福特汽車 (F) 2008 Q2 法說會逐字稿

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

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

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

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

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today's call, Ms.

Lillian Etzkorn, Director of Investor Relations.

Please proceed.

Thank you, Katina 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; Don Leclair, Chief Financial Officer; and Mark Fields, Executive Vice President and President of the Americas.

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.

Copies of this morning's earnings release and the slides that we will be using today have been posted on Ford's investor relations and media websites.

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

Final data will be included in our Form 10-Q for the second 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 on 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 SBC.

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

Thanks, Lillian, and good morning.

As we all know, the last quarter has certainly been a challenging one for the entire automobile industry.

Because of deteriorating economic conditions, demand has declined substantially particularly in North America.

At the same time, fuel and commodity prices have increased substantially.

As a result, there has been a significant shift away from large pickup trucks and traditional SUVs in North America.

The progress we have made in working together to create a "One Ford" global enterprise during the last two years however gives us the opportunities in today's environment.

We are in a stronger position than ever to leverage Ford's global assets and continue to address the pressures facing us in North America.

We also are building on the past few years of progress and substantially improving our quality and our entire cost structure introducing strong, new products.

I will start off this presentation by providing you with an overview of last quarter's results and accomplishments.

Don will take us through the details and provide an outlook on the rest of 2008.

Mark Fields also is here today with us and he will provide you with a summary of the significant actions we are taking to accelerate the transformation of our business in North America to respond to this rapidly changing environment.

I will then come back and summarize how continuing execution of our plan will allow us to adapt to these challenges and will position us as a lean global enterprise that is profitable and growing.

As I'm sure you've noticed, we have two press releases this morning, one for our financial results and one for our plans in North America.

I'll begin by reviewing the key financial results for the second quarter on slide three.

During the second quarter, we completed the sale of Jaguar and Land Rover and as discussed in April, we've excluded its results from continuing operations in 2008.

As shown in the top of the slide, vehicle wholesales last quarter were about 1.6 million units down 212,000 from the same period in 2007.

This reduction includes 78,000 Jaguars and Land Rovers and Aston Martin units.

Ongoing company revenue was $38.6 billion.

Excluding Jaguar and Land Rover from the 2007 data, revenue was down slightly with lower volume, adverse product mix and lower net pricing partly offset by favorable exchange.

Pretax results from continuing operations were a loss of $1 billion, $1.5 billion lower than a year ago.

This reduction included about $1 billion in automotive and about $500 million in financial services.

Our second-quarter net loss was $8.7 billion including about $8 billion of pretax special charges primarily related to non-cash fixed asset impairment charges.

This impairment primarily reflects the impact on both the automotive and credit company of the tremendous shift in demand in the US market away from large trucks and SUVs.

We ended the quarter with $26.6 billion of cash down $10.8 billion from a year ago.

This reduction in part reflects implementation of the initial part of our retiree health-care agreement with the UAW as well as our planned payment of some pension payments up front to Ford Credit.

Turning to slide four.

Ford North America incurred an operating loss of $1.3 billion during the second quarter.

This loss was about $1 billion worse than 2007, more than explained by the lower volume and changing model mix.

We saw strong performance from our operations outside of North America with Ford of Europe at a pretax profit of $582 million and Ford South American making $388 million.

In other regions, Ford Asia-Pacific Africa and Mazda were both profitable and improved compared with 2007.

Volvo incurred a loss as expected but its results were improved from the first quarter of this year.

Ford Credit incurred a $294 million pretax operating loss.

We reduced our costs by $1 billion with over $600 million of that coming from North America which keeps us on our track of a $5 billion cost reduction goal for this year.

And Ford's quality continues to improve, initial quality of the Ford brand in the US and proved at a faster rate than the industry average according to the latest J.D.

Power survey.

As you can see on slide five, we launched three all-new vehicles during the last quarter.

The all-new Ford Kuga was recently unveiled by Ford of Europe.

The stylish compact crossover vehicle has the best fuel economy of any all-wheel-drive vehicle in its segment.

In North America, we've launched two entirely new products, 2009 Ford Flex, a crossover vehicle with fuel economy that is equal to or better than any other seven-passenger competitors and the 2009 Lincoln MKS luxury sedan, with a distinctive new signature look for Lincoln.

Both have received very favorable reviews.

Starting next year, the MKS and the Flex will be the first vehicles to receive Ford's new eco-boost engine technology.

EcoBoost will deliver up to 20% better fuel economy as well as a superior driving performance.

We also completed the sale of Jaguar and Land Rover to Tata Motors on June 2.

And during the second quarter, we have reduced our hourly personnel in North America by about 4,000 primarily through enterprise-wide buyouts.

We also begin our 15% reduction of salaried personnel costs during the quarter, most of that being accomplished this month.

At this point, I will turn it over to Don to go through the second-quarter results in even more detail.

Don?

Thanks, Alan.

Let's move on to slide seven.

It provides more information on our second quarter and starting at the lower left, our net loss for the second quarter was $8.7 billion and this included $444 million of tax benefits more than explained by an adjustment for Accounting Standard Number 109 related to our deferred tax asset valuation allowance.

Our net income included a net tax credit as well as minority interest in profitable affiliates.

Adjusting for these items leaves a second-quarter pretax loss of about $9 billion.

That included pretax charges for special items of over $8 billion which we will cover on the next several slides and excluding these special items, we ended up with a second-quarter pretax operating loss of $1 billion.

On slide eight, this covers the special items in the second quarter.

This page covers the $426 million of pretax charges excluding the impairments.

We recorded a charge of $274 million associated with personnel separation programs in North America, largely related to the hourly programs in the US.

In addition, there was a gain of $100 million for OPEB curtailment related to the North American hourly separation programs.

And we recognized a charge of $303 million primarily associated with the sale of our ACH glass operation during the second quarter.

The $75 million for Jaguar Land Rover reflects an operating profit through the closing date of June 2, partly offset by a loss on sale.

Slide nine provides details on the asset impairments which in total represent a non-cash pretax charge of $7.6 billion and these charges have no impact on our credit lines and our access to our credit lines or overall liquidity.

The pronounced shift in consumer preferences away from full-sized pickup trucks and traditional SUVs toward more smaller, more fuel-efficient vehicles has caused us to review the fair value of our long-lived assets in North America and we have determined that the future discounted cash flows generated by those assets was lower than their carrying value and as a result, we recorded a pretax non-cash charge of $5.3 billion.

The consumer shifts mentioned above coupled with reduced overall demand for vehicles in North America has caused a significant reduction in second-quarter auction values for full-sized pickups and traditional SUVs in particular.

Ford Credit reviewed its US and Canadian operating lease portfolio and determined that lease-end residual values would be significantly lower than previously expected and that resulted in an impairment.

That impairment is essentially a recognition that for certain vehicle lines the carrying value of Ford Credit's net investment in our leases at the end of the second quarter was higher than the expected discounted future cash flows related to those assets.

As a result, Ford Credit recorded a pretax charge of $2.1 billion.

Our second-quarter results also include a charge of $214 million that represents the impact on Ford of a goodwill impairment related to Mazda's company-owned dealerships in Japan.

On slide 10, shows our pretax results by sector and our second-quarter results were a loss of $1 billion including a loss of $670 million on the auto side and a loss of $334 million on financial services.

Now we'll turn to the auto sector.

Slide 11 shows the change in second-quarter results compared with the year ago - a deterioration of $1.1 billion.

Compared with 2007 volume and mix was $1.3 billion unfavorable primarily due to unfavorable volume and mix in North America and lower volume at Volvo.

And that was partly offset by improvements in Europe.

Net pricing was $200 million unfavorable, more than explained by declines in North America and Volvo partly offset by improvements in South America and Europe.

Costs were $1 billion favorable and we'll cover that later.

Exchange was $200 million unfavorable, more than explained by the impact of the weakening of the British pound compared with the euro and the US dollar compared with the European currencies.

Net interest and related fair market value adjustments were $200 million unfavorable.

And finally, the non-recurrence of 2007 profits for Jaguar and Land Rover and Aston Martin also adversely affected the year-over-year comparison by about $200 million.

Now onto slide 12 which explains our cost performance which was $2.7 billion in the first half and $1 billion in the second quarter.

Net product costs were $600 million lower in the first half largely reflecting favorable material cost reductions partly offset by added product content and commodity cost increases in excess of favorable mark-to-market adjustments on commodity hedges.

Second-quarter net product costs were about flat with higher commodity cost increases and added product content offset by material cost reductions.

Warranty expense was about $200 million lower.

This was mainly due to favorable first-quarter adjustments to Ford Europe warranty reserves.

Manufacturing and engineering costs were about $500 million lower, more than explained by the continued benefit of our restructuring actions in North America, reductions and manufacturing costs were partly offset by higher engineering expenses.

Spending related costs improved by $600 million, mainly the non-recurrence of accelerated depreciation and amortization for facilities that we recently closed.

Pension and retiree healthcare expenses were $300 million lower primarily reflecting healthcare efficiencies.

Overhead costs were about $300 million lower than a year ago and that's mainly due to our restructuring actions.

And advertising and sales promotions were about $200 million lower than a year ago.

Now onto slide 13.

This shows the pretax results for each of our automotive operating segments and other automotive.

In the second quarter, other automotive was a loss of $336 million, primarily net interest expense of $339 million.

The second-quarter net interest expense was somewhat higher than our guidance primarily due to losses on the temporary asset account that we established based on our agreement with the UAW last year for the retiree health care VEBA.

Going forward, we still expect net interest expense to be in the range of $250 million to $300 million per quarter.

That however, will continue to be subject to market volatility in part because the temporary asset account is heavily invested in equities.

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

Second-quarter wholesales were 679,000 units down 137,000 compared with the same period in 2007.

That primarily reflects the decline in the industry selling rate from the 16.4 rate last year to 14.6 this year and a decline in our US market share from 15.6% to 14.4%.

Revenue for the second quarter was $14.2 billion; that is down $4.8 billion from a year ago consistent with lower volumes, the adverse product mix and lower net pricing.

Second-quarter pretax results were a loss of $1.3 billion.

Slide 15 provides an explanation of the change from the year ago in North America.

Volume and mix was $1.5 billion unfavorable primarily reflecting the decline in US industry volumes and adverse mix away from full-size pickups and traditional SUVs.

Net pricing was unfavorable by $300 million primarily reflecting higher retail incentives.

In total, costs improved by about $600 million.

The improvement reflected lower structural costs mainly lower spending-related manufacturing and pension and OPEB costs, net product cost were about flat with higher commodity costs and added product features largely offset by favorable material cost reductions and exchange and other each were about $100 million favorable.

We expect losses to increase in the second half in North America primarily due to lower volume and mix consistent with the deterioration in the economic environment.

Now slide 16 provides an explanation of the deterioration in North America for the second quarter compared with the first quarter.

Volume and mix was $200 million unfavorable primarily reflecting the non-repeat of dealer stock increases during the first quarter as well as unfavorable mix resulting from the continuing industry shift to smaller cars and trucks.

Net vehicle pricing was unfavorable by $300 million primarily reflecting higher retail incentives.

Cost changes were $600 million unfavorable.

This primarily reflected higher commodity costs primarily due to the non repeat of favorable mark-to-market hedging gains in the first quarter and increases during the second quarter in commodity cost.

The non-recurrence of favorable warranty reserve adjustments also taken in the first quarter so that caused warranty costs quarter to quarter to be higher.

In total, structural costs were about unchanged.

The ongoing savings from personnel reductions were roughly offset by launch expenses for our new Flex and MKS as well as by the non-repeat of favorable small one-time factors in the first quarter.

And exchange and parts profits each were $100 million unfavorable.

Slide 17 shows US market share for Ford and Lincoln Mercury.

For the second quarter, our market share was 14.4% including 9.2% for retail and 5.2% for fleet.

Retail share declined by about 1 point from last year more than explained by segmentation shifts away from full-size pickups and traditional SUVs.

Fleet share also declined by 2/10 of a point mainly due to lower daily rental sales.

Slide 18 provides a summary of actual and projected cost reductions in North America.

In the second quarter, net product costs in total were unchanged with about $300 million of material cost reductions offset by increases in commodity costs and product ads.

Structural costs were reduced by about $600 million in the second quarter compared with a year ago and total personnel in North America were reduced by 4,000 during the second quarter.

We remain on track to deliver the $5 billion cost reduction target and that is before taking into consideration any reduced depreciation in the second half from the fixed asset impairment taken this quarter.

Now onto slide 19.

In South America, sales were 118,000 units and that is up 8,000 from a year ago.

Revenue was $2.4 billion, $600 million higher than last year primarily reflecting the stronger Brazilian currency, favorable net pricing, and higher volumes.

South America earned a profit of $388 million in the second quarter.

This is $133 million better than a year ago primarily reflecting higher net pricing in favorable volume and mix partly offset by unfavorable changes in exchange rates.

We expect continued good results in the second half in South America about equal to a year ago.

Slide 20 covers Ford of Europe.

In the second quarter, wholesales were 532,000 units, 23,000 higher than a year ago.

Second-quarter market share was 8.5% in the 19 markets we track.

That is 2/10 of a point higher than last year.

Revenue was $11.5 billion, $2.3 billion higher than last year primarily due to favorable currency translation and favorable volume and mix.

Second-quarter profits were $582 million, $320 million higher than a year ago.

Slide 21 provides an explanation of that improvement in Ford of Europe.

Volume and mix was $300 million favorable compared with the same period in 2007 reflecting volume increases in most markets and favorable mix.

In total, costs were reduced by about $100 million.

This reflected primarily lower overhead, pension and advertising and sales promotion costs, and those were offset partly by higher manufacturing and engineering costs.

Exchange was $100 million unfavorable mainly due to the weakening of the British pound compared with the euro and we expect Europe's results in the second half to continue to be good but down some from last year.

Slide 22 covers Volvo.

The second-quarter wholesales were 107,000, down 18,000 from last year.

That is largely explained by lower industry volumes and lower share.

Market share in the US was 0.5% and share in Europe was 1.3%.

Both were down 1/10 of a point.

Revenue was $4.3 billion, down $100 million from a year ago primarily reflecting lower wholesales and unfavorable net pricing and that was partly offset by favorable currency translation.

Second-quarter results were a loss of $120 million, $29 million worse than the same period last year.

And the second-quarter results reflected an improvement from the first quarter of 2008 as we indicated in April.

Slide 23 provides an explanation of the $29 million decline in Volvo's second quarter.

Volume and mix was $120 million unfavorable primarily explained by lower retail volumes in the US and Europe and the discontinuation of our distribution agreement with Renault.

Net pricing was down $90 million compared with 2007 with higher retail marketing incentives in Europe partly offset by higher pricing in selected markets.

In total, costs were reduced by $260 million.

This was largely explained by improvements in structural costs and warranty and net product cost reductions were largely offset by higher commodity costs.

Exchange was about $60 million unfavorable primarily reflecting the weakening of the US dollar relative to European currencies.

And last month Volvo announced additional restructuring plans implemented throughout the balance of the year including a reduction of 2,000 people.

We expect that Volvo's second half results will improve compared with the first half.

Slide 24 covers Asia Pacific and overall we earned $153 million including $103 million from our investment in Mazda which is $31 million better than a year ago.

Slide 25 covers Asia Pacific and Africa and during the second quarter, wholesales were 125,000 units, a decrease of 10,000 units compared with 2007 primarily reflecting industry weakness in Taiwan and South Africa and the non-repeat of a stock buildup in 2007.

Revenue in the second quarter was $1.7 billion, unchanged from 2007.

The stronger Australian dollar and higher pricing in South Africa offset lower volumes.

Asia Pacific reported a profit of $50 million in the second quarter, $24 million better than a year ago and the improvement largely reflected favorable net pricing and cost performance.

Slide 26 shows automotive cash and cash flow and we ended the second quarter with $26.6 billion in gross cash.

Our operating related cash flow was $3.1 billion negative in the second quarter reflecting the following -- An automotive pretax loss of $700 million; capital spending during the quarter of about $100 million higher in depreciation and amortization; changes in working capital and other items of $1.5 billion negative, that is more than explained by working capital changes that we expect to be temporary in nature; payments of $800 million to Ford Credit reflecting our change it to upfront payment of subvention.

Excluding the upfront subvention payments, our operating cash flow is $2.3 billion negative.

Separation program resulted in an outflow of $200 million for the quarter and we contributed $200 million to our non-US pension plans.

Ford Credit did not pay a dividend to Ford during the second quarter and net of pension contributions, we received $1.7 billion from the sale of the Jaguar Land Rover.

The total decline in cash during the second quarter was $2.1 billion.

Slide 27 summarizes our net liquidity.

Total liquidity including available credit lines is $38.2 billion.

As we mentioned earlier, the asset impairments did not affect the access to our secured credit facility.

Automotive debt was $26.5 billion at the end of June and upon implementation of the independent VEBA, debt will increase by about $6.3 billion.

We have less than $3 billion of maturities in the next three years.

Now onto slide 28 and Financial Services where the second-quarter loss was $334 million and that is $439 million worse than the same period a year ago.

Other Financial Services reported a loss of $40 million in the second quarter.

That is $33 million worse than the same period last year and the decline reflected primarily the non-recurrence of gains related to real estate transactions as well as market valuation adjustments from derivatives.

Slide 29 explains the change in Ford Credit's pretax results for the second quarter compared with a year ago.

Ford Credit's loss was $294 million.

That is about $400 million worse than 2007.

The decrease in earnings primarily reflected higher depreciation expense for leased vehicles and higher provision for credit losses.

The higher depreciation on leased vehicles reflects our second-quarter losses at auction including accumulated supplemental depreciation.

The increase in credit losses reflects the higher severities related to lower auction prices as well as an increase in delinquencies and repossessions.

These factors were offset partly by the non-recurrence of net losses related to market valuation adjustments from derivatives, higher financing margins, a gain related to the sale of approximately half of our ownership interest in Ford Credit's Nordic operations and lower operating costs.

We expect Ford Credit to lose money in the second half of this year, about the same or better than the $262 million first-half loss.

As shown in the memo on the lower left of the slide, Ford Credit's managed assets declined from $149 billion a year ago to $140 billion at the end of the second quarter.

This reflects lower vehicle sales in North America as well as our divestitures and alternative financing arrangements.

Slide 30 covers the liquidity and funding outlook for Ford Credit and the left box shows Ford Credit's committed liquidity programs and cash, and the utilization of its liquidity sources at the end of the second quarter and Ford Credit's liquidity exceeded its utilization by $23 billion.

Our funding strategy includes maintaining liquidity to meet near-term funding needs by having substantial cash balances and committed funding capacity.

And Ford Credit will continue to diversify its global asset backed funding capabilities and renew committed asset-backed funding capacity including outside of the US.

As we've done in the past, Ford Credit continues to consider and implement alternative business arrangements to improve funding capability where it makes sense.

For example, Ford Credit completed a sale of half of its ownership interest in its Nordic operations in the second quarter and this contributed to the reduction in the balance sheet that I mentioned.

At the end of the second quarter, Ford Credit's managed leverage was 10-to-1 and that is below our target of 11.5-to-1 and Ford Credit's equity was over $12 billion.

In summary, we believe we have a funding plan that will provide sufficient funding for Ford Credit through to the period of the economic slowdown.

Now onto slide 31 which shows where we are in our planning assumptions and operational metrics for 2008.

Total industry during the first half was equal to a SAAR of 15.1 million units in the US and 17.5 million units in Europe.

And based on continued decline and economic conditions in the US, we now expect that the industry will be lower than the outlook that we had communicated previously and we are now projecting the total industry including medium and heavy trucks to be in the range of 14 to 14.5 million units for the full year.

We are also seeing some softness in several European countries and are now projecting that industry volumes will be between 17.2 million to 17.4 million units for the full year.

On our operational metrics, our current model quality continues to improve, and as Alan mentioned earlier, the initial quality of the Ford brand in the US improved at a faster rate than the industry average based on the most recent J.D.

Power survey.

Automotive costs have improved by $2.7 billion through the first half and that is a little better than our plan.

US market share for the first half was 14.7%.

That is down 7/10 of a point from the same period a year ago.

We presently projected our share will decline further in the second half due to continued vehicle segmentation shifts away from areas where our share has been high.

Absolute operating cash flow during the first half was $4.6 billion negative and this was higher than planned and we expect the full-year net outflow to be worse than we previously projected.

And capital expenditures through the first half amounted to $2.9 billion.

That is in line with our plan and our full-year outlook.

And overall as we communicated previously, we now expect 2008 operating and overall results to be worse than comparable 2007 levels.

Slide 32 covers our production plans for the second half.

In North America, third-quarter production schedules 440,000.

That is down 197,000 from 2007 and 35,000 lower than our prior guidance.

Fourth-quarter volumes are projected to be 500,000 units.

That is down about 70,000 from the midpoint of our prior guidance.

For Ford Europe, we expect third-quarter production to be at 400,000 units, down at 16,000 from a year ago and fourth-quarter production to be 490,000 units about equal to a year ago.

And for Volvo, we expect third-quarter production of 80,000 units, down at 13,000 units from a year ago and fourth-quarter production at 110,000, down 7,000 from a year ago.

And now I'd like to turn it over to Mark to summarize our plans for North America.

Thanks, Don.

If you go to slide 34, as Don and Alan already mentioned, external conditions in North America have changed dramatically in a very short period of time.

And while this presents a significant challenge, we also believe that we are uniquely positioned to respond to the new environment in which we expect to operate in the years ahead.

In combination with the business improvements achieved over the past 2.5 years, we expect the "One Ford" product development vision and process to enable us to deliver a range of highly acclaimed smaller vehicles in what we call global segments.

That is the B, C, C/D and commercial van segments, beginning in the middle of next year.

By 2010, over 40% of our entries in North America in these segments will be shared with Ford of Europe and that is platform and top hats, with 100% of the lineup in those segments shared with Ford of Europe by 2013.

This compares with nothing in common today.

And every new product we introduce, not only those in the global segments but also those that will be regional offers only, will provide fuel economy that will be the best or among the best against facing competitors.

And this will be supported by the most extensive powertrain upgrades ever for the company with nearly all of Ford's North American engines upgraded or replaced by the end of 2010.

Plus nearly all of Ford's North America lineup will offer fuel saving six- speed automatic transitions within two years.

Our new products will be assembled in plants featuring lean manufacturing techniques and in nearly all facilities, flexible body shops that will make them competitive with the best in the business in North America.

And many of our powertrains will be built in plants that can actually flex among I4, V6, V8 or diesel engines.

Importantly, we expect to have our vehicle assembly capacity matched to demand.

As we make these changes, we intend to continue fixing the fundamentals of the business as we have over the past 2.5 years including a significant reduction in structural costs next year and broadening the ongoing consolidation of the US dealer network.

If you turn to slide 35 before going into more detail, I would like to share with you some of our current planning assumptions.

First, we don't expect the US economy to begin to recover until early 2010.

As the economy recovers, we expect US industry sales will do the same and ultimately returning to trend levels of around 17 million total units a year.

We believe the product mix changes we've seen since gas passed the $3.50 per gallon level are permanent in nature but we do expect the full-size pickup share of the industry to recover somewhat from today's current levels by 2010 and beyond.

However, we don't expect full-size pickups to return to the levels of industry share that they enjoyed in recent years.

We expect oil prices will continue to be volatile and will remain at an elevated level.

And as a result, we expect the pump price of gas and diesel to remain at current levels or higher.

Commodity prices are expected to remain high as well so we aren't assuming any near-term relief from current conditions.

In terms of our own share performance, we expect to see our total share remain at about 14% of the total market with some years somewhat higher and others somewhat lower depending on our product introduction cadence.

So now let's move on to talk about some of our more planned actions in detail.

On slide 36, we talk about product and as we know, that is what it's all about and providing consumers with the kind of vehicles they want in a very different environment than we faced in the past.

It's critical to our plans to return the business to health.

We are not backing off on our investment plans but we are going to redirect a considerable portion toward smaller vehicles and fuel efficient powertrains in both the near and longer term.

The Ford, Lincoln and Mercury lineup will be almost completely upgraded in the next two years compared with 2006 models when two-thirds of our North American spending will be on cars and crossovers compared with about one-half today.

In addition to bringing six of the company's highly acclaimed European small vehicles to North America, we are accelerating the introduction of the fuel-efficient EcoBoost and four-cylinder engines and we are planning to double our production of hybrid electric vehicles next year with four entries compared with the two that we offer today.

Now with every new product, Ford expects to be the best or a among the best for fuel economy thanks to the most extensive powertrain upgrades ever for Ford.

In addition to EcoBoost, which as Alan mentioned earlier results in a 20% improvement in fuel economy over our naturally aspirated engine, this will include PowerShift twin-clutch transmissions, start-stop engines, electric power assisted steering and direct injection as well as Twin Independent Variable Cam Timing engines.

And while the majority of our investment will be focused on smaller vehicles and powertrains, we intend to maintain our leadership in trucks and expand our crossover offerings.

On slide 37, we detail our product actions through 2009.

And these include the 2009 Ford F-150 which will go on sale later this year with the most capability, choice and smart features of any full-size pickup and with more than a 7% fuel economy improvement.

The 2010 Ford Fusion, Mercury Milan and Lincoln MKZ midsize sedans on sale in early 2009 and with Fusion and Milan's four-cylinder fuel economy, we expect to top Honda Accord and Toyota Camry.

The 2010 Ford Fusion Hybrid and Mercury Milan Hybrid beginning production late this year and on sale in early 2009 with fuel economy expected to top the Toyota Camry hybrid.

The new Ford Mustang, a coupe, convertible and glass roof models in early 2009.

Our new Ford Taurus sedan with the EcoBoost engine and far more advanced safety and convenience technologies in mid-2009.

Our new European Transit Connect small multipurpose van in mid-2009 and finally, the new Lincoln seven-passenger crossover with the EcoBoost engine in mid-2009.

On slide 38, we talk about our 2010 product offensive and that includes our new European Ford Fiesta, in both four- and five-door versions in early 2010; the new European Ford Focus in both four- and five-door versions in 2010; the new Mercury small car in 2010; the new European small vehicle that will be what we call a whitespace entry in North America in 2010; and the next-generation Explorer with unibody construction, EcoBoost engine, six-speed transmission, weight savings and improved aerodynamics for up to 25% better fuel economy unavailable in 2010.

On slide 39 talking about fuel economy, we expect to be the best or among the best for fuel economy with every new product we introduce.

By the end of 2010, nearly all of Ford's North American engines will have been upgraded or replaced.

In addition, within two years, nearly all of Ford's North American lineup will offer fuel saving six-speed automatic transmissions.

These improvements build on several Ford fuel economy leaders today in our show rooms such as the 2009 Ford Flex, the most fuel-efficient standard seven-passenger vehicle on the market, topping the 2009 Honda Pilot; the 2009 Ford Focus with highway fuel economy of up to 35 miles per gallon, better than the smaller 2008 Honda Fit and the 2009 Nissan Versa SL and a key reason Focus retail sales are up 50%.

The 2009 Ford Escape which we're introducing just now with a new 2.5 liter four-cylinder engine and six-speed transmission delivering best-in-class fuel economy of up to 28 miles per gallon, ahead of the Toyota RAV4 and the Honda CR-V.

And the 2009 Ford Escape Hybrid delivering 34 miles per gallon in the city and 31 on the highway.

Our powertrain offensive will also feature a wide range of new technologies which I mentioned earlier, and also as I mentioned, we'll offer four full hybrid vehicles next year including the Ford Escape now in its fifth year of production.

This will make Ford the largest domestic producer of full hybrid vehicles in North America, second only to Toyota in sales volume.

On slide 40, moving to manufacturing, to support this product portfolio, we will convert three truck or SUV plants to small car production with the first changeover starting this December.

The transformation of our manufacturing system will be extensive with nearly all vehicle assembly plants receiving flexible body shops ensuring we can respond very quickly in the future to changing consumer demands.

We plan to extend flexibility to our powertrain plants with nearly half of our engine plants being able to flex, depending upon the plant, among I4, V6, V8 or diesel engines.

We're also increasing four-cylinder capacity and expanding capacity for EcoBoost engines and six-speed transmissions.

And importantly, we expect the capacity of our vehicle assembly system to match demand.

In parallel with these realignments, we also plan to continue to offer hourly buyouts at select US plants and facilities, work and collaborate with the UAW to ensure that we have competitive employment levels in our facilities.

On slide 41 more specifically, our manufacturing realignments include the following actions.

Our Michigan Truck Plant in Wayne, Michigan, which currently builds the Ford Expedition and Lincoln Navigator full-size SUVs will be converted beginning in December to production of small cars from Ford's new global C-car platform in 2010.

Production of the Ford Expedition and Lincoln Navigator will be moved to the Kentucky Truck Plant in Louisville, Kentucky early next year.

The Cuautitlan Assembly Facility in Mexico, which currently produces F-Series pickups, will be converted to begin production of the new Fiesta small car for North America in early 2010.

For Louisville, Kentucky plant which builds the Ford Explorer midsize SUV will be converted to produce small vehicles based on Ford's global C-car platform, beginning in 2011.

Our Twin Cities Minnesota assembly plant which was scheduled to close in 2009 will continue production of the Ford Ranger through 2011, to meet consumer demand for the compact pickup.

And finally, as previously announced, our Kansas City assembly plant will add a third crew this year for the Ford Escape, Escape Hybrid, Mercury Mariner and Mariner Hybrid.

Moving to slide 42, Ford's North American business has been undergoing substantial transformation over the last 2 1/2 years.

Our efforts have resulted in significant improvements across the business, improvements that were becoming evident even to external observers before the external environment changed so dramatically; improvements that we must and will continue to make.

One area of focus has been our brands, and we're confirming today that we will continue to reshape our business around the Ford, Lincoln and Mercury brands, with Ford being the centerpiece.

Defining the Ford brand is well underway, not only across our nameplates in North America but on a global basis as well.

And I'm happy to report to you that customers are viewing the Ford brand much more favorably today compared with three years ago.

While we intend to maintain our brands, we're making huge improvements in simplifying order complexity.

With the 2000 models we are now launching, we achieved a 90% reduction in order complexity.

For the 2010 model year, we will achieve further reductions of over 50%, which will create major benefits not only for the Company but also making the order and stock process far easier for our dealers and our customers.

Quality closely tied to our brand perception continues to improve, with Ford, Lincoln and Mercury now ranking among the best for initial quality in the US.

We're not satisfied, of course, and however, we are going to continue to drive for improvements year after year after year.

Despite the headwinds we're facing externally, we expect to achieve $5 billion of cumulative operating savings this year compared with 2005, including $7.3 billion in structural and other savings, and we're targeting further savings next year and beyond.

This is absolutely critical to ensuring our costs are lean and supportive of a viable business going forward.

We continue to make good progress too, in consolidating our dealer network in the US, an initiative we intend to broaden.

And we also are progressing with the disposition of our ACH facilities.

So moving to slide 43, in summary we made great progress in fixing the fundamental issues that faced Ford in North America 2 1/2 years ago, and now we are going to build on that progress as we respond to the new environment around us.

But we also now have the added advantage through "One Ford" of bringing global resources to bear on opportunities before us in the North American market, something that was just not feasible three years ago.

With "One Ford", we intend to quickly implement an aggressive product plan, align with Ford of Europe in global segments that will deliver a balanced portfolio of products to North American customers; highly-acclaimed fuel-efficient vehicles from small cars to exciting crossovers such as the Edge, Flex and next-generation Explorer to new vans and the best full-size pickups in North America.

They will feature new technologies that will provide consumers with a fuel economy that will be on among the best if not the best in each segment in which we compete.

Supporting this will be a revamp of manufacturing system with built-in flexibility.

And these actions were developed ground up by the North American team and we firmly believe they give us the right blueprint with flexibility to respond to changing consumer preferences to thrive in the new environment in which we expect to operate going forward.

And now I will turn it back over to Alan.

Very good, thank you very much, Mark.

Turning to slide 45, summarizes the key aspects of our plan, we remain committed to the plan and continue to make progress despite a very difficult external environment particularly in North America.

We continue taking decisive action in response to the rapidly changing business environment.

We are pleased that we went to the capital markets at the right time to obtain liquidity to finance our plan.

I'm especially pleased with how the team is working together to create "One Ford" and leverage our global resources.

Despite the present dislocations in the industry in North America, I believe that Ford is uniquely positioned to take advantage of our scale and global product strength to bring to the North American market more smaller, fuel-efficient products that people increasingly want and value and to bring them here quickly.

With a balanced portfolio of vehicles and a sharp focus on the Ford Blue Oval brand across the globe, we can effectively operate through the current downturn and begin to grow profitably as the global economy rebounds.

Looking ahead on slide 46, we are accelerating our product and production transformation in response to the significant changes and opportunities in our business environment.

We have made progress by working together to create together to create a "One Ford" global enterprise during the past two years that enables us to leverage Ford's global product line to address the pressures and the opportunities we have in North America.

And in turn, the added volume from the North American market will add greater scale to our already profitable operations overseas.

We are building upon our "One Ford" product lineup by commonizing products and sharing vehicle platforms across the globe.

Within the next five years, we will build more than one million vehicles a year worldwide off our global B vehicle platform and nearly two million units worldwide off our global C vehicle platform.

Many of these will be new to our present North American lineup.

As we introduce new products, we will continue to improve upon our product execution and provide feature content that our customers want and value.

Overall, we expect that these product actions will help to continue to improve customer's perceptions of our brand.

Slide 47 shows a few of our present products and I will describe how they relate to our plan for "One Ford" product lineup.

At the top are the European Focus and North American Focus.

While these vehicles share the same name and are both excellent products, they are totally different designs requiring separate engineering and many unique components.

At the bottom of the slide are the North American Fusion and the European Mondeo.

These are obviously totally different vehicles that compete in the same midsize or CD segment.

It is also obvious that the commonizing these midsize vehicles and making one global vehicle will yield substantial efficiency throughout the entire supply chain.

In the center of the slide is the new Fiesta being introduced later this year in Europe and China.

By 2010, this vehicle will also be made in North America and in many other areas of the world.

Lastly, the Transit Connect shown on the right of the Fiesta, is a commercial van made in Europe that we are now introducing in select markets around the world including North America next year.

Moving to slide 48, while much attention has been placed on North America recently, we are also committing to focus on the growth of the Ford brand internationally where we are investing in new products and expanding our manufacturing capabilities.

These operations have been solidly profitable overall bringing over 4 billion during the past 18 months.

Ford Europe continues to strengthen its product portfolio with a new Focus and a new Kuga Crossover and we will launch the important new Fiesta small car and Ka small car later this year.

We are gaining marketshare in traditionally European markets and are investing in growing markets such as Russia and Turkey.

In Asia-Pacific, we are preparing to launch the new global Fiesta later this year.

In addition, we are making major investments in our manufacturing operations in India, Thailand and South Africa to support our presence in fast-growing regions.

In South America, we are investing in expanding our capacity in Brazil and Argentina and preparing to launch several new vehicles.

Now onto slide 49.

We have taken many steps in response to the rapidly changing environment.

We sold Aston Martin and Jaguar and Land Rover to focus our global resources and talent on polishing the Blue Oval around the world and to raise capital.

We have taken steps to operate Volvo on a more stand-alone basis in the absence of our Premium Automotive Group and we are taking actions to improve its business.

We took the necessary steps in late 2006 to obtain more than $23 billion in financing to execute our plan and we continue to assess alternatives to improving our balance sheet.

We are continuing to implement our hourly VEBA agreement with the UAW which will help to significantly lower our costs and increase our competitiveness going forward.

Clearly the present business climate poses a significant challenge but we are prepared to meet that test by accelerating the flow of new products that our customers want and value.

We remain encouraged by the sustained strong performance in Europe and South America.

These businesses were restructured several years ago and their success foreshadows what we can accomplish in North America as we transform our business with more fuel-efficient, smaller and midsize cars, crossovers and utilities.

In the second half of this year, our product pipeline will be full.

We recently launched in North America two all-new vehicles, the Ford Flex crossover and the Lincoln MKS luxury sedan.

Soon we will have the F-150, Ford Mustang, Lincoln MKZ and freshened gas and new hybrid versions of both the Ford Fusion and the Mercury Milan.

The new Ford Kuga is off to a great start in Europe and later this year, as just mentioned, the new Ford Fiesta will enhance our lineups in Europe and in China.

Our actions to date make it clear that we are keenly aware of the external challenges and will continue to act swiftly and decisively in taking actions to keep us on course with our plan.

In summary, we believe we are uniquely positioned to our focus on the Ford brand to leverage our global assets to quickly bring more small efficient vehicles to North America and the rest of the world.

We have the scale, the expertise and the financing to execute our plan to transform Ford into a lean global enterprise that will deliver profitable growth for us all.

Now 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 50 minutes for questions.

We will begin with questions from the investment community and we will 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 we don't have to move callers along after a couple of minutes.

So with that, Katina, can we please have the first question?

(OPERATOR INSTRUCTIONS) Himanshu Patel, JPMorgan.

A couple of questions.

On the lease residual write-down, how do the accounting rules behind that work?

Are you allowed to account for a future residual value reduction that you may anticipate or does this write-down simply reflect the deterioration we've seen on used prices to date?

Well, we did the impairment on the Ford Credit lease portfolio pretty much the same way we did the impairment on the fixed assets in North America.

We looked at the cash flows that we think those assets will generate.

So what we did is we made a forecast of lease residual -- of auction values going forward and it's largely based on what we've seen to date.

And we just took that and discounted it back and compared it to the book value of those assets.

So if there is any further deterioration in pickup truck and SUV residuals from today's starting point, would that mean there is additional write-downs coming?

There would have to be a large further deterioration for us to have any changes to that.

And just for clarity, we did that impairment by vehicle line in the US and Canada and about 85% of that total change, $2.1 billion, was on full-size pickups and traditional SUVs.

Okay.

And then number two, Don, you mentioned there was a temporary timing issue with the $1.5 billion cash outflow from working capital.

Can you elaborate on that?

Right.

Yes, of that $1.5 billion, about $1.2 billion of it is inventory.

And what really has happened is the world is changing rapidly as we've talked about the last couple of times we've gotten together and we've been trying very hard to stay up to date and as the production schedules have changed quickly, we've had -- and we actually had to carry a little bit more extra company inventory at the end of the second quarter.

And so all of that inventory in fact by now has been shipped to dealers and that is what I meant -- it's temporary in nature.

There was also a small effect on accounts payable just because of the down time we had in some of our plants in North America at the end of the second quarter that contributed to that and we think that also will be temporary in nature.

Okay, two last questions.

The three plants that are being converted from trucks to cars, anyway you could give us some rough sense of the incremental cost of doing that?

Well, let me start off on and then Mark can add.

But the cost of converting a plant is mainly in the area of the body shop.

And I would say about $0.25 billion is about what it takes to completely redo a body shop with a fully flexible system and a part of that is incremental.

Now it wouldn't be fully incremental if we were going to take a truck plant and it wasn't flexible and make it flexible, we would have to spend a large part of that anyway.

So it depends what you are comparing it to.

But suffice it to say that it is all in our plan and it is contained in our cash flows and profits going forward.

Okay.

And then one last question on this whole commodity cost issue.

Relative to the last period of steel inflation that we saw a few years ago, what are your thoughts on helping suppliers during this inflationary cycle?

Would you just directionally without giving any numbers do you think more of the cost burden is going to be shared by the suppliers or with the OEs?

Or do you think some of this actually is going to end up with the consumer?

Well, I think that really remains to be seen.

Thus far I think the manufacturers and the suppliers have borne most of that.

You've seen that in the pricing that we've discussed.

And just how long that can go, as I said, remains to be seen.

We are very cognizant of the health of our supply base and we work with our suppliers and try to do what we think is the right thing and that's probably as much as we should go into now, if that is okay.

Thank you.

Chris Ceraso, Credit Suisse.

Thanks, good morning.

I had a few items.

First, on the capacity changes and in particular the powertrain, such an accelerated change and concentrated change in powertrain seems like it would be very expensive.

Can you just outline for us your expected CapEx budget '08, '09 and '10?

Let me try on that one just at a very high level.

I think that's our capital expenditures will be at corporately will be at or maybe a little higher than the $6 billion range going forward and that contains the powertrain investment that Mark mentioned, the flexibility in the body shops that Mark mentioned as well as the new products.

What you are seeing is a couple of things.

There is a kind of a bubble that we're going to go through because of the changeover of the truck to the car plant and the body shop flexibility and the powertrains and the flexibility there.

But early on through that, we're going to see cost savings because of the economies of scale that we are getting as we develop more and more vehicle types off of fewer and fewer platforms.

Okay.

Second question, maybe you can help us boil down the change in North American production capacity.

If we use let's say 2007 as a starting point, what do you think is the incremental or the net change in car capacity and truck capacity by 2010?

Well, I don't think we are going to go into that right now.

I think the best way to think about that is our plan in the near term is to get our manned capacity equal to our current dealer demand.

And we've taken a lot of action.

We outlined some today and Mark and Alan outlined some earlier on our call in May and our press release in June.

And we are going to work very quickly to get our capacity -- manned capacity down and then over time realign our capacity on a more permanent basis.

Okay.

Any update to the cash burn target?

I think as of May it was $14 billion to $16 billion.

Yes that is right.

In May, we said $14 billion to $16 billion and then in June we said it would be more than $16 billion.

And given the volatility in the marketplace right now, we are really not going to provide any more detail than that.

Okay, thank you very much.

John Murphy, Merrill Lynch.

Good morning.

In this product shift which makes a tremendous amount of sense, so I think it's a very good action to be taking here.

If we think about the profitability of these smaller vehicles versus the vehicles that they are replacing, larger SUVs and trucks, I just wonder if you could help us with the profitability in general?

And clearly there is some differentials there but also the fact that you're going to be leveraging global platforms and the economies of scale.

I mean, how much of an offset is there in just our standard thinking of the negative mix shift but also the very positive impact of leveraging your global platforms?

You bet, John.

I think you really summarized it very well.

We are very encouraged by our experience with the smaller and medium-sized vehicles around the world especially Europe because clearly with the fuel prices being higher than in the United States, we have had some great experience restructuring that business and restructuring the product line to make the vehicles that people really do want and value.

So a piece of that, like you said is, that would be smaller vehicles and more capable vehicles with more features that people want and especially the fuel economy, they do value those neat vehicles.

So there is a revenue side piece of it but then as you clearly understand, as we move to the global platforms because the requirements now on the fuel efficiency side, on the safety side, on what people want, as those requirements come together around the world, then we can really accelerate this movement to our global platforms.

And those numbers of units that go in the B platforms and the C and the CD are just staggering when you move up to a million units on a model and 2 million units on a model.

Of course, at the same time, we are aligning our supply base with our aligned business framework and the parts start to come together, the commonization on the details all the way up to the platforms I think not only is going to drive continued improvement in quality but a tremendous improvement in productivity and a reduction in cost.

So you add both of those together and I think it is a different business model and with the UAW transformation agreement that we have now in the United States that significantly improves our competitiveness, we believe that we can make a very reasonable return on all of our vehicles starting with the ones in the United States.

Mark, anything else you want to add?

No.

Just on the dealer rationalization that you alluded to that is coming in more earnest next year.

What should we expect there?

Is there going to be fewer rooftops and the same number of franchises so we'll have more Ford Lincoln Mercury dealers?

I mean if you could just help us out with that a little bit in what might be the incremental cost of that rationalization?

Sure.

Our plan has been to improve the throughput and the profitability of our distribution network.

As we all know, we has a tremendous distribution network and set of dealers.

But clearly with what has happened over the last few years, we have overcapacity.

And we've talked about it and we work it together regularly and we have been making great progress consolidating our dealer network.

You will see all forms of that between -- and that's one reason that Ford Lincoln Mercury going forward is the centerpiece of our product line is so important because it includes everybody but it also enables us to consolidate together.

So we are going to continue that.

We're going to broaden that.

We're going to really focus on the areas where we have the overcapacity.

And from a financial point of view, we try to work it dealer by dealer together where it makes economic sense to them and us but clearly our plan is to improve their throughput and their profitability.

Okay, thank you.

Brian Johnson, Lehman Brothers.

Good morning.

A few questions around the product initiatives.

First, the Fiesta we're assuming that that is the platform we saw at the auto show and it's going on sale in Europe I believe next year, is that correct?

Yes.

The Focus, is that the current Focus lineup in Europe or is that going to be a new generation in both continents?

Yes, one clarification on your comment about the Fiesta.

We introduced that in Europe and then into China this year and then it comes into the United States in 2010 and it is exactly the one that everybody saw which everybody is really gratified about that we kept with that spectacular design and capability and fuel efficiency.

On the Focus size -- was it Focus size -- going forward those clearly will come together on a new global platform but for right now, both of them are doing very well so that is something that will come together in the future.

So is the coming together the 2010 version that we are marketing here or is the 2010 version?

Yes, absolutely, absolutely.

Okay.

Second, what are the bottlenecks or what are the hindering factors to not having either these cars on the market next spring or summer?

From -- maybe just to share a little bit of what your thinking?

In North America.

Given the Fiesta is going on sale this year in Europe, given the Focus is 2010, could either of those cars be accelerated into North America in 2009?

And if not, what is the bottleneck?

I understand.

Just taking the Fiesta, for example, the critical path on bringing the Fiesta to North America is to change the design for this special kind of unique emissions and safety requirements in the United States and so that sets the timing for bringing it into the United States because we just hadn't included those design features in the original design but the rest of the vehicle is supportive of all the rest of the world's markets.

On the first part of your question is that our first move is going to be to increase the production on the current Focus that we're making here to get the maximum amount of vehicles that we can to the market as quickly as we can.

And as Mark pointed out, that is the key element of the first changeover from the truck to the automobile production is to get our Focus which is selling very, very well, to get that production up as quickly as we can and then we will augment that with the new smaller vehicles out of Europe.

And does that mean Michigan truck could be producing the current Focus in 09?

Oh no, we will switch over when we switch over.

And the final question which is more of a strategic organizational one is what does this imply for the role of the US or white collar and salaried organization?

At the extreme if you are saying why would the US headcount outside of manufacturing be much greater in the car area than that for example for a Volkswagen which is largely import and soon-to-be built here?

Or a Nissan or a Toyota US?

No I understand.

I think from that standpoint what's Derrick Kuzak has done with the engineering team as we've talked about in the past is really divvy up engineering responsibilities around the world.

As we've taken our last reduction of about 15%, that positions us very well from an engineering standpoint to support different products around the world.

Clearly here in the US, for example, some of the regional products like our trucks and crossover utilities need a lot of engineering support.

So we think that after we go through these reductions, we're appropriately sized to support all our engineering requirements not only here in the US but around the world.

Rob Lache, Deutsche Bank.

Good morning, everyone.

Alan, you made a statement about restructuring to be profitable at current demand and changing model mix.

I was hoping you can elaborate on that.

Are you saying profitable by a certain date and what are the underlying assumptions behind that?

Is it a 14 million unit market and a 14% share?

And maybe also what your car/truck mix would be expected to be?

You bet.

Clearly with the speed in which the market is changing, we had to move off of our goal to be profitable in 2009.

But I think with the actions we have in place on the product and restructuring on the manufacturing, that we will be almost perfectly timed when the market starts to come back and our assumption on that in the US was that the US economy would start to recover not in '09 but in early '10.

So it is somewhere in that time period.

Okay, so north of a 14 million but still 14% market share?

Is that right?

Yes.

We assume that it will start to come back.

And also another point that Mark made that clearly the big trucks have come -- the full-size pickups have come down dramatically but we also are assuming that that is going to rebound.

It's not going to get back to the levels that we've had in the past but it will come back a little bit also.

Okay.

And the car/truck mix in that timeframe, how different?

Substantially more cars and utilities.

Is there a number that you can give us on what kind of incremental savings you need to achieve beyond the $5 billion in order to get to that profitability in that time frame?

No, but as we've talked about in the past, our plan is to continue our improvement in productivity and reducing our cost with all of these actions year-over-year forever.

Okay.

And just lastly, when I do the math on average transaction prices, it looks like North America is down a few thousand dollars on a year-over-year basis.

It's now well below where Europe is on an average transaction price basis.

Isn't average transaction price a big factor behind the better profitability in Europe?

And if that is right, then wouldn't you have to charge more for your new products to get the average transaction prices up in order to get the same kind of results that you are getting in Europe?

I think you are right.

Our average transaction prices during the quarter were down.

I don't recall that they are actually lower than Ford of Europe's given we still have a mix of trucks and crossovers.

But in terms of the transaction prices going forward as it relates to the profitability of the smaller vehicles, we're actually starting to prove today we can actually move the transaction price up.

Our current Focus has actually gained a little bit over 2 points of segment share in the last quarter and we are actually able to improve our transaction or net revenue by about a little over $1000 a unit.

So as we go forward in addition to the things that Alan mentioned, is really work on fully competitive revenues and we've experienced that as Alan mentioned with our products in Europe, the benefits from the costs, the benefits from the quality, the dealer consolidation.

So we are starting to prove that we can do it today but clearly as we shift to the global products, it really helps turbocharge our ability to make money on those products and realize higher transaction prices.

Okay.

So the assumption is transaction prices improve with the new products coming in?

Yes.

Thank you.

Patrick Archibald, Goldman Sachs.

Good morning.

Just on a slide 40, I might have missed this but the three truck assembly plants that you are converting in December, are those going to be able to add to production largely for the 2009 model year?

Or is that just kind of a more gradual transition?

You are speaking about Michigan Truck and Kentucky Truck?

That is correct, yes, which you are converting over I guess beginning December.

Yes.

We will began as we mentioned in the comments, to convert Michigan Truck over.

We will have the opportunity if market conditions exist that we will be able for example to provide some additional Focus production by utilizing the body shop that we have over in Michigan Truck.

But right now, we will have to take a look at what happens in 2009 in the marketplace and if we see the opportunity, we will go after that.

Same thing applies for down in Kentucky Truck as we move or explore on our Navigator.

We will have to see how market conditions go and we will be able to flex accordingly.

Okay, thanks.

Were there in general I guess moving to commodities, I guess two things.

Number one, were there any hedging gains that were part of the results for this quarter?

There was very little in the second quarter because most of that is marked to market so we reflected the gains in the first quarter.

Okay.

And then you are clearly expecting commodities to ramp up in terms of their headwind in the back half.

Can you give us a little bit of a sense or remind us of when those contracts get repriced?

Is it at the end of December and if many of the materials if by track where they are tracking would we expect to see a step change in that number upwards again for 2009?

Well, we have contracts that -- and I think the main thing to think about is steel and we've contracts that end mainly at the middle of the year at the end of that year.

It varies by operation.

We will see a step up in the second half of this year and we will see a step up again next year.

And again, the second half of next year unless prices come down and our forecast is that steel prices in particular will remain high for awhile and that is just based on the current outlook and projections.

Any chance you could give us a sense of what the incremental increase has been for the one-year contracts that you renewed towards the middle of the year?

Well, I think if you look on slide 18, you can get a sense from looking at our projection and look at the first half for commodities, compare that to the second half.

There is a step change there and there will be a similar change in January of next year.

Okay, that is helpful.

I guess just lastly on the gain on sale of your I think Nordic operations for FMCC, that was included in the results.

Can you just give us a sense of how much that was?

It was about $85 million.

Okay.

And then I guess the last one just a housekeeping.

The 14 million to 14.5 million SAAR expectation for this year, I heard you correctly that includes heavy so on a light basis that would be something like 13.7 or 14.2?

Exactly.

Okay, great.

Thanks a lot.

Itay Michaeli, Citi.

Good morning.

Just some follow-up balance sheet cash flow questions.

Don, you mentioned that the charges did not impact the availability in your credit facilities.

But can you refresh us on where the borrowing base calculation was at the end of the quarter?

I believe it was about $22 billion at the end of the year.

I was just trying to access the cushion there.

Yes, it's about the same as it was at the end of the year, actually.

Okay, great.

Yes, go ahead.

Alan, just kind of a long-term question.

It sounds like a lot of good things are happening in 2010 from a product perspective and a prospective economic recovery.

What prevents you from targeting out profitability officially for 2010?

Is it fixed costs, commodity, pricing or some combination?

How would you rank some of the challenges between those three that we mentioned or some that I haven't mentioned?

Just the uncertainty.

It's just so volatile right now that we thought the best thing that we can do is really focus on what we're doing on the product side, what we're doing on the production side which will clearly, clearly position us for long-term profitable growth.

Right.

Just one final question.

Where there any payments from Ford to FMCC for profit maintenance in the quarter and would you expect any through the balance of the year?

No, there weren't any and we would expect to have none through the balance of the year.

Great.

Thanks a lot.

Mark Warnsman, Calyon.

Good morning.

I wonder if we could return to slide 46 and specifically that talks about the consolidation of global platforms into single platforms.

My question is, what constitutes a common platform?

And as you commonize, how do you strike that balance so that you don't end up with a vehicle that sells well in the middle of the Atlantic but not in either the US or Europe?

Hi, Mark, this is Mark.

Very simply a common platform we're defining as just the underpinnings of the vehicle are all the same.

Obviously it includes the chassis, the suspension, the hard points and clearly as we go forward from a global standpoint, we want to make sure those are consistent because then we have the benefits around the scale, the material costs but also the flexibility to save investment on tooling around the world.

So we should we anticipate European ride and handling here in the US?

Or it seems like that chassis -- those chassis components in particular are areas where there have been differences between the markets.

Is the company reconciled now around a common standard globally?

You bet.

I think that the thing that is really enabling this to happen is that the fundamental requirements for the vehicle design are coalescing around the world from a fuel efficiency point of view what the customers want, from a safety point of view, from a regulatory point of view, that is allowing us to have fundamentally common designs on the most fundamental parts of the vehicles.

And then we tailor those top hats to the unique customer wants and needs.

But it's a great opportunity for us because the coalescence of the requirements.

Do you anticipate that Ford will be more active in trying to get some of the regulatory differences between markets commonized?

Absolutely, because it is just good for everybody.

It's good for the regulators and it's tremendous for the automobile companies.

Thank you.

Ladies and gentlemen, at this time we would now like to welcome questions from the media community.

Bryce Hoffman, The Detroit News.

Does the $200 million less marketing spend reflect a lower incentive spending?

No, that really refers to the advertising and the sales promotion.

That has been something we've been working on to make more focused and tailored and so that is one thing the change in incentives, we include that in our net pricing calculation.

And what has happened with incentives?

Are they up year-over-year?

Yes, they are.

Great.

Also, just another point of clarification.

Were you saying that the transaction price on the Focus is up about $1,000 year over year?

Yes.

And how much of that is due to SYNC?

It is a portion of that.

Clearly the customers are recognizing the value in it and they are willing to pay for it.

Great, and one final quick question.

Why is the sale of the ACH facility result in a negative?

Well, simply put, we had it on the books for more than we were able to sell it for.

Got you.

Thank you.

Jeff Bennett, Dow Jones Newswires.

Good morning.

Alan, Mark, are you looking at perhaps having to even push the launch of the F-150 back a little bit further given that dealers still have so much inventory on their lots?

Well, at this point as we mentioned, the reason we adjusted the launch was to make sure that we had an orderly sell down on the inventory so we can get the inventory down to the levels that make sense to launch the new vehicle while you're not out obviously heavily promoting the old model.

So, no, we are in really good shape.

We expect to achieve the inventory levels that we targeted for the end of the year and obviously we'll continue to monitor the situation but July is actually going a bit better than we expected.

And Don, I just wanted to follow up with you again.

I mean given that you are going to have to buy out workers, pay VEBA, convert plants, consolidate dealers and you have debt, again, why do you think that you do not need any additional liquidity?

Well, we have long been working at making sure we had sufficient liquidity.

We've been -- we sold Hertz, we sold Aston Martin and Jaguar Land Rover.

We raised some money all to support having the capital to do this plan and make sure we have sufficient cash and liquidity.

At the time that we did the secured financing at the end of 2006, we did a considerable amount of stress testing that we've talked about.

We really created for ourselves what we thought was a very difficult situation and to test whether we can get through the plan and a severe downturn and other stresses.

Clearly we are in a difficult situation now.

And we are using a portion of that liquidity as we go through this but we don't see any need for anything right now.

Okay, thank you.

Amy Wilson, Automotive News.

Thanks.

Good morning.

I wanted to ask on the notion of returning to profitability, is returning to profitability in 2010 -- do you even see it as a possibility right now or is the uncertainty that you spoke of, does that address beyond 2010?

I think, Amy, it really goes with the economy both in the United States and worldwide.

That is the volatility that we're primarily looking at.

Because our fortunes are so tied to that.

But as we've talked about, the actions we're taking on the product and the actions we're taking on the production system and with the conservative estimate that the US economy is not going to start to recover until early 2010, I think it all kind of comes together around that time period.

So it's a possibility for 2010 you just don't want to say right now --?

Well, again, it goes with the possibility of what the economy does, it really goes with the economy I think.

And then I wanted to ask on the two vehicles that you mentioned the new small car for Mercury and the white space vehicle, can you say is the Mercury B or C segment and is the whitespace vehicle B or C segment?

I think they will be small cars, Amy, and we will look forward to giving you the details for those products when we come closer to a launch.

Okay, you're not going to break down and define the segment today?

They will be small, they will be B or C car.

Okay.

And then I just also wanted to ask, are a lot of the things that you unannounced today, some of them you had already announced and talked about previously and some of the items had been reported about even before gasoline hit $4 a gallon and certainly not all of it -- I mean there's a lot of it that is new today.

But I was wondering if you could break it down and talk a little bit about what specific parts of the plan that you unannounced today really kicks into gear or you really started thinking about as new when gasoline hit $4 a gallon and you saw market shift so rapidly?

If you can specifically mention some of the production shifts or number -- did the number of plants that you are going to convert over, did that increase beyond what you had previously planned?

If you could just talk about in detail for that way a little bit for us.

Thanks.

Sure.

Amy, I really think that we start -- we really started this a couple of years ago in that we knew that we were clearly focused on larger trucks and SUVs in the United States but we are also staying focused on really these smaller and medium-sized cars and utilities around the world.

And it was just clear to us to have a balanced portfolio in the United States to leverage our global assets and bring that to bear with "One Ford" was clearly, clearly going to be the foundation of our transformation of Ford.

But as you pointed out, as the fuel prices went through that $3, $4 per gallon and no one knew when that tipping point would be in the consumer's mind but when we started to see that rapid movement by the consumers from the bigger trucks and SUVs over to cars that we wanted to -- we decided then with what we think about fuel prices going forward staying up relatively higher that it was time to aggressively accelerate our transformation.

But the neat thing is, as you well know, is that we have these assets worldwide and so we have the ability to accelerate it.

And today I think you see so much more of the plan, the acceleration of the product plan but also the acceleration of the production system so to increase the production of the smaller cars and fuel-efficient cars that we have today, but also the transformation of that production system to include all the new vehicles from around the world.

Another key part that we all work together was the new agreement with the UAW, which gives us the opportunity to be able to transform these production facilities and actually make the smaller vehicles in the United States and make them profitable so we can keep investing in the business.

So I think it's all three or four of those pieces that have come together that we're announcing today.

Specifically though is it extending the Ranger and the plan with Michigan Truck and the new small car for Mercury and the new white space vehicles?

I'm just wondering, are those all examples of specific things that only came together in the last few weeks as you were reworking your plan in response to $4 a gallon?

Well, clearly the accelerating factor sounds like a car term, the accelerating factor was the rapid increase in the fuel prices because we had all of these things we could do but clearly we wanted to use all of them just like the Ranger that you referenced.

It's a great small pickup and that's one of the reasons we are extending the production.

So the real catalyst recently has been the fundamental change in the fuel pricing.

Jere Downs, Louisville Courier-Journal.

Good morning, fellas.

I always think I can get a trip to Europe out of this call because I looked and saw that in 2000 you did a major restructuring in Europe.

So if you can comment briefly on that and then talk a little bit more about if the economy improves how you could accelerate that flexibility you talked about Mr.

Fields in terms of Michigan truck and down here?

Well, let me start off and we will talk a little bit about Europe because you are absolutely right, in 2000 we did start our restructuring in Europe and we first off went through and realigned our capacity and then we accelerated the growth of new products.

We've been working at that for a while and we've seen for the last three or four years now the European results improved, we became profitable and now we are earning a pretty good returns in the first half of this year in Europe.

We think that is a really good thing for us to know we can do that; and in fact we did the same thing in South America in case you're planning a trip to South America.

And now I will turn it back to Mark.

Jere as part of our cost containment we will have to take that request on board but could you just restate your second part of your question?

Absolutely.

Please talk more about flexing production in 2009 if market conditions "improve" at Kentucky Truck and Michigan Truck, what could you do exactly, what kind of market uptick would precipitate that kind of acceleration?

Well, clearly, what it would require is we have some initial forecast for the industry next year, clearly it would have to over achieve on that.

And I think in terms of the flexibility clearly in Michigan Truck we already do have a flexible body shop.

So if the requirements for Focus do increase even more, we have the ability to use the body shop at Michigan Truck because the bottleneck, if you will, at the Wayne Assembly Plant is the body shop at which we are already running at three shifts.

So we would be able to do that.

And down in Kentucky Truck obviously once we get the Navigator and the Expedition down there clearly the requirements for next year we'll have to look at the market requirements.

But between that and obviously the requirements for the Super Duty we will be able to flex within the plant appropriately to see where the market goes.

What about the Explorer, would that be a C or a CD platform, the new Explorer?

We will talk about that more toward when we are ready to get into more detail about the product, but clearly what's going to be very important is to provide the functionality and the space that our customers are expecting value.

And finally, we haven't talked a lot about things getting much worse.

You are assuming 14 million SAAR, but it seems that we're going downward with not much upward movement.

What if things get worse?

When we laid that -- as Don mentioned earlier -- when we laid out the original plan and then the financing of the plan we stress-tested the business environment pretty heavily.

And so when we went to the markets and we raised our cash, we took into account really stress in the market, so I think we have sufficient liquidity going forward here for the plan.

I might also add we did say in the low 14s for the full year but the first half was 15.

So that gives you some idea of what we are looking at for the second half.

So, that is pretty low and it's in our plan for this year.

Byron Pope, Ward's Auto.

Hello, gentlemen.

Just wondering you mentioned that you have flexible plants in North America that can accommodate multiple platforms.

But it appears that you are still going to be dedicating plants to single platforms in this new plant.

Can you tell us where that is?

When you look at some of the plants that we will be dedicating, for example, our Dearborn truck facility, it is still a flexible plant because clearly although it is the same model we are able to flex between the different cab styles.

But for the most part by the time we get to the end of the period almost all of our plants will be flexible in nature.

Clearly we think we have given where the market is going the fragmentation, we think we have the right formula going forward to respond quickly even though we will still have a plant or two that will be dedicated to a specific product or platform.

Okay, thank you.

Rick Popely, Chicago Tribune.

Good morning, gentlemen.

I just want to follow up on something that Mark just mentioned and on the Explorer providing the size and functionality that people expect.

Most of your announcements today have to do with B and C segment sized vehicles which Americans traditionally haven't embraced in large numbers.

Do you see that really changing that they all give up the room that they have now?

Well, I think we are already actually starting to see it.

When you look for example pickup truck owners trading in their vehicles, a number of them are trading them into small C cars whether they be sedans or otherwise.

So we are starting to see that to one degree or another.

And I think the key going forward is making sure that in these products that we bring to marketplace that the vehicles contain the feature content that consumers are used to in larger more expensive vehicles.

And at the same time through the technology that we are able to employ in the engineering and development of the product, the interior space, which to be quite honest the interior space you can get in a C-car today is very different than even five years ago and that will become even more efficient going forward.

We think that combining the high fuel prices, the feature content, the functionality and the utility of those vehicles, the space in those vehicles that we will continue to -- we will see a continued shift to the market place.

Just on crossovers, it seemed to take a big hit on sales in June, are you concerned that the vehicles such as the Flex and Edge that those may be kind of passed by because of fuel prices as too big?

I think we are gratified to see that the Edge is the segment leader in crossovers, but you are right we did see a fall off on a year over year basis for the crossover segment in the second quarter as opposed to the first quarter, it was actually up.

Clearly as we look at that I think it's a couple of things.

One is, it seems to be the newer products tend to be doing better, so therefore I think our Flex is very well positioned also to the fact that it is the highest fuel economy vehicle in its segment.

And I think secondly, you are seeing more of a preference toward four-cylinder engines in that segment and that is where I think the launch of our new four-cylinder Escape bodes well.

But we are going to have to watch that very closely and part of the production volumes that Don mentioned earlier does reflect a reduction in some of our production up in Oakville to make sure we keep our inventories in line.

Okay, thank you.

We have time for one more question, please.

Dee-Ann Durbin, The Associated Press.

Gentlemen I'm glad I got the question in.

It looks like this is the worst quarterly loss that Ford has ever had from our archives, is that something you can confirm?

And then also you have a lot riding on the European model and I'm wondering -- the landscape seems to be littered with European models that have come over here and not done so well.

The Saturn Aura comes to mind, the Contour Merkur, why are you so sure that your European models are going to do well this time around?

Yes, you are correct, this is the largest loss that we've had.

And with respect to your second question which I think it's really important that we talk about because what is really different today than ever before is the fact that the fuel prices in the United States are up, and the consumers really want -- they are really going to value smaller vehicles and fuel efficient vehicles.

But also as they move to these vehicles they are going to want the vehicles to be neat, they want the quality to be great, the features that we have, the capability.

And so we have seen this and the success of this in Europe and also around the world.

So it gives us a lot of confidence that this can be led by the consumers, they are going to appreciate these vehicles and they are going to value them.

So I think we have a real opportunity here to leverage our global assets and bring to the US customers what they really want in their cars, utilities and as well as their tracks.

Okay thank you.

Also, Mark, how long will Michigan Truck be closed, if you can clarify?

We haven't fully dimensioned that but we will talk about that as we further develop our plans.

Thank you very much.

With that, that concludes today's presentation and want to thank everybody for joining us.

Have a nice day.

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

This concludes your presentation.

You may now disconnect.

Good day.