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Ford Motor Company (NYSE:F)

Sales Call

October 1, 2008 1:00 pm ET

Executives

George Pipas - Ford Sales Analyst

Emily Kolinski Morris - Ford Senior US Economist

James D. Farley - Group Vice President - Marketing and Communications and US Marketing, Sales and Service

Analysts

[Brian Johnson] - Barclays Capital

Christopher Ceraso - Credit Suisse

Patrick Archambault - Goldman Sachs

Mark Wamsman - Calyon Securities, LLC

Rod Lache - Deutsche Bank Securities

Media

Bryce Hoffman - The Detroit News

Tom Krisher - Associated Press

Sharon Carty - USA Today

David Kiley - BusinessWeek

Operator

Welcome to the Ford monthly sales conference call. (Operator Instructions) I would now like to turn the presentation over to our host for today’s call, George Pipas, Ford Sales Analyst.

George Pipas

Thanks for participating in this September sales call at Ford. I’d like to introduce Jim Farley, Ford Group Vice President, Marketing and Communications, who is joining us today as well as Emily Kolinski Morris, Ford’s Senior US Economist.

I’d like to begin with some comments about industry sales and segment trends and speak a little bit about incentives and our own sales results. As far as the industry goes, we estimate the September sales rate was something less than $13 million even including medium and heavy trucks. That means that for the second month in the third quarter the overall sales rate was in the 12s. We estimate that industry-wide sales of cars and trucks were fewer than 1 million and that would put the percentage decline from last September in the 25% to 30% range. For sure retail sales were more than 30% lower than a year ago for the industry.

The third quarter SAAR would be 13.1 million. The trajectory in 2008 goes something like this: Q1 15.3, that would be the light vehicle sales rate; Q2 14.3; and in the third quarter something in the 12s. Confronted with this trajectory the question is, have we reached the bottom or is the bottom still ahead of us? And I’m going to ask Emily to weigh in on that question later in the call.

As far as industry segment trends are concerned, we see much the same story as we did last month. When you compare the share of each segment to a year ago, small and mid-size car segments have increased their share of the total industry. They got that higher share from medium and large utility segments; in other words, traditional SUVs. The full-size pickup segment was about the same size relative to the overall industry as it was a year ago.

The sequential story however shows something different just as it did in July. Since May, small and mid-size car segments are weaker as a percentage of the total industry and full-size trucks and SUVs are stronger. In last month’s call we discussed the factors contributing to the recovery in the full-size pickup segment and the decline in the small car segment.

Well, first of all is incentive spending. If you look at full-size truck incentive spending since May, it’s as much as $2,000 higher industry-wide and as much as $4,000 higher than last September.

Second, residual values have improved on trucks and SUVs relative to where they were in May. So that means some of the people that couldn’t get out of their truck in May and June are now in a better position to trade particularly with the higher levels of incentive spending that we saw in some areas.

Third, gas prices have declined and that’s a welcome development, not just for full-size truck buyers but for all consumers.

Fourth, some buyers postponed their purchases earlier this summer and now will be back in the market with these higher levels of incentives.

With regard to incentive trends, it’s hard to generalize. It certainly depends on the segment as I’ve alluded to and it depends on the manufacturers. Hard to generalize.

Ford and Honda, Toyota and Nissan reduced incentive spending on a per unit basis from August to September. GM and Chrysler increased.

Within segments as I mentioned earlier, incentive spend on full-size pickups has increased sharply since earlier this summer and against a year ago while incentive spending on cars, particularly small cars, has declined. I think this is a very interesting development that even as the industry sales rate is weaker than it was in the second quarter, manufacturers have reduced in the aggregate at least the incentive spend on small cars.

As far as Ford sales are concerned, as you can see from our sales report the overall result was down 34% compared with last September. Retail sales were down 35%. And as I said, we believe the industry-wide retail sales are down more than 30%. I think the truth is that you could throw a blanket around all the year-to-year comparisons for all the manufacturers and it would cover everybody.

Our fleet mix was 23%. We also had in addition to the retail sales decline a fleet sales decline of 29% this month. So our fleet mix was 23% which we believe to be easily the lowest among the Big Three for the second straight month.

Obviously these are very challenging times. On the bright side we’re encouraged to see our retail share club back from June lows despite the escalation in competitive spending.

Emily, I’d like to ask you to make some comments on the current situation.

Emily Kolinski Morris

Clearly we are looking at a very fragile economy and we have this renewed credit market turmoil adding another dimension to what was already a strained business and consumer environment. The freezing up of short-term credit markets in recent weeks has become more severe than other recent episodes. Policy measures to restore market liquidity will be critical to stabilize the financial sector and to preserve the functioning of the economy in the coming months.

While policymakers are working aggressively to address the situation, we cannot yet see the path to its resolution. Some degree of impact to the real economy is unavoidable at this point and as long as these credit market channels remain closed to consumers and businesses, the real economy may face some serious repercussions in the form of business failures, rising unemployment and a sharp pullback in consumer spending.

Let’s keep in mind that incoming indicators during the month of September were already pointing to further weakening in the economy. As the fiscal stimulus payments faded from view, [supplanted] by tighter credit conditions and rising unemployment. The falling gas prices that we’ve seen will provide some offset for consumers acting as an effective tax cut to boost disposable income. In the current environment however, we continue to expect an increase in precautionary saving by household as we’ve discussed in previous calls.

Given this fragility of conditions in the financial markets and the potential for additional economic spillover, we have to consider the near-term risks to the economy and the industry. In the third quarter we’ve seen industry performance averaging around 13 million units on a SAAR basis with support from incentive spending. This pricing and other market factors may generate volume swings both up and down on a month-to-month basis but it’s unlikely that we’ll see any significant improvement in the underlying trend of sales any time soon.

Given the lack of resolution to the financial crisis, I don’t think anyone can say where the bottom might be but we’re continuing to monitor conditions as they unfold to assess the forecast sensitivity as these developments continue in the coming weeks.

James D. Farley

I know a couple months ago we said the credit situation would take center stage in the second half of the year, and regrettably we were right. That didn’t take into consideration the two storms we had in September, both Ike and the economic hurricane. Our point of view was always that dealers, businesses, consumers would find credit increasingly difficult to get and obtain, and that’d slow consumer spending.

As Emily said, the present situation is very fragile. The level of uncertainty has been elevated at the consumer level if you think about what our consumer’s going through in September. Even if you have good credit, there’s a reluctance to pull the trigger on a big ticket item. And many customers are waiting and seeing and that’s the attitude they’re taking. There are some exceptions by region of the country and segments. It’ll take some time to work through this credit situation for our customers and we can’t be certain how long it’s going to take.

So what do we do? I think the best way we’re looking at that at Ford Motor Company is to execute our plan. We’ve embarked on a plan to leverage our global assets, to be profitable at lower volumes, to be aggressive at adjusting our production, to take advantage of mix and accelerate the development of products that people want to buy. So times like this really represent the best opportunity for us to make progress against our competitors to the advantage of our customers.

In the middle of all the swirling storm around us, the marketing sales team at Ford is calm in the middle of the storm working on our brand and working on the plans to launch 10 brand new vehicles in essentially nine months or launching a brand new vehicle almost every month through the summer of next year. We’re also getting ready for our assault on the small vehicle market in 2010.

Since launching vehicles has been such a big part of what we do here at Ford in the coming months, I guess it’s probably important to reflect on where we are with Flex, MKS and of course the F-150. The Flex and MKS, September marked the start of our national marketing launch for Flex and it’s really important for us because of our four point plan to build products that people really want, to look at the quality of customers that we’re getting with our new products. Essentially that’s our plan and I’m really excited to see how customers are reacting to Flex and MKS.

The conquest rates increase every month. In fact our conquest rates now for Flex are higher than any Ford product with the exception of the Escape Hybrid. Flex is attracting a very premium customer, a very high import customer, and at this point in the launch a greater percentage of Flex sales are coming already from California than even Edge. And what’s really interesting about Flex is the transaction price. Our transaction price is already much higher than Pilot and Highlander. Our limited grade is 46% of our mix.

While Flex and MKS are increasing their share of the mid-size crossover and of course the mid-luxury market, monthly sales for Flex and MKS are a little bit lower than we expected a few months ago. But let’s face it, the industry’s a lot lower than we expected and current conditions are affecting sales of every product for every manufacturer.

One of the really interesting things that we didn’t predict about the Flex was our customer situation on residual values for the SUVs they’d be turning in. Many of our customers that are new to Ford buying the Flex are SUV customers and they’re a major source of trade for us and for the whole industry in the crossover area. What we’ve seen is that they’ve been taken out of the market because of their trade position. And we’ve actually been experimenting regionally with some interesting trade assistant incentives that have really responded well for Flex and encourage us on how we deploy our incentives to continue to grow the opportunity with Flex.

The last few months we’ve been obviously busy for more than a year but especially the last few months on the F-150. Today I’d like to give you a quick update because certainly last month the full-size truck was a big part of the month.

Today I’m announcing that we will begin our national marketing launch for the new F-150 in November, one full month earlier than we’d planned. The sell-down of the old models progressed much faster than we thought and the first shipments of the all-new F-150 are on their way to Ford dealers already.

In the last few months I’ve read a lot of comments about what an awful time it is to launch a new truck, and I guess my view is it’s really the very best time to launch an all-new F-150. Capabilities never mattered more for our customers. It matters more today than it ever has in the past. The people buying trucks today are different than the people buying six months ago, and the all-new F-150 has class-leaning payload towing and today’s truck customer is in the center of what we call Build Ford Tough Bull’s-eye.

Plus we recently announced the SFE package offering unsurpassed fuel economy of 21 miles per gallon highway and the F-150 truck has been America’s best selling truck for 31 years in a row. We’re planning to extend that streak in 2008 with a truck that is the industry standard for capability and fuel economy.

George Pipas

Just one more item to cover before we start the Q&A session. I covered the retail and fleet variances when I talked about Ford’s sales. Let me just hit inventories before we conclude this segment.

At the end of September we had 159,000 cars, 315,000 trucks, 474,000 vehicles in total. At the end of August we had 461,000 vehicles in total so we’re up slightly 13,000 units from the end of August to the end of September. Cars are what’s up in terms of inventory. We went from 142,000 at the end of August to 159,000 as I said at the end of September. The overall truck inventory is down by 4,000 units but the F Series inventory is down by about 20,000 units.

As Jim alluded to, we’ve made great progress. At the end of June we had 135,000 or so F-150s in stock and that was whittled down by about 40,000 in two months’ time as we began the month of September, and it’ll be down by another roughly 30,000 to 40,000 units by the time we commence the launch that Jim was talking about during the month of November. That is great progress in something that was very important before we start talking about even in more detail but the product capabilities in launching our truck on a national basis.

With that, I’d like to begin the Q&A. We’ve covered a lot of subjects in a short amount of time. Let’s find out what’s on the minds of our participants today.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from [Brian Johnson] - Barclays Capital.

[Brian Johnson] - Barclays Capital

Can you quantify in terms of the US light vehicle SAAR the impact of the credit crunch and maybe break it down between various issues like subprime buyers not being able to get credit, over allowances if you could comment on are those being tightened down, and is that costing sales and so forth?

Emily Kolinski Morris

I don’t think there’s really a way to quantify the impact for a couple of reasons. First of all at this point we don’t really know the extent of the crisis so it’s hard to say where things might settle. But from a more technical perspective, what we observe in the market is the interaction of all of the factors that you mentioned and others.

So for example if we see a decline in the provision of credit to subprime customers, we don’t really know how much of that is the supply of credit available for those customers, how much is tighter lending standards, how much is the fact that consumers’ situations have become less favorable and so they are not in the market and not demanding credit, so there’s really not a way to break out all those factors individually because they affect each other in some significant ways.

Now, has there been an impact and do we expect to see an impact going forward? Absolutely but I don’t think there’s really a reasonable way to quantify that at this point.

[Brian Johnson] - Barclays Capital

You mentioned subprime and Jim mentioned trade-ins. Jim, what is happening on the credit front with rolling the old negative equity into the new loan? Has there been a change in the industry or at Ford Credit around standards for that and what affect’s that having?

James D. Farley

Well Ford Credit hasn’t changed its policy. It’s actually the customer that’s going through the change. And to answer your first question or my addition to Emily’s comment is that the hardest part to be able to quantify, and no one should be able to give you a number because no one knows, is the number of customers that just don’t have access to credit, who want to buy product and try and just can’t. And unless you do a rejecter study it’s very difficult to quantify that.

In terms of negative equity, we’re seeing two developments. First of all, a lot more cash on the table. Almost all of the manufacturers are, especially some are really focusing on cash offers. That gives customers more flexibility when it comes to a negative equity. The second issue is that we’re seeing more requirements for higher downs just for over allowance and negative equity, a lot of reasons. Obviously the financial institutions just want the customer to be more committed and that requires a higher down.

[Brian Johnson] - Barclays Capital

But Ford Credit isn’t requiring higher down payments?

James D. Farley

No. It’s based on the customer. If the customer’s credit is deteriorated or they have a different financial situation than they would have if they shopped a year ago, then of course the credit company is going to deal with that transaction differently. But the credit company isn’t changing its business policies or practices. It’s the customer’s situation that’s changing that they have to react to.

[Brian Johnson] - Barclays Capital

In terms of the banking system, are the down payments going from 20% to 30% or is that a rough indication where they’re going?

James D. Farley

Generally up. I think what we’re seeing for sure is the negative equity part is requiring the down payments to go up in kind of the range that you mentioned.

Operator

Our next question comes from Christopher Ceraso - Credit Suisse.

Christopher Ceraso - Credit Suisse

Was there any evidence in showroom traffic or your interaction with customers as we got toward the end of the month that level of paralysis increased? Was there a decline in activity at the end of the month?

James D. Farley

I’d characterize it this way. Only GM closed in the last 10 days. I mean, this was a 10-day period; we used to do 10-day SAARs. This is back when I first started; 10-day sales reporting. So there’d be SAARs for each of the 10 days. I guess I’m not going to speculate as to what the SAAR might have been in the last 10 days but it was extremely weak.

When the crisis emerged on Wall Street and the debate started in Washington, CNN I understand was the most watched program over this past weekend. It was tantamount really to a natural disaster and the kinds of showroom traffic and ups in the showroom that we’re accustomed to, the events of a large storm or I hesitate to say immediately following the 9/11 situation. The 10-day sales in the last 10 were extremely weak and most manufacturers’ activity fell off sharply.

George Pipas

Chris, the only thing I’d also like to highlight is there was some unusual fleet activity that we saw as well towards end of month that was really highlighted maybe the SAARS strength more than it normally would be which is really interesting when you see how that plays this week.

Christopher Ceraso - Credit Suisse

One quick follow up on the production schedule as it stands. I think you’ve got cars in the fourth quarter down about 9.5% year-to-year. In the month of September here you were down about 19%. Is it safe to say that if sales continue at this pace, then the Q4 car schedule’s at risk?

George Pipas

I wouldn’t want to comment on fourth quarter at this point. A good question but at this point in the calendar year when we’re just three weeks ahead of the next financial results call, we’ll update you on our 4Q production guidance and where we actually came out in the third quarter at that point, just three weeks away.

Operator

Our next question comes from Patrick Archambault - Goldman Sachs.

Patrick Archambault - Goldman Sachs

Has there been a sharp increase in “prime” customers not getting bought? Clearly we’ve seen the impact of tightening credit before in recent months but most automakers have really chocked most of that up to lower quality buyers on the credit side not being able to fund financing. Has that really worked its way into that upper echelon of credit?

George Pipas

People with good quality credit ratings can go to a Ford or Lincoln-Mercury dealer or any other dealer probably for that matter and they’ll fall all over it. But here’s the situation and Emily alluded to it Patrick. Anecdotally and feedback from our dealers, there are customers who are adopting a wait and see attitude.

You can have bulletproof credit but when the Dow falls 770 on Monday, I can guarantee you there weren’t too many people closing on a car deal or an HD TV set or a home on Monday. This puts a level of cautiousness. The more bulletproof credit rating, the higher income person, that’s also the person that’s probably taking a look at their 401(k) when it’s released the next morning and saying, “Look, I need a car. I’m ready to buy. Maybe a couple three months from now.”

So we’ve got I think an atmosphere of caution that is prevalent right now and probably will persist for some time until we start to digest the facts of the day.

James D. Farley

We saw a very interesting trend regionally last month. California and Southeast and lesser extent all states, that was more weather related, but the Southeast and California were where most of the industry decline was. It was substantially geographically distributed very differently than the past. That tells me that customers are very sensitive to the psychology of spending.

Operator

Our next question comes from Mark Wamsman - Calyon Securities, LLC.

Mark Wamsman - Calyon Securities, LLC

Jim, the cost of Ford Plan is getting more expensive whether at the dealer level or through Ford Plan subsidies to dealers at the company level. Are you taking any steps to reduce inventories that are considered ideal? Over and above just getting truck and SUV inventories back in line, are you working with dealers and in what ways to reduce the level of inventories that are considered ideal as a means of reducing the cost of Ford Plan?

James D. Farley

Mark, great question. We have had an unprecedented I’d say in Ford’s case, going on way before I got to Ford, effort on simplification. It’s really dramatic. On a vehicle like Ranger we used to have literally just less than 10 million combinations. We’re down to just a couple thousand now.

With the new F-150 and all the new launches, we have all these new products coming, we have just a dramatically different simplification plus we’ve invested in IT projects that allow our dealers to order what is going to, in turn, turn. And we do think this project and this effort will have a pretty big impact on our natural day supply for dealers. We’ve been working on this but really the payoff’s going to be coming now with these new launches and in 09.

Albeit that, to be honest look at our F-150 situation as George mentioned, we were very aggressive at adjusting because we have a four-day supply that we manage all of our vehicle inventories to. And frankly right now we’re getting down in the 70,000 unit range of our F Series, which is great. It’s a couple months supply, plenty enough to turn the product. So I think our inventories have never been in better shape.

We’re going to have to watch the car market carefully Mark because the car market the last 60 days, especially the last 30 days, as George said has been a very different kind of market. Although our share was very strong in cars last month, the overall car market itself was a little bit on the weaker side of the total industry. So we’ll have to watch the cars carefully because our share again is very robust.

The only concern we have in inventories going into the third quarter obviously was pickup truck and we’re in great shape.

Mark Wamsman - Calyon Securities, LLC

Given the simplification that you’ve undertaken, should our expectations for day supply change? Should we valuate a good level of inventory at being in the 40-day range as opposed to the traditional 60-day range?

James D. Farley

Really that has to do more with our dealer network and the distribution of our network plus our mix of products. Really how we’ve looked at this simplification is the freshness of the inventory, how fast it’s turning, and the appropriateness of the inventory. It’s almost like the quality of the inventory more than just a number of day supply.

You’ll see us as the market stabilizes and the segmentation stabilizes, naturally the way we manage our business and run the railroad, we will have a lower day supply than we’ve been in the last couple months just because of the truck inventory. But the simplification project that will pay off is our incentives, our pricing and the freshness of our inventory; our aged stock; what percentage of our stock is aged.

Operator

Our next question comes from Rob Lache - Deutsche Bank Securities.

Rob Lache - Deutsche Bank Securities

The NADA has been putting out statements saying that several hundred dealers have closed this year, which I guess isn’t surprising. But can you give us a sense of what kind of contraction there’s been this year within Ford’s dealer base and how that might affect normal inventories? And secondly, maybe for Emily, scrappage obviously is a bit cyclical but do you see some kind of floor for what sales would do based on scrappage? Is there a precedence historically for the population of vehicles in the US declining over any period?

Emily Kolinski Morris

As you correctly point out, even though scrappage is kind of one of the physical underpinning of industry demand, it certainly has a cyclical component as well. And as we’ve looked at the data in the past couple of years, it’s interesting that even as the durability of vehicles continues to improve the median age of scrapped vehicles was actually coming down. And unfortunately the data are annual and they lag a bit but it really doesn’t help us to assess what’s happening in the midst of the cycle. But I think what it says is there is plenty of room for consumers to delay purchases even purchases that are being driven by replacement demand.

Another factor just to think about is the list of declining vehicle miles traveled that we’ve seen associated with higher gas prices over the past couple of years, that also takes some pressure off of the replacement demand cycle as you’re extending out the time over which consumers can hold those vehicles.

Rob Lache - Deutsche Bank Securities

Is there a precedence for the population of vehicles declining even if scrappage stays at maybe 13 million or something? Is it up?

Emily Kolinski Morris

An outright decline in the vehicle in operation or do you mean registration?

Rob Lache - Deutsche Bank Securities

Right.

Emily Kolinski Morris

Not in this country, I don’t think so. No. The problem is when we go too far back, the data just aren’t that good. I mean we’ve certainly seen for example in emerging markets but those are markets that are much further from saturation levels in terms of the overall [inaudible]. So I’d have to look into it a little bit in more detail but I don’t think that we’ve seen that in the US in sort of what we’d call modern times.

Rob Lache - Deutsche Bank Securities

You’re not seeing a trend of people going from maybe three vehicles in a household to two or two to one, that kind of thing at this point?

Emily Kolinski Morris

I think relative to the size of the overall population, that probably wouldn’t be enough to drive an outright decline because we still have 1% population growth and new drivers coming in at a rate of 1 to 10. So I think that would be a bigger factor than the reduction in individual fleet.

James D. Farley

On the dealer consolidation, Ford’s been working on the consolidation for many years and this year we’re on track. The market is helping.

We really are feeling for our dealers right now on the profitability issue because they’re facing the same thing we are. But really what we’re seeing is the number of transactions in consolidations is on par with where we had planned. We’ve been working with our dealers metro by metro and cooperating together on our consolidation efforts. But they are seeing obviously more stress because they’re affected by the credit market even more than we are in some ways because they’re caught between the consumers and credit themselves and they’re downstream from the manufacturer.

I would say no big surprises for us yet although the profitability of the dealers is obviously a big concern for us.

George Pipas

Let’s move over to the journalists that are participating in the call. And if time permits, we’ll come back to the investment community.

Operator

Our next question comes from Bryce Hoffman - The Detroit News.

Bryce Hoffman - The Detroit News

I know this is a little bit crystal ball gazing Emily, but if the bailout goes through do you expect to see a relatively near-term change in the availability of credit for consumers and therefore an uptick in sales or do you think that will take longer to work its way through the system?

Secondly, and this is I guess more for Jim, has any of this changed your fleet strategy? I mean, you guys have been holding the line on that it sounds like but I’m just wondering if there’s any re-evaluation going on in that front?

Emily Kolinski Morris

The credit situation is affecting on a lot of different levels. I think we would certainly hope that if some sort of financial rescue bill does pass that the immediate effect would be an alleviation of the freezing up in the short-term credit market. Now that is not so much directly affecting consumers right now; that really is more of an issue for businesses. But it certainly does have a trickle down affect as places like finance companies and other businesses need to be able to make their payroll and fund their operations.

For consumers I think the affect will probably take a little bit longer but what we really need to do is set those short-term markets to open up and get the ball rolling again. So it just can’t happen until we get that necessary first step of opening up the short-term credit market which would be helped by passage of some sort of package right now.

James D. Farley

Our fleet month in September was I think the lowest we could ever see on record. We can’t give you a percent but it’s substantially lower than our competitors. We did see some unusual fleet activity which is even more interesting given that we do have such a close relationship with our fleet customers, what we’re seeing is the rental car companies are de-fleeting. No doubt about it. They’re keeping their product longer and that is making the negotiations with the rental car fleets, the little that we do now, it’s really evolved the conversations especially the last three or four months because of access to capital. They are acting very differently than they have in the past.

The same goes with commercial especially as we get toward the end of the year. Everyone has budgets. The gas budgets, the petrol was o expensive that we are seeing and we’ve had to dial up the dialogue with our commercial accounts considerably to really understand what the natural demand is for next year and going forward given what we’re seeing in the end of the year as they go through their budgets. I think really it’s beyond budgets; it’s actually access to capital for some of those companies. A lot of them are small companies and they really depend on the credit availability to fund their vehicle fleet purchases.

So it’s very connected with what Emily said, and that makes some of the activity in the fleet market even more curious that we saw last month.

Operator

Our next question comes from Tom Krisher - Associated Press.

Tom Krisher - Associated Press

I was wondering if you could tell me if you have raised your floor plan interest rates and does that mean dealers are taking on fewer cars, and if so, what impact that has on inventory and the stock for consumers?

James D. Farley

The credit company effective November 1 has raised their floor plan expense financing by 50 basis points. We won’t see how dealers will react to that but I think that reflects the market realities today from funding and cost of credit.

George Pipas

Which means all the more important that we keep managing our production and doing the kinds of things that Jim mentioned earlier to keep inventories pretty tight during this period of time where consumer demand is slower.

Tom Krisher - Associated Press

Wouldn’t it stand to reason though that if it’s costing me more in interest to keep X number of cars on my lot, I’m going to not order as many cars? So it doesn’t bode well for you guys’ numbers in the future I would think.

James D. Farley

To be honest Tom, the way we manage the business here with our four-day supply planning, other than unusual situation with the full-size trucks starting in April, we don’t have wholesale issues. We haven’t had any kind of wholesale issues with our dealers. And in fact there are a lot of instances where the dealer, again we’ll see with 50 basis point change, but to be honest we don’t expect any change in the stocking levels by our dealers. Of course their costs will go up but we don’t expect any issues.

Operator

Our next question comes from Sharon Carty - USA Today.

Sharon Carty - USA Today

I’m wondering if the sales that we saw this month will mean that we’re going to be seeing sort of production cuts within you guys? And I was also wondering, George you brought up the whole September 11 affect where consumers just weren’t coming in. After September 11 it seemed like the industry got revenue again with 0% financing. How do you get the consumers back when something like this happens? Are you just waiting and riding it out at this point?

George Pipas

As far as the production goes, let me just reiterate that if there is any change to our near-term production schedule, we’ll discuss it when we announce third quarter financial results. The September sales call is typically not a point in time when we try to get out ahead of matters that pertain to guidance.

As you know, our second half production schedule Sharon was very lean to begin with. Third quarter production was 34% lower than a year ago. Fourth quarter production was planned 27% below a year ago. So we assumed when we put the plan together that we were going to be facing a sales rate in the second half that was right around the 13 million range.

Now we’ll have to see where it comes out but that seems to be about where it landed in the third quarter. We’ll update you in a few weeks when we do the earnings call.

James D. Farley

One thing I’d just like to mention though, relative to our launch of F-150 we will be building more F-150s and we’ll give details later.

George Pipas

Sharon, I think in some ways you have to tough this out. It’s very, very hard to make a market and I think that the consumer responded to 0% financing in October of 2001. But while the economy was weaker than it was let’s say in 1999 and 2000, I think the situation that we’re in right now, I don’t mean all the motor companies, I think the situation in the US economy is a little testier and quite a bit more problematic than it was in the fall of 2001.

So the best thing as Jim said that we can do is just to concentrate on the business plan and execute that plan so when the market gets ready to come back, we’ve got a lot of new products, we’re ready to launch the small cars in 2010. And fundamentally you’re going to have to see the housing market improve. We’re going to have to get through this credit situation before we see any kind of sustainable increase because sales today that are generated let’s say totally by merchandising will be probably paid back in the months to come, and we certainly do expect to see that.

Operator

Our next question comes from David Kiley - BusinessWeek.

David Kiley - BusinessWeek

GM said that it’s losing 10,000 or 12,000 sales a month by its estimate due to the credit crunch. I’m wondering if you could put a hard number on it?

George Pipas

No. We’re not going to put a hard number on it. Our view is as expressed by Emily it’s very, very difficult to put a number. There are too many factors, too many variables in play here in this market to try to identify how much of it is due to tight credit and how much of it is due to consumers’ cautiousness in an already weak economy.

David Kiley - BusinessWeek

And for Jim, can you ballpark at all by the end of the year what kinds of decline year-over-year we’ll see in Ford’s market spend?

James D. Farley

You mean in terms of fixed advertising?

David Kiley - BusinessWeek

Yes.

James D. Farley

No. I’d love to give you a number but we don’t have a tradition of giving out and being transparency on our advertising spend. I will tell you though, let’s face it, this market is the merchandising market and we’ve seen the revenues drop off for our dealer ad groups, our Tier 2 advertising. Everyone has as the volumes dropped off but that’s something that year-over-year we saw.

And to be proactive about it we launched a Tier 3 dealer advertising co-op so that the dealers themselves despite all the pressure they have on their finances and their profitability, they would continue to advertise. And that was our attempt among other things that we’ve done to continue to have a face.

And I also have to say we’re launching a lot of new products so that kind of drives your spend and becomes very spotty in terms of quarter. We’ll obviously have a big huge F-150 launch starting in November and then we go into a bunch of launches next year.

I’d love to give you a number. Obviously we have it both for our dealer ad groups, Tier 3 and Tier 1, but I would say fourth quarter will be a particularly good part of the year for our spend.

George Pipas

It’s time to wrap it up. Obviously we’ll be watching carefully and be anxious to meet with you again at the end of October to see how the situation unfolds. Thanks everybody.

Operator

Ladies and Gentlemen, thank you for your participation in today’s conference. This concludes your presentation.

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