福特汽車 (F) 2009 Q1 法說會逐字稿

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

My name is 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 presentation.

(Operator Instructions).

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

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

Bill Agne, 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 and Lewis Booth, 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 items.

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

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

Final data will be included in our Form 10-Q on the first quarter.

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

The non-GAAP financial measures discussed in this call are reconciled to our 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 on 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.

Very good.

Thank you, Bill and good morning to everyone.

As you all know, demand for autos across most markets remained very weak in the first quarter due to the persistent global economic slowdown and still anemic credit markets.

Although policymakers around the world are making significant and important moves to jumpstart the economy, consumer confidence remains low.

We estimate that the first quarter 2009 industry volumes for the major markets that we track are down about 20% from year-ago levels.

While the difficult market conditions had a significant impact on our first quarter results, we made strong progress on our plan to transform Ford into a lean, globally-integrated company poised for long-term, profitable growth.

Despite much lower revenues, we slowed our operating cash flow outflow significantly compared with the fourth quarter of 2008 and expect improvements to continue throughout the year as we continue to reduce costs aggressively.

Strong, new, high-quality, fuel-efficient vehicles such as the Fusion and the Fiesta helped Ford achieve strong retail market share performance in the first quarter in our two largest markets -- the US and Europe, as well as in a number of other markets while limiting incentives.

And we took further action to improve our cost structure and balance sheet by reaching new agreements with the UAW and completed a successful debt-reduction initiative, both of which will pay off down the road and increase our fundamental competitiveness.

In these challenging times, we remain focused on our four-point plan -- aggressively restructure the business, accelerate development of the vehicles customers want and value, finance our plan and improve our balance sheet and work together as one team leveraging our global assets.

Even in the worst of auto industry times, customers are recognizing that Ford is making progress and charting its own path.

We are positioning Ford to survive the current downturn and capitalize as auto sales recover down the road.

I will start off today by providing you with an overview of our first quarter results and business and product highlights.

Lewis Booth will then take us through the first quarter financial results in greater detail.

Finally, I will summarize our plan going forward, including our outlook for the rest of this year.

Turning to slide 3, I'll begin by reviewing the key financial results.

As shown at the top of the slide, vehicle wholesales in the first quarter were at 973,000 units, down 558,000 from the same period in 2008.

First quarter revenue was $24.8 billion, a $14.4 billion decrease from a year ago.

The decrease is primarily explained by lower volume and unfavorable exchange, partly offset by higher net pricing.

Our first quarter pretax operating loss, excluding special items, was about $2 billion, over a $2.6 billion decline from a year ago when we were profitable.

This decline included $2.5 billion at automotive and $126 million at Financial Services.

Our first quarter net loss attributable to Ford was $1.4 billion, including a pretax special charge gain of $362 million.

We ended the quarter with $21.3 billion of cash, down about $7.4 billion from a year ago.

This will be discussed in more detail later.

Turning to slide 4.

Financial results at all operations were worse than a year ago because of the lower industry volumes beginning in the second half of 2008 and continuing into the first quarter of 2009.

First quarter US industry volumes were down 37% from a year ago and our other major markets were down 7% to 18%.

Cost reductions provided a significant offset to these declines.

Overall results, however, were significantly improved compared with fourth quarter of 2008, even though we took further decisive action to reduce dealer stocks to align these stocks with the current lower demand.

We reduced our automotive structural costs by $1.9 billion compared to 2008 with about $1.3 billion of that improvement coming from North America.

Ford North America had an operating loss of $637 million, a $592 million decline from a year ago.

Ford South America earned an operating profit of $63 million, a $194 million decline from a year ago.

Ford Europe had a $550 million operating loss, about a $1.3 billion decline from a year ago.

Volvo had a $255 million operating loss, a $104 million decline from a year ago.

Ford Asia-Pacific and Africa had an operating loss of $96 million, a $97 million decline from a year ago.

And Financial Services had an operating loss of $62 million, a $126 million decline from a year ago.

Slide 5 details some of our key business highlights this quarter.

In February, we modified our collective bargaining agreement with the UAW, lowering our annual US labor costs by $500 million.

In addition, we launched a new buyout program for US hourly employees.

We reached agreement in principle with the UAW, subject to court and other approvals, to allow Ford to settle up to half of our cash VEBA obligations with Ford common stock.

We executed actions to reduce our automotive debt obligations by $10.1 billion and lower our annual cash interest payments by more than $500 million.

In the US, retail market share remained steady in the first quarter compared to the first quarter of 2008.

Dealer inventories decreased by 27% from a year ago, bringing days supply to very competitive levels.

We launched the Ford Advantage Plan in the US, offering customers who lose there jobs payment protection for up to 12 months.

Ford Europe's first quarter market share rose to 9.4%, the highest level in nearly 10 years.

Ford also strengthened its hold as Europe's number two selling brand.

Initial quality of Ford, Lincoln and Mercury brand vehicles in the United States improved by 5% as compared to last year, surpassing Honda and tying Toyota for the overall lead according to latest Global Quality Research System study of US vehicle quality.

And customer satisfaction with vehicle quality is improving in North America, Europe and Asia and it reached its highest level ever in North America.

And we started discussions with interested parties regarding the sale of Volvo.

Turning to slide 6.

During the first quarter, we had a number of new product introductions and sales accomplishments as we continued to implement our product transformation plan.

In Europe, the Ford Fiesta became Europe's best-selling vehicle for March with sales of 52,800 vehicles.

In March, the Ford Ka posted its best sales month since October of 2004.

We launched the Ford Focus RS, Ford Europe's fastest-ever production model, and unveiled the iosis-MAX concept at the Geneva Auto Show, signaling Ford's design intent for multi-activity vehicles.

In North America, we introduced the 2010 Ford Taurus, our new flagship sedan, at the Detroit Auto Show.

Taurus hits the streets this summer, along with the high-performance Taurus SHO.

We introduced the 2010 Ford Transit Connect in North America, a fuel-efficient alternative to larger, commercial vehicles, which also goes on sale this summer.

Next year, a battery electric version of the Transit Connect will reach the market.

We have just launched the new 2010 Ford Fusion, the Mercury Milan and the Lincoln MKZ along with the Fusion and Milan hybrids.

Both the gas and the hybrid versions of Fusion and Milan lead their segments in fuel economy.

The new 2010 Ford Mustang is entering showrooms now.

It is America's number one muscle car with a new interior and exterior, more horsepower and updated technology.

The high-performance Shelby GT 500 enters the marketplace with 40 additional horsepower and improved highway fuel economy.

And production is underway for our first new EcoBoost engine, a key part of our strategy to improve fuel economy and lower CO2 emissions across our entire productline.

The 3.5 liter V-6 EcoBoost will be available on 2010 models of the Lincoln MKS, the Lincoln MKT and the Ford Flex and standard on the Ford Taurus SHO.

Finally, in Asia-Pacific and Africa, production of the Fiesta began in Nanjing, China.

Customer demand for the Fiesta in the Asia-Pacific region has been very strong as it marks successful launches in Australia, New Zealand and South Africa.

Now I'll turn it over to Lewis to provide more details on our first quarter financial results.

Lewis?

Thanks, Alan.

Let's move on to slide 8, which provides more information on our financial results.

Starting at the lower left, our net loss attributable to Ford for the first quarter was $1.4 billion and this excluded income from non-controlling interests.

This net loss included $204 million of tax benefits, more than explained by a recovery of prior-period taxes.

Excluding this recovery, we incurred a tax liability in jurisdictions where we remain profitable.

Adjusting for these items leaves a first quarter pretax loss of $1.6 billion.

These results include a pretax special gain of $362 million, which we will cover on the next slide.

Excluding these special items, we recorded a first quarter pretax operating loss of about $2 billion.

Most of the remaining slides will focus on these pretax operating results.

Slide 9 covers special items, which resulted in a pretax gain of $362 million in the first quarter.

In North America, we recorded a charge of $171 million, largely related to personnel reduction programs in the US.

We recorded a gain for Job Security benefits of $292 million, which primarily relates to the elimination of the "Jobs Bank", which was part of the modified agreement reached with the UAW.

We recognized an $81 million dealer-related charge, which primarily reflects investment write-offs related to the proposed sale of dealerships in the Dealer Development program.

This initiative provides an opportunity for qualified operators to become private capital owners of a dealership.

We also recorded a charge of $178 million for Retiree Health Care and other related costs, which is primarily related to the UAW Retiree Health Care VEBA agreement.

We recognized a $1.3 billion gain, primarily associated with the repurchase of $2.2 billion of our term loan debt and $234 million of unsecured notes.

This reflected the difference between the book value of the debt and the market price at which the debt was repurchased.

During the second quarter, we expect to realize about a $3.4 billion gain on the debt restructuring completed in early April.

Our debt restructuring actions will be covered in more detail on the next slide.

At the end of the first quarter, based on the status of our strategic review of Volvo, we concluded that the criteria for held-for-sale status have been met, triggering an impairment test that resulted in an impairment charge of around $700 million.

This amount reflects the difference between the book value and the estimated fair market value of Volvo as held for sale, net of estimated disposal costs.

And finally, we recorded an impairment of our equity investment and Diversified Financial Operations partnership of non-core leased assets.

On slide 10, as previously announced, we have completed debt restructuring initiatives that reduced Automotive debt by $10.1 billion at par value and will lower annual interest payments by more than $500 million.

Ford and Ford Credit utilized $2.6 billion in cash, plus 468 million shares of Ford common stock to complete the debt restructuring.

The Term Loan was completed on March 27 and will be reflected in our first quarter financial statements.

The other major components of the debt restructuring were completed on April 8 and will be reflected in our second quarter financial statements.

This successful debt restructuring, coupled with previously announced agreements with the UAW, will substantially strengthen Ford's balance sheet.

Now on to slide 11, we chose our pretax operating results by sector.

The first quarter pretax operating results were a loss of about $2 billion.

These results included a loss of $1.9 billion for the Automotive sector and a loss of $62 million for Financial Services.

As Alan mentioned on slide 4, as shown in the memo below the chart, total Company results have improved substantially compared with the fourth quarter of 2008.

Moving on to slide 12, which shows pretax operating results for each of our Automotive operating segments and Other Automotive.

We'll focus here on Other automotive and then cover the operations in detail on the next slides.

In the first quarter, Other Automotive was a loss of $445 million, of which net interest expense represented $452 million.

Slide 13 shows the change in first quarter results compared with a year ago, a decline of $2.5 billion.

Volume and mix was about $3.5 billion unfavorable, primarily due to the decline in industry volumes and the impact of actions to reduce dealer stocks across all of the Automotive operations.

Share overall was about unchanged with improvements in retail share offset by reductions in daily rental and other fleet business.

Net pricing was about $700 million favorable, primarily due to higher pricing in the US, reflecting pricing for new features and content and limiting new incentives.

Cost changes were over $1 billion favorable, reflecting structural cost reductions, partly offset by higher material costs, which included a non-recurrence of about $350 million of favorable mark-to-market adjustments on commodity hedges.

On the next slide, we will focus on our structural cost reduction initiatives.

Exchange was about $100 million unfavorable, primarily explained by unfavorable exchange in South America and in Europe, partly offset by favorable exchange at Volvo.

Net interest and fair market value adjustments were $200 million unfavorable, primarily due to the non-recurrence of fair market value gains and higher interest expense associated with drawing the revolver.

Finally, included in the Other decline of $400 million, are lower subsidiary and parts profits largely related to the decline in industry volume.

Now to slide 14, which explains our Automotive structural cost reductions of $1.9 billion compared to a year ago.

Manufacturing and Engineering costs were over $800 million lower, largely reflecting the continued benefit of our restructuring actions in North America, Europe and in Volvo.

Spending-related costs improved by about $200 million, primarily reflecting lower depreciation expense.

And Pension and Retiree Healthcare expenses were $300 million lower, primarily reflecting the effect of the UAW Retiree Health Care VEBA agreement.

Overhead costs were over $300 million lower, including salaried personnel reductions and other restructuring actions.

And advertising and Sales Promotions were about $300 million lower than a year ago.

For the next section of slides, we will cover each of the Automotive operations, starting with North America on slide 15.

In the first quarter, wholesales were 354,000 units, down 350,000 units from a year ago, primarily reflecting the 37% decline in US industry SAAR from 15.6 million units in the first quarter to 9.8 million units in the first quarter of 2009.

During the first quarter, we reduced US dealer stocks by 32,000 units to keep these stocks aligned with lower industry volumes.

In comparison, during the first quarter of 2008, we had to increase dealer stocks by 32,000 units.

First quarter US total market share for Ford and Lincoln Mercury was 13.9%, down 1.1 points from last year because of lower fleet sales.

And first quarter revenue was $10.2 billion, a $6.9 billion decrease from a year ago, primarily explained by lower volumes and partly offset by improvements in net pricing.

For the first quarter, Ford North America reported a pretax loss of $637 million, $592 million decline from a year ago.

We will cover this decline on the next slide.

Slide 16 provides an explanation of the change in North American results compared with a year ago.

Volume and mix was $2 billion unfavorable, primarily reflecting the decline in US industry volumes, lower dealer stocks and lower fleet market share.

Net pricing was $600 million favorable, primarily reflecting pricing for new features and content and a disciplined approach that has limited our new incentives in an increasingly competitive environment.

Costs decreased by $800 million, more than explained by lower structural costs, including lower manufacturing and engineering, pensions and OPEB, overhead and spending-related costs.

These structural cost reductions were partly offset by higher material costs reflecting higher product content and the non-recurrence of favorable mark-to-market adjustments on commodity hedges.

Slide 17 provides an explanation of the improvement in North America first quarter 2009 results compared with the fourth quarter of 2008.

Volume and mix was $300 million unfavorable, more than explained by a decline in US industry volumes and lower market share, partly offset by favorable product mix.

Net pricing was $100 million favorable, primarily reflecting higher pricing in the US.

Costs decreased by about $1.6 billion, primarily reflecting lower structural costs, including lower manufacturing and engineering and advertising, lower commodity costs consistent with lower prices for steel and precious metals and favorable warranty reserve adjustments.

Exchange was $300 million unfavorable and Other was $200 million favorable.

Slide 18 shows the US market share for Ford and Lincoln Mercury.

In the first quarter, our market share was 13.9%, including 10.1% for retail and 3.8% for fleet.

As shown below the chart, our preliminary share of the US retail market between the first quarter was about equal to the first quarter of 2008.

Favorable share performance, primarily related to the Fusion and the new F-150, were offset by mix shifts that were unfavorable to Ford, primarily lower full-size pickup segmentation.

In addition, it is important to note that we were able to achieve this favorable retail share performance while limiting incentives in an increasingly competitive environment.

The fleet share decline compared to last year was largely consistent with our planned reductions in daily rental volumes.

Now on to South America on slide 19.

In the first quarter, wholesales were 93,000 units, up 1,000 from a year ago, reflecting market share improvements from 9.5% to 11%, largely offset by the decline in industry SAAR from 4.4 million units in the first quarter of 2008 to 4.1 million units in first quarter of 2009.

First quarter revenue was $1.4 billion, a $400 million decrease from a year ago, primarily reflecting weaker Brazilian currency.

For the first quarter, Ford South America earned a pretax profit of $63 million, a $194 million decrease from a year ago.

This decrease was more than explained by unfavorable exchange and higher commodity costs, partly offset by favorable net pricing.

Slide 20 covers Ford Europe.

In the first quarter, wholesales were 343,000 units, down 157,000 or 31% from a year ago.

This reduction includes the impact of reducing production by 61,000 units to align dealer stocks with lower industry volumes.

First quarter industry SAAR for the 19 markets that we track was 14.8 million units, down 3.2 million units or 18% from a year ago.

This is about half of the US industry decline, due in part to the favorable effect of government scrappage programs in major European markets.

In addition, the Russian industry SAAR was 1.9 million units, down 1.3 million units, or 41% from a year ago.

First quarter market share was 9.4%, up 5/10 of a point from last year, the highest level in nearly 10 years, reflecting the relative strength of our product portfolio.

First quarter revenues were $6 billion, a $4.2 billion decrease from a year ago, more than explained by lower volume, unfavorable exchange and unfavorable product mix.

For the first quarter, Ford Europe reported a pretax loss of $550 million, a $1.3 billion decline from a year ago.

We will cover this decline on the next slide.

Slide 21 provides an explanation of the change in Ford Europe results compared to a year ago.

Volume and mix was about $1 billion unfavorable, primarily reflecting the decline in industry volume and dealer stocks, partially offset by improved market share.

The industry volume decline included a significant decline in commercial vehicle volumes, primarily reflecting the economic weakening in most major European markets.

Results during the first quarter were reduced by $300 million because of the impact of reducing production to align dealer stocks with lower industry volumes.

Net pricing was $100 million unfavorable compared to a year ago.

This reflects favorable vehicle pricing, primarily in Britain and Russia, in part to offset unfavorable currency exchange effects.

Underlying structural cost reductions were $300 million as we progress actions to align capacity with demand.

This was more than offset, however, by increased distressed supplier costs, the non-recurrence of favorable mark-to-market adjustments on commodity hedges, higher product content and non-recurrence of warranty reserve changes.

Exchange was about $100 million unfavorable, mainly due to the weakening of the British pound and the Russian ruble compared with the Euro.

Other was $200 million unfavorable, explained by lower earnings of our joint ventures due to lower industry volumes.

Slide 22 covers Volvo.

In the first quarter, wholesales were 69,000 units, down 37,000 units or 35% from a year ago.

This reduction is explained by lower industry volumes and market share primarily in the US and Europe and lower dealer stocks.

First quarter revenue was $2.6 billion, a $1.6 billion decrease from a year ago, more than explained by lower volumes, unfavorable exchange and unfavorable net pricing.

For the first quarter, Volvo reported a pretax loss of $255 million, a $104 million decline from a year ago.

We will cover this decline on the next slide.

Slide 23 provides an explanation of the change in Volvo results compared to a year ago.

Volume and mix was $400 million unfavorable, primarily reflecting lower industry volumes, lower market share and lower dealer stock reductions.

Net pricing was about $100 million unfavorable compared to a year ago, primarily reflecting increased incentive spending in Europe and the US.

Costs decreased by $300 million reflecting actions taken to reduce structural costs and exchange was about $100 million favorable, primarily associated with the weakening of the Swedish krona compared to the US dollar.

While not shown on this slide, losses in the first quarter of 2009 were reduced nearly $500 million compared with the fourth quarter of 2008 despite the lower volumes.

This primarily as a result of structural cost reductions and favorable exchange.

Slide 24 covers Asia-Pacific and Africa.

In the first quarter, wholesales were 114,000 units, down 15,000 units from a year ago, primarily reflecting lower industry volume.

First quarter industry SAAR was 20.6 million units, down 2.8 million units, or 12% from a year ago.

While the Chinese industry was down only slightly, industry volumes in many of our other key markets were down 20% to 30%.

The first quarter market share was 1.8%, down 1/10 of a point from last year.

And the first quarter revenue, which excludes sales of our joint ventures in China, was at $1.2 billion, a $500 million decrease from a year ago, more than explained by lower volumes and unfavorable exchange.

And for the first quarter, Asia-Pacific and Africa reported a pretax loss of $96 million, a $97 million decline from a year ago.

The decline reflects lower industry volumes and unfavorable exchange, partly offset by structural cost reductions and net pricing exchange.

Slide 25 shows Automotive cash and cash flow.

We ended the first quarter with $21.3 billion in gross cash, up $7.9 billion from the fourth quarter of 2008.

Our Automotive operating-related cash flow was $3.7 billion negative in the first quarter reflecting an Automotive pretax loss of $1.9 billion.

Capital spending during the first quarter was about $300 million higher than depreciation and amortization.

Changes in working capital resulted in over $1 billion of positive cash flow due to higher payables, lower inventories and lower receivables.

This improvement, however, was more than offset by timing differences in marketing, warranty, retiree healthcare payments and in-transit receivables.

And finally, payments of $500 million to Ford Credit reflecting our change to upfront payment of subvention.

Excluding the impact of the change to upfront subvention payments, our Automotive operating-related cash flow was $3.2 billion negative.

This outflow in the first quarter is less than half of the outflow during each of the third and fourth quarters of 2008 despite a further decline in volume, in part related to actions taken to reduce dealer stocks.

The improvement is due primarily to improved working capital, lower Automotive pretax losses and lower net spending.

Other changes in gross cash that in total more than offset the operating-related cash flow included personnel reduction programs of $300 million, pension contributions of $400 million, the net impact of the $2 billion related to the conversion of the assets in the Temporary Asset Account set aside for the VEBA healthcare trust into a new Ford note as discussed in January and finally, accessing our revolving line of credit of $10.1 billion as we also discussed in January.

Including all of these impacts, the total increase in gross cash during the first quarter was $7.9 billion.

Now let's turn to slide 26 and Financial Services.

For the first quarter, the Financial Services sector reported a pretax loss of $62 million, a $126 million decline from a year ago.

Other Financial Services reported a loss of $26 million in the first quarter, a $58 million decline from a year ago.

And this decline primarily reflects non-recurrence of gains related to real estate transactions.

We will cover Ford Credit in more detail on the next slide.

Slide 27 explains the change in Ford Credit's pretax results for the first quarter compared with a year ago.

For the first quarter, the pretax loss was $36 million, a $68 million decline from a year ago.

The decrease in earnings primarily reflected lower volume and a higher provision for credit losses, partly offset by lower depreciation expense for leased vehicles and lower net losses related to market valuation adjustments to derivatives.

Volume was lower compared with a year ago reflecting declining managed receivables.

As shown in the memo, the lower left of the slide, Ford Credit's March 31, 2009 managed receivables were at $106 billion, about $42 billion lower than the year ago.

This decline primarily reflected lower industry volumes, lower dealer stocks, changes in currency exchange rates and the impact of divestitures and alternative business arrangements.

The increase in the provision for credit losses is more than explained by higher repossessions, higher severity, lower recoveries and higher dealer-related losses in the US and higher credit losses in Europe.

Residual losses declined in the first quarter of 2009 compared with last year.

This decline primarily reflected lower residual losses on vehicles returned in the first quarter of 2009 and lower depreciation expense.

Ford Credit's first quarter auction values improved compared with the fourth quarter of 2008, but we expect them to remain volatile.

Slide 28 covers the liquidity and funding outlook for Ford Credit.

The left box shows Ford Credit's committed liquidity programs and cash and the utilization of liquidity sources at the end of the first quarter.

Ford Credit's liquidity exceeded utilization by about $17 billion.

Ford Credit's funding strategy remains focused on maintaining liquidity to meet short-term funding obligations, including holding a substantial cash balance.

Ford Credit is maintaining its funding program and securitization structures, plans to renew committed capacity consistent with the size of its balance sheet and will utilize appropriate government-sponsored programs for which it is eligible.

In the near term, utilization of government-sponsored programs in the US and around the world will be an important component of Ford Credit's funding plans.

It has utilized the US Commercial Paper Funding Facility and European Central Bank liquidity facility and in March completed a $3 billion Term Asset-Backed Securities Loan Facility, TALF as we know it, eligible auto loan securitization transaction.

Gaining approval of our application for an Industrial Loan Corporation is a component of Ford Credit's funding plan as it will provide access to lower-cost diversified funding for FDIC-insured deposits.

Ford Credit will continue to explore and execute alternative business and funding arrangements in those locations where it lacks diverse funding capability.

At the end of the first quarter, Ford Credit's managed leverage was 10 to 1 and Ford Credit's equity was $9.3 billion.

In the first quarter of 2009, Ford Credit completed a cash tender offer for a portion of Ford's senior secured term loan of about $1.1 billion in cash, including transaction fees.

Ford Credit distributed this debt to its parent where it was subsequently forgiven.

Finally, Ford Credit will continue to reduce the size of its balance sheet in 2009, primarily reflecting lower industry volumes and Jaguar, Land Rover and Mazda's transition to other finance providers.

By the end of 2009, Ford Credit's managed receivables will be in the range of $85 billion to $95 billion.

Slide 29 shows our 2009 second quarter production plans.

In North America, the second quarter production schedule is 435,000 units, down 250,000 units from 2008 but 10,000 units higher than our prior guidance.

Ford Europe, we expect second quarter production of 385,000 units, down 180,000 units from the year ago.

And at Volvo, we expect second quarter production of 82,000 units, down 30,000 units from a year ago.

Overall, production is down compared with 2008 as we respond to the decline in global industry volumes.

These second quarter levels, however, are expected to be about 20% higher than the first quarter production.

And now I would like to turn it back to Alan to summarize our plan going forward.

Very good.

Thank you, Lewis.

Slide 31 provides an overview of the business environment.

We expect weak volumes this year across most markets with worldwide sales down around 15%, a record decline globally according to our data.

In part, this reflects that much of the 2008 weakness outside of the US occurred late in the year.

Significant government policy stimulus has been implemented in most markets.

This is expected to improve the environment for sales later this year.

Financial markets remain under significant stress and central banks continue to provide liquidity and take actions to stabilize the banks.

Our suppliers and dealers also have been weakened by the global economic downturn and financial crisis.

The decline in oil, fuel and other raw material prices will provide a partial offset to the weak demand conditions.

Currencies remain volatile, which poses some risk.

On slide 32, Ford is continuing to take decisive restructuring actions.

For example, we reached a new agreement with the UAW to lower labor costs by about $500 million annually and subject to court and other approvals, agreement in principle to allow Ford to settle up to half of its cash VEBA obligations with Ford common stock.

And we executed actions to reduce automotive debt obligations by $10.1 billion and lower annual cash interest payments by more than $500 million.

In addition, we are continuing to reduce collaboratively our dealer levels with a 14% reduction since 2005, working collaboratively to consolidate and realign our suppliers and continuing to reduce salaried personnel-related costs and other overhead costs.

Our progress in fixing the fundamentals of the business is evidenced by the $1.9 billion of Automotive structural cost reductions in the first quarter and our revised plan to reduce full-year structural costs by more than $4 billion.

Overall, we are identifying and addressing issues and finding and delivering offsets.

As a result, based on our current planning assumptions, we remain on track to meet or beat our financial targets, including the target for our overall and North American Automotive pretax results to be breakeven or better in 2011, excluding special items.

Now on to slide 33, which shows the status of our 2009 first quarter planning assumptions and operational metrics.

Total industry volume during the first quarter was equal to a SAAR of 9.8 million units in the US and 14.8 million units in the 19 markets we track in Europe.

We expect the full year US industry volume to be at the lower end of the range previously defined based on the present economic environment with potential upside in the second half of the year from government fiscal stimulus programs and the potential for a fleet modernization program.

As a result of the implementation of government stimulus programs focused on replacing older vehicles with more fuel-efficient ones, European industry volume now is expected to be higher than our plan, in the range of 13.5 million to 14.5 million units.

On the operational metrics, initial quality of Ford, Lincoln and Mercury brand vehicles improved in the US by 5% as compared to last year, surpassing Honda and essentially tying Toyota for the overall lead according to the latest Global Quality Research Systems study of the US vehicle quality.

International operations show improvements in the latest GQRS initial quality results with the exception of Europe where we have experienced some near-term issues that we are working to address.

Customer satisfaction with vehicle quality is improving in North America, Europe and Asia, reaching its highest level ever in North America.

Automotive structural costs were reduced by $1.9 billion, which is on track to exceed our plan.

US market share was 13.9% and retail share of retail market was 12.7%, which are both consistent with our plan.

Europe market share was 9.4%, on track with our plan.

Automotive operating-related cash flow was $3.7 billion negative, on track with our plan and capital expenditures were $1.4 billion, also consistent with our plan.

Slide 34 summarizes the key aspects of our plan.

These have not changed.

While times are tough and the external and the competitive environment continues to evolve, we remain focused on implementing our transformation plan.

We believe there is clear evidence that we have taken appropriate, decisive actions to respond to the significant challenges presented by the continuing global downturn and are making progress towards our goal to deliver longer-term, profitable growth.

We have taken the necessary steps to secure the capital for a continued restructuring, invest in the great new vehicles that will continue our success in the marketplace and provide us a cushion against uncertain global economies.

Based on our planning assumptions, we do not expect to require a bridge loan from the US government, barring, as we have said previously, a significantly deeper economic downturn or a significant industry event such as the uncontrolled bankruptcy of a major competitor or major suppliers that causes disruption to our supply base, our dealers or creditors and cannot be funded by other forms of capital.

We have maintained a laser focus on our Ford brand by divesting non-core assets.

We have sold Aston Martin, Jaguar, Land Rover and Hertz and reduced our ownership in Mazda.

We are evaluating a potential sale of Volvo and have maintained Ford Credit as a strategic asset by substantially reducing its size by exiting brands and markets.

In addition, we have brought back Visteon plants that were important to our business and formed ACH to better manage the Visteon spinoff.

We also continue to enhance a complete family of world-class vehicles, small, medium and large cars, utilities, crossovers and trucks that are best-in-class quality, green, safe, smart and deliver the very best value to our customers.

We plan to serve global markets with our high-volume products, allowing our team to leverage our global assets for our customers.

Going forward, our balanced portfolio of best-in-class vehicles produced and sold globally will provide us the flexibility to adapt more easily and quickly to changes in our environment.

This will help facilitate our goal to grow profitably as the global economy rebounds.

In summary, these continue to be challenging days for the auto industry, yet I remain convinced that Ford has the right plan.

Now we would like to take your questions.

Thank you, Alan.

Ladies and gentlemen, we are going to start the question-and-answer session now.

We have about 45 minutes for the Q&A session.

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

To allow as many questions as possible within our time frame, we ask that you keep your questions brief so we don't have to move people along after a couple of minutes.

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

Thank you.

(Operator Instructions).

John Murphy, Merrill Lynch.

Good morning, guys.

I have a couple of questions.

First, if we look at slide 17 and look at the volume and mix impact from the fourth quarter of '08 to the first quarter of '09, really kind of a negligible impact considering that volumes were down from 484,000 in the fourth quarter to 245 -- to 349,000 in the first quarter.

I mean how big a part did the F-150 and mix play in that?

And as we look at the recovery in volumes going forward, 435,000 in the second quarter, should we see some extreme positives there in that volume and mix as the volume really ramps up, or was mix a big part of this first quarter?

We are consulting on the mix.

On the mix going forward, we are seeing pretty steady on the F-Series, an increase on the crossovers.

And on your specific question --.

John, first over fourth, mix was positive.

So we don't expect to see huge significant mix shift going forward.

So I wouldn't be expecting to see that as you think about our forward years.

Pretty stable.

Yes.

So if we are looking at this first quarter to the second quarter, you know, up 90,000 roughly units, a little bit more than that, that volume and mix bar should theoretically be positive.

Yes.

Yes.

All else equal.

Okay.

All other things being equal.

Yes, good summary.

Second question, if we look at the balance sheet, you have made big strides there.

Is there any further restructuring of the balance sheet that you might do, particularly on this $13.1 billion in notes to the UAW going forward?

No.

We have done our deal and I think got a very good agreement with the UAW.

We have made no secret that we are going to continue to look very closely at our balance sheet because we have too much debt on it.

But we don't have anything specifically in mind at the moment and we are literally just drawing our breath from the last transaction.

So it is on our mind; we recognize we have to continue to improve the balance sheet, but we've got other things to think about as well at the moment.

Okay.

And then, clearly, I'm sure you have war rooms on GM and Chrysler, dealing with that process, but it sounds like GM is having some large issues with Delphi and it seems like it has giving them air cover to cut production as opposed to really causing issues.

But is there any contagion that you're seeing in the supply base from that pressure specifically or what we might see with GM and Chrysler filing that would create any problems in your supply base?

Sure.

No, I understand completely, John and we are not to date, but clearly, the health of the supply base is probably the most critical issue as the government helps GM and Chrysler restructure.

And we are so interdependent, as you well know, that from our staying close to the task force, we absolutely and believe that they understand the importance of the supply base in general, the interdependencies and some of the actions they have taken on the backstopping, as you know.

I think they will continue to pay the highest priority as they restructure to the supply base to make sure it stays intact for all of us.

And then just lastly, a product question.

Alan, the EcoBoost sounds like it is coming out as sort of a high-performance addition to some of your product lineups.

When are we going to see that trickle down the value chain into some of your more -- sort of your more mass-market products and really be focused as a fuel-saving technology as opposed to a performance enhancer?

You bet.

It'll start in 2010, John and the way you described it is exactly the plan.

Because one of the really neat things about turbocharging and direct fuel injection and that 20% improvement in fuel efficiency and that 15% reduction in CO2 is that, with the volume that we have across all of our productlines and the affordability of it, we can make a significant improvement very dramatically across the entire productline.

So that will really start to pick up with the 2010 models.

Great.

Thank you very much.

Brian Johnson, Barclays Capital.

Good morning.

A couple of housekeeping questions --

Good morning, Brian.

-- or financial questions for Lewis and then I would like to ask Alan, having been at the SAE yesterday, about a more strategic question.

I guess first on the financials, can you give us the sequential walk for Volvo 4Q to 1Q?

I like the way you did it in slide 17 for North America.

Yes.

Let me just start by saying it was a significant amount of cost reductions.

I'm just turning to my notes.

I think there were about over $300 million of cost improvements first over fourth and there's maybe somewhere between $150 million and $200 million of currency.

Finally seeing a bit of benefit of currency where we have struggled so much up to now.

And we also got some revenue improvements quarter over quarter, offset by volume and mix.

The underlying story, Brian, is Volvo really is doing a fine job on cost reduction.

It sounds like that.

And on commodities, are you at the point now where, between inventory hedges, contracts, the commodities are getting close to the newer lower market rates?

Yes, we will see that coming through in the second half.

We have still got a bit to go, but we are not seeing any more -- anything else on our hedges, but we have still got to work some out of our inventory.

So we will see that in the second half.

Okay, thanks.

And for Alan, with the lower CapEx budget and just the tough times, what are you doing with overall engineering effort, and particular kind of with the product pipeline for 2011, 2012?

How would you compare it to the downturn in the aerospace industry when you were there and how should we be thinking about kind of the product pipeline early next decade?

Sure, Brian.

There is a lot of similarities there because, as you well know, the fundamental of our plan is that we take the aggressive action to size ourselves to the current low demand and the changing model mix so we get back to profitability and we can keep investing.

Then the second part of that plan is, during the toughest of times, we want to keep investing in the new products that people really do want and value, so we come out other side as a turbo machine.

The same thing we did at Boeing with the 67, the 777 and the 87.

And with respect to Ford, one really neat thing about going to the markets two and a half years ago is that we put the financing in place not only for the restructuring to work the quality and the productivity improvement, but also to continue to invest in a complete productline -- small, medium and large cars, utilities and trucks.

And through this whole thing, we have not backed off one bit on that productline.

And starting with enabling technology like we just talked about like the EcoBoost, the lightweight materials, the integrated avionics, aerodynamics.

But we have arguably, most third-party people say, we probably have the finest car lineup now across the world that is coming online -- the Ka, the Fiesta, the Focus, the Fusion, the Taurus, the Mustang, in addition to the crossovers and trucks.

And so our plan is, every year forever, consistency of purpose, that we will improve the quality, the fuel efficiency and the safety and the value of each one of those vehicles.

And especially it really picks up steam, of course, with the vehicles over the next few years as we move to the global platforms and get the volume per platform up and then get the scale with our suppliers being aligned.

I think the pipeline -- we could not be more pleased in the pipeline that we have going forward.

And on the truck side, it's -- at least some in the pickup truck markets are looking at GMC and wondering about the commitment of the two government-funded competitors to that market.

How are you thinking about the pickup truck market, in particular about getting a pickup truck lineup that could meet tougher CAFE requirements if we gravitate towards the California CARB standards?

Oh, you bet.

Since you gave me an opening here, maybe I could just finish on that productline a little bit more.

But just going up to the utilities and the crossovers, of course, we are in terrific shape with the new Escape and the Escape hybrid.

Then we move up to the Edge and the Flex and they are doing great, people movers.

And of course, the Lincoln and Mercury counterparts too.

And then moving into the trucks and the vans.

As you know, we are introducing around the world our new Ranger, which is a terrific, smaller pickup.

Then we move into the F-Series.

The response we have gotten for the latest F-Series that we introduced last year is incredible.

We really made an improvement in fuel efficiency in addition to the capability and the quality of where it is clearly in a class by itself the number one vehicle in the United States.

And we are going to continue that commitment on the F-Series, 34 years of industry leadership.

It is going to be a significant market and those customers appreciate the quality, the fuel efficiency and the safety improvement as much as the smaller vehicles.

And then you add that to what I think is one of the most exciting part of our alignment going forward is the introduction of the Transit vans.

We have got the great E-Series van, but over time, the Transit van family is going to be terrific and we are introducing the new Transit Connect this year and then all the versions of the larger, more capable Transits and with that design, just a substantial improvement in fuel efficiency.

So again, the Ford strategy is to have a vehicle in every one of the major segments to support all the customers' wants and needs and to be best-in-class in those segments.

But I think -- I feel really good about this lineup going forward.

Himanshu Patel, JPMorgan.

Hi, I wanted to go back to the North American walk on slide 16.

Volume mix was $2 billion negative; your wholesale shipments were down 350,000 units.

So it looks like your decremental margin was only $5,700 per vehicle.

And I think the last couple of quarters it was running in the $8,000 to $10,000 per vehicle range.

What is that?

Is that entirely F-150 or is it fleet sales reduction and should we think of that $5,700 number as being more sustainable going forward?

Sure, Lewis?

Yes, we had both some positive mix in the volume and mix change and we also had some improved revenues.

So as it goes forward, I don't know, I haven't laid it out just quite that way, Himanshu, but I think we are seeing, as we launch our new products, some very positive improvements in series mix as we specify each series in the vehicle line better and customers recognize the value they get.

They are buying higher series mix.

And that is something we have been very successful on in Europe and I think we have talked about that before and it is something that North America is really working hard at.

And that is one of the underlying reasons we are getting some pricing as well.

Okay.

And then if we think about Chrysler scenarios, if there was a liquidation there, any thoughts on the near-term cash flow impact for Ford in terms of what sort of supplier costs you would need to put up and what sort of pricing pressure you think the business would have to suffer?

No, we haven't and we won't speculate on that.

Clearly, the supply issues are a concern to us.

We have been working very hard on identifying areas of concern.

We are working with individual suppliers where they have concerns.

Exactly what happens I think is not for us to speculate frankly in terms of in the marketplace.

Okay.

On the cash flow, slide 25, it looks like working capital and other payment timing differences are combined were negative $1 billion.

I think in the press release you said the pure working capital portion was actually positive, which implies the payment timing difference was about a $2 billion negative.

What was that?

Was that incentive accruals or warranty accruals?

What was moving around on that?

Yes, incentives, warranty and also a bit of healthcare and the incentives and warranty -- over time, as our volumes, particularly on the incentives, our volumes start picking up quarter over quarter, we can expect to see that flip-flop.

Warranties are a reflection that our quality is continuing to get better on our new vehicles and therefore, we will probably see that type of difference for some time, we'd hope for some time because, as our new vehicles continue to improve quality, we will have to accrue a little bit less, but our payment is on our older vehicles.

So that timing difference will stay.

But I view that as slightly negative on cash, but it is great for customers.

Lewis, anyway to quantify how much the warranty accrual was?

Hold on; I am just going to ask Peter.

I think he knows.

Part of it was the warranty accrual adjustment.

It was about $600 million.

Okay.

And then lastly, in Europe, with the scrappage programs in place now, what are you guys seeing on used car prices over there?

Have there been any material reductions in used vehicles that are sort of one to five-years old?

It varies tremendously by market frankly.

For example, in Germany, the program includes one-year-old cars.

So it has been -- there aren't any one-year-old cars left in Germany, but it is too early to see any long-term effects on their residual values.

Okay, thank you.

Rod Lache, Deutsche Bank.

Good morning.

A couple things.

Just to follow-up on this mix question on a year-over-year basis.

Can you quantify what the mix improvement was versus the first quarter of last year?

Yes.

Hold on.

Are you talking North America or are you talking --?

Yes, North America.

North America.

It is about $100 million.

Okay.

All right.

That's helpful.

And any comments on just working capital going forward?

As the production goes up, should we anticipate just the normal working capital improvement?

Yes.

Yes.

And the other thing that we feel that, based on our expectations of the year, that this is probably the worst quarter for operating cash.

We expect to see the cash outflows reduce sequentially during the year.

And just broadly speaking, obviously, there is a lot of capacity being taken out and probably I would think it would accelerate as a result of what your domestic competitors are about to go through.

Do you think that -- is it your view that pricing in the North American market is going to get better structurally or how do you sort of see this playing out over the next year or two?

I think the real story on pricing in the next year or two is going to be around the products, not necessarily around removing this capacity.

I think if you have well-specified, well-accepted products, there will be some pricing opportunities and you know that is what we are expecting.

I think that is going to be the most important story.

As products get fresher, the pricing opportunities will be there.

Even in these very difficult times, the North American team is beginning to demonstrate that.

Okay.

And just flipping to capital structure, you struck a deal with the UAW with payments starting in December of this year and obviously part of that was stock with a strike price of $2.

If the stock stays where it is now at $5 or more, should we be assuming that settling this for stock is kind of off the table, that you'd be looking at other capital structure alternatives?

Well, the agreement with the UAW was we can settle it in stock, but we don't have to.

So we'll obviously be studying that very closely as we get towards the end of the year.

Okay.

Just lastly, any thoughts, on the Ford Credit side, on losses going forward?

Obviously, severity is difficult to project.

You talked about how the used market is likely to be volatile.

But can you just talk about your thoughts on frequency and how you see that going based on your expectations for unemployment and other factors, including the changes to the lending criteria that you made recently?

Yes, let me ask K.R.

Kent to give you a comment on that.

Yes, no problem.

As far as like things like the frequency of the repossessions, they are up.

For the first quarter, we had about a 3% repossession ratio.

That's up versus last year and up versus the fourth quarter.

In all likelihood, it will trend with unemployment as unemployment increases over the next, oh call it, six or nine months.

So we will see that continue to increase.

You can also see it like in the over 60- day delinquencies, which were about 29 basis points in the first quarter, which was up from 22 same time last year.

And as you mentioned, the good news is the auction market has come back up for now and the severity has dropped pretty dramatically.

We were about $10,700 severity last year in the fourth quarter and we hit about $9,300 in the first quarter of 2009.

And even within that $9,300 in the first quarter, by the end of the first quarter, the last month, it was all the way down to $8,800 a unit.

So the repossessions will probably increase, but severity right now is having a really good offset.

K.R., does frequency go up kind of linearly with unemployment?

And do you have a view on where that -- just based on your unemployment expectations and where that is going to peak -- do you have a view on what the trajectory of that is going to be?

I don't want to give a projection on where it is going to go.

It should go up a little bit, but like I said, a lot of it is tied to unemployment.

Patrick Archambault, Goldman Sachs.

Hi, good morning.

Good morning.

Yes, I guess first question, just on slide 16, obviously, the pricing performance was pretty strong this quarter.

Wanted to just get your thoughts about the sustainability of that kind of a year-on-year increase throughout the rest of the year.

I understand that there is a lot of new product and that is certainly a positive, but while capacity utilization is low, there is a lot of competition, a lot of discounting out there and just wanted to see if there was a chance that -- or if it was likely that that was going to get sort of sustained for the following subsequent quarters this year and just overall how you see maybe pricing trending for the industry thereafter would be interesting to hear as well.

It is probably -- well, it is hard for us to have sort of clarity on that because it is both a mixture of what we do and new products and how competitive we are on new products and then what happens in incentive spending across us and our competitors.

We are encouraged that most people think dealer stock seem pretty well under control.

And as dealer stocks stay under control, I think that will be good for pricing opportunities.

And as Alan took you through the product range, we feel pretty comfortable that we've got a lot of product activity coming.

I think it is not just the individual products themselves, but it is the content within those products that make us feel there's opportunities.

But incentive spending does remain a concern because it is high, but as we see people bring their stocks down, --

It ought to help.

There is obviously some destocking going on.

That ought to help over time.

Okay.

And I guess just a further question if I may.

There have been some out there who are concerned about the level of competitiveness down the road for Ford given some of the significant restructurings that are taking place at some of your major competitors, some of which may even, right, go through a bankruptcy to restructure.

And I was just -- A, wanted to get your general thoughts on that and B, maybe more specifically, should GM or Chrysler get additional concessions, and I don't want to be necessarily specific as to what they are, but generally speaking on compensation and other areas, do you expect that, even though you're potentially not going to go through bankruptcy, would you expect that you would be able to get parity with those?

No, I understand completely and I think I would back us up to the -- to what the President and our task force has been charged to do is -- and the reason we went back to support our competitors for the good of the industry is this is a really important industry for a lot of reasons, especially the contribution to the economy and we want to be part of the solution with the turnaround.

And they have stated very clearly that it is about a viable industry going forward and of course, the Ford plan, we have been very clear about it.

We started these actions a few years ago to create a viable, exciting, profitably-growing company.

We have included all the stakeholders.

I think we have a pretty clear track record now of working with all the stakeholders to improve the competitiveness of Ford going forward.

And we will continue to do that as we go forward.

So I mean our goal is to continue to increase our competitiveness and be there for our customers.

So I don't think we are going to be disadvantaged.

So I guess said another way then, even though you went to the unions and renegotiated equitizing some of the VEBA and some aspects of the labor contract, it wouldn't be a foregone conclusion that you wouldn't be able to do that again to sort of match things that were done at some of the other auto companies?

Exactly.

All right.

And then last question, just more of on a housekeeping guidance.

Can you give us a sense just of what we should be thinking about in terms of Other -- the Other expense now that the tender offer is presumably going to have a pretty big impact on that?

I guess it has been running $400 million -- $300 million to $400 million, but I guess I would expect it to be lower, but can you help us with that?

Yes.

Yes, we are, as we have said, going to see about a $500 million reduction in interest expense because of the debt restructuring, but that is going to be mostly offset by the fact that we did draw the revolver.

So we are paying those.

So it is going to be flattish as an effect.

Chris Ceraso, Credit Suisse.

Thanks, good morning.

Maybe one last one on the first quarter issue, vis-a-vis the F-Series.

How much inventory of the new trucks did you build in the first quarter?

Maybe a order of question that -- I don't have it at my fingertips.

I'm finding out if anybody else does.

If not, we'll get back to you.

We can get back to you on that, Chris.

You mentioned, Lewis, in your early remarks about the tax gain in the quarter.

Was that included in special items or was that part of the $0.60 adjusted number that you reported?

That was part of the adjusted number we showed.

And in terms of guidance, going -- that was mostly one-off good news.

In terms of going forward, we expect to see some small amounts of tax paid because we are making money in some jurisdictions and we will pay tax on that.

And what exactly was that again?

The favorable news was some prior-period tax recoveries.

In past slide decks, and I didn't catch it in this one, there was a more detailed walk on the cost performance and the expectation of where you would land for the year versus how you did in the quarter.

I didn't see that here and I am interested to know on both the manufacturing and engineering side, as well as the material cost side, how you see things progressing through the balance of the year and what your expectation is for the full year on those items.

In total structural costs, we gave you -- we started the year with guidance that we expect to achieve about $4 billion and based on the strong start in the first quarter, we expect to exceed that $4 billion target.

In terms of material costs, I don't have that in front of me, but it is going to be -- it is probably going to be a bit good -- flat to a little bit good -- sorry -- flat to slightly bad during the full year.

And on the engineering and manufacturing, can you trace that back to X number of heads and when they went out so we can get a feel for what to expect there?

Yes, not in a big forum.

We can give you a bit of guidance separately on that, but it is not the sort of detail we'd typically go into.

Okay.

And then just the last question, I remember last year you changed the way that you are accruing for incentives, doing something a little bit heavier early in the year.

Did that have any bearing on the favorable effect you showed from pricing on slide 16?

No, I don't believe it did.

No.

The guys are telling me no.

Okay, thanks for the help.

I'm sorry.

I can answer your F-Series question.

We built 32,000 units of stock in the first quarter.

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

(Operator Instructions).

Bryce Hoffman, Detroit News.

I wanted to ask just a detail.

Why are you increasing production slightly in North America?

Well, we believe, with the decisive actions we have taken over the last few quarters, we have the dealer stocks well in line and with what we see with the reception of the new products, we believe we can go up a little bit more to support the real demand.

And a second question, I didn't -- I may have missed it, but did you talk about what warranty cost did over the quarter?

No, we didn't explicitly.

We had a bit of a discussion about the timing differences on warranty, but our warranty costs are under control.

(multiple speakers).

And reflecting the higher quality too, Bryce.

Thanks a lot.

You bet.

Jeff Bennett, Dow Jones.

Great, thanks.

Alan, you say you don't need a US bridge loan, but can you give us an update of the status of securing government funding from like Europe, other places in the world?

You bet.

Starting with the United States, we are very actively involved in closing in on the 136, the Department of Energy initiative that went with the 2007 Energy Independence and Security Act on enabling technology for fuel-efficient vehicles.

And we are very gratified that our enabling technology on our product lineup lines up very well with the intent of that legislation.

So we are getting very close there and we are continuing to work, as you pointed out, with the equivalent agencies in Europe.

But I think our plan is going to line up very well with that money.

And Alan, one additional thing.

On the supplier, suppliers are getting paid with this federal government program, but because of the health of it and some of the charges that the federal government program has put on it, would you like to see the government go back and perhaps change that program, making it easier for suppliers to get in instead of having to pay 2%?

Well, I think, to your point, the government really understands the criticality of the suppliers.

And I think, as you pointed out, the guarantees were a great first step and I think they will continue to look at ways to just ensure that we are able to keep moving on this restructuring and keep the fundamental supply base intact.

Thanks.

You bet.

Brent Snavely, Detroit Free Press.

Hi, Alan.

In slide 4, it looks like you guys said that you saved $1.9 billion in structural costs and I guess there is a goal to save $4 billion throughout the year.

Can you tell us a little bit more about how you are doing that and what kind of steps you are taking and how urgent that is across your organization?

You bet.

It is across all the disciplines led by, of course, manufacturing and engineering.

But just every element of the plan -- the quality, the productivity, the shortened cycle time, the less inventory, the improvement in working capital, plus all the other functions too -- sales and marketing -- everybody has a continuous improvement, quality and productivity plan.

And as you can see, we had a target for $4 billion for the year and we are off to a very good start.

So we believe that we will be able to exceed that target for the year.

And you have mentioned dealers a couple times during the presentation.

How much -- I mean it seems like that is the one area left that you are still working on where there hasn't been an actual piece of the puzzle put in place for reductions or concessions.

What is the status of that?

Well, we really have, Brent.

We have -- over the last few years, we have been working very closely with our dynamite dealers to just rationalize our distribution system.

And as we have pointed out, there are just a few areas where we need to deal with, especially in the big metropolitan areas where we just want to make sure that we increase the throughput and the profitability of our dealers.

So we have been consolidating in a very thoughtful way, working with them.

But I would just like to say again that Ford has a tremendous dealer network in most of the communities around the United States and we only have a few areas where we need to continue to consolidate for the good of the dealers themselves.

All right.

Thanks.

You bet.

Joe Szczesny, Oakland Press.

Alan or Lewis, I was wondering if you could quantify this production increase that you are setting out for the second quarter.

I notice it says up 19.5% with 902,000 units.

Is that worldwide or is that in North America only?

In the presentation and also in the press release, we separated out North America and also Ford of Europe.

And in North America, we are increasing to 435,000, which is a 25% increase in production.

And in Ford of Europe, we are increasing it to 385,000 units, which is a 13% improvement.

Okay.

All right.

Thank you.

One other question, is your pension fund fully funded at this point?

No, it is not.

We don't expect to need to make cash payments into the pension fund, into the US pension funds this year.

Okay, thank you.

We are in good shape.

Amy Wilson, Automotive News.

Good morning.

Hi, Amy.

Hi.

I wanted to ask -- you had a salary job cut that you finished up in January, but I think sales look like they are going to be lower this year than what you thought at the time that you planned that job cut.

Do you need to go back and look at salary headcount again in North America?

We are in pretty good shape right now, Amy.

It is a little bit lower now in the first two quarters and we anticipated that the absolute level would be a little bit less than 2008.

We are starting to pick up again in the third and the fourth quarter.

And so we have completed that part of that restructuring and we will continue to work our fundamental productivity, but watch very carefully the market mixture that we are matching our production capability to the demand.

But we look pretty good for now.

And in terms of -- you have the UAW buyout that you are in the middle of that window.

How is the acceptance rate on those packages coming along?

Is it meeting your expectations?

A little too early to tell, Amy.

Okay.

Thank you.

You bet.

Eric Mayne, WardsAuto.com.

Good morning.

Another question on the structural cost improvement, if you don't mind.

You are very optimistic about the gains you expect to make.

Can you identify the single area where you see the most promise?

Is it in the manufacturing side?

Is it on advertising and sales promotions?

Yes.

(multiple speakers).

A single one.

No, all of the above.

It really is an important question because we have been working the entire production system.

And I'll just give you an example.

As we move to our global platforms, you can imagine the efficiency that we are able to gain in engineering and manufacturing.

And as we simplify the products, you have had a chance to see what we are doing to take the complexity out of the products and align our suppliers and consolidate.

It just gives us a tremendous improvement in fundamental productivity where we can do more with a lot less resources.

And I would characterize that across all the professional scales against the development system for the vehicles, there's also the production system of the vehicles and a continued improvement in quality, reduce the costs.

And so the fundamental plan is to be able to provide the vehicles that people want and use less time and less resources in total.

Okay.

Thank you very much.

You bet.

Ladies and gentlemen, at this time, we will conclude with one final question from the analyst community.

Itay Michaeli, Citi.

Great, thank you.

I wanted to dig in a little bit more on the 2011 updated forecast, particularly in North America.

It looks like you are gaining some more confidence there.

I remember the original target had said about a 15 plus SAAR.

Is your confidence level now that that could be achieved under a lower selling rate?

And also if you can touch upon how much cost savings you expect between now and then there.

You bet.

Absolutely.

I think with the progress we are making, I think we can do that with a somewhat lower SAAR and we are going to continue to work on it because the most important thing is that, each quarter and each year, that we continue to improve our quality and our productivity.

So it just moves us -- just moves us along faster.

Right.

Is there a way to quantify order of magnitude, how much cost savings and the way you show it in your slide, we should be thinking about between now and then?

I think the most important thing that we have shared is that $4 billion for 2009.

That was a very significant target for us and everybody has really pulled together and we are making progress, as we've talked about, across the corporation.

And to be able to deliver that $1.9 billion in the first quarter just gets us off to a really good start and gives us a lot of confidence that we can continue to remove the waste from the system and improve our productivity.

Absolutely.

And then just quickly on South America, how should we be thinking about margins there the rest of the year?

It came in a little bit lighter than what we were thinking in Q1.

Any help you can shed on the cadence there?

It is going to very much depend on what happens to both currency and the industry.

In South America where you have some dollar-based commodities, when the currency weakens, you end up with a material cost problem.

And obviously the industry is quite strong at the moment because it is getting some encouragement from government activity.

So that is an area we are watching very closely.

And the big hit in South America this quarter was currency, both internal currency and obviously some transaction currency effects as well.

Great.

And then lastly, maybe one for K.R.

With Ford Credit reducing the size of its balance sheet, how should we think about just the overall earnings power in the next few years?

I know there isn't an official 2011 target for Ford Motor Credit, but anything you can kind of share of how we should just be thinking about the way you are targeting it internally?

Yes, I don't particularly want to give a forecast for where the earnings are going.

I mean the way I think about it is that, for the most part, we have our margins under control.

We are underwriting appropriately going forward, picking up what we think will be the right credit losses.

What really adds a ton of volatility into our earnings for the last year and a half has been the auction market.

And so that will be dampened a bit going over time as we reduce the level of leasing that we are doing this year.

And that will slowly build into the portfolio as the lease portfolio comes down.

So I think that will take a lot of the volatility out.

The other big thing that we have been focusing on is getting our operating costs under -- getting our operating costs down to match where the lower balance sheet will end up at and so that will be a nice profit improvement for us.

Great.

That is helpful.

Thank you.

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