福特汽車 (F) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ford Motor Company First Quarter earnings conference call.

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

We will facilitate a question-and-answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS).

I would now like to hand the presentation over to over to Lillian McCormick, Director of Investor Relations.

Please proceed, ma'am.

Thank you, and good morning ladies and gentlemen.

Welcome to all of you who are joining us either by phone or webcast.

On behalf of the entire Ford management team I would like to thank you for spending time with us this morning.

With me this morning are Alan Mulally, President and CEO and Don Leclair, Chief Financial Officer.

Also in the room are Peter Daniel, Senior Vice President, Controller; Neil Schloss, Vice President and Treasurer; Mark Kosman, Director of Accounting; and K.R.

Kent, Ford Credit CFO.

Before we begin I would like to review a couple of quick items.

A copy of this morning's earnings release and the slides that we will be using today have been posted on Ford's investor and media websites for your reference.

The financial results discussed herein are presented on a preliminary basis.

Final data will be included in our form 10-Q for the First Quarter.

Additionally, the financial results presented here are on a GAAP basis and in some cases on a non-GAAP basis.

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

Finally, 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 cause future results are summarized at the end of this presentation.

These risk factors are also detailed in our SEC filings, including our annual, quarterly and current reports to the SEC.

With that I would like to turn the presentation over to Alan Mulally, Ford's President and CEO.

Thanks, Lillian, and good morning to everyone.

We will begin by a review of the key financial results for the First Quarter.

Don will take us through some more of the details, then I will come back and wrap up before we take your questions.

Starting with slide 2, wholesale unit volumes were about 1.65 million, down 106,000 from last year.

Total Company revenue of $43 billion was up about 5% from a year ago.

The increase primarily reflects mix improvements and exchange, partially offset by the lower volume.

Profit before tax from continuing operations was $69 million; while down $103 million overall from 2006, these results include $157 million improvement in our Automotive operating profits.

This improvement, however, was more than offset by the higher net interest expense and our lower Financial Services profits.

For the First Quarter the Automotive results were stronger than we had expected, largely due to the recognition of favorable quality trends, strong cost performance in North America and timing of retail incentives and fleet sales.

PAG and Ford of Europe both performed well and ahead of our expectations.

In fact, PAG had record profits for the quarter.

Our First Quarter net loss was $282 million.

This includes $113 million of charges for special items consistent with our plan.

And we ended this quarter with $35.2 billion in cash.

Turning to slide 3, which summarize the results from our operations.

North America continues along the path toward profitability.

We still have a lot of difficult work ahead, but we are on plan.

When we look at the other business units we generally made considerable improvements.

PAG reported record profits with improvements in all brands during the period, particularly Land Rover.

In Europe we significantly increased profitability compared with 2006 and our share is up.

The recently launched S-MAX and Galaxy continue to perform very well in the marketplace.

And both South America and Mazda were profitable for the quarter.

In Asia Pacific we recorded a loss which largely reflected slower economic growth in Taiwan and a shift from the higher margin, large cars in Australia.

That being said, we continue to see growth in China.

We recently launched the new engine plant in China, and we will launch a new assembly plant in the second half of this year in Nanjing.

When you look at our Financial Services Sector, Ford Credit continues to be profitable and support our Automotive businesses.

Turning to slide 4, we are making progress on executing our four priorities, restructuring the company, accelerating our product development, funding our plan and working effectively as one team, leveraging our global assets.

We continue to take the necessary steps to implement our turnaround plan and remain committed to our goal of achieving profitability no later than 2009.

The most important thing that we can do going forward is to continue to deliver products people really want and value.

During the First Quarter we had some great product news.

At the Geneva Motor Show in March we introduced and are now in production the all-new Ford Mondeo.

Ford of Europe's flagship car.

Also at the show we rolled out the redesigned Ford C-MAX, our compact five seat multi-activity vehicle.

These vehicles look great; initial feedback has been very positive.

In the U.S.

the Ford Edge and the Lincoln MKX are performing very well, and the Ford Fusion, Mercury Milan and Lincoln MKZ set monthly sales records in March.

In addition, the F-Series Super Duty introduction is going smoothly.

The overall business made progress during the First Quarter, as well, including achieving $500 million in cost savings, $400 million of which is in North America, which on a cumulative basis has now achieved $1.9 billion out of our $5 billion target.

Reduced North American personnel positions by 18,000 during the quarter, and we achieved these hourly and salary reductions with minimal disruption to the business and continuing quality improvement.

In the First Quarter we completed the sale of one ACH business and reached agreement to sell another.

In April we reached another agreement to sell an additional ACH business, which brings us to a total of five businesses either sold or with an agreement for sale.

We also completed a sale of APCO in April and reached an agreement to sell Aston Martin.

Based on the internal quality report which measures our customers' impressions of their new vehicles after having them for three months, Ford, Lincoln and Mercury vehicles have reached Toyota brand quality.

Solid vehicle launch processes, quality of design, supplier performance and improved teamwork are paying off.

Our leadership continues to work together making a difference.

The global product development team is driving efficiencies across the business units as demonstrated by our plans for the new global B-car that will be designed and engineered out of one location.

Although our First Quarter results are encouraging, we still have a long way to go.

Now I would like to hand it over to Don to take you through a more detailed review of the quarterly results.

Thanks, Alan.

If you turn to slide 6 this provides a few details of the profits that Alan just described.

Starting at the bottom of the slide our net loss was $282 million.

This included $2 million of profit from discontinued operations, and that reflected APCO, an insurance company that we sold this month.

Our net loss from continuing operations of $284 million included taxes in areas outside of the U.S.

where we are profitable, and included minority interests in profitable joint ventures.

Adjusting for these items leaves us with our pre-tax loss of $44 million on continuing operations and that include special items of $113 million which we'll cover on the next slide.

So excluding those items, we ended up with pre-tax operating profit of $69 million and will spend most of our time this morning on that.

Slide 7 covers the special items which total $113 million.

They included $874 million from personnel reduction actions, largely related to the previously announced salaried personnel reduction plan, and that was partially offset by savings associated with the decision of about 2,000 hourly workers who withdraw their prior decision to accept the buyout offer during the quarter.

In addition, there was a gain of $960 million for OPEB curtailment related to the North American hourly separation programs and a charge of $175 million for pension curtailment related to the salary separations.

And finally, we continue to reduce personnel and restructure the businesses outside of the U.S.

and charges during the First Quarter for those actions were about $24 million.

Slide 8 breaks down our pre-tax profit of $69 million by sector, and that includes $225 million loss for the auto side and a profit of $294 million for financial services.

Now we will turn to the automotive sector and slide 9 explains the change in First Quarter profit from a year ago.

And for the First Quarter the results were about equal to a year ago; and volume and mix was about unchanged.

Lower market share and dealer inventories in North America were offset by mix improvements in North America and higher volumes at Ford Europe and Volvo.

Net pricing was $300 million favorable primarily in North America and PAG.

Costs were $500 million favorable, and we will cover that more later.

The impact of continued weakening of the U.S.

dollar against key European currencies reduced profits by about $200 million and all other factors reduced profits by $400 million.

These primarily included adverse results at ACH and other subsidiaries and the performance related payments we made to our employees.

Interest was nearly $200 million unfavorable, and that primarily reflected the impact of higher interest expense and related costs associated with the financing actions we took in the Fourth Quarter of last year.

So excluding interest our automotive operations improved by nearly $200 million.

The details of our cost performance are shown on slide 10.

Warranty expense was $500 million favorable and this primarily reflected favorable results in North America, and that was largely related to reserve adjustments due to favorable trends in field service actions and basic warranty coverages, as well as a nonrepeat of unfavorable reserve increases a year ago.

Manufacturing and engineering costs were about $100 million favorable and net product costs were $600 million unfavorable compared with the year ago largely reflecting higher costs related to diesel engine emission requirements and higher commodity costs.

Beginning with the First Quarter we have moved maintenance and rearrangement expense from manufacturing to the core category from the left there, spending-related, which includes these items along with depreciation and amortization.

We did this because that is how we view the business internally.

Spending related costs improved by about $200 million.

Pension and retiree health care expenses were $400 million lower than the year ago primarily reflecting our retiree health care agreement with the UAW and ongoing improvements related to curtailments.

And finally, our advertising and sales promotion expense was higher by $100 million.

Slide 11 shows our pre-tax results for each of the operating automotive segments and Other Automotive, which consists of interest and financing related costs.

Shown below the chart before interest and financing related costs our Automotive Operations made $116 million profit during the quarter, and this is $157 million better than a year ago.

We will focus here on Other Automotive and cover the operations on later slides.

In the First Quarter Other Automotive had a loss of $341 million.

That is $179 worse than a year ago.

That largely reflected higher interest expense and related costs associated with the debt increase in the Fourth Quarter of last year.

That was partly offset by increased interest income on our larger cash portfolio.

We expect Other Automotive for the year to be about $1 billion unfavorable reflecting net interest expense.

Starting in 2007 we have adopted a new accounting standard, FIN48.

This clarifies the accounting for uncertainty in income taxes and in the First Quarter FIN48 resulted in a $1.3 billion improvement to equity and other previous accounting this improvement would have flowed through net income at some point.

And with our adoption of FIN 48 we've also elected for all subsequent periods to have tax related interest affect the tax rate only and not flow through pre-tax profits.

The next section of slides will cover each of the Automotive operations starting with North America.

We are on slide 12 now.

Wholesales were down in the First Quarter by 144,000 units to 723,000.

This decline reflected lower market share, primarily lower fleet sales and unfavorable dealer inventory changes to align better with our market share, dealer inventories were essentially unchanged during this quarter compared with last year's increase of about 50,000 units.

At the end of March U.S.

dealer inventories were down 27% or 214,000 units from a year ago to the dealer day supply of 62.

Revenue for the First Quarter was $18.2 billion and that is down $1.6 billion from a year ago, and the decline was due to lower volume offset partly by favorable mix and pricing.

And the loss of $614 million this quarter was $172 million worse than last year.

On to slide 13, and that provides an explanation of the change in results in North America.

The largest causal factor is volume and mix, reflecting lower market share and lower dealer inventories.

And that was partly offset by favorable product mix.

And that in total that amounted to a $500 million reduction.

Net pricing was $200 million favorable, largely reflecting lower daily rental mix, lower lease mix and the timing of incentives.

In addition, cost reductions were $400 million favorable reflecting lower pension in OPEB, warranty, manufacturing costs offset by higher regulatory commodity and product enhancement costs.

And other factors were $300 million unfavorable primarily related to operating losses at ACH, as well as the performance related payments we made to our employees.

Our next five slides are intended to give you an update on our progress in North America.

And slide 14 shows our performance on market share.

The First Quarter market share was 15.1%, including retail at 10.1% and fleet at 5%.

During the First Quarter of last year Ford and its F-Series work trucks benefited from very strong construction spending, including the Gulf Coast reconstruction following the hurricanes the prior year.

In this year sales of these trucks were adversely affected by the weak housing market and low availability of the new Super Duty.

Going forward we expect better market share performance overall, particularly on retail and particularly from our trucks.

As previously indicated our plan is to reduce our sales to daily rental companies.

And going forward our fleet share will decline.

Ultimately our retail share performance will reflect our product acceptance in the market, and we have a lot of new products out there and about to be introduced.

So if we go to slide 15 we display some of the vehicles that we have out now, and will be out that will affect our retail share.

As Alan mentioned earlier, the new Ford Edge and Lincoln MKX have performed well.

Both vehicles have earned Top Safety Pick ratings from the Insurance Institute for Highway Safety.

This is great news because the Institute's tests are among the most demanding.

We also earned the government's highest 5-Star ratings in recent side impact crash testing.

In addition, the Ford Fusion, Mercury Milan and Lincoln MKZ set monthly sales records in March.

The Ford Expedition and Lincoln Navigator sales also have been strong and Expedition sales have been up for each of the last seven months, and Navigator up in the five of the last six.

Lincoln sales in total are up 10% year-over-year and the launch of the new F-series Super Duty is going smoothly along with that of new Ford Escape and Mercury Mariner.

Later this year we have some additional great new vehicles on the way.

The 2008 Ford Focus is redesigned and refined both inside and out and demonstrates our commitment to growing our small car business.

It will be available as a coupe, as well as a four-door sedan.

And the new 2008 Taurus, Sable and Taurus X, which will replace the Ford Five Hundred, Mercury Montego and Ford Freestyle will get a new look, on the outside and on the inside and a new engine with 30% more horsepower.

Slide 16 shows our progress in achieving our employment reduction goals.

As of the end of the First Quarter, we reduced our salaried equivalent positions to 30,600, a reduction of nearly 12,000 since the end of 2005.

As planned almost 7,000 of those occurred during the First Quarter.

Our hourly employment at March 31 excluding ACH was 69,200.

That is a reduction of 16,400 from the year end 2005, and our plan is to be operating to about 55,000 to 60,000 by the end of next year.

And these personnel reductions have been achieved without disruption to our processes and at the same time our quality continues to improve.

There were 8,900 Ford-ACH hourly employees at the end of First Quarter of 2007, a reduction of 5,000 since year end 2005.

To date at ACH we have completed the sale of one business, have agreements in principle to sell four businesses and we have announced the cessation of operations or idling at two facilities, and we closed two facilities.

So we are making good progress.

We are in discussions with potential buyers for the remaining businesses.

As we execute our plan it is possible that we will end up operating one or two of the plants beyond 2008 in order to provide for an orderly resourcing of business to our supply base.

The vast majority of the people however will be deployed or separated by the end of 2008.

In summary, we are on plan in all these areas.

Slide 17 shows our assembly capacity plans and since the end of 2005 we reduced our max installed capacity to 4.1 million and our straight time manned capacity to 3.2 million units.

At the beginning of January we eliminated shifts at Norfolk and Twin Cities and in the Second Quarter of 2007, we are scheduled to cease production at Wixom, eliminate shifts at St.

Thomas and Michigan Truck, idle Norfolk and we will be adding a third crew at our Dearborn Truck Plant.

And by the end of 2008 we will reduce our maximum installed capacity to 3.6 million units with all plants assumed to operate on two shifts.

Our actual straight time manned capacity by year end 2008 is projected to be 3 million and that is about equal to our projected sales.

As we said before, reducing our man capacity in this manner allows us to achieve major cost savings while allowing plant idlings to be coordinated with product changes which we believe is the best economic approach for us.

Slide 18 provides a summary of our overall progress on cost reductions in North America.

Below the chart, we have shown a number of important drivers of our costs.

Within material costs we've broken out several categories, including cost reductions which are related to supplier productivity and shown them separately from the effects of regulatory and commodity costs.

Future material costs also will be affected by our global product development efforts and will start paying dividends in material costs, engineering in R&D as well as capital spending over time.

Our defined goal in North America is $5 billion in annual operating cost reductions by year end 2008 compared with 2005.

We accomplished $1.5 billion of those in 2006, so we need another $3.5 billion during this year and next and during the First Quarter we achieved $400 million and bringing the cumulative reduction to $1.9.

We are not providing a timing plan for the remaining reductions, but we do expect they will be rear loaded reflecting primarily the effects of increasing commodity prices and higher regulatory compliance costs this year, as well as the timing of our capacity and employment reduction plans.

As we said previously, we will not be stopping our cost reductions after 2008; we'll continue to reduce costs in 2009 and beyond although the makeup of the reductions likely will change over time with more cost reductions coming from our product or purchase material costs rather than from our own internal costs.

Now onto South America.

First Quarter sales were 84,000, about the same as a year ago.

Our market share has declined because of the strong industry demand and our capacity is constrained.

Revenue was $1.3 billion compared with $1.2 billion a year ago primarily reflecting higher pricing and a stronger Brazilian currency.

South America posted a pretax profit of $113 million in the First Quarter, a decline of $24 million from a year ago, and that reflects a non recurrence of hedging gains last year.

Fundamentally our South American operations continue to perform well.

The underlying business is headed in the right direction.

Next slide covers Ford of Europe where we continue to perform well.

Wholesales where 500,000, up 40,000 from a year ago primarily reflecting higher share.

First Quarter market share was 9.1% in the 19 markets we track.

That is up 3/10 of a point.

In addition, our share improved in other markets such as Russia where we achieved 145% increase in sales compared with the year ago.

On the product side our recently introduced S-MAX and Galaxy continued to perform very well and our new Mondeo and C-MAX have had favorable initial market reactions.

Revenue was $8.6 billion up $1.8 billion reflecting higher volume and mix as well as currency exchange.

And the First Quarter profit of $219 million was up $154 million compared with a year ago and that is more than explained by higher volumes, improvements in the mix of vehicles, higher incentive spending was a partial offset and cost performance was about flat.

Finally, as our efforts to continue to improve productivity and efficiency we recently announced the closure of our Leamington Casting Plant.

Slide 21 covers PAG where our First Quarter results were at record levels with all brands improving from last year.

Wholesales where at 196,000, up 12,000 from a year ago primarily at Volvo.

U.S.

market share was 1% down slightly from last year, and in Europe market share was 2.4% up a tenth of a point primarily at Volvo, reflecting the new S80 and C30.

And the Range Rover and Range Rover Sport continued to perform very well.

Revenue was $8.4 billion up more than $1.3 billion from a year ago, driven primarily by volume, exchange and mix.

And First Quarter profits were $402 million, that is up $250 million, the increase was more than explained by favorable volume and mix, favorable net pricing and lower costs, mainly warranty.

These improvements were partly offset by the effect of continuing weakening of the U.S.

dollar against the key European currencies.

We previously announced that we've agreed to sell Aston Martin and the First Quarter results included a profit at Aston Martin which will not be part of our operating results once it is sold.

Slide 22 summarizes the new products in our European operations.

As we mentioned the S-MAX has been very well received and it was awarded Car of the Year.

The series mix has been very strong and almost half of the S-MAX customers our new to Ford.

At the Geneva Motor Show in March we introduced the new C-MAX and Mondeo; and Volvo recently launched the new V70 and XC70, which will go on sale in North America later this year.

The new Volvo S80 has just gone on sale in North America, achieved 132% increase in sales in March.

The Volvo C30 will debut in North America later this year.

At Jaguar we've launched an even higher spec XKR this year.

The XKR portfolio, with the all-new Land Rover, Freelander 2 and LR2 continue its rollout in North America and other markets, is receiving a very positive reaction.

Now onto Asia-Pacific, Africa and Mazda.

Overall First Quarter results were a loss of $4 million; Mazda continues to perform well.

For the First Quarter we earned $22 million from our investment in Mazda and associated operations.

And a decline from a year ago is largely explained by the non-recurrence of gains on our investment in Mazda convertible bonds.

Slide 24 we cover Asia-Pacific where wholesale volumes were down 9000, and that was more than explained in Taiwan and Australia, and partly offset by higher volumes in China.

Revenue in the First Quarter was $100 million above 2006 primarily reflecting favorable exchange and pricing and that was offset partly by lower volume.

Asia Pacific and Africa reported a loss of $26 in the First Quarter, that's $28 worse than a year ago and explained by adverse exchange, as well as volume and mix and those were partly offset by favorable cost performance.

Slide 25 shows Automotive cash and cash flow.

We ended the First Quarter with cash of $35.2 billion.

That's an increase of $1.3 compared with year end 2006.

Operating cash flow was $1.1 billion positive in the quarter, including favorable net spending of about $500 million due to the rear-loaded timing of our capital spending this year.

We expect spending to increase from this level in subsequent quarters.

Working capital changes of about $800 million favorable also contributed, and that primarily reflected First Quarter production in North America coming up from an unusually-low production level in the Fourth Quarter of last year.

Separation programs resulted in an outflow of $1.2 billion for the quarter.

We contributed $900 million to our pension plans and the impact of our VEBA drawdown strategy had a net favorable of $400 million.

Also the automotive sector received tax inflows of $2 billion relating to audit settlements with the IRS.

Of this amount $400 million was a refund from the IRS and $1.6 billion was a payment made from Ford Credit under our tax-sharing agreement.

We don't expect any additional tax related payments from Ford Credit in this year.

Overall, while operating cash flow and total cash flow were positive in the quarter, this was primarily due to production and spending timing and one-time tax-related inflows.

We don't believe anything significant has changed from the 2007 to 2009 cash claim that we discussed with you.

That plan includes a net cash outflow of about $17 billion over the three-year period to fund operating losses and to restructure our business.

Now on slide 26 we will turn to Financial Services where you can see earnings at Ford Credit were $294 million and our Other Financial Services were breakeven.

Slide 27 explains the change in Ford Credit's pre-tax profit for the First Quarter and Ford Credit was down $88 million from a year ago.

The decrease in earnings was more than explained by higher borrowing costs and higher depreciation expense for leased vehicles.

Non-recurrence of the losses associated with marking to market our derivatives was a partial offset of $300 million.

Over $100 million of costs associated with our North America restructuring initiative were offset partly by reductions in operating expenses.

Overall, excluding impacts of gains and losses related to mark to market adjustments on derivatives, we expect Ford Credit to earn on a pretax basis about $1.2 billion this year.

Slide 28 displays where we are on our planning assumptions and operational metrics.

Total industry sales during the First Quarter were equal to a SAAR of 17 million in the U.S.

and 17.8 in the 19 markets we track in Europe, and that is equal to or slightly above our Full Year planning assumptions.

The operational metrics we don't yet have the external data we use to track our progress on quality, and these will be available during the Second Quarter.

However, based on our own internal metrics we believe our quality performance is on track to improve, and is fast becoming comparable to some of the best in the industry.

Our market share was down in the U.S.

but up in Europe.

Automotive costs were reduced by $500 million during the quarter.

Cash flow during the First Quarter was $1.1 billion positive, but we do expect that the Full Year will reflect a large outflow.

And capital expenditures were $1.3 billion and we think our Full Year target of about $7 billion is about where we will come out.

Slide 29 we will go through our production plans for the Second Quarter.

Our North American production schedule is 810,000.

That is 87,000 units below last year but 40,000 units higher than the level that we announced on March 1ST.

This increase represents a pull-ahead of production from later in the year, reflecting low inventories on several vehicle lines.

Because of that pull ahead Third Quarter production is now projected to be about flat with a year ago as opposed to being up as we'd previously indicated and Fourth Quarter production should be up from a year ago.

For Ford of Europe we expect Second Quarter production to be around 510,000 units, up 47,000 from the year ago and a PAG we're looking for 195,000 units, up 11,000.

Now slide 30 shows the Full Year plan by operation that we were shared with you in January and we contrasted that with the actual results for 2006.

And this chart indicates whether each business unit is expected to be at a profit or a loss and the sub-totals in the boxes provide a comparison with last year.

Our First Quarter results have come in somewhat stronger than we had expected in January, largely due to recognition of earlier than anticipated favorable quality trends, overall favorable North American cost performance, timing of retail incentives and fleet sales particularly in North America and favorable performance at PAG and Europe.

Based on recent history, our operating results for the First Quarter have been stronger compared with other quarters and we expect this trend to repeat this year.

We continue to expect that our operating results will improve from last year's loss of $5.3 billion and that is the first subtotal bar.

Other Automotive results will likely be about $1 billion unfavorable for the year.

As I mentioned and please recall that during the Third Quarter of last year we realized over $600 million favorable tax-related interest, and that will not repeat this year.

And now this important.

Our total Automotive results for the Full Year including Other Automotive still is expected to be somewhat worse than last year's loss of $5.1 billion.

Our structural cost reductions will grow during the year as personnel are separated, plants are idled and capacity is reduced.

However, we are facing significant headwinds for the remainder of the year from adverse foreign exchange, higher commodity prices and the effect of the correction in housing market in the U.S.

We expect Financial Services to earn about $1.2 billion pretax this year excluding the effects of derivative gains or losses, and that is down from the year ago.

And we expect the special items to be in the low end of our range of $1 to $2 billion excluding any one-time gains or losses on the sale of any operations.

So net income should be sharply improved from a year ago.

Overall we are on track to achieve our plan, and now I will turn it back to Alan.

Thank you, Don.

At this point I would like to reiterate what I said at the start of this call; although these First Quarter results are encouraging, we still have a long way to go to turn around this business.

The basics of our business are improving, and I am pleased that we can point to so many positive things, such as our improving quality in a period where we significantly reduced personnel levels.

We do expect to see tough earning comparisons for the Second and Third Quarters year-over-year.

However, we are on track and we more energized than ever to achieve our goals.

I would like to close today by reiterating our four key priorities.

First, we will continue restructuring the automotive business in response to the lower sales rate and the changing model mix.

Second, we are accelerating product development and reducing manufacturing capacity.

Derrick and the product development team are focused on developing their product development plan that leverages our global assets while reducing the complexity within the production system.

We've already accomplished our third priority of securing financing, and we are focused on deploying our capital wisely.

And the last priority, but certainly not the least, is teamwork.

We remain committed to working together, stressing cooperation and accountability and responsibility as we leverage our global assets and strengthen our relationships with our dealers and our supplier partners.

We are focused on achieving results, measuring them against our commitments and striving to make even greater improvements.

This has been an encouraging quarter for the Company but turning around the business will not be a quick or an easy process.

We have a plan and we are on track.

With that, I would like to open it up for your questions.

(OPERATOR INSTRUCTIONS) Rod Lache, Deutsche Bank.

Good morning everybody.

A couple things.

Just maybe you could talk about a few of the performance items in the context of the rest of the year.

Price and mix, the public data on incentives didn't look so favorable this quarter.

You mentioned that the fleet pull back was part of this on the pricing side.

Can you just give us a little bit of color on how you expect that to progress over the course of the rest of the year?

Rod, our internal data first on the pricing and on the mix indicates that incentives are up a little.

I think there were some numbers quoted in some newspapers that we couldn't understand, but they are up a little.

But that was more than offset by the lower fleet mix in the quarter and particularly within that the lower daily rental mix, as well as lower lease mix and in fact improved pricing within the daily rental segment.

So all of those items related to our repositioning ourselves in the fleet market more than offset the increase in retail incentives.

On the mix side I think our mix probably was a little rich in the First Quarter in the U.S., particularly the Edge and MKX and the Expedition and Navigator.

Normally the retail mix is stronger at the start of a new model and it tends to level out.

And we are thinking that this probably will repeat this year for these models, as well.

Does that get a little bit tougher, the pricing and mix over the next few quarters than what you saw in the First Quarter?

Yes, particularly on the incentives side because as you know we have our -- we will be selling down the 2007 models in the Third Quarter.

So we will be making sure we are fully accrued for those incentives in the Second Quarter.

So typically we see an increase in the incentive activity in the Second Quarter compared with the First.

And warranty was there an unusual reversal of accruals and then you noted $200 million of manufacturing and engineering cost savings.

It seems kind of low relative to your 28,000 person headcount reduction since the end of '05.

Can you comment on that?

No, yes we can comment on it, on the warranty first, there was nothing unusual this year.

It was improvement really in all areas of our warranty tracking with our dealers.

And so we were able to reflect that performance.

In addition on a year-over-year basis last year in the First Quarter we had a warranty reserve increase.

So year-over-year there was a $500 million improvement.

And that was about $400 million in North America and most of the balance was at PAG.

On the manufacturing and engineering side we let the people go during the quarter particularly the salaried were kind of late in the quarter.

So I think that will continue to grow as we go forward.

Okay.

One last one.

If you look at the headcount numbers, it looks now like your headcount in Europe and PAG is actually higher than it is in North America and North America is a much larger operation obviously.

Is there any potential for additional restructuring in Europe that you see coming down the pike?

It just sticks out a little bit.

Yes, I think that we will always be seeking to improve our productivity and efficiency here and in all of our operations.

Our European operations in total, if you add Ford of Europe, Volvo, Jaguar and Land Rover are not that much smaller than Ford in North America in terms of units.

And it is a different business.

And there is a large proportion of luxury vehicles in there.

So the makeup of things is different, but we are very much committed to improving our efficiency and effectiveness and productivity in all our operations.

Rob Hinchliffe, UBS.

Thanks, good morning everyone.

I guess a few questions.

Thinking about Ford Credit, Don, a couple of the negatives there residuals I guess was one that jumped out.

And with what you are doing in fleet and with some of the new products coming in, why was that a headwind in there?

Well, that was largely related to declines in auction value for traditional SUVs and to a lesser extent large pickup trucks.

Not much different than we've been seeing the last couple of quarters.

We don't think that is -- I think the improvements that we will see from our fleet strategy will take a few quarters to make its way into the car and the crossover side.

Okay, and then sticking with Ford Credit I am thinking of the allowance for credit losses still being quite low, obviously you are not seeing anything so far in terms of debts getting, loans getting too much worse.

But at what point do you start to get a little concerned there with what's going on in the housing market?

Well, we are always concerned.

But right now our portfolio is performing very well.

It has been I think the result of our conscious strategy to work on that beginning in 2002 and continuing right through and now.

We got out of the subprime stuff, and it is performing well at this point, I think it is really going to track along with the overall economy.

And we just continuing to monitor and work on that on a daily basis.

The last one, you mentioned for PAG and Europe FX played a role in revenue and profit.

Can you carve out that piece of it?

How much was that a driver?

Sure.

PAG was up $250 million.

Of that the volume and mix was up about $200 million.

Pricing was up about $100, and costs up nearly $100.

And that was mainly accounted for by warranty.

And in exchange was the offset.

Got it.

And then Ford Europe.

On Ford Europe volume and mix was up about $300 million, and then the net pricing was about $70 million; cost performance was about flat and exchange was negligible.

Okay.

Thank you, Don.

Himanshu Patel, JPMorgan.

Hi, good morning.

Two questions.

First housekeeping question.

Don, you mentioned earlier there was I believe some timing differences on incentive spending.

Is there any way to quantify how much of that showed up in the First Quarter?

Yes, I would say it was on the order of a couple hundred million dollars.

And on the cash flow.

The fact of the discussion we were having with Rod Lache at the start with, particularly as you go from the First Quarter to the Second Quarter we accrue for the 2007 model balance out incentives.

And there were some fleet things coming and going.

But it was mainly -- I would say you could see about $200 million.

It is a very tough pricing environment on the retail side; as we indicated our retail incentives were up a little bit year-over-year.

Okay.

And then you mentioned earlier, Don, that there was going to be some pull ahead of production of selective models because of low inventories.

What are those models?

Well, it is F-Series and then --

Is that the Super Duty?

The Milan, MKZ, Edge, MKX, Escape.

Those are the vehicles where we are a little light on inventory.

Is that the Super Duty on the F-Series?

It is both.

Okay.

And then maybe a slightly bigger picture question for Alan.

There has been some chatter recently about union interests in potential equity stakes in these car companies.

Without getting into any numbers or so I am just wondering would you care to comment on number one, Ford's interest in an approach of something like that where maybe equity is given in exchange to diffuse some legacy liabilities?

And number two, any sense on is this an area where you think the union would have some interest, or is it just really not even an issue at this point?

I think it -- I would characterize it as not an issue at this point.

The real focus has been on improving our fundamental competitiveness together, and we are really pleased with the progress that we have made together.

And as you know, in just about all of our operations now in each of the facilities and plants we have now completed negotiations on cooperative operating agreements, which has significantly improved our competitiveness at each site.

So even though we think of the big contract negotiations every few years, we've been making progress every quarter, every month together with the UAW.

And the way that it is working now is we are just looking at this next contract negotiation as another opportunity together to improve our competitiveness.

So that has been the real focus, which we're really pleased about.

And have the collective operating agreements -- did you say they have been negotiated for all of the plants already?

Just about.

Is there a way to quantify the savings you guys would get from just that portion?

We have included those savings in those projections of those savings into the guidance that we've given.

That is in the -- especially in the 5 billion by 2008.

Right, okay.

And one last one for you, Alan.

When you think about this whole effort to go common and go global, I am noticing your materials cost reduction chart where you guys highlight that, the benefits of going global really show up in '09 and maybe even beyond that really in '10.

Is there any way to put a dollar amount on what is the opportunity here?

I think we all know that Ford has not historically had a global focus product development area, but I guess we are a little bit in the dark on sort of what is the opportunity if that was to be fixed.

Well, as we talked about before, this complexity -- the reduction in complexity is just a tremendous opportunity, both on improving our quality and especially on improving our productivity and reducing our costs through the entire value chain.

And most really good manufacturing companies improve their productivity in the 3 to 5% range a year forever.

And we clearly see with this opportunity that we ought to be able to do that year after year going forward.

The key, like you said, is that was a decision that we made that we are actually going to do that, not only across the North American operations, but also to leverage that across our products around the world.

And I am of course, the big move we made there was asking Derrick to lead that and also streamline the organization so that we had a really close working relationship with Mark in North America and Lewis in Europe, and John Parker in Asia-Pacific, working really closely with, not only Derrick on the product development side, but also with Tony Brown on the procurement side, and Nick on the IT and the manufacturing team.

So it is those together that are going to simplify this product line and rationalize it and get to more commonality.

But clearly we are going to shoot for 3 to 5% in the out years each year.

Great.

Thank you.

Jonathan Steinmetz, Morgan Stanley.

A few questions, Don, I think in the Q you guys have a line on the warranty where there is an accrual for pre-existing and a change in accrual related to warranties issued during the period.

Are you able to give that breakout today?

No.

But we will have it in the 10-Q.

But the vast majority is accrual change related to the prior period?

Well --

Or the majority of the improvement I guess I should say.

If you have any other questions why don't you ask those and we will see if we can answer that now.

Okay, I've got a few others.

On the net product cost the negative $700 million, is more of this material cost type related versus regulatory?

Does the new engine, for example, come in to this line item?

And on top of that does this get worse year on year because certain commodity hedges or contracts expire and roll over, or does this sort of follow the direction of spot prices?

It doesn't exactly follow the direction of spot prices.

It should be a little bit rear-loaded during the year, but not much on the commodity raw materials side.

And the split of that is about half and half, half commodity and half regulatory.

The biggest piece of the regulatory is the effect of the diesel engines.

You said that you have no change to your cash burn estimate over the period.

I think you've said you've expected more than half of that to occur this year.

Do you still expect the magnitude to be similar for this year?

Yes.

Okay.

Yes, we do.

Lastly, on the incentive timing I wasn't sure I understood, because I would think in Second Quarter last year you would also be accruing for the model year-end, so to speak.

So was there a timing difference in the sense that something got booked early in the Second Quarter this year that got booked late in the First Quarter last year, something like that?

No, what I was referring to was if you go sequentially from the First Quarter to the Second Quarter, you will see an increase.

We had the same thing last year.

Okay, but on a year-over-year basis you are not suggesting it would be worse?

On a year-over-year basis, it is hard to say.

It depends on the competitiveness of the marketplace.

Based on the First Quarter, the retail incentives were up a little bit.

It is hard to tell how things are going.

Next week we will see April, and we will be able to give you a better answer on that.

Okay.

All right, thank you very much.

Ronald Tadross, Banc of America Securities.

Good morning everyone.

Just two things here.

First on the product cost, the $600 million, I apologize if I missed this, but did you give the material cost piece of that?

I know regulatory and commodities were negative.

Could you tell us what the material cost reduction was?

That really is one and the same.

So when we talk about the net product cost there that really is the material cost.

I am looking at slide 18.

You have two negatives each and next to the regulatory and commodity and then one plus against material cost reductions.

I know your guidance for the year -- I think your guidance for the year is for that total product cost number to be neutral.

Is that right?

Right, so what we are saying there is on slide 18 we are trying to explain that there are several factors that affect our performance on material costs.

First, there is the cost reduction that we and our suppliers work either in terms of their efficiency or we change the design either ourselves or the suppliers are working together.

Then there is the changes that we have to make our products and components to comply with regulatory changes, and the diesel engine certainly is a big one for us.

Then there is the change in the price of raw materials, steel, aluminum, copper and so on.

And then there is the effect of the global product development that, as Alan was explaining earlier, probably comes in later in the '09, '10 before it is really meaningful.

But you are still saying that the product cost will be neutral this year?

No, we expect that material cost probably will be up a little bit.

If you consider the total of the increase in commodities, the effect of regulatory costs and the situation that our supply base is in right now as we try to -- as we are restructuring our operations and we take you all through that, our supply base is restructuring, as well.

So we got to work through that.

So net, we expect that material probably will be up this year, and savings will come on the structural side, which are our own plants, people, and salaried workers and on the quality side on the warranty as we continue to improve our quality.

Don when you say up a little, like $500 million to $1 billion, in that range?

Or more than that?

It is going to be a little -- somewhere within -- it is going to be less than $2 billion but not a lot less.

Okay, and then inside of that, though, are you making progress on the material cost reductions?

Can you give us an idea because I think that is really what we want to we can measure how you guys are really getting less complex?

Well, this is all complicated.

Yes, I think we are making progress, and there are two things going on there.

We are simplifying our complex product offering and then making more common designs.

That takes some time to go through the supply base and for them to adjust to that.

Secondly, we have excess capacity.

They have excess capacity that they put in place for our products.

And third, they have to restructure their business and take out that excess capacity.

And I think we are making progress on that.

It is going to take a while.

Just one last thing maybe for Alan, can you just talk about how you are accelerating new product development?

Maybe just elaborate on that a little bit?

You bet, starting with North America our plan that we put in place last year was to either refresh or update our portfolio 70% of it by 2008.

And then by 2009, 2010 we would have 100% of our family either refreshed and updated, which will bring us very much back in line competitively with the competition.

In Ford of Europe and the PAG brands we have over the last few years, we had been accelerating that investment, and they are in very, very good shape competitively with their productlines, and it is part of the reason we are starting to see the return for that earlier investment.

So the one that we really wanted to accelerate is primarily North America.

One other thing on Asia-Pacific.

The real restructuring there is to in Australia is to restructure operate the change in model mix also.

But the real bright spot is China, and we are bringing on the new engine plant in Nanjing this year.

And we are going to between Nanjing and Chanjing we are going to be up to nearly 300,000 vehicles capability over the next couple of years.

And so that is a real bright spot for us, and most of those products are coming out of Europe, which are being very well received.

Thank you, sir.

Chris Ceraso, Credit Suisse.

Just a few items left here.

On the pension and OPEB, Don, that was a bigger tailwind than we expected.

I thought on a full-year view the health care deal with the union saved you about $500 million.

Can you kind of break down what that $400 million or it looked like it was $500 million or it was $400 or $500 for the quarter, right?

How did that break down between pension and OPEB, and is that a normal run rate now?

Yes, it was $400 million.

When that breaks down the total accounting savings from the UAW agreement I think was around $650 million for a year.

So it was around $160 million of that $400 million was related to the UAW health care, and since that was in the middle of last year we'll see that year-over-year in the Second Quarter and after that it will go away year-over-year.

It was also an improvement on the pension side largely related to asset returns.

And then there are improvements related to curtailments.

We mentioned we have some people that left without retiring, and so there is a savings in health care on that side.

Are those onetime gains on the curtailments?

$400 million is about half -- a little less than half on the UAW health care side, the balance is split between pension returns and curtailments.

And when you say curtailments are those onetime gains as that these plans go away, or is that ongoing reduction --?

It is the operating effect of the curtailments.

Operating effect, okay, so this $400 million a quarter is good for the next quarter and then it kind of drops down after that as you anniversary the --?

It is going to drop down and you might think of it as probably ending up around $1 billion for the year.

So it will drop down in the Second Half, and if I could we had a question earlier about the $500 million in warranty.

How much of that is related to prior-period, and we will be disclosing in the 10-Q about $100 million of the $500 million will be related to prior-models.

Have any metrics you can share on the warranty in terms of X dollars per car last year versus this year of actual warranty expense so we can get a feel for how your quality is actually improving?

It is very hard to do those kind of aggregated metrics because the warranty terms are different for every brand and every market.

And I think for the main market here in the U.S.

the best thing to do is wait till the J.D.

Power information comes out and that should correlate pretty well with the warranty results.

We think our quality is getting better.

We see it from our own internal plant metrics, from our warranty data, from the dealers and from our own internal studies of things gone wrong as Alan has mentioned.

The loss performance at Ford Credit you talked about continues to look very good.

I don't if you mentioned it.

What is the latest on delinquencies?

Have those ticked up at all?

No, I am going to ask KR to --

On the delinquencies on the First Quarter we ended up at 16 basis points.

It is actually down from the Fourth Quarter a little bit.

It is up a little bit versus last year same time up 14 basis points.

The bottom line is it is still performs very well and its a very small number.

And last one, Alan, I think you mentioned this or maybe Don.

The PAG was part of that $400 million pretax profit a gain on Aston Martin, and how much was that?

No.

We haven't closed on the sale yet, so it was not the gain on Aston Martin.

What I mentioned was there was some profits, operating profits of Aston Martin included in that number.

Okay, but on the is that more than negligible on the scope of the $400 million?

No, we are not going to break that out.

Okay.

Thanks a lot.

Robert Barry, Goldman Sachs.

Good morning.

I know you don't generally give product profitability, but can you at least tell us if Jaguar is now back in the black?

No, we don't -- I just mentioned we do not break out Aston Martin, and we won't break out Jaguar.

But I will say that all four of the brands in Aston Martin or in PAG improved from a year ago.

It did sound like from your comments, though, it was mostly Volvo and Land Rover that had the real outsized improvement.

There were improvements at all the brands; the biggest was at Land Rover.

The $400 million refund you mentioned from the IRS, and I think there was also some sort of tax payment intercompany from Ford Credit.

Did any of that hit the income statement on auto?

No.

Okay, and then just finally back to slide 18 under materials and commodity costs, it looks like going from '08 to '09 you go from a negative to a positive.

Is that -- I know it is a little far out but is that something that you have good visibility on?

Is that a contract that ends and gets reset there, or is that just your own forecast?

If you look at it we have two negatives next to commodity costs in '06.

Two negatives in '07 and one negative in '08 and then a plus.

And I think of it this way, the commodity costs went up a lot last year.

They are going up a lot this year.

They may go up a little next year and after that we expect it to be flat or maybe moderating.

Based on where the spots going or based on where your contract timing is versus where the spot is?

Mostly based on the market, so spots and any forward contracts that are out there.

Okay, and then just finally, is working capital going to be cash positive, or use of cash this year?

I think for the Full Year just take it a piece at a time, I wouldn't look for any big change in receivables.

We will always continue to try to improve our working capital, but not a lot in receivables.

We will try to make continuous improvement in inventories, and we should see some there because we are closing plants.

So your kind of in-system inventory will come out.

In the payables will be a function of our production schedules.

And we are not changing any payment terms across the board with our suppliers.

So we may see a little bit of improvement in working capital because at the end of last year we had so much downtimes we adjusted our inventories; we don't expect that to recur this year.

Okay.

Thank you.

Tom Krisher, Associated Press.

Tom is not there.

John Stoll, Dow Jones.

It is a little surprising we got this early, the media were let in the analyst call.

That might have been why Tom didn't answer.

Is this with this incentives guidance you are giving, Don, I just want to make sure I am clear on what you're talking about here.

Are you talking about a situation in which you may see incentives a big penalty in the future, financial penalty in future quarters based on incentive spending in the First Quarter.

Is that something an assumption that is safe to make at this point?

No, I think of it this way, that we saw retail incentives up a little bit in the First Quarter from a year ago, and we are just into the Second Quarter now and we will have to see how we did in April.

And Mark Fields and his team will adjust accordingly if necessary.

What I was mentioning was that every year in the Second Quarter we end essentially end the production of the old models, and then early in the Third Quarter effectively start the new ones so in the Third Quarter we sell the old model.

So this year we will be selling effectively most of the 2007 models.

So we would accrue the incentives fully in the Second Quarter for that.

So sequentially going from the first to the second we should see an increase.

It won't be that big of a deal unless the market gets a whole lot tougher than it was in the First Quarter.

With the improvement in Europe noted, it looks like there may be more employees now in Europe than -- am I reading this correctly -- more employees now in Europe than in North America?

It is close, isn't it?

Are there more efficiencies that you can shake out in Europe?

Employment optimization plans or buyouts or something to even squeeze further profit out of that unit; are you looking at things to improve an already profitable unit?

We had that question a while ago, and as I mentioned then, it is always our goal to improve the productivity efficiency at all of our operations, and between Ford Europe, Volvo, and Jaguar and Land Rover that is a pretty sizable organization from a unit volume standpoint.

They are a higher proportion of luxury vehicles which take a little more time to assemble.

Okay.

Thank you.

Bill Koenig, Bloomberg News.

Good morning.

Two quick things.

At the beginning of the call you apparently referenced something about UAW members who had initially accepted buyouts but then changed their minds.

I was late because of traffic problems here in the Detroit area.

Could you just repeat that information?

Then I have more a general question.

What I said was that we were talking on slide 7, we were talking about the special charges, and we said the first of those is $874 million, and that included salary separation, partly offset by savings related to the decision of about 2,000 hourly workers who basically withdraw their prior decision to accept a buyout offer.

Okay, and then more general question.

You have mentioned very specific factors that will change quarter to quarter, but just in terms of consistency, is this the kind of thing that's the type of results that we can expect.

Not, again, I am talking about specific amounts but just what has been happening with Ford over the past couple of years is that you had been profitable and there was a sudden dramatic swing a year and a half ago.

I mean, like you said, you've got issues to work on and so forth, but I mean is there going to be more predictability or at least more consistency in results going forward?

I don't know what you're specifically referring to.

We had a good quarter, and we said that was pretty much in line with our plan.

And we said our plan was to improve our Automotive Operations.

But because of the financing that we did last year, we will have higher interest expense.

And because of the non-recurrence of income tax refunds that hit profits last year that won't this year, our Total Automotive results including interest will be worse.

And this First Quarter is consistent with that.

You can see that on slide 30, Bill.

We tried to explain that.

That part I caught.

I was just looking just for a more general comment.

But that is all.

Thanks very much.

Poornima Gupta, of Reuters.

Poornima disconnected her line.

And your next question will come from the line of Bryce Hoffman of the Detroit News.

Good morning, Alan, good morning Don.

When you look ahead right now, Alan, what gives you the most concern about being able to stay on plan for the rest of the year?

What do you see as the biggest concern going forward?

I think that clearly focusing both on the revenue side and on the cost side and the plans for both of those because what is really important we got with our good product line-up and our clear plan on working the cost and productivity, we just have to work on both of them.

And I think that brand awareness, helping everybody understand that Ford is back, they are absolutely worthy for consideration, driving the showroom traffic really important.

And then I think the other is just this relentless month-by-month focus on improving our productivity and our competitiveness.

From an outside environment point of view I think that we all are going to be watching the basic economy, the oil prices, the commodity prices, the housing starts, the gasoline prices -- just the normal macroeconomic factors.

So that is going to be an important part going forward.

Thanks.

Michael Strong, Debtwire.

You had mentioned that the 2,000 hourly workers had withdrawn their decision to accept buyouts.

Are you expecting more of those, or is that about the number that you expected, or can you sort of shed a little more color on

It

is hard to say.

We expected some people would do that, naturally.

And as we look, we aren't going to make any projection on that.

But as we look forward, we're very confident with the plans that we have that we will hit the productivity and employment reduction targets that we've set out.

Okay.

Thanks.

Sarah Webster, The Free Press.

The Free Press.

I had a question for Don.

I thought I heard you say that you are going to keep one or two plants open beyond 2008.

And I guess I was wondering if you could provide some more details on that and did you mean that that was the plants that were going to maybe close under the revamped Way Forward are now going to stay open longer?

And what other consequences might we look to see as a result of that?

What we said was there might be one or two ACH operations.

We said all the ACH would be sold or closed by the end of '08.

It turns out now as we are looking at that there may be one or two products in one or two plants -- so a small part of one or maybe two plants we may keep open.

These are ACH plants only, no change to the North American Ford manufacturing operations, just on the ACH side to let everybody know that we may keep a few people running one or two products in one maybe two plants, a little longer because it makes sense.

Thank you for that.

And also, the interest expense for the loans that you took out last year, what is that for the First Quarter of this year?

I didn't notice the interest expense listed.

Well, the interest expense -- where is that?

-- that is the net, right?

The net of the interest income and interest expense was $341 million.

We report that in Other Automotive.

That's what that is, but that includes the interest expense on the debt and the interest income on the cash that we have.

And other things that are related to that.

And a final question about this First Quarter's surprise result.

I mean you performed much better than people had expected.

Some analysts are out there saying this morning that they have come to expect this First Quarter's surprise routine from Ford and that in eight of the last 10 first quarters that you have posted these kinds of surprise where you have overachieved what the market was anticipating.

And I guess I wondered if you could address that generally, why is that?

Is there some reason that this is happening repeatedly?

Well, first off, we did have a good quarter, but it was not a great surprise.

It was generally in line with our expectations.

We think we are on plan for this year.

A little better in Europe and PAG, and a little earlier recognition of quality performance in North America.

And as I mentioned some timing around the incentives but not a whole lot.

I think what you are asking is why were the analysts off.

We had not been giving guidance.

So our results ended up generally in line a little better with our internal expectations.

But a lot different from the analysts.

I think that is really the question you are asking.

Well, it seems unusual at least to them that they seem to be missing as a consensus their projections on this quarter only repeatedly by so much.

So it just seems like maybe something is out of line somewhere.

There is nothing out of line on our accounting, and we have tried and maybe we need to do better; we have tried very hard this time, and we think we try hard all the time to explain the business and the ups and downs.

It is a complicated business with a lot of moving parts.

And we try our best to explain everything and to give people an indication.

In the context that we are not providing overall earnings guidance right now.

Jeff McCracken, Wall Street Journal.

I have a question about revenue growth or top line growth, and I think it is appendix 5 of 13 shows a decline in sales in North America of roughly $1.5 billion.

I am just wondering how much of that is due to the overall lower sales selling 140 -- something fewer vehicles, 140,000 fewer vehicles versus the shift to selling more cars versus selling more trucks and SUVs?

Can you say is it half or is it mostly because of the fewer vehicles?

Let me try and split that out for you.

The piece that directly related to the lower unit volume is about $3 billion.

And then the mix effect, and I talked about there was a rich mix of Expedition and Navigator and a rich mix and a strong mix of Edge and MKX was about $800 million favorable.

And then the pricing and some other things I talk about, talked about account for the balance.

With strong part sales from a strong aftermarket part sales.

Part of revenue but distinct from unit volume.

So again, there are a lot of things going on in there.

But the straight unit volume part of that was about $3 billion down.

At what point will revenues stabilize?

Obviously most of the focus is on your profitability and the goals for 2009.

But I am just wondering at what point you think you level off for North America at a steady-state, if you will on the revenue picture.

Well, there are two pieces to that.

Our fleet sales are projected to go down the next couple of years as we refocus and put less of our emphasis on the daily rental side.

So when we hit our target on the fleet side and then when our retail market share stabilizes going forward, and we are seeing signs as we come out of the First Quarter that we may be getting close to that market share in total was stabilized then our revenue should stabilize and begin to grow, as well.

And that is our plan.

My other question relates to the commodities issue.

You had said earlier in the call, Alan, something about that number will be less than $2 billion but not a lot less.

You were talking there about commodity costs, is that right?

Were talking about commodity and regulatory, the whole thing.

All of our product enhancements, all of our commodity increases, all of the regulatory changes and then the affect of the supply base restructuring.

All of that will be an increase of nearly $2 billion.

Amy Wilson, Automotive News.

Good morning.

Just wanted to ask on the North American salaried reduction you still have 2,100 positions to get to your 2008 plan.

Are you expecting you're going to need to make involuntary reductions to do that?

And if not, how do you expect that to happen to get to that reduction?

I think no, and I think with our normal attrition we will be able to accomplish the plan.

So no involuntary reductions then?

No -- we don't see any significant reduction, Amy.

Okay, and then with the reductions in the hourly reductions I am just wondering could you talk a little bit about how you are kind of balancing the outflow of the people who are taking the buyouts?

With using temporary workers?

I know you have had to do that at some plants, at least; can you tell us which plants and kind of how long you would expect to need temporary workers in your factories?

Yes, Amy, we are using some temporary workers, but Alan mentioned earlier on the call the competitive operating agreements allow our plants to be more efficient.

So that allows us to reduce our required people.

Now we close the plants and that reduces our requirements, as well.

So what we are doing in cooperation with the union sequencing the departures of the people as the capacity is reduced and the efficiencies are achieved in part related to the competitive operating agreements.

And that minimizes both the people in the jobs bank and the people required, the temporary people required.

And that is why you will see people going each quarter and not a whole bunch all at once.

Can you say how many plants you have temporary workers at?

No.

But it sounds like at the time that all the plant closings are actually accomplished you would be possibly using this as a tool to manage your staffing requirements up until that point the plants are all closed and things are kind of rebalanced.

Is that the correct assumption?

That's the goal.

You never exactly hit the goal and that is why you end up with a few people, a few temporaries and a few people in the jobs bank.

But it has been very well-managed by cooperation with our labor affairs and manufacturing and with the union.

But that is definitely our intent, Amy.

John Murphy, Merrill Lynch.

(inaudible)

This will be our last question as we are running out of time, if John gets on the line, that will be it.

Peter Plaut, Sanno Point

Quick question, I was wondering if you talk a little bit more about Ford Motor Credit obviously and I know you discussed the loan loss situation has been quite favorable.

Just wondering if you would be looking to set aside any more provisions going forward for a more anemic, let's say, economic outlook?

That would be question one.

Question two, in terms of I'd say exceptional First Quarter and your outlook for the rest of the year, how do you see the evolution of the $35 billion in terms of the cash position evolving for the rest of the year?

Because you are expecting still a large cash outflow for the year.

Can you give us any guidance on that?

Starting with the credit losses at Ford Credit, there are just really strict accounting rules on how you do that and it isn't a question of setting anything aside.

It is a question of looking at the recent history and looking at our various ratios and then just setting the provisions and the reserves the way they should be.

And we have seen good results on the accounting side because we've seen good performance from our portfolio.

On the cash side we have -- we ended last quarter at $35.2.

We expect that we said for '07 to '09 we expect a cash outflow of $17 billion from operating losses and restructuring.

And we still expect that; we expect the bulk of that outflow to occur this year.

And we had some inflow in the First Quarter.

So it will clearly be below $35 at the end of this year, and probably below $30, but we are not going to give an exact number.

With that, that concludes today's presentation.

Thank you for joining us.

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

This concludes the presentation, and you may now disconnect.

Have a wonderful day.