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Ford Motor Company

February 2008 Sales Call

March 3, 2008 1:00 pm ET

Executives

George Pipas – U.S. Sales Analyst

Emily Kolinski Morris – Senior Economist

Jim Farley - Fords Group Vice President, Marketing and Communications

Analysts

Brian Johnson - Lehman Brothers

Chris Ceraso - Credit Suisse, New York

Peter Nesvold - Bear Stearns

Jeff Bennett - Dow Jones Newswires. Detroit

Amy Wilson - Automotive News

Patrick Archambault - Goldman Sachs

Nick Bunkley - The New York Times

Rick Popely - The Chicago Tribune

Jerry Downes - Louisville Courier Journal

James Henry - Business Week

Sarah Webster – Detroit Free Press

Operator

Thank you ladies and gentlemen and welcome to the Ford monthly sales call. My name is Melanie and I will be your coordinator today. (Operator Instructions) I would like to turn the call over to Mr. George Pipas, Ford Sales Analyst. Please proceed, sir.

George Pipas

Thank you Melanie and welcome everybody to Ford’s February sales conference call. First of all, I just want to mention that joining me today is Ford’s US economist Emily Kolinski Morris and she will be speaking during the call and be available to answer questions, also joining us from Geneva is Jim Farley, Ford’s Group Vice President, Marketing and Communications. Jim has agreed to participate in this month’s call even though we have some important business there to attend to which is the launch of the European version of Ford’s new small car, the new B car which is as you know the Ford Fiesta. Thanks for joining us Jim.

Jim Farley

Thanks George, it is dark you are right.

George Pipas

Okay, well, let me just begin with the summary to what we see from the industry so far, what we -- how we think it is going to turn out and provide a little detail about the Ford numbers in our productions and inventories. It would appear that the industry is going to be in the mid-15 million range and that includes medium and heavy trucks.

So the light vehicle industry in February will probably be at the low end, let say maybe in 15.1, 15.2, 15.3 very consistent in terms of total sales and the sales rate that we saw in January and generally in line with Ford’s expectations for the year, that is to say a light vehicle sales rate in the first half of the year that is kind of in the 15.2 to 15.7 range.

Industry sales by segment also appear to be consistent with what we saw in January and what we expected which is small and mid-size cars gaining share of the total industry high also crossover is growing. If I said just like they did in January and similarly lower sales for SUVs and trucks and large cars.

Now with that in mind our overall results are -- here is our sale of the total 185, 294 down to 7% compared with a year ago. That is a result that I think stacks up very favorably or at least favorably compared with the overall industry result, but I think that the industry maybe down more than Ford this month and the good news at Ford is in the areas of cars and crossovers. Our car results showed that retail sales were up 4% and crossover sales also were up 10%.

Now the car number that I just gave you, up 4% does not square off with the number that you see in the sales result because the sales result in the cables shows our fleet sales included and we have a big reduction in fleet sales on the car side more so than on the truck side and so the total car result is down 10% but retail sales were up 4% driven by the Focus and the mid-size sedans, Fusion, Milan and the Lincoln MKZ.

Crossovers as I have mentioned were up 10% with another increase for the Edge and in MKX, our Lincoln on the strength of the Z and the X was up 2% of retail and I want to point that out because there again despite the 2% increase in retail, in a pretty tough environment we saw total sales decline 11percent as a result of lower fleet sales principally in the Town Car product. As in past months, we saw lower sales for trucks and SUVs, the F series was down, not so much but still 5% compared with a year ago and the Ranger was up again as it was in January up to 27%. In the SUV category sales were generally lower; I am talking about products Expedition and Explorer not nearer and the Lincoln navigator.

Overall as I said that the sales result was down 7%, retail sales were down 6%, not withstanding the increase in passenger cars and in crossovers. Fleet sales were down 8% overall a little bit more than the retail comparison, and within the fleet area just to peel back the onion a little bit. The daily rental business was down to 20% and the commercial and government categories principally in the F series product line, the commercial and government business which is business that we, well we covet all business but that is particularly a good news to see that flowing through in F series because that is who we make that truck for and so that has been true in the last couple of months.

Now with regard to production you can see that we have announced our second-quarter schedule, this is our initial forecast of 2Q production for 2008 and our total projected production in our North American Facilities is 730,000 units just for your info that is 225 cars, 505 trucks that compares with last year’s level of 811,000 units. Now that is a 10% reduction from the levels that we produced last year and within the categories it is a 4% reduction on car compared with the last year’s second-quarter, a 12% reduction in the planned truck production. and before I leave production I just want to say that our first-quarter level of 685 which includes 195 car and 490 truck is unchanged.

So Q1 is unchanged in the levels that -- if I am not mistaken but we started with on December 1st, it is then I guess I do want to point out that our production plan from the beginning in fact for level 18 to 24 months has really been based on the cautious feel of the economy and the cautious view about how auto sales would unfold in the US and accurate assumptions with regard to which segments might see stronger demand and which might see weaker. Consequently our production has been very stable with very few changes and quite predictable.

On the stock level just to conclude my remarks, we ended up at the end at the month of February with 596,000 units in inventory, 184 cars, and 412 trucks. The 596 is 20,000 higher than at the end of January and it is -- let us see 8,000 units lower than where our inventory stood at the end of February 2007.

Now Emily, I am going to hand the baton to you for your economic comment.

Emily Kolinski Morris

Okay. Thank you very much George, while we have certainly seen a wave of negative economic figures in the early month of this year, in just the past few days as I am sure you are aware we have seen the manufacturing PMI fall back below 50, we had construction statistics, but again I will stress the weakness in the housing sector and we had deteriorating readings on consumer confidence and spending.

So while we are trying to keep this developments in perspective, let us just recognize up front, but what we are seeing today is undeniably the downside of the business cycle whether or not current conditions are ultimately designated a recession.

Our outlooks for real GDP this year is in the range around 1.5% reflecting this condition. As we have we suggested in previous calls, we are taking a cautious approach to planning the business in this environment that includes our view of the potential opportunity associated with recent economic policy stimulus, but there is a lot of stimulus being put forward including the six goal in monetary policy easing as well as microeconomic policies targeting the housing and credit market.

While none of these policies in isolation represents the silver bullet, the combined effect provides a better traction for the economy once the condition bottom out. It would be premature certainly to conclude that either the economy or the industry have reached bottom yet, but we are doing our best to maintain a steady hand on a wheel as we navigate through this current down cycle. With the best truck of neutral [ph] economic weakness that is certainly should not be surprising that the monthly vehicle sales pace has been slowing.

Let us also keep an eye on underlying trends such as the 6 months moving average of vehicle sales with that -- now that George mentioned the February sales in the mid-15 million unit range at the second bottom under the range that we have indicated for the first half that would put a 6 months moving average at about 16.1 million units which is still slightly above actually our forecast of 16 million units.

On balance taking into account all of these economic factors and other such as depth factors, incentive activity and new model introduction we still see a range around 16 million unit as a reasonable base forecast for this year.

George Pipas

Okay, Emily, thank you very much and Jim, it is your turn.

Jim Farley

Thank you George. I think all of us for the last several months have been talking about the first half of 2008 what would it be like and I think all are predictions that come true, it has been specially challenging first couple of months of the year and we, our team continues to look for every opportunity, every region, for every product and really executing our plan. I have to say before going into the numbers -- how proud I am of our team and especially our dealers.

For the first two months 2008, we have actually achieved our plan and objectives internally and in fact in February it appears that we achieved our best retail market share since June of last year. That is a big accomplishment for the team and again I am very proud of them. On the incentive side, we have escalated some incentives in some vehicles in some regions specially seldom products like the F series now were getting in the sell down area and F series is such a big part of our next -- has a big impact on our overall incentive store for the whole Ford brand but overall our spending was still lower than last year and I think there is only one other manufacturer who can say that.

So let us talk a little bit about our plan and first so far currently today our share is already ahead of last year. It is actually on the high range and that includes as George mentioned a big adjustments on our rental fleet reductions of almost 16% at the first two months but as calendar year today shares are actually ahead of last year so far.

And that is largely attributed to passenger cars and crossovers, our passenger cars are up 4% and fleet passenger cars is down to 20% and then we have also a 10% growth in our crossovers. Our car was led by the new Focus and I will touch on that in a second. We held our own in Fusion, Milan and NC and of course the retail sales increases for our crossovers continue to be filled by Edge and X and the Escape is going along just fine actually it was up in retail.

We think that crossovers continue to be a big opportunity for Ford because we have so much natural traffic for this segment with SUV customers looking for different solutions and I do want to have some -- be hesitant temper expectations year to year comparison as we go forward because March of last year we really started to hit our stride with Escape and with X, but a big opportunity for us is Flex coming later this spring and the summer.

I would like to focus a little bit on Focus and a really important vehicle for us. It shows the underlying strength of the small car and a retail growth for Focus is outpacing the industry. We are gaining share, our Focus retail sales as you may remember we are up 80% on November and that 10% in December but then 33% increase in January and then again this month, 36% increase.

I think on the last call someone asked me what kind of product lines you would want more of. And I would say absolutely it is the small cars and that the Focus has proven that the small cars are where the share opportunities are for Ford Motor Company. And fortunately, Focus has really done well, it is affordable, it is a new and it is packed with a lot of features like SYNC that are really helping us gain share, and I think this is really become this year the most important segment in the industry.

It is the largest segment almost 3 Million units. It is also growing and it is also frankly to sustain the company, it is the segment where almost half of the young buyers go for their first product, and I think it had a significant role in our marketing of Focus and has really lifted the whole Focus appeal. Do you think product is capable? Is it affordable? Because of those two factors although this is a sales report out I think we are really proud of the fact that almost a third of the Focus buyers between 16 and 35 years old, much higher than the outgoing model.

As George said, SUVs and trucks were a big challenge in February, we were down 22% on SUVs, a lot of SUV customers still out there and with our decentralized approach we are looking at every opportunity we can in the traditional SUV market. Just like we did on the Ranger, we actually look to the Expedition and Navigators as opportunistic in certain regions. It is early we have learned a lot and the initial results on February are really good with the Expedition. We gained some share in markets where we tested like the Southwest and Memphis.

On trucks, that little old Ranger that could, still doing well. It beat our goal again and I am really happy with the Ranger program. It is only in certain regions and we are not sure how long we will do it but it is a great opportunity for us but it is not an unlimited as the segment size is limited. The last thing I want to talk about is of course the F Series, George mentioned that F Series is down about 5% and we are really sorting through the sell down of that series as we get into this very important time for us as we look at the launch of the brand of new F Series and in a couple of quarters and selling down the current vehicles.

This is really interesting time for us because in 2003, when we launched the current F Series we had four manufacturing plans. One plant that was continuing to build the previous generation, and now we basically we are going to just you know one plant; two plants excuse me, and balancing out the production of the old model and some of the new one. And we really are watching inventory levels carefully to make sure that we have enough trucks during the production ramp up of the new truck.

So this is a very important period for us in the next couple of months and we will continue to highlight this in our conference calls going forward.

The only other thing that I would like to touch on is really the quality, this is a really important goal for us at Ford and as you know the Consumer Reports published this Automaker report card this month and I am really, we are really pleased to see the results, the quality team and manufacturing product development were working so hard on this. The percentage of recommended Fords jumped from 54% to 64% and actually the percentage of Ford models that had average of better reliability went from 63% last year to 93% and that is a really big deal for us. We are going to find a way to tell the story to the customers in the coming months. That is it for me George.

George Pipas

Okay Jim. Melanie, if you would begin to facilitate the Q-and-A section of the call.

Operator

Yes.

George Pipas

That will be appreciated.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Chris Ceraso - Credit Suisse go ahead.

Chris Ceraso - Credit Suisse

Thanks. Good afternoon, by the way I am Chris. I have a question for George and for Emily. George was there any change in the sales pace during the month? Did things pick up at the end or do they follow up at the end or was it pretty calm all along?

George Pipas

Most months, there is not that much to really talk about Chris, while we did have a solid close to the month I think the most distinguishing feature about this pace of sales during the month, was that we noticed that they became weaker almost right in the middle of the month and the first readings of consumer confidence and there was a lot of talk about recession, the “R” word. In our view or our observation I think was is that in the -- except for right up at the close there was this kind of two-week period with close to the month that was pretty stale and off the pace would have been set up in the first two weeks of the month. This was true for Ford and it was true for the industry as well --

Chris Ceraso - Credit Suisse

Okay and then Emily, I know the company line on sales for the year is a better second half, can you tell me if implicit in that view is some sort of a recovery or improvement in the housing market?

George Pipas

Emily?

Emily Kolinski Morris

Yes. No, it is really not a highly dependent on housing market trading around and I think, we have been thinking that for sometime and outside we maybe catching up with what is going to take until 2009 before we really see a material improvement in the housing market conditions. Now, there is a lot of different levels to that and I think we are moving into the phase now where the specifics are starting to work so well and a lot will be definitely going to take place on current going forward but that will take some time as you know prices and how can it be a pretty sticky on the downside.

George Pipas

So the improvement then is the function of what monetary fiscal stimulus?

Emily Kolinski Morris

Right. You have 1percent of GDP coming on line in the form of the fiscal stimulus radar in the middle of the year so that is a very significant impact on top line GDP and absolutely there is a lot of monetary policy stimulus in the pipeline, combined with the efforts team by that said -- to ease up the credit market in terms, options and other policy to think that can in fact is going to start to get some traction I can handle.

Jim Farley

Alright, Chris -- this is Jim Farley. The second after a year we are just talking about Ford beyond the economic back drop. It is our growth is really driven by new products that we have never sold before like MKS and the Flex and of course our brand new X Series so that is probably the main driver of our prediction for a stronger second half, these brand new products that we have never sold before.

Chris Ceraso - Credit Suisse

Okay. Great! Thank you all.

George Pipas

Okay. Thank you and next question Melanie?

Operator

Our next question comes from the line of Brian Johnson, with Lehman Brothers, go ahead.

Brian Johnson - Lehman Brothers

Good afternoon. I have a question for Jim. When you look at incentives but also look at MSRP action on behalf of your competitors where do you see pricing going first half net now?

Jim Farley

Well, I think February, I certainly spoke -- the industry as a whole I think will be on the more pricing pressures specially in certain segments and full-sized truck and tradition SUVs seem to be two obvious ones that are under quite a bit of pressure for others that be -- a million dollar question is going to be for our new truck, what is -- what is going to be the customer demand for that MSRP and otherwise, but for as a whole your questions seems to be as a whole I think we would see in the first half continued pressure on those two segments on the incentive side.

Brian Johnson - Lehman Brothers

And were does commodity cost pressure come into your pricing decisions? Are you able to pass on commodity prices today?

Jim Farley

No, not entirely. The company mark fields in the whole North America team is very focused on getting the right structure for the company so that the material cost increases that we are seeing, we can absorb some of those but there is definitely an element that we have to pass on to the customers because the increasers are substantial but it just puts more pressure on us to be more efficient which where we taken those steps already.

Brian Johnson - Lehman Brothers

And since you are over in Geneva, do you see any difference in Europe in terms of the ability to pass on commodity costs?

Jim Farley

No.

George Pipas

Okay, Melanie, next question please.

Operator

Our next question comes from the line of Peter Nesvold with Bear Stearns, go ahead.

George Pipas

Hi, Peter.

Peter Nesvold – Bear Stearns

Quick question on the Chicago decision, I guess it is not a big surprise to see the Chicago with action given the performance of the existing Chicago products but as you look at it a little bit you got a link in the NPS [ph] coming out which is a physically appealing product. So, I guess I was a little bit surprised to see the shift reduction ahead of that. Is the reduction in capacity related primarily to Taurus, Sable and Taurus X or -- this kind of speak maybe with the market opportunity on the MKS.

George Pipas

Jim, you want to talk about that?

Jim Farley

Sure. The MKS is independent. This reduction indicates the current vehicles assembled at the plant so the MKS is well beyond that.

Peter Nesvold – Bear Stearns

Have you stated the volume target for that product shift?

Jim Farley

No and I wish I could but we are very optimistic. Lincoln is a brand that has not had this type of product in a long time. We have over a thousand orders already from customers. We had the pricing out and the orders open for quite a bit of time now and the Lincoln dealers have gotten a lot of interest as auto shows have made their way around the country and we are very optimistic about this product just because it is a new add to the Lincoln franchise.

George Pipas

Okay, next question, Melanie.

Operator

Our next question comes from the line of Patrick Archambault with Goldman Sachs, go ahead.

Patrick Archambault - Goldman Sachs

Hi, good morning or good afternoon I should say. Can you, guys, just update us on the activity in terms of pricing for you guys and the industry just for what we had this month?

George Pipas

I think, Patrick, what we want to do is, aside from the color that we provided on the level of incentive spending is that the whole pricing discussion and net pricing which is usually pretty thoroughly addressed in conjunction with our year-over-year pricing moves and our profit reconciliation, we will keep that discussion for the first quarter, okay? I am reluctant to give any guidance based on monthly statistics because it will not be too very long that we will be having our first quarter call and I mean, having said that when you look at the industry incentive spending along the lines of Jim’s comments, industry spending, he mentioned that we were still somewhat lower than a year ago at the end of February. Industry incentive spending including increases at the Asian manufacturers were higher, how this is going to shake out in transaction pricing and net pricing as we approach first quarter. I am going to put that on ice right now. Next question, Melanie.

Operator

Our next question comes from the line of Amy Wilson with Automotive News, go ahead.

Amy Wilson – Automotive News

Hi everyone. I wanted to ask about the Lincoln sales and then you talked about wanting to increase sales for Lincoln again this year and so far, we have seen the decline. It looks like that is mostly tied to the year over year differences of Town Car. Can you just kind of sketch out for me how you envision the sales throughout the balance of 2008 as it is kind of down in the first half, up in the second half, as you get the MKS online.

George Pipas

I am going to answer first and then I am going to ask Jim to make some comments on that. Amy, you are right. When you look at the total sales for the Lincoln brand, it was at 17% in January and 11percent in February but on the retail level, sales were off just 1percent in January and up too, so basically, we are looking at a flat comparison which stands up really raw against luxury brand sales as we have started 2008, at least the ones we saw in January and at the end of last year.

So, one of the things that you might be interested in and I will just to give you a little color is -- at the end of last year, we talked about perhaps this was the year that Lincoln retail edged over Mercury retail in the Lincoln Mercury franchise and I would just tell you that in the first two months that has been the case. The margin is pretty narrow but that has been the case.

Now, Jim, with regard to the outlook I am sure you want to add something on the S perhaps over your previous comment.

Jim Farley

Yes, George, thank you. Amy, we obviously expect us to really lift Lincoln as a whole considerably in the second half of the year starting in the summer and we still see a continued trend on the Lincoln between now and then where MKZ and our CUVs, Mariner, MKX, they are going to be up considerably. Z was up 56% last month and Mariner was up 13%, X was up 22% and it really was the Mountaineer Navigator, Grand Marquis, Sable and then the fleet Town Car that accounted for the decline. A lot of that was fleet as you can speculate.

So, we see continued strength in the MKZ and our CUVs and some down total in fleet, net about the same retail until we get to the summer months and then we will see Lincoln as a brand start to grow even with reductions in fleet, thanks to MKS edition.

So, when we end the year, Lincoln will be much higher than it was a year before, thanks to S all in the second half.

Amy Wilson – Automotive News

What kind of percentage growth do you expect down over the entire year?

Jim Farley

I love to give you that because you get back into what the sales plan would be for I ask but I just cannot do it because we are still working out the details of our production plan but we are very optimistic about the vehicle. We think the share performance will be very similar to what we see in another vehicle like MKX at the end of the segment.

Amy Wilson – Automotive News

Okay, thanks, Jim. Thanks, George.

George Pipas

Okay, next question Melanie.

Operator

Our next question comes from the line of Jeff Bennett with Dow Jones, go ahead.

Jeff Bennett – Dow Jones

Hi, George. I am just wondering, the second quarter production change, did that still reflect Ford’s belief in the 16 million, I know Emily had said that, so do you guys are still counting on industry wide sales to be 16 million?

George Pipas

Yes and now just to make sure you understand, that is a 15.7 late so most of the soft lift would be reported on the Dow Jones and other outlets for that matter would be analyst and other observer projections of light vehicle sales. So, I do not want you to -- in fact, I feel it so far as to say that our full year forecast I think is -- I am not, we have been trying to plan conservatively. Last year, in ’07, we thought to begin the year that ’07 would be lower than ’ 06, some others have more optimistic views about ’07 and we came in pretty close to what we thought.

This year, we are planning yet another reduction in industry sales and the answer to your question to begin with is that therefore that our second quarter schedule is consistent with our view of the 15.7 light vehicle industry and I think that is generally in line of the range of projections.

Jeff Bennett – Dow Jones

Okay.

George Pipas

You know, having said that, it does not mean, I mean we have got this at the end of February, we have got room to maneuver and if the economy grows at a slower rate, and we certainly got to access to that data, we are watching consumers spending every month and following the consumers’ sentiment, so as long as we keep our current level of inventories relatively vain and keep our eye on the ball. There are which shown, that is been our habit and that is been our desire and our determination, we certainly got room to maneuver if the industry is weaker because after all this is just the second quarter we are talking about.

Jeff Bennett – Dow Jones

Okay.

George Pipas

Okay, next question, Melanie.

Operator

Our next question comes from the line of James Henry with Business Week.

George Pipas

Hi, Jim.

James Henry - Business Week

I always ask the housekeeping question, can you spare me doing the math, are your percent changes just these pursuing days are just straight up --

George Pipas

Straight up. Always straight up. You never have to worry about Ford Motor Company making an adjustment to their calculated percentages, Jim.

James Henry - Business Week

Okay.

George Pipas

Okay, next question, Melanie.

Operator

Our next question comes from the line of Sarah Webster with the Detroit Free Press, go ahead.

Sarah Webster – Detroit Free Press

Hi there. My question is for Jim. Jim, you mentioned that the decentralized approach with your dealer with helping you to take advantage of some sales opportunities and I wonder if you could just elaborate on what you mean and what is going on out there.

Jim Farley

Thanks, Sarah. Well, probably the two best examples for us are Ranger and Expedition Navigator. Both segments are actually under quite a bit of pressure. The small compact truck market is contracting and the full size SUV market is contracting as a whole but it is not everywhere.

For example, certain regions like the Southwest of the US or augment so this mid-central part of the US. Those regions, the full size SUV segment continues to be very robust and the significant part of the industry there and the small truck business, Sun Belt from basically Florida all the way through Texas, Arizona and California.

The compact truck market continues to be very robust as especially in the 4x2 kind of commuter vehicle. So, we look at each of those regions and those particular vehicles, we looked at the whole country, we notice some opportunities and as a result, we had some exclusive incentives where we decelerated other places and accelerated in those regions for those vehicles with specific ties to our dealer ad group and even the dealers own advertising tier three and working together as a team, we were able to -- in the case of the Ranger, accelerate our sales. In the case of Expedition, kind of keep it about even this month.

We are not going to do that every month. We will continue to be opportunistic but I think this kind of year, 2008, with our lineup really requires us to do that kind of granular approach to marketing especially the integration of the dealer ad groups and the dealers own advertising, not just our offer.

Sarah Webster – Detroit Free Press

But, Jim, let us say the change and how Ford was doing things when you got here.

Jim Farley

Well, traditionally Ford had given some of the regions some menu picks like if you want to do something on the Explorer instead of a lease, you can do an APR. The flexibility of, let us say a 5percent flexibility in total span and now the flexibility is more like a 30percent or 40percent but really the biggest, all the hard work is really not only giving the right offer and the right market even down in the metro level for the right vehicle but it is also integrating that message to the dealer ad groups and tier free and that was not just done before as much. It requires a lot more planning so you have to announce your programs much further and advanced a couple of weeks because the TV commercials need to be cut and newspaper ads need to be cut early.

So, it requires you to kind of pull the planning up. We are now doing a 20-day meeting which is in the third week of the month to plan all this and it is the different approach. Actually, it is something that Ford used to do really well years ago.

Sarah Webster – Detroit Free Press

Thank you.

George Pipas

Okay, thank you, Sarah and Melanie, next question please.

Operator

Our next question comes from the line of Jerry Downes with the Louisville Courier Journal, go ahead.

Jerry Downes - Louisville Courier Journal

Hi. I have a question for George. George, for a while I have been wondering when the other shoe would drop looking at the Explorer production in Louisville made a 162,000 last year but I looked at the monthly sales figure and just wonder at how you have been on to that and today we found out with up to 800 people have been trimmed away by mid summer and Emily [ph 3730] said to pop this one to you so I will. Will the line be suited up when they go to one shift? Because they did a slow down after the buy outs so they could keep two shifts last summer.

George Pipas

Actually, I am not really knowledgeable, sufficiently knowledgeable on that specific operating pattern. I think here is what we faced is the traditional SUV segment, a lot of the concern has been right in middle part of it like the Explorer and Mountaineer and other popular name place to operate and we were confirming down weeks with our two shift operating pattern. I think really we have the potential to produce as much if needed with just one shift because when you are down one week or two weeks out of the four month operating in the operating month, that instability and we can still we can operate much more efficiently and have our employees that work every week under our one shift operating pattern, Jerry.

It is a better way to run on assembly plant than going down one or two weeks a month.

Jerry Downes - Louisville Courier Journal

Thank you and in December, Bill Russo said that truck production will be down 8% for the year and car production will be down 6% for the year. Things are all in shift and as Emily said, are those forecasts still valid overall?

George Pipas

I have to circle back with you and reconcile that, okay?

Jerry Downes - Louisville Courier Journal

Okay.

George Pipas

Okay, now Melanie, one thing I want to ask you is, are there any more analysts in the queue?

Operator

No, sir.

George Pipas

Okay, I just wanted to make sure that as we move over to the journalist side beginning with Amy that I did not leave anybody behind on the analysts. Okay, next question anyway.

Operator

Our next question comes from the line of Nick Bunkley, with The New York Times, go ahead.

George Pipas

Hi, Nick.

Nick Bunkley – New York Times

Hi, how are you?

George Pipas

Good.

Nick Bunkley – New York Times

I wanted to ask about gas prices just as you are saying any changes and I know it is the question you have been asked for quite sometime now but as they keep staying where they are or even going up and if you start to see anymore changes in buying behavior and also as we look later end in the year, what is going to happen if and when the F series comes out when the gas is four dollars a gallon at that time.

George Pipas

Okay, Jim would you mind comment on Nick’s question?

Jim Farley

Certainly, we have seen a growing C-car segments and the thing we are very thankful for is that the new Focus has been so well received especially by the young customers, we are up over 30% the last two months and from any of the standpoint, we do not see any significant shifts from four cylinders to six cylinders, any different than we have had the last six months.

On the F series launch, actually our fuel economy gets better with the new F-series so we are really anxious to get the truck out because that will actually have a more appealing marketing message for the customer and that is across the range. That is not on one specific little model that we use for advertising. That increase in MPG is actually across the board so that is a good thing for us.

George Pipas

Yes, I think Jim with regard to the full size truck market, the higher gasoline prices have resulted in some people dropping out of the market. People that obviously did not need the capability of the product but the need and the desire to drive a full size truck for those people is pretty high and I think whether or not, with regard to the environment next fall, the biggest issue in the full size truck market for the last two years has been the drop in housing.

This segment is highly correlated to new housing starts, the residential construction and I am looking at Emily in the eyes right now to either confirm or deny what I am about to say but I think the new housing starts are roughly half right now where they were just two years ago and so from 2005, when we have a 2.5 million industry wide sales of the full size truck, they were now down to 2.2. We lost about 300,000 full size trucks out of the category in two years time and that, throughout this period, we have had high gas prices so what is the issue? Well, the primary issue is the residential construction market. Next question, Melanie?

Operator

Our next question comes from the line of Rick Popely, with The Chicago Tribune, go ahead.

George Pipas

Hi, Rick.

Rick Popely – Chicago Tribune

Hi. How are you?

George Pipas

Good.

Rick Popely – Chicago Tribune

Whoever wants to say the most on this can answer but just on the Chicago products, the large cars? Are gas prices hurting those vehicles? or what is hurting those vehicles because even after the restyling and the new engine they are not doing too well.

George Pipas

It goes way beyond the product itself. The products by those who want to buy a large car and specifically those large cars, Rick, the products have very, very high customer satisfaction among our owners. The issue is that in the last two years, the large car segment, the full size sedan segment has dropped. In fact, last year, retail sales in that category were down 20%. So the action that we took at Chicago and the result that you see in the sales report are, it is not just a Ford thing, it is an industry thing that we have seen over the last two years.

And there has been a lot of activity. All the action in the passenger car market has been in the small car category and the midsize category. Those two categories in the group are growing. Jim, any other further comment on that?

Jim Farley

Just a couple from the customer standpoint, first I think the vehicles as a whole, there are awareness issues but probably the more fundamental is again from the customer standpoint in the mid size cars interior packages getting very close to the large car. I think the Accord now is classified as a full large car. So there is a lot of dynamics but I would say the biggest one is just the overall number of customers each in this vehicle category and the vehicle segment is highly driven by new entries, all new products so that is probably the biggest driver.

Rick Popely – Chicago Tribune

What does that say though about the future? Why is there supposedly a 2009 redesign coming? How is that going to help?

Jim Farley

I think the basic underlying demand for the segment comes down to new product and we saw that with the Chrysler 300. Customers are willing to buy larger cars because it is a new product with the right design and product execution and I think we are very committed to that segment, to have credible entries and we will continue to make our product more and more appealing and I think that the key to the segment is your product offer and especially new entries.

George Pipas

Okay, Melanie, I am going to have to wrap up the call at this point. I think I am beyond 15 to the hour. Jim, I want to thank you for taking the time to participate from Geneva. Thank you so much Emily and everybody for listening here and participating in this month’s call. We look forward to talking to you in the near future.

Operator

Ladies and gentlemen, thank you for your participation in this conference. That concludes the presentation.

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Source: Ford Motor Company February 2008 Sales Call Transcript
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