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Executives

Erich Merkle - U.S. Sales Analyst

Ken Czubay - Vice President, U.S. Marketing, Sales and Service

Jenny Lin - Senior U.S. Economist

Analysts

John Murphy - Bank of America-Merrill Lynch

Brian Johnson - Barclays

Chris Ceraso - Credit Suisse

Elaine Kwei - Jefferies

Rod Lache - Deutsche Bank

Adi Oberoi - Goldman Sachs

Mike Ramsey - The Wall Street Journal

Keith Naughton - Bloomberg

Alisa Priddle - Detroit Free Press

Karl Henkel - Detroit News

Matt Stover - Guggenheim

Todd Lassa - Motor Trend

Ford Motor Co. (F) August 2012 U.S. Sales Conference Transcript September 4, 2012 10:00 AM ET

Operator

Good day, ladies and gentlemen. And welcome to the Ford Monthly Sales Results Conference Call. My name is Jeff, and I’ll be your coordinator for today. At this time, all participants are in a listen-only-mode. Later, we will facilitate a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Erich Merkle, Ford U.S. Sales Analyst. And you have the floor sir.

Erich Merkle

Thank you, Jeff. Good morning, everyone. And welcome to Ford’s August 2012 sales call. Based on early results, we estimate that SAAR for the month of August finished in the mid to high 14 million vehicle range. This would include medium and heavy trucks. In absolute terms, we believe the industry finished just above 1.3 million vehicles for the month again including medium and heavy trucks.

By our estimate, the overall industry’s sales number was driven by strong performance this month, with approximately 82% to 83% of sales coming from retail in August, including estimated August industry sales result, we believe SAAR calendar year-to-date is running at approximately 14.6 million total vehicles. This is consistent with last months July calendar year-to-date results.

Some of the overall segment trend observations that we made during the month are that we continue to see the shift toward smaller, fuel-efficient vehicle. We estimate that smaller SUVs in August represented approximately 45% of total utility segment sales.

As the price of fuel increased throughout August, industry small car sales continue to rise, representing an estimated 23% of the overall industry in August breaking from the seasonal declines at this point in the year.

The full-size pickup truck segment also moved higher, representing an estimated 11.2% of the total industry. This compares to an estimated 10.7% in July and 10.2% of industry in June. Full-size pickups are retracing their seasonal pattern as they are stronger second half performers. September, it's also interesting that September will also kickoff annual truck month for the industry.

With those observations Ken is here to provide some additional color and context regarding Ford sales performance in August. Ken?

Ken Czubay

Thanks, Erich, and hello, everyone. Total sales at Ford for August were 13%, with 197,249 vehicles sold and year-over-year gains in our cars, utilities and trucks. We saw real strength in the retail side of our business, with sales up 19%. This was driven largely by our passenger car performance, with retail sales up 35% in August.

Just as we saw in the industry, Ford also saw gains in fuel-efficient utility vehicles. In fact, 47% of our increase in utility sales last month came from our fuel-efficient all-new Escape.

Escape had its best ever August sales month, with 28,188 vehicles sold, a 37% increase over August of last year. In fact it was only 312-vehicle shy of our all-time any month record for Escape set in June when we reported 28,500 Escape sold as part of our sell down.

Two weeks ago we began our third shift at Louisville Assembly to keep space with customer demand for the new Escape. Escape remains our fastest turning vehicle on dealer lots.

Let me point out a couple of other interesting points on Escape. 90% of retail Escapes are equipped with EcoBoost engines and high level SEL and Titanium, trim levels represented more than 50% of 2013 Escape sold this month, with higher trim SEL and Titanium models turning at almost twice the rate of S and SE trim levels.

Fusion also delivered another sales record with its best ever August. Ford sold 21,690 Fusion midsize sedans in August. This is a 21% increase over last year leaving us even further ahead of where we expected to be in our sale down of the current model. As you know, the new Fusion will be arriving at our dealerships this fall.

In other car news, Focus sales increased 35% in August, more than doubling retail sales compared to last year. California continues to be our top sales state for Focus. In August, Focus sales in California almost tripled. For the first eight months of the year California Focus sales are up more than 90%, making the golden state not only our largest sales state but our fastest growing one.

As per trucks, F-series reported its 13th straight month of sales increases. August sales were up 19%, with 58,201-truck sold. Year-to-date F-series totaled 408,656 vehicles. Year-to-date F-series sales -- total 408,656, last year a 13% increase.

We also passed another milestone and this is important, with more than 200,000 EcoBoost F-150 sold since its introduction in January of 2011.

Let’s take a quick look at Lincoln. Our Luxury brand posted a 2% gain in August, with a 21% gain in retail sales. MKZ was up strong 42% as we get ready to transition into the all-new MKZ later this year. We are very much looking forward to the all-new 2013 MKZ.

Many of you have seen it and we have gotten exceptional feedback from our customers and viewers about the product. MKX also had a strong gain with sales of 2,518, representing a 28% increase over last year.

With that, I’d like to turn things over to Jenny Lin for an update on the U S economy. Jenny?

Jenny Lin

Thank you, Ken. Since our last monthly sales call in early August, economic fundamentals remained modest but stable. First of, the consumer confidence is stable as compared to July, housing sector shows signs of revival, soft job market was gained still not enough to generate significant decline in unemployment, manufacturing sector is expending at a slower rate. On net though, this is still consistent with our outlook for the U.S. economy to grow in the range of 2% to 2.5% this year.

Here are some of the details. August consumer sentiment release by the University of Michigan rose by 2 point to 74.3. Over the last five months more than six and have not shown diminished defined appetite.

Housing related data continue to suggest that housing sector is recovering. Home values have stabilized and indeed are improving in many metro areas. The latest reading from Case-Shiller on home prices showed a nearly 1% increase in major cities in June, as compared to May. It was also up 0.5% over year ago. This is the first year-on-year increase since October 2010.

During the first seven months of this year, housing starts were up 26% and new homes sales were up 22% over a year ago. This is based on non-seasonally adjusted data and new housing start is very tight, under five months’ of supply, given the lack of a homebuilding for several years.

Job growth as measured by non-firm payroll is modest. During the first seven months’ of this year, it has grown 1.4% over last year, with the unemployment rate at 8.3%. The August employment report will be release this Friday.

The August Manufacturing Purchasing Managers’ Index, PMI, which was released a few minutes ago, actually was quiet stable at 49.6%, which is only a [0.2 point] compared to July -- down compared to July, sorry, compared to, yeah, compared to July, with orders and production indices showing contraction.

Other sign of slowing was evident in the durable goods orders report. The core orders which includes non-defense and excluding aircraft declined by 4% in July from a year ago, this is consistent with the outlook for a slowing manufacturing sector.

All-in, the U.S. economy grew at an annual rate of 1.7% during the second quarter or equivalent of 2.3% over a year ago. So this is on track to achieve a full year growth of 2% to 2.5% in 2012.

In summary, as Ken and Erich pointed out earlier, the U.S. new vehicle industry sales in August were estimated at about mid to high 14 million units at the seasonally adjusted annual rate, including medium and heavy duty trucks.

Our present call for the full year U.S. industry sales is still in the range of 14.5 million to 15 million units. Based on the first eight months of the results, the industry could be at the lower end of our forecast range.

With that summary, let me turn it back to Erich. Erich?

Erich Merkle

Thank you, Jenny. Going over some house-keeping items, if we take a look, we announced our fourth quarter production guidance for this year. That guidance is calls for the production of 725,000 vehicles here in North America. That would include 255,000 cars, 225,000 utility and 245,000 trucks.

Taking a look at our inventory, our inventory for the month of August totaled 414,000 vehicles, utilities represented 104,000 of that, trucks represented 200,000, while cars represented 110,000.

The 414,000 vehicle translates into a day’s supply of 57. This compares to last year. Last year our gross stock, inventory was 402,000 total vehicles, 107,000 were utilities, 188,000 were trucks, 107,000 were cars. The total inventory of 402,000 translated into 62 day’s supply.

When we look at our fleet mix for the month of August, daily rental was 7% of our total sales, commercial was 14% of our total sales, while government was 5%. This gives us a total fleet as a percent of total sales of 26%.

When we look at last year at this time August of 2011, we can see that we had 10% daily rental as a percent of our total sales. Commercial was 12%, government was 8%, which gave us a total fleet as a percent of total sales of 30%.

Year-to-date, our daily rental is 13% of our total sales, commercial is 14%, government is 5% and that gives us a total year-to-date of 32% fleet.

Last year at this time in 2011, daily rental was 14% of our total sales, commercial was 13%, government was 7%, giving us a total fleet as a percent of our total sales of 34% calendar year to date in 2011.

With those items complete, Jeff, let’s start taking some calls and we’ll start it off with folks from the analyst community, please.

Question-and-Answer Session

Operator

All right. Thank you very much. (Operator Instructions) Our first question comes from the line of John Murphy with Bank of America-Merrill Lynch. Please proceed

John Murphy - Bank of America-Merrill Lynch

Good morning, guys. Just a couple questions here. First, Erich, on the Escape, it sound like you had a great month here, but I’m just curious, has there been any catch-up, sort of hiccups you had in the first couple of months of the launch of the vehicle? Just trying to understand if this August number was a sort of more normal run rate or there was some catch-up from new orders placed in the last few months?

Ken Czubay

Hi, John. This is Ken. We were -- as you said, we were really pleased with the Escape sales, the vast majority of being 2013. We had some balance out of the ‘12 going. We are just seeing incredible demand for the product driven by styling by fuel economy. And as I mentioned in my comment, we’ve added another crew to the plant, so we are very pleased that we’ll be hopefully meeting demand with supply. But dealers report that they are coming on the convoy truck and they are leaving the same day. So demand is terrific for that new product. Okay.

John Murphy - Bank of America-Merrill Lynch

So this is still early in the state of the ramp up you think of this vehicle?

Ken Czubay

Yeah. And it’s a runaway success.

Erich Merkle

All right, John. And we are turning very fast and we are doing everything we can to meet demand right now with our plan.

John Murphy - Bank of America-Merrill Lynch

That’s great. And then the second question, I mean, you did allude to pickups regaining some shares are slowing sort of seasonally as they typically have in the past. But I’m just curious, I mean, that 19% increase in the F-150, sounds like it probably outpaced the industry. I’m just curious, if you think you’re taking market share in that large pickup market and lot of that have to do with the GOBU stenions.

Ken Czubay

Well, this is again, John, this is Ken. We are very pleased. We pushed 60,000 13 months in a row of increases. There are consumers are telling us that across the Board, cars, utilities and trucks that fuel economy’s number one driver their choice and they are driving into the Ford labs.

The EcoBoost, as you pointed out continues to be in the low 40% at retail and we are very, very pleased with that and in heck we are starting Ford truck month today. So we can hardly wait for September.

John Murphy - Bank of America-Merrill Lynch

Okay. And then just lastly on the Fusion, it sounds like you are selling out pretty aggressively here, as you’re ramping down the old vehicle and get ready for the new vehicle? Is there any risk that you oversell the sell bound and that we have a month or two where there is -- you’re really short of the old Fusion as you are ramping up the new Fusion. Just want to make sure there’s no hiccups that we’re facing next couple of months in that changeover.

Ken Czubay

Well, we have a good supply of the carryover Fusion’s left. But as the sale guy, I’ll always take the sale today, so we’re pleased with being ahead of the track. But, again, it’s so indicative of what Ford is doing in the car market that we can be ahead of the sell down when everyone is so greatly anticipating in all new products. So the consumer has the best of both worlds with the current generation Fusion and the exciting new Fusion coming this fall. So, I’ll take the sale today.

Erich Merkle

Okay. Thank you, John.

John Murphy - Bank of America-Merrill Lynch

Thank you very much, guys.

Erich Merkle

Jeff, next caller please?

Operator

Our next question comes from the line of Brian Johnson with Barclays. Please proceed.

Brian Johnson - Barclays

Good morning. Just want to hear your thinking on the small and mid small market, in particular how the Fiesta and Focus are settling out, where the Fiesta is going to in your kind of product mix, is this about the level or type of declines we can expect and maybe kind of rethought maybe, or is there any thought that kind of rethinking how to position Fiesta or you’re happy with the mix as it is?

Ken Czubay

Brian, this is Ken again, a good question. As I’ve mentioned in the last couple of calls, we’re very excited about the performance of the Focus. And frankly, as you can see, the year-over-year increases are so dramatic on Focus.

They are down a little bit on Fiesta. This is on our plan. We are gearing up the Michigan Assembly Plant to crank out even more Focus’. We’re a demand-driven company and we are going to put it there. But, overall, we’re pleased with the mix. We’ll always sell more Fiestas when we can, but the Focus is going to the driving factor for us in this segment.

Brian Johnson - Barclays

And what’s the dynamics of the showroom? Do people come in thinking Focus and then Fiesta, and then see that Focus will get them more car, for not much more money?

Ken Czubay

Well, I think that’s human nature at play and our dealers tell us that they are so fortunate to have the lineup that they have now even with current generation Fusion, that people come in, they really like the fuel economy and they really like the styling of the Fiesta.

And then they look at the Focus, which they may not have gone on the Internet to do that much exploring and they take a test drive, they look at the payment price, just like any of us would and they are voting right now with the Focus.

So the numbers are so dramatic. We more than doubled year-over-year and as we get more inventory to the dealers, we are confident that Focus sales will continue on that high trend.

Brian Johnson - Barclays

Okay. Thanks.

Erich Merkle

Thank you, Brian. Jeff, next caller, please.

Operator

Our next question comes from the line of Chris Ceraso with Credit Suisse. Please proceed.

Chris Ceraso - Credit Suisse

Thanks. Good morning. So a couple of things. On the Escape, can you give us an idea of what the average transaction prices look like relative to the outgoing model? I would think that there was a notable step up?

Erich Merkle

Yeah. We can't -- we don’t provide average transaction prices by vehicle. But if you take a look at what's turning the fastest, as Ken said in his commentary and also the fact that 50% of our Escape sales are SEL and Titanium. We are certainly seeing the consumer wanting more content and more features in the Escape than ever before.

Chris Ceraso - Credit Suisse

Do you have a comparison that what the high trim levels would've been on the old model?

Erich Merkle

I don't right off hand, Chris. But, certainly, it was much, much lower than that. This is actually, Escape is running above explore rate now in term, when it launched in terms of its higher trim series.

Chris Ceraso - Credit Suisse

Okay. And then just a couple…

Erich Merkle

Explorer, as you know it’s always been a really, really strong high trim level vehicle.

Chris Ceraso - Credit Suisse

Right. A couple on the production numbers, you mentioned that the Q3 690 was trending slightly below. Do you have an update as the specific numbers of cars, trucks and utilities that are expected to be produced here in Q3?

Erich Merkle

We’re not identifying any single area yet. We’re gone to really need to see how September unfolds. Our third quarter production is expected to just be slightly below our previous guidance.

Chris Ceraso - Credit Suisse

Okay. And then on the Q4 and maybe your inventory, it seems that there would be room to build a little bit more with inventory at 57 days supply, is it because you’re still capacity constrained that you are not building more or do you think that 57 days is sufficient.

Erich Merkle

We’re managing through that every day with our supply chain and we’ve done it all year. Third quarter is no different and the fourth quarter, we’re going to be at maximum capacity as well.

Chris Ceraso - Credit Suisse

Okay. So you would be building more if you could?

Ken Czubay

Well, this is Ken. I mean, I would -- the industry norm for decades and decades has been a 60-day supply. So we drilled more if we could but again I want to sell more today. So we are just really pleased with sales pace and as we’ve stated for last couple of months, production is flat out.

Chris Ceraso - Credit Suisse

Okay. Thank you.

Erich Merkle

Okay. Thank you, Chris. Jeff, next caller please.

Operator

Our next question comes from the line of Peter Nesvold with Jefferies. Please proceed.

Elaine Kwei - Jefferies

Hi. This is Elaine in place of Peter. Thanks for taking the question. Could we take a little deeper into the retail strength and we’re just curious what’s dug out for you guys this month. Was it especially good deals in the current year sell down or attractiveness of new products and also just what are the dealer seeing on trade-ins. Are there any changes in terms of royalty rates or average age of trade-ins? Thank you.

Ken Czubay

Hi, Elaine. This is Ken again. Let me try to answer those one by one. Number one, we think there was excellent demand and we saw demand shifting, continuing to shift as it has for last 90 days as the price of fuel has gone up. I think that is big reason for driving the showroom traffic into cars and our new utilities with the Escape.

I think that that more and more people are coming in to see the Ford offerings and ever before we’re seeing a lot of conquest sales especially on the new products. We’re seeing more conquest even as we’re filling the pipeline, notwithstanding a really great focus month, we did have a good production month. So we sold what we produced.

Dealers are telling us some very interesting things about trade-in. I think this really supports what Jenny has been alluding to over the months. And that is that so many of the trades are coming in, what I’ll call over mile. I mean, matter of fact, I specifically talked to two dealers this weekend.

One of them in California and that the trade is not uncommon to see 150,000, 200,000 mile trades. And the dealers are being very choosy about once they can put on the detail a lot. That’s indicative in supports where we’ve been saying for the last few months of the age of units in operation and that consumers are really being driven to trade-in and get the benefits of the high fuel economy and the high-product content that they want with the new products.

So we’re very -- we're very heartened by that news that they are coming to Ford to get it. They are coming to Ford to get the Escape MPG. They are coming to Ford to get power of choice between EcoBoost and hybrid et cetera.

Elaine Kwei - Jefferies

Great. Thank you so much Ken.

Erich Merkle

Thank you, Elaine.

Operator

Our next question comes from the line of Rod Lache and it’s with Deutsche Bank. Please proceed.

Rod Lache - Deutsche Bank

Good morning everybody. I had a couple of things. One is just maybe nothing but the small variance in production that you’re making here in the third quarter. Was that related to just managing inventory in that particular category or was that some supplier issues?

And then also on the sales, Ken helped it notice that there has been a bit of an uptick in promotional activity over the course of August, particularly in pickups. And I’m wondering whether there was any thing unusual or regional this month that maybe when you compare versus last year. Is there any thing significant that happen there?

Erich Merkle

Rod, I’ll go ahead and I’ll take the first question. We’ve been managing working with our supply base on capacity issues. We’ve been doing this all year. So the third quarter really isn’t any different. That’s really what’s causing our slight change in the third quarter guidance. We’re going to continue to do that as we move forward.

Ken Czubay

And Rod, relative to incentives, they are really pretty much flat versus last month and versus a year ago. On the truck side, as we get into the seasonal push toward the trucks, there are -- matter of fact, they are only up slightly versus last year, up a little bit more versus last month but this is just a seasonality. And we’re going to be aggressive in the truck market. It’s excellent business for us and for us to sell little under 60,000 vehicles. It’s great month and we look forward to truck month.

Rod Lache - Deutsche Bank

Okay. And just lastly, do you have any perspective with this plan on what the fleets are, look like this month, just for the overall market. It looks like -- just optically, it looks like the rental segment has been softening here over the course of the year. Is there anything that you are noticing there or is that just a timing issue?

Erich Merkle

Yeah. In terms of fleet, you’re looking at somewhere around, we’ve estimate 17% to 18% for the month in terms of the overall total mix. With certainly, as I said in the opening comments, the retail was running about 82% to 83% of the mix.

Rod Lache - Deutsche Bank

Right.

Erich Merkle

So July, last month was also a very strong retail month for the industry. And that seems to be following through until August.

Ken Czubay

Just to add a little bit more texture onto that, Rod, you are absolutely right, the rental business was down for us, some degree of seasonality on deliveries. But I want to point out again, the strength of our commercial business, it was up 23%.

And what I found interesting and I don’t want to create a trend here but on the commercial truck side, the trucks were up, the SUVs were up and not only that but super duty was up higher than the total commercial up 23%. So I don’t want to make a trend out of it but it certainly is a further recognition of Ford’s strength in the commercial truck application.

Rod Lache - Deutsche Bank

Okay. Thank you.

Erich Merkle

Thank you, Rod. Jeff, we’re going to take one more call from the analyst community then we’re going to switch over to the media please.

Operator

No problem. Our question comes from the line of Patrick Archambault with Goldman Sachs. Please proceed.

Adi Oberoi - Goldman Sachs

Great. This is Adi Oberoi for Pat. Hi guys.

Erich Merkle

Hi guys -- hi Adi.

Adi Oberoi - Goldman Sachs

So I just had a follow-up question to Rod’s question about the retail fleets here. It seems that the retails continues to remain strong even though the economic fundamentals seem to be kind of stabilizing and not like improving materially. So what do you think is driving this retail momentum. Is it just pent-up demand or is there any other factors that are coming into the play here?

Jenny Lin

Hi Adi. This is Jenny here. Yeah, you are right that even though that we’re seeing the most of the economic conditions seems to be stabilizing and job market does not improve as much as we are hopeful but I think that the pent-up demand really is driving for us here further strong retail sales.

As you know that the -- according to Polk, the age of passenger cars by mid 2011 last year was at 11 years old and the light truck is 10.4 years old and the light vehicles total is at 10.8 years or so. With housing sector now recovering, we will like to adjust the replacement demand to continuing to support the new vehicle sales.

Ken Czubay

And this is Ken, I’d like to throw in one other comment on that. When talking to our dealers, when consumers are coming in, they are looking at the entire value proposition. As Jenny pointed out, they are often times coming in and they may have a maintenance check point and then they are thinking through the significant gains.

Imagine having a vehicle that’s 11 years old relative to a current one on fuel economy. The increase is incredible at Ford. So they are looking at trade-off for gaining the fuel efficiency. They are looking at advances in design and technology and they are looking at their really affordable interest rates right now.

Our great partners at Ford credit did over 50% of the business because of super rates that they are offering. So the entire value proposition at the Ford showroom is just a very compelling driver for the sales improvement across the line.

Adi Oberoi - Goldman Sachs

Great. This is very helpful. Thanks a lot guys.

Erich Merkle

Thank you, Adi.

Operator

And our next question -- go ahead.

Erich Merkle

If we could turn it over to the folks in the media.

Operator

No problem. Our first member in media is Mike Ramsey and it looks like he is with The Wall Street Journal. Please proceed.

Mike Ramsey - The Wall Street Journal

Hi. Good morning. Well, I guess, that last question, kind of, fit into what I was going to ask about was with the -- seemingly the auto sales just keep picking up more and more. And do you think that with the truck month and the seasonality that you’ve talked about going to fall and the continued improvement in housing. Is this the inflection point that we’ve talked about where you’re starting to see actual evidence that the improvement in housing is having an impact on pick-up truck sales. Because months before, I know, Ken you had said, we haven’t really seen yet, we keep waiting for it. Do you feel like you’re starting this year?

Jenny Lin

Yeah. Hi Mike. This is Jenny.

Mike Ramsey - The Wall Street Journal

Hi Jenny.

Jenny Lin

Yeah. We believe that the recovery in the housing sector does played a role in continuing to support our full size pick-up sales, and that is very timely, because like you said that, we are going into the high season for the truck sales. So that would hope well support to continue to our strength in full size pickup sales?

Ken Czubay

This is Ken. Mike, I just want to add that too early to call a trend, but that’s why we rely on the economic data. But in addition of that, it’s broader than that our dealers in the oil services area report extremely strong demand on Super Duty. I think I pointed out a couple of minutes ago, that there are 34%.

Our dealers in non-housing use of trucks are also supporting the high numbers. I mean you can’t get to almost 60,000 vehicles without broad support across the housing. And again, I can’t emphasize enough when I visit dealers and meet people on the showrooms, they talked more and more across the board and fuel economy gains that Ford is delivering.

Mike Ramsey - The Wall Street Journal

Okay.

Erich Merkle

Thank you, Mike.

Mike Ramsey - The Wall Street Journal

Thanks.

Erich Merkle

Jeff, next caller please?

Operator

Our next question comes from the line of Keith Naughton with Bloomberg. Please proceed.

Keith Naughton - Bloomberg

Hi, there.

Erich Merkle

Hello.

Keith Naughton - Bloomberg

Hey, a couple of questions. First on the Escape, I think Ken, you had mention that the vast majority of other sales whether the new 2013 model. Can you clarify the point on that, what percentage next flows between old and new?

Ken Czubay

Sure. Almost 80% of our Escape sales last month were 2013.

Keith Naughton - Bloomberg

Great. Great. And then on the small car mix, so both Cruze and Sonic are outselling Fiesta and Focus pretty substantially, I’m just wondering why that is?

Ken Czubay

I don’t know their numbers. But I would say that on the Focus sales, our dealers had a excellent month at retail and we ended up with a low day supply. But demand keeps on being very strong for Focus.

Keith Naughton - Bloomberg

And Fiesta?

Ken Czubay

I -- there was a question earlier, I don’t know if you’re around the call, we are on plan with that and as we increase availability of folk will be a natural, I’ll call water level between Fiesta and Focus. But we’re going to rely in the power of choice and all of our Focus offerings going forward.

Keith Naughton - Bloomberg

Okay. Thank you.

Erich Merkle

Thank you, Keith. Jeff, our next caller, please?

Operator

Our next question comes from the line of Alisa Priddle with Detroit Free Press. Please proceed.

Alisa Priddle - Detroit Free Press

Good morning. First, I just want to be a little more clear on why the Q3 is below guidance. I know you’ve sort of talk all around it but I think what -- just was missing was just the actual reason why it’s falling under?

Erich Merkle

Yeah. Well, we’ve been as you -- as I’ve said earlier, Alisa, we have been managing and working with our supply base -- supply chain and capacity. We have been doing that all the year. So, the third quarter isn’t any difference. It is just that this quarter we’re likely going to fall just slightly shy of our guidance that we gave earlier.

Alisa Priddle - Detroit Free Press

So there isn’t really a concrete reason. It just you are always managing and this particular quarter you are just going to be slightly under?

Erich Merkle

It’s an environment where we have a lot of demand. And we are having to manage our supply chain. And we have been working through these issues for many quarters.

Alisa Priddle - Detroit Free Press

Okay. And with the fuel efficiency you talk a lot about how that’s a real driver to you, your showroom, so did you see that at the end of the months when prices were starting to spike did you see that that was making a big difference or are you able to in anyway quantify how much gas prices are affecting your lineup?

Ken Czubay

This is Ken. What we are finding is our dealers are telling us, that as gas prices go up across the country. There is a higher demand in conjunction with the age of the units and operation. There is a higher demand for the fuel efficient segments and we saw that at retail where it was up substantially over last August.

So we’re very pleased with the performance of not only the cars, but the Escape utility and we look forward to capturing more of that business as we go forward.

Erich Merkle

Yeah. One of things that we really saw Alisa, 35% retail on our passengers cars and then if you also take a look as Ken just said Escape utilities, almost 50% of our growth came from a small utilities, which was Escape 50% of our Ford utility growth last month came from the Escape utility.

Alisa Priddle - Detroit Free Press

Okay. All right. Thank you.

Erich Merkle

Thank you.

Operator

Our next question comes from the line of Karl Henkel with Detroit News. Please proceed.

Karl Henkel - Detroit News

Hey, good morning. Few questions just on kind of the ebbs and flows of sales last month and it seems like everybody is coming ahead of analyst predictions. Can you kind of talk about the things pickup as the month ended or where do you kind of see things lying in August?

Erich Merkle

I’m sorry, Karl. Could you repeat that question?

Karl Henkel - Detroit News

Yeah. Talking about the ebbs and flows of August and when the majority of sales took place seems like everybody, all the automakers coming out ahead of analyst expectations. Can you just talk about the ebbs and flows of August?

Erich Merkle

Sure. Sure. I think its safe to say as the month unfold and as it progressed, we saw sales. It was -- it is a progression upward as the month unfolded. So August finished on a strong note.

Ken Czubay

I think -- this is Ken. I just put that in context with the sales closed on a Friday before a national holiday. We were very pleased with the way the month ended. And in the last week, we saw an increasing tempo day-by-day. So we’ll have a feel for Saturday, Sunday, Monday, but this Labor Day weekend is always good. But I -- we were very pleased with the progression of the business as the month came to an end.

Karl Henkel - Detroit News

Thank you.

Erich Merkle

Thank you, Karl. Jeff, next caller please?

Operator

Our next question comes from the line of Matt Stover with Guggenheim. Please proceed.

Matt Stover - Guggenheim

Question has been addressed. Thank you.

Erich Merkle

Okay. Thank you.

Operator

It looks like our next question comes from the line of Todd Lassa with Motor Trend. Please proceed.

Todd Lassa - Motor Trend

Hey, good morning.

Erich Merkle

Hi.

Todd Lassa - Motor Trend

Hi. You mentioned that about 90% of Escape -- of the new Escape sales so far running EcoBoost. I think I asked this question last month, but can you just kind of refresh my memory. What kind of support are you getting between the 1.6 to 2 liter EcoBoost among that 90%?

Erich Merkle

Yeah. Todd, we -- as we said last month, we really don’t break those out, but it’s 90% EcoBoost for the day.

Todd Lassa - Motor Trend

Okay. All right. And on the -- give a breakout of the all real driver versus front real drive on that vehicle?

Erich Merkle

No. We have -- we don’t give that level of specifics on the -- by vehicle, sorry.

Todd Lassa - Motor Trend

Okay. And the question has come up a couple of times this morning regarding Fiesta being as you point out on I guess on schedule or playing out the way you expect to choose, does this means that basically are you seeing the B segment in this country as being one where you sell a pretty good number in the first year and then sales dropped off. I mean we’re seeing this for the Fiesta. We saw this for the two generations of Honda Fit that came here and now this year’s car in that segment seems to be the Chevy Sonic?

Erich Merkle

What I would say on that is Todd, I think number one a lot of its availability driven. So at the beginning of the year in our case when we have limited availability and then as we went through the model changeover, the Focus was not fully up to demand. Now that it is, I think there is just a natural running rate on the B cars. The other is that we’re demonstrating great fuel economy and great features and great design on the C cars.

And I just think there is a finite number of B cars that are sold in the urban areas where parking and traffic and fuel prices are little bit higher. But I think demand is being more driven in the C car or you can get a little bit more size and you are finding that the fuel economy is every bit as good if maybe and some instance a little bit better. There is also a little bit more choice of power trains that consumers are demanding. So we’re on plan on the B car and we’re going to produce like crazy all the focuses that we can’t to meet that demand. And we think that just very, very strong.

Todd Lassa - Motor Trend

But by being on planning mean that as the C car as your C cars sales increase that the B car number is kind of diminish a bit as the product goes through its cycle, right?

Erich Merkle

Yeah. I think they are going to be about where they are now. I mean we’re going to work hard to sale more. But at the end of the day, consumers are like you and I and they go into the showroom.

And they say what makes the more sense for me trading of all the value expectations of content and design and fuel economy. And I want to say again that the focus is just delivering such incredible overall value that the Fiesta is going to be where it is and the Focus is going to be driven higher by us. And we’re going to meet that demand.

Todd Lassa - Motor Trend

Okay. Thanks.

Erich Merkle

Okay. Jeff, we’re going to take one more call from the media please and then we’re going to wrap things up.

Operator

And gentlemen, it looks like that was a final question.

Erich Merkle

Okay. Great. All right. Well, I appreciate everyone taking the time to attend the sales call with us this month. We’ll talk to everybody again next month. Thank you very much.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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