福特汽車 (F) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Ford Motor Company fourth-quarter earnings conference call.

My name is Michelle and I will be your coordinator for today.

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

We will be facilitating a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes.

And I would now like to turn the presentation over to your host, Ms.

Lillian Etzkorn, Director of Investor Relations.

Please proceed.

Thank you, Michelle 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 and Controller; Neil Schloss, Vice President and Treasurer; Mark Kosman, Director of Accounting and K.R.

Kent, Ford Credit's 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-K for the year 2007.

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 affect 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 reviewing the key financial results for the fourth quarter and the full year.

Don will take us through the details and provide our planning assumptions for 2008, then I will come back and wrap up before we take your questions.

As shown at the top of the slide, on slide 2, vehicle wholesales last quarter were over 1.6 million units, up 75,000 from the same period in 2006.

Total company revenue of $45.5 billion was up about 13% from a year ago.

The increase primarily reflects favorable exchange and net pricing, as well as higher volume.

Pretax results from continuing operations were a loss of $620 million, an improvement of $1.3 billion from the same period in 2006.

This includes a more than $1.4 billion improvement in Automotive operating profits, partially offset by lower profits at Financial Services.

Our fourth-quarter net loss was $2.8 billion.

This included $3.9 billion of pretax special charges.

Don will take you through these largely non-cash charges shortly.

We ended the quarter with $34.6 billion of gross cash, an increase of $700 million from 2006.

Overall, as we have said before, our plan is working and we continue to show progress.

For the full year, we had a pretax profit of $126 million from continuing operations, an improvement of about $3.3 billion from 2006.

Our net loss was $2.7 billion, an improvement of nearly $10 billion compared with 2006.

Turning to slide 3, we have continued to make real progress on our plan.

We took restructuring actions in order to operate profitably.

We reduced North American personnel by 32,800 during 2007 and reached a historic four-year agreement with the UAW.

We also achieved $1.8 billion of cost reductions last year.

We continued to accelerate development of new products our customers want and value.

We will discuss our 2007 product highlights in more detail in a minute.

We worked to finance our plan and improve our balance sheet.

We completed several debt equity exchanges.

We sold Aston Martin and other non-core assets and are working toward completing the sale of Jaguar/Land Rover.

And it is important to recognize that as we accomplished all of these actions, we continued to improve quality, made great progress in working together effectively as one team across the globe, leveraging our global assets.

Our full-year results indicate that we are headed in the right direction.

In North America, results improved $2.5 billion compared with a year ago.

Ford South America, Ford Europe, PAG, Ford Asia-Pacific and Africa and Mazda all were profitable for the full year and all reported significant improvements compared with the same period a year ago.

Ford Credit continues to be profitable; although its results were lower than a year ago, it continues to perform in line with our expectations.

Turning to slide 4, as I mentioned earlier, we remain committed to new products our customers want and value.

In 2007, we had some great launches, including the European Ford Focus, the Mondeo and the C-MAX in addition to the North American F-Series Super Duty, Escape and Focus.

Just last week, the Mazda CX-9 won the 2008 North America Truck of the Year award at the Detroit Auto Show, which is really special.

Another boost to our lineup in 2007 was Ford SYNC, our in-car connectivity system we developed jointly with Microsoft.

We are also excited about the two all-new vehicles coming this year -- the Ford Flex, an innovative crossover, and the Lincoln MKS, the flagship of our Lincoln brand.

That is in addition to the new Ford F-150, which comes in the second half of this year also.

In South America, Ford retail sales were up 19%.

In Europe, retail sales were up more than 5% year-over-year.

In Asia-Pacific and Africa and Mazda, full-year Ford China retail sales were up 26% year-over-year, outpacing the industry.

We also opened the Nanjing assembly plant in China, which will allow us to grow even more this year in China.

Turning to slide 5, we are equally excited about Ford's progress in quality, safety and environmental innovation.

In quality, we had five segment winners in the JD Power and Associates' Initial Quality Survey, more than any other manufacturer.

Our survey indicated that Ford's quality improved at the rate of 11% in 2007, more than five times better than the industry average of 2%.

Turning to safety, this year, Ford earned more top safety pick ratings from the Insurance Institute for Highway Safety than any other manufacturer.

Ford has more NHTSA five-star safety rated vehicles than any other automaker and in Europe, Ford has the most vehicles on the euro NCAP's top 10 list for adult occupant protection.

We continue to move ahead in environmental innovation as well.

We announced a new engine family called EcoBoost, which will deliver up to 20% better fuel economy and a reduction of CO2 by 15% and we plan to install this new technology in half a million vehicles annually in North America within the next five years.

In addition to the improved fuel economy, EcoBoost improves driving performance as well.

EcoBoost will debut in the Lincoln MKS next year.

And our partnership with Southern California Edison will advance the commercialization of plug-in hybrid vehicles.

Turning to slide 6.

Before I turn it over to Don, I want to make a couple of important announcements.

With our UAW partners, we are announcing an enterprisewide program to accelerate attrition.

The enterprisewide hourly buyout program for employees at select closed plants at Atlanta, St.

Louis, Edison and Norfolk is now open and will close on February 28.

Employees that accept the buyout during this window period will separate by March 1.

The buyout window for UAW employees at all other Ford locations will open the week of February 18 and will close the week of March 17.

Employees that accept the buyout during this window period will be released beginning April 1 and while all of these separations will be completed by year-end, we expect most of these will occur during the second quarter.

We also announced last night the sale of our driveshaft business at Monroe to Neapco.

This is a major step in our plan to resource and idle the Monroe plant this year.

Now I'll turn it over to Don.

Thanks, Alan.

Let's go on to slide 8, which provides a few details on our results.

Starting at the lower left, our net loss for the quarter was $2.8 billion.

This net loss included a $1.8 billion non-cash tax benefit, largely related to accounting standard FAS 109 and we treated this as a special item.

That was $1.5 billion out of that $1.8 billion.

Adjusting for these items leaves a fourth-quarter pretax loss of $4.5 billion from the continuing operations.

And these results include pretax charges for special items of $3.9 billion, which we will cover on the next slide.

Excluding these special items, our fourth-quarter pretax operating results were a loss of $620 million and for the full year, we had an operating profit of $126 million and most of the following slides will focus on these pretax operating results.

Also shown at the very bottom of the slide is corporate equity.

At the end of last year, our book equity was $6.1 billion and this was $9.6 billion better than at the end of 2006 and the improvement reflected the changes in our pension and OPEB obligations, as well as the effect of the debt equity exchanges we completed last year.

On slide 9, covers our special items, which were $3.9 billion pretax in the fourth quarter.

The two main items in the fourth quarter were both non-cash.

First, on an annual basis, we test for asset impairment and as a result of our review this year, we have recorded a charge of $2.4 billion for impairment of goodwill at Volvo.

And this is because of the deterioration in Volvo's results during 2007 and this was primarily related to exchange rates, mainly the weak dollar with respect to the euro and the Swedish krona, higher incentives mainly in the US and lower than planned volumes, as well as a likelihood of lower than previously projected forward year volumes and this, in essence, caused us to redo the business plan for Volvo when you discount the cash flows from that and compare that to the book value, we end up with a write-off and based on the accounting rules, we wrote the book value down to the fair value and the charge was $2.4 billion pretax and no write-off was necessary for Jaguar and Land Rover, which we also concluded our testing on.

Now we also took a charge of $1.4 billion to reflect the change in our business practice related to providing retail incentives for variable marketing, as we call it, to our dealers, which we discussed with you back in November.

This change revises our process to commit to offering incentives on an annual basis.

In addition to these charges, we recorded a number of smaller pretax adjustments in the fourth quarter, including a $120 million gain on the exchange of $560 million of debt for equity, the recognition of mark-to-market losses of $76 million on certain hedges at Jaguar and Land Rover that previously would have been deferred and this is in line with our activity over the prior two quarters and additional charges totaling about $120 million, mainly for personnel reductions at PAG and North America.

Now slide 10 shows our pretax results by sector.

You can see the $620 million loss in the fourth quarter on the left.

That is $1.3 billion better than a year ago, including the $1.4 billion improvement in Automotive.

The total company profit for the full year was $126 million, $3.3 billion better than a year ago and that includes a $4 billion improvement in Automotive.

Now over to slide 11 where we will spend some time on the Automotive sector.

Slide 11 explains a change in the fourth-quarter Automotive profits compared with 2006.

Again, that is an improvement of $1.4 billion.

Volume and mix was $500 million favorable, primarily due to higher volume and favorable mix in North America and South America, partly offset by lower dealer inventories in Europe and unfavorable mix at PAG.

Net pricing was $1.3 billion higher, primarily reflecting improvements in North America.

South America, PAG and Asia-Pacific also were favorable.

Costs were about flat and we will have more on that later.

The impact of the continued weakening of the US dollar against key European currencies also reduced profits by about $100 million.

Net interest was $100 million unfavorable and other factors were $200 million unfavorable and that included the effects of the UAW contract.

Now on slide 12, we explain our cost performance, which totaled $1.8 billion favorable for 2007.

The fourth quarter was unchanged in total.

Warranty expense was about $1 billion lower and this primarily reflected the non-recurrence of unfavorable 2006 adjustments at Jaguar/Land Rover, as well as improvements in most operations, consistent with our overall quality improvement.

Manufacturing and engineering costs were about $800 million favorable, mainly reflecting our restructuring actions.

In the fourth quarter, reductions in manufacturing were offset by higher engineering expenses.

Net product costs were $1.9 billion higher, more than explained by added product content, including diesel engine emission requirements in North America, as well as higher commodity prices and these increases were partly offset by cost reductions and a portion of the increases for product content was recovered in pricing.

Spending-related costs improved by $700 million, mainly due to the favorable effects of 2006 asset impairments, as well as lower depreciation related to having had accelerated depreciation in 2006 for plants that were to be idled.

Pension and healthcare expenses were $800 million lower, primarily reflecting the 2006 implementation of our 2005 healthcare agreement with the Union, as well as ongoing improvements related to curtailments and higher pension asset returns.

Overhead costs were about $500 million lower than a year ago, mainly due to our restructuring actions and advertising and sales promotions were up $100 million, consistent with our plan.

Slide 13 provides some detail on Other Automotive.

In the fourth quarter, Other Automotive, which consists primarily of interest and financing-related costs, was a loss of $128 million.

That is $69 million unfavorable compared with 2006.

This was more than explained by higher interest expenses.

And for the full year, Other Automotive was a loss of $547 million.

That is almost $800 million unfavorable compared with 2006.

This primarily reflected the non-recurrence of last year's tax-related interest income of about $670 million and higher net interest associated with the financing we implemented during the fourth quarter of 2006.

And to provide more insight into this area, we will provide a breakout between net interest and the fair market value adjustments that are also recorded in Other Automotive as we are doing here for each of the quarters of this year, we will do that going forward.

And during 2007, as you can see on this slide, the volatility in net interest was relatively small while the fair market value adjustments had significant volatility.

And we expect the net interest expense element of Other Automotive to remain in the range of about $175 million to $200 million per quarter this year.

For the next section of slides, we will cover each of the Automotive operations starting with North America, on slide 14.

Wholesales were up in the fourth quarter by 39,000 to 665,000 and this increase is more than explained by the non-recurrence of the dealer inventory reduction in 2006.

Revenue, $17 billion, up $1.9 billion, increase more than explained by improved net pricing, higher volumes and favorable mix and the pretax fourth-quarter results were a loss of $1.6 billion.

That is $1.1 billion better than 2006 and we will cover that on the next slide.

And the full-year loss was about $3.5 billion, which is $2.5 billion better than 2006.

Slide 15 provides an explanation of the $1.1 billion fourth-quarter improvement in North America and volume and mix was $600 million favorable, more than explained by the non-repeat of the dealer inventory adjustment I mentioned, as well as favorable mix.

Net pricing improved by $1 billion, primarily reflecting reductions in retail incentive levels, pricing for new equipment being added to our vehicles, lower daily rental mix and timing differences.

In total, costs increased by $200 million.

The increase was more than explained by higher net product costs, including higher regulatory and commodity costs, as well as added product features.

And these added product features were partly recovered by higher pricing.

Engineering and advertising expenses were higher to support our new product introductions.

And these increases were offset partly by improvements in manufacturing and overhead-related costs.

Exchange was $100 million unfavorable and other factors were $200 million unfavorable, mainly reflecting the effects of the UAW contract.

Now slide 16 shows US marketshare for Ford and Lincoln Mercury.

For the fourth quarter, our marketshare was 14.1%, which 9.8% was retail and 4.3% was fleet.

For the full year, the share was 14.6%, including retail at 10.1% and fleet at 4.5%.

As previously indicated and in line with our plan, we continue to reduce our sales to daily rental companies and therefore, our fleet share continues to decline.

Our fourth-quarter share was down 7/10 of a point from the same period a year ago, including a 4/10 of a point reduction in retail and 3/10 of a point on the fleet side.

The retail reduction primarily reflected lower full-size pick-up trucks and mid-size and large SUVs and this reflected in part the weak housing market and higher gas prices.

Now on slide 17, we track our progress in reducing our employment levels.

Reduced our salaried positions to 23,700, a reduction of 7800 since the end of '06, including 200 in the fourth quarter and hourly employment was 57,900, a reduction of 20,000 from year-end '06, including 1800 during the last quarter and at ACH, there were 6100 hourly employees at the end of the fourth quarter, a reduction of 5000 since the end of 2006, including 100 in the fourth quarter.

As Alan mentioned, we announced that we reached an agreement on the sale of the Monroe driveshaft business and we expect additional agreements to be reached in the near future and the bulk of the ACH employees are planned to be redeployed or separated by the end of this year.

Slide 18 shows our assembly capacity in North America and we have reduced our max installed capacity by one million units to 3.8 million and our straight-time manned capacity by 700,000 to 2.9 million.

As we discussed with you in November, assembly plant operating costs is largely related to personnel levels and significant savings can be realized by reducing staffing levels to match demand.

And we plan to report our capacity in the future by measuring our manned capacity.

Slide 19 provides a summary of our progress on cost reductions and this year, we have made significant progress in reducing our structural costs, but much of this improvement has been offset by increases in product content in large part to meet regulatory requirements, as well as higher commodity costs.

We are committed to our goal of $5 billion cumulative '06 to '08 cost reductions and we will talk more about that later.

Now onto South America, on slide 20, the fourth-quarter sales were 126,000.

That is up 20,000.

And despite the unit volume increase, our share declined because strong industry demand continues to outstrip our ability to keep up.

Our revenue is $2.4 billion, up $700 million, mainly reflecting higher volumes, favorable exchange and net pricing.

South America earned a profit of $418 million in the fourth quarter, $304 million better than the year ago, primarily reflecting favorable net pricing and higher volume.

Full-year pretax profits were nearly $1.2 billion, an increase of over $600 million from 2006.

The increase in profits is explained by favorable net pricing and higher volumes, partly offset by higher costs.

Last year's results in South America were a record, but as we indicated last year, this level of profitability is unlikely to be sustained.

Slide 21 covers Ford Europe.

The fourth-quarter wholesales were 487,000 units, down slightly, with the decrease more than explained by lower dealer inventories.

Fourth-quarter marketshare was 8.3% in the 19 markets we track, equal to a year ago and for the full year, our marketshare was up 1/10 of a point.

Revenue was $10.4 billion, up $1.6 billion from 2006, primarily due to currency translation.

Fourth-quarter profits were $223 million, $5 million higher than 2006, primarily explained by favorable cost performance, offset by lower volume and for the full year, profits were nearly $1 billion.

That is $542 million better than 2006 and that improvement included continued progress on cost, as well as improved volume, mix and favorable net pricing.

Slide 22 covers PAG.

Fourth-quarter wholesales were 204,000 units, up 4000 from 2006, primarily reflecting growth at Land Rover, partly offset by lower volumes at Jaguar and Volvo.

US marketshare was 1.1%, in line with the year ago and the Europe marketshare was 2.4%, up 2/10 of a point.

Those are for the fourth quarter.

Revenue was $9 billion, up $400 million from a year ago, primarily reflecting the translation impact of stronger European currencies on European revenues, as well as volume and pricing at Land Rover.

In the fourth quarter, results were a profit of $59 million.

This is $115 million worse than 2006, primarily reflecting adverse exchange, product mix and the non-repeat of one-time profit impacts included in the '06 results.

Within PAG, Volvo is breakeven with Jaguar/Land Rover accounting for the profit.

Volvo more than accounted for the decline from '06 to '07.

The full-year results were a profit of $504 million.

That is $848 million better than 2006, and the increase is more than explained by cost reductions across all brands, as well as volume growth and favorable net pricing at Land Rover and these were partly offset by unfavorable exchange and adverse mix.

And Volvo did incur a loss for the full year.

Slide 23, we look at Asia-Pacific, Africa and Mazda and Mazda continues to perform well.

For the fourth quarter, we earned $83 million from our investment in Mazda and associated operations and for the full year, we earned $204 million.

Both were improved compared with 2006.

On slide 24, we cover Asia-Pacific where volumes were 145,000, an increase of 20,000 compared with 2006.

That increase is primarily explained by higher volume in China.

For the full year, wholesales were up 18,000 units compared with 2006 and China's wholesale volume increase of 30% was partially offset by decreases in other markets, primarily Taiwan, South Africa and Australia.

Revenue in the fourth quarter was $1.7 billion, up $300 million, largely reflecting currency translation.

Asia-Pacific and Africa reported a profit of $10 million in the fourth quarter, $145 million better than 2006, reflecting favorable net revenue, cost performance and higher profits in China.

Full-year results were a profit of $40 million.

That's $225 million better than 2006.

The improvement primarily reflected favorable cost performance and net revenue and higher profits in China and those were partly offset by adverse mix and exchange.

Slide 25 shows Automotive cash and cash flow.

We ended the year with $34.6 billion of gross cash, a decrease of $1 billion compared with September 30, but a $700 million increase compared with year-end 2006.

Our operating cash flow was $1.2 billion negative in the fourth quarter, including the Automotive pretax loss of $900 million.

Capital spending during the quarter was $200 million higher than depreciation and amortization.

Changes in working capital were $800 million negative, mainly because of lower December production and other operating cash flow was $700 million positive, including $300 million of tax-related interest.

Separation programs resulted in an outflow of $300 million for the quarter and we contributed $200 million to our pension plans.

In addition, we received a tax refund of $700 million related to prior year tax settlements.

And as we discussed before, our performance in operating and total cash flow for last year was well ahead of our plan.

Slide 26 summarizes our net liquidity at year-end.

Gross cash was $34.6 billion and this included $1.9 billion of our short-term VEBA.

These VEBA assets and $2.8 billion of cash will be excluded from gross cash starting with 2008 reporting and this is consistent with our recent UAW agreement.

Total liquidity as of year-end '07, including available credit lines, was $46.5 billion and as shown in the memo, our long-term VEBA assets were $2 billion.

And as a result of the UAW VEBA agreement, these assets will not be a source of cash in the future.

Automotive debt was $26.7 billion and upon expected implementation of the independent VEBA on January 1, 2010, our debt will increase by $6.3 billion.

Now slide 27 covers Financial Services and as you can see there, Ford Credit accounts for most of that, so we will go on to slide 28, which slide 28 explains the change in Ford Credit's pretax profit for the fourth quarter compared with 2006 and the earnings were about $300 million lower -- sorry -- were $300 million, about $100 million lower than in 2006 and the decrease in earnings primarily reflected the non-recurrence of credit loss reserve reductions, higher borrowing costs and higher depreciation expense for leased vehicles.

These were partly offset by lower expenses and non-recurrence of losses related to market valuation adjustments for derivatives.

The fourth quarter included a $55 million unfavorable accounting adjustment related to the valuation of certain interest rate swaps.

Full-year earnings were $1.2 billion, down about $700 million from 2006 and excluding the impact of market valuation adjustments from derivatives, results last year are $1.3 billion.

Not shown on this slide, managed receivables were $147 billion at year-end 2007, down slightly from the end of 2006.

And as of January 2008, we have resumed the use of designated hedge accounting for derivatives at Ford Credit, which will reduce our ongoing earnings volatility.

The quality of our portfolio is very good.

And we are really pleased with our loss performance.

We did see some deterioration in our key credit metrics in the second half last year, coming off the historical lows of the last couple of years.

We continue to monitor closely our key loss metrics and will adjust our plans appropriately to service our receivables.

Slide 29 covers our funding plan for Ford Credit.

Our funding strategy includes maintaining strong liquidity to meet near-term funding needs by having a substantial cash balance, as well as committed funding capacity.

The left box shows Ford Credit's committed liquidity programs and cash and the utilization of those liquidity sources at the end of 2007 and Ford Credit's liquidity exceeded utilization by about $28 billion.

We'll continue to expand and diversify our global asset-backed funding, renew committed asset-backed funding capacity, including outside of the US and continue to access the unsecured market if and when it makes sense.

Already in 2008, we have successfully completed a $2 billion public retail asset-backed securitization transaction in the US.

And as we have done in the past, we will continue to consider alternative business arrangements to improve our funding capability where it makes sense.

Now we also plan our leverage, our debt-to-equity ratios by considering the prevailing market conditions and the risk characteristics of our business.

Based on our studies of the risks associated with our assets, we believe that our leverage on the basis of our managed assets could be in the range of 13-to-1 to 14-to-1.

At the end of last year, our managed leverage was 9.8-to-1 and going forward, we plan to move evenly over the next four quarters to a managed leverage of around 11.5-to-1 and accordingly, we plan to resume dividends from Ford Credit to the parent this year and the 2008 dividends will reflect Ford Credit's 2008 after-tax profits plus a return of capital reflecting the planned increase in leverage, as well as a projected smaller balance sheet.

We expect to hit our new leverage target by the end of this year.

In summary, we believe we have a prudent funding plan and we will maintain a conservative posture regarding leverage at Ford Credit.

Slide 30 provides an update on our pension plans and our worldwide 2007 pension expense, excluding special items, was $800 million and that is down $600 million from 2006, primarily reflecting lower service costs related to the 2006 separations and higher asset returns in 2006.

At year-end 2007, our US-funded plans were overfunded by $2.8 billion and worldwide, our pension plans were underfunded by $3.1 billion.

Both of these are significant improvements from the end of 2006.

The long-term return on asset assumptions is 8.25% and that is down 25 basis points from last year, reflecting the change in our asset allocation strategy to reduce risk and strengthen our balance sheet.

As we shared with you last year, our plan over time is to reduce our equity investments, our public equity investments and increase our allocations to fixed income and alternative investments.

Slide 31 provides an update on OPEB.

Excluding special items, our 2007 OPEB expense was $1.7 billion, down $400 million from 2006, primarily reflecting the full-year effect in 2007 of our 2005 retiree healthcare agreement with the UAW.

Retiree benefit payments were $1.6 billion in 2007 and the VEBA balance was $3.9 billion at year-end 2007 and of this, as I mentioned, $1.9 billion was included in Automotive cash.

At year-end 2007, our OPEB plans had a funding shortfall of $24.2 billion.

That is $1.7 billion improved from 2006 and as a result of the 2007 contract settlement and pending court approval, Ford and the UAW agreed the responsibility for providing retiree healthcare will permanently shift from Ford to a new independent VEBA trust and after full implementation, which is expected to be completed by January of 2010, our OPEB-funded status will improve significantly.

And the lower initial trend rate in 2008 of 3% versus 6% last year reflects recent experience and plant cost efficiencies.

Slide 32 shows where we finished up on our planning assumptions and operational metrics for last year.

Total industry sales were equal to a SAAR of 16.5 million units in the US and 18 million units in the 19 markets that we track in Europe.

On the operational metrics, we improved our current model quality and as mentioned earlier, received favorable endorsements from a number of outside sources.

Marketshare was down compared with last year in the US.

Share was higher in Europe, but lower in South America and China due to capacity constraints.

As a result, our share performance outside of the US was mixed.

Automotive costs were reduced by $1.8 billion and this was better than our plan.

Absolute operating-related cash flow was $400 million positive, significantly better than plan and capital expenditures were $6 billion, lower than our plan reflecting efficiencies from our efforts to leverage our global assets.

Now onto slide 34, I will talk a little bit about our 2008 automotive planning assumptions.

We are expecting total industry sales to be about 16 million units in the US and 17 million units for Europe.

These include light and heavy vehicles and both are down a little from last year.

17.6 million units for Europe.

On the operational metrics, we continue to expect to improve our quality.

We plan to reduce our Automotive costs by about $3 billion during 2008 and we will talk more about the North American cost reductions included in this on the next slide.

On marketshare, we anticipate that US share will be around the low end of the planned 14% to 15% range during 2008 with further reductions planned on the fleet side and we continue to expect operating cash outflows in 2008 and these outflows will include about $3 billion related to the acceleration of subvention payments to Ford Credit as we discussed in November.

Capital spending is projected at around $6 billion.

This reflects lower capital expenditures because of the planned sale of Jaguar/Land Rover, offset by higher expenditures at the other operations, mainly Ford operations.

Now slide 35 provides a summary of past and planned cost reductions in North America.

As shown previously, we achieved cost reductions in North America of $1.5 billion in 2006 and $600 million in 2007.

And as discussed, 2007 included significant, unfavorable cost performance related to product content, in particular increased cost to support diesel engine emission requirements, as well as higher commodity costs.

We expect product content adds in 2008 to be about $600 million and we also expect more moderate increases in commodity prices.

In 2007, we achieved $2.6 billion of largely structural reductions and believe that we can achieve that much or maybe a little more this year.

The key elements in our plan to achieve these structural cost reductions include the following items; another round of UAW enterprisewide hourly buyouts, which Alan mentioned earlier, and continued progress on reducing our manufacturing capacity, sale or closure of essentially all the ACH businesses by the end of the year, including, as Alan mentioned earlier, the resourcing of the driveshaft business from Monroe, continuing to reduce salaried employment in North America, primarily through attrition, acceleration of global product development initiatives to leverage our global assets, which will result in more efficient capital spending, as well as product engineering, also efficiencies in advertising, merchandising and other overhead costs and acceleration of our complexity reduction efforts and this will also assist our material cost reduction plans.

Now slide 36 shows our 2008 outlook by sector.

We expect the Automotive pretax results to be a loss, but they should be equal to or better than 2007 when you exclude Jaguar and Land Rover from the 2007 results.

So on a comparable basis, we expect our operations to be equal to or better than 2007 results.

The Financial Services 2008 pretax results are expected to be about equal to 2007.

And so the total pretax operating results, excluding special items, are expected to be equal to or better than 2007, again, excluding Jaguar/Land Rover from 2007's results.

We also expect special items to be less than 2007 and we project that these will include full-year personnel-related restructuring costs of about $1 billion and both total pretax results and net income are expected to improve from 2007.

Now we will take you through our production plans for the first quarter on slide 37.

Our North American production schedule is 685,000.

That is down 55,000 units from 2007, consistent with our previous guidance.

For Ford of Europe, we expect first-quarter production of 530,000 units, up 7000 units from last year and for Volvo, we expect first-quarter production of 112,000 units, down 23,000 from 2007, largely related to lower US sales.

Based on these production levels, which reflect the anticipated industry weakness in the US and the fact that our major 2008 North American product introductions will not begin until midyear, we expect that our financial performance through the first half of this year will at best be equal to last year.

I'll turn it back to Alan who will provide more specifics on our progress on the plan.

Thanks, Don.

I would now like to turn to slide 38 and share with you our assessment of where we stand on achieving our key business metrics and our financial goals.

We remain committed to our plan.

The improvements we saw in 2007 give us added confidence that we will meet our 2009 profitability targets.

Don has explained our cost reduction plans in North America.

I want to emphasize that we are committed to returning to profitability in 2009 and we see achievement of the cost target as a key element in that plan.

We expect to make further cost reductions in 2009 and the benefits of the UAW agreement will begin contributing meaningfully in 2010.

For US marketshare during 2008, we expect to be at the lower end of the 14% to 15% range and we are planning on a $12 billion to $14 billion cash outflow for 2007 through 2009 to fund operating losses and the restructuring of our business.

Turning to slide 39, our operations outside of North America are performing very well and we have many new products in Europe, Asia and South America.

In North America, the US economy is slowing and the volume and pricing outlook for the automobile industry is certainly challenging.

North America has outperformed its 2007 profit and cash targets and our 2008 plan is based on prudent assumptions.

We have many new products beginning in mid-2008, including the new Ford F-150, all-new Ford Flex and the all-new Lincoln MKS in North America.

The Flex and the MKS will be in segments that Ford presently does not participate in.

We also have aggressive plans in North America to improve our business structure, including a strong focus on the structural cost reductions, continuing and accelerating the flow of the new products that people want and value, reducing our complexity.

Further, we will continue to adjust production to the changing business environment as required.

Overall, we will continue to monitor progress closely and react accordingly.

Turning to slide 40, as we take these actions, we remain committed to the four key priorities of our plan.

We are continuing the restructuring of our automotive business.

As just discussed, in 2008, this will mean further progress on reducing operating costs, particularly structural costs.

We will continue to focus on product development and manufacturing efforts.

A top priority will be the development of a truly global product plan, one that takes full advantage of our global assets and resources and that strengthens our presence in key segments such as crossovers and passenger cars.

As the Company moves faster to build vehicles people want and value, we will reduce the complexity of our vehicles by having fewer engine and transmission combinations, fewer platforms, more top hats and more volume per platform.

We also are working to reduce the complexity of our series and options that our customers see in the order guide and as we make our investments in new products, we will continue to improve our production system's quality, productivity and our manufacturing flexibility.

We have financed our plan and will continue to improve our balance sheet, ensuring wise use of our capital and finally, we will remain focused on working together effectively as one team to leverage our global assets.

With that, we would like to take your questions.

Thank you, Alan.

Ladies and gentlemen, we are going to start the Q&A session now.

We have about 45 minutes for the Q&A.

We will begin with questions from the investment community and then take questions from the media who are also on the call.

In order to allow as many questions as possible within our timeframe, I ask that you keep your questions brief so that we don't have to move callers along after a few minutes.

So with that, Michelle, may we please have the first question?

Chris Ceraso, Credit Suisse.

Thank you, good morning.

A couple of quick ones.

Don, you ran through a number of items that go with that $3 billion of savings.

What about the healthcare deal?

I think when you did the conference call post the UAW contract, you said you thought that the expense saving would kick in in Q3 of '08.

Is that included in the $3 billion of expected savings?

No, we are not sure when it will get approved by the court, so our plan is to do that -- to get the structural costs and then when the 2007 agreement kicks in, that should be a plus.

Okay, so still not exactly sure on the timing, but are you still targeting Q3 of '08?

We are targeting to do it as quickly and expeditiously as we can and we are making good progress.

Okay, but to be cautious, it is not in the $3 billion?

Right.

Okay.

You are guiding to flat Financial Services revenue.

Can you speak to maybe some of the risks to that -- higher provisions, higher borrowing costs, maybe a smaller balance sheet?

Yes, I said flat profits, relatively flat profits, probably a smaller balance sheet as we try and -- it will be smaller in part because of lower volumes here in the US, but what we are looking at are improved margins and improved operating costs.

We went through a big transformation of our system here in North America, going from 150 plus branches down to about half a dozen large service centers.

So a large reduction in operating costs.

And we think -- we are not sure -- we should see some improvement on the lease residual side because we built up our depreciation reserves throughout '07 as the auction market weakened.

On the negative side, the volumes because of the lower receivables and perhaps credit loss, so we see all that balancing out right now.

Okay.

About the same profitability.

Do you have any guidance for pension expense in 2008?

No, but it is included in our structural costs.

Okay.

Thank you very much.

Robert Barry, Goldman Sachs.

Hi, guys, good morning.

You mentioned that you're still on track for the plan to achieve in North America and auto profitability in '09, but given the concern about the macro, I am just wondering how much margin for error there is, how low can your 16 for '08 go and still be on track and what kind of recovery are you expecting in '09 because I know there are some out there expecting that '08 might be tough, but then we will kind of bounce back up towards trend in '09.

So I was curious what your thoughts and assumptions were there.

Well, I think, as you pointed out, our overall guidance is what we have noted on the chart and I think our feeling is that the first half of the year could be a little bit worse and then our assumptions are that the second half of the year will be a little bit better and end up at that guidance.

And of course, we have tried to plan this prudently and reflecting what the real situation is, so we have accounted for that in our assumptions also.

But the key, no matter what, as you well know, is to continue to size our production to the real demand and keep improving our productivity going forward.

Does achieving the target in '09 though assume getting back to a trend level of demand in '09?

Just -- this is Don.

Our plans originally assumed that we were at trend and clearly we are not at trend now, particularly in the first half.

How quickly it returns to trend, we are not sure, so I would say I guess two things.

One, there is probably a little bit less margin than there was, everything else being equal.

But everything else isn't equal because we are a little ahead of plan, so we still feel pretty good that we are on track, the business is improving, the fundamentals of the business are improving and we will be -- we are still committed to getting to profitability in '09.

Okay.

And then just two quick ones on the buyout.

Is it true that the terms of the buyout package will be more generous than they were in the last round?

And then how many people can exit that don't need to be replaced or would you anticipate that anyone who takes the buyout would be replaced just at the Tier 2 wage?

Well, there is a lot in there.

Let me start from the back of that and go up toward the front of your questions.

We have got about -- not quite 12,000 people that are retirement eligible, about 22% of the workforce and we are going to go ahead and, as Alan mentioned, take the packages to the Union.

They are very similar to the packages, eight of them, that we had last time and we have some reductions to get to achieve our productivity goals.

We have to absorb and place the ACH people and so just how many people end up in the entry-level wage is kind of dependent -- really dependent on just how many people sign up.

Okay, so just to be clear, the packages are actually very similar to those you offered last time?

They are very similar.

There is eight different packages and they are tailored and we were very pleased working with the UAW on those last time, so we are continuing on that.

Okay.

And then just finally, of the $700 million cash tax benefit or tax refund, was there any P&L impact from that or is that just cash?

That was just cash.

Rod Lache, Deutsche Bank.

Good morning, everybody.

Your guidance for '08 is adjusted for Jaguar and Land Rover, which were profitable.

Can you just give us any color on what Jaguar and Land Rover did in '07?

Rod, we would rather not, but I will give you this, that the PAG was profitable for the year, and we said that Volvo was a loss.

Right.

So there is at least that much of an indication there, but we would really rather not.

Come the first-quarter results when we report those in April, we will break out what Jaguar was and it will be a lot clearer then, because we will be reporting Volvo on a standalone basis.

And we will go back and show you what the numbers were.

Okay.

And your comment on earnings better in '08 but cash flow deteriorates; can you just give us as production comes down, sort of the impact on managed working capital that you would be assuming in there and how much restructuring cash are you assuming you are going to use?

Well, on the restructuring cash we expect about $1 billion there.

The profits will be slightly better, not a lot.

But the biggest piece in there is the subvention payment.

We will be making the subvention to Ford Credit upfront.

And the way they calculate or account operating related cash flow, that would go into operating related cash flow, and that is about $3 billion.

That is really the biggest piece of the negative cash flow.

Obviously, there is little things going on in net spending and working capital and other timing things, but those are the biggest things.

Right.

But the cash -- you had a $2.5 billion impact in '07 from jobs bank people and employee separation programs.

So I mean, is that a -- I would imagine that that goes down in 2008, wouldn't it?

Yes, but there are two things here.

One of them is the operating related cash flow which is that subtotal.

If you look at page -- the cash flow page 25, the Automotive operating cash flow which was favorable $400 million this year, that is what we said it would be negative.

That is what we were referring to on slide 34.

In addition, you were referring to the cash impact of separation programs.

That will be a little bit less than the $2.5 billion.

Okay.

And just lastly, how much of that $3 billion in targeted cost savings or structural cost savings is cash?

And is there some kind of assumption here for the number of people that will be coming back in at an entry-level wage, or is that completely separate from these targets?

There are assumptions that we have made, clearly, about people, salary, hourly and the ACH, but we would rather not go into those and we are not going to give any details on targets or anything for the buyouts until we have concluded the sign-up period and that is consistent with what we did last time.

And there will be elements of cash and non-cash in the structural cost savings, but it is mainly on the cash side.

Himanshu Patel, JPMorgan.

Hi, Don.

I had a question on slide 12.

Net product cost for the full year looks like it was a fairly sizable amount.

I know that includes commodity costs, as well as content increases.

Can you just give us some directional flavor on what that bar should look like for 2008?

Well, I can give you I think some pretty good direction.

If you look at slide 35, this is the North American piece, and that is not all of it.

The bar you are talking about which is on slide 12 includes product programs of $2.5 billion increase, raw materials or commodity increases of $1.4 billion, and cost savings of $2 billion, and that adds to the $1.9 billion.

So the sort of moderation in the product adds, is that another way of saying that the level of content increases, is that going to moderate?

I mean are you kind of done with the revamp of the interiors on a lot of the vehicles, and should we think of the next few years as sort of in the $600 million range that you have in 2008?

No, I think there are two things going on here.

One of them is page 12 which is the whole company, and the other is page 35 which is just North America.

The biggest thing that happened in 2007 was the diesel engine emission change.

It happened for everybody.

Everybody had to implement it, and it was a big deal.

So that was about half of that $2.5 billion of product programs.

That is the piece that doesn't repeat.

So what we will see this year in North America is about $600 million of increase, is what we are saying.

So we are going to continue to upgrade our products, add features that our customers want and value, and the same thing will happen in all our operations around the world.

Does that help?

It does.

And then a separate question, the F-150, are you guys able to give us a little bit more color now on the sort of more precision on the cadence of the ramp-up throughout this year, and how to sort of launch costs phase in over the course of '08?

No, I think we would rather not.

We have our launch plans, and it is really best if we talk about those a little bit closer to the launch date.

Okay, thank you.

Brian Johnson, Lehman Brothers.

Yes.

In the '09 guidance, has your thinking on incentives and pricing -- what is embedded in that, and has it changed over the course of the year versus what you might have originally thought for next year?

I would say it hasn't, and one of the reasons we have confidence in that going forward is the success we have had by matching our production to the fundamental real demand.

And I think we are seeing that in the net pricing and reducing the incentives and the residual values increasing.

So we are assuming that we are going to continue with that assumption.

So sort of incentives similar to what we saw in '07.

It will be -- as we know, it will be different with different vehicles and depending on where we are in their cycle.

But overall, our plan is to continue to match the production to demand and keep getting the value for that.

And a question for Don, can you maybe walk through a little bit of how the T-account is going to work for the change in business practice variable marketing?

There is really not that much to it.

As in the past, we will continue to accrue incentives for vehicles we produce based on the programs we communicated to the dealers.

What is different is we are now communicating our incentives to the dealers kind of on an annual basis.

In the past, we were communicating them quarter by quarter.

So the accounting follows the business practice.

The business practice has changed.

We are now communicating incentives on an annual basis rather than a quarterly basis.

The accounting conforms to that and actually the T accounts are actually quite the same.

There are just, of course, different numbers on the debits and credit side.

So why did that all hit fourth quarter '07 and is this a pull-ahead of marketing expense for '08?

It is not a pull-ahead of marketing expense for '08 by any means.

The reason it occurred in the fourth quarter was because that is when we made the change.

We communicated this change uniformly to the dealers around the world, very near the end of the year.

I think in the third week in December.

And so it was communicated then it was all that -- the field salespeople were trained and all the dealers received the communication and that is why it happened in the fourth quarter.

Okay and will any of this be cash out the door in '08?

No, there was no cash in '07 and there will be nothing different in '08 because of what happened in '07.

Clearly there will be some cash out the door for incentives as they occur, but it won't be any different than it would have been -- than it would have been because of what happened in '07.

Okay.

But when will you take the charge for the '08 incentives?

As they're incurred.

Okay.

Thanks.

Rob Hinchliffe, UBS.

Hi, this is actually Colin Langan for Rob.

I just had a couple quick questions.

How many workers are currently employed at the plants that are scheduled to close?

Maybe offered buyouts first?

You kind of broke up on us, the last part of your question.

Maybe you could ask it again, please.

Sure.

How many workers are currently at the plants that are scheduled to close, the ones that will get the first round of buyouts?

Very few.

It is a small number.

I would say less than 1000.

But let us check that and we will give you that figure later in the call when we have a chance to look it up.

Okay.

And what do you think about the cadence of marketshare next year?

I mean do you expect it will be tougher in the first half and improve with the F-150 and the Flex or do you think it will be rather steady?

Can you give any direction on that?

Well, I think clearly with the introduction of the new products in the second half, we are going to be much more competitive.

So we've reflected that in the plan too.

There are about 800 people in those plants that Alan mentioned.

On your first question, 800 people.

Okay.

Thank you very much.

Peter Nesvold, Bear Stearns.

Good morning.

Alan, the price discipline in the quarter was really pretty remarkable, particularly given the sales environment.

And I am curious, if I were to think about a scenario that is downside risk to your SAAR and your marketshare targets, if you saw the SAAR on a light-duty basis trending below sort of the 15.7million or so that you are talking on the light-duty side or if the shares slipped a point or so below the 14.0% that you are targeting, how do you prioritize pricing in '08 versus some of those other targets?

Can you maintain that level of price discipline?

Well, clearly you hit a really important balance and we are going to watch that very carefully, especially during the first half.

We might adjust it differently in the first half and the second half just because of our assumptions on the way the production and the sales are going to go.

But it really is a balance and we really think about this for the first half and the second half probably a little bit differently depending on what happens.

But it is a balance.

Okay.

And then one quick follow-up, a bit longer term, we have seen in '07 that it has been very challenging for everyone to push through all of the higher diesel emission costs.

As you look towards the CAFE regulations over the next 12 years or so, I mean the near-term results are suggesting that the consumer does not fully want to pay up for fuel economy or cleaner emissions.

So how do you change the consumer behavior over the next several years given that the economics of hybrids, the economics of diesel, at least in the very near term, have proven to be more of a loss at the margin than an actual gainer to profits?

I absolutely understand completely and I -- the way we are really thinking about this is -- and we just started to communicate it at the North American International Auto Show and we got great response for this was our EcoBoost strategy, which is fundamentally the foundation for our fuel efficiency improvement and CO2 reduction going forward.

And the reason that it is very compelling to us to combine turbocharging with direct fuel injection and combining with the rest of the vehicle integration and weight savings, we think we can increase the fuel efficiency by upwards of 20% and reduce the CO2 by 15%.

But the other neat feature about that is that when you look at that technology on the torque versus RPM, that we get about a 30% improvement in the torque at the lower RPM.

So it is just a wonderful improvement in driving -- in driving performance combined with automatic or with the six-speed transmission that consumers are really going to feel the difference in this as far as the driving experience.

And another neat thing about this is that it is affordable and we can get it in volume across all of our vehicles and so from a contribution to fuel efficiency and CAFE and CO2 reduction, we are going to -- within five years, we will be upwards of 500,000 vehicles in the United States that are equipped with this technology and nearly 750,000 vehicles worldwide.

So from a base point of view for Ford, especially with the breadth of our family, it is going to really help us meet the fuel efficiency requirements going forward and get us off to a really good start.

Now, your other comment is also true that clearly our focus is going to be on improving not only the capability of the hybrids, whether they are diesels or petrol, but also the fact that the EcoBoost technology, no matter what the engine is, is going to allow us to have a smaller engine with the power required, but the real issue there, as we all know, is to continue to work the costs down to make the hybrids even more affordable so we can get them in volume to contribute to the fuel efficiency going forward.

So that is our basic strategy and we feel really good about it because we can get to the volume to really make a difference across all our vehicles in a very short time.

Great.

Thanks for the time.

John Murphy, Merrill Lynch.

Good morning.

Three questions.

First, when we look at the profitability in North America from the third quarter to the fourth quarter, I know it is always tough to do a sequential comparison like that, but when we look at the Cap U [capital utilization) in the fourth quarter, it is probably close to about 92% versus 88% in the third quarter.

There was lower levels of staffing in the fourth quarter versus the third quarter.

What was the reason -- the big reason in that sequential deterioration in profitability?

Was it mostly just mix or is there something else I am missing?

That's a good question.

Let me try to answer that in two ways really.

In the fourth quarter, we improved significantly year-over-year.

In fact, if you just jot these numbers down.

In North America, in the second quarter last year, we improved $700 million.

The third quarter, $1.2 billion and the fourth quarter $1.5 billion.

So we are getting better than last year.

So the fourth quarter is and has been lower from a seasonal profitability standpoint for a couple of reasons and let me give you a few of them -- some normal seasonality on parts profits, on engineering, prototype development and advertising.

So the costs are heavier there in the fourth quarter, but they were heavier there in the fourth quarter in '06.

The contract -- we had some costs that went into '07 in the contract that we didn't have clearly in '06.

And then there was a mix change.

There was somewhat of a mix change in the fourth quarter.

Mix was a little bit leaner because we were producing more of the new Focus and relatively less of the big pickup trucks.

And there are a couple of other smaller things, but those together can be upwards of $1 billion in terms of sequentially or rather from kind of the average of the first three quarters to the fourth quarter.

I think the important thing is that we are continuing to improve year-over-year each quarter and that those numbers are getting bigger.

Okay, so in the future, from a seasonal perspective, we should just assume almost ipso facto that there is a $1 billion increase in fixed costs from the third quarter to the fourth quarter?

I don't know about that, but there are some cost increases.

This year was abnormally large because of the Union contract.

So maybe half of that much would be a good planning base.

Okay.

The second question is, if we think about the buyouts and what may or may not happen there, put that aside for a second, about how many workers do you think you need right now to operate at your current size and based on your capacity actions in the next year or two?

You are at 57,900 right now.

What would be your ideal level of employment if you could just white sheet take out as many people as you would like to?

I think the way we think of that and the way we would like to answer that is that we are going to continue to improve our productivity quarter after quarter and year after year forever.

That is the real plan.

And we are making -- as you know, when you look at the data over the last two or three years and especially last year, we are making tremendous progress on that while simultaneously improving the quality of our vehicles.

Do you think there is significant room to reduce headcount on a net basis in the near term?

I think there is absolutely the opportunity to continuously improve our productivity year after year.

Okay.

And then lastly on the pricing -- (technical difficulty)

Maybe ask the pricing again, please.

We will now switch to questions from the media.

Bryce Hoffman, Detroit News.

Good morning, gentlemen.

I just wanted to ask for some clarification.

I believe, Don, you said that you are looking to trim salary headcounts primarily through attrition.

Should we read from that that there will also be some actions taken to reduce headcounts in addition to that that would occur through attrition?

Yes, selectively.

And will that be in North America as a whole or just the United States?

Primarily the United States, but each of our operations around the world will continue and is continuing to make great progress on their productivity.

But mainly what we are talking about is North America.

Great.

And just one more point of clarification.

We are hearing from the UAW that you guys have upped the payouts for retirement-eligible employees on some of the packages.

Is that correct?

We will make -- I think what I would like to do is -- we will be making adjustments to some of the packages, but what I would really like to do is to allow Ford and the UAW to have those conversations with our employees next week, which is the plan, so that we can talk to them first.

Thanks a lot.

Jeff Bennett, Dow Jones.

Good morning.

Just a quick question, again, on how many retirement-eligible employees you do have and then, again, is this new round aimed specifically at US or is it open to all of North America?

It is North America and UAW and it is about 13% -- 13,000.

13,000.

Okay.

Great.

Thanks very much.

Michelle, can we have the next question, please?

John Murphy.

John, are you there?

Michelle, why don't we move to the next question while you're trying to get John back on the line, please.

Tom Kirsher, Associated Press.

Hello, gentlemen.

I know you don't want to give a target.

Are you hoping to reach the 20% figure so you can maximize the use of the lower tier wage and is the 20%, that would just be the Ford number, it wouldn't be Ford and ACH combined?

We don't have a target in that way, Tom, because what we are really doing is sizing our production to the real demand and that is what's setting the target.

Okay.

You had said 13,000 retirement-eligible workers and I think Don said 12,000 if I heard correctly earlier.

I'd like to go with Don's -- 12,000.

Okay.

I am so sorry if I mixed you up.

Do you anticipate any more -- if you do reduce your hourly workforce further, do you anticipate any more plant closures or would this be just done by shift reductions and kind of line speed changes -- your reduction in your capacity?

No additional announcement at this time and the real issue there, Tom, as you know, is what happens with the economy and the demand and we are just going to keep sizing ourselves to the right demand in the near term and be there with the products that people really do want as it comes back.

And so that is really the essence of it.

Very good.

Thank you.

Michelle, the next question.

John Murphy.

Can you hear me?

John, welcome back.

Sorry we lost you.

I got cut off before and they must've put me back in the queue.

I just had one last question.

I had one question on pricing -- I know you didn't; it was the operator -- just one question on pricing.

When we look at the improvement we've seen in net pricing in the last two quarters, it has been very impressive.

I was just wondering if the source of that is -- the majority of the source of that is coming from your increases in the rental car market as you are pulling back on supply there, if you are seeing big increases there and really trying to figure out the big factors.

Sure.

I think the biggest factor is really sizing our production to the underlying fundamental demand.

We are seeing it -- the success of that throughout the business, not only on the incentives and the net pricing, but also on the residual values.

So that is why it gives us a lot of confidence going forward that if we get the content of the vehicles right and we get the demand and production right that we will continue to get the value of our products.

So it would be fair to assume then it is coming in the rental market, but also in your lease pricing and even just your straight new vehicle pricing?

Let's get a little bit more perspective from Don.

Yes, there are several factors, John, including lower incentives on the retail side, but also on the fleet side and that would not be entirely on daily rental, but across the range of commercial fleet as well and also equipment pricing and then also some small improvements in Canada, Mexico and other types of mix.

So it is all of those and it is not in any one area; it is kind of across the board as Alan was saying.

Great.

Thanks for squeezing me back in.

You bet.

Bernard Simon, Financial Times.

Good morning.

I have got two quick questions on Volvo.

Firstly, given the foreign exchange movement and Volvos problems in the US, is there any consideration being given to assembling Volvos on this side of the Atlantic?

And secondly, an impairment charge, of course, is often seen by people as a prelude to a sale and I am wondering whether you are reconsidering your views on Volvo at all, Alan?

Have you decided to keep it for sure or is there still a possibility that you might sell it?

Bernard, this is Don.

First off, on your question about is an impairment a precursor to a sale, I think the answer to that is no.

The impairment charge is a function of a sound view of the cash flows of the business and how the discounted present value of that compares with what is on the books and when those two are out of balance, you have to make an adjustment.

We do an annual testing of that for all of our operations.

And it is just simply a fact of the poorer than planned performance of Volvo mainly reflecting the exchange and the sales of vehicles in the United States and discounting, including higher incentives here in the United States.

And then right now, there are no plans for assembly of Volvos in North America.

We are, however, doing a comprehensive review of the business and Lewis Booth and Frederick Arp are working on a plan to improve the business results.

As Alan said in our conference call in November, that is the main focus of our effort right now is to improve the brand and to improve the business results.

Michelle, the next question, please.

Mike Specter, Wall Street Journal.

Good morning.

A couple of things.

First, just a housekeeping item.

I think this was in the slides, but can you go over the cash burn for '07 and your projected cash burn overall for '08?

You bet.

We are finding the best chart here.

The cash flow for 2007 was positive, both on an operating basis and on a total cash flow.

So it was $400 million favorable in '07 for operating- related cash flow and $700 million favorable in total cash flow.

So in other words, we ended the year with more cash than we started despite all the restructuring that we did and we feel pretty good about that.

For '08 what we said was that the cash flow would be unfavorable and we said that a large contributor to that unfavorable cash flow is $3 billion of subvention pension payments from Ford to Ford Credit as we shift our business practice from paying them over time to paying them upfront.

Got it.

Then the other question is -- thanks for that -- is you've talked -- you have got the buyouts coming, but with the down economy right now, are there other places in addition to the buyouts and just realigning the production where you think you can cut costs or where you might need to cut costs more in the coming year?

Mike, probably our best detailed explanation of that -- which chart -- let's see if we can find that chart.

On chart 35, Mike.

And of course, we are looking at all of the elements -- sizing our operation to the real demand with employees, the facilities, all are discretionary.

We are making great progress on our productivity, especially in engineering and product development.

With Derrick's leadership worldwide, getting more and better product development with less resources.

And also working with our suppliers on the material costs and taking the complexity out of our products and working together on simpler designs and simpler manufacturing.

So I would characterize it as all the elements we are going to continue to focus on and make improvement in.

Got you and I guess you are saying a big piece of that is really just switching to the global design and platforms and trying to cut out the waste there?

Yes, that's really improving -- it has really allowed us to improve not only the quality, but the reduction of parts and sub assemblies and components, as well as -- you can imagine that as you start to do that then the amount of effort it takes for each gets a lot less.

The suppliers are dealing with a lot less complexity and it is just a wonderful virtuous circle of continuous improvement.

Thanks very much.

Amy Wilson, Automotive News.

Good morning.

A couple of quick ones here.

First of all, can you give me your light vehicle forecast for the industry for 2008 and what was your share -- what was your retail marketshare as a percent of retail for the full year?

Are you talking '08 or '07?

For '07.

I am -- forecast -- I'm talking '08 obviously, the retail share '07.

Our forecast for light vehicles is 15.7 million this year, 2008.

You also asked what was our marketshare for -- I assume you mean Ford and Lincoln Mercury in the US for '07?

Correct.

Yes, yes.

Retail over retail, 12.8%.

12.8%.

Okay.

And then you also mentioned that there would be more fleet reductions in 2008.

Can you provide any color on that?

Is it equal to the kind of reduction that you did in 2007?

No, it will be a lot smaller than that because that was a real big reduction as we phased out the old Taurus, which was almost entirely fleet.

So it will be smaller than that.

Just less than last year.

Selectively to support the residual values as Alan was saying.

Any numbers yet on --

No.

Okay.

And Amy, the 12.8% again is retail over retail.

Correct.

Yes, that's what I was asking for.

And our range overall for next year was in the low end of the 14 to 15%.

Great.

Thanks very much.

Sarah Webster, Detroit Free Press.

Good morning.

I had a question about retail marketshare.

You have obviously dipped below your last forecasted target at the end of '07.

I wonder if you could speak to how important this metric continues to be in your ongoing turnaround plan now that you have gone below, even if just for a moment and do you still think you can stabilize at the levels you have previously stated or should we expect to see some lower numbers in the first half until F-150 hits later this year?

Sarah, I think you really captured all the elements of the answer to that with the way you asked the question.

We didn't really -- we haven't really set a specific exact number for the marketshare number.

Clearly, throughout 2007, we were stabilizing around the 13% on retail over retail.

And then things started to get a little bit worse and the segments came down a little faster than what we thought as the US economy deteriorated and we ended up at that 12.8%.

But clearly the plan is, over time, is to continue to invest in the new products that our customers really want and value, have more really competitive small and medium-sized cars and utilities to complement our leadership in the big SUVs and the trucks and as we do that and we bring those products online, we will stabilize at whatever and then we will get a chance to earn our right to profitably grow again.

So we haven't picked an exact number, but the most important thing is to focus on bringing the products out that people want.

It will stabilize and then we will start to grow again.

In your UAW contract, you did decide to keep a number of plants open that you had previously said you would close to accommodate the lower demand going forward.

And I wonder if you are going to stabilize at the whatever number -- I mean how -- I guess when will we see capacity manned or however you measure it be what it needs to be or equal to demand?

Well, I think it is back to our previous conversation too.

We are going to match our production capacity to the real fundamental demand, which is new for many of the auto companies because we are taking action to get back to profitability so we can continue to invest in the future and we have no other announcements about our production facilities in addition to what we have shared with everybody in the past.

The thing that will determine whether more has to happen, of course, is what happens with the economy and the real fundamental underlying demand and then we will take the appropriate action.

But right now, we have no additional announcements.

Clearly, as we bring on -- as we stabilize and we start to grow again, of course, our number one goal is to increase the utilization and the productivity as we start to grow.

So no other announcements on production facilities at this time.

One more final follow-up.

Are you already making plans to insource work into those factories you have decided to keep open?

Oh, with respect to those, the way I would think about that, Sarah, is that what we agreed to is completely consistent with our product development plan and so it is good for -- the agreement with the UAW clearly is allowing us to be significantly more competitive.

We can operate here.

And the facilities and the production that we have laid out, those capabilities are consistent with our cycle plan going forward.

So as we further develop the cycle plan then we will increase the utilization of all of our existing facilities.

Michelle, we have time for one more question.

Bill Koenig, Bloomberg News.

Good morning.

Just a couple quick clarifying questions on job cuts.

On salaried, you said attrition plus some selective beyond that, would the selective beyond that be involuntary separations or would those be some kind of salaried buyouts?

We will decide that in the future.

Okay.

And then just to sum up on the whole hourly thing, programs are going to be very similar, but some may be enhanced.

You don't want to comment how they are enhanced until the workers -- the bulk of the workers get the materials next week.

You don't want to give a target, but there are 12,000 retirement eligibles.

Does that sum it all up?

There are three or four threads from the whole call.

I just want to be sure I am summing it up correctly.

Oh yes.

I think that is a good summary.

Okay, all right.

Thank you.

With that, that concludes today's presentation.

Wanted to thank you for joining us.

Thank you.

Thank you.