06 -jun -2019 ford motor co....jun 06, 2019 · ford motor co. (f ) ubs global industrials and...

Corrected Transcript

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06-Jun-2019

Ford Motor Co. (F)

UBS Global Industrials and Transportation Conference

Ford Motor Co. (F) UBS Global Industrials and Transportation Conference

Corrected Transcript 06-Jun-2019


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CORPORATE PARTICIPANTS

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Colin Langan Analyst, UBS Securities LLC

......................................................................................................................................................................................................................................................

MANAGEMENT DISCUSSION SECTION


Good morning, everyone, very excited today to have Joe Hinrichs. He is the President of Automotive at Ford's

recent position that he's given. He's been in Ford since 2000 and has worked in various parts of the business.

There are very few people who know Ford as well as Joe. He's currently responsible for all the global Auto

operations and is responsible for reaching the goal of 8% margin, I guess at some point in the future. Thanks,

Joe, for joining us today. ......................................................................................................................................................................................................................................................


Thanks for having me. Good morning, everyone. ......................................................................................................................................................................................................................................................


And just like our events yesterday, if you have any questions, definitely log them via the app and I'm happy to ask.

So why don't we just kick it out broadly with, well, maybe the announcement today and how that fits into the fourth

business plan with the next couple of minutes ago... ......................................................................................................................................................................................................................................................


Sure. ......................................................................................................................................................................................................................................................


...your plan in closing on the engine side. ......................................................................................................................................................................................................................................................






So, yeah. For those who just joined us this morning a few minutes ago we announced in Europe that we're

starting the consultation process to work to close the Bridgend engine plant which is in Wales in the UK. Again,

it's part of our restructuring that's been going on for a while now in Europe and very important part of the next

phase of our restructuring. If you look at what Europe's been doing throughout the year methodically working

closely with all of our stakeholders to redesign the business and this is just another big step in that. ......................................................................................................................................................................................................................................................

QUESTION AND ANSWER SECTION

Colin Langan Analyst, UBS Securities LLC Q In this plan you were saying just before this reports [indiscernible] (00:01:37) as well and the capacity here will be

suited by other parts. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. So it makes engines for Ford there. We have capacity available on our locations. It also has been

producing and still produces engines for Jaguar and Land Rover and that will be coming to an end. That's part of

the contributing factor here as well as we have more capacity on this engine derivative than we need globally so

we can rationalize that. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Do some [ph] of them (00:02:02) may come from outside of Europe? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yes. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Yeah. Okay. And how does this fit into some of the numbers that you've already given? There were 5,000 in

Europe and 7,000 globally salaried. This is incremental to that? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. The numbers are starting to get a little complicated. I apologize for that. The 7,000 salaried number, which

was largely addressing the management structure of the company, is irrespective of this. We announced earlier

this year 5,000 in Europe, and this is an incremental decision that we've made as a part of that, and we'll continue

to – as we said throughout the year, we'll continue to announce the decision as we work with our partners to be

able to do that. ......................................................................................................................................................................................................................................................





Colin Langan Analyst, UBS Securities LLC Q And this is quite a large plan, [ph] correct? (00:02:54) The media said it was something like 1,700; if I got that

right. [ph] That's a lot (00:02:58). ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. That's the [indiscernible] (00:02:59). ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q [indiscernible] (00:03:00) head count [indiscernible] (00:03:01). ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A It is. A number of the – some of the volume of that plant goes to North America actually. So, there'll be some

regional rationalization when this is all finished. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Maybe if we just sort of switch now, but maybe we go on to just the fitness plan update. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And broadly, how does this fit into the fitness plan? And how is the plan trending? Obviously, you had some good

start in Q1. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. Well, as you recall, there's 19 different initiatives that make up what we term the whole fitness initiative, and

I'm very pleased – we're actually all very pleased with the progress we're making in those different areas. Some of

the key highlights – the highlight areas were, like, product development and the redesign of our five architectures

and the speed-to-market, that's going very well; what we call best cost [indiscernible] (00:03:55) material costs. I

just reviewed those numbers in the last two days. We're actually ahead of progress there for the business plan

period. CapEx reductions are ahead of plan as far as those kinds of things. A lot of work is still to be done on our

complexity reduction global order delivery process. But I'd say that we're certainly on plan and, in many cases,

ahead a plan on the fitness. As we said, it was going to be a multi-year journey to fundamentally redesign a

number of our core processes in the company and we're continuing to make that happen and it seemed to go very

well. ......................................................................................................................................................................................................................................................





Colin Langan Analyst, UBS Securities LLC Q And so the news today. What are the plans for your – what additional things should we be thinking about this? I

think Hackett said something like by mid-year, we'd get more updates on Europe? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. Well, this is one of the – obviously, again, [ph] remember (00:04:46) in Europe, we have the consultation

process [indiscernible] (00:04:49) everything. So this was part of our plan this year to continue to work with those

key stakeholders to move forward. I think the way you should think about it, is our European team has been and

is continuing to be committed to restructuring the business on that path to 6% EBIT margin. And some of that is

capacity; some of that is rationalization of the product portfolio, which we've talked about; and some of that is just

of where we focus our attention in the future. We've emphasized commercial vehicles as one of our key strengths

in Europe and you'll see that to continue. So think of this as another step in the journey of rationalizing the product

portfolio and restructuring the capacity to meet the demand in segments where we want to play long-term. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And how should we think just like on your portfolio around the world. How should we think about your product

portfolio? I mean, you've just launched the Focus and Fiesta [indiscernible] (00:05:47). ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q [indiscernible] (00:05:47). ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q What major changes should we see? Are we going to see more SUVs in that market and do we think of getting to

that 6% as we're smaller, but at a 6% profitable margin or we're the same size in units and we're just switching the

mix? How you're getting to [indiscernible] (00:06:05)? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure, I don't want to forecast volume. But certainly, first of all, to reiterate or emphasize the commercial vehicle

strength of our business, think about our Transit family of vehicles; the Ranger, which is very successful. We will

definitely have passenger vehicles in Europe; and that Kuga's one of the very successful product for us. We're

launching the Puma coming up. So we have some of the...





Colin Langan Analyst, UBS Securities LLC Q But those are SUVs? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Those are SUVs, yes; although, Puma's kind of a B-sized crossover, really exciting product for us. And the Focus

and Fiesta have been well received and actually the volumes in the last couple months have been healthy. So

we'll balance the portfolio, but we'll rationalize just as we did with the announcement on the C-MAX, that we will

rationalize the portfolio where we think the opportunity to get to successful returns are and you'll see more of that

come out over time. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q I mean, should we think about capacity in Europe eventually coming [indiscernible] (00:07:07) – could more

assembly plants come out? You made a lot of stuff [indiscernible] (00:07:11). ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. Hey, I don't want to forecast that. We will take the actions we think are necessary. You don't have to

necessarily close a plant to continue to restructure the business. You can take shift actions. You can man the

plant accordingly. There are a number of levers we can pull to make those things happen. We have the two plants

in Germany, the plant in Spain, the plant in Romania, assembly plants. So we don't have an enormous amount of

assembly capacity. Of course, we have the Turkey capacity as well. So we'll rationalize it appropriately, but most

importantly, we're committed to continue to see growth in our margins and restructure the business to support

that. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And one of my last question [indiscernible] (00:07:59), a lot of people are talking about compliance costs in

Europe. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yes [indiscernible] (00:08:03). ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q I mean, how do you think you're going to get there, and how do you think the industry will get there? Is that going

to be a challenge as you're trying to get to a 6% margin and maybe having to add more technology to get there? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. I mean, it's fully incorporated into our plans, and we have plans in place to deliver on the targets that we

have established. I mean, for us, we've been on this path for so many number of years. It's not new news. And





we're on a good trajectory to make that happen. We don't see the compliance costs being something that gets in

the way of us achieving our end goals over the next several years. So, we think we're in a pretty good place. It's

gotten a lot more attention lately to your point, but for us, we've been planning for this for years, and this is

incorporated into all our plans, and it has been for quite some time. And we believe there's a way to make that

happen and consistent with our goals for our margins. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Is it more challenging having a truck-heavy portfolio, though? Is that a way the U.S. [ph] seems to be (00:09:09) a

weighted average? And I don't know if the U.S. was into car and truck [ph] as Europe. (00:09:11) Europe is just

combine. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q So, does the strategy to move to more [indiscernible] (00:09:15)? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Obviously, it is different, [ph] to your point (00:09:17), to mean that the U.S. system is footprint based as you

noted. But, again, our Transit family of vehicle is very important to us and very successful for us. And we have a

plan to be able to compliant and make that happen. The absolute levels are so much lower in Europe. It is a

bigger task to achieve. But I don't see us having obstacles that can't get us there. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Do you need a lot of battery-electric vehicles to get there in your view or... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A We certainly believe that over time in all markets, including Europe, that there will be increased electrification. And

there is number of ways you can do that. You can do mild hybrids, you can do full hybrids, you can do plug-in

hybrids [indiscernible] (00:10:00) batt-electric vehicles in other ways. And I think all of those tools will probably be

part of the toolset. But there's no question that over time, to meet these requirements everywhere, electrification is

going to have to grow. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Why don't we move on to South America, because from the fitness plan, it seems to be the one region where [ph]

there is a (00:10:21) much very profitable, I think, based on those charts you had in the past. How should we think

about that? I mean, should we expect some major product? Is that a market where we should think you're going

to be smaller, maybe more downsizing in addition to the one – you only have two plants left I guess after

disclosure?





Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Right. We had a large complex in Camaçari; and then we, of course, we have the Pacheco plant in Argentina; and

the São Bernardo plant is intended to close here this year. So – and I do think that there continues to be

rationalization into our product portfolio in South America. We're taking the necessary actions. South America is

interesting; it was profitable for like nine straight years on the strength of the EcoSport, which kind of lead the

SUV movement in Brazil. And, frankly, Venezuela, during that timeframe was a healthy business for us. Of

course, we all know what happened to the Venezuela business. And the Brazilian market has gotten a lot more

competitive, especially in the SUV segment where the EcoSport was dominant years ago. And so the Ranger

continues to do very well. And so, what you'll see is, you will see a rationalization of our product line. Obviously,

you're seeing capacity being taken out and it's probably another instance where you rationalize a product

portfolio, rationalize a capacity, get yourself stable and profitable, and then you can look at opportunities to grow.

That's the way I would look at South America. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q How should we think about SUV strategy down there, because, yeah, because [indiscernible] (00:11:52) actually

lost some traction as competition came in. ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q Is that a big opportunity? Is that part of a whole... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A There's no question it's a big opportunity. The EcoSport brand name is very strong still and you're right, there's a

lot more competition. South American market, especially Brazilian market is very ripe for SUVs, especially B- or

C-segment sized SUVs. So I'm not sure you'll see continued growth in that portfolio both from others and

potentially us as well. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And why not just exit South America as the strategy? I'm sure that's something I would, at least, consider. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure, and we get that question frequently. And it's a fair question. I mean, the cycle – remember, you have to

think about these businesses over multiple economic cycles. I reminded you that we had – from what 2000 – I

think it was 2003 to 2011, we're profitable every year and some significant profits. We're in a cycle now, where

there has been a lot of challenges certainly with [ph] devalue on (00:12:56) currencies [indiscernible] (00:12:57)

economic challenges, et cetera.





And so, yes, we think about the long-term, number one. Number two, there are significant costs associated with

exiting any market. It doesn't mean that we wouldn't do that if it was the right business decision, because we have

the capacity to do that and we have shown the willingness to do that in several markets. But we believe that our

historical strength there and some of our footprint, which gives us a cost advantage, is something that can be

used if we have the right portfolio and the right cost structure going forward. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Before I switch to North America, it wouldn't be a meeting without talking about Mexico tariffs. I think they had

come up at every meeting [indiscernible] (00:13:43). What color can you provide on that risk? How impactful

would that be? I mean, are you relatively better positioned than the peers? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Well, it's not a secret that others or some of our competitors produce more in Mexico than we do import in the

U.S., more from Mexico than we do. So on a relative basis, we're probably not as exposed as some others. That

being said, if we were to see 5% and then rising tariffs coming from both auto parts and vehicles from Mexico, it

would have a significant impact on the industry and ourselves included. This is – it's kind of important to know this

is not a trade issue. The core issue is not a trade issue. It's illegal immigration or immigration in general but that of

course the trade tariffs get tied up in this topic which makes it a little more complicated.

I am optimistic that what we're seeing already is good cooperation between the Mexican government and the U.S.

government and that people will work together to find a solution that isn't harmful to the U.S. economy and

certainly the auto industry specifically. And so this is something to watch. I think I'd be surprised if this went on for

a long period of time. But certainly we're going to have to watch every day how this goes on. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q I mean, can you remind everyone what you have done there, the Fiesta I think ended, right? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A No, it hasn't ended yet. So we're producing Fiesta and quiet a lot of them – Fiesta, Fusion and the Lincoln MKZ in

Hermosillo. We also have diesel engines in Chihuahua for the Super Duty. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q So it's all cars down there. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A It's cars on the vehicle side. Yes. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Okay. So you're...





Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A We also have gas engines in Chihuahua and we have some transmissions in [indiscernible] (00:15:33). ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And where we traditionally know you make the most money is actually mostly U.S. And so your biggest maybe

[indiscernible] (00:15:39). ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A There's no trucks or SUVs coming from Mexico right now. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And so the biggest margin would really be just part – would be bigger impact to you might actually be just the

parts that get tariffed in some ways? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. It's kind of probably equal [indiscernible] (00:15:53). ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q I don't think that's – Yeah, [indiscernible] (00:15:53) for its profitability right now, otherwise I don't think you would

have exited. Okay. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A But, again, I think that there's very good signals I believe from Mexican government coming up yesterday to D.C.

to work together to find a resolution hopefully that works for everybody. And I'd be surprised if this thing went on

for an extended period of time. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Got it. What about – I mean is 10% still the North America target margin? ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q And how about your electrification strategy in the U.S.? I think I was at an event with Mark LaNeve and he was

very bullish on the EV, SUV, – that's the Mustang-inspired SUVs.






Colin Langan Analyst, UBS Securities LLC Q Is that the next at 2020? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Next year, yes. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And any color you could share on your EV strategy in that launch? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure. Well, I mean, it's multi-faceted. So, we want to remind people that the – first and foremost, we're going to

offer to the power of choice on a number of our vehicles for consumers hybrid, plug-in hybrids, for example, with

the Explorer and the Escape, our two highest volume SUVs, [ph] that are all new (00:17:09) this year. We'll have

hybrid versions. And so we have a significant increase in hybrid power train technology coming to our vehicles.

We think it's no compromise it's become very fuel efficient but also accepted technology and you get better fuel

economy. You can get a 550-mile range on an Explorer hybrid which [indiscernible] (00:17:31) think about that 10

years ago. So, that's the first step. There'll be a number of introductions of plug-in hybrid like the Aviator coming

out this year. We have the batt-electric SUV, Mustang-inspired SUV next year, which those who have seen it

really like it. And that's why people are excited about it. We haven't shown it yet, we're not going to talk about its

design, but Mustang-inspired so you can kind of figure out what that means.

And so that's the first batt-electric vehicle of our new electrical architecture just for batt-electric vehicles. And then

we've also announced that we're working on a batt-electric F-150, and of course we have some other vehicles in

the portfolio we haven't talked about yet.

So what we have said is that we'll lean in heavily to our strong nameplates where we have strength, because one

of the challenges about electric vehicles is obviously profitability and margin. So you want to go where you

already have strength and where you can add value to the consumer experience with that vehicle, like an F-150

batt-electric vehicle can do you more things for the construction worker, for the... ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q [indiscernible] (00:18:38) ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A





For anyone because of electrification. And so that's what we're working on and we're really excited about that. But

just remind people that there will be a significant growth in our hybrid volumes as well as introduction of batt-

electric vehicles over the next few years. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q So I think our automakers are talking about EV, ICE. You're definitely kind of keeping all three prongs with the

hybrids. Why do you think that's the right approach and are you a bit more cautious then on when EVs get to that

parity point? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A I wouldn't say we're more cautious. I mean when we have said we're investing $11 billion in electrification over the

next several years; and we have a number of batt-electric vehicles coming out globally. There is still the challenge

of profitability on batt-electric vehicles. And so, we want to make sure that we're offering the right options to

consumers and with a good business model behind them. And that being said, oftentimes we get asked the

question, what if fuel prices spike, and you've decreased the numbers of sedan you offer in the marketplace?

Well, the hybrid SUV, which is what – SUVs are what people really want, demonstrated by what's happening in

the marketplace. Hybrid SUVs are very much an alternative to a sedan in a high-fuel price environment. So,

there's a number of scenarios and ways you need to – we're looking at the market. Want to make sure that we're

doing a lot of scenario planning. And we're prepared for different things that can happen.

Also, frankly, there are benefits that come from having a hybrid powertrain. So, I think, those who aren't really

invested heavily in hybrids are saying one thing than those who are invested in hybrids and believe it's a good

choice for consumers. It's a very rational cost-benefit choice for consumers. Whereas the tradeoff of savings in

gas versus the cost of batt-electric vehicle is still not to a level where the cost-benefit on just purely economics, is

where consumers are.

Of course, the driving dynamics are great, and CO2 emissions are great. There are number of reasons why batt-

electric vehicles are very attractive to people, including the packaging you can do and everything. So, I don't want

to minimize that at all, but there's a – no one knows exactly how this is going to phase in, so we want to make

sure that we give consumers choices, so they can make the right choice for them. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Do you believe you're playing catch up on BEVs, which is sometimes the perception from investors? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah, we don't believe that. I mean, we certainly believe we have the capability and know-how and knowledge.

We've been the second largest hybrid producer for many years in North America, which is again electrification,

managing the battery energy. All those kinds of things are very important learnings on the way to batt-electric

vehicles. We're just making sure that we're timing it right, it's good for the business; at the same time, good for the

environment and the consumer. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q





Maybe if we could talk a little bit about alliances. I mean, what is the status of the VW and Mahindra alliances

there? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q There's still more progress to come particularly on [indiscernible] (00:21:57). ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure. On the Volkswagen side, of course, we have announced that we have projects working on through the

alliance on large vans, smaller vans, and the compact or mid-sized pickup trucks. Those are going well. Those

conversations are going well, and they're progressing.

We also have said that we're engaged in other conversations involving other topics, and those continue to go very

well. I think the relationship between Ford and Volkswagen is strong and getting stronger. And there's a big

opportunity for both of us to work together in a way that allows us both to get savings, but also still be

independent and still recognize the difference in our brands. But I think we're encouraged by the conversations.

[indiscernible] (00:22:50) announce today, of course, but they continue, and a number of us are deeply involved in

them. And we're optimistic that the relationship with Volkswagen will continue to bear fruit. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q There's a lot of chatter – well, there's discussions about sharing on the BEV platform with VW. There's actually

been announcements [indiscernible] (00:23:10) other companies partnering on EVs. Do you think partnering on

EVs makes sense, giving that investments going forward? I mean, is that going to be a problem when you talk

about keeping brands distinguished and that core is similar? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A I think that on many topics, the auto industry is becoming much more accepting of the notion of partnering and

working with others, given the capital demands of our business, but also where is differentiation really in the

consumers' eyes. And is the battery pack for any consumer a differentiation of any vehicle? The answer is likely,

no.

So, given the capital investment and the uncertainty of the volumes, given where the consumers be any given

point in time the next few years, I think there is logic to continuing to have dialogue around how do you share in

those risk and share in that upside as well. That's something that Ford continues to discuss openly with other

people.

We're obviously developing our own batt-electric vehicles, and we have a lot of our own capability, and we're

excited about that and proud of that. But I think when you think about both autonomy and electrification, there's

not clarity and certainty around when inflection points will happen and what the volumes will be. So, in those





scenarios, given the heavy capital investment required in both engineering and in CapEx, it makes sense to have

conversations around how do you share that risk and also, again, share on the upside when and if that takes off? ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q So, what becomes – in an EV world, the vehicle design becomes even more critical because the powertrain's not

a distinguishing feature? Is that your general view potentially? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. So, I think – so, several factors. First of all, of course, you're right. The design is always important when

you're buying something, especially a vehicle. That continues to still be near the top or at the top of almost every

segment's consideration set for buying a vehicle. And then, what's ever evolving, of course, are the experiences

you can offer, the holistic experience with the vehicle, which is inclusive of the driving dynamics. But it's not

limited to that, everything from the infotainment system, to everything else now with the connected vehicle that

you can do.

And so, there are a number of ways that brands can and will differentiate based on how the whole experience

feels and not so much around what kind of powertrain is in the vehicle. And so, there are great benefits that come

from batt-electric vehicles, as you know. Compartment package inside certainly is one benefit, the driving

dynamics, instant torque, all those things as well. People are still concerned about the charging network, and of

course, the range.

But there are a number of ways you can differentiate yourself. And we're excited about that actually with the work

we're doing in our company on human-centered design and really thinking about the experiences. We think there

are many ways Ford can differentiate itself as a brand and Lincoln as a brand, with how your whole experience

goes, not just the powertrain system and the vehicle. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Maybe you can talk a little about your – was it by the end of this year 100% of developed market cars will be

connected? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A In the U.S.? ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And should we – I mean, how much work has gone into that, and in terms of what may we see rolling out and

where do you think you stand in sort of the connected car opportunities?

You did a report a couple of years ago talking about the diagnostic data that comes out of the car, the potential to

market things to consumers. But all of that required, and people we talked to, a lot of preplanning to make sure

the right modem is in there, and you're pulling the right data in an efficient way. I mean, where do you think you –

do you see a lot of opportunities there? And do you think your – how do you think it might stack up versus peers,

because that may be a big factor over the next three to five years?





Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure. We see tremendous opportunity. In fact, we think this is one of the most developments in the auto industry

and for Ford today. You're right in that there are a number of pieces that have to come together to be able to

make it really work.

Just putting a modem in a vehicle in itself doesn't create that much opportunity. The electrical architecture has to

be designed in a way that could take advantage of the flow of data in and out of the vehicle and the ability to then

control or to be able to talk to modules inside the vehicle. There's a modem [audio gap] (00:27:48). And then

there's what you do with the data and how do you process that data in a way that both on the vehicle and in the

cloud that allows you to serve the customer better.

And we believe – I know a lot of the focus over the last many years has been on the revenue opportunities,

around the opportunities to serve the customer, either marketing information or whatever, but there is equally

exciting opportunities for diagnostics, over-the-year updates, usage of the vehicle to more knowledge of what

people really do use and don't use. And then, you can better design the vehicle accordingly.

There are a number of ways for quality diagnostic service that we think can be really important to our company

and also to serving the customer. And it's all about what do people want? They want less hassle, they want time

back, they want convenience. And so, a number of these capabilities will allow us to make some of those things

happen better for the consumer. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q [indiscernible] (00:28:55) are you getting some of those data today... ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q Okay. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yes, we're getting a lot of it. There are a number of ways we get it. Obviously, over the next several years, you'll

see us introduce increased capability in electrical architecture to take advantage of that. But we're just – we're

getting data today, and we'll have over 1 million vehicles connected this year. And so, we're adjusting that data;

we're using it to diagnostics and for other things as well.

And importantly, we've introduced this FordPass Rewards. So, consumers who purchase our vehicles, they get

points in their FordPass Rewards through the FordPass App, which then allows them, when they're connected, to

be able to use those rewards for service early on in their ownership cycle, but also has this connected to the

vehicle, so we can continue to learn and serve them better. ......................................................................................................................................................................................................................................................





Colin Langan Analyst, UBS Securities LLC Q You mentioned electric architecture. So, is that a big overhaul that's going to be required from the core systems

today? And how far along are you into that, because that'll be a pretty big process... ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q I'd understand you don't really want to mess with wiring systems that could be... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A You'd be amazed with how much electrical architecture or electrical wiring is in a vehicle if you – yeah, so this is a

big undertaking. We're far along the process. We're actually very encouraged by where we are. And it's really

important part of taking advantage of the connectivity of the vehicle. So, don't have much to say about that today,

but we will be rolling out significant upgrades to our electrical architecture over the next several years. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Yeah, okay. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A It's all part of our plan. It's been our plan for a while. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q And is that part of the Rivian investments? Because I understood in some of my conversations that they had done

some interesting things on the architecture side, in addition to the EV development? I mean, what is the logic

there? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure. So, we believe, and I think you're seeing this, hopefully, repeatedly from Ford that we're taking a humble

approach to everything in the auto industry these days, and we can learn from everybody. And so, we see,

partnerships with Volkswagen, and Mahindra, and Rivian, and others as opportunities to continue to learn and

enhance our knowledge, but also go faster.

So, in the case of Rivian, we are working with them, and we'll work with them to see if there are ways that we can

share learnings on electrical architecture and modules. Maybe we can bring scale collectively to the organization,

at the same time, maybe they've done something faster or sooner than we have that we can take advantage.

Those are – well, that's a partnership that we'll continue to embrace and work together on.





Colin Langan Analyst, UBS Securities LLC Q Talk a little bit about full-size pickups, how are – you seem to have been kind of generally holding your share

[indiscernible] (00:31:49) new competitors. So, I mean, are you pleased by that? Was that better than your

expectations? And are you worried about maybe as the rollouts continue that the second half might not – you

might lose some share? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Sure, so we're very pleased with our F-Series performance this year. Obviously, we've known for quite some time

that our major competitors are going to have new trucks. And our F-Series business continues to be extremely

healthy and very strong, and something that we're very proud of. We watch it every day, as you might imagine. It's

a big deal to our company.

We have continued to invest significantly in our trucks over the last several years, starting in 2014, with the launch

of the aluminum F-150, and then subsequently, doing some more actions on a faster pace than some of our

competitors. And then the Super Duty has done extremely well in the marketplace, continues to do very well in the

marketplace.

What you've seen actually in the course of 2019 so far is the commercial side, the fleet side of the business in

North America [indiscernible] (00:32:49) the U.S., has been stronger than people expected. And the retail industry

has been down a little bit. And Ford has great strength in the government, commercial, We Own Work. And that's

where you've seen a significant strength in the industry this year and that we've been able to take advantage of

that with our strong shares in those segments.

So, very good business for us, and we're really proud of the F-Series. And we'll continue to invest in it. We have

investments going in Super Duty this year – more investments going in Super Duty this year. Well, you can rest

assured that our plan has us continuing to keep our F-Series trucks competitive on a very regular basis. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Any worry about [ph] peak (00:33:34) truck? I mean, the ability to keep ATPs rising, it seems like pricing has been

phenomenally good over the last decade. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Well, I think it's fair to say that we've all been a little bit surprised at how strong ATPs have grown over the last 10

years post the financial crisis. It just shows you the value people attribute to the capabilities of these trucks. We

watch it very carefully, but we continue to also upgrade the capabilities. And so far, people continue to want

additional capability, and they're willing to pay for it, which is great to see.

On the industry front, I mean, there are a number of factors that are contributing to the commercial business being

strong in the U.S. Think about the delivery market has continued to grow. Telecom, there's significant

infrastructure investment, hopefully more to come, but there's certainly a lot of infrastructure investment already

going in. These are all contributing factors to why we think the commercial business continues to be strong in the

U.S. and why it's good for Ford. ......................................................................................................................................................................................................................................................





Colin Langan Analyst, UBS Securities LLC Q Can we talk a little bit about China? Is your inventory kind of in good shape at this point? And any sign of stability

in the region? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. It's a very important topic, Colin, and thanks for asking. I mean, our inventory is in very good shape. Matter

of fact, it's probably one of the lowest in the industry as far as day supply goes. We've seen significant

improvement in dealer profitability last couple of months. We've seen some stability in our sales the last couple of

months. So, I think Anning Chen and the team over there are doing a really good job of kind of trying to stabilize

the business and get all the stakeholders together in a partnership.

We have a lot of work to do. Our business has fallen from a volume standpoint significantly, as you know. But I

say, the last couple of months, we've been able to stabilize things. And we have reason for optimism for both the

products that we've recently launched and for what we have coming to be able to show some growth. We will see,

as we've said, significant financial progress this year versus the last year. But we have a lot of work to do still in

the China market, and we have a great team over there just working hard to make it happen. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q What about consolidated China. That's a huge loss last year, [indiscernible] (00:35:59) great progress in Q1. ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q Imagine the tariffs have helped being they went from 40% to 15%. ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A 15%. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q To be clear, they're still at 15%... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Correct. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q





...despite all the trade issues. ......................................................................................................................................................................................................................................................


Colin Langan Analyst, UBS Securities LLC Q So, you're still – I mean, and if they go to 40%, would that derail your plan, or do you think you could price for that,

or how would you...

[indiscernible] (00:36:21) ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A It's really hard to price in China at this market right now. You're seeing – as you know, there's downward pricing

pressure in China for the last couple of years, given all the competition and capacity. Certainly, if the tariffs were

to be increased, they would have an impact on our business. That being said, we're in the process of localizing a

lot of product into China. We're going to localize Explorer, the Lincoln Corsair is going to be localized this year.

So we're on the path to minimize some of that – over time, some of the risks associated with that. But it's

something that we watch very carefully. And because we are one of the leading exporters from the U.S. to China

on autos, and so we watch that very carefully. But our localization plan will help mitigate that in the not too distant

future. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Got it. Well, [indiscernible] (00:37:14) ask about China? So, I guess, I came in [indiscernible] (00:37:15). I think,

one question about, I guess, competitors' hybrid SUVs, I think maybe referring to EV SUVs that are no longer

offered. I mean, why a hybrid SUV? Are you concerned that maybe – or a hybrid or an EV SUV. I mean, do you

think that's the right vehicle for the market since you need a bigger battery for EV I think? I mean, that's what... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A The batt-electric vehicle or hybrid? ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q I think the question was hybrid, but I think [ph] might be irrelevant (00:37:43). ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A So, look at what's happening in the marketplace. I mean, in Toyota, the Prius sales have dropped significantly.

And we have four hybrid sales that increased significantly. So, this is consistent with what we see, which is

consumers want SUVs, but they also still want fuel economy. And so ,that's why we think hybrids allow for a good

solution for those customers, and so we talked about earlier.





On the battery-electric vehicle side, you have to target certain ranges. And we believe our SUV coming out next

year has a 300-plus mile range, which will be very sufficient. That's the kind of number most people are looking

for. So, we feel really good about the capacity and capability of that vehicle, and that seems to be the right spot to

be in. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Okay. And then, I hope this falls under your purview. Argo, any thoughts on your autonomous strategy there? Is

that on track? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. I mean, that does fall in Jim Farley's world, but I certainly can talk about it. I mean, we're very pleased with

the progress that Argo has made and used to make. And Bryan Salesky and Pete Rander and the team there

have done a really good job of not only creating an organization but really developing a capability that we're really

proud of. We showed in November in Miami that we probably have more capability than people probably realized.

That's the feedback we got.

So, we're very pleased with the progress we're making. This is a difficult challenge. I think you're already starting

to see people start to waver from their somewhat aggressive timelines they laid out over the last couple of years.

We've always said this is a very difficult technical challenge, but one that we believe can be solved and one that is

worth solving. So, we're very pleased with the progress Argo's making. And Jim and the team are working really

hard on where do we play, how do we win. And so I don't have any more to add there. But we feel really good

about where Argo is right now. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q Okay. Thanks. We're getting close to the end. Where do we stand in the spending on the fitness plan? $7 billion, I

think, is the total spend. [indiscernible] (00:40:00) done so far? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A So, what we said was $11 billion restructuring charges, $7 billion cash, yeah. Well, clearly, the announcement this

morning is a contributor to a component of that. São Bernardo was another big component of that. So, as you

know, especially in certain parts of the world, closing our manufacturing facilities is a costly endeavor but

necessary to rationalize the business and restructure the business. So, we're not – I don't have in my head kind of

the [ph] Q-to-date (00:40:33) numbers, but certainly, as we announced these rationalizations of our capacity and

some of the things we're doing, you'll see more and more of those charges hit.

And we have said that we've accelerated some of that work. And so, you should see a lot of those charges hit in

2019 and 2020. And so you've already seen some of those announcements to-date. Think of this year, the salary

restructuring, the Bridgend announcement, São Bernardo announcement, some of the rationalization going on

with the portfolio in Europe with the C-MAX and other things. So, you're starting to see a number of significant

actions consistent with what we said we were going to do. ......................................................................................................................................................................................................................................................





Colin Langan Analyst, UBS Securities LLC Q Got it. I guess one question that does came in. Any color on how much you're spending on steel, and do you think

that's going to be a benefit in the second half this year? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. No, benefit year-over-year because of the tariffs and we – because obviously we spent a lot of money on

steel. We were pleased obviously to see the steel and aluminum tariffs go away for Section 232 with Canada and

Mexico. The actual steel curves were starting to come down in November when the USMCA was announced, and

they've been coming down since.

So, the market was anticipating this was going to get resolved, I think, and you can see that in the prices. So, we

have seen, on a year-over-year basis – well, second half of last year, first half of this year, improvements in steel

prices, given all of this. And so, I'm not sure that we think it goes down dramatically from here forward. But we are

pleased obviously to see those pressures off and let the market dynamics play as they should. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q But the end of the headwind is likely in second half? ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah. Actually, I would say, the end of the headwinds started November. And then, this took some of the risk out

off of that trade, if you will, in the commodities market. And so, you've seen it come down, and now, it should stay

down. ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q There's usually like a six-month lag though. So... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Yeah, for us... ......................................................................................................................................................................................................................................................

Colin Langan Analyst, UBS Securities LLC Q But you still have some... ......................................................................................................................................................................................................................................................

Joseph R. Hinrichs President-Automotive Operations, Ford Motor Co. A Correct, Colin. Well, for us, we negotiate our three major steel contracts. Three of the four quarters – well, every

quarter but one, we stagger the contracts so that we can get the benefits and the costs associated with where the

market is. So, you're correct in that now that they've come down, we'll obviously, as part of our contract

negotiations every year, have those conversations.






All right. I think that's it. We're out of time. So, thank you very much. ......................................................................................................................................................................................................................................................


Yeah. Thank you, Colin. Appreciate it. Thanks, everybody.

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