福特汽車 (F) 2010 Q4 法說會逐字稿

Great day, ladies and gentlemen, and welcome to the Ford Motor Company fourth-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 facilitate a question-and-answer session towards the end of the 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.

K.R.

Kent, Director of Investor Relations.

Please proceed.

Thank you, Katina, and welcome, ladies and gentlemen.

Good morning.

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

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

With me here today are Alan Mulally, President and CEO of Ford Motor Company; Lewis Booth, Chief Financial Officer; and also in attendance are Bob Shanks, Vice President and Controller; Neil Schloss, Vice President and Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit's CFO.

Before we begin I would like to cover a few items.

A copy of this morning's press release and the presentation 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 and final data will be included in our Form 10-K.

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 the US 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 made here.

The most significant factors that could affect future results are summarized at the end of this presentation.

These risk factors and other key information are detailed in our SEC filings including our annual, quarterly, and current reports.

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

Alan Mulally.

Thank you, K.R., and good morning to everyone.

We're pleased today to provide an update on the progress we achieved in the fourth quarter and four-year of 2010.

We continue to profitable and generated positive Automotive operating related cash flow in the fourth quarter.

We recorded our sixth consecutive quarterly pretax operating profit, although our results were lower than the same period a year ago.

We continued to maintain our focus on strengthening the balance sheet with additional debt repayments in the fourth quarter.

We finished 2010 with each of our business segments reporting a full-year profit, all of which were an improvement compared with a year ago.

In total, we improved pretax operating profit by $8.3 billion compared with 2009.

For the full year, we reduced debt by $14.5 billion.

We ended the year with Automotive gross cash exceeding debt by $1.4 billion and at the same time improved our overall liquidity position.

Throughout 2010 we continued our transition from fixing the fundamentals of our business to delivering profitable growth for all.

We are investing aggressively in new products, technology, and growth in all regions of the world.

As a result of our 2010 financial performance, under the UAW collective bargaining agreement we will pay profit-sharing to approximately 40,600 eligible US hourly employees.

The average amount is expected to approximately $5,000 per eligible full-time employee.

The solid performance in 2010 sets the stage for continued improvement in total Company pretax operating profit and Automotive operating-related cash flow in 2011.

I will start off by providing you with an overview of our financial results and business, products, and our sales highlights.

Then, Lewis will walk us through the financial results in even greater detail.

Finally, I will recap our 2010 performance and discuss our 2011 outlook and plan going forward.

Turning to slide 3, I will review our key financial summary compared with a year ago.

As shown at the top of the slide, fourth-quarter vehicle wholesales were 1.4 million units, up 41,000 units excluding Volvo from 2009.

The increase was explained primarily by higher wholesales in Asia-Pacific and Africa, offset partially by lower wholesales in Europe.

The improvement in the fourth quarter brings the full-year increase in vehicle wholesales to 771,000 units.

Fourth-quarter revenue was $32.5 billion, an increase of $1.6 billion excluding Volvo from 2009.

This increase was explained primarily by timing differences related to the rental and repurchase auction sales and favorable net pricing.

This brings the full year revenue increase to $17 billion.

Fourth-quarter pretax operating profit excluding special items was $1.3 billion or $0.30 per share, a decrease of $322 million.

The Automotive sector reported a profit of $741 million, a decrease of $173 million; and the Financial Services sector reported a profit of $552 million, a decrease of $149 million.

The decrease in Automotive sector results is more than explained by higher structural and commodity costs, aligned with our guidance, as well as unfavorable volume and mix.

This was offset partially by favorable net pricing.

The higher structural costs, which include manufacturing, engineering, and advertising costs, largely supported product launches and growth of our product plans -- investments that will provide a strong foundation as we move into 2011.

In Europe, our results were lower than expected in the fourth quarter, reflecting primarily lower market share driven by our actions to maintain margins.

Financial Services decrease was in line with our expectations, reflecting primarily lower volume.

Fourth-quarter net income attributable to Ford, including unfavorable pretax special items of $1 billion, was $190 million or $0.05 per share, a decrease of $696 million.

The special items impact primarily reflects a previously disclosed charge for completion of debt conversion offers that reduced outstanding Automotive debt by over $1.9 billion.

We will discuss this in more detail later.

For the full year, pretax operating profit excluding special items was $8.3 billion or $1.91 per share, which represents a profit of $5.3 billion for the Automotive sector and $3 billion for the Financial Services sector.

This is an increase of $8.3 billion compared with a year ago.

Full-year net income attributable to Ford, including unfavorable pretax special items of about $1.1 billion, was $6.6 billion or $1.66 per share, an increase of $3.8 billion.

In addition, we ended the quarter with $20.5 billion of Automotive gross cash, with Automotive gross cash exceeding debt by $1.4 billion, an improvement of $10.1 billion compared with a year ago.

Slide 4 details some of our key business and product highlights for the fourth quarter and full year.

We reduced total Automotive debt in the fourth quarter by $7.3 billion, including newly announced payments of $2.5 billion in December on our revolving credit line and term loan, as well as full prepayment of VEBA trust obligations and completion of debt conversion offers.

This brings our full-year debt reduction actions to $14.5 billion, a 43% reduction.

In October, we announced $850 million in future investments for Michigan-based engineering and manufacturing, leading to 1,200 jobs through 2013.

In December, we announced a $600 million investment for our Louisville Assembly plant for production of the next-generation Escape.

This investment will lead to 1,800 new jobs at the plant.

We also announced a $630 million investment in our Otosan plant in Kocaeli, Turkey, for future Transit van production.

We also had several product highlights including launching the 2011 F-150 lineup with a family of completely new fuel-efficient engines.

Unveiling the all-new Ford Ranger for global markets at the Australian International Motor Show in October.

Winning the North American Truck of the Year with a redesigned Explorer, marking the third consecutive year Ford has won this award.

Winning the 2011 Indian Car of the Year with the new Figo from the Society of Indian Auto Manufacturers.

And finally, earning Top Safety Picks from the Insurance Institute for Highway Safety for the redesigned Explorer and the new Fiesta in the US, and also earning the maximum five-star safety ratings from the Euro NCAP organization for the C-MAX and the Grand C-MAX.

Turning to slide 5, we will look at Ford's sales highlights for the fourth quarter and full year.

In the US, we recorded a 15% sales increase during the fourth quarter.

Full-year market share increased, leading us to the first back-to-back increase since 1993.

We reported the largest sales percentage increase of any full-line manufacturer.

In Canada we reported an 11% sales increase in the quarter, leading us to finish 2010 as the number one for the first time in more than 50 years.

Ford Brazil had a solid quarter, reporting a 24% sales increase and a market share gain of 3/10 of a percentage point.

Our European market share fell in the fourth quarter and full-year as a result of our decision to reduce participation selectively in low-margin business, as well as the end of the favorable effect of the scrappage programs on our small car sales.

In Asia, Pacific, and Africa, sales increased by 35% in the fourth quarter.

Ford had a record year in China, reporting a 32% increase and selling nearly 0.5 million units.

Ford India increased sales by 168% during the year, with more than 80,000 deliveries in 2010.

Now I would like to turn it over to Lewis to provide more detail on our fourth-quarter and full-year financial results.

Lewis?

Thanks, Alan.

Let's move on to slide 7, which summarizes our financial results compared with a year ago.

Fourth-quarter pretax operating profit excluding special items was $1.3 billion, a decrease of $322 million.

For your information, most of the remaining slides will focus on our pretax operating results.

Our pretax operating profit excluded unfavorable special items of $1 billion, which will be discussed on the next slide.

Tax expense in the quarter was $92 million.

Net income attributable to Ford in the fourth quarter was $190 million, a decrease of $696 million, which includes the adverse impact of special items.

For the full year, pretax operating profit excluding special items was $8.3 billion, an increase of $8.3 billion compared with a year ago.

Our full-year pretax operating profit excluded unfavorable special items of about $1.1 billion.

We recognized $592 million of tax expense.

Full-year net income attributable to Ford was $6.6 billion.

As a reminder, we anticipate that the majority of our valuation allowance against deferred tax assets could be released in the second half of 2011, which would lead to a more normalized annual effective tax rate for full-year 2011 for the purpose of determining operating earnings per share.

Additional details is included in appendix 1.

Slide 8 covers special items.

Fourth-quarter special items were an unfavorable pretax amount of $1 billion, which primarily reflects loss on debt conversion offers.

As previously disclosed, the completion of conversion offers on our senior convertible debt securities resulted in special item charges associated with a cash premium and a non-cash loss reflecting the difference between the carry and fair value of our debt.

This action reduced outstanding Automotive debt by over $1.9 billion; we will discuss debt reduction actions in more detail on a later slide.

Now on to slide 9, which shows our pretax operating results by sector.

Total Company fourth-quarter pretax operating profit was $1.3 billion, which includes a profit of $741 million from the Automotive sector and $552 million for the Financial Services sector.

As shown in the memo, fourth-quarter pretax operating results decreased compared with a year ago and the third quarter of 2010.

This will be explained in greater detail on the upcoming slides.

Total Company full-year pretax operating profit was $8.3 billion, which also represents an increase of $8.3 billion compared with a year ago.

Pretax operating profits improved in both the Automotive and Financial Services sectors as shown in the memo.

Let's move to slide 10, which shows fourth-quarter pretax operating results for each of our Automotive segments and Other Automotive.

Total Automotive pretax operating profit was $741 million, which will be discussed in more detail on the next slide.

Although not shown, fourth-quarter operating margin, defined as Automotive pretax operating profit excluding Other Automotive divided by Automotive revenue, was 3%, down 1.4 percentage points from a year ago.

The fourth-quarter Other Automotive loss was $182 million.

This includes net interest expense of $266 million, which is comprised of $332 million of interest expense offset partially by interest income.

In addition there were $84 million of favorable fair market value adjustments related primarily to our investments in Mazda.

Slide 11 shows the change in fourth-quarter pretax operating results compared with 2009 by causal factor.

Overall, fourth-quarter results decreased by about $200 million compared with a year ago.

Volume and mix was $400 million unfavorable, more than by explained by non-recurrence of prior-year stock increases, mainly in the US, and lower market share in Europe, offset partially by higher industry volume.

Net pricing was $600 million favorable, more than explained by improvements in North America and South America.

Incentive spending was unchanged, including lower levels of spending in North America.

Cost increased by $900 million, more than explained by higher structural cost to support product launches and growth of our product plans, higher commodity costs, and higher costs related primarily to the recently announced Windstar Field Service Action in North America.

These cost increases more than explained the adverse impact on our operating margin compared with the same period a year ago.

Exchange and net interest and fair market value adjustments were both $100 million favorable.

Other was $300 million favorable, in part driven by higher parts and service profits.

As shown in the memo, pretax operating results decreased by $500 million compared with the third-quarter 2010, more than explained by higher structural and material costs.

Historically our fourth-quarter costs are higher than the third quarter, reflecting normal seasonality of our business.

This year, the increase is somewhat higher, including the Field Service Action mentioned earlier.

All other factors in the quarter were favorable or unchanged.

Slide 12 shows full-year pretax operating results for each of our Automotive segments and Other Automotive.

For the full year, Total Automotive pretax operating profits were $5.3 billion, with each Automotive segment profitable.

As shown in the memo, each segment also improved compared with a year ago.

Although not shown, full-year operating margin was 6.1%, up 6.2 percentage points from a year ago.

We will discuss the Automotive segments in more detail on the next slide.

Full-year Other Automotive loss was $1.5 billion, more than explained by net interest expense of $1.6 billion, which is comprised of $1.8 billion of interest expense offset partially by interest income and net gains associated with our investment in Mazda.

As shown in the memo, the nonrecurrence of Volvo's prior-year losses improved our pretax operating results by $662 million compared with a year ago.

Let's move to slide 13, which shows the change in full-year pretax operating results compared with 2009 by causal factor.

Overall, full-year results improved by $7.2 billion compared with a year ago.

Volume and mix was $3.4 billion favorable, explained primarily by higher industry volumes, market share improvements in North America, and the nonrecurrence of prior-year stock reductions, offset partially by lower market share in Europe.

Net pricing was $3.1 billion favorable, more than explained by improvements in North America and South America.

Cost increased by $1 billion, more than explained by higher structural costs and commodity costs, both in line with our guidance, offset partially by lower material costs excluding commodities.

Exchange was $900 million favorable, reflecting in part the nonrecurrence of an unfavorable prior-year balance sheet revaluation in North America.

Net interest and fair market value adjustments were $400 million unfavorable, more than explained by higher interest expense on our VEBA debt, which we fully retired in the fourth quarter.

Volvos' impact represents a change in reported as previously mentioned.

Other was $500 million favorable, largely explained by higher parts and service profits.

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

In the fourth quarter, wholesales were 615,000 units, down 2,000 units from a year ago, more than explained by the nonrecurrence of prior-year stock increases, offset partially by higher US industry volume and market share.

Fourth-quarter US total market share for Ford, Lincoln, and Mercury was 16.4%, up 3/10 of a percentage point from a year ago, which will be more discussed in more detail later.

Fourth-quarter revenue was $17.2 billion, a $1.6 billion increase from a year ago, explained primarily by timing differences related to rental repurchase auction sales and favorable net pricing.

In the fourth quarter, North America reported a pretax operating profit of $670 million, a $59 million increase from a year ago.

We will cover this in more detail on the next slide.

As shown in the memo, full-year pretax operating profit was $5.4 billion, an improvement of more than $6 billion from a year ago, reflecting primarily favorable volume and mix, net pricing, and exchange, offset partially by higher structural cost to support higher volume and product launches.

Although not shown, full-year operating margin was 8.4%, up 9.7 percentage points from a year ago.

Slide 15 provides an explanation of the change in North American results compared with 2009 by causal factor.

Volume and mix was $100 million unfavorable, explained primarily by the nonrecurrence of prior-year stock increases, offset partially by higher US industry, favorable mix, and market share improvements.

Net pricing was $500 million favorable, reflecting primarily selective pricing consistent with the success of our full range of products in the marketplace and continued discipline on incentive spending.

Costs increased by $500 million, explained primarily by higher structural costs, driven by manufacturing and advertising costs to support product launches, as well as higher engineering related to our product plans.

The cost increase also reflects higher commodity costs and costs associated with the recently announced Windstar Field Service Action.

Exchange was $100 million favorable, reflecting primarily the nonrecurrence of an unfavorable prior-year balance sheet revaluation.

As shown in the memo, pretax operating results decreased by $900 million compared with the third quarter of 2010, more than explained by higher costs, in part reflecting normal seasonality of higher structural costs and costs to support product launches.

The fourth-quarter costs also include the Field Service Actions mentioned earlier.

For 2011, our product lineup will be even stronger with the new global Focus, the recently launched Explorer, the F-150 lineup with new fuel-efficient engines, the Fiesta, and the Edge and Lincoln MKX, as well as the expanded offering of the EcoBoost family of engines.

Slide 16 shows US market share for Ford, Lincoln, and Mercury.

In the fourth quarter, US total market share was 16.4%, up 3/10 of a percentage point from a year ago, explained primarily by higher market shares for Fiesta and F-Series.

Full-year 2010 market share was 16.4%, up 1.1 percentage points from a year ago, explained primarily by higher shares for F-Series, Fiesta, Fusion, Taurus, and Edge.

Compared with the third quarter, US total market share was up half a percentage point, reflecting the seasonality impact of higher industry fleet mix.

US retail share of the retail industry was an estimated 14.1% for the fourth quarter, up 4/10th of a percentage point from a year ago.

Although not shown, Canada total market share in the fourth quarter was 16.1%, up 8/10th of a percentage point from a year ago; and full-year market share was 16.9%, up 1.7 percentage points.

Continued awareness of Ford's improving quality and fuel efficiency are driving strong consideration and demand for our products, which has enabled us to improve our brand reputation, market share, and net pricing.

Also, customers continue to equip vehicles with high levels of content and technology, contributing to higher transaction prices.

Now on to South America, to slide 17.

In the fourth quarter, wholesales were 142,000 units, up 11,000 units from a year ago, reflecting primarily higher industry volume offset partially by a smaller increase in dealer stocks.

Fourth-quarter market share was 9.6%, down 1/10th of a percentage point from a year ago, reflecting primarily lower market share in Venezuela.

Fourth-quarter revenue was $2.8 billion, a $200 million increase from a year ago, explained primarily by higher volumes and favorable net pricing, offset partially by unfavorable exchange.

In the fourth quarter, South America reports a pretax operating profit of $281 million, an $88 million decrease from a year ago, more than explained by higher commodity and structural costs, offset partially by favorable net pricing.

As shown in the memo, full-year pretax operating profits were $1 billion, a $245 million increase from a year ago, more than explained by favorable net pricing, exchange, and mix, offset partially by higher commodity and structural costs.

Although not shown, full-year operating margin was 10.2%, up one-half of a percentage point from a year ago.

South America will continue to be an important profit contributor to the Company in 2011.

Slide 18 covers Europe.

In the fourth quarter, wholesales were 397,000 units, down 35,000 units from a year ago.

This reflects an 81,000 unit reduction for the 19 markets that we track, offset partially by higher volumes in Turkey, Russia, and other Eastern European markets.

The impact of the volume change will be discussed in more detail on the next slide.

Fourth-quarter industry SAAR for the 19 markets that we track was 15.8 million units, down 800,000 units from a year ago as the scrappage programs ended.

Fourth-quarter market share was 7.6%, down 1.3 percentage points from a year ago.

This reflects our decision to reduce participation selectively in low-margin business as well as the end of the favorable effects of scrappage programs on our small car sales.

Fourth-quarter revenue was $8.1 billion, a $100 million decrease from a year ago, reflecting lower volumes and unfavorable currency exchange, offset partially by favorable parts and component sales.

In the fourth quarter, Europe reported a pretax operating loss of $51 million, a $304 million decline from a year ago; and we will cover this in more detail on the next slide.

As shown in the memo, full-year pretax operating profits was $182 million, a $326 million improvement from a year ago, reflecting primarily a nonrecurrence of prior-year stock reductions, lower material and warranty costs, higher parts and service profits, and favorable mix.

This was offset partially by lower market share and higher structural costs, in part to support product launches and growth of our product plans.

Although not shown, full-year operating margin was 6/10 of a percent, up 1.1 percentage points from a year ago.

Slide 19 provides an explanation of the change in Europe results compared with 2009 by causal factor.

Volume and mix was $300 million unfavorable, reflecting primarily lower market share and industry volume, offset partially by favorable mix.

Net pricing was unchanged as we held the line on our participation in low-margin business.

Cost increased by $200 million, reflecting primarily higher structural costs driven by engineering and product launch costs and higher commodity costs.

As shown in the memo, pretax operating results improved by $200 million compared with the third quarter 2010, primarily explained by favorable volume and mix, offset partially by higher structural costs driven by higher volume and product launches.

The improvement in volume and mix is explained by planned stock increases to match market demand, higher industry volumes, and favorable mix, offset partially by lower market share in the 19 markets that we track.

Compared to our most recent guidance, the fourth-quarter result was lower than expected, reflecting primarily lower market share driven by our actions to maintain margins.

For 2011, our product lineup will be enhanced with the launch of the new Focus, full availability of the redesigned C-MAX, the new Grand C-MAX, and the freshened Mondeo, as well as improved powertrains and new technology.

Slide 20 covers Asia, Pacific, and Africa.

In the fourth quarter, wholesales were 235,000 units, up 67,000 units from a year ago, reflecting primarily market share improvements and strong industry growth in China and India.

Fourth-quarter market share was 2.8%, up 5/10 of a percentage point from a year ago, reflecting primarily share gains in China as well as India, which was driven by the new Figo.

Fourth-quarter revenue, which excludes sales at our unconsolidated China joint ventures, was $2.2 billion, a $500 million increase from a year ago, explained primarily by higher volumes, offset partially by unfavorable mix.

In the fourth quarter, Asia, Pacific, and Africa reported a pretax operating profit of $23 million, a $7 million increase from a year ago, more than explained by higher volume, offset partially by unfavorable mix.

As shown in the memo, full-year pretax operating profits were $189 million, a $275 million improvement from a year ago, reflecting primarily higher volume and lower material, freight, and warranty costs, offset partially by higher structural costs to support an investment in our product and growth plans and unfavorable mix.

Although not shown, full-year operating margin was 2.6%, up 4.1 percentage points from a year ago.

We continue to gain traction in the Asia Pacific Africa region, particularly in China and India; and we are accelerating our efforts with new products and expect further growth in 2011.

Slide 21 shows Automotive gross cash and operating-related cash flow.

We ended the year with $20.5 billion in Automotive gross cash, down $3.3 billion from the third-quarter 2010 as a result of significant debt reduction actions.

Automotive operating-related cash flow was $1 billion positive in the fourth quarter, bringing the full year to $4.4 billion positive.

The fourth quarter reflects an Automotive pretax operating profit of over $700 million.

Capital spending greater than depreciation and amortization is $100 million; an adverse working capital change of $200 million including the impact of lower payables due to production calendarization in North America largely associated with our model changeovers for the Explorer and Focus.

Other timing differences of $700 million favorable related primarily to end-of-year collection of vehicle financing receivables.

Payment of $100 million to Ford Credit reflected upfront payment of subvention.

Other major changes in fourth-quarter Automotive gross cash included receipts from our Financial Services sector of $1.2 billion including a $1.1 billion -- sorry, including $1 billion related to a Ford Credit distribution.

Net debt reduction actions during the quarter that included fully prepaying our remaining VEBA debt, further payments on both our revolving credit line and our secured term loan; and cash payments associated with the conversion of our senior convertible debt securities.

These reductions were offset partially by receipts of low-cost government loans mainly for the development of more fuel-efficient vehicles.

Finally, Other cash changes of $400 million reflected primarily the release of cash previously restricted as to its use.

Slide 22 summarizes our Automotive sector's cash and debt position.

We ended the year with Automotive gross cash of $20.5 billion and Automotive debt of $19.1 billion.

As a result, our year-end Automotive gross cash exceeds our debt by $1.4 billion, an improvement of $10.1 billion from year-end 2009.

As shown in the memo, total liquidity was $27.9 billion including available credit lines.

This liquidity includes $6.9 billion of available credit capacity under our revolving credit lines and about $500 million of other affiliate Automotive credit.

During the fourth quarter, we reduced our debt by an additional $7.3 billion, building upon the actions we took in the first nine month of the year.

The fourth-quarter actions included full payment in cash of the remaining $3.6 billion of debt we owed the VEBA Retiree Health Care Trust.

This payment fully retired our VEBA Trust obligations.

Completion of conversion offers on our senior convertible debt securities, reducing debt by over $1.9 billion; and additionally, newly announced payments of $2.5 billion in December, including a $1.7 billion repayment of our revolving credit line, bring our full-year payments to $6.7 billion and an $800 million payment on our term loan.

For the full year, we reduced our Automotive debt by $14.5 billion, lowering our annualized interest expense by more than $1 billion.

Slide 23 provides an update of our pension plans.

Worldwide pension expense in 2010, excluding special items, was $600 million, the same as 2009.

In 2010, we made $1.4 billion in cash contributions to our worldwide pension plans, up $100 million compared with a year ago.

Worldwide, our pension plans were underfunded by $11.5 billion at year-end, an improvement of $500 million compared with a year ago, reflecting primarily favorable asset returns, including 14% in the US, and cash contributions, offset partially by lower discount rates.

Our long-term return on asset assumptions for the US is 8%, down 25 basis points from a year ago.

For 2011, pension expense is expected to increase moderately compared to 2010, reflecting primarily the impact of lower discount rates.

Total cash contributions are expected to be about the same as 2010, and we do not have a requirement to fund our major US pension plans in 2011.

Looking forward, based on our present planning assumptions for long-term asset returns, a normalization of discount rates, and planned cash contributions, we expect our global pension obligations in total to be fully funded over the next few years with variability on a plan-by-plan basis.

Now let's turn to slide 24 and Financial Services.

In the fourth quarter, the Financial Services sector reported a pretax operating profit of $552 million, a $149 million decrease from a year ago.

For full year, the pretax operating profit was $3 billion, a $1.1 billion increase from a year ago.

In the fourth quarter, Ford Credit reported a pretax operating profit of $572 million, a $142 million decrease from a year ago.

We will cover this in more detail on the next slide.

Slide 25 provides an explanation of the change in Ford Credit fourth-quarter results compared with 2009 by causal factor.

Volume was $100 million unfavorable, reflecting declining receivables.

As shown in the memo, Ford Credit's managed receivables at December 31, 2010, were $83 billion, $12 billion lower than a year ago.

This decline reflects primarily the discontinuation of Jaguar, Land Rover, Mazda, and Volvo financing and lower industry volumes in recent years.

Financing margin was $100 million favorable, reflecting primarily favorable borrowing cost rates.

The decline in the provision for credit losses of $100 million reflects primarily improved chargeoff performance.

Lease residual performance decreased by $100 million, reflecting primarily the nonrecurrence of lower lease depreciation expense related to lower gains as fewer leases terminated and the vehicles were sold.

As shown in the memo, the $200 million decrease compared with the third-quarter 2010 is primarily explained by higher depreciation expense for leased vehicles related to lower auction values consistent with seasonality, and the nonrecurrence of net gains related to market valuation adjustments to derivatives.

Slide 26 provides an explanation of the change in Ford Credit full-year results compared with 2009 by causal factor.

For the full year, Ford Credit reported a pretax operating profit of $3.1 billion, a $1.1 billion increase from a year ago.

The full-year increase is explained primarily by a lower provision for credit losses and lower depreciation expense for leased vehicles due to higher auction values.

Partial offsets include lower volume and other items primarily reflecting the nonrecurrence of net gains related to unhedged currency exposure from cross-border intercompany lending.

For full-year 2011, we expect Ford Credit to be solidly profitable but at a lower level than 2010, reflecting primarily the nonrecurrence of lower lease depreciation expense and the nonrecurrence of credit loss reserve reductions of the same magnitude as 2010.

As to lease depreciation expense, we will have fewer leases to terminate in 2011 compared with 2010, including fewer leases terminating that were impaired in 2008.

This will result in fewer vehicles sold at a gain.

Likewise we explained the credit loss reserve will begin to level off in 2011, resulting in less reserve release than we experienced in 2010.

We estimate the profit impact of these two items to reduce profits by about $1.2 billion in 2011 compared with 2010.

At year-end 2011 we anticipate managed receivables to be in the range of $80 billion to $85 billion.

Ford Credit paid distributions of $2.5 billion to its parent during 2010 and is projecting distributions of about $2 billion during 2011.

Slide 27 covers Ford Credit's liquidity and funding.

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

Ford Credit's liquidity exceeded utilization by about $23 billion.

Ford Credit completed $25 billion of funding in 2010, including $3 billion in the fourth quarter.

We completed $17 billion of funding in the public markets and $8 billion of private securitizations globally.

Our credit spreads continue to tighten, reflecting our improved credit profiles, stronger investor demand for our transactions, and supportive markets.

Our funding strategy remains focused on access to public and private securitizations, asset-backed commercial paper, and unsecured debt.

Our liquidity remains strong, and we will continue to maintain cash balances, funding programs, and committed capacity to ensure liquidity adequately meets our business and funding requirements.

At the end of the fourth quarter, Ford Credit's managed leverage was 6.7-to-1 and equity was $10.3 billion.

Slide 28 covers 2010 and 2011 first-quarter production plans.

Fourth-quarter 2010 total Company production was 1.3 million units, consistent with our most recent guidance.

Our 2010 total Company production for the full year was about 5.4 million units, up 882,000 units from a year ago, reflecting primarily higher production in North America and Asia, Pacific, and Africa to match market demand.

Overall we expect total Company first-quarter production to be 1.4 million units, up 145,000 units from a year ago, reflecting continued strong customer demand for our products.

North America's production schedule is 650,000 units, up 15,000 units from our most recent guidance and an increase of 76,000 units compared with a year ago.

Overall, our production plans are consistent with our strategy to match supply to demand.

Now I would like to turn it back to Alan to recap our 2010 performance and discuss our 2011 outlook and plan going forward.

Thank you, Lewis.

On slide 30 I will provide an overview of the business environment.

We expect global economic growth to provide a solid foundation for gains in the automotive industry.

Recoveries in China, India, Brazil, and Turkey as well as in Germany and Canada have been strong, with growth rates now moderating to more sustainable levels.

In the US and in some of our other European countries, growth remains on a more robust -- or more modest recovery path.

Additional fiscal stimulus to support growth is unlikely given budget constraints, particularly in Europe.

In fact, fiscal tightening will be a drag on growth in many of our European markets.

Interest rates remain low in both the US and Europe.

The US Federal Reserve has provided incremental monetary stimulus through its asset purchase program, although central banks in Europe are likely to remain on hold with currency policy.

Commodity prices have been trending upward in 2010.

Crude oil prices rose from a low of $65 per barrel in early 2010 to about $90 per barrel in recent months, a nearly 40% increase.

As economic recovery continues, we expect to see further upward pressure on commodity prices.

Overall, we assess the global business environment for automotive industry growth to be favorable in 2011.

Now on to slide 31 which summarizes results of our 2010 key planning assumptions and key metrics.

Full-year industry volume was 11.8 million units in the US and 15.3 million units in Europe, both slightly above our most recent guidance.

On the operational metrics, all of our regions improved quality compared with 2009.

Full-year Automotive structural costs were $1.2 billion higher; and although not shown, commodity costs were $1 billion higher.

Both are aligned with our guidance.

The higher Automotive structural costs are for the higher volumes and product launches in 2010 as well as growth of our product plans.

US total market share was 16.4%, and the US share of the retail market was 14.1%, both improved compared with a year ago, reflecting the strength of our products.

Europe market share was 8.4%, which is lower than our most recent guidance of about 8.6%, explained in part by our decision to reduce participation selectively in low-margin business.

Automotive operating-related cash flow was $4.4 billion positive, significantly better than our expectations.

Capital expenditures were $3.9 billion, which is aligned with our most recent guidance of about $4 billion, reflecting continuing efficiencies from our global product develop processes.

Our product plans remain unchanged.

Overall, for full-year 2010 we delivered solid profits with each of our business segments profitable and positive Automotive operating-related cash flow.

Slide 32 summarizes the 2011 outlook including our planning assumptions and key metrics.

We expect full-year industry volume to be in the range of 13 million to 13.5 million units in the US, and 14.5 million to 15.5 million units in Europe.

On the operational metrics, for quality we expect to build on the gains made last year and achieve further improvements.

We anticipate our full-year market shares in the US and Europe to be equal to or improved compared with 2010.

On the financial metrics compared with 2010, total Company pretax operating profit is expected to improve.

Full-year Automotive structural costs are expected to be higher as we increase production to meet demand and make further investments in new products, technology, and growth.

Commodity costs are expected to be higher this year, reflecting increased global demand.

Automotive operating margin is expected to be equal to or improved.

And Automotive operating-related cash flow is expected to improve.

Finally, we expect absolute capital expenditures to be in the range of $5 billion to $5.5 billion this year as we continue to invest in our product and growth plans.

In summary, we plan to deliver even better results in 2011 with continued improvement in pretax operating profit and positive Automotive operating-related cash flow.

We expect this improvement to be driven primarily by our growing product strength, a gradual strengthening global economy, and an unrelenting focus on improving the competitiveness of our Company.

For the full year, we expect each of our Automotive segments to be profitable in 2011.

Slide 33 summarizes our plan going forward.

We remain focused on delivering the key aspects of our One Ford plan, which are unchanged.

Aggressively restructure to operate profitably at the current demand and the changing model mix.

Accelerate development of new products our customers want and value.

Finance our plan and improve our balance sheet.

And work together effectively as one team, leveraging our global assets.

In summary, 2010 was an extraordinary year, with our results exceeding our expectations.

We launched 24 new or redesigned vehicles in key markets around the world, including the redesigned Explorer, the new Fiesta, as well as the redesigned Edge and Lincoln MKX in North America, the redesigned C-MAX and the new Grand C-MAX in Europe, and the new Figo in India.

We achieved the sale of 1 million new Fiestas, which is now available around the world.

We took significant steps to strengthen our balance sheet, reducing our debt by $14.5 billion.

We announced more than $9 billion in global investments for future growth, including $4.5 billion in North and South America, $2.9 billion in Europe, and $1.7 billion in Asia, Pacific, and Africa.

And we increased our focus on the One Ford plan by completing the Volvo sale and discontinuing Mercury over the course of 2010.

Our One Ford transformation continues in 2011.

We are launching the new global Focus in North America, Europe, and Asia, Pacific, and Africa, as well as the Focus Electric in North America later in the year.

The new global Ranger will hit markets in Asia, Pacific, and Africa and Europe this year.

And we will continue expanding the EcoBoost family of engines by offering it in additional markets and vehicles.

As we began 2011, we are taking actions to expand our business, enhance our brand reputation globally, improve our productivity, further strengthen our operational excellence, and further improve our balance sheet.

We are delivering on our commitment of profitable growth for our.

Now we would be pleased to take your questions.

Thank you, Alan.

Ladies and gentlemen, we are now going to start 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.

In order to allow as many questions as possible within our time frame, please keep your questions brief.

Katina, can we have the first question, please?

(Operator Instructions) Himanshu Patel, JPMorgan.

Good morning, guys.

I wanted to just go to slide 15 and drill into the $1 billion fourth-quarter sequential costs increase that you mentioned in the memo at the bottom of that slide.

When product launch related P&L expenses go up, we often see simultaneous increases in things like CapEx spending at most carmakers.

But when I look at your CapEx spending this quarter it was pretty much in line with the trend you had been witnessing in the last few quarters.

So I guess my question is -- how much of the $1 billion sequential NA cost rise would you characterize as a one-time jump related to abnormal product launch activity, versus just the normal cost creep the business would see as industry volumes recover?

I wouldn't describe it as the normal cost creep.

We've previously talked to you, Himanshu, about the seasonality of our business and we're typically seeing some structural cost increases in the fourth quarter, mostly associated with launch.

We were seeing increases in manufacturing operations specifically to do with the large launches we have got going on of Explorer, new powertrain for F-Series, and the global Focus.

A little bit of engineering expense, which I think you will see continuing because that is a deliberate effort to increase our engineering expense as our revenues grow.

And then some fixed marketing in the fourth quarter associated with the product launches we had.

So the only thing I would say is an indicator of a specific trend is a small increase in product development expense, which we have committed to as our business continues to improve; we are investing in more products.

We have indicated in 2011 that we expect to grow our profits and also that we expect to see our structural costs increase a little bit, and that is going to be associated with our growth.

Would you expect just the magnitude of -- I think you said $1.2 billion of structural cost inflation was witnessed in '10.

Just directionally should we think about a lower number in '11, a higher number, about the same?

Any directional guidance on that?

No directional guidance yet.

As we get further into the year, we will give you a clearer sight of it.

Okay.

Lewis, if I could sneak in one more.

On slide 13 you show a $1 billion in commodity inflation this year, that was essentially perfectly offset by $1.1 billion of greater efficiencies in your materials bill excluding commodities.

How should we think about that relationship in 2011?

I understand commodity costs are going up at an absolute level.

But should we think about these two factors washing themselves out again, such that your collective net product costs are kind of neutral?

Or should we think about that being a negative or a positive spread?

I'm not sure you will see a perfect offset next year, because we have a lot of new product actions in the year on some very, very high-volume products, C-MAX and Focus in particular.

So I don't think it will be quite so perfect because we also expect to see continued pressure on commodities as the global economy improves.

Okay, great.

Thank you very much.

Brian Johnson, Barclays Capital.

Good morning.

Just continuing on that theme of commodities, are there any timing issues involved with commodities, especially as you do your LIFO or FIFO accounting, that we ought to be aware of?

How do these factor into your discussions with your suppliers?

Are these commodities that they could eventually share the costs?

Are they sheet-metal that you are buying directly?

And then how should we think that going forward in terms of both the seasonality and the full year?

I don't -- there aren't any funny leads and lags in commodities.

It tends to be as-incurred, and I think we can expect to see it happening during the year across a range of commodities.

I am sorry; I have just forgotten the second part of your question, Brian.

Then in terms of how those commodity costs get shared with, A, suppliers; or B, maybe go into your pricing strategies and get passed on to consumers?

We don't talk specifically about our agreements with suppliers.

At the end of the day our pricing actions are driven by our customers and the strength of our products.

So I wouldn't think of the two as directly related.

We certainly don't have a pricing strategy around an expectation of commodities.

Right, and on the launch costs, how should we think about those in terms of being one-time, gearing, factory productivity being lower as you get them up; versus maybe another bucket of we are supporting more products so we're at a permanently higher level of spend?

Well, over time as we steadily increase our CapEx you can expect to see depreciation and amortization levels increase.

We are guiding on quite a significant CapEx increase for next year as we go forward, because as we grow the business in all the regions, not just in the growth regions, we are increasing our spend and you are going to see increased depreciation and amortization.

You know, the factory efficiency piece is -- that is episodic around specific vehicle launches.

We have continued emphasis on improved productivity across all parts of the business.

You are seeing it in CapEx, where this year you have seen our CapEx drift down a little bit with no changes to our product plans and no changes in timing.

You are seeing improved engineering efficiency out of Derrick Kuzak's really sharp actions to continue to be best in class in terms of engineering efficiency.

And you can see it in the plants.

All the plants are working on steadily improving their overall efficiency.

So any efficiency action is specific; any sort of loss of efficiency is specific to the rates of climb of a product launch.

Right.

Just a final question, on the other timing differences of $700 million, any granularity you could give us around that?

Was there anything unusual in terms of things that might have been booked as a cost this quarter that actually don't get paid out until the course of next year?

Slide 21, operating cash flow.

Hold on just a moment; I lost my place when you were asking the question.

Be with you in just one second.

Yes, there is the effect of the finance receivables, as you see a timing difference of good news in the fourth quarter and -- but then it comes back out again in the first quarter of next year.

And that is something that we have discussed before.

I guess, Brian, and actually Himanshu as well, I just want to comment.

You both asked us about our costs, and we have talked about our costs.

But I think we should also emphasize that we are expecting our operating margins to be equal or improved next year, including -- as I said at our meeting at the show a couple of weeks ago -- including equal in North America.

John Murphy, Bank of America Merrill Lynch.

Good morning, guys.

A follow-up on the structural cost question.

I apologize to beat a dead horse.

But maybe if we don't think about it just in the context of this quarter and think about it maybe in the longer term.

You guys are at the very early innings of ramping up this B and C global platform.

Is it fair to say, as we think about this maybe beyond the next couple quarters, but as this really ramps up to the 2 million plus units that you are talking about, that these structural costs may fade relative to revenue and you get some good leverage?

Which is I think the whole point of using these global common platforms.

Is that safe to assume, and that we might see some incremental costs in the short term but in the long term this should really pay off?

Yes, I think that is exactly what we are trying to achieve.

You know, over time -- and that is one of the ways we are achieving engineering efficiency.

Over time we will be doing the same amount or a bit more engineering and getting more products out of it.

That will improve our engineering efficiency.

It will improve our material cost improvements.

It will help the manufacturing teams achieve their efficiency levels.

So, yes.

The whole purpose of the drive to achieve common products in the regions where our customers want those products is to get that leverage.

We have talked about 2 million plus C-cars based on the C1 platform; but we have also talked about the same happening on B-car as we see really small car volumes expanding around the world.

John, I'd extend that on the revenue side too, just building on the example of the Focus.

10 different top hats off that new C1 platform, with 80% of the parts the same, customized for the unique taste.

So I think we will see it, the leverage, on the revenue side in addition to the -- not only development on the efficiency side, but the fundamental cost.

Got you.

Then just a second question on priority for cash as you start generating cash in 2011.

Lewis, you seemed to highlight that you weren't going to make any big contributions to the pension plan that would be aimed at pre-funding it very quickly.

How do you think about that in context as far as putting these discretionary pension contributions to the pension plan, to top it up, versus debt paydown, versus potentially share buybacks and dividends and returning that capital to shareholders?

Is this the kind of thing that is going to stay in this $1 billion to $2 billion range, and you will able to keep it there, and then pay cash out to shareholders?

I'm just trying to understand the priorities there.

Well, the priorities start a little bit further up the line.

The first priority is make sure we continue to keep the product pipeline really fresh and full.

We have worked really hard on that; even in the depths of the period we have worked on that.

Second priority is to support the growth.

You have seen this in the last 12 to 18 months, talking a lot about investments in South America, investments in Asia, Pacific, and Africa.

And then we started talking about debt reduction.

We are still focused on those first three items, John.

You know, as we outlined, based on our assumptions and based on our planned cash contributions -- which we are not going to detail out as explicitly as you would like -- we do expect in total our pension, our plans to be funded in the period, although there will be variability by region.

And we do assume a normalization of the discount rate, because the discount rate is very low at the moment.

But I think this is the period where we are really focusing on -- got to keep the products fresh because that is -- we are seeing the worth of that in how we are growing the business, not just in volume but in revenue.

Grow in the areas where we know we have got some real opportunities.

And then continue to improve our balance sheet.

Once we have made real progress on that, I think we will then talk about some of the other things.

Great.

Then just one quick last question.

Slide 15 you have US stocks as a negative $600 million year-over-year hit on pretax.

It looks like the inventory was only up about 12,000 units.

I am just wondering -- because that was a big miss relative -- I mean that was a big swing factor relative to our expectations.

How should we think about that?

Is inventories only up 12,000 units, that is about $50,000 a copy per unit.

It seems like a big swing.

Is there's something going on there in that stock adjustment?

And how should we think about that going forward?

As you ramp up inventory will there continue to be a little bit of an expense on a year-over-year basis there?

No, I think you need to remember what 2009 was like in the fourth quarter.

We had sold out our -- we had had this fantastic program, Cash for Clunkers.

We sold down our dealer stocks to a very low level.

So in the fourth quarter we rebuilt our dealer stocks.

Mark and his team have done I think a really nice job almost every quarter of this year, in within about 10,000 units of building what they were selling.

So we have kept stocks under control.

They are up a little bit, but tight on days supply.

So think of it as a 2009 stock build that didn't recur.

Chris Ceraso, Credit Suisse.

Good morning.

Just a couple of items, just one, Lewis, on the cost.

You had mentioned a few times in your remarks about the field service action.

What was the magnitude of that in terms of the cost either year-over-year or from Q3 to Q4?

It was a factor.

We are not -- we typically don't talk about the cost of field service actions.

It is something we are doing for our customers, and it is a factor both year-over-year and quarter-over-quarter.

Okay.

But is this a recall?

Is that basically what it is?

Yes, we announced a field service action; we are repairing Windstars, and we announced it yesterday.

Okay.

Then can you explain your comment about the rental accounting on the revenue?

I didn't quite catch that.

Was it a negative factor on the year-ago revenue, or was it a positive in the current quarter?

It was a positive factor on the revenue in the fourth quarter, which explains why the revenue looks a bit out of kilter with the volume.

For those rental cars that we sell to rental companies, but then repurchase at the end of the period and sell as a used vehicle, we book the wholesale at the time the new car is sold to the rental company.

In the period the unit is owned, we have a write off during the period of the profits and the cost.

Then at the end of the period we reflect the revenue of the used car when we sell it as a used car.

So you have -- and a lot of rental cars, a lot of rental fleets, they increase their fleets early on in the year; and then they defleet towards -- in the fourth quarter.

It was a particularly exaggerated effect this year, and we saw a significant revenue increase.

We are just trying to explain to you why the revenue looked a bit higher than you'd expect it.

Okay, you don't want to put some brackets around what significant means, do you?

No.

Okay.

Just two quick housekeepings.

I mean you can get -- I think your math wouldn't be a long way away.

I don't think there is anything funny about the math.

Okay.

The comment you made on pension expense, did you say up slightly year-over-year?

Then also on the tax rate.

I think on the last call you mentioned that maybe by the second half it would get back to a normal -- maybe 30%.

Can you just update us on your thoughts on taxes as well?

Okay, on the first item we said a moderate increase.

On the tax issue, we said that we expect there's a good chance that we will be writing back the valuation allowance in the second half.

But that will result in a full-year tax effect.

And I think 30% is too low.

We are thinking closer to 35%.

As a full-year rate?

Yes.

A full-year rate as expense and not contributions.

Understand.

Thank you very much.

Not tax payments, yes.

Right, right.

Thank you.

Because it ends up as an annualized rate, Chris.

It doesn't end up just for the second half.

So you will start accruing at that rate in Q1?

No, we will have to wait until the circumstances are appropriate to write back the valuation allowance.

Okay.

Just a reminder, it is book, not cash.

Right, understood.

Rod Lache, Deutsche Bank.

Good morning, everybody.

I hate to ask you about this again, but this $1 billion sequential cost increase, could you just help us parse out what you would consider to be unusual versus a structural increase in your costs?

I heard you didn't want to quantify the field service impact.

Was the $200 million accrual for employee bonuses in there?

I also noticed that last year 2009 in the fourth quarter you had something like a $500 million impact flowing through your P&L.

It was a balance sheet writedown associated with US dollar versus Canadian dollar; and I think it was described as sort of an unusual.

And that did not reverse.

So are there any -- is there any way to identify in total, here are things that you would consider to be unusual or probably nonrecurring in that $1 billion sequentially or in the year-over-year number?

Well, explicitly, the balance sheet devaluation item did reverse out.

I saw $100 million though, this year; wasn't it $500 million the prior year?

Well, it is not all around the balance sheet.

There's other exchange-rate effects in there.

I'm sorry; I am just being corrected.

I have missed a year out.

I think it is '09 over '08 was the issue, not '10 versus '09.

Because I think the bad news in '09 was actually a reversal of good news in '08.

So I am sorry; I've just got myself a little bit confused.

So that issue was cleared up in '09, so it is not an issue in '10.

I think I have explained the cost increases.

We always have some seasonality.

We had some -- it is higher this fourth quarter than it was last fourth quarter.

We had a couple of one-time actions.

We did have the field service action.

And we have had more launch activity; and that is as about as much detail as I want to go into.

Okay.

We are hearing about these shortages of certain auto parts.

I was wondering if you can comment on how concerning that is for you.

Is that something that maybe is giving suppliers a little bit more pricing leverage?

Maybe limiting your ability to get the typical annual price-downs that historically have helped.

No, we're working our way through this and managing it.

There are one or two areas where we have had specific problems.

It not a generalized problem at all, and we are continuing to work with our suppliers to both keep our costs competitive and keep supply in the plants.

Okay, and just two more things.

Yes, I think it is good news for both of us because our volumes are increasing.

Just two remaining things.

One is you are losing Mercury year-over-year, which is about 7/10 of a point of market share; but you are expecting flat to up market share.

It looked like your retail market share is pretty stable over the course of this year.

So are there some specific products that you expect to really account for that?

Then lastly, do you expect to be profitable in Europe next year?

Yes, we have guided that we expect all the regions to be profitable for the full year next year and that includes Europe.

In terms of -- I think 2011 is a stunning year for the North American team.

So we will have -- we've got the Explorer, which is off to a great start.

We have got the new engines in the F-150, all of which have great fuel economy, which is what the customer is looking for.

Have a full year of Fiesta, and you know it is just getting stronger and stronger.

We are going to have a full year of the Edge and MKX.

And then I think the real exciting thing is we're going to have close to a full year with the brand-new Focus.

I don't know if you have been reading the press on the new Focus, both US and European press.

It is just -- we are very, very excited by reactions as customers saw it at the motor show, we got some of the customer reaction.

Adam Jonas, Morgan Stanley.

Thanks, just two quick questions.

Going back to the nonrecurrence of last year's restocking impact, can you quantify how many units that was?

If you did, I apologize if you already did that; but how many units was that?

And going forward, how much longer are we going to have this -- these comparisons, the non-repeat comparisons affecting the results?

Is that going to last into the next couple of quarters?

Then a question on the number of off-lease -- sorry, yes, please?

I'm trying to keep these in order in my mind.

If you had a look at slide 14, the dealer stock change in 2009 was 69,000 units increase.

And that was explicitly to rebuild dealer stocks as a result of the sell-down in the third quarter for Cash for Clunkers.

I think every quarter this year you have seen dealer stock changes plus or minus 10,000 as Mark and his team have worked really hard to keep stocks under control and only build when there is demand.

It is not just Mark; it is true in all the regions.

I think our stocks are well under control in Europe.

They are well under control in the Americas.

Well under control in Asia-Pacific.

So I don't expect to see a wild stock variation as an issue going forward.

I'm sorry I interrupted you.

No, that's very clear.

Thanks.

We will just go one at a time.

On the number of off-lease vehicles in the FinCo, can you quantify that?

You should have pretty good visibility on that volume of off-lease vehicles in '11 versus '10, if you can say it now.

Otherwise we can follow up after.

I will ask Mike Seneski to make his debut as Ford Credit's CFO.

Thanks, Lewis.

Yes, we go from about 400,000 terminations in 2010 to 230,000 terminations in 2011.

Great.

Thank you very much.

Let me just -- while we are on the call, let me just make one comment, because we are doing a bit of detail here.

I think there's a couple of things we have said very clearly in the call.

We have said in the earnings that we are expecting next year to be improved in both profits and in cash flow.

I think the other thing that we really worked hard on this year, and I hope we have left it clear in your minds that we are going to continue to work on, is we have made a real improvement in our balance sheet.

To take out $14.5 billion of debt this year I think -- and we can only do that because of the way the operations have been working really hard on generating cash.

I think the fourth quarter had some seasonality issues and then some specifics associated with the new product launches.

But we are not giving you any indication that we think the fourth quarter is a change in our running rate.

Thanks for clarifying that.

If I can just add, I mean with your stock down 9% or 10%, as I am sure you are aware, I don't think anyone doubts your ability to keep growing a profit next year; it is just your first miss versus consensus in two years.

And sometimes sectors that can produce six months of share price movements in six weeks can give it up.

So it's just the nature of the game.

Can I just --?

Adam, for us it's -- and we will do a better job -- we are doing a better job now, we will continue to do a better job.

We gave pretty clear guidance that we were going to have some cost increases in the fourth quarter, and perhaps we didn't manage to make that as clear as we would have done.

We are clearly disappointed that we guided that Europe was going to be profitable and we failed to achieve that.

But we are doing the right thing in Europe.

We are not chasing market share; because again you have seen us try that in the past and that is not the right thing to do.

As we go into 2011 we have this unrelenting focus on improvement of competitiveness, not just of Europe, but there is no relaxation going on in the Americas and there is no relaxation going on in Asia.

Now every business unit has different opportunities, and clearly growth is an opportunity in actually most of the world at the moment.

So yes, we recognize that we missed versus people's expectations, but we also will continue to try and do a better job on making people understand what the outlook is, rather than what perhaps the analysts got it up to.

Thank you, Lewis.

If I can just add that topic of valuation allowance, if I could just request that perhaps a teach-in or some other bespoke communication to the investment community on the mechanics of that would be very useful, instead of just adding it as an adjunct to your appendix, sometime in the second half.

Just a suggestion and -- I humbly offer.

Well, it won't be bespoke, because of Reg FD; but we will make sure that we can explain it to people in a bit more clarity.

Okay.

Thank you.

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

Dee-Ann Durbin, The Associated Press.

Good morning.

Thanks for taking the call.

I am wondering if you can talk a little bit about returning to investment-grade status.

Do you anticipate that taking a matter of months, a matter of years?

Is lowering your debt the most important thing you think you need to do to get there?

Or what other factors are involved?

First of all, good morning.

It's been an important objective for us and clearly we are very pleased with the progress we have made in 2010 by repaying $14.5 billion of the debt.

Clearly we see debt in our balance sheet going forward; but it still is a priority to continue to improve the balance sheet debt.

The most important thing I think that this last year shows is that our focus on leading with the strength of our product line and continuing to improve our fundamental efficiency and free cash flow is allowing us more options now to not only invest in the product but also to improve the balance sheet.

So it will continue to be a priority for us, and that is why the guidance for next year that we're going to increase our profitability and our free cash flow just further gives us the chance to accelerate our fundamental business performance.

In a matter of months or years?

We are not going to share the specific dates, but clearly we are moving very well towards that objective.

Thanks.

Tom Walsh, Detroit Free Press.

Good morning, guys.

Just a question about the discipline in Europe to stay away from the low-margin business and maybe the bad habits of competitors.

Can you talk a little bit about whether you worry that there could be a contagion, that what you see in Europe in terms of behavior could also hit the North American and other markets?

We do have some competitors like VW forecasting big increases in sales; and yet you guys are still talking about maintaining or growing your own margin.

As it gets tougher, do you see pressure on pricing?

We sure don't, Tom, but your question is really an important one.

We moved decisively to act on that this last year, especially the second half.

But clearly what has happened in Europe is that as we went through this recession the European auto industry didn't take out as much capacity as probably was needed, as we did clearly in the United States.

Then with the scrappage program, the volumes were up.

So you move into the end of the scrappage program and through 2010, and we clearly had overcapacity and we had some pretty irrational economic behavior by some of the competitors.

Clearly what we are seeing, though, as the global competitiveness increases is that the behaviors we think are going to continue to operate on profitably growing the businesses and making good business decisions.

But clearly we had to deal with that this last half of the year.

We did make the decision consciously to not chase low-margin business and ruin the value of these fabulous vehicle.

Also in our case, Tom, as you know, with all of our new vehicles that we have, and especially moving into some of the bigger segments, we have a real chance to grow the business in Europe.

So I don't think that behavior is going to continue, and I think we are well positioned with our new products and the recovery in the fundamental market to continue to operate profitably and grow in Europe.

Okay, thanks.

Robert Schoenberger, Plain Dealer.

There has been a lot of talk about the increased costs in the fourth quarter.

Can you point out any specific materials you are looking at?

Was this mostly steel, was this on the polymers side?

Were there any specific items that you were looking at?

I think I would reflect it is more of the general commodities associated with the global growth.

Again, are there any -- can you give any kind of guidance there?

Was this on materials, was this on services?

No, it is mainly on the raw materials themselves that are where the demand is continuing to grow worldwide.

All right, great.

Thank you.

Brent Snavely, Detroit Free Press.

Hello, guys.

I thought I would ask a little bit about profit sharing and wondering if you can address how that number gets calculated.

It's a pretty big chunk this year for hourly workers.

Will that help you with your UAW talks later on this year?

Absolutely love to comment on that.

Our plan that we put together 4.5 years ago was that we were going to commit ourselves to creating an exciting, viable, profitably growing Company; and we wanted everybody to benefit in that Company.

And it is so neat, Brent, as you pointed out, to be able to announce today that -- based on our financial performance, that we are going to include everybody in that growth on the bonus side, both for the salaried employees as well as for the profit sharing, which is a slightly different formula, as you know, for our UAW-represented employees.

The amount is also a very important indicator of our commitment to profitably growing and competitiveness, because clearly we have a laser focus on the competitiveness of each element of our cost structure including base salaries.

As you know, the actions we have taken on that, where we are competitive.

But also we want to absolutely make sure that on the incentive and bonus sides that we also are competitive and we reflect on the great work by all of our participants.

So this is an exciting day for everybody associated with Ford with respect to that.

Do your competitors -- I am familiar with GM and Chrysler and their profit sharing.

But do your competitors in the US, also Asian automakers, etc., typically issue profit-sharing?

Yes.

Was this structured at all to be competitive with them?

We take in, of course, a lot of factors, because everybody is a little bit different.

But clearly our focus is having not only a competitive base structure, wages and benefits, but also being competitive on sharing the upside for all the great work.

And we really believe what we announced today is very competitive, and we are very pleased for everybody to participate.

Great, thank you.

Phil LeBeau, CNBC.

Alan, with this, the stock is getting hit today pretty heavily, down 9%.

I know most CEOs don't like to comment on day-to-day movements of their stock.

But your investors are looking at this, and they are looking at it and saying -- what happened?

Who is to blame for this miss in terms of the guidance?

Is Ford to blame for not doing a better job communicating with Wall Street?

Is Wall Street to blame because it didn't do its homework enough?

Who is to blame for this miss?

Well, I don't -- I think the learning of it, I don't think so much of it to blame, Phil, but I sure understand your question.

I think it's just almost invigorating to us I would say, or motivating, to further help people really understand where we are going in the future.

I think we felt like we provided some very good information on the fourth quarter.

Of course there also we were a little disappointed, but we did the right thing on the European call, as you know.

Because we did give guidance that we believed we were going to be profitable in Europe in the fourth quarter; but clearly as that situation unfolded we chose to act on that decisively and not discount our vehicles and chase marginal business to maintain the value of the products.

So we did make that call consciously.

On the stocks, I think that was another big one, because we had a tremendous improvement in our stocks a year ago that did not recur this year.

So I think people were -- we could have communicated maybe a little bit better on that.

Then the fundamentals of the seasonality and also we chose to invest even more in our product launches and the advertising and the engineering and the marketing.

Because as we got close to the end of the year we saw a real opportunity to get these products off to a great start.

I think the foundation that we have in place really leads us, Phil, to deliver on even a better performance in 2011, because based on the strength of these products, including the actions we took in the fourth quarter plus the gradual strengthening of the economy, and our continuing relentless focus on operational excellence with every part of our business, I think we are going to generate even improved performance overall in profit and free cash flow in 2011.

But it is just a real good learning that we are going to work even closer to make sure that everybody understands where we are and where we are going.

It is a great story and we're going to tell it a little bit better.

Thanks.

Alisa Priddle, Detroit News.

Good morning.

Early reaction from workers has been very positive, obviously, to getting the profit-sharing checks.

As you continue to report good news, seven consecutive quarters, how do you manage expectations from those who look at the old days of having really, really huge profit-sharing checks?

How do you manage those expectations?

Going forward, Alisa?

Yes.

Oh, I think -- well, this is really a neat situation we are in, because clearly what everybody knows now about Ford is that we are committing to profitably grow the Company.

This is a new direction for Ford over the recent history.

To be able to go through this inflection point, through the worst recession we have ever had -- and remember, not only did we aggressively restructure to operate profitably, but then we accelerated the development of all of our new products that people want and value.

So clearly our plan is -- and it's our second consecutive year of increasing market share and our sixth quarter of profitability -- is that central part of our plan is that only are we competitive in every aspect but also we want to share in the profitability.

So it is tied absolutely to the firm's performance.

And I think if we just keep a laser, laser focus on making the best cars and trucks in the world and doing them more efficiently than our competition, that we will continue year after year to share in the success of Ford.

That is why it was so significant I think for everybody that not only did we recognize the performance for last year with all our employees, but also we provided guidance that we are going to improve that performance in 2011.

So this is a good thing that we are profitably growing and we are sharing in that, because it is motivating to all of us.

Because we really are creating an exciting, viable, profitably growing Ford for the good of all of us.

Right, but people have really short memories when it comes to I think recessions.

Already you are starting to hear people say -- oh, I thought it would even be bigger in terms of their profit-sharing.

Well, the response that we are getting is that people are very, very pleased with the sharing that we are doing.

Clearly this is very significant.

And again, it is very competitive.

We absolutely want to be competitive in every element of our cost structure including bonuses and incentives for the Company's performance.

Okay, thank you.

Katina, we have time for one more question today, please.

Chris Isidore, CNN Money.

There seems to be a lot of talk on this call this morning that this was kind of a miscommunication as much as anything.

What can you say about Wall Street expectations for the first quarter?

They are projecting about almost a 30% increase in earnings in the first quarter.

Can you say if you think that they have gotten that read right?

Or do you think that they are getting ahead of reality again with that forecast?

I think that as you heard, the conversation we are having is that, at the most fundamental level, it's 2010 was a very, very good year for Ford on growing our business.

We have our seasonal aspects that we talked about in the fourth quarter; and also especially the differences between the fourth quarter of '09 and the fourth quarter of '10 that were unique, coming off of the scrappage program.

So I think we will get that clarified.

But clearly the real conversation is the guidance that we have provided for the full year of 2011 that we are going to improve on the performance of this great performance in 2010.

We are going to improve on that in operating profit and operating cash flow.

Again, based on the strength of our products, all those investments that we actually increased a little bit in the fourth quarter as we talked about, plus the gradual (multiple speakers)

Do you think that the guidance that -- do you think that the forecast that Wall Street has for 2011 are in line with --

We are not going to comment -- we don't comment on the quarterly going forward.

But clearly the most important thing is the year-over-year guidance that we give for 2011, which is very positive.

But do you -- is Wall Street getting this -- is the Wall Street target for 2011 realistic?

All you are saying is an improvement.

They are forecasting a pretty strong improvement in 2011 earnings.

Do you think you have got a good shot at what Wall Street is expecting for you for 2011?

2011 will be even better than 2010.

Thank you.

That concludes today's presentation and we thank all of you for joining us.

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

This concludes the presentation.

You may now disconnect.

Good day.