Krisher - Associated Press

The T900.

George Pipas

The GM product. I am sorry. I'm not up with all the code names in industry, I guess.

Tom Krisher - Associated Press

It probably was a wrong code name.

George Pipas

I don't even know our code, let alone the competitive code. Well, what we're seeing here is something we have seen since April. So, I think, I've commented before in the past, Tom, that we can state numerous examples throughout history where competitive products, particularly in full-size pickup segment has very little impact on the sales of the other manufacturers. When we introduce the new F-series, the F-150 in late 2003, we got a 1,000 unit increase in sales the following year. Silverado sales were flat, they didn’t go down. So, I don’t think that’s what you're seeing January. You are not seeing the impact of a competitive product on the Ford product. You are seeing -- more and more importantly, you are seeing the impact of the residential construction issue.

Tom Krisher - Associated Press

Okay. And the F-Series is it, I would assume almost all retail, can you tell me the fleet --

George Pipas

Well, it's about 20% fleet in a typical month, and let me just see. Yeah, that’s about the way it lined up in this month.

Tom Krisher - Associated Press

Okay, thank you.

George Pipas

Okay, next question.

Operator

And your next question will come from line of Bryce Hoffman from The Detroit News.

George Pipas

Hi, Bryce.

George Pipas

I am sorry, Cindy, for interrupting.

Operator

That's okay.

Bryce Hoffman - The Detroit News

Hey, George.

George Pipas

Yeah.

Bryce Hoffman - The Detroit News

Just a clarification first, you said last year 60% of the January mix was fleet sales to daily -- I am sorry, of the fleet sales was to daily rental, what was the percentage for this January?

George Pipas

36.

Bryce Hoffman - The Detroit News

36%, okay.

George Pipas

That’s right. So, 64% was commercial and government.

Bryce Hoffman - The Detroit News

Great. George looking at the numbers that have come out, it looks like you guys have fallen below the Chrysler Group in the term of your domestic brands for the month. Do you have any comment on that?

George Pipas

No. No, except -- you not really asking hat the fleet mix was, but apart from that, the -- we are focused on getting this business back to profitability full stop, that is it. And where we are in sales races and sales rankings or where people forecast that we are going to be is a distraction that we are not going to be bothered with. We've got a job to do in North America and that is all we are focused on.

Bryce Hoffman - The Detroit News

Great. Thanks.

George Pipas

Okay. Next question, Cindy?

Operator

Your next question will be from [Michael Strong] of Debtwire. Please proceed.

George Pipas

Yeah. Hi, Michael.

Michael Strong - Debtwire

Hi, George. How are you?

George Pipas

Good.

Michael Strong - Debtwire

Good. Hey, I was wondering with the drop in fleet sales and all that, are you seeing any kind of transaction price increase on these vehicles yet or does that take some time?

George Pipas

I am not prepared to respond to that really, Mike, to be honest with you. We've seen improvements in residual values for our new products as we've limited the business that's going to date a rental. But as I said, it's much -- improvements in residual is related to first and foremost your willingness to produce and how that compares with the demand for the product overall. And when there is an imbalance there, you are going to resort to incentives to offload your inventory and you are going to throw off excess production to the daily rental business. And it's the combination of all that that affects residual values. It's not just one thing. Next question, Cindy?

Operator

Your next question will be from Chris Woodard of USA Today. Please proceed.

George Pipas

Hi, Chris.

Chris Woodard - USA Today

Hi, George. George, impact of gas prices and how is the Hybrid Escape doing?

George Pipas

I think there was about a 1,000 sold this month. I think that the major benefit of the decline in gas prices from the December's peak has much more to do now at this point, Chris, not with mix of vehicles. I mean people are about to factor that in. I think it's a mistake for people to on a monthly basis say gas prices are up or gas prices are down, what's the impact on sport utility vehicle sales? Consumers have a view that gas prices are going to be generally higher than the last time they purchased a vehicle and that they are going to be volatile. And they are going to pick a vehicle which best suits their needs. They are not going to change from one day to the next or one month to the next based upon what's going on in the gasoline market. However, I -- Emily, you might want to comment on this -- it's welcome release to see less money going out of your pocketbook. And from that standpoint, consumers have, what, more money to save and more money to spend on other things than swiping the credit card into one of those metal pumps.

Emily Kolinsky

Yeah, absolutely. And I think you can make a case for that. It's a very high level data when you look at the fourth quarter GDP reports that (inaudible) in consumer spending. It was all in nondurable and that's very consistent with the story that consumer still like to have a little bit of extra money in their pocket and they don't have to spend it on gasoline.

George Pipas

Yeah. It's not so much of vehicle segment shift anymore. Okay. It's more -- it's welcome because this could help the economy accelerate sooner than what it might otherwise had if we were still at $3 a gallon. Next question, Cindy?

Operator

Thank you, sir. Your next question will come from the line of [Robert Schaumburg] of The Carrier Journal. Please proceed.

George Pipas

Hi, Robert.

Operator

Robert, your line is open.

Robert Schaumburg - The Carrier Journal

Hi, sorry. Hi, George. I had you on mute. Going back to Explorer, you were talking about a lot today. My numbers just looks like to the sales, it's about 130,000 to 140, 000 this year. How sustainable is that on two-point operation -- two-shift operation?

George Pipas

I am not going comment on any future production action, Robert. I will say this that, last year retail sales for the Explorer were off about 25% compared with '05. And this is just one month, but the magnitude of the decline you see this month has more to do with the -- this was another one of the many products where we sliced -- cut production to the daily rental channel. Retail business was off 13% for the Explorer. Now, with regard to what January sales, I am trying to extrapolate that to a full year basis, I don't want to go there, because January is the most difficult month of the year to predict what sales are going to be and it's the most difficult month to extrapolate from, because it's the lowest sales month of the year. So, that other area I don't want to touch. Okay. Next question, Cindy?

Operator

Thank you, sir. Your next question will come from the line of Terry Kosdrosky of the Dow Jones Newswire. Please proceed.

George Pipas

Hi, Terry.

Terry Kosdrosky - Dow Jones Newswire

Hi George, how you are doing?

George Pipas

Good.

Terry Kosdrosky - Dow Jones Newswire

I know you just said January is a hard month to predict because it's sort of the lowest month in the year, but the 5% retail sales decline, was that -- were you expecting something more flattish with the 5% sort of more of a drop than you thought?

George Pipas

No.

Terry Kosdrosky - Dow Jones Newswire

No?

George Pipas

No. Our expectation going into the month that we felt like retail sales could standup pretty well to year ago level. That was our plan and that’s pretty much what happened. So, now we're -- all things considered, I think we're pretty pleased with the retail result this month.

Terry Kosdrosky - Dow Jones Newswire

Okay. Thanks.

George Pipas

Okay. Next question, Cindy?

Operator

And we will switch back to the analyst, your next will be from the line Himanshu Patel from JP Morgan, please proceed.

Ranjeet Unnithan - JP Morgan

Hey George, this is actually Ranjit Unnithan for Himanshu. I was wondering, can you talk about the Ford 500 in terms of total decline you have seen last few months? What are sort of the plans, are you planning to increase incentives on that or increase the fleet mix of that going forward?

George Pipas

No, the answer to the last question is a big fat no. The plans for the 500 are that in the second quarter, we start production of a redesigned model, for that, the Montego and the Ford Freestyle. We will -- products as we just to -- there is a new exterior design, particularly focused on the front-end. Other improvements in terms of features and the availability of Ford 3.5 liter engine to boost horsepower by about 60, I think, it is. Don’t trust me with products expert, I think, it's about 60 horsepower. So, that is our plans for the Chicago products. And, we will be relaunching the product when the new model comes out. But between now and then, no serious plans. We'll be very cautious on production. So, we don’t have to put incentives through the roof and no plans to offload the older generation 2007 model in the daily rental channel.

Ranjeet Unnithan - JP Morgan

Okay. And just one more question, I don’t if you said this already, but can you comment on what F-series retail sales did for the month?

George Pipas

Not as -- they were not up as much as the total.

Ranjeet Unnithan - JP Morgan

Okay.

George Pipas

That's the way I believe it. Okay?

Ranjeet Unnithan - JP Morgan

Okay, thank you.

George Pipas

I think that's it. It's [quarter show]. And thank you Cindy for moderating. Thanks everybody else for participating, look forward to talking to you between now and the next sales call on March 1st. Thank you.

Operator

Ladies and gentlemen thank you for your participation in today's conference. This does conclude today's presentation and you may now disconnect your lines. Everybody have a wonderful day.

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