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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 andCommunications

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 ChicagoTribune

Jerry Downes - LouisvilleCourier Journal

James Henry - Business Week

Sarah Webster – DetroitFree Press

Operator

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

George Pipas

Thank you Melanie and welcome everybody to Ford’s Februarysales conference call. First of all, I just want to mention that joining metoday is Ford’s USeconomist Emily Kolinski Morris and she will be speaking during the call and beavailable to answer questions, also joining us from Genevais Jim Farley, Ford’s Group Vice President, Marketing and Communications. Jim hasagreed to participate in this month’s call even though we have some importantbusiness there to attend to which is the launch of the European version of Ford’snew small car, the new B car which is as you know the Ford Fiesta. Thanks forjoining 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 wesee from the industry so far, what we -- how we think it is going to turn outand provide a little detail about the Ford numbers in our productions andinventories. It would appear that the industry is going to be in the mid-15million range and that includes medium and heavy trucks.

So the light vehicle industry in February will probably beat the low end, let say maybe in 15.1, 15.2, 15.3 very consistent in terms oftotal sales and the sales rate that we saw in January and generally in line withFord’s expectations for the year, that is to say a light vehicle sales rate inthe 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 withwhat we saw in January and what we expected which is small and mid-size carsgaining share of the total industry high also crossover is growing. If I saidjust like they did in January and similarly lower sales for SUVs and trucks andlarge cars.

Now with that in mind our overall results are -- here is oursale of the total 185, 294 down to 7% compared with a year ago. That is aresult that I think stacks up very favorably or at least favorably comparedwith the overall industry result, but I think that the industry maybe down morethan 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 alsowere up 10%.

Now the car number that I just gave you, up 4% does notsquare off with the number that you see in the sales result because the salesresult in the cables shows our fleet sales included and we have a big reductionin fleet sales on the car side more so than on the truck side and so the totalcar result is down 10% but retail sales were up 4% driven by the Focus and themid-size sedans, Fusion, Milan and the Lincoln MKZ.

Crossovers as I have mentioned were up 10% with anotherincrease for the Edge and in MKX, our Lincoln on the strength of the Z and theX was up 2% of retail and I want to point that out because there again despite the2% increase in retail, in a pretty tough environment we saw total sales decline11percent 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 wasdown, not so much but still 5% compared with a year ago and the Ranger was upagain 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 Lincolnnavigator.

Overall as I said that the sales result was down 7%, retailsales 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 rentalbusiness was down to 20% and the commercial and government categoriesprincipally in the F series product line, the commercial and governmentbusiness which is business that we, well we covet all business but that isparticularly a good news to see that flowing through in F series because thatis who we make that truck for and so that has been true in the last couple ofmonths.

Now with regard to production you can see that we have announcedour second-quarter schedule, this is our initial forecast of 2Q production for2008 and our total projected production in our North American Facilities is 730,000units just for your info that is 225 cars, 505 trucks that compares with lastyear’s level of 811,000 units. Now that is a 10% reduction from the levels thatwe produced last year and within the categories it is a 4% reduction on carcompared with the last year’s second-quarter, a 12% reduction in the planned truckproduction. and before I leave production I just want to say that our first-quarterlevel of 685 which includes 195 car and 490 truck is unchanged.

So Q1 is unchangedin 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 thebeginning in fact for level 18 to 24 months has really been based on the cautiousfeel of the economy and the cautious view about how auto sales would unfold inthe US and accurate assumptions with regard to which segments might seestronger demand and which might see weaker. Consequently our production hasbeen very stable with very few changesand quite predictable.

On the stock level just to conclude my remarks, we ended upat the end at the month of February with 596,000 units in inventory, 184 cars, and412 trucks. The 596 is 20,000 higher than at the end of January and it is -- letus 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 youreconomic comment.

Emily Kolinski Morris

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

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

Our outlooks for real GDP this year is in the range around1.5% reflecting this condition. As we havewe suggested in previous calls, we are taking a cautious approach to planningthe business in this environment that includes our view of the potentialopportunity associated with recent economic policy stimulus, but there is a lotof stimulus being put forward including the six goal in monetary policy easingas well as microeconomic policies targeting the housing and credit market.

While none of these policies in isolation represents the silverbullet, the combined effect provides a better traction for the economy once thecondition bottom out. It would be premature certainly to conclude that eitherthe economy or the industry have reached bottom yet, but we are doing our best tomaintain 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 shouldnot be surprising that the monthly vehicle sales pace has been slowing.

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

On balance taking into account all of these economic factorsand other such as depth factors, incentive activity and new model introductionwe still see a range around 16 million unit as a reasonable base forecast forthis 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 severalmonths have been talking about the first half of 2008 what would it be like andI think all are predictions that come true, it has been specially challengingfirst couple of months of the year and we, our team continues to look for everyopportunity, every region, for every product and really executing our plan. Ihave to say before going into the numbers -- how proud I am of our team and especiallyour dealers.

For the first two months 2008, we have actually achieved ourplan and objectives internally and in fact in February it appears that weachieved our best retail market share since June of last year. That is a bigaccomplishment for the team and again I am very proud of them. On the incentiveside, we have escalated some incentives in some vehicles in some regionsspecially seldom products like the F series now were getting in the sell downarea and F series is such a big part of our next -- has a big impact on our overallincentive store for the whole Ford brand but overall our spending was stilllower than last year and I think there is only one other manufacturer who cansay that.

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

And that is largely attributed to passenger cars andcrossovers, 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 thenew 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 crossoverscontinue to be filled by Edge and X and the Escape is going along just fine actuallyit was up in retail.

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

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

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

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

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

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

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

So this is a very important period for us in the next coupleof months and we will continue to highlight this in our conference calls goingforward.

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

George Pipas

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

Operator

Yes.

George Pipas

That will be appreciated.

Question-and-AnswerSession

Operator

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

Chris Ceraso - CreditSuisse

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

George Pipas

Most months, there is not that much to really talk aboutChris, while we did have a solid close to the month I think the mostdistinguishing feature about this pace of sales during the month, was that wenoticed that they became weaker almost right in the middle of the month and thefirst 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 thiskind of two-week period with close to the month that was pretty stale and offthe pace would have been set up in the first two weeks of the month. This wastrue for Ford and it was true for the industry as well --

Chris Ceraso - CreditSuisse

Okay and then Emily, I know the company line on sales forthe year is a better second half, can you tell me if implicit in that view issome 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 housingmarket trading around and I think, we have been thinking that for sometime and outsidewe maybe catching up with what is going to take until 2009 before we really seea material improvement in the housing market conditions. Now, there is a lot ofdifferent levels to that and I think we are moving into the phase now where thespecifics are starting to work so well and a lot will be definitely going totake place on current going forward but that will take some time as you knowprices and how can it be a pretty sticky on the downside.

George Pipas

So the improvement then is the function of what monetary fiscalstimulus?

Emily Kolinski Morris

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

Jim Farley

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

Chris Ceraso - CreditSuisse

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, withLehman Brothers, go ahead.

Brian Johnson -Lehman Brothers

Good afternoon. I have a question for Jim. When you look atincentives but also look at MSRP action on behalf of your competitors where doyou 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 themore pricing pressures specially in certain segments and full-sized truck andtradition 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 isgoing to be the customer demand for that MSRP and otherwise, but for as a wholeyour questions seems to be as a whole I think we would see in the first halfcontinued pressure on those two segments on the incentive side.

Brian Johnson -Lehman Brothers

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

Jim Farley

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

Brian Johnson -Lehman Brothers

And since you are over in Geneva, doyou see any difference in Europe in terms of the abilityto 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 BearStearns, go ahead.

George Pipas

Hi, Peter.

Peter Nesvold – BearStearns

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

George Pipas

Jim, you want to talk about that?

Jim Farley

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

Peter Nesvold – BearStearns

Have you stated the volume target for that product shift?

Jim Farley

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

George Pipas

Okay, next question, Melanie.

Operator

Our next question comes from the line of Patrick Archambaultwith 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 theindustry just for what we had this month?

George Pipas

I think, Patrick, what we want to do is, aside from thecolor that we provided on the level of incentive spending is that the wholepricing discussion and net pricing which is usually pretty thoroughly addressedin conjunction with our year-over-year pricing moves and our profit reconciliation, we will keep that discussion forthe first quarter, okay? I am reluctant to give any guidance based on monthlystatistics because it will not be too very long that we will be having ourfirst quarter call and I mean, having said that when you look at the industryincentive spending along the lines of Jim’s comments, industry spending, hementioned that we were still somewhat lower than a year ago at the end ofFebruary. Industry incentive spending including increases at the Asianmanufacturers were higher, how this is going to shake out in transactionpricing and net pricing as we approach first quarter. I am going to put that onice right now. Next question, Melanie.

Operator

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

Amy Wilson – Automotive News

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

George Pipas

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

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

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

Jim Farley

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

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

So, when we end the year, Lincolnwill be much higher than it was a year before, thanks to S all in the secondhalf.

Amy Wilson – Automotive News

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

Jim Farley

I love to give you that because you get back into what thesales plan would be for I ask but I just cannot do it because we are stillworking out the details of our production plan but we are very optimistic aboutthe vehicle. We think the share performance will be very similar to what we seein 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 withDow Jones, go ahead.

Jeff Bennett – DowJones

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

George Pipas

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

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

Jeff Bennett – DowJones

Okay.

George Pipas

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

Jeff Bennett – DowJones

Okay.

George Pipas

Okay, next question, Melanie.

Operator

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

George Pipas

Hi, Jim.

James Henry - BusinessWeek

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

George Pipas

Straight up. Always straight up. You never have to worryabout 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 withthe Detroit Free Press, go ahead.

Sarah Webster – Detroit Free Press

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

Jim Farley

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

For example, certain regions like the Southwest of the USor augment so this mid-central part of the US.Those regions, the full size SUV segment continues to be very robust and thesignificant part of the industry there and the small truck business, Sun Beltfrom basically Florida all theway through Texas, Arizonaand California.

The compact truck market continues to be very robust asespecially in the 4x2 kind of commuter vehicle. So, we look at each of thoseregions and those particular vehicles, we looked at the whole country, wenotice some opportunities and as a result, we had some exclusive incentiveswhere we decelerated other places and accelerated in those regions for thosevehicles with specific ties to our dealer ad group and even the dealers ownadvertising tier three and working together as a team, we were able to -- in the case of the Ranger, accelerate oursales. 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 tobe opportunistic but I think this kind of year, 2008, with our lineup reallyrequires us to do that kind of granular approach to marketing especially the integrationof 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 doingthings when you got here.

Jim Farley

Well, traditionally Ford had given some of the regions somemenu 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 intotal span and now the flexibility is more like a 30percent or 40percent butreally the biggest, all the hard work is really not only giving the right offerand the right market even down in the metro level for the right vehicle but itis also integrating that message to the dealer ad groups and tier free and thatwas not just done before as much. It requires a lot more planning so you haveto announce your programs much further and advanced a couple of weeks becausethe 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 arenow doing a 20-day meeting which is in the third week of the month to plan allthis and it is the different approach. Actually, it is something that Ford usedto 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 withthe Louisville Courier Journal, go ahead.

Jerry Downes - Louisville Courier Journal

Hi. I have a question for George. George, for a while I havebeen wondering when the other shoe would drop looking at the Explorerproduction in Louisville made a 162,000 last year but I looked at the monthlysales figure and just wonder at how you have been on to that and today we foundout with up to 800 people have been trimmed away by mid summer and Emily [ph3730] said to pop this one to you so I will. Will the line be suited up whenthey go to one shift? Because they did a slow down after the buy outs so theycould keep two shifts last summer.

George Pipas

Actually, I am not really knowledgeable, sufficientlyknowledgeable on that specific operating pattern. I think here is what we facedis the traditional SUV segment, a lot of the concern has been right in middlepart of it like the Explorer and Mountaineer and other popular name place tooperate 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 oneshift because when you are down one week or two weeks out of the four monthoperating in the operating month, that instability and we can still we canoperate much more efficiently and have our employees that work every week underour one shift operating pattern, Jerry.

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

Jerry Downes - Louisville Courier Journal

Thank you and in December, Bill Russo said that truckproduction will be down 8% for the year and car production will be down 6% forthe year. Things are all in shift and as Emily said, are those forecasts stillvalid 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 thereany more analysts in the queue?

Operator

No, sir.

George Pipas

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

Operator

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

George Pipas

Hi, Nick.

Nick Bunkley – NewYork Times

Hi, how are you?

George Pipas

Good.

Nick Bunkley – NewYork Times

I wanted to ask about gas prices just as you are saying anychanges and I know it is the question you have been asked for quite sometimenow but as they keep staying where they are or even going up and if you start tosee anymore changes in buying behavior and also as we look later end in theyear, what is going to happen if and when the F series comes out when the gasis 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 thingwe are very thankful for is that the new Focus has been so well receivedespecially by the young customers, we are up over 30% the last two months andfrom any of the standpoint, we do not see any significant shifts from fourcylinders to six cylinders, any different than we have had the last six months.

On the F series launch, actually our fuel economy getsbetter with the new F-series so we are really anxious to get the truck outbecause that will actually have a more appealing marketing message for the customerand that is across the range. That is not on one specific little model that weuse for advertising. That increase in MPG is actually across the board so thatis 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 themarket. People that obviously did not need the capability of the product butthe need and the desire to drive a full size truck for those people is prettyhigh and I think whether or not, with regard to the environment next fall, thebiggest issue in the full size truck market for the last two years has been thedrop in housing.

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

Operator

Our next question comes from the line of Rick Popely, withThe 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 onthe Chicago products, the large cars?Are gas prices hurting those vehicles? or what is hurting those vehiclesbecause 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 thosewho want to buy a large car and specifically those large cars, Rick, theproducts have very, very high customer satisfaction among our owners. The issueis that in the last two years, the large car segment, the full size sedansegment has dropped. In fact, last year, retail sales in that category weredown 20%. So the action that we took at Chicagoand 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 thepassenger car market has been in the small car category and the midsizecategory. Those two categories in the group are growing. Jim, any other furthercomment on that?

Jim Farley

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

Rick Popely – Chicago Tribune

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

Jim Farley

I think the basic underlying demand for the segment comesdown to new product and we saw that with the Chrysler 300. Customers arewilling to buy larger cars because it is a new product with the right designand product execution and I think we are very committed to that segment, tohave credible entries and we will continue to make our product more and moreappealing and I think that the key to the segment is your product offer andespecially new entries.

George Pipas

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

Operator

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

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Source: Ford Motor Company February 2008 Sales Call Transcript

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