福特汽車 (F) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ford Motor Company Fixed Income conference call.

My name is Rachel and I will be your coordinator today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Robert Moeller, Fixed Income Relations Manager.

Please proceed, sir.

Good morning.

Thank you for joining us.

Our speakers are Jim Gouin, Ford Vice President and Controller;

Dave Cosper, Ford's Credit Vice Chairman and Chief Financial Officer; and Ann Marie Petack, Ford Vice President and Treasurer.

Additionally here in the room we have Neil Schloss, Assistant Treasurer;

Patricia Little (ph), Accounting Director; and Paul Lewis, Director of Corporate Finance.

Before I hand the call over to Jim, I would like to review a couple of quick items.

First, you can get copies and slides we will be using this morning at the Ford Motor Company investor website.

I would also point out that the financial results presented here are on a GAAP basis and in some cases on a non-GAAP basis.

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

I need to remind everyone that today's presentation may include some forward-looking statements about our expectations for Ford's future performance.

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

Additionally, information about these factors that could affect future results are summarized at the end of this presentation.

Key risk factors are detailed in our SEC filings including our Form 10-K, 10-Q and 8-Ks.

With that, I would now like to turn the call over to Jim Gouin.

Thank you, Robert, and good morning everybody.

Based on some feedback that we've received from you, I actually want to change a little bit the format of this, and I'll just do a very brief corporate overview given that we just had the call earlier this morning.

I would mention to you that that call of course you can have on replay I think through April 27th overall.

So it is there for you to refer back to.

This first slide really takes a look at the summary of the first quarter results and on an earnings per share basis from continuing operations excluding special items we are $0.62 per share.

If you drop down a little bit on that slide to pretax profits, you can see there are pretax prfits excluding special items in the quarter of 1 billion 655 million, and just to refresh you on the breakout of that autmotive profitability was 579 million and our financial services group profitability about 1.1 billion.

Our total revenue in the quarter was $45.1 billion; that was up $400 million and our vehicle unit sales were at 1,716,000 units, down 72,000 units compared with last year, or roughly 4%.

In terms of our overall cash our gross cash we closed the quarter at $22.9 billion.

And our operating cash flow for the quarter was positive $800 million, down $1.6 billion driven primarily by our change in profitability year to year.

I take you to slide 2, takes a look at our 2005 financial milestones and outlook.

For the full year our earnings per share guidance is $1.25 to $1.50.

And if I refresh you on what we said earlier this morning that our automotive profitability would be breakeven at best within that guidance.

Our second-quarter guidance we had indicated a loss of 15 cents per share to breakeven, in the second-quarter period.

It is worth noting as well that we expect that we will incur a charge to earnings associated with the conclusion of our final agreement with Vistion.

However, at this time we have no further details on that.

And with that short summary, Dave, I will turn it over to you.

Turning to slide 3, this is our standard Ford Credit operating results and key metrics slide for the quarter.

As shown in the left box our first quarter pretax profit was 1.1 billion, it's a very strong quarter for us, about the same as a year ago and I will talk more about that in a minute.

You can see in the right box that our March 31 '05 managed receivables were 155 billion, down 8 billion from a year ago and down 3 billion from year end.

The decrease reflects lower retail lease placement volume and the impact of a whole loan sale in the first quarter of this year.

Charge-offs from managed receivables in the quarter were 229 million, down 200 million from a year ago.

We continue to see substantial improvement in our credit losses.

At March 31 the credit loss reserve for on balance sheet receivables was 2.2 billion, or 1.74% of receivables.

We did pay a $450 million dividend in the quarter and ended the quarter with a leverage of 13 to 1.

Turning to the next slide, this shows our pretax profit for the quarter compared with a year ago.

As I mentioned, first-quarter profit was 1.1 billion, flat.

Following the margin were both down slightly from the year ago and this was offset fully by improvement in credit losses.

I would say that our lease business continues to perform well, and although revenue was down from a year ago reflecting our smaller lease portfolio, it was offset by the impact of improved auction values.

Slide 5 shows our trend of credit losses and loss to receivables ratios as reflected on the balance sheet and on a managed basis.

The top left box shows worldwide loss to receivables ratios, both the on balance sheet and managed loss receivable ratios were down substantially from a year ago.

On the right box it shows the LTR for Ford Credit U.S. retail and lease business.

First-quarter ratios were roughly one-half year ago levels, substantial improvement.

Consistent with this managed charge-offs in the bottom box were $229 million for the quarter, down 200 million or 47% from a year ago.

This slide shows the primary drivers of credit losses for the U.S. retail and lease business.

Repossessions in the first quarter were 30,000 units, down 35% from a year ago.

Loss severity at 62 50 (ph) for the quarter improved $400 a unit from the fourth quarter and $500 from the first quarter of 2004.

Over 60-day delinquencies continue to show improvement and were .11% for the first quarter, the lowest level we've seen in quite a while.

In addition, new bankruptcy filings continue to improve.

Overall we are pleased with the credit loss performance and very comfortable with the overall quality of our portfolio.

Turning to slide 7, on the left-hand side you will see that we changed our primary lease metric to lease return volume; a volume metric quantifies the amount of vehicles returned to us at lease termination, and we feel this is a better indicator.

I would point out that about 10% of these units shown on this slide are bought by dealers and the rest go through our auctions.

In the first quarter lease return volumes were 40,000, down 22,000 units or 35% from a year ago, reflecting primarily lower placement in '02 and '03.

Returns were 4,000 units lower than the fourth quarter of last year.

Our average 36 month auction value was 13,070 in the first quarter, up $510 from a year ago and up nearly 1,000 from the fourth quarter, we're seeing similar improvements in our 24 month auction values.

Our worldwide investment in operating leases has remained relatively stable around $22 billion.

In 2005 our termination volumes are expected to decline by about 110,000 units or 35% from year ago.

This factor plus other actions we and Ford Motor Company are taking will continue to support our residual value strategy.

With that I will turn it over to Anne Marie.

And I will move us along to slide 8, (inaudible) This slide shows our present debt ratings and outlook.

Earlier this month DBRS confirms the ratings of Ford Credit at high triple B, and places Ford's rating under review with negative implications.

Fitch, which rates us at triple B+ revised our ratings outlook from 2 negative from stable.

And Moody's released our long-term ratings which are presently B, AA1 at Ford, and A3 at Ford Credit.

Under credit review for possible downgrade and affirmed Ford Credit short-term rating.

SMP which rates us at triple B minus revised the rating outlook to negative from stable.

Moving to slide 9, this slide shows the trend in funding for our managed receivable state.

As Dave pointed out at March 31, managed receivables were 165 billion.

That is down 3 billion from year end 2004.

Our forecast for managed receivables is about 160 billion for year end 2005.

This level is at the lower end of the range that we presented in January.

At year end we are now planning to be at the lower end of the 5 to 7 billion of unsecured commercial paper.

At this point in time our plans include a cash balance of 13 billion at end of the year.

This is the same level we ended 2004 and the end of March.

This level of cash gives us flexibility in the execution of our funding plans this year and into 2006.

Slide 10 shows our public term funding plans for Ford Credit and does not include our short-term funding program, our use of asset by commercial paper conduit or whole loans.

The nonpublic programs provide flexibility in executing our funding plan and do affect the level of our public term funding.

For 2005 our public funding plans are in the range of 16 billion to 25 billion compared to our prior level of 20 billion to 30 billion.

The change reflects lower unsecured issuance as a result of wider credit spreads and higher volatility while our public asset-backed issuance remains unchanged.

Based on market conditions the mix of unsecured and asset-backed issuance as well as the mix of private transactions may change.

As shown in the slide, we have completed 12 billion of funding through April 15.

The level includes the recently completed $3 billion public asset-backed transaction.

Moving to slide 11 this slide shows our liquidity and short-term funding program.

At March 31st total liquidity was 65 billion, including committed credit facilities, unused bank conduit capacities and cash.

Liquidity exceeds utilization by $33 billion.

Moving on to slide 12, as we have emphasized in the past, Ford Credit's balance sheet is inherently liquid because of the short-term nature of its asset.

For the U.S., Europe and Canada, which comprises a great majority of our receivables and obligations, the assets projected to mature in the next three months exceed debt coming due in the next three months by 38 billion.

And this relationship is true for each of the extended periods shown on the slides.

On slide 13 we have outlined and highlighted the flexibility we have in accepting the capital market by identifying various types of transactions we have executed.

We have securitized retail, lease and wholesale receivables in various markets using a variety of channels, including revolving committed (ph) conduit, stand-alone conduit, asset-backed commercial paper, sales to private buy and hold investors and public underwritten transactions.

In addition, we have utilized whole loan sales in the U.S., and that is since 2002.

And in the public market we have issued to retail investors in targeted offerings known as Baby Bonds.

The variety of market environment this flexibility provides us reliable and cost-effective sources of funding.

We will continue to prudently utilize diversified funding sources so that we are not reliant on any one single channel.

Slide 14 shows Ford's debt maturity.

Automotive debt totals 18.2 billion.

The average term to maturity of Ford's total automotive debt is 25 years, and over the next 10 years, only 3 billion of our debt actually matured.

Moving on to slide 15, and in summary, first-quarter earnings per share was $0.62 cents from continuing operations excluding special items.

Within the automotive sector each operation was profitable except for PAG.

In the first quarter the North American environment became even more challenging.

Automotive liquidity remains strong but Ford Credit first-quarter saw strong earnings with continued favorable credit loss and lease performance.

Ford Credit has strong funding flexibility and liquidity, including committed credit facilities, unused bank conduit capacity and cash.

Ford Credit had managed leverage of 13 to 1 for the first quarter.

And with that I will turn it back to Robert for (inaudible).

(inaudible) We ask that you limit yourself to one single point question.

Can we please have the first question?

(OPERATOR INSTRUCTIONS) Chet Luy of Barclays Capital.

Just a couple quick questions.

First, can you give us a breakdown for the $600 million cash usage, maybe (inaudible) timing differences, what were the drivers here?

There's always a lot of things that drive that and to tell you the truth, there are so many items in there I think they are best described as timing differences.

On the working capital side, will this be a source or a use of cash for this year?

I think as we said this morning I wouldn't look at any one given line item in that operating related cash flow as either moving significantly.

I think over the course of the period of the year it is going to be relatively neutral, and I would also say that from the standpoint of working capital in total that Anne Marie and David and I spend a large amount of time focusing on working capital to ensure that we keep it as efficient as we possibly can.

So I think generally it should be neutral for the year.

CapEx for the quarter is running a little lower than yearly guidance, can you talk a little bit about what the cadence will be for the rest the year?

I think that we have a target of $7 billion for the full year.

I think we are still on track to achieve that target.

A little light maybe in the first quarter but I think we'll see that pick up throughout the course of the year.

As we begin to introduce product going forward, and as we talked about before, we have some substantial product launches late in the year this year.

With the launch of the Fusion and the Milan and the Zephyr down in Hermesia, (ph) Mexico.

Right, finally could you update us on pension returns for the quarter and the status of your underfunding at the end of the first quarter?

Yes, really the pension returns for the quarter were just slightly negative, less than 1%.

They were sort of between breakeven and a little bit negative.

As far as the funded status we don't really update the funded status on a quarterly basis.

Because we just look at the discount rate and other things on an annual basis.

It probably would have been not material change from where it was at the end of the year.

Stewart Hosansky of Vanguard.

I had a couple of questions.

One is this morning there was information given about your fleet sales versus retail.

Within the fleet, can you break that down, that 33% fleet sales between the daily rental and the other fleet sales?

Let us take that and we will see if we can get that to you between now and the end of the call.

Okay.

Second question is on Hertz and I recognize that you are still obviously determining what the strategic alternatives will be on that.

Would it be the intention of Ford to have the resultant entity have stand-alone ratings that are investment grade?

I think that you are further ahead than we are as far as -- I think I certainly can say we really think Hertz is a great well-run business and we would -- whatever we want to do, we want them to continue to be successful.

But I think you are way ahead of us as far as we are beginning to explore these options.

Also with Hertz, would it be the goal to not only have an alternative that would be beneficial for the shareholders but also be beneficial for the bondholders, in the sense that Hertz is called a half a $1 billion a year profit generator for the Company.

If you just spin the Company off then from a bondholder perspective there is really not a lot of value that we gain from that.

So will you be looking at both the bondholder interest as well as the shareholder interest?

Yes, we will be.

Okay, and finally can you talk at all about your whole loan sales?

How much have you done year-to-date?

What do you expect to do for the full year?

Yes, we have been selective about what we've done, but I can tell you we have done between 1.5 to 2 billion so far this year and we will continue to do it as we think that is a good tool to put into the mix of our total funding.

There is enormous capacity out there and we could be doing very large volume there.

And from a cost standpoint approximately how much is the differential between whole loan sales and similar maturity asset-backed sales?

They are really not comparable because in one case, of course, we've got a structured transaction that basically takes all of the risk out of the transaction, and the other case we are selling all of the risk.

So it is very difficult to I think to compare those on an apple to apples basis.

I would say this, though that from our initial offerings back in 2002 the pricing has improved substantially for us, as people have become familiar with this and as the markets grow.

And there is a lot of demand, as Anne Marie said.

And that helps price.

Brian Jacoby of Morgan Stanley.

Just a couple questions on Ford Motor Credit.

You talked on the earnings call about how allowances, there could be further releases but you're going to see how things go for the remainder of the year.

What are some of the things you are looking for that will give some direction one way or the other that perhaps will allow for some further release of reserves?

That would be helpful.

We monitor it quarterly, and we look at the risk profile of the portfolio that we have, the credit quality, the recent loss experience.

And we also look out forward in what's going on in the economy.

And that is a little bit uncertain.

Unemployment is still stable, but there's always some uncertainty there.

I would say that the performance that we saw in credit losses in the first quarter was better than our expectations.

And if we were to continue to operate at that kind of level and see that kind of performance ongoing, there is certainly room for the reserve to fall further.

It averaged as a percent of receivables 1.74%.

Our ten-year average now is 1.5.

So that gives you an indication of how we stand versus the ten-year average.

Okay, and then along those lines if you could walk me through this, the logic on this, obviously the whole loan sales are great in terms of it lowers your funding costs and other avenues to get access to capital, but I guess on the other side of that is you are giving up future profits.

Am I thinking of that the right way?

And two, how do you measure those trade-offs with that, and when do these whole loan sales start to have an impact on future earnings?

You are telling us that earnings are going to go down.

I do recognize that but we are just trying to get a handle on to what degree will Ford Motor Credit represent a lower portion of or lower level of earnings.

That is where I am going with this.

You are thinking about that properly.

A whole loan sale, we do forego the profits on those assets.

Notwithstanding that, I think it is an important channel for us in terms of liquidity that we do intend to keep it open.

We have done close to 12 billion since 2002.

We were out of the market last year.

We have re-entered the market this year and we'll keep that channel open.

We were out last year principally because we were shrinking the balance sheet anyway.

And we are sort of stabilizing the balance sheet presently, but we will continue to access the whole loan market.

As I said before, I think that is one of the reasons we are looking at how much of this we do.

Just before we take the next question, we had a question earlier on the split of daily rental out of the 33% fleet, and of the 33% daily rental represents roughly 55% of that, and that would be up roughly 5 points from the same split last year.

So of the 28% last year up with 50% of the deliveries were daily rental.

And that really reflects pulling that ahead as we talked about earlier, our balancing out and having earlier launch dates for our new products.

And we would see this obviously decreasing later in the year so that we are still following our strategy of lower fleet year-to-year, and especially lower daily rental year-to-year.

Douglas Carson (ph) of J.P. Morgan.

I had a few questions on the short-term liquidity.

Can you give us an update on S-CAR and Motown.

How large those programs are?

How they could be affected on a ratings downgrade?

And how large can you expand capacity?

And if you could just touch on Cobra, the Canadian component of your retail note seemed to be halted.

I am not sure if that's going to continue and what you think the expectations are and in the U.S. with your retail program.

If I could flip you to slide 11, I think that shows pretty well where we are at the end of the quarter, and I am now talking to the bottom box on the page with respect to F-car (ph) outstandings and Motown outstandings.

And those levels are both up from the end of the year.

Motown ended 2004 at 7 billion and F-car ended 2004 at 12.6.

If you look at the upper box you can see the liquidity that we have in place to support those programs.

So we do have additional room for growth.

And it is our opinion that they are not rating sensitive to the ratings of Ford Motor Credit.

And I'm sorry, what was the second part of your question?

It was the Cobra program.

On the Cobra program.

In Canada the program was halted, I'm pretty sure.

Oh, T-Bird.

Yes.

What happened there is really a little bit of a technical issue for the Canadian security loss.

If you have a low triple B rating with a negative outlook, you can't go under the same form of documentation that you could before.

So in order to continue we will have to change the form of documentation.

So we are complying with some legal requirement, but not -- it's really the Ontario Securities Law that drove that.

But it will just move us from a short form to a long form of filing.

So if you move to a long form you could re-establish the program?

Yes, that's correct.

Do you think you will have any difficulty in the U.S. continuing the retail program if you were rated below investment-grade?

It has been a source of liquidity for a couple years, and I'm just trying to predict if that source will still be available.

I think that a difficult thing to predict, and I think the thing we do when we assess our own funding plan is have the flexibility regardless of what happens to any individual funding source.

Brian Zinser of Merrill Lynch.

A couple of other follow-up questions on Hertz.

Is Hertz still the largest buyer of cars, largest single buyer of cars from Ford?

I have to verify it, I believe the answer to that is still yes, but we will verify that.

I would say it may be but we have cut back our sales with Hertz, way back, substantially.

I mean this follows the overall strategy that we talked about many times on reducing our reliance on rental.

And we've also diversified in terms of the number of people that we sell rental to outside of Hertz.

And focus more on say the risk side of the business as opposed to the repurchase side of the business.

And I think strategically some of our other affiliations we have maintained long-term supply arrangements regardless of the ownership structure.

That was kind of the next question if there was some form of an economic separation would there likely be some form of an operating agreement between the two entities?

We certainly want them to continue as a significant customer of ours.

And I was wondering if you could just help refresh at least my memory on in terms of how the funding works over at Hertz in terms of if you can give us kind of the rough allocation in terms of Hertz funding, how that breaks down in terms of unsecured versus secured.

I think I'll have to get back to you with the exact breakdown.

They do have a mix of commercial paper, term debt and secured debt.

And the mix of that does change seasonally, as well because a good portion of their funding in the middle of the year is seasonal.

So --.

Yes, I'm just looking for maybe an annual, if you have a number that you can give for 2004 in terms of how that mix broke down.

Yes, we will get you that.

And I'm curious to know if you have any thoughts on this, maybe we do that off-line as well, but if Hertz could effectively start to do more in terms of the secured markets, I'm wondering if that is an untapped opportunity.

If there is more potential for that to all be done in a secured basis just given the nature of that business or if there is some particular reason as to why there is still a balance out with unsecured financing.

I think like us, that Hertz has -- continues to have flexibility in the execution of its funding (inaudible).

We just don't want to become too reliant on one source.

Okay.

Perhaps I'll follow-up off-line, then.

Thank you.

Adam Horowitz (ph) of Talyan (ph) Management.

Most of my questions were asked, but quick question regarding the, of all things the Safe Harbor page.

One of the issues that has been out in the market very much has been the possibility of a competitor of yours on filing for bankruptcy.

Is that an issue that probably should be on the Safe Harbor page?

I think we've got enormous liquidity right now, so I think we have appropriately outlined the risks we are facing.

I am mentioning it because a lot of those events are low probability events, but they are still listed.

I'm just wondering whether or not that is something we should be focused on, as well.

One of the things we do have, obviously is work stoppages, supplier facilities interruptions and so forth.

I'm not sure I understand your question fully, what are you trying to get at?

I am just getting at -- I was looking through the Safe Harbor page and in it there is just a listing of all the issues we should be aware of in terms of issues that could affect your outlook.

There has been a lot of discussion in the capital markets regarding the possibility of a competitor filing for bankruptcy.

The question is whether or not that is an issue we should be focused on as well vis-a-vis Ford.

I think overall if we look -- we have a number of suppliers and there are a number of suppliers obviously that are in financial difficulties, and we work with them overall to ensure that those kinds of bad things don't happen.

So I think we can certainly take a look at whether we should have something explicitly on the Safe Harbor but I think from the standpoint of what we do with our supply bases we work very closely with them to ensure that we have a continuous flow of product coming into us.

And if it is a competitor?

I guess you would have to ask the competitor.

You don't think it would have an impact on you necessarily?

If you are asking if a major competitor's bankruptcy would affect our funding --.

No.

It would affect the business and therefore the funding.

Our business and funding, I think that is covered indirectly in that you see industry over capacity, you see pricing, you see credit ratings, you see all the things that would be the secondary effects of that, and I think those would influence these factors whether it needs to be called out separately as a factor in and of itself, I don't know.

But I think the factors we have listed would be influenced by competitor's bankruptcy.

Mike Heifler (ph) of Deutsche Bank.

Just have a couple questions.

One on the penetration outlook, perhaps you can comment on that, your penetration rates were up pretty meaningfully versus a year ago.

Should we be thinking that there is more upside on that?

Ford Credit financing share?

Yes.

I think the level you are seeing is about where we see it going forward, (multiple speakers) could make a good progress and I wouldn't see that to increase.

So the mid 40% range, Dave, is a good number?

Very comfortable with that.

We've made some improvement with some of the PAG brands, but it's not going to move that total volume.

And then on the net interest margin, the financing margin, obviously there has been some contraction there.

Could you help us think about how that should shape up going throughout the year?

Yes, the margin was down roughly $100 million.

Interest rates have increased.

Our spreads have increased.

I think year-to-year that will continue to be a drag on earnings, and that is really one of the most significant factors that we see.

Is there any way to dimension this?

The way we do dimension it is look at our interest rate sensitivity of our income strip, and our balance sheet to 100 basis point shift in interest rates.

And at year end it was about $93 million for an instantaneous shift.

That is not perfectly helpful because there is lots of other moving parts.

How quickly rates move, what happens to our spreads, when we go in the market and how we fund ourselves.

But we don't take a lot of interest rate risk, and you can see that right here because rates have moved up sharply already.

But it will continue to be a drag on earnings throughout the year.

But so far we've been able to offset it with improvements in credit losses.

Okay and just one last one, on that timing difference line item on the parent company cash flow statement.

It seems to me that you guys are really indicating that there is going to be lower ending inventory this year, and how does a take down in inventory affect that line item?

Well, the inventory shows up in working capital.

The dealer inventory?

Doesn't that line item include accruals for the incentives?

Yes.

So would a decline in inventory be a source of cash, use of cash rather?

A use of cash.

As I said earlier, I think overall that line I think will be relatively stable throughout the year.

Okay.

All right.

Thank you very much.

James Locher (ph) with Allstate Investment.

I've just got a few questions.

First would you care to provide an update on your debt reduction plans specifically both at Ford Motor Company?

In the first quarter you had talked about maybe having that overall debt be reduced by about $1 billion.

I was wondering if that number had changed at all given the fact where your current long-term debt is trading below $0.80 on the dollar.

And second, given where the current dollar price is at Ford Motor Credit are you evaluating any open market or debt reduction plans for Ford Motor Credit?

For Ford Motor Credit we are really not looking at any debt reduction plans.

I think we have occasionally on callable bonds taken the opportunity to call them, but I think we are being very prudent with managing the liquidity.

At Ford Motor Company I think we did complete some amount of debt repurchase in the first quarter.

I think we will monitor at balancing what to do -- combined with we got a little bit lower expectation for cash flow than we did at the beginning of the year, and we are going to manage to appropriate levels of liquidity of automotive company, as well.

That being said, when the spreads are what we think totally unrealistic, we may continue to be a little bit opportunistic from time to time.

Great, thank you very much.

A second question is can you clarify what's going on with -- on appendix 14 of actually the equity earnings release, the short-term VEBA went from 4.1 billion to 3.3 billion.

Did the assets in the VEBA trust change at all, or is that just like an asset allocation move from cash into longer-term securities or did you actually draw down on that short-term VEBA cash?

We did draw on the short-term VEBA cash which actually is not unusual for what we have done in the past.

I think last year was the first year that we didn't draw down the short-term VEBA during the year.

The short-term VEBA cash is managed in a way identical to our corporate cash.

So we really view the two as interchangeable, and we report them both as corporate cash for reporting purposes.

So we always see that there is quite a bit of flexibility in using that.

Okay, great, thanks.

One final question.

There was a report today that there was a union newsletter where it stated that Ford will stop making the Taurus as early as the end of next year.

Does that have anything to do with the fact that Ford is looking to evaluate strategic opportunities for Hertz?

No.

That has nothing to do with it.

That is part of our normal cycle planning process, and that is the normal balance out for that vehicle.

And so it has nothing to do with Hertz whatsoever.

Scott Lee with MetLife.

I hate to get back to Hertz, but can you remind us what the thought was when you bought the balance of Hertz equity?

And I think it was maybe in the early 2000 timeframe or somewhere in that timeframe, and what changed strategically from that point to what you are talking about today?

I think we have, since that time period, really strategically changed the focus of the Company overall to our core automotive business in the financing of those automobiles.

And I think what has changed in addition is really our more recent strategy to sell fewer and fewer vehicles into rental fleets.

Is that borne out by the data?

Yes, absolutely.

We are seeing daily rental channel -- earlier you had made a comment that it was up like 5%.

Let me make that clear.

What we said yes, we are seeing some increased rental volume in the first quarter, and that is a conscious decision on our part to pull ahead rental volume into the first quarter.

That is sort of in line with our overall revenue management strategy to help us improve residuals because that means they come back into the market at a better time for them to be resold at auction.

In addition, we have also talked about pulling ahead job ones to also help our overall residual values.

And so this is just helping us do that, and it's in line with our overall balance out as well.

Right.

So on the one hand we have this impression that you guys are pretty healthy in terms of your liquidity, and so I understand that you're not talking about specifics with what you're doing with Hertz, but it doesn't seem like that with what you're exploring then, it is really to address liquidity.

I would say you make a good point in that we do have very strong liquidity, and I think having even stronger liquidity is not a bad thing for us.

But I think we also look at the market and the strength of the Hertz business and the strength of that management team and say it is the right time to explore the strategic alternatives for that asset.

And I think it does come back to the change of our view relative to its importance within the Company.

And that is that it's directly in line with our strategy overall.

And as I mentioned earlier I think from a sales standpoint we don't see -- we see no issues relative to us being able to sell vehicles into Hertz, whether we own them or not.

And so I think it fits very well at this juncture for us.

Just coming back a moment on the data relative to daily units sold, if you look at the K you will see that since 2000 we have substantially reduced the number of vehicles sold into our daily rental fleets.

Again, it is just a further affirmation of sort of the strategic path we are on.

(OPERATOR INSTRUCTIONS) James Bankhart (ph) of J.P. Morgan.

The question is what do you or how much of your balance sheet do you feel you can securitize?

Clearly if funding levels stay where they are at the moment the unsecured market would not look too attractive, and as you look to support Ford sale of vehicles going forward, it would suggest that you need to do much more funding going forward in that asset-backed type marketplace.

I think we've got the ability to grow our securitization levels significantly from where they are today.

At the end of March we had securitized 29% of the balance sheet, and we are forecasting by year end that would be 33% to 34%.

And I think we have room to go well beyond that.

Would you care to quantify well beyond?

Is that 50% level?

I don't know that I would quantify it at this point in time because I wouldn't see it as a onetime event.

Those numbers move over time, and I think we would have to take into account all constituencies as we move those levels.

John Collar (ph) of HSBC securities.

Just a quick question here with the recent changes taking place here in the bankruptcy laws.

Do you expect a spike in bankruptcy filings that might affect you in the next few months, and what type of impact might that have on not only charge outs but allowances in the near-term?

We are actually taking a look at that, and frankly do expect to see prior to enactment of a law there would be a spike up.

Our guess is that it won't be a significant factor for us and ongoing would result in some savings that frankly would benefit us going forward.

So I don't see it as a big blip for us this year.

You mean a benefit in the longer-term once you get over the hump of the spike in filings?

Yes.

I think it will pay back very quickly.

Before we take the next call there was a question as opposed to the composition of the fundings for the first balance sheet -- we have about 900 million of secured funding presently out of total debt of about 8.4 and the ability to grow this secured funding just as Ford Credit has that ability.

Bill Doyle with PPM America (ph).

Can you elaborate a bit more on the selling into rental fleets earlier in the year?

It's really just a matter of the timing in which the vehicles end up coming back into the marketplace is much more efficient for us than to liquidate them.

They are not as old; they are not competing against as many new model products that are in the marketplace.

And so the auction ability of those becomes easier.

And obviously we get more money for them.

And that is based on a seasonal swing?

Essentially, it is based on the fact that when we launch our new model products.

And over the last several years some of our product launches were late in the year, and as a result when these products were coming back they were on top of our launch plan.

And when we had new products coming out in the marketplace it affected the residuals.

So we worked to pull both the timing of the launch of products ahead and try and get some of our rental vehicles out earlier in the year.

So if I understand it right then, the historical sort of fall introduction of a new car, that's when you don't want your rental units coming back?

Essentially.

So what is the typical turn on these rental units?

Is it 6 months, 9 months?

It ranges from that 6-month to 9-month period.

And if you're moving those heavily into the first quarter doesn't that then put them up in the October timeframe?

(multiple speakers) to when there is all kinds of volume coming out.

So it just helps us overall from a timing standpoint, it is a more efficient time to do it.

The first quarter is a more efficient time to do it?

A piece of it is.

It's not all in the first quarter.

So we are trying to move a bit of it ahead.

We also have deliveries scheduled throughout the remainder of the year.

Are you heavier in the first quarter then as we now anticipate the rest of the year?

I think you'll see us go down over the course of the year, yes.

And that is what you view as the optimal strategy?

Yes, it is.

(indiscernible) of Evergreen Investments.

Just going back to this debt buyback issue given that your spreads are really unrealistic if you guys do realize some proceeds from the sale of Hertz would you be looking to buy back debt?

And I'm not sure if you can, but if you could can you tell us which issues you are buying back?

Well, I think that it is -- we are just planning for looking at the strategic option for Hertz.

So we really haven't contemplated at this point in time the use of the proceeds.

Fair enough, and can you tell us what type of issues you have been buying back in the past?

I think that we did disclose that, the primary -- I think is it the (multiple speakers), 26 through 31s.

But we will confirm that and get that to you.

William Peck (ph) with ING.

Thank you for taking my call.

A question I have for you is after revising down guidance in the first week of April, and now coming on and saying that the earnings for the second quarter are going to be breakeven to a loss of $0.15 a share, it obviously puts more impetus on for Ford to generate the earnings in the back half of the year as you have stated all along.

And as GM has stated all along, but what do we think going into the back half of the year is really going to make this more meaningful?

Because as we are guiding down our earnings and reaffirming guidance for the year, it really shows that you think there is going to be something happening in the second year that will really drive earnings.

So therefore do we see it in product mis, do we see it in volume, what are we estimating or what are you guys looking for in the second half of the year?

I think the second half of the year will also be very tough overall.

But we do have some good product launches coming in in the latter half of the year.

As we've mentioned before with the intro of the Fusion, the Milan and the Zephyr, which as we said is in a segment that we presently do not participate in.

And although the volume will not be great in that latter part of the year, it will be enough to make some differential overall as we really begin to fill the dealers' capability to begin to deliver the product overall.

The second piece is that as we've said also in the past is that we've had a lot of our cost improvements sort of back end loaded.

And partly that is because of what happened to us in the first part of the year which is the changes in commodity prices and so forth have hit us hard in the first half of the year.

So I think what we will see is some very good improvement in cost performance overall.

And then also a third element of this is that the overall marketing we should see a little bit of a tailing off of the marketing in the second half of the year with the introduction of overall new product with our typical seasonality that we see.

And we also have in the first part of the year a very large accrual of marketing costs in the second quarter that is associated with the balance out of our products that you won't see in the third quarter and the latter part of the year.

So I think there a number of factors that play into that calendarization overall.

And I think we are pretty confident that is the way we will see things come out.

I believe we have time for one more question.

And before we go to that last question just in response to the debt that we are buying back, as we've stated it is actually disclosed on page 50 of the 10-K.

It has been the 28 to 32.

Michael Shaw (ph) of Duquesne.

In terms of the sale or the strategic decisions you're making with Hertz, what would that do to Ford's overall plant utilization?

I don't anticipate it will do anything to Ford's overall plant utilization because, as I mentioned, we would certainly be selling product to Hertz.

And I don't anticipate we would be selling any less other than as long as it is in line with our strategy for overall rental volume.

I guess the second question is what are the margins you get when you sell cars to your rental company to Hertz versus the average margins you get by selling it to a regular customer?

I mean as an average customer certainly from a rental standpoint it is the same, but I'm not going to get into giving any margin data out.

Is it a better margin or is it a worse margin?

It is roughly the same margin.

It is the same margin?

As other daily rental sales.

No, no.

That is not what I'm asking.

If I were to go buy a car --.

If you look at the reason we are de-emphasizing overall daily rentals because the margin is not as great as retail sales, and it also has a significant impact upon our residual values overall.

So I think that is our strategy.

That's why we're doing what we're doing from a volume standpoint.

That concludes today's call.

I would like to remind you that if you have any additional questions please contact (indiscernible) Investor Relations.

Thank you for calling in today.

Ladies and gentlemen, thank you for your participation in today's call.

This does conclude the presentation, and you may now disconnect.

Have a wonderful day.