福特汽車 (F) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ford third-quarter Fixed Income conference call.

My name is Denise and I will be your operator for today.

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

Later we will conduct a question-and-answer session.

(Operator Instructions).

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

I would now like to turn the conference over to your host for today, Mr. Steve Dahle, Manager Ford Fixed Income Investor Relations.

Please proceed.

Thank you, Denise, 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 Michael Seneski, Ford Credit Chief Financial Officer; Neil Schloss, Ford Vice President and Treasurer; and Stuart Rowley, Ford Vice President and Controller.

We also have some other members of management who are joining us for the call today including - Marion Harris, Assistant Treasurer; Paul Andonian, Director of Global Accounting; and George Sharp, Executive Director Investor Relations.

Before we begin, I would like to review a few items.

A copy of this morning's press release and the Fixed Income slides that we will be using today have been posted on the Ford Motor Company'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.

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

Any non-GAAP financial measures discussed on 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 here.

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

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

With that, I would like to turn the call over to Ford Credit CFO, Michael Seneski.

Michael?

Thanks, Steve.

Consistent with prior quarters, today's presentation will cover Ford Credit's profit and credit loss performance, Ford Credit funding and liquidity highlights, automotive cash, debt and liquidity and then we will wrap things up with a summary of the quarter.

Let's turn to Ford Credit's operating highlights on slide 1. Ford Credit remains key to Ford's global growth strategy providing world-class dealer and customer financial services, maintaining a strong balance sheet and producing solid profits and distributions.

Ford Credit had another strong quarter, with pre-tax profit of $427 million and net income of $272 million.

Managed receivables were $99 billion at the end of the third quarter, up $8 billion from year-end 2012.

The growth was driven primarily by increases in leasing in the North America segment and finance receivables in all segments.

Third quarter charge-offs were $47 million, up $12 million from the prior year.

The third-quarter loss-to-receivables ratio was 19 basis points, up 2 basis points from a year ago and well below our 10-year average of 67 basis points.

At September 30, the allowance for credit losses or reserve was $368 million, or 37 basis points of receivables.

Managed leverage was 8.2 to 1 at September 30, 2013, compared with 8.3 to 1 at December 31.

At the end of the third quarter, our equity was $10 billion.

Slide 2 explains the $34 million increase in third-quarter pre-tax results compared with a year ago.

The increase is more than explained by higher volume in North America.

The drivers of higher volume were an increase in leasing, reflecting changes in Ford's marketing programs, as well as higher non-consumer finance receivables due to higher dealer stocks.

As shown in the memo, our pre-tax results were $27 million lower than the second quarter.

For the full year, Ford Credit continues to expect pre-tax profits of about equal to 2012, but we now expect year-end managed receivables of about $100 billion, which was within our prior range $97 billion to $102 billion.

And distributions of about $400 million, up from $200 million previously planned, reflecting a fourth-quarter reduction in Ford Credit's tax liability.

Slide 3 shows our quarterly trends of charge-offs, loss-to-receivables ratio and credit loss reserve.

Our third-quarter credit losses continued to be near historic lows.

Year-over-year charge-offs were up $12 million, primarily reflecting higher severity and higher losses as the lease portfolio grows in North America and higher losses in international.

Quarter-over-quarter charge-offs were up $15 million, reflecting higher default volumes and lower recoveries in North America.

The loss-to-receivables ratio was up 2 basis points compared with the same period a year ago.

The credit loss reserve was $368 million, down $48 million from a year ago and down $8 million from the second quarter, reflecting the continuation of historically low losses.

Slide 4 shows the primary drivers of credit losses in the US Retail and Lease business, which comprises 72% of our worldwide consumer portfolio.

Over 60-day delinquencies were down 2 basis points from the same period a year ago and up 3 basis points from the prior quarter.

Repossessions in the third quarter were 8,000 units, or 1.24% of average accounts outstanding, down 12 basis points from the same period a year ago.

Severity was $7,500 in the third quarter, up $600 from the same period a year ago primarily reflecting lower auction values and earlier time to repossession as we continue to grow our portfolio.

Year-over-year increases in charge-offs and LTR primarily reflects higher severity and higher losses as our lease portfolio grows, while quarter-over-quarter increases primarily reflects higher default volume and lower recoveries.

Slide 5 shows the US Ford and Lincoln lease residual performance.

Lease return volumes in the third quarter were 13,000 units higher than the same period last year, primarily reflecting higher lease placements in 2011 compared with prior years.

The third-quarter lease return rate was 69%, up 8 percentage points compared with the same period last year, reflecting lower auction values.

In the third quarter, our 36-month average auction value decreased about $700 from the prior year, while our 24-month average auction value was about equal to the prior year.

Both our 24- and 36-month average auction values increased about $450 from the second quarter.

Our worldwide net investment and operating leases was $18.8 billion at the end of the third quarter, up $4.1 billion from year-end 2012.

With that, I will turn it over to Neil.

Thanks, Mike, and good morning everyone.

I will start first on slide 6. As further evidence of our continued progress on the ONE Ford plan, in September S&P upgraded the ratings of Ford and Ford Credit to investment grade.

We are now rated investment grade with a stable outlook by four major rating agencies.

We are on track to achieve our 2013 funding plans.

We issued about $5 billion of public term funding during the third quarter and an additional $2 billion so far in October.

We have completed about $20 billion of public term funding year to date and we ended the quarter with $33 billion of committed capacity.

Earlier this month, we established a new two-year syndicated committed asset-backed liquidity facility, together with the growth in our private asset-backed capacity, will replace the capacity supporting our FCAR asset-backed commercial paper program in 2014.

Present capacity for this new facility is $2 billion dollars with an expectation that it will grow to $4 billion by the second quarter of 2014.

Our funding strategy remains focused on diversification, and we plan to continue accessing a variety of markets, channels and investors.

We remain focused on maintaining a strong investment grade balance sheet.

Slide 7 shows the trends in our funding for our managed receivables.

At the end of the third quarter, managed receivables were about $99 billion.

We ended the quarter with about $11 billion in cash and securitized funding was 43% of managed receivables, down from 48% at year-end 2012.

We project year-end managed receivables of about $100 billion and securitized funding as a percent of managed receivables at 44% to 46%, both within our prior guidance.

We expect this percentage to continue to decline over time.

As discussed on the previous slide, we plan to transition away from our FCAR program early next year.

Our plan is to gradually reduce our outstanding FCAR commercial paper balance to approximately $3 billion at year-end and complete wind-down of FCAR by the second quarter of 2014.

No new FCAR commercial paper will be issued after year-end 2013.

Slide 8 shows our 2013 global public term funding plan for Ford Credit, excluding our short-term programs.

We have completed $20 billion of public term funding in the US, Canada and Europe and this does not include our US lease asset-backed transaction from earlier this week that settles in the middle of next week.

This will bring our year-to-date total to $21 billion.

We project full-year global public term funding in the range of $21 billion to $25 billion consisting of $9 billion to $11 billion of unsecured debt and $12 billion to $14 billion of public securitizations.

Turning to slide 9, our liquidity remained strong at $22.6 billion, down slightly from last quarter.

Ford Credit's source of liquidity includes cash, unsecured credit facilities, FCAR asset-backed commercial paper lines and other asset-backed bank capacity.

Going forward, the new syndicated asset-backed liquidity facility will be reflected in the liquidity section.

As of September 30, we had $43.6 billion of cash and committed liquidity sources, up $1.3 billion from prior quarter.

Utilization of our liquidity totaled $19.9 billion and we ended the quarter with gross liquidity of $23.7 billion.

Capacity in excess of eligible receivables was $1.1 billion.

We are focused on maintaining liquidity to meet our business and funding requirements through economic cycles.

Slide 10 summarizes our automotive sector cash and debt position at the end of the third quarter.

We ended the quarter with automotive gross cash of $26.1 billion, an increase of $400 million from the end of the second quarter.

Automotive debt at the end of the quarter was $15.8 billion, equal to second quarter.

We ended the quarter with net cash of $10.3 billion and automotive liquidity of $37.5 billion.

This is in addition to the Ford Credit liquidity I mentioned on the prior slide.

Now let's close with a summary of the third quarter.

The Company earned a record third-quarter operating profit of $2.6 billion, our 17th consecutive profitable quarter.

Automotive operating related cash flow was also a third-quarter record.

The total Company pre-tax was driven by best ever third-quarter results for Automotive sector.

This reflects continued strong results in North America and a combined profit for the regions outside of North America for the first time since second quarter of 2011.

Within the results, Asia-Pacific earned a record third-quarter profit.

South America was profitable and Europe substantially reduced its loss compared to last year and the second quarter.

We ended the quarter with Automotive net cash of $10 billion and liquidity of over $37 billion.

Ford Credit had another solid quarter with pre-tax profit of $427 million.

Managed receivables continue to grow reaching $99 billion at the end of the third quarter, up $8 billion from year-end 2012.

The third-quarter loss-to-receivable ratio was 19 basis points, up 2 basis points from a year ago and continues at historic lows.

Year-to-date, Ford Credit has completed $20 billion of public term funding and we are on track to complete our full-year funding plan and we also ended the quarter with $22 billion of liquidity.

And with that, I will turn it back to Steve to begin the Q&A session.

Thank you, Neil.

With that we will start the Q&A session at this point.

Denise, may we have the first call please?

(Operator Instructions).

Brian Jacoby, Goldman Sachs.

Hi guys, good numbers.

A couple of quick ones.

Just around the government shutdown, I know there was a little talk about that on the earnings call.

But can you give us a framework for...

Obviously it looks like it may have impacted October sales.

I am just trying to get a flavor for when you talk about an impact on your sales from the government shutdown, how much of that is kind of on the commercial side versus say retail?

And my second question is related to Ford Motor Credit.

There is -- just you guys haven't been very, very aggressive from everything I have seen in some of the trade rags about leasing but it looks like some of your competitors out there are becoming more aggressive on some of the lease terms that they are offering.

Are you seeing that where some of your competitors are actually doing that where they are being more aggressive and extending leases further out, perhaps subsidizing some of those?

Maybe you could just comment on bigger picture trends in leasing now that it is becoming a bigger part of the market.

Stuart here.

Maybe I will take the first part and then ask Mike Seneski to comment on the second part.

So in terms of the US industry, as you know, September was a little weaker and that was partly due to the way that the Labor Day holiday fell.

So if you looked at August and September combined, it wasn't so much of a difference.

We haven't released any October sales data yet and obviously we will be doing that once we close the quarter but we have seen some continuation in a weaker industry although our products are continuing to perform well in the market.

So we will see how that changes.

I don't have any specifics to report in terms of the mix between retail and the commercial business and of course, we speculate that the situation in Washington may have played a part in that situation.

And obviously it is not resolved and we will be revisiting this subject in a few months time and it would be clearly better for all if that were behind us.

Mike, can you comment on the leasing?

Yes.

Overall if we look at the overall industry for leasing, it is up about 3 points year over year.

We are up as well but not quite that amount.

We know that leasing is a great tool and we think it results in greater customer loyalty and a quicker trade cycle.

So as we look about our growth we want to make sure that that growth is prudent.

So we actually go to market with Ford using what we call a ONE Ford lease strategy.

And that tries to set some guidelines across a number of factors, geographies, vehicles, trends, terms, payment rates, a whole bunch of different things.

So we are absolutely focused on growth but we are going to do it in the right way.

If you look on slide 5, it actually shows our lease return volume.

You can see that two-thirds of it is primarily in the 24-month bucket versus maybe 36 or longer.

We are going to decide along with Ford what the appropriate mix is going forward and again, we are going to try and stay within some guidelines to make sure that our growth in leasing is prudent.

Are you guys offering like 6-year leases like some of your competitors are doing out there?

No, almost all of our leases are in the 24-, 36-, 39-month bucket.

In Canada, we go up to about 48-month and like I said, we will evaluate with Ford the right way to go to market and again, our goal is focused on trade cycle and trying to drive customers back into new Ford cars and trucks.

And we have been very successful.

Okay.

If I could just sneak one last one in here for Neil.

FCAR program has been around for a long, long, long time and you may have covered this a little bit earlier.

Apologies.

But can you just give us a little bit of a framework for why the transition and how the cost of funding is impacted by that?

I mean obviously it sounds like what you are doing is going to save some money over time but can you just give us a little bit of a backdrop around that?

Yes, Brian, this is Neil.

And I think from the standpoint you are right.

This was created in like the mid-90s so it has been around an awfully long, long time.

And it has gotten to the point where there has been a lot more efficiencies being created for similar type of facilities and programs that as you said are at a lower cost.

And I think what accelerates that is obviously the change in regulation that is actually impacting the bank providers of the backstop.

So it continues to evolve.

The new facility becomes -- although it is not a direct replacement from a standpoint of facility to facility, but it does provide a much more efficient way to fund the business.

Great.

Thank you.

Adam Jonas, Morgan Stanley.

Hey thanks, everybody.

First question is the lending community still seems pretty excited about subprime given its larger size and the improved performance since the downturn.

We are hearing anecdotally this is a new era of subprime auto lending and that we could take this FICO category to way, way up above previous pre-crisis peaks as a percentage of the new car market.

I'm curious if you share this view and do you have any concerns whatsoever about auto credit getting a bit too easy here?

That is more of a market question for you.

Well, Adam, as you know we are extraordinarily consistent in the way we go to market.

Talking about overall subprime in total, yes, we have seen growth.

Interestingly it is still not at the levels of where it was pre-crisis and interestingly when you look at it broken down between new and used, we have actually seen the percent of subprime -- and I am calling that kind of less than 620 FICO -- to be pretty stable as a percent of the new buyers over kind of call it the last year.

Where we have seen the dramatic increase is really on the used side of the coin.

That said, our goal is to make sure that we are actively serving our customers as best as possible.

As we said before, we try to finance about three out of every four subprime customers who buy a Ford vehicle and we have been pretty consistent in our approach of doing that.

I can't comment on the rest of the market but obviously we are going to be as competitive as we can to help us support Ford and Ford sales.

Okay.

Can you put some data on what you just said there in terms of you said interestingly you haven't seen subprime back at pre-crisis levels.

That sub 620 FICO, can you say what percentage of your new car loans are to that category today versus the previous peak?

I won't comment for us but if you look at the overall industry, I would say it is close to between 9% and 10% of the new car buyers are subprime.

And versus, do you know where that same industry stat went because there are so many different ways to define it seems where that was pre-crisis?

No, if you talk to Ellen Hughes-Cromwick, what they -- our Chief Economist -- what they have tried to do is say how many subprime buyers were in the market pre-crisis and at the latest data when you look at August and September, she is saying that we are still about 100,000 below on an annualized peak of the number of subprime buyers in the market.

Thank you for that.

Next question, we understand that the CFPB has sent letters to the auto captives.

There have been several articles written about this in the press including the automotive press.

Can you confirm, has your captive received any communication from the CFPB?

And if so, what is the message?

Adam, we always talk to regulators as a usual part of our business and we don't comment on those conversations.

(multiple speakers).

I will say because I think it is important, we are committed to compliance.

We have built that into corporate culture.

Remember our whole focus is on our dealers and our customers and building that virtuous circle of loyalty.

So our whole goal around this is customers that come back.

We are very confident in our procedures but we are not going to comment on that.

So to summarize your answer, you always have dialogue.

You are not flagging any extra level of communication from the CFPB.

I am going to say we are not commenting on that.

Got it.

All right, that is clear.

Last question, new competition -- we are hearing about non-bank lending becoming a more aggressive component and some dealers -- some of your dealers are complaining or perhaps mentioning that they are losing some of the captive business too to credit unions or some of these other actors out there particularly in the subprime as they are trying to put more money to work as their deposits are growing faster than their loan portfolios.

I was just curious if that is something consistent with what you have seen or heard from your dealer community?

Thank you.

You know, the great part about being Ford Credit is we have been competing against all comers for the past 56 years or so and I draw your attention to kind of Appendix 5 that gives you a good view of our penetration and how that has stayed unbelievably consistent and in fact has grown a little bit year over year.

And in Europe, we are seeing basically all-time highs.

So the competition will come and go.

The key point for our dealers is that we are going to be there and that we are going to serve them and our customers.

Thanks, Mike, thanks everyone.

(Operator Instructions).

Doug Karson, Bank of America.

Great, thanks.

I guess I have a question or two on the Ford side and then on Ford Credit.

Some of this may have been covered on the earlier call.

The European loss was only 228 which I think was better than the market had and certainly better than I had expected.

And it looks like some of the improvement was driven by wholesale volume being up about 5% and revenue in general being up 12%.

What was driving that increase?

Was it just kind of the economy in Europe?

Was it some of your products that were outperforming the peer group?

Just kind of trying to figure out -- the trend has been getting better there but how close we are to breakeven?

Doug, it's Stuart here.

So you are right that we had positive contribution year-on-year from actually from both sets of market factors both volume and mix and from net pricing.

Now within that, if we look at the volume and mix piece, for the quarter, the industry SAAR was flat.

The absolute industry was actually up a little bit.

But more importantly within that, our market share was up.

We were up from 7.8% last year to 8% this year.

And further within that, our retail market share was up by about 1.2 percentage points during the quarter compared to a year ago.

So they were all positive factors.

Also in terms of stock changes, although our stocks were actually -- the stock changes which are a variance on our variance -- were favorable the impact of stock changes was a little bit negative given the market mix within that.

So what we are really seeing is some level of stabilization in the industry and that is supported by the environment in Europe.

But more importantly, our products are being well accepted, they are resulting in better market share and our strategy to focus on retail sales is having a positive effect on our level of profitability in the market.

Great.

That was helpful.

Let me just turn to the balance sheet at Ford Credit.

It looks like the unsecured funding so far this year I think you said was $9 billion.

I think the range is $9 billion to $11 billion.

We are kind of coming up close to the end of the year and given where the markets are, are you comfortable kind of where you are?

Do you think you are going to hit the upper end of that range?

If you could kind of share any ideas with us about where you want to take the unsecured funding for the balance of the year?

Doug, this is Neil.

I think the benefit of a $9 billion to $11 billion range when you have done $9 billion is that you have a lot of flexibility to stay where you are at and/or go to $11 billion.

And I think we will continue to evaluate our different alternatives as we head through the rest of this month and into November.

Looking forward into our continued desire to increase our mix of unsecured relative to secured and given the rate environment and our spreads, there may be opportunity yet this year to hit the upper end of the range.

Okay.

I just have two quick remaining questions.

On the pension, I think at year-end the reading was negative at $19 billion underfunded.

I think on the earlier call you put in about $1 billion or $1.1 billion into the pension.

Is there any updated reading on that?

I just want to make sure I am not missing kind of where we are in the pension now.

So I think if you go to what we said in June but also what we repeated this morning, you are correct, we were at 18.7 negative for all plans globally funded and unfunded at the end of last year and the $1.1 that was mentioned earlier in the call was just contributions made during the third quarter.

Year-to-date, we have put in $3.9 billion of cash into the funds and you recall some of that was the proceeds from the $2 billion, 30-year we did in January.

So in total, $3.9 billion of which $2.7 billion of that has been discretionary and so we made progress there.

We have got increases in discount rate that had been meaningful and to a lesser extent, changes or returns on the assets.

And so I think what we said has been -- improved significantly.

We said that in June.

We repeated that this morning and there really wasn't a whole lot of change between second quarter and in third quarter from the standpoint of where we think we are relative to overall funded status.

Okay.

On the pension you used to -- and it may be in the K and I just haven't tracked it down -- but there used to be a matrix where 100 basis points increase or decrease in the discount rate would equal a certain amount of liabilities or change in liabilities.

Do you have anything out there that could help us kind of measure how much 100 basis point move?

Yes, I think in the K, we talk specifically about what 100 basis points will do to both US plans and non-US plan liabilities which is only half the story because obviously you have an impact on your asset side as well from the standpoint of rate changes on your fixed income assets.

When we did Ford University in March, we actually changed the way we showed it and we actually gave the impact of 100 basis point change on funded status which is clearly how we look at it and 100 basis point change of rates on funded status is between $2 billion and $2.5 billion.

And so if you look at what discount rates have done sort of through the third quarter, we are probably pretty close to that.

And so you get the cash we put in, you get the change in funded status and now you've got to extrapolate US to global but you can probably get pretty close to where our present status is.

Yes, that is very helpful.

And then a final one on the launch of the new F-150, I know it is a 2014 event.

I think it is going to be spring of 2014.

Have there been any early indications of how that launch is going and how its capacity utilization kind of set for the plants that are going to be putting that new product through?

I know it is kind of early on yet but it is an important launch.

I just thought I would ask.

Well, we certainly don't have anything to comment.

We haven't communicated anything around the new F-Series so we wouldn't comment on product launches today.

Okay.

All right, well then that is it for me.

I appreciate you taking my questions.

Thanks, Doug.

Eric Selle, JPMorgan.

Hey, good morning.

Just going through some details real fast, looking at your North American bridge, just wondering why mix and other were negative $400 million when your pickup trucks sales at least in North America outpaced sedans.

Just where is that coming from?

So Eric, thanks for the question.

Year-on-year, we have seen very strong growth in the super segment sales.

The super segment we define as Fusion, Escape, C-MAX, Focus including our electrified products.

And what we are seeing is that consistent with our strategy to improve our participation in that segment although we continue to have very strong sales in trucks, the relative growth is in the super segment in those vehicles, those segments come with somewhat lower margins.

And that is the effect that we see coming through in mix.

Although volume and mix in total is very favorable as we improve our performance in the super segment, we will see negative variances in that mix category.

Okay and then going more globally and congratulations on your move last back half.

I think a lot of people fail to remember that you guys cut inventory in both South America and Europe was a great investment back then.

It is obviously playing out now.

But I look at South America and I am somewhat confused if you look at your volume and share, it seems more in line with Hyundai's results this week versus kind of what you have seen on Fiat's volumes during the quarter.

And I am confused, you look at IHS, South American production up 4%, your wholesale volumes are up 22%.

So I guess my question is I know you increased share, I know you -- inventory destocking benefited as well.

But how are you benefiting so much on mix in price in such a tough market?

Is it your global product versus legacy or is it cost containment?

I mean where are you guys seeing the biggest lift there because it is very impressive?

Yes, so maybe if you are referring to the positive net pricing we were able to achieve in the quarter compared to last year, a piece of that is certainly related to the introduction of our Global ONE Ford products that we have the Ranger product which has been very successful, the EcoSport, and the new Focus which we have also launched of this year in South America as well as Fusion.

So those products are certainly performing well and are supporting our pricing there, well received in the market.

The other thing of course you have got going on in South America is we have the effect of both inflation and weakening currencies.

So inflation is around the 6% level in Brazil, it is double digits in Argentina and it is higher still in Venezuela.

That combined with all three of the currencies have weakened, we are pricing to offset the effects of the inflation and currency weakening.

So really you need to look at some of the pricing in conjunction with the contribution costs which are up which are also influenced particularly by inflation and the exchange variance.

So you need to look at them somewhat together.

Although having said that, we are very pleased with the performance of our new products in the market and we will be continuing to rollout our ONE Ford product portfolio.

Thanks a lot for that color.

And then switching over to Mike and maybe general overall and I am kind of parroting a lot of the questions that happened before, but we are seeing all-time highs in leasing and subprime penetration for the industry.

How are you offsetting that threat and retaining share?

Are you getting any pressure to increase leasing?

You have grown a little bit.

And are you seeing any pressure to change your residual assumptions?

We have seen quite a rise from some of your Japanese competitors and some of their residual assumptions in pricing their leases and obviously way up-contenting their cars at the same price point.

But are you guys feeling any of that pressure through that?

Well, Eric, as you know, we work very closely with marketing and sales on how we go to market.

And as I said, the lease market is up about 3 percentage points year over year, maybe a little bit more than that.

We are up as well, not quite that amount.

But we are working very closely with Ford to go to the market the best way that we think we know how.

And we are very focused on trade cycle.

We are very focused on making sure that we serve the subprime customers but not change our underwriting standards and we have been able to do that.

Our percent of high risk customers in our portfolio is still between 5% and 6% and we think we are getting that done.

And the evidence is on the market share that you see in our Appendix 5. So we will continue to work with our colleagues in marketing and sales to meet the customers' needs.

I appreciate that and that is good to hear especially when we potentially go down market.

And Neil, this is probably a question for you and we did some math in our last monthly and if you look at your excess liquidity and your debt reduction remaining and your pension remaining, it looks like you are pretty much in line with your target right now obviously growing with back half 2013 and 2014 operating cash flow meaning that every dollar you guys generate in the back half of 2013 and all of 2014 goes into that excess liquidity bucket.

And we calculated it at somewhere around $8 billion at the end of 2014.

And my question to you is what triggers -- you obviously have a high-cost problem of excess liquidity and continue to get worse every quarter as you generate so much cash.

But what is the trigger to return cash to shareholders?

I mean is it getting through this year-end and seeing the pension underfunded-ness?

Is it continue to contribute another quarter?

Seeing the end of the cycle in Europe?

What do you guys need to start returning that excess cash to shareholders?

Well, I think there is a couple of things.

One, Eric, is although we are in pretty good shape now when we look at -- with the improvement we have seen in the pension plan, we still have a ways to go from a standpoint of getting it to -- the funded plans fully funded and we have got another a little over $1 billion to hit our $5 billion total target for funded contributions in 2013.

We have also got debt at $15.8 billion with a mid-decade target of getting to $10 billion.

So there is still a significant amount of the operating cash flow that will be used to continue to improve the balance sheet.

We also stated at your conference in New York in August that the $20 billion target for cash and $30 billion for liquidity is sort of an average and depending on our near-term cash needs, we will obviously run higher or lower than that.

And so in the near-term we still have debt to pay down.

We have got to deal with the convert in 2014 if we choose to as a way to reduce debt but also to take the chance potentially to use cash -- further investments in the pension fund.

But also as earnings grow, what we have said is we will continue to grow dividends to a point where they can be sustained and then at that point we will start looking at other ways to return or invest more in growth.

That is great color.

That is all for me.

Great quarter.

You are making our jobs a lot easier today.

I appreciate it.

Thanks, Eric.

Itay Michaeli, Citigroup.

Good morning, guys.

Just, Neil, one quick follow-up question and I apologize if it was addressed earlier maybe to Doug's question.

But as we think about rising discount rates, you know could that have a positive impact on earnings in the non-U.

S. plans next year or was there some offset there as well with the asset allocation?

Because if I remember correctly I think the asset allocation shift in the non-US plans in the UK and Canada may be a bit slower than their progression in the US.

Just wanted to know the sensitivity there with discount rates for the non-US plans.

Yes, I think in the 10-K, we gave you both the US -- or both US and non-US plans.

The asset allocation outside the US has been slower from a standpoint of moving from growth assets to fixed income although it is clearly in the 45% to 50% range there.

So it is behind but about half of the assets would be impacted by the same discount rate change offshore as they would be onshore.

So the magnitude of what is in the K would be obviously reduced for the non-plans as well.

But that being said, we will still benefit from rising rates globally although they have risen more in the US than they have risen in the UK.

Terrific.

And then just on the Ford Credit dividend up to Ford I think that was raised to $400 million.

What was paid year-to-date thus far on that?

Just a couple of minor things, Itay.

Probably near about $100 million was paid and we paid a tax payment in the first quarter as well.

Got it.

Thanks so much, guys.

At this time we have no further questions.

Please proceed.

Thank you, Denise.

With that, I would like to conclude today's call and thank everyone for joining us.

This concludes today's conference.

You may now disconnect.

Have a great day.