Ford Motor Company (F) Presents U.S. November 2018 Sales Conference Call (Transcript)

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About: Ford Motor Company (F)
by: SA Transcripts

Ford Motor Company (NYSE:F) Ford U.S. November 2018 Sales Conference Call December 3, 2018 10:00 AM ET

Executives

Mark LaNeve - Vice President, U.S. Marketing, Sales and Service

Bryan Bezold - Senior Economist for the Americas

Erich Merkle - Head of U.S. Sales Analysis

Analysts

John Murphy - Bank of America

Colin Langan - UBS

Brian Johnson - Barclays

David Tamberrino - Goldman Sachs

Keith Naughton - Bloombe

Operator

Good morning, my name is Marcella, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Ford Monthly Sales Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Erich Merkle, you may begin your conference.

Erich Merkle

Thank you, Marcella. Good morning, everyone, and welcome to Ford's November 2018 U.S. Sales Call. Today, we are joined by Mark LaNeve, Ford's Vice President, U.S. Marketing, Sales and Service; and Bryan Bezold, Senior Economist for the Americas.

So, to get things started here, let me flip things over to Mark, where he’s going to give you some industry and Ford detail for the month of November. Mark?

Mark LaNeve

Great. Thank you, Erich, and good morning, everyone. The industry in November had a really steady consistent performance. Much in the range has run in all year as it continues to perform solidly as we head into the last month of 2018. As we scan through the data this morning, remember we closed on Friday evening of last week, it would appear total sales, including medium and heavy trucks, were off about 3% or so with what we believe was almost 1.4 million vehicles sold. This will translate into an industry SAAR in the mid to high 70 million vehicle range for the month. Year-to-date, as I said, has been -- it’s consistent. The industry is running about 17.5 million to 17.6 million vehicles.

At retail, we believe the industry produced 1.13 million vehicles sales, which would be placed down 2% to 3%. Incentive spend continued to show discipline in the industry, which was -- it was down about $250 relative to last year. As one might expect industry incentive spending was up in November relative to October with the promotional holiday spending and Black Friday events, but only by a modest $100 sequentially from October.

Moving on to Ford, our overall U.S. sales were down 6.9% last month with 196,303 vehicles sold. As we indicated on our October call, fleet sales were down from November and will be down in December due to timing of our daily rental orders. In November, overall fleet sales were down 7%, and that was driven by a 33% decline in daily rental volumes. Commercial vehicles on the other hand continued to be strong, up 12% last month providing us with a year-to-date increase of 5% for this very steady and strong part of our business.

Our retail sales were off 6.8% last month from strong November a year ago. Passenger cars were off 20%, as we’re feeling the decreases in our Sedan portfolio that we've talked about. Focus, for example, is relatively sold down and we only have about 12,000 units remaining an inventory from a normal running rate for the past few years of 40,000 or 50,000. And Focus, just by itself, was down 5,000 units for the month on a retail basis, which accounted for half of our year-over-year retail mess.

We are also closely managing lease penetration and incentive spending on our SUVs that are scheduled for changeover next year. We will continue to do so as we move toward the changeover of Explorer and Escape as all new models in 2019. What we're seeing as the benefit in our transaction pricing is our mix of trucks and SUVs to cars last month was 82%, which is three points higher than a year ago, all providing us with record transaction pricing for November. Last month, we saw a $1,600 increase in ATPs producing a record $37,000 per Ford vehicle sold.

Let's look a little further, some individual vehicle performances for the month starting with F-Series. F-Series had another rock-solid month with 72,102 sales, and again eclipsed to 70,000 truck mark. This represents a record nine straight months of F-Series sales topping 70,000 trucks. F-Series sales continued to be very consistent growing both share and transaction pricing this year. This is a consistent performance by a high volume, high margin product, unmatched in the industry. With over 821,000 F-series pickups sold through November, we are on pace to exceed 900,000 pickups and celebrated our 42nd consecutive year as America's best-selling truck.

F-Series transaction pricing continued to run at record levels at $47,000 for the light-duty pickup last month. A particular note I wanted to mention Super Duty, while pricing was up over $3,000 at $58,400 per Super Duty truck. By the end of the year, we probably are going to sell sold around 300,000 Super Duties. And if you take that kind of volume, 300,000 at mid-50s, in the case of November, $58,000 per truck, that compares very favorably with premium brands such as Lexus and BMW. This is testimony to what a great asset, Super Duty, has for the Ford Motor Company. It also gives me great pleasure to tell you we have begun full production of our new Ranger mid pickup at our Michigan assembly facility right here in Detroit that's begun this month. We're certainly excited about bringing back this great product after a seven-year hiatus.

Moving on to SUVs, calendar year-to-date Ford SUVs continue to outpace the year ago with sales up 0.8%. We have moved 726,495 SUVs through November. Combined trucks and SUV sales through this -- through November of this year totaled 1.825 million units more than any other brand. We're going to be really close to 2 million mark for combined trucks and SUVs this year. We are really looking forward to a strong lap of all new SUVs coming next year beginning with all new Explorer and Escape.

Taking a look at Lincoln. Lincoln had a real solid month with sales up 3.3% last month. We continue to see strength coming from our all new Navigator, which was up 27.3%, and increased its ATP by $26,000. Lincoln Black Label Navigator, our high series continued to be in strong demand averaging just 14 days on dealer lots in November.

We're starting to get some feedback and statistics in on our new Nautilus, – our mid SUV. Nautilus performance pushed -- worked to push an overall volume increase for combined MKX and Nautilus sales for 3,153 SUVs, representing a 20.4% overall gain and a stronger 27.3% jump at retail.

At the recently concluded LA Auto Show, we showed off the first production version of our all new New Lincoln Aviator that’s set to go on sale next summer, can't wait as we have so much positive feedback from our dealers in the media on this crucial next product in the Lincoln Renaissance.

With that, I would like to turn it over to Bryan for an update on economics. Bryan?

Bryan Bezold

Thanks, Mark, and good morning, everyone. The economic data released over the last month show that the U.S. economy continued to expand in October and November with limited inflationary pressures, but also on an even housing sector. The second estimate of third-quarter GDP growth, which was released last week, was unchanged from the initial estimate of 3.5%, albeit with slightly more fixed investment and slightly less consumer spending than shown in the initial estimate.

Other data released over the last month imply that economic growth is continuing into the fourth quarter, although likely at a slower pace than in the second and third quarters. Specifically, new claims for unemployment insurance have edged higher in recent weeks, but are still at very low levels. During the week ending November 24, there were 234,000 new claims for unemployment insurance, which was up from 224,000 the prior week and brought the four-week moving average to 223,250. The low level of claims suggests that when the November employment is released on Friday, it will show continued employment growth.

The University of Michigan's consumer sentiment index fell 1.1 points to 97.5 in November, primarily on weaker, but still relatively high expectations for economic conditions over the next 12 months. The share of survey respondents reporting that it is a good time to buy a car was unchanged from October at 59%. The November manufacturing PMI rose 1.6 points from October to 59.3 on faster growth of new orders production and employment. Consistent with that recent run of relatively strong PMI numbers, October industrial production rose 0.1% from September. A 0.3% growth in manufacturing output was partially offset by declines in mining and utility output.

Housing sector performance was mixed in October. Housing starts rose 1.5% to a seasonally adjusted annual rate of $1.228 million as strength in the multifamily segment offset a 1.8% decline in single-family starts. Permits for new home construction fell 0.6% to 1.63 million unit annual rate. Sales of existing homes rose 1.4%, but sales of new homes fell 8.9%.

October inflation-adjusted disposable income rose by 0.3% from September and by 2.8% from a year ago. Inflation adjusted personal consumption spending rose 0.4% from September and 2.9% from a year ago. The price index used to adjust personal income and spending data rose at a 2.0% year-over-year rate in October, and by 1.8% after excluding food and energy. CPI inflation also remains subdued in October, rising at 8.5% year-over-year rate and at a 2.1% rate after excluding food and energy. Overall economical conditions in the U.S. remained solid and should continue to be supportive of vehicle sales at a high level in line with the recent run rate in the new 17 million unit range.

With that, I will turn it back over to Erich.

Erich Merkle

Thank you, Bryan. And just to give a final wrap here taking a look at the highlights here from November from a vehicle segmentation perspective. If we take a look at small SUVs, small SUVs in the month of November, we estimate -- we entered about a quarter of the retail industry so they continued to be very strong. That’s about four points higher than November of last year when it was about 21% of the retail industry.

One of the other larger segments, the midsize SUVs, they represented about 15% of the retail industry, which was largely consistent with year ago. Midsize cars, they lost a point, representing now just about 8% of the retail industry last month. Small cars, they continued to drop -- they represent about 12%, which would be about a two point drop versus year ago at about 14% of the industry last year. And full-size pickups represented about 14% of the retail industry in the month of November. So a good, pretty impressive turnout from full-size pickup trucks as well.

With that, Marcella, we’re going to start opening the lines up, and we’re going to start with the analyst community first. Thank you, Marcella.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John Murphy from Bank of America. Your line is open.

John Murphy

Just a first question on Explorer and Escape wind down and launch next year. I'm just curious you're managing the inventory down to protect residuals and pricing there. I’m just curious sort of what the experience is there at the dealership base and with customers, kind of what you're seeing in the market, how much you were able to hold on to pricing on those older products? And how much that will benefit the launch, and exactly sort of when the launches will be? I think you said the Aviator was in the summer. So, I’d imagine the Explorer might be a little bit earlier than that, but just trying to gauge the timing on that as well.

Mark LaNeve

Yes, John, thank you for the question. Escape is -- Explorer is first and then Escape comes second in terms of launch cadence next year. So we’re managing the inventories very carefully. As I said, we’ve been disciplined. What you got to watch for with the launch of new vehicles is the price from the last -- the last price on the oldest to the new price on the newest and managing that move for our customers and for our dealers. And so, we’ve been very disciplined and we’re not driving up lease penetrations. We're being disciplined on the amount of incentives that we have out, the amount of inventory and trying to really preserve residual value, and the cost to trade for our customers when they come into those. You’ll be able to get a great deal on the old one, but we want to make it a real high-value purchase when we introduce the new ones.

John Murphy

But the experience in sort of this active management of winding down or leaning out the inventory seems to be a little bit more active than it has been historically? I mean, how has the experience been here? I mean are the dealers kind of complaining or do they understand? Or the customers, I mean are the older customers going to be benefited by higher -- much higher visits. I am just trying to understand what your -- what’s changed here and how good a benefit you’re going to get from it?

Mark LaNeve

Well, if I am understanding the question correctly, we’ve adequate inventory for the dealers to maintain a healthy sales pace of, say the old Escape as it’s -- the current Escape is coming, getting phased out, and then the current Explorer as we switch over in Chicago to the new Explorer and the new platform, and whereas I would say somewhat differently than previous years where you would really be aggressive on incentives, very late. We’re judiciously managing over a couple of quarters to make sure that we have the right balance so that when we get to the -- so when we get to the new one, it's -- the vehicle holds its price position in the marketplace, and we’ve done a better job of that of late.

John Murphy

Okay. So the weakness that we’re seeing of down 14% on the Escape, and 18% on the Explorer, I mean that’s not being managed. You’re saying that that's what happening in the market. I am just -- I mean, it just seems like there’s an active management component?

Mark LaNeve

I get what you are asking. Yes, that’d be a byproduct of -- the vehicles are relatively old in their lifecycle. We’re not spending a tremendous amount. We’re not spending incentive dollars to drive a number. We’re spending what makes sense for our profitability and retaining the residual value of the product.

John Murphy

Okay. Got it. And then maybe just one quick one …

Mark LaNeve

I didn’t understand you are referring to the year-over-year decrease. Okay. Go ahead.

John Murphy

Yes. It just seems like that's not what's going on in the market. You are actively managing this which should present, protect resids, which should support pricing on the next product, and I am just trying to understand how good a benefit you are expecting and how well that’s going…

Mark LaNeve

Yes. You sacrifice a little bit of volume. That's correct. In the case of our SUV portfolio, we're making it up with EcoSport, which is incremental business for us at the lower end of the market, and expedition increases at the upper end as well as overall Ford Navigator and Nautilus.

John Murphy

Okay. And then just maybe -- just one last quick -- sort of broader question, I mean, when you look at what's going on with pricing, it seems like as sales were coming down, there’s price discipline across the industry. Your sales were down almost 7% in the month, but your ATPs were up 4.5%, so the net is down almost 2.5% on the revenue. But because of mix, I got to imagine it's a more profitable mix than your last November on a year-over-year basis. Is the industry really finally kind of getting this price discipline and leveraging mix to offset this decline, but will maintain this price discipline? Or as rates back up and mix maybe goes negative, the price discipline maybe sort of washed out to some degree? I'm just trying to understand how sticky you think this price discipline is in the industry and at Ford?

Mark LaNeve

It's a great question, John. I believe the price discipline is being -- I believe the ATP performance, let me start there, it’s being driven by the shift out of passenger cars and Sedans and SUVs and trucks, customer is desiring the latest safety and connectivity, technology sort of order in a richer mix of series mix, option mix. We're certainly seeing it. We're seeing it across the industry. And then to a lesser extent, the incentive discipline, I -- compare to other points in my life in this business over 36 years, certainly it feels like -- and I know, it's certainly the case with Ford that we're not managing to a market share number, we're managing to a more optimal mix of profitability, inventory management, and protection of residual values and the cost of trade for a consumer. Certainly it appears, I know, that’s case in Ford and it appears to be that way across much of the industry.

Operator

Your next question comes from the line of Colin Langan from UBS. Your line is open.

Colin Langan

Any color on the full-size pickup segment of the pipe. I know one of your competitors are reporting how to quite a big year-over-year increase? I mean are you holding your share back because your share was also pretty good? And how is pricing and incentives in the segment [Indiscernible] …

Erich Merkle

Yes, the segment went hot going in the month of November when would you have it at 14%. It normally runs 13, so it ran hot. We were over 70,000 units, which is always good month for us. At 72,000 for the year, our market share on combined F-Series is up slightly. So we feel in the face of really aggressive merchandising and two new pickups from primary competitors that F-Series continue to perform well at Super Duties are astonishing, I mean if you think about $58,400 per Super Duty pickup for the month. And we've been well above $55,000 transaction price all year doing closer to $300,000 by the time it's more clears. As I kind of have indicated, that's kind of volume and pricing that a BMW or Lexus does. We don’t think about it that way. But that's just a great asset and testimonial strong is truck franchises for us.

Colin Langan

So any sense how your competitors are more price disciplined right now? There is no big incentive with just the new product driving segment?

Erich Merkle

They are aggressive. If you check the numbers that are available, I would say both Ram and GM, and certainly Nissan are being aggressive in the marketplace. But I wouldn't call it anything alarming. GM is still really selling down their older ones. So you would expect them to be spending some money. We got Ram's building both the old and the new, any other. They have been aggressive in the market, and we are aggressive in the market. But despite all that, the percent of MSRP selling price for us is solid. And our transaction price performance continues to be solid over $47,000 on light-duty, $58,000 on super duty.

Mark LaNeve

And if you look at the average for the segment, Colin, it's about $4,700 per truck for the full size pickup segment overall. Some of our competitors are over that average. And for the month, we were at about $4,400 per truck. So we are certainly under that average for incentive spent.

Colin Langan

And then any color on the car, because cars were down, but if we take out the Focus, which is not bending and I imagine you are running at an inventory there. The PMGPS taxes were quite good, but you indicated that segment was down. So are you gaining share there? Or is it just a re-volatility? I mean, what was going on, I guess, for the diffusion and possibility?

Mark LaNeve

We were down big in fleet on daily rental on almost across the board on our passenger cars with the exception of Fusion. We had a year-over-year increase on fleet. Fusion retail was actually decent for the month. I think mainly because we were propping it up a year ago. When it started to slide a year ago, we were down, as you know, we talked about 20% 25% month-in month-out. So we have kind of hit that water level. And as I said with territory maintenance, we're not -- we are going to be in the market with the Fusion for quite a while. We haven’t announced the end of production date. And we did post the 9,700 retail Fusions for the month, and we had months. Since I've been here, we did 20,000. So it's down significantly. But on year-over-year basis, fairly flat and pretty stable performance.

Operator

Your next question comes from the line of Brian Johnson from Barclays. Your line is open.

Brian Johnson

I just want to follow-up on pickup trucks, couple questions. First, there's been some weakness in the housing market, want to see if you see any signs of that over on that pickup truck side. Also oil and gas have been pretty volatile, ran up, ran down, now maybe going up again. Has that had any impact on large pickup demand?

Mark LaNeve

Great question, Brian. There's historically been correlation to both of those factors, strong housing and oil explorations et cetera to the truck market, but we have not seen any impact this year. The truck segment's been very steady all year with great pricing dynamics, fairly good volume and we have not seen any impact. But then, again, housing didn’t run -- hasn’t run your record high throughout the whole recovery here. So there's still room to run on housing. It's still to go much higher, but great solid truck year. We haven’t seen any impact at all really.

Erich Merkle

We have to be careful about being so precise in housing too. I mean housing might be down some months a little bit, but essentially what we have is more of a plateau in the housing sector. It's not really significant decline of any means.

Brian Johnson

And then you talked a bit about the competitive environment earlier. But just drilling down, your competitor Ram is following the kind of run out -- continued to produce the old not just run it out while launching the new. And also they are targeting with the new truck, a higher ATP with the features they have. Are you seeing any impact of that in the market? And how would you gauge the success or lack of success of their two-pronged strategy?

Mark LaNeve

We have not seen an impact on our business. As you see, we’re very pleased with the volume. And our share performance actually raised in the month of November, our ninth straight month over 70,000 units at record transaction pricing both light-duty and super duty. So in the face of aggressive competitors and two new products, we continue to perform very well. And I am pleased with our performance. And December is a huge month for pickups as well, so we’re gearing up for that.

Brian Johnson

And then, finally, strong increase in the trends and especially in the retail, which I assume, would include fleet tail. Any color on what’s driving that? Is it just small business that? Do you have a sense of the economy or there’s something going on with market shares in that like commercial van segment?

Mark LaNeve

We got a new Transit Connect, it’s a new product in the market. I mean it’s had a significant upgrade to the existing Transit Connect products. It’s a great value for a six-passenger people mover as well as all its commercial applications. We’re up 70%, our retail and Transit Connect during the month of November. We are up 3%, on our full-size transit van on a retail basis. Fleet was actually down on both vehicles, mainly driven by rental. So that continues -- our van franchise continues to be a great asset for us. As we talked about we’re trying to build winning portfolio on SUVs, vans, trucks and our performance business. And certainly, during the month, trucks, vans and our commercial business and SUVs all performed well.

Operator

[Operator Instructions] Your next question comes from the line of David Tamberrino from Goldman Sachs. Your line is open.

David Tamberrino

One string of questioning for me. Just wondering what you’re seeing at an industry level for retail sales. I think the last couple of months we’ve been down low to maybe mid-single digits year-over-year, and it doesn’t look like the comps are really that much tougher. So I am curious if it’s just a tightening of credit per a senior loan office, there’s surveys as well as rising interest rates that are making it a little bit less affordable for consumers, or if there’s something else that you’re hearing from the dealerships or just folks in the industry as to what’s going on with the consumer and the retail sales sluggishness in the last couple of months?

Mark LaNeve

A couple of things here. We think the year is going to end up 17.5 to 17.6. As I said for the full year, which should be pretty consistent with the year ago or maybe down. What was last year, 17.6?

Erich Merkle

We were almost 17.6 last year, total vehicles.

Mark LaNeve

So that we don’t think by the time we get to New Year’s Eve, that’s going to be that much difference year-over-year in the industry. And that’s still very healthy level in the mid 70 million units as we know. The last couple of years, let me think, '16 and '17, the industry performed weaker in the first half and stronger in the second half.

Erich Merkle

Right.

Mark LaNeve

This year that’s kind of in the office, it’s little bit stronger in the first half and weaker in the second, for whatever reason. So the year-over-year comps are a little bit tougher. We see this down 3%, 4% that you’re referring to last several months. But I think, we continue to be surprised on the outside and how resilient the consumer is. These kind of volume levels, we’ll take it. So we think this year is going to run very consistent with the year ago by the time that everything is done in December.

David Tamberrino

So just parsing through that, it doesn’t seem as if there is anything you're going to assume through your dealerships from a consumer standpoint that will give you any caution as to slowdown until sales that might persist in the next year?

Mark LaNeve

With rising interest rates, payments -- 70% of customers are payment, buying on credit. And payments are inching up. And so you see -- I mean, that's all it puts a little bit of a headwind in the business. But so far the consumer is seeing able to absorb it. And why we are down slightly 3% roughly is what we are calling at this morning year-over-year basis. It's -- we think the industry is going to run 17.5 or above this month. So it's still a pretty good industry.

Erich Merkle

Marcella, we are going to start taking some calls from the folks in the media now if we could, please.

Operator

[Operator Instructions] Your first question comes from the line of Keith Naughton from Bloomberg. Your line is open.

Keith Naughton

Mark, I wonder with the rising interest rates you just mentioned, and more importantly, perhaps the rising transaction prices. If there is an affordability problem that is emerging, you guys are at 37,000 now, which is great for investors, but well above what it used to be and actually what we would've thought of as sort of an entry luxury price. I just wonder if -- and you almost hold out of focus. Are you worried about losing that kind of young entry-level first-time buyer?

Mark LaNeve

Great question, Keith. It's cautionary. But as we stated on the call many times is that the consumer employment is good, wage growth is solid. But as part of the reason, if you go back to some of the earlier questions that we're paying such close attention to protecting the value of our vehicles because you know what really matters when you get to an individual deal or the dealership is the cost to trade that's what drive the payment as you are -- or an equity on your current product, what's the move that you are trying to make pricewise or you are moving up, say from an Escape to an Edge. But we have seen the consumer be really resilient because I think economy is strong, the employment is strong. So it's cautionary as opposed to the recovery from 2010 where payments were very steady or even going down with lower interest rates and the expansion of terms, they are now inching up, but so for the industry and the consumer have done pretty remarkable job of being resilient.

Erich Merkle

I think it's also good to realize two pieces. If you look at this rotation that’s been happening, people moving out of cars into SUVs, people seem to be fine making that jump from a lower-priced car to a higher-priced SUV, and that's been going on for a number of years. But it's been more profound, I think over the last four to five years. But certainly there is a choice out there and people are choosing the higher-priced SUV products over the lower-priced cars.

Mark LaNeve

And typically overtime, when we have seen the movement from -- our customer moves from a car to a SUV, which we have seen and drove, obviously, for seven years running now. Their payments are going up. It may be triggered by a child being born into the household or a job change or economic status or promotion or whatever. But now you've got a lot more choices in SUVs. And I think, if -- we have seen evidence of this payments become an issue for an individual customer. They might move from an Edge to an EcoSport. In our case, we have expanded the lineup as of many of our competitors. So this place is for the consumer to go to address affordability issues, but within the price-performance industries that we haven’t seen any evidence that the slightly higher movement upward on payments got a real impact.

Erich Merkle

And Marcella, that’s going to take care of it for us, for this month. I appreciate your help today. And thank you everyone for joining us on the November Sales Call. We look forward to talking everyone next month as we look at December and give the year a wrap. Thank you.

Operator

This concludes today's conference call. You may now disconnect.