CNH Industrial NV (CNHI) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to today's CNH 2008 Third Quarter Results Conference Call.

For your information today's conference is being recorded.

At this time I would like to turn the call over to Mr.

Al Trefts.

Please go ahead, sir.

Welcome everyone to CNH's third quarter 2008 results webcast conference call.

We are pleased to have with us today Mr.

Harold Boyanovsky, our President and Chief Executive Officer, Mr.

Rubin McDougal, our Chief Financial Officer, Mr.

Randy Baker, President of our Case IH Agricultural Equipment brand and Mr.

Marco Casalino, our Treasurer.

In recognition of Regulation FD we've provided public guidance in this morning's Press Release on which we will elaborate in today's call.

After this call guidance will not be updated until CNH issues a Press Release on the subject.

During the course of today's presentation and in answering your questions we will be making some forward-looking statements concerning the Company's plans, projections and objectives for the future (audio interruption) that are subject to risks and uncertainties.

Please refer to this morning's Press Release and our annual report on Form 20-F for the year ended December 31st, 2007 as filed with the US Securities and Exchange Commission for additional information on the important risk factors and uncertainties in the Company's businesses that are subject to change and could cause actual results to differ materially from our expectations today.

The Company, except as required by law, undertakes no obligation to update or revise its forward-looking information.

As noted on the slides, the Appendix contains reconciliations to generally accepted accounting principles of the United States or US GAAP of various non-GAAP financial measures we use in analyzing our performance.

Finally, this conference call and live webcast over the Internet are being recorded for future transmission and use by CNH, Thomson Reuters and third parties.

Contents are the property of CNH Global N.V.

and are not to be re-recorded or rebroadcast without our express written permission.

Participants in the call, including the Q and A session, agree that there are likenesses in remarks and all media may be stored and used as a part of the earnings call.

Now I'd like to turn the call over to Rubin McDougal to make a few comments on the quarter.

Rubin?

Thank you, Al.

Good morning and good afternoon to everyone.

What you see in our earning's release earlier this morning and in the slides that we're presenting are what we feel to be the results of a good quarter, particularly in a time of unusual volatility.

Net income was up 107%, which create-- year-to-date means we're up to $3.10 versus $2.10 in the year ago period.

We're aware of the various reports and opinions and the concerns with the market but to date we have not seen any slowdown in the availability of our dealers or access of our customers to credit and that is reflected in the fact that net sales are up 22% and Ag sales are up 38%.

And I need to add here that we are starting the fourth quarter very well, certainly in the North American industry.

Both large tractors and combines are well ahead of last year's sales at this point in the quarter reflecting the customers' access to credit and their ability to finance machines.

In the quarter and for the full year we benefited from our earning's growth globally, particularly in areas in the world where in the past we had run some losses and had lost carry forwards.

We are using those loss carry forwards and that is reflected in a reduction in our tax rate for the year.

We are also, based on these strong results, increasing our guidance.

We are taking the guidance from the $3.40 to $3.60 we talked about in the last earnings release to $3.50 and $3.90 diluted EPS before restructuring after tax.

This does reflect our concern with the wide range of volatility in the market but we are very comfortable with this range.

Turning to page five talking about the equipment operations profits, year-on-year our operating profit is up in the quarter with Ag more than offsetting declines in the construction equipment business.

This is true both in the operating profit area and in the gross margin area.

Ag operating margin impact at 9.4% is a record high for the third quarter.

The Ag sector strength, particularly in the cash crop sector, is one of the things that's allowing us to increase our earnings estimates.

And, as a vote of confidence for our people and products coming out of our facility in Goodfield and the strength of the market for those products and cash crops, we have reversed an earlier decision to shut that facility and are now going to keep it open and be investing to increase our productive capacity.

We think that represents a vote of confidence in the future of the cash crop sales as we go forward.

Turning to page six, in talking about some of the things that drove the results in the quarter, Ag volume and mix added $222 million.

CE volume and mix was down $55 million so overall volume and mix contributed $167 million of pricing.

We are continuing, as you can see, to invest in research and development and in some SG&A functions and I need to focus those on the fact that we are driving those into areas that we believe are contributing to our growth in revenue, whether that's dealer shows, whether that's network development, customer care.

Those are the areas where we're focusing our spend and, of course, we're continuing to spend in R&D, as I mentioned.

As you see, the bottleneck costs are down slightly from the year ago or from the prior quarter and we expect those to continue to decline as we take the actions we've discussed in the prior call, primarily investing in key processes and equipment necessary to remove those bottlenecks and allow us to operate more efficiently.

Going to the bottom part of the chart you'll see also that pricing in the quarter was $167 million, more than offsetting the material cost and economics offset in part by currency that we encountered in the quarter.

We expect this trend to continue into the fourth quarter where again we'll get a benefit of price, which will more than offset the material cost.

You'll note that the material cost number in the third quarter is much higher than we showed in the second quarter and we had indicated then that we were going to start to see more of the pricing in the second half, which indeed we have, but the pricing actions we put in place have more than covered that.

I will also note that these pricing actions took effect in the third quarter and so as we get into the fourth quarter they'll have the carry over effect that will benefit us in the fourth quarter and so we are expecting this to again be a positive as we exit the year.

Turning to page seven, talking about the industry and our share, industry is up.

Industry is up in combines particularly more than 50% and the overall industry in tractors is up 1% but more than that if I exclude the under 40 horsepower range in North America.

Particularly I'd like to call out the bullet that says North American Industry of over 100 horsepower was up 58% and the Latin American market was up 38% in tractors.

Those are both very important areas for us as we deal with the overall industry and particularly the down 40 or the under 40 segment of the market.

Just another comment, our inventory reflecting these high growth in revenues in the industry, our tractor industry is down.

It's at 3.2 months, down from almost four month's of supply a year ago.

Combine inventory is about 1.6 months, down from 2.4 months last year and we will be under producing our retails in the fourth quarter.

This will obviously help us on the cash flow perspective, but it's driven more by the demand and our capacity limitations than by any other factors.

Turning the page eight about the year-to-date agricultural industry, comment that actually I feel much better about performance year-to-date than the chart might reflect.

Tractor share, excluding the under 40 horsepower market in North America, is up and the overall industry is up 5% in tractors.

The combine industry, as you know, is up 42%.

Excluding our capacity constraints in Latin America, we could well have been up in the overall industry in the year-to-date market.

Another note on production and where we are or what we'll see in the fourth quarter, one of the influences in our production in our inventory is relative to our performance in the rest of worlds of note we were down on this chart.

But we are pre-positioning inventory and getting it in place to take advantage of our view of a strong rest of world combine market in the start first part of '09 and that will effect our inventory at the end of the year, but it will allow us to have a change in our market share performance in rest of world as we go into '09.

Turning to page nine on the construction equipment industry, it was a difficult market.

That being said at even as down as it was if you'll note looking across the decade, this was the third highest third quarter in those 10 years.

However, the decline in Western Europe was much steeper than anticipated driving up our inventory levels.

We are going to be addressing that by producing well below retail during the fourth quarter.

A number of our plants are shut down for a large period of the quarter and we'll bear those costs in the fourth quarter.

Inventory in the PE side is up in most cases in the six month range compared to three month range a year ago.

Turning to page ten, just briefly again, as you look at the year-to-date industry you'll see overall we maintain share in a very difficult industry.

Now, the industry full year will be about the second best year in a decade and that reflects the weakness in the second half compared to the strength in the first half and so we will be dealing with that difficult market as we go into 2009.

Turning to page eleven, equipment operations change in net debt; you can see that during the quarter we used a fair amount of cash.

We invested heavily in agricultural inventory to meet our demand in the fourth quarter and to position inventory, as I mentioned earlier, for the rest of world sales, which are very time critical early in the year and for which we have a longer logistics and supply chain and we needed to have that position in inventory.

Secondly, we have an increase in construction equipment inventories due to the slow down in demand and the fact that that slow down was more abrupt and steep than we had anticipated and we also contributed a $120 million to our pension plan in the third quarter and that compares to $30 million in the year-ago period.

And finally we have increased our parts inventory substantially to improve our service levels to customers and maintain customer satisfaction at much higher levels than in previous years.

We did invest $108 million in CapEx in the quarter, much higher than the year-ago period.

This was partially offset by $61 million we received from Cummins as part of a sale of the CDC, our share of the CDC joint venture to them.

During the quarter and subsequently we did create new asset backed commercial paper facilities and we have set up new receivables discounting facilities to protect our liquidity and manage our operations and cash flow as we go through the balance of the year.

Turning to page twelve and changing gears just a little bit, talking about we're doing to take advantage of what we view to be one of the high potential areas in the world and opportunities for us to continue to grow--

(Audio Interruption).

Ladies and gentlemen we are experiencing a moment of interruption and we'll be continuing in a moment.

Thank you.

--with my comments there because I am not sure where we dropped off and you lost us, so speaking about the international markets and starting over again, this is an area where CNH views that we have a great potential.

In '07 we reorganized our International operations for the agricultural business and took them out of a single sales center and deployed them forward into the markets.

And, into those markets we've put local people, local language, our trade finance organization and we moved after sales service and training and we are currently moving some of our parts operations into those markets.

By doing this we're in much better position to take advantage of the growth potential that we see there, both in the absolute size of those markets with a need in those markets to move forward and increase their productivity as they deal with the global market.

And those markets have very large farms and are well positioned to use the large Ag product in which we are particularly strong.

You'll notice in those markets that our sales were up 21% in the year-to-date period, and that or, sorry, represented 21% of our sales in the year-to-date period, but up almost 50%.

The operating profits, 18% but up 125%.

Now as you look you will note that in the average it is slightly less profitable in the overall business, but the profitability is growing at twice the normal rate and that reflects a mix of those businesses within the rest of worlds environment, but the more profitable businesses are growing at an even more marked rate than the balance of the business.

So we're feeling very good about the market and we're feeling very good about our positioning in the market and the actions we took to put people there and take advantage of those markets.

Of particular note is the CIS where the market was up 69% and where we had significant market share and our local presence has helped us to continue to grow that and will help us to continue to grow that as we go forward into '09.

This International region does deal with both the case IH and the New Holland brands and markets product as appropriate for the market and where we have the strongest name recognition and relative to what the product needs are in those markets.

On page thirteen I won't spend a lot of time here, but just to point our that not only do we export into the rest of the world market, but largely through JV Operations we have local production and we are working very closely with our JV affiliates who bring them along and take advantage of this huge growth in those markets and they've been very successful over the last 24 months.

Turning to page fourteen, last year when we about this time we talked a great deal about Case IH's launch of the new 70/10 combine, which filled a very important gap in their product line and allowed them to gain a great deal of share in a segment of the combine market where we previously had a gap.

This year you'll note the Case or the New Holland CR90/90 combine.

This is a new combine that set a world record for harvesting.

In this product we believe we've actually created a gap for our competitors.

This product is not only high capacity and harvested 551 tons in 8 hours in a test in the UK recently, but it is also very fuel efficient.

It's a product that we think will do very well as we go into 2009.

On page fifteen a new Case IH row-crop tractor.

This has been introduced at farm shows recently to great success.

It's been well received and we believe once this is released for retail sales that we will have orders that exceed our capacity for the 2009 year.

It's a product that we are very enthusiastic about and which we think will do very well.

Turning to page sixteen and to talk about today's financial markets, we are as you are all very well aware in a period of unprecedented volatility.

You will note that despite that and, as I mentioned earlier, we have started the fourth quarter very strong with sales particularly in North America of large tractors and combines up across the board and in big tractors, combines 40, 50, 90% up from a year-ago period, which we would think would reflects very well that our customers still have access to retail financing, whether through CNH Capital or from other financing sources that are available in the market.

They are there, they are real and they are available.

So, we're feeling very good about that.

We do recognize that the markets are uncertain and that there is volatility out there but certainly in the course of today's period our customers have had availability.

We've seen also a great deal of volatility in financial markets and FX.

In foreign exchange the Brazilian currency dropped 21% in the third quarter and has been volatile since then.

A weaker Brazilian currency does increase the competitiveness of Brazilian crops and support the agriculture business there.

It does, however, also, reduce our translated earnings as we bring them back from Brazil into our US reporting.

The dollar has strengthened by-- against the Euro by 10% in the third quarter and has moved some again since then.

That will reduce our translated net sales but should improve our margins.

As we've gone the other direction we tend to have a fairly neutral currency position as far as movement of our cost of goods sold and it did not help us a great deal as the current Euro strengthened in US reporting terms and we don't think it will hurt us a great deal as it declines.

Cash grain commodities are down versus record highs.

Almost half the level that they have been in the recent past but almost double the level they were two years ago and still much higher than the year-ago period.

So overall, while we've seen a decline in those partials we think that they are still well positioned for future growth.

And finally just on another note, the construction equipment inventory reductions that we are planning in the fourth quarter should help us on the cash flow and generate cash for us in the fourth quarter.

Turning briefly to CNH Capital, there's a lot of concern with finance companies and banks in the market today.

One of the primary funding vehicles that CNH Capital has used has been the ABS Market.

That has been largely shut down in the third quarter.

It was very illiquid.

CNH Capital has gone out and established new asset-backed commercial paper facilities.

Its existing facilities remain liquid.

We have inter-Company funding available and cash and available credit lines do exceed contractual maturity through 2009 and we have accessed and expect to access other sources of funding as we go through the balance of the year and as we go into 2009.

Interest rates are up.

CNH Capital has passed some of those higher rates to our customers in both our retail and wholesale offerings in North America.

We've seen less influence in Europe, which we operate through a going venture there, and less influence also in rates in bankruptcy in CNH in Brazil.

But overall we're passing on the rates.

However, there has been a lag effect and so we've seen some compression in margin on core financing business so the core business is down slightly in the third quarter.

Our overall portfolio performance has been very good.

Agricultural receivables delinquencies are near record low levels as we look at the performance of those-- or the retail receivables in North American the trends have been very favorable.

As we look at the CE Business, the trends are consistent with past downturns and you will note at the over 90 days the 3.2% is an uptick versus the third quarter.

It is not again, out of our range of expectations.

We are adequately provisioned for that and we feel that in the Ag and the construction business we are not dealing with consumer financing here but customers we know, equipment we know and managing both industry and equipment that we know that we've done very well.

The used equipment or the recovered equipment pricing has held up fairly well.

Ag used equipment is hanging in there extremely well and construction equipment recoveries have dropped down about five percentage points, but they are in the 60's, started in the 60's and are still in the 60's so we're feeling fairly good about the underlying equipment values, even as we went through the quarter.

So overall and our direction right now to CNH Capital is to maintain the quality of their portfolio, so they are doing their credit screening.

They're looking at customers as they come in, they're maintaining their standards and we feel fairly comfortable with their portfolios.

Turning to page eighteen, talking about the industry outlook, just a couple of brief comments.

For the fourth quarter the implied numbers here are that the under 40 horsepower tractor market will be down 20 to 25%.

The over 40 horsepower tractors will be flat to down slightly.

The over 100 horsepower tractors will be up about 16% and combines will be up 25 to 30% worldwide in all markets.

CE, the total industry will be down 15 to 20% with heavy down 5 and light down 20 to 25%.

We do expect a significant decline in Western Europe in the fourth quarter.

Speaking specifically to the high horse powered North American agricultural equipment and the order board there, [roll cross] tractors and 4-wheel drive tractors are up 45% year-on-year in the order board and the combine orders are up over 100% so our order board as we enter the third quarter is in very good condition in those categories.

This is one of the reasons we are comfortable as we turn to page nineteen with increasing our outlook.

And you'll note that we've gone to a 350 to 390 range for the full year, that our operating margin unfortunately will be about 8.5%.

This is down from about 9% that we indicated in the second quarter earnings release call.

We are improving our overall effective tax-rate outlook.

This reflects, as I mentioned earlier, the higher earnings, particularly higher earnings in some of the markets where we had operating loss carry forwards.

At this kind of range we'll be up 46% year-over-year and as you note the compounded growth is almost 60% from 2005.

This is another year in a long string of consecutive improvements.

We will not have-- our cash flow will be positive, but it will not be at our levels of expectations as we deal with some of the inventory issues and restructuring costs net of tax will be about $30 million for the full year.

Before I turn the microphone back to Al Trefts what I'd like to ask Harold to make a comment.

Harold?

Thank you, Rubin, and good day everyone.

Before we go into the Q and A session, I'd like to provide you a little perspective as we look at the environment we're participating in.

Truly we understand the current uncertain economic and commodity environment.

Many of you are trying to model the future.

We have read and noted your opinions and areas of concern and, as you might expect, there are some of the areas that we are managing on a daily basis.

Many of the negative outlooks are driven by the current financial crisis, change in farm commodity prices and the general outlook of the economy.

While we do agree in today's environments that the conditions are extremely dynamic and most difficult to forecast, we do not agree with the impact and direction of some of these forecasts.

One of the things that we know for sure is that we're in a solid industry that produces food and fiber for a growing global population and products and services to aid in the creation and maintenance the infrastructure, residential and non-residential buildings.

We understand and will continue to manage CNH through the cycles of our industries.

We have difficulties, I think, going into 2009 in some regions or in some sectors and we are modeling alternatives, taking appropriate action to maximize CNH results.

But it is too early to make a definite call.

Nonetheless, we expect a good year for CNH in 2009 consistent with our past years the conclusion of 2008 will provide a much clearer perspective and solid foundation for 2009 EPS outlook.

We will give you the 2009 outlook during our fourth quarter conference call in early January.

Al, I'd like to turn the session back to you for Q and A.

Thank you, Harold.

For the Q and A session we ask that everyone please limit themselves to one question and one follow-up at a time.

Marion, could you please retrieve the first question?

(Operator Instructions) We now take our first question from Mark Koznarek from Cleveland Research.

A question here is on the operating results of the two segments.

We've got the contribution of volume mix, pricing and raw materials etcetera for the total.

Would you be able to separate those by Ag and construction equipment for the quarter and the nine months please?

Well, Rubin I believe gave you the split on the volume and mix in his comments.

167 there was 222 in Ag and 55 in construction equipment.

We normally don't segregate all of the variances but I can tell you that on the pricing that was positive for both.

It's up 133 for Ag and 34 for CE and the purchasing costs were up 88 for Ag and 25 for CE.

Okay that's helpful and then just as a follow-up conceptually could you address why the fourth quarter earning's outlook is so wide, a $0.40 bandwidth?

Is it the tax that's uncertain or is it the negative leverage on the CE production cuts?

Or is it really your volume outlook is particularly murky?

My tax guy would get very upset if I threw him under the bus so we won't do that.

No it is not driven by taxes.

Basically it's the fact that as we are seeing the volatility in the markets we've said there's just no logic for us to narrow the range at this point.

We've taken the top end of the range up to reflect what we think is the scenario that would happen if things happened as if predicted and the bottom end of the range since the risks if the financial markets and commodity markets went in the range that essentially we're hearing on some of the analyst opinions that we are very comfortable that we'll be in the range but we've made the range intentionally wide to reflect both our view of the business but also some of the external views of some of the risks and volatility in financial markets.

So, Rubin, it's primarily the revenue line that's uncertain?

It's not your expectation, your uncertainty of the impact at the volume cuts, your production volume cuts.

Well, it's more-- it's not so much the revenue line.

There's always some uncertainty there, as the currency movements.

We will have some negative translation and if there were some huge movements in currency.

This is reflecting more pure movements in financial markets than real risk in the revenue line per se and also it doesn't reflect-- it's the CE business will be down and our-- we'll have negative absorption as we keep the facilities closed for a large portion of the fourth quarter but that's very-- not very, but it's quantifiable and it's no where near this magnitude.

This is reflecting the risk and uncertainty of financial markets.

If they stay stable we'll be well in the range.

Ann Duignan from JP Morgan.

Harold, picking up on your comments can you talk about what you're seeing out there in terms of your early order programs in North America going into '09?

I know you said you've got a very strong backlog setting up for a very strong Q4 but can you talk about both North America and Brazil what you're seeing out there as we look a little further out?

I know you haven't given '09 guidance but you do have the early order programs in combines etcetera, etcetera.

Can you talk about what the backlogs look like and how-- if they've changed at all over the last few weeks?

Sure most certainly, Ann.

Let me made a general comment globally.

Our agricultural order board in the fourth quarter year-over-year is up roughly 5,500 units.

Our retail portion of that order board is up 5,600, so saying it another way the incremental growth in the order board is all retail and that's a global statement.

And we have a similar situation for combines but we have with us this morning Randy Baker, who is our head of the Case IH brand globally and I know Randy has been very close to the customers, the marketplace in North America and I'd ask, Ann, that he comment on his pre-order of combine status and how that looks going into 2009.

I think you and I have talked about this subject several times in the past but going into the fourth quarter we have a very, very strong order book in combines and in large horsepower tractors, not only for North America but certainly for Latin America to even our European order board looks very strong.

Going into next year we're not fully complete with our pre-order programs but I could say that versus prior year we're seeing strength and definitely we will enter 2009 with a stronger order board than we said on prior year.

And is that particularly noticeable in any region in particular?

Well, North America in particularly that I'm certain it concerns obviously are the North American farmer seeing any weakness in their business.

The farms that I've been visiting lately have commented on the fact that the commodity prices have declined but the input costs have come down also.

The harvest has run about three weeks behind schedule in North America and so we see a lot of activity occurring in the first couple weeks of the fourth quarter in pre orders because people have gotten their crops off and they're feeling more comfortable about their position.

So we do see a healthy North American agricultural business.

Okay and I just wanted to step back to slide twelve for a moment because I didn't fully understand the comments.

You talked about 21% of CNH Ag sales are these developing countries or developing regions but it only represents 18% of Ag profit.

On the other hand you said that, and particularly in the CIS the kinds of products that they're looking for are the large horsepower tractors, the large combines, which I would have expected would have been higher margin.

Can you just walk me through that again?

I'm not sure if I misunderstood something or if you're saying that those products, so if these regions were less profitable that they're going to be more profitable going forward.

I just wanted to understand how to [cost] that.

No let me explain that.

If you look at why year-to-date it's 18% on operating profit versus 21% on sales, it's because of the dilutive effect of a couple of the portions of the market.

Australia/New Zealand, for example, had a bigger business in the past but it had lower margins.

As that portion has grown at a slower clip and Russia has grown-- CIS has grown at a faster clip, you've seen that the revenues, they're up 47% heavily weighted to the market growth in Russia but the margins are up 125% representing the margin growth there or the growth of that more profitable business in the CIS.

Yes absolutely, Ann, I think in the context of Ag International clearly we have in India, which is predominantly 35 horsepower to 75 horsepower tractors and in China, which is 50 to 130, the majority being under 100, so you have a mixed factor in the international region that impacts the margin but clearly and the former CIS and the areas that we're selling are over 140 horsepower tractors, 4-wheel drives and combines the margins are good.

Let me interject one other thing, Ann, and that is that particularly in '08 this setup was started in late '07, we have the impact of the development costs and so we've had some costs of moving people, setting up the offices and getting those things going.

You'll start to see again, I think we'll hit the flipping point.

I think we've actually hit it but you'll see it next year in a full year results if we were to show the same chart you'll actually see it being more profitable than the-- operating profit will be a bigger percentage of the total than the sales because we'll have had the growth in those higher margin areas of the world.

Okay that's perfect.

That's exactly what my follow-up was going to be so thank you.

I appreciate that.

[Jerry Revich] from Goldman Sachs.

Can you please step us through the sources of available borrowing capacity at CNH Capital following the establishments of the new credit facilities that you mentioned and also what new credit facilities you might establish if ABS market liquidity doesn't improve?

Okay well just a few comments about what we have done in October actually.

We mentioned that facility because it's the last one we negotiated but we've been working on other transactions in the third quarter in various major markets so we just decided to [decline] that facility having been close so recently but the USD300 million asset backed commercial paper transaction and but to close a few days ago.

It's part of the mix of funding which we have had in the third, during the third quarter where we still have access to Fiat funding of course but we managed to tap the non-ABS market in Europe and--

(Audio Interruption)

Please stand by.

We're currently experiencing a momentary interruption in today's conference call.

If you catch at least part of my answer I was saying that we have closed with the transaction in Europe and in North America and we are busily planning to follow the same path in the current quarter and some new transactions may be in the pipeline and we're working at that with confidence.

Jerry, just let me-- this is Rubin-- add to Marco's comments.

We did do this, a bank, an asset backed commercial paper program.

We expect to renew our existing facility as they expire.

We've had preliminary discussions.

Those are going well.

We are also in discussions with various parties on private placements and one of the reasons Marco's hesitating is some of these conversations are going on right now and we are not talking about those publicly.

They are private type private placements and we are confident that we'll have financing arranged as we go forward so we're in-- we feel in very good position as we go forward and the key issue for me is that-- or the two things-- one is that we will have the funding we need and two, that the farmers will have the funding or the construction equipment users will have the funding they need and right now we have not seen anything that says we'll not have both of those.

Again, I mentioned earlier at least twice in the conversation about the availability of funding for both Ag and construction equipment borrowers and our own sources of funds have held in there and actually we did one facility.

We've got several in the pipeline and they're both bank backed facilities and also some private placements with other groups and that's what Marco is talking about.

And the private placements that you're referring to, those are for ABS it sounds like, excuse me, for retail receivables?

Primarily yes.

And switching gears to the construction equipment side, can you please step us through the cost control efforts that you're undertaking in the business in expected benefits in 2009 as well as how your view your inventory, your dealer inventory position by region, in that business?

I won't go into that level of detail, Jerry, but a couple of comments I will give you.

First of all in cost control, basically as I mentioned we have closed a number of factories for a protracted period to get the inventory in line.

Those both of the construction brands have been going through some very draconian reductions in cost structure both in the sales and marketing organization and also in the manufacturing side due to the fact they have to deal with these lower costs so that includes what you'd call the normal things.

I mean we've reduced staffing levels.

We have cut back on some of the nice to have things, efforts in those areas, travel, but we're also then looking and saying what's next and frankly even in our overall business we're saying we can't stop there at the CE side.

We've got to provide some help and lift to that because we have you know the Ag business and CE business and some supporting structure over both so we're looking at supporting structure over both as well and saying let's make sure that we keep those costs in line so that the CE business, which bears a portion of those costs, doesn't get overly burdened.

As far as the inventory levels by region, I won't get into that.

I gave the overall numbers.

Right now the inventory overhang I will say is most severe in Europe.

There's not an issue in inventory in Latin America or rest of world but North America for Case and New Holland brand both is not in-- is not as bad as the industry but we are in a bad industry but the primary weakness is in Europe today.

One of the benefits I have of being in this industry for 40 plus years is I've seen cycles come and go right and we understand the kind of actions that we need to take and we are proactive at this at CNH and, as I indicated earlier, we'll be modeling various alternatives and come back to you with the detail outlook in early January with our fourth quarter earnings call.

And my last follow-up question, wondering if you could help us understand the timing of when you would expect to benefit the declines in fuel prices that we're seeing recently?

Will you see some benefit of that in the fourth quarter relative to the third or is that more of an '09 from a contract timing standpoint?

That is more of an '09 issue, not so much because of a contract perspective but because we are dealing more with plates and cold rolls and plate hasn't seen the cost reductions and because again, the relative benchmarks are Q4s against the Q4 of a year ago and even though those prices or commodities are off their high they're no where near the level they were of the fourth quarter last year.

[Sarah Maggers] from Wachovia.

I know you have addressed the availability of financing for farmers but given the recent press reports on the credit crisis and its implications, have you seen any pullback in farmer purchases or orders post Q3?

Let me ask Randy Baker, who is across the table from me, to answer that.

Good question.

We have done a lot of work to try to analyze is that a factor in the field right now.

Two things looked at is any potential pre-order cancellations so what was in answer to Ann's question earlier, and we have seen no cancellations to date.

Secondly, one of the key factors for our financing farmers is both their debt to equity and their asset to debt ratios and in both cases farmers are on the best case scenario they've seen in the past 15 years so as far as finance-ability there are no issues there and we're not seeing any decline in their order rate so we don't believe that will be a factor in the farming industry.

Also, Sarah, let me add, as Rubin said in his comments, that the in the first 21 days of October we've seen our North American over 100 horsepower retail sales up 40 to 45% and our combine retail sales up 90 to 95%.

So on a year-over-year basis we haven't seen any slowdown at all in the retail sales.

As there are no further questions, I would like to turn the call back over to Al Trefts for any additional closing remarks.

Thank you everyone for participating with us in the call and, as always, if you have any additional questions after the call please don't hesitate to get me on the phone.

We'll talk to you again next quarter.

Goodbye.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.