福特汽車 (F) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ford Motor Company First Quarter Earnings Conference Call.

My name is Mike, and I'll be your coordinator for today's event.

During the conference, all lines will be in a listen-only mode with an opportunity to ask questions at the end.

I would also like to remind you that this conference is being recorded.

If you require assistance at any time, please key star, followed by a zero on a touchtone phone, and a coordinator will be happy to assist you.

I would now like to hand the presentation over to Barbara Gasper, Vice President of Investor Relations.

You may now begin.

Thank you, Mike.

Good morning, and thank you all for joining us.

As usual, with me on the call this morning are Don Leclair, our Chief Financial Officer, and Jim Gouin, Ford's Vice President and Controller.

Additionally, we are pleased that Bill Ford is able to join us for the start of the call this morning with some opening comments.

Also here in the room are Lloyd Hansen, Vice President of Revenue Management;

Patricia Little, our Director of Accounting;

Anne Marie Petak, Assistant Treasurer; and David Cosper, Ford Credit CFO.

Before we begin, I'd like to review a couple of quick items.

First, copies of this morning's earnings release and the slide deck that we will be using here today have been posted on the Ford Investor and Media websites for your reference.

I would also point out that the financial results presented here are all on a GAAP basis.

Any non-GAAP financial measures discussed on this call are reconciled to their GAAP equivalence as part of the appendix to the slide deck.

And, finally, I need to remind everyone that today's presentation includes some forward-looking statements about our expectations for Ford's future performance.

Actual results could differ materially from those suggested by our comments here.

Additional information about the factors that could affect future results is summarized at the end of this presentation, and these risk factors are also detailed in our SEC filings, including our Forms 10-K, 10-Q, and 8-K.

With that, I'd now like to turn the call over to Bill Ford.

Bill?

Thank you, Barbara.

Good morning to all of you.

I'm pleased to join you this morning and to give you my perspective on our first quarter results.

Obviously, I'm extremely pleased and proud of what our team has accomplished.

We've maintained our record of delivering on our commitments, and we posted, I think, some pretty impressive numbers.

What pleases me most, however, is that we've delivered these results across the board.

All of our Automotive operations worldwide made a profit in the first quarter.

For the first time in a long time, our Automotive operations earned more than our financial operations.

That's a real accomplishment since Ford Credit had a record first quarter.

Clearly, we have challenges ahead, and not the least of these challenges is keeping up with the expectations that these results will create.

I wish we could just multiply our first quarter results times four, but we can't.

But as you've already seen, we are increasing our full-year outlook, and I think higher expectations are a good challenge for us to have.

Don's going to take you through the results in detail and review our outlook for the year, and I'll conclude by repeating what we've been saying for some time now -- our plan is working, and we are gaining momentum.

Our quality is up, our costs are down, and we're adding a record number of great new products to the strongest portfolio of Automotive brands in the world, and we're not finished yet.

And I hope that after our ninth consecutive quarter of beating our own projections, you will begin to believe me when I say that our goal is to under-promise and over-deliver.

Thank you for joining us, and I'll turn to over to Don now.

Thanks, Bill, and good morning to everyone.

I'd like to echo what Bill said.

We had a terrific first quarter, and we are very proud of our results.

Earnings from continuing operations, excluding special items, were 96 cents a share, significantly better than our expectations for both the auto side and the Financial Services side.

On slide one, you can see the strong profit improvement we had in North America was accompanied by best-ever quality, strong unit revenue and positive net pricing, and strong sales of F-Series and SUVs.

South America was profitable.

All of our operations in international were profitable.

We had strong cost performance across all areas and all elements and record earnings at Ford Credit and continued strong Automotive liquidity.

Now, if you turn to slide two, this slide shows the standard financial metrics for the first quarter compared with a year ago, and we will cover most of this material later on, but I want to point out that our sales and revenue were 44.7b, up 10 percent, and for the Automotive sector, sales were 38.8b, up 13 percent.

Exchange explains about 40 percent of the increase in Automotive sales, and the balance reflects primarily higher volumes and favorable mix and pricing.

Over to slide three, this shows our pretax results by sector for the first quarter, excluding special items.

And you can see from this chart that we had excellent results on both the Automotive side and Financial Services.

Now, over to slide four.

This slide provides, as in previous quarters, an explanation of the change from 2003 to 2004 for the Automotive side.

Volume and mix were favorable, about $300m.

That's explained primarily by favorable mix in North America, higher volumes in Europe, and market share gains in PAG.

Net pricing was favorable in the quarter, about 400m, and all of our operations had favorable net pricing in the quarter.

And we'll talk more specifically about net pricing in the U.S. when we talk about the North America results.

Cost performance was 600m favorable in the quarter, and we'll review specifics on that as well later on.

Currency exchange was unfavorable, about 100m.

And not shown on this page are favorable parts profits, about 100m, offset by unfavorable net interest.

Now, let's go through cost performance.

Of our 600m in Automotive cost performance in the first quarter, 200m came from quality-related expense reductions, primarily driven by lower recalls.

As we said in January, we expect that this will be around zero for the full year as ongoing quality improvements are just about offset by the nonrecurrence of last year's reserve adjustments, and that still holds true.

We expect this to be around zero for the full year.

Now, manufacturing and engineering costs were 200m favorable, and overheads, primarily administrative and staff support, were also about 200m favorable.

And net product costs were $100m favorable.

Reductions on carryover model material costs more than offset the higher cost of recently launched new products.

And depreciation and amortization was up about $100m.

Pension and healthcare expenses were just about flat during the quarter, and we expect these costs to be down about $200m during the year, reflecting primarily the effect of the new Medicare legislation.

Now, over to slide six, which shows our pretax results within the Automotive sector in the Americas, International, and Other Automotive.

In the first quarter, the Americas had a pretax profit of just under 2b.

That's up 772m compared with a year ago.

And pretax profit was 107m for International, up 426m.

Other Automotive was a loss of 266m in the first quarter.

That's 42m unfavorable, compared with 2003, and that primarily reflects reclassifying interest on our trust-preferred securities for minority interest to pretax profit, and that began with the implementation of FIN 46 in the third quarter of last year.

Slide seven shows the breakout of the profit in the Americas, between North America and South America.

Now, going on to slide eight, we'll look at North America.

Now, sales were down in North America by 12,000 units to 1,012,000.

Lower market share in the U.S., going from 20 percent in the first quarter last year to 18.7 percent this quarter, was offset partially by higher U.S. industry volumes.

Our share was up in full-size pick-ups and SUVs.

This was more than offset by declines in daily rental, discontinued low profit vehicle lines, and small- and mid-size cars.

As we indicated to you in January, share performance this year will be tough until we get our new car products into the dealers in the fourth quarter.

Our focus, however, remains on profitable share, primarily on the retail side.

Revenue was 23.3b, up from 22.2 last year.

And we'll talk more about revenue on the next slide.

And pretax profit was just under 2b in the quarter, up 726 from a year ago, and that increase in profitability is explained primarily by favorable cost performance, improved mix, particularly related to the new F-150, and favorable net pricing.

[Inaudible] shows our first quarter net revenue per unit for North America, and we achieved a record unit revenue of 22,628.

That's up $934 from the first quarter of last year and up nearly $1,800 from the first quarter of 2002.

We also were particularly pleased to be able to achieve positive net pricing of 1.2 percent, or roughly $240 a unit out of the 934 improvement, and these improvements reflect a continuation of our disciplined approach to managing our revenue.

Some of the key drivers for that include a targeted focus on managing retail incentives, which enabled us to spend substantially less on incentives than several of our closest competitors.

We discontinued low-margin vehicles, which generally were low-revenue vehicles as well.

We had new options and features with a high take rate from the customer [inaudible] on the Navigator, Aviator, Expedition, and the new F-150.

And we had, as I mentioned, a planned reduction in low margin daily rental sales, and we had strong sales of pick-up trucks and SUVs.

This next slide shows vehicle unit sales and dealer stocks for the first quarter of 2004 and the first quarter of 2003.

During the quarter, dealer stocks increased by 137,000 units.

You can see that in the middle column at the bottom of this slide.

This means that we produced and sold 137,000 more vehicles to dealers during the quarter than were purchased by customers off the dealer lots.

And the size of the dealers' stock build is similar in size to that of a year ago when stocks increased by 129,000 units.

Our dealer stock build in the first quarter is typical in order to prepare for the spring selling season and summer shutdowns when dealers typically sell more vehicles than we can produce.

For 2004 and 2003, however, the first quarter stock builds were somewhat larger than normal because of the high level of second and third quarter plant changeover activity, which requires us to build ahead, to a certain extent, to ensure we have a sufficient number of units during the changeover downtime.

Now, let's look at the major changeovers at our North American assembly plants on the next slide.

As we mentioned in January, 2004 is a year of significant changes for us in North America, and most of that activity starts in the second quarter.

First, we closed the Edison assembly plant in Edison, New Jersey on February 27 and consolidated production of the Ford Ranger and Mazda B Series at our plant in Twin Cities.

During the second quarter, we will balance out production of the Ford Taurus and Mercury Sable in preparation for launching the new Ford 500 and Mercury Montego and the new Ford Freestyle during the third quarter, and I think we will balance out of the Taurus Sable later this week in Chicago.

The Ontario truck plant, which is presently building the Heritage version of our F-150 pick-up truck, will phase out in the second quarter, and we will launch the new F-150 in our new Dearborn truck plant in the second quarter.

The old Dearborn assembly plant will be permanently closed after a balance-out of the Mustang in the second quarter.

And in the third quarter, we will begin production of the all-new Mustang at AAI, our joint venture with Mazda.

When complete, we will have much improved capacity utilization, and importantly, we will have reduced our capacity in the lower profit end of the business.

For instance, we have gone from two plants to one for compact pick-up trucks.

We will soon go from two plants to one for Taurus Sable.

In addition, AAI will be better utilized when we add the Mustang because we'll be going from one shift of production to two shifts, and next year, we'll go from two plants to one plant of Focus.

All of this changeover activity will have an impact on our second and third quarter production.

In fact, our announced second quarter production in North America is down 53,000 units compared with a year ago and down 53,000 units compared with the first quarter.

Now, switching to South America, sales were up 22,000 to 66,000, and this reflected strong [inaudible] volumes at higher share, particularly for the EcoSport, the Fiesta, and the [cargo] truck.

Revenue was up to $600m, and this reflects the higher volumes, favorable mix, and the positive net pricing. [Inaudible] profit was $15m in the quarter, up 46m from a year ago; and the improvement is explained primarily by pricing, favorable mix, and higher vehicle volume.

Our next slide is International.

We earned a profit of 107m in the first quarter, an improvement of 426m from a year ago.

And as I mentioned, all operations were [inaudible] from a year ago.

We earned 54m in Other Automotive, which consists of our investments in Mazda, and this was 13m better than a year ago.

And we are now starting to see the benefits of the shared vehicle technologies in the International area.

Products that are out now include the Ford Focus C-Max, the new Volvo S40 and V50, and the new Mazda3.

And later this year, we will be launching the new Ford Focus hatchback and wagon.

Now on the next slide, in Ford Europe, vehicle unit sales increased by 38,000 units from a year ago to 420,000 units.

This increase occurred despite a reduction in dealer stocks in Europe of 26,000 units during the quarter, and the sales increase primarily reflects higher sales of the new C-Max and strong performance in Eastern Europe, in particular, in Turkey.

Revenue was 6.5b, compared with 5b last year, and that increase is explained primarily by the higher volume and currency exchange.

Pretax profit was 5m in the quarter, up 252m from a year ago.

Profit improvement reflects primarily lower costs, including the effects of our restructuring, higher volume, positive net pricing, and these were partly offset by unfavorable currency exchange.

Restructuring charges in the second quarter were 29m, and those were excluded from these results.

We expect to complete in the second quarter the restructuring charges in Europe for the actions that we announced last year.

The total restructuring costs are now projected at about 580m, and that's down from our prior estimate.

We're still on track, however, to deliver about $450m of restructuring savings in 2004 and about 550m per year ongoing.

Now, next slide shows PAG's first quarter results.

Vehicle unit sales were 194,000 units.

That's up 22,000 from a year ago, and this primarily reflects the stronger market share in both the U.S. and in Europe, as shown in the memo under the box on the left.

Revenue was up about 25 percent from 5.4 to 6.8b, reflecting higher volume and currency exchange.

And pretax profit was 20m in the quarter, and that's up 108m from the first quarter of last year.

The change reflects primarily lower cost, higher volume, positive net price, partly offset by unfavorable exchange.

On the next slide, you can see the sales for Asia-Pacific, and they were up 14,000 units, primarily reflecting stronger industry volumes and higher share in several markets.

Revenue was up 300m, and that was explained primarily by the stronger currency exchange rates in Australia and South Africa, as well as higher volumes.

And pretax profit was 28m for the quarter, up 53m from a loss of 25m a year ago.

And the increase in profitability is explained primarily by favorable currency exchange in Australia and South Africa and favorable cost performance.

Now, the next slide shows our first quarter Automotive cash and cash flow.

We ended the quarter with gross cash of 26.5b.

That includes 4.1 of short-term VEBA.

That's up 600m compared with the end of last year.

Our operating-related cash flow, which excludes pension and long-term VEBA contributions, was 2.3b positive for the quarter.

This reflects primarily the Automotive pretax profit of 1.8b and capital spending net of depreciation and amortization, which was favorable in the first quarter by $400m.

In the first quarter, we contributed a total of $1.2b to our non-U.S. pension plans.

As we discussed in January, we had planned to contribute about 700m to our non-U.S. pension plans, and the increment over that reflects a pull-ahead of our contributions planned for 2005.

And in total, we plan to contribute about 1.5b this year to non-U.S. pension plans.

Also in the first quarter, we redeemed the entire amount of outstanding of the 9-percent trust-originated preferred securities, about 600m, and repurchased about $800m of other long-term debt.

Our next slide shows pre-tax results for the segments within Financial Services.

Earnings at Ford Credit were just under $1.1b in the first quarter, an improvement of 360 million compared with a year ago.

Pretax profits at Hertz were 7m in the first -- were a loss, sorry, of 7m in the first quarter, a 52m improvement from a year ago.

And the improvement primarily reflects higher rental car volumes, improved profitability in the equipment rental business, favorable cost performance, and those were offset partly by lower pricing.

Now, turning to the next slide, this shows Ford Credit's operating results and key metrics for the first quarter.

As shown in the left box, pretax profit was a record 1.1b.

That's up 360m.

And the increase primarily reflects improved credit loss performance, higher used vehicle prices, and a favorable impact of the present low interest rate environment.

You can see in the right box that our March 31 managed receivables were 179b -- that's down 13b from a year ago -- and the decline reflects primarily continued reductions in non-Ford and used businesses.

Credit losses for on-balance-sheet receivables were 335m.

That's down 158m from last year, and the decline primarily reflects lower repossessions and severities in the U.S.

And managed credit losses were 493m, and that's down 193m from a year ago.

And at March 31, the credit loss reserve for on-balance-sheet receivables was 2.9b, or 2.25 percent of receivables.

The Credit Company paid a $900m dividend to the parent, and we ended the quarter with managed leverage of 12.8 to 1.

Now, for the second quarter outlook.

Second quarter production in North America is projected at 955,000 units, down 53,000 units from a year ago and also down 53,000 from the first quarter of this year.

The reduction from the first quarter in last year reflects the pattern of plant changeovers we covered earlier.

Ford Europe's production is projected to be up 44,000 units from a year ago, and PAG's production is projected at 190,000 units, up 7,000 from last year.

And we project the second quarter results will come in at about 30 to 35 cents a share, and that's up from 23 cents a share a year ago, excluding special items.

Now, let's turn to our planning assumptions and operational metrics.

We're still looking for around 17m units in the U.S., and we think 17m units is about right for Europe as well.

And with respect to our operational metrics, we are on track to improve quality in all regions, as well as to achieve our capital spending and operating cash flow targets for the year.

With the market share, we've seen mixed results.

While holding or improving share in Europe and Brazil, we saw a decline in share during the first quarter in the U.S.

As I indicated earlier, this was anticipated as we continue to focus on profitable share and reduce our participation in the daily rental market.

We do plan to see a pick-up in share in the fourth quarter when we get our new car products on the road in the dealerships.

With the achievement of 600m in cost improvements in the first quarter, we expect to do better than our target this year for the full [inaudible], and we should also note that our tax rate in the first quarter was 29 percent.

This is a reasonable planning assumption going forward.

The net tax rate is lower than what we had told you on our last call.

I think it was around 32 percent.

It's lower by 3 points, in large part because of the effects of Medicare D, which is worth about 2 percentage points of that.

And then we have higher research credits and deductions from state income tax that account for most of the balance.

But I think 29 percent's a reasonable tax rate for you to use going forward.

Now, slide 22 shows the current status of our 2004 financial milestones by operation.

And overall, you'll see our Automotive operations are -- we see our Automotive operations as on track to achieve the 900m to 1.1b of pretax profit in 2004.

And our present expectation is that North America likely will exceed the full-year milestone of 1.5 to 1.7b.

First quarter performance in North America, particularly on the revenue side, is encouraging.

South America, Europe, and Asia-Pacific appear to be on track to meet their full-year commitments.

PAG, however, is at risk of not meeting their full-year milestone of 500m to 600m.

The weak dollar will continue to have a negative effect on PAG's results in 2004 and our ability to offset the effects of the weakening dollar on the exports to the U.S. remains a question mark.

We expect the full-year results from Financial Services will exceed our milestone of 2.6 to 2.7b.

And overall, we expect to exceed our total pretax income milestone.

We expect special items for the full year to be about 200m pretax, and this consists primarily of disposition of non-core businesses and the completion of the European restructuring actions we talked about earlier.

Now, for the full year, we are increasing our earnings guidance from a range of $1.20 to $1.30, up to a range of [inaudible] $1.60.

That's an increase of about 30 cents a share.

And the increase reflects our expectation that our Financial Services Group will exceed our milestone, as well as the effect of the tax rate change I mentioned earlier.

As we have done throughout the last two years, our guidance for the business reflects a level that we are comfortable with.

While the economies in the U.S. and Western Europe appear to be gaining momentum, there are a number of uncertainties.

For example, the potential for interest rates to rise appears increasingly likely, and exchange rates have been volatile lately.

While our pricing and revenue performance in the first quarter was terrific, the competitive environment remains tough, and it doesn't look like it's getting any easier.

Given all of these uncertainties, this is our best assessment of our outlook for the full year.

Clearly, if things progress as they did in the first quarter, there will be some upside potential [ph] for us, and we'll be in a much better position, I think, to assess that in three months.

And now we'll be happy to take your questions.

At this time, we're ready to begin the question-and-answer session.

Following our past practice, we'll begin with about 30 minutes of questions from the investment community and then take questions from the media, who are also on the call.

We ask that you keep your questions brief to allow as many participant questions as possible within our timeframe.

Operator, may we please have the first question?

Ladies and gentlemen, at this time, we'll be taking questions from analysts only. [Caller instructions.]

And the first question comes from Rod Lache with Deutsche Bank.

Please proceed.

Good morning.

Congratulations.

Hi, Rod.

Thanks.

Thanks a lot.

A couple things.

You know, the number just blew away your guidance.

It was a 45- to 50-cent upside surprise, and you're raising the full year by 30 cents.

Are you intentionally guiding the Q2 through Q4 down?

Are there some negatives that are creeping up in here in the outlook that you had not anticipated?

Can you address that?

No, there really aren't any negatives in the outlook that we didn't anticipate.

I'd say that compared with things that have changed since the start of the year, we now have a clear sight on Medicare D, and that's in our numbers.

We also have seen a somewhat better performance in pricing and revenue in the U.S. than we had thought in the first quarter, and good pricing performance in the first quarter in all of our operations.

But we don't think that that's sensible that that can continue for the whole year.

And we did have, as we mentioned, a dealer stock increase in the U.S. --

Right.

-- that did contribute.

On a year-over-year basis, it's not much different.

So is your expectation of production a bit lower now for the balance of the year?

No, our expectation of production is about in line with what we had in mind.

We knew we were going to build stock in the first quarter.

It's very similar to what we did last year when we had the big changeover on the F-150, and, you know, so we -- for example, we built stocks ahead on the Mustang because we'll be out of production for several months as we transfer from the old plant in Dearborn to the new plant in AAI.

Right.

So we built some stocks, and that's normal for a vehicle like the Mustang anyway.

Right.

Because that kind of a car sells best in the spring and summer, and, you know, we build all year long.

So that sort of thing has, you know, a piece in this as well.

But there isn't anything really that's unusual or sinister in the second half.

What we're saying, I think, if you stand back is that we have been -- you know, we set out our plan on this two years ago.

We said we were going to break even [inaudible] business.

Yeah.

And we worked hard to do that.

Last year, we said we were going to break even in the Automotive sector.

We worked hard to do that, and we achieved it.

This year, we said we were going to achieve, you know, good solid results in the Credit Company, and the Credit Company has done a lot better than we thought, and we're flowing that through into the full-year guidance.

We also said that we would improve our Automotive results from last year's a little bit favorable to breakeven to $1b and achieve over $1b of positive operating cash flow.

I think the best thing for us to do now is to say we're on track, we have delivered what we said before, and there could be a little bit of upside, but in my mind, it's too early to call given the kinds of uncertainty in the economy now, and the, you know, the ferocious nature of the competition.

Given that we're in the first quarter, just into the second quarter now rather, and we have our old models to sell down, we have a lot of changeovers, and in three months we'll be in a much better position to assess if, in fact, some of the good things that happened in the first quarter can flow through.

In any way -- in any case, we are committed to $1b or so of pretax profit on the Automotive side, and we've taken our guidance up 30 cents, reflecting the strong performance of Ford Credit and Hertz.

Okay, two more things if I can get it in.

The cost performance -- where is the upside surprise coming from, and how much of this is North America?

And, also, the launches that you've got through the balance of this year, obviously there's a pretty significant amount of launch costs.

Do you have any sense of how much your launch costs will decline '05 versus '04, which will obviously be a much less of a launch year?

Well, there are a couple of questions here.

I'll see if I can get them.

First off, we're not really going to talk about 2005 now, but our launch costs this year, we have a lot, but, you know, we had a lot last year.

And they're probably up a little bit this year.

I wouldn't think it's a large amount.

We had changeovers this year in Land Rover and in [Sar Lui][ph].

We had changeovers last year in Europe as well.

We have two or three major launches in the U.S. this year.

We had the F-150 last year.

So it's probably up a little bit, not significantly, though.

And as far as our cost performance, I think that last year we did a terrific job of reducing our costs in the overhead and manufacturing areas.

I mean I think the guys did a fantastic job, and that's continuing in the first quarter.

If that continues, you know, for the balance of the year, there could be a little more upside, but frankly, I think we've wrung out most of the low-hanging fruit here.

Now, as we've said, we don't expect anything full year on the quality-related side, and that's not to say that our quality isn't improving.

Our vehicle quality is the best it's ever been.

But we had some one-time things last year that are going to offset this year, and those will be offset by the continued improvements in quality.

And we do have the benefit of, you know, the new Medicare legislation that should help mitigate the costs on retiree healthcare, and that's a plus since we set our target because we weren't really sure what it would be or what the accounting rules would be on that anyway at all, so I would think that that's a plus.

So there's probably that kind of upside to our cost target this year.

Great.

And it's disproportionate in North America, the cost?

I would imagine so.

No, I wouldn't -- I would say the Medicare D is entirely in North America, and the rest of it is probably spread around.

Okay.

I wouldn't say it's disproportionate in North America.

All of our activities are doing, I think, a fantastic job on cost performance.

And our next question comes from Chris Ceraso with CSFB.

Please proceed.

Thanks.

Good morning.

Hi.

Maybe if I could follow up and just ask you to reiterate, what exactly in terms of the income statement is the saving for Medicare D, and how much of that is a benefit to your tax rate as well?

Well, I think it's about $250m, its benefit this year on the income statement.

And the benefit to the tax rate because of that, because it's after-tax as well as pre-tax, is 35 percent of 250m.

And it's in kind of evenly by quarter.

So you're saying that your tax rate going forward, 29 percent, is the right level?

Yeah, what I was saying is we had thought that, you know, and this was before we fully understood Medicare D, our tax rate would be around 32 percent.

I think that's what I said on the last call.

That goes down from 32 to 30 because of Medicare D, and then changes in state taxes and research credit account for the rest of it.

So in the change in guidance, is it correct that you were -- at the $1.20 to $1.30, you didn't have anything baked in for Medicare, and now you've got 250m of improvement, and that's part of the increase to $1.50 to $1.60?

Yeah, it's a little confusing.

What we're saying now is that the Medicare D should help our cost performance, but we're not saying that that flows through on the Automotive side; we're saying that's a contingency against the uncertainties in the economy or against, you know the tough nature of the competitive market that we're in now.

What we are saying is that however the tax rate effect of the Medicare D affects the whole company, and so we're -- you know, we've taken our earnings guidance up by 30 cents.

About 24 cents of that or so is because of Financial Services, and about 6 cents of it is because of the change in tax rate, and about two-thirds of that is related to Medicare D. And for now, we're saying that the Automotive side, we think it's prudent for us to hold on to our target, around $1b, until we see one more quarter of results and see how the sell-down of the old models in the U.S. in the second quarter goes.

And so at that time, I think we'll have an update on the Automotive side that I think it will be more meaningful.

Could you just comment on the pricing environment in Europe?

I think you mentioned that you were sort of price -- net-price positive in Europe?

And most comments to date have been suggesting that net pricing in Europe is getting more difficult.

Yeah, I think that the single-biggest contributor, by far and away, has been the success of the new Focus C-Max.

And we've said all along that this is a segment that we wish we were in; we were late getting into.

It's a profitable and growing subsegment of you know, main-sized cars in Europe, and we got into it and really -- the car has done very, very well, and it's selling with a much, much lower level of discount.

And that's really the single-biggest piece.

There's mix of countries and differences between fleet and retail that get into it sometimes that can cause some quarter-to-quarter variation, but the single-biggest piece of that is just the effect of the new Focus C-Max, and that's what we've said all along.

This is a product business.

It's a product-led recovery that this Company's embarked on, and when we have new products, that's going to help our market share, and it helps our net pricing [both][ph], and we're seeing a perfect example of that in the new Focus C-Max in Ford Europe.

Great.

Thanks, Don.

All right.

And the next question comes from Michael Bruynesteyn with Prudential Equity Group.

Please proceed.

Yes, Don, could you elaborate a little bit on the Ford Credit results and how sustainable they are?

It seems every time we hear from Ford Credit, they've under -- I guess under-predict what they're going to do and seem surprised.

Why are we surprised every time?

Well, I think that we have been surprised by the improvement in the economy and the reduction in repossessions and bankruptcies.

I think that we surprised ourselves a little bit as well when we see how successful in its early days, but it has been successful, our strategy to focus on reducing the leasing mix and reducing our participation in the daily rental and being more thoughtful about our incentives, and that is having a positive effect on residual values.

And that plays in on Ford Credit's business as well.

Now, I think that we'll see more good news in the Credit Company, and that's why we took the results up -- or we took our projection up by the bulk of the 30 cents that we did.

It's not going to continue forever, that's clear, and what I'd like to do is ask Dave Cosper to comment in more detail on that.

Yes, thanks, Don.

The results were very strong in the first quarter.

We really saw improvements in the physicals in the business.

We'd been working on credit losses for some time, and we're not declaring victory on that, but we really did turn the corner.

Year to year in the first quarter, we were about 200m down in credit losses, and that flows right through to the bottom line.

And as Don mentioned, the stronger used car market has helped us substantially.

It's about a $300m improvement year to year in the lease business in the quarter, and that was a nice surprise for us and with strengthening of auction values.

Now, that was something that we had been working toward making happen.

I think it happened a little sooner and a little larger than we thought.

But it's certainly been a part of our plan ever since we put this revitalization plan together that we needed to get back in the car business and we needed to improve our residual values.

That's fundamental [inaudible], and we're seeing the early payoff of that now.

We're very happy with that.

Are your residuals bouncing back more than the rest of the market?

Is that what you're seeing?

Well, maybe a little bit.

I mean the market in general is up, and you're going to see that with other people as well, but you know, on some of the vehicle lines, we're up $1,000 a unit from year-ago levels.

Great.

Now, that's not to say that they're always going to be up $1,000, you know, that every quarter will be this way, but it's a good sign.

Great.

And can you tell us what's going on in April so far in terms of sales?

Lloyd, do you want to comment on April?

I would just say that it looks very much like the quarter -- how the first quarter ran.

You know, the industry's probably going to be in the same range, and our share's going to be in about the same range.

Okay, thank you.

Thanks, Mark.

Next question, please?

The next question comes from [Vladmir Velkof][ph] with Freedom Capital.

Please proceed.

Hi.

Good morning.

Good morning.

I'd like to ask you, when you look at the volumes in North America, they're pretty much flat, yet you had a substantial increase in profits.

I understand that revenue per unit is up but not to the extent that you showed [inaudible].

Can you elaborate on that, please?

Thanks.

Sure.

Well, as we said, the single-largest contributor to our improvement in profit in North America is cost performance.

That's about just under half [inaudible].

And then the mix improved as well, and that's a large -- a large part of that is the new F-150, and then the option things on the SUVs that I mentioned earlier -- the Navigator, the Aviator, the Expedition, and then the option and the mix of the new F-150 itself.

And then the net pricing was favorable.

And those three items account for almost all of the improvement in profit.

So despite the volumes being flat -- they're actually down a little bit -- profits were up.

And how sustainable that is and where are we sort of in that trend?

Are we in the cusp of it?

Are we in the beginning of it, do you think or--?

Well, again, I go back to what I was saying about the full year.

Our guidance on a pretax profit was, I think -- go back -- 1.5 -- 1.5 to $1.7b.

We think we'll do a little bit better than that.

And we'll have some more clarity around that in three months.

As I mentioned, you know, there is a dealer stock increase that contributes to the profits, not on a year-over-year basis, but it's that dealer stock build is in both the first quarter of last year and the first quarter of this year, and we don't build dealer stocks every quarter.

In the second quarter, dealer stocks will come down.

And I think that's really the piece that you need to think about, the sustainability.

In terms of the full year, I ask you to think of what we said that we're going to do a little bit better than our target of 1.5 to 1.7, and we'll update you on that in three months.

Thank you.

Next question, please?

The next question comes from Scott Merlis with Thomas Weisel Partners.

Please proceed.

Congratulations; great quarter.

Does the increase in guidance also put upside pressure on your cash flow outlook?

It looks like in the first quarter you had 3.2b in cash flow, and you combined the 2.3 with the 900m?

If you want to add those two together, right [inaudible].

So when you add the -- if you add the two together because Ford Motor Credit's dividend's kind of an annuity, it seems like cash flow from Automotive operations and Ford Motor Credit can begin to approach 4.5, 5b range even if you have higher capital spending in the second half of the year?

Well, we think that we'll have -- you know, as I said, I would think of our capital spending as around 7, and our depreciation around 6.

We'll hit our -- we're confident that we'll hit around $1b of pretax profit, so we're essentially saying that the $1.2b [inaudible] of operating cash flow -- and that excludes contributions to VEBAs and pensions, and it also excludes the dividend from the Credit Company -- will be right around that 1.2b.

Now, if there's any upside to the profit, I think there would be corresponding upside on the cash flow.

As far as your comment on the dividend from the credit company, I think that's right.

That's the bulk of the guidance increase, so there will be some more cash coming in than there might otherwise have been, and, you know, we'll take that and use it as we see fit.

And in terms of the uses, do you see coming over the horizon a point where the excess cash is no longer needed for pension or to repurchase debt but can be used for value-enhancement purposes?

Yeah, I don't think -- I think we're a long way from talking about those kinds of things.

One of our goals is, you know, clearly in all elements of the business, back to basics.

And so we still need some work to strengthen our balance sheet.

That includes, from my point of view, all the things that you mentioned, except value enhancing.

Um-hmm.

And the last question would be slide 11.

Can you conceptually discuss the effects on profitability of slide 11?

Are you firing at all six quarters by the -- are all these actions major contributors to profits in the fourth quarter or the first quarter next year?

Is there -- are you able to offset the higher new product costs in the F-150 launches?

And how's progress on controlling the costs on the new Ford -- the other new products?

Well, let's take those one at a time.

Clearly, the benefit of closing Edison -- you know, it's been since February 28, and we still have a few people to place, but by and large, that issue is behind us.

In terms of Chicago, I think we balanced out of the Taurus Sable Friday, and we launch I think in August or so.

And those cars will be in the dealer showrooms in sufficient volume sometime in the fourth quarter, so certainly by the first quarter next year, and I think to an extent, in the fourth quarter this year, they'll be a plus.

Those cars are on target, on cost, and on timing, and all the indications are they'll have a very successful launch.

We'll close the Ontario truck plant and get out of the old F-150 and launch the Dearborn truck plant with the full range of the new F-150 in the second quarter.

And so we'll have that benefit going forward.

We are on track to reduce the cost, so we said a couple of -- I think in December of last year we said that by the end of this calendar year, we would've taken out from the cost level of the first F-150 that we made in Norfolk to the last one we make at the end of this year about $1,000 of our product cost.

We're on track for that.

That comes in stages throughout the year.

Some of it came at the end of last year, some on January 1; a large part of it will come in July and August of this year.

We're on track for that.

So that will flow through beginning, you know, really the whole year as far as the costs go -- the whole year progressively, I should say, and then we'll have, you know, a whole new plant of the new F-150 beginning in -- probably in the late in the third quarter, they'll be in in volume, and we'll have sold down most of the old F-150s.

We'll balance out the Dearborn car plant, and when that occurs, there'll be a cost savings in large part because we'll be able to build the Mustangs in what's today open capacity at AAI.

And that'll begin late in the third quarter, and those cars will be in the showrooms probably in volume late in the fourth quarter.

So the [inaudible], I think, would probably be in the first quarter of next year.

Is that helpful?

The next question comes from Steve Girsky with Morgan Stanley.

Please proceed.

Good morning, everybody.

Good morning, Steve.

Any FAS-133 issues, either at the Motor or the Credit Company?

Yes, there was a slight gain in the Motor Company related to FAS-133 at the Credit Company commodity side, and on the Credit Company side, fairly small numbers, $47m pre-tax.

And your Motor one was sort of in that range, also, Don?

A little bit more but not much more.

Okay, and the -- there are a couple balance sheet items.

The other current assets was up a lot from year-end.

The payables were up a lot from Q4.

Anything unusual going on there?

No, there's nothing going -- there's nothing -- I'm going to ask Patricia on the other current, but on the payables and the working capital in total, nothing unusual going on at all.

They're up.

Inventory was up, I know that, and that was up in part just because of the a seasonality of --

Right.

-- end of last year.

At the end of any year, we always do a good job of cleaning out so we can get all the units that have customer orders shipped off to the dealers.

And March 31 was a -- I think fell in the middle of the week, so we didn't do anything special there.

That always happens in the first quarter, and inventories are also up because of FIN 46 and because of exchange, and I think it's about evenly split between those.

As far as the payables go, there's been no change in payment terms, and that can really vary for a whole banner of reasons, you know, depending on what the production level was three weeks before the end of the quarter compared to what it was three weeks before the end of the next quarter, and if the payment date falls on the March 31 or April 1, it just is very hard to predict.

It's a fairly normal amount of fluctuation in inventories and payables and nothing unusual there at all.

Don -- go ahead.

Do you have the other current?

Yes.

On the other current, it relates to the way we book the cash collateral for our loan securities, which you can see is up about $4b.

The offset to that amount is in the other payables, and you can see right below on the Automotive line it's also up substantially, so it's just a balance sheet [indiscernible].

There's nothing going on beyond that.

Right.

And, Don, could you just -- I mean I don't want to harp on this, but usually auto company earnings vary with volume, and your earnings don't seem -- at least the last few quarters -- don't seem to vary with volume that much, or the correlation has sort of broken down a little bit here.

How should we think about that going forward?

Well, I think our profits over the long term clearly do vary with volume, and at any one -- from one quarter to another, there are a lot of moving parts in this business.

And so you're just saying sort of in the fourth quarter, a lot of those moving parts didn't break your way; in the first quarter a lot more did break your way; and in the second quarter, some of them may not break your way again?

Is that sort of how it works?

I mean I think the single-biggest thing is a change in dealer stocks, and --

But that happens every year.

-- and the cost performance.

But as I mentioned, it's happening a little more --

But how predictable is the cost performance?

I mean in the last three months, the cost performance is just coming so much better?

And do we have predictability three months out on this?

I mean it seems like it should be more predictable than that.

Well, I think Bill Ford said it pretty well when he was in earlier.

We have been trying since the start of this revitalization to under-promise and over-deliver, and we want to make sure that we deliver what we say that we will deliver.

And I said there might be some upside on the cost, and I don't think we're going to get anywhere near the type of cost performance that we had last year, you know, because the quality related side of it is going to be sharply down, and we got most of the rest of that cost performance out of wringing costs out of manufacturing, engineering, and overheads, and I think we've got most of the low-hanging fruit there.

I think this year going forward, the cost performance will be relatively more predictable than it was last year.

First quarter excluded, though?

I don't think we gave any guidance on the cost performance in the first quarter.

But you gave earnings guidance.

We gave earnings guidance, and it certainly exceeded our expectation.

Okay.

All right, thanks.

All right.

And the next question comes from John Casesa with Merrill Lynch.

Please proceed.

Thanks.

Lloyd, what are your expectations for revenue per unit for the balance of the year?

I mean can you maintain the level of performance?

And what are the sort of key factors in order of magnitude that would drive your revenue [inaudible] performance?

Let me talk a little bit about the revenue improvement last year.

We were up 934, as you could see on slide number nine.

About $240 of that was net price, 1.2 percent.

And the good news there is we were able to hold our retail incentives essentially flat year to year.

We were able to bank some of the normal pricing, and that was a very positive thing.

Most of the rest of it was mix.

As Don mentioned, the F-Series was a big piece of that, probably about $200.

We had really strong sales of SUV.

We took down our daily rental volume.

We also improved and have worked on the structure at Ford Credit.

If you look at the percent of their business that has FICO scores of 620 and above, that's up and up double digits, and the percent that's below 620 is down.

And that improves our revenue because it costs a lot more money to buy down, somebody that's a high credit risk.

And so we've been working on every area.

We've showed some constraint on Company vehicles, which is a low-margin business.

Vehicles coming through Ford Motor Company are down 50 percent, so we've been working every aspect of that.

And I expect that to continue as we go through the year.

Keep in mind, though, we've been up [inaudible].

We were up 850 last year.

We're up 950 this year.

We were up a little bit [inaudible] started our initiatives in the fourth quarter [inaudible].

Each piece will get more difficult to get.

I think we will continue to see improvements, but I would expect the improvements to be smaller than what we've had the last couple of years.

I do believe there are still opportunities there.

A lot of the initiatives we take will continue and we will continue to see improvement going forward.

The next question comes from Himanshu Patel with JP Morgan.

Please proceed.

Hi, good morning.

Two questions.

First, back on this slide nine for the revenue improvement, could you just break down that 930 for the -- I know you said 240 or so was due to net price, but of that remaining 700 per car, how much of that was due to the deliberate backing away from fleet versus kind of genuine mix improvement within the retail business?

We kind of consider all of that mix and I would say most of the balance is product mix.

The only thing that was really down in revenue per unit was our sales on warranty parts because our warranty has been improving and so the parts piece was pretty flat, but it's essentially all mix.

I mean I can give you an idea of what causes that - full size pick-ups were up 14%.

We've been up double-digit every month since we launched the new vehicle seven months ago; large cars we had a 5% increase;

Mustang a 16% increase;

SUV sales 6% increase;

Econoline 6% increase.

As I mentioned, double-digit increases on cycle scores of 620 and above at Ford Credit.

We were down double-digits on daily rental, company cars as Don mentioned, lease volume was down, we were down double-digit on company business.

We were also down on small cars.

When you mix all that out, that's a pretty significant improvement and that's on top of the improvement that we achieved a year ago in a lot of the same areas.

Okay.

Then getting back to Steve's earlier question on North America, I mean it looks like Q1 was 8% margin or something north of that on a pre-tax basis, and obviously some of that you are attributing to dealer stock but we would normally think Q2 as being the seasonally strong quarter for you guys and it wasn't last year - Q1 was again.

Should we be thinking sequentially the same type of pattern as last year where you do see a sequential decline in margins in the second quarter?

Yes, I would think that the pattern of assembly plant changeovers that we talked about for this year and last year, indicates that we will have a strong first quarter and then volumes are down.

Just if I could to go back to the question that Steve Girsky raised, I think what he was saying was why are your profits going up when your volume is not?

Well that's our whole goal.

Our whole objective is to improve our profit margin, that's what this revitalization plan is and I think what we're seeing is that that's working.

What we're trying to do in some cases is substitute low margin vehicles out, the daily rental and the small trucks and so on, and replace them with new attractive desirable products that earn a higher margin.

As we do that progressively and as we control our costs, we will see our operating margins improve and in the long trend, we should see profits improve without volumes improving.

Now what our goal is to try and have both and that's a harder thing to do and it's going to take some more time to get all the new products up, but that's what we really want to do and that's what we should be doing.

We want to improve our volume and our margin and sometimes we'll do one and sometimes we'll do the other and we hope to do both.

Should we infer from that comment right there that at least North America specifically and most of the upside relative to what people - or what your previous guidance was, really stems from mix and costs you would kind of categorize as kind of in-line with what you would have normally expected during the quarter?

I think costs were a little bit ahead of what we expected but not greatly, that's correct, but most of the improvement was on the revenue side.

Costs were somewhat better, parts profits were a little bit better than we expected but the bulk of the improvement in North America compared with our expectation was on the revenue side.

Okay and then two small questions, do you have an FX impact on PAG for the quarter?

Yes, we've shown that year-over-year the total FX effect was about $100m unfavorable and most of that was in PAG.

Okay.

A question for Dave.

Do you have the book gains for off lease in the quarter versus a year ago as well?

We don't break it out that way typically.

I can tell you - and I mentioned we're up $300m year-to-year, performance related, related to the option values and other improvements in that business.

Historically, we haven't made a ton of money in the leasing business in recent years and that's turning around.

All right, okay, thank you.

Operator, I think it's time that we now switch over and take some questions from the media.

Great.

Ladies and gentlemen from the media, please press the star, one now if you would like to ask a question.

While we're waiting for the media to queue up, I just want to remind everyone that the audio replay of this call will be available through next Wednesday, April 28.

The dial-in numbers can be found in the call advisory that we issued back on April 8, and the replay is also available on the Ford website.

Operator, are we ready with media queued up?

Yes, the next question comes from Bill Koenig with Bloomberg News.

Please proceed.

Good morning.

Hi Bill, how are you?

Pretty good.

Don, I just wanted to ask something that's - it's implicit in the forecast and the milestone and things, but I just wanted to get you to comment - while Automotive out-earned Ford Credit in this quarter, it looks like you're not expecting that for the full year and it's been something like since 2000 since that last happened.

Would that be fair to characterize it's not going to be that way for the full year?

That certainly would be consistent with what I said earlier, that's correct.

Okay.

At this point, do you have any sort of sense as to when Automotive could out-earn Ford Credit on a full-year basis?

I think we probably don't want to talk too much about the forward years, but I think it's unlikely that - well let me put it this way, at the time of mid-decade when our target is $7b, at that time Automotive will be out-earning Financial Services.

Okay, all right.

Thank you.

The next question comes from Danny Hakim with New York Times.

Please proceed.

Hi, how you doing?

Hi Danny, how are you?

Good.

How much is the lower tax rate contributing to the new earnings guidance for the full-year?

About 6 cents of that 30 cents that's on the tax rate and the balances are Financial Services Group.

Gotcha.

One more quick thing, what was the last time that Auto earnings beat Ford Credit?

Was it 2000?

I think it was the first quarter of 2000 calendar year.

Okay, thank you.

The next question comes from Jeremy Grant with Financial Times.

Please proceed.

Good morning.

Good morning Jeremy.

Just a question on PAG, you are saying that PAG is unlikely to meet its marker because of the weak dollar, what does that mean for the mid-decade target of having PAG contribute one-third of the total profit?

I am assuming by profit you always meant Automotive profit.

First of all, we said or I said that we thought there was a risk.

That's a little different than unlikely, maybe not much but what we are really saying is that this is something -the currency exchange for now looks as if it will be unfavorable for us this year.

In the long-term, those kinds of things get corrected one way or another either by reducing your costs or by raising prices.

Thus far we haven't seen any indication that the general or the ambient level of pricing in the luxury end of the business here in the US is going up significantly.

I think over time, as our competitors' hedges roll off and time passes, that things may get better or we need to reduce our costs.

So longer term is different than the short-term and in the short-term we are where we are and it looks as if it's a risk, so we were saying in the sense of full disclosure, that's an area that maybe there's a little risk and we can't count on being able to offset that much bad news of foreign exchange.

I don't think it necessarily implies anything in the long-term about our ability to have those luxury brands deliver the kind of profitability that we saw at the start.

Okay.

Just a second question then, if the largest contributor to your North American profit was costs, are you going to be able to repeat that or are you going to have to rely on pricing in the second and third quarters to maintain that?

How's it going to pan out, because what that seems to say is that selling vehicles still isn't all that profitable?

Well let me try and answer that one and sometimes it can get confusing.

What we've said was the largest contributor to the change in profit from last year to this year was cost.

That's not to say that the largest contributor to profit in total is cost.

Like everything else in this world, it's a balance and we need to sell the right volumes with the right mix at a competitive cost with good quality to make profit.

That's what our plan is, that's what we are trying to do.

So I wouldn't think that we are overly dependant on cost.

It's certainly a part of our strategy.

Overall, this is a product business and we need to be competitive with good, desirable products.

That's what we are trying to do and in the fourth quarter of this year we are going to have a whole lot of new ones out there and we have really high hopes for those.

That's really what drives this business in the long-term.

Right now, we're being tactically shrewd about revenue management and we're restructuring our business to get out of some of the areas of the business that frankly we over-relied on like daily rental and to fix our business ongoing and that's producing some short-term gains in revenue and of course, we're always managing our cost trying to align our capacity with our sales capability and so on.

So that's how I think about it.

Okay, thank you.

The next question comes from Amy Wilson with Automotive News.

Please proceed.

Good morning.

Morning Amy.

I have a couple of questions.

First of all, I wondered how does the new earnings guidance change the total pre-tax profit milestone that you previously gave of $2.5b to $3.8b?

Well I think that what we would really like to do is to just say that's the earnings guidance on an EPS basis.

It's fairly straightforward, I think, with the taxes and the EPS.

It's going to be an improvement and it's going to be somewhere in the mid $4b range is where we'll be on a pre-tax basis.

Okay and then I also wanted to ask about the net pricing.

It was 1.2% positive in the first quarter and you said that you may not be able to expect that to hold true for the rest of the year.

Do you think the number though will remain positive for each of the following three quarters during the year?

I don't know if it'll remain positive for each of the quarters, but I do think that it'll be positive for the year.

You may recall we said that in January, we thought given where we were and the strategies we had and the track record that we had, that we thought we could do better than the average.

I indicated on, I think January 9 that we would do about a half a point better and I still think that's about right.

It may vary by quarter and I think it's likely it'll be positive every quarter, but I don't know.

It could dip under in one of those quarters and we'll just have to see.

Okay, thank you.

The next question comes from Nori Shirouzu with Wall Street Journal.

Please proceed.

Good morning Don.

Morning Nori.

Can you talk a little bit more about the capacity utilization?

It sounds like you're saying that improvement is basically coming in the balance of a year and beyond.

Did you have any capacity utilization improvement in the first quarter?

If so, can you quantify that?

Well I don't have those figures with me now.

I think our capacity utilization in North America, certainly improved when we closed the Edison plant and when we move the Mustang into Flat Rock, that'll improve that operation there certainly.

I think over time our capacity utilization is improving here and in Europe.

Certainly we took a shift off the passenger side in Genk in Belgium late last year that improved things.

So we're constantly trying to match our capacity with our sales and to do it in an efficient way with flexible manufacturing, so that we don't end up in the situation that we found ourselves a couple of years ago where we have pockets of excess capacity that we couldn't readily reduce.

We're working very hard to make sure that doesn't happen again.

Thank you.

The next question comes from Jamie Butters with Detroit Free Press.

Please proceed.

Good morning Don.

Hi Jamie.

I have a question, the dilution factor looks much more extreme than it has in previous quarters, on the back of the envelope it looks like maybe 250m shares were - are those just options and can we expect that to sort of level off at about 250m or so, or would it keep growing?

That's a good question Jamie.

Actually it isn't the options so much.

What that is, is we have this $5b convertible preferred offering and that's really what takes us from $1.8b to $2.1b, it's about the 250m you mentioned.

The accounting rules require us to restate our earnings on a proforma basis as just the convertible preferred issue conversion.

That is to say, we would stop paying the preferred dividend, and we would have a larger number of shares.

So we make that calculation, as do all companies under US GAAP and we show it that way.

It really has a lot less to do with stock options than it has to do with the convertible preferred offering.

So will that factor, that 250m or so, probably stay about the same, or does it vary with the price of the stock?

It should stay about the same going forward, assuming our earnings guidance, I think we'll see that fully diluted level every quarter this year.

Okay.

Thanks.

The next question comes from Sharon Carty with Dow Jones.

Please proceed.

Hi, good morning guys.

Hi.

I know your strategy is to under-promise and over-deliver on the earnings side, but do you worry at all that you're going to risk losing some credibility with Wall Street by beating your numbers by so much?

No, I don't because I think that that can happen.

I mean clearly that happened in the first quarter and I think there's a lot less risk around the full-year.

I think we'll edge a lot closer to the number.

I think the full-year number - we've gotten a lot closer to it now with this update and I think we'll be in a much better view to see where we really are going to come out for the full-year this time in July.

I think it's entirely too early to go out and say we're going to take the first quarter results and extrapolate from that.

I think that would be wrong and I am I guess willing to take that risk because I think in the full-year we have the right earnings guidance and the right approach to that.

Thank you.

The next question comes from John Stole (ph) with Wards Communication.

Please proceed.

That C-Max was a big factor in the strong performance in Europe.

Do you feel like that can continue to sustain you for the next couple of quarters until even more product comes in that sector?

Well I think we have to think about a couple of things.

First off, we made a little money in Ford Europe in the first quarter and we're really happy for ourselves and I think it's a real pat on the back for the team in Europe, who really worked hard and frankly in the last six-months we've been profitable two quarters in a row in Europe.

In the first quarter the profits were just in the black despite a dealer stock reduction.

I think there are a lot of good things going on in Europe.

From the standpoint of explaining net pricing and market share, the C-Max is a big contributor.

In terms of the overall profits, the restructuring that we took last year is also a big contributor.

So we have good performance on the fixed cost side, we have a terrific process in place in Europe to reduce our material costs and our product costs, that's in there as well.

We have the new Focus C-Max as we said and later in the year, we'll have the all-new Focus and then down the road next year and the year after, we have more new products coming in the pipeline.

So the Focus C-Max, I wouldn't say it's going to sustain, it's certainly a key enabler to lifting our game in Europe, but it's not the only piece in the puzzle by any means.

And then in the US, you said that there was a very positive performance especially against other competitors in the incentive game, do you see incentives - I mean traditionally they would increase over the summer, are you going to be able to maintain the sort of down-spending that you've shown in the first quarter?

Well time will tell.

That's a part of the uncertainty that I feel and I assume everyone feels, that we just don't know what will happen.

The industry level of dealer inventory is high and this is the time of the year when incentives increase, it happens every year, it's a seasonal thing.

Whether we can sustain the excellent performance that we've had at that level, I don't know.

I am confident that we will sustain an advantage, whether it's a diminishing advantage or an advantage at that level remains to be seen and that's the reason for our uncertainty frankly on the earnings guidance.

We just like to get a little bit more wheelbase behind us before we make another call.

Can you point to why it was so encouraging in the first quarter, the incentive spending?

I'm going to ask Lloyd to comment on that.

We have a very disciplined and targeted approach on incentives.

We've had that for a long time now.

If you look at outside groups like AutoData who track incentives, we have run consistently under the competition for several quarters, so that's not really new.

We believe we have processes in place and disciplines and a culture that makes good decisions that are consistent with meeting customer expectations as well as the long-term structure of the business.

I would say with respect to going - kind of two trends are occurring out there.

One is, we have been encouraged that incentives have kind of flattened out the last few quarters in the industry, but when you look at the way the incentives seasonally run through the year we always balance out our old models and that's true for us and the other manufacturers.

In the summer months, it gets a little bit earlier every year and so this second quarter marketing cost in terms of the way they are accrued in our income statement is always a bigger number than than the other quarters.

I would hope that we could - like we did this quarter keep it relatively flat with a year ago, but there is a seasonal effect and that's one of the reasons that our profitability as you go from the first quarter to the second quarter typically comes down a little bit because of that seasonal effect and I think you'll see that with virtually any of the manufacturers out there.

Thank you.

The next question comes from James McIntosh with Financial Times.

Please proceed.

Hi Don, I wanted to ask about pricing as well actually.

I just noticed on your planning assumptions you didn't include a forecast for industry net pricing anymore for the year and I wondered if this was because you weren't changing the previous one or if you were [inaudible] it?

No, that's because we don't really see any change in the industry pricing.

As I have said we have seen overall industry pricing levels are down in the US, as recorded by the Bureau of Labor Statistics.

We expect that to be down this year as well.

Our planning assumption had been that the pricing pressure would mitigate to an extent that perhaps going from last year when maybe it was a negative 1.5% or something around that range, to negative 0.5% and that we would do better than that such that our price was about half a point positive.

Really nothing has changed on that.

Okay.

And Europe -- obviously, you are doing well because of C-Max.

And do you still see overall the industry down as well?

That's a tough one to call too and there's an added complication of exchange rates there.

I still am optimistic that we'll come in slightly favorable.

I don't think it'll be anywhere near the levels that we achieved in the first quarter because this is the first quarter we had the C-Max and it's a fantastic product, but it isn't going to sell like that forever.

So we just have to make plans and try and accommodate the fact that it can't carry the whole load every quarter and so that's why we have cost reductions and restructuring, fixed cost reductions and so on.

I think the pricing environment in both the US and in Europe will remain tough and we are committed to hit the numbers that we laid out, that are on our track to get us to mid-decade and when we get a little bit more wheel base, as I said, and we're confident that we can achieve what we've said, then we'll adjust our guidance.

Okay thanks.

Operator, we probably have time for just one more quick question.

Are there any more media in the queue?

There are no more media questions at this time Miss Gasper.

Okay.

In closing, Don, do you have some comments, further comments?

No, I think I will just try and summarize by saying we had a great first quarter and we're very happy with it.

We're pleased to be able to take up the guidance on the Financial Services side, that's the third straight record quarter I think for the Credit Company and we couldn't be happier there as well.

It is a tough environment out there.

A lot of uncertainty in the economy and it's a very, very competitive market both here and in Europe.

There may be some upside for us, but right now I'd just ask everyone to think about our track record and we are going to deliver the numbers and we are going to get to our mid-decade goals.

Thanks a lot for your time this morning.

Ladies and gentlemen thank you again for joining us.

If you have any additional questions, please feel free to call either Investor Relations or Public Affairs.

Ladies and gentlemen this concludes your Ford Motor Company First Quarter Earnings Conference Call.

Thank you for your participation today.

You may now disconnect.