ford motor company 1st quarter 2008 financial …...2008/04/24 · alan mulally - ford motor...

F I N A L T R A N S C R I P T

F - Ford Motor Company 1st Quarter 2008 Financial Results ConferenceCall

Event Date/Time: Apr. 24. 2008 / 9:00AM ET

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C O R P O R A T E P A R T I C I P A N T S

Lillian EtzkornFord Motor Company - Director IR

Alan MulallyFord Motor Company - President, CEO

Don LeclairFord Motor Company - EVP, CFO

K.R. KentFord Motor Credit Company - Vice Chairman, CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

John MurphyMerrill Lynch - Analyst

Rod LacheDeutsche Bank - Analyst

Brian JohnsonLehman Brothers - Analyst

Himanshu PatelJPMorgan - Analyst

Chris CerasoCredit Suisse - Analyst

Peter NesvoldBear Stearns - Analyst

Jonathan SteinmetzMorgan Stanley - Analyst

Mark WarnsmanCalyon Securities - Analyst

Patrick ArchambaultGoldman Sachs - Analyst

Bill KoenigBloomberg News - Media

Bryce HoffmanThe Detroit News - Media

Tom KrisherAssociated Press - Media

Jeff BennettDow Jones Newswires - Media

Amy WilsonAutomotive News - Media

Mira ObermanAFP - Media

Sarah WebsterDetroit Free Press - Media

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Apr. 24. 2008 / 9:00AM, F - Ford Motor Company 1st Quarter 2008 Financial Results Conference Call


Joseph SzczesnyOakland Press - Media

Michael StrongDebtwire - Media

P R E S E N T A T I O N

Operator

Good day, ladies and gentlemen, and welcome to the Ford Motor Company first-quarter earnings conference call. My name isFab and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating aquestion-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conferenceis being recorded for replay purposes.

I would now like to turn the presentation over to Lillian Etzkorn, Director of Investor Relations. Please proceed.

Lillian Etzkorn - Ford Motor Company - Director IR

Thank you, Fab, and good morning, ladies and gentlemen. Welcome to all of you who are joining us either by phone or webcast.On behalf of the entire Ford management team, I would like to thank you for spending time with us this morning.

With me this morning are Alan Mulally, President and CEO, and Don Leclair, Chief Financial Officer. Also in the room are PeterDaniel, Senior Vice President and Controller; Neil Schloss, Vice President and Treasurer; [Mark Kosman], Director of Accounting;and K.R. Kent, Ford Credit CFO.

Before we begin, I would like to review a couple things. A copy of this morning's earnings release and the slides that we will beusing today have been posted on Ford's investor and media websites for your reference. The financial results discussed herein are presented on a preliminary basis. Final data will be included in our Form 10-Q for the first quarter.

Additionally, the financial results presented here are on a GAAP basis and in some cases on a non-GAAP basis. The non-GAAPfinancial measures discussed in this call are reconciled to their GAAP equivalents as part of the appendix to the slide deck.

Finally, today's presentation includes some forward-looking statements about our expectations for Ford's future performance.Actual results could differ materially from those suggested by our comments here. Additional information about the factorsthat could affect future results are summarized at the end of this presentation. These risk factors are also detailed in our SECfilings including our annual, quarterly, and current reports to the SEC.

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

Alan Mulally - Ford Motor Company - President, CEO

Thanks, Lillian, and good morning to everyone. We will begin on slide 2 by reviewing the key financial results for the first quarter.Don will take us through the details and provide our outlook; and then I will come back and wrap up before we take yourquestions.

But first, I want to extend our condolences on behalf of the entire Ford team to the family of Geoff Polites, who passed awayover the weekend. Geoff spent a total of 38 years as a dedicated Ford employee and dealer, and as CEO of Jaguar Land RoverGeoff was instrumental in turning Jaguar Land Rover back to profitability and steering it through the pending sale of the businessto Tata Motors. We will miss Geoff.






Now, because Jaguar Land Rover is held for sale, we are excluding its results from continuing operations in 2008, although theyare included in the 2007 data.

As shown at the top of the slide, vehicle wholesale last quarter were over 1.5 million units, down 119,000 from the same periodin 2007. This reduction includes 68,000 Jaguar Land Rover and Aston Martin units and 51,000 at other operations.

Ongoing Company revenue was $39.4 billion. Excluding Jaguar Land Rover, revenue was up slightly, with favorable exchangeoffset by lower volume and lower net pricing.

Pretax results from continuing operations were a profit of $736 million, an improvement of $669 million from the same periodin 2007. This included about a $900 million improvement in Automotive operation profits, partially offset by lower profits atFinancial Services.

Our first-quarter net income was $100 million, including $416 million of pretax special charges. As we ended the quarter with$28.7 billion of gross cash, down $6.5 billion from year ago levels. This reduction was part of our plan and largely reflectsimplementation of the initial part of our VEBA agreement with the UAW. Overall, as we have said, our plan is working and wecontinue to show significant progress.

Turning to slide 3, first-quarter profits were driven by strong results at Ford Europe, with profits of nearly $740 million, and FordSouth America earning over $250 million. In addition, Ford North America results improved by nearly $600 million. This is morethan explained by favorable cost performance. Ford Asia-Pacific Africa, Mazda, and Ford Credit were profitable. Volvo incurreda loss.

We reduced our costs by $1.7 billion, with $1.2 billion of that coming from North America. This keeps us on track toward our $5billion cost reduction target by the end of 2008.

And Ford's quality continues to improve across the globe. In North America, our initial quality is among the best in the business.Our latest competitive survey shows an 8% improvement compared with last year, which puts Ford initial quality in a statisticaldead heat with Honda and Toyota. We have improved for the fourth year in a row.

As you can see in slide 4, the first quarter saw several noteworthy examples of how we continue to make progress on our corepriorities -- to aggressively restructure, to operate profitably, accelerate new product development, finance our plan and improveour balance sheet, and work together as one team leveraging our global Ford assets.

We've begun more extensive integration of our global product development and purchasing functions. This action will saveFord time and money by working more closely together on a global basis, transforming the way we design, develop, and procurethe components for our new products.

The Ford Fiesta, our all-new global car, was introduced to great reviews at the Geneva Auto Show and this past weekend inBeijing. Fiesta will be sold in virtually all of our major markets worldwide by 2010.

We are in the process of reducing our hourly personnel in the US by another 4,200 as a result of the recent enterprisewidebuyout. Once this action is implemented we will have reduced total hourly personnel by about 40,000 since the end of 2005.

We agreed to sell Jaguar Land Rover to Tata Motors. We expect the deal to close during the second quarter. We are also continuingthe disposition of our noncore assets. This past quarter we sold the ACH driveshaft business and Primus Financial Services inJapan. We recently announced the sale of our glass business at ACH.

In addition, we introduced Drive One, a grass-roots multimedia campaign in the US using employees and dealers, workingtogether as advocates for our Ford products.






Now, turning to slide 5. Looking ahead, we remain committed to our key business objectives including our goal of reachingNorth America and overall Automotive profitability in 2009 despite the challenges of soft economies, rising oil and commodityprices, and adversity in the credit markets.

Going forward, we will continue to rightsize the business. This includes continuing to work with our union partners to reducehourly personnel in North America through buyout offers made to employees affected by capacity actions or facility closuresin specific locations.

We are very excited about the upcoming launches of the all-new Ford Flex, the Lincoln MKS, and Ford F-150 in North America,giving us a US showroom with 70% new or refreshed models, consistent with our plan.

Two new models will help sustain our momentum in Europe, with the launch of the Ford Kuga in the second quarter and theFord Fiesta later this year.

We will continue disposition of the businesses within ACH and complete the Jaguar Land Rover sale. We're working onstrengthening Volvo's business by enhancing its premium position and its product lineup, as well as improving its quality,productivity, and its cost structure.

Now I would like to turn it over to Don to take you through the first-quarter results in a little more detail.

Don Leclair - Ford Motor Company - EVP, CFO

Okay, thanks, Alan. Let's go on to slide 7, which provides a few details on the first quarter.

Starting at the lower left, our net income for the first quarter was $100 million. Our net income included taxes in areas outsideof the US where we were profitable, as well as minority interests in profitable affiliates. Adjusting for these items leaves afirst-quarter pretax profit of $320 million. These results include pretax charges for special items of $416 million, which we willcover. Excluding these special items, we recorded a first-quarter pretax operating profit of $736 million. That is up $669 millionfrom a year ago. Most of the following slides will focus on these pretax operating results.

Slide 8 covers our special items, which were a pretax loss of $416 million. This included a $223 million charge associated withseparation programs in North America largely related to the hourly separation programs in the US and associated curtailmentsto our benefit plans.

In addition, we've taken $108 million charge related to the reduction of our dealer base, including a write-off associated withour investments in US dealerships.

We also recorded a $70 million charge as a result of the restructuring of our investment at Ballard, which we announced inNovember of last year. Additional charges in the first quarter totaled $13 million, which were largely related to personnelreductions in Ford Europe and in Asia-Pacific.

Given the pending completion of the sale of Jaguar Land Rover, we are treating their results entirely as a special item becausethey are no longer a part of our ongoing operations. At the end of the fourth quarter, we classified our Jaguar Land Roveroperations as held for sale. At that time, our book value of Jaguar Land Rover approximated the net cash proceeds we wereexpecting to receive upon sale. At the end of March, we signed a definitive agreement to sell Jaguar Land Rover for approximatelyits year-end 2007 book value. As a result, in the first quarter Jaguar Land Rover's positive operating results were essentially offsetby an impairment charge.

The recently announced sale of our ACH glass business will result in a largely non-cash special charge in the second quarter.






shows are pretax profits by sector. As you can see, the Automotive profits were $669 million and the Financial Servicesside was $67 million.

Now let's go on to the Automotive sector. Slide 10 shows the changes in the first quarter compared with a year ago, animprovement of $900 million. Compared with 2007, volume and mix was $700 million unfavorable, primarily due to lowervolume and unfavorable mix in North America and lower volume at Volvo. Net pricing was $100 million unfavorable, more thanexplained by decreases in North America; and that was partly offset by improvements in Europe and South America.

Costs were $1.7 billion favorable, which we will cover later. Exchange was $200 million unfavorable, more than explained bythe impact of the weakening of the British pound compared with the euro and the US dollar compared with European currencies.Net interest and related fair market value adjustments were $200 million favorable. Other factors were $300 million favorable,including improved results from our operations in Turkey, as well as improved parts profits.

Finally, the nonrecurrence of 2007 profits for Jaguar Land Rover and Aston Martin also affected the year-over-year comparisonby about $300 million. Excluding Jaguar Land Rover, which you can see just at the top inside the box there, ongoing Automotiveprofits improved by about $1.2 billion this quarter.

Now, slide 11 explains our cost performance. Warranty expense was about $200 million lower, mainly due to favorable adjustmentsto Ford Europe warranty reserves, reflecting improved quality. Manufacturing and engineering costs were about $300 millionfavorable, more than explained by the continued benefit of our restructuring actions in North America.

Reductions in manufacturing costs were partly offset by higher engineering expenses. Net product costs were $600 millionlower, largely reflecting favorable material cost reductions and favorable mark-to-market adjustments on commodity hedgesin excess of commodity cost increases. These factors were partly offset by added product content.

Spending related costs improved by $300 million, mainly elimination of accelerated depreciation and amortization for facilitiesthat we recently closed.

Pension and retiree healthcare expenses were $100 million lower, primarily reflecting healthcare efficiencies. Overhead costswere about $100 million lower, as were advertising and sales promotions.

Now on to slide 12, which shows pretax results for each of our Automotive operating segments and Other Automotive. Asdiscussed previously, starting this quarter, we revised our reporting to provide separate results for Volvo.

As shown on the chart, before interest and financing related costs, our Automotive operations on an ongoing basis earned aprofit of $850 million during the quarter, an improvement of over $1 billion compared with a year ago. We will focus here onOther Automotive.

In the first quarter, Other Automotive was a loss of $181 million, and that included net interest expense of $472 million andfavorable fair market value adjustments of $291 million. First-quarter net interest expense was higher than our prior guidanceprimarily due to lower than expected returns on our cash portfolio, as well as losses on a temporary asset account that weestablished based on our agreement with the UAW last year.

Going forward, based on lower interest income from our cash portfolio, reflecting generally lower interest rates, we now expectnet interest expense to be in the range of $250 million to $300 million per quarter this year. That is about $100 million higherthan our prior quarterly guidance. This amount, however, will continue to be subject to market volatility because the temporaryasset account is largely invested in equities.

The favorable fair market value adjustments primarily relate to the impact of changes in exchange rates on intercompany loans.






Now for the next section of slides I will cover each of the Automotive operations, starting with North America on slide 13.First-quarter wholesales were 704,000; that is down 40,000 from a year ago primarily reflecting the decline in industry sellingrates from 17 million down to 15.6 million units this year. That was partly offset by an increase in dealer inventories.

Revenue for the first quarter was $17.1 billion, down $1.4 billion from a year ago, explained by lower volumes, adverse mix, andlower net pricing. Pretax results were a loss of $45 million, an improvement of nearly $600 million compared with 2007.

Now slide 14 provides an explanation of that improvement. Volume and mix was $500 million unfavorable, primarily reflectingthe decline in US industry volumes and favorable mix resulting from the industry shift to smaller vehicles, partly offset by higherdealer inventories.

Net pricing was unfavorable by $300 million, primarily reflecting higher retail incentives and an increase in lease mix. That wasunfavorable mix on the volume and mix. Net pricing unfavorable by $300 million, and costs improved by $1.2 billion. Theimprovement was explained by lower structural costs including manufacturing, spending related, and overhead, and net productcost improvements. This included favorable material cost reductions and favorable mark-to-market adjustments in commodityhedges in excess of commodity cost increases. These were partly offset by added product features.

Exchange was about $100 million favorable.

Going forward, we expect North America's rate of improvement to be somewhat less than in the first quarter, in part due tocontinuing mix shifts to smaller vehicles as well as the absence of hedging gains and the absence of dealer inventory increases.In addition, the second quarter will be affected by the production reductions that we will cover later.

Slide 15 shows US market share for Ford and Lincoln Mercury. For the first quarter, our market share was 15%. That included9.8% for retail and 5.2% for fleet. Retail market share declined by 3/10 of a point. Significant segmentation shifts away fromfull-size pickups and medium and full-size SUVs, where our share is high, were largely offset by share improvements fromrecently launched models including the Focus, the Escape, and the Edge.

Our fleet share grew slightly compared with last year, with a further decrease in daily rental sales offset by growth in commercialand government sales.

Slide 16 provides a summary of our progress on cost reductions in North America. Including the $1.2 billion in the first quarter,we've now achieved cumulative cost reductions of $3.3 billion compared with '05. This slide now contains data on personnellevels and straight-time manned capacity that we previously provided on separate slides; and you can see those at the bottom.Further detail on personnel is contained in the appendix.

We have revised the personnel metric reported here to align more closely to data reported for the North American businessunit with the geographic data provided as a part of our 10-K. The only remaining difference relates to personnel at dealershipsthat we are required to consolidate under FIN 46.

Now slide 17 is based on a slide that we showed you in January. It provides a summary of past and projected cost reductionsin North America. You can see in the middle column there we made $1.2 billion of cost improvements in the first quarter.

These results included about $250 million of mark-to-market hedging gains related to commodity price increases that are notexpected to be incurred and not offset by hedges in future quarters. We expect that the rate of structural cost improvementswill slow as we progress through the year, because most of last year's improvements were achieved early in the year. We remainon track to deliver our $5 billion cost reduction target.

Now on to South America on slide 18. First-quarter sales were 92,000 units, up 8,000 from a year ago. Revenue was $1.8 billion,$500 million higher than last year, primarily reflecting a stronger Brazilian currency, favorable net pricing, and higher volumes.






South America earned a profit of $257 million. This is $144 million better than a year ago, mainly due to higher net pricing andvolume and mix; and that was partly offset by higher costs including higher commodity costs.

Slide 19 covers Ford Europe, where wholesales were 500,000 units in the first quarter, equal to a year ago. First-quarter marketshare was 8.9% in the 19 markets we track, down 2/10 of a point from a year ago. That largely reflected reductions in daily rentalsales in several markets and reductions in dealer demonstrator units in Germany.

Revenue was $10.2 billion, $1.6 billion higher than last year, primarily due to favorable currency translation, mix, and higherpricing. First-quarter profits were $739 million, over $500 million more than a year ago.

Now slide 20 provides an explanation of the improvement in Ford Europe. Volume and mix was about flat. Net pricing improvedby $200 million, primarily reflecting strong acceptance of our new products.

In total, costs decreased by $300 million. That was largely explained by net product cost improvements including material costreductions and mark-to-market gains on commodity hedges in excess of commodity cost increases. These factors were partlyoffset by higher product content.

Warranty costs improvements primarily related to adjustments to prior period warranty reserves also included in those weredue to improved quality.

Exchange was $200 million unfavorable, mainly due to weakening of the British pound compared with the euro. Other factorswere $200 million favorable, largely reflecting higher profits at our European joint ventures, including our operations in Turkey.

Overall, Ford Europe is off to a good start. But we expect less year-over-year improvement during the remainder of the yearbecause the hedging gains and the warranty reserve adjustments will not repeat.

Slide 21 covers Volvo. First-quarter wholesales were 106,000 units; that is down 22,000 from a year ago. This reduction is explainedprimarily by lower retail sales in the US and Europe, lower dealer inventories mainly in the US, and as of the first quarter of thisyear Volvo no longer is the distributor for Renault in Scandinavia. The year-over-year decline related to this was about 6,000units in the first quarter and will be about 23,000 units in the full year.

Market share in the US was 7/10 of a point, in line with a year ago; and market share in Europe was 1.4%, down 1/10 of a point.

Revenue was $4.2 billion, down $400 million, primarily reflecting lower wholesales, partly offset by exchange. The first-quarterresults were a loss of 151 million, down $245 million compared with the same period a year ago.

Slide 22 explains that $245 million decrease. Volume and mix was $210 million unfavorable, primarily explained by lower retailvolumes, reduced dealer inventories in the US and Europe, and discontinuation of our distribution agreement with Renault.Net pricing was down $40 million compared with 2007. In total, costs decreased by $110 million, largely explained by net productcost, manufacturing, and warranty improvements.

Exchange was about $70 million unfavorable, primarily reflecting the weakening of the US dollar relative to the euro and theSwedish kroner. Other factors were $35 million unfavorable.

Going forward, we expect Volvo to improve sequentially through the balance of the year. The projected improvement reflectsimplementation of the following actions. Launching the all-new XC60 into a growing and new segment for Volvo. Restructuringand consolidating into North America's sales company and distribution network, including moving its headquarters to NewJersey and focusing on improved margins at lower volume. And continuing efficiency programs to reduce cost includingreducing line speeds and personnel levels and continuing to pursue growth in Russia, China, and other emerging markets.






In addition, the dealer stock reductions implemented during the first quarter are not expected to be repeated during the balanceof the year. Volvo, however, remains exposed to exchange rate and raw materials variability.

Now slide 23 covers Asia-Pacific and Mazda. Overall first-quarter profits were $50 million; and we will discuss Asia-Pacific moreon the next slide. But we did earn $49 million from our investment in Mazda and associated operations; and that is an increaseof $28 million compared with 2007.

Slide 24 covers Asia-Pacific. During the first quarter, wholesales were 129,000. That is an increase of 3,000 compared with 2007.This increase is more than explained by higher volumes in China. Revenue in the first quarter was $1.7 billion, down $100 millionfrom 2007, largely explained by the lower volume outside of China.

Asia-Pacific and Africa reported a profit of $1 million in the first quarter; and that is $27 million better than 2007. The improvementlargely reflected favorable cost performance and higher profits in China, partly offset by unfavorable exchange and unfavorableproduct mix, primarily in Australia.

Slide 25 shows automotive cash and cash flow. We ended the first quarter with $28.7 billion in cash, down $5.9 billion comparedwith year-end 2007. Our operating related cash flow was $1.5 billion negative in the first quarter. This reflected our automotivepretax profit of $700 million; capital spending during the quarter, which was about $100 million lower than depreciation andamortization; changes in working capital and other items of $1.3 billion negative, primarily reflecting timing differences innon-cash items in profits; and payments of $1 billion to Ford Credit reflecting our changed upfront payment of subvention.Excluding the upfront subvention payments, our operating cash flow was $500 million negative.

Separation programs resulted in an outflow of $100 million for the quarter. We contributed $600 million to our non-US pensionplans. Consistent with our UAW agreement, we reclassified $1.9 billion of VEBA assets out of our cash and contributed $2.7billion of cash to the temporary asset account.

We received a tax-related payment from Financial Services of $900 million. And Ford Credit did not pay Ford a dividend duringthe first quarter.

Slide 26 summarizes our net liquidity on March 31. Total liquidity including our available credit lines was $40.6 billion. Automotivedebt was $27.1 billion, and upon implementation of the independent VEBA, debt will increase by about $6.3 billion.

Now let's turn to slide 27 and Financial Services. Earnings at Financial Services were $67 million, $226 million lower than thesame period a year ago. We will cover Ford Credit later. Other Financial Services reported earnings of $31 million in the firstquarter. That is $31 million higher than in the same period a year ago, and the increase primarily reflects gains related to realestate transactions.

Slide 28 explains the change in Ford Credit's profits from a year ago. Ford Credit's earnings were $36 million in the first quarter,about $300 million lower than in 2007. The decrease in earnings primarily reflected higher provision for credit losses, higherdepreciation expense for leased vehicles, and higher net losses related to market valuation adjustments from derivatives. Thesefactors were offset partly by lower expenses, primarily related to the non-recurrence of last year's restructuring costs, as well ashigher financing margin.

In summary, the continued weakness in the US and Canadian used vehicle auction market has adversely impacted the value ofoff-lease as well as repossessed vehicles. Delinquencies and repossessions have increased slightly since last year in the US.

Ford Credit's financing margins have improved year-over-year. Underlying market interest rates especially in the US havedeclined. However, the repricing of risk is a partial offset.






Finally, Ford Credit's North American business center restructuring, which continues to improve its operating efficiency andcost, was completed in the first quarter of this year.

Slide 29 covers the funding outlook for Ford Credit. Ford Credit's funding strategy includes maintaining strong liquidity to meetnear-term funding needs by having a substantial cash balance and committed funding capacity. The left box shows Ford Credit'scommitted liquidity programs and cash and the utilization of its liquidity sources at the end of the first quarter.

Ford Credit's liquidity exceeded utilization by $24 billion. Ford Credit will continue to diversify its global asset-backed fundingcapabilities, renew committed asset-backed funding capacity, including outside of the US, and continue to access the unsecuredmarket if and when it makes sense. As we have done in the past, Ford Credit continues to consider and implement alternativebusiness arrangements to improve funding capability where it makes sense. For example, we recently completed the sale ofPrimus Japan.

At March 31, 2008, our managed leverage was 9.4 to 1, compared with 11.1 to 1 at March 31, 2007. As discussed in our year-endcall, we had planned that Ford Credit would pay regular dividends in 2008; but given the present credit market conditions andto maintain greater flexibility in the execution of our funding plan, we elected not to reinstate these dividends at this time. It isunlikely that Ford Credit's managed leverage will reach 11.5 to 1 by year-end 2008 as previously projected.

In summary, we believe we have a funding plan that will provide sufficient liquidity at Ford Credit.

Slide 30 shows where we are on our planning assumptions and operational metrics for 2008. Total industry sales during thefirst quarter were equal to a SAAR of 15.6 million units in the US and 18 million units in the 19 markets that we track in Europe.Based on the decline in economic conditions, we now expect the US industry to be in the range of 15.3 million to 15.6 millionfor the full year, and that includes medium and heavy trucks. European industry volumes could well be above 17.6 million unitsfor the year.

On the operational metrics, our current model quality continues to improve and, as Alan mentioned earlier, based on the latestsurveys Ford's initial quality in the US is among best in class.

Automotive costs were reduced by $1.7 billion, consistent with our plan. Our market share was down slightly, compared withlast year in the US, generally on track with our plan.

Absolute operating cash flow was $1.5 billion negative. This was consistent with our plan and we continue to expect operatingcash outflow and personnel separation payments to be in the range of $12 billion to $14 billion for 2007 through 2009. Capitalexpenditures were $1.4 billion, also consistent with our plan.

Now slide 31 shows our production plans for the second quarter. In North America, the production schedule is 710,000 units,down 101,000 units from 2007 and 20,000 units lower than our prior guidance. The change includes a 40,000 unit reduction intrucks, partly offset by increases in car production.

For Ford Europe, we expect second-quarter production of 565,000, up 53,000 from a year ago. For Volvo, we expect productionto be equal to a year ago.

Slide 32 shows our 2008 outlook by sector. We still expect the Automotive full-year pretax results to be a loss, but equal to orbetter than 2007 when you exclude Jaguar Land Rover from last year's results.

As mentioned previously, the first-quarter results were aided by several factors that are not likely to continue to occur. Theseinclude recognition of mark-to-market hedging gains related to commodity price increases that we expect will be incurredthrough cost of sales later in the year, but not offset by hedges in future quarters. Also, the reductions in warranty reserves arenot likely to be repeated, nor will the increase in dealer inventories be likely to be repeated.






In addition, we expect that the industry volumes will weaken somewhat from first-quarter levels and vehicle segmentation willcontinue to shift away from areas where our share has been high.

Financial Services' 2008 pretax results are expected to be worse than 2007, but profitable for the full year.

Total Company pretax operating results including special items are expected to be a loss and worse than 2007, reflecting theexpected decline in Financial Services' results. We also expect special items to be less than 2007, with full-year personnel-relatedrestructuring costs below $1 billion.

The total pretax results are expected to be a loss, although improved compared with 2007 when you exclude Jaguar Land Roverfrom the results. Now I would like to turn it back to Alan.


Thank you, Don. Slide 33 provides our assessment of where we stand on achieving our key business metrics and financial goals.The profit improvements we have seen in our ongoing Automotive operations, $1.2 billion this quarter and over $3 billion lastyear, largely from our restructuring efforts, and our strong flow of new products coming later this year, give us added confidencethat we will meet our 2009 profitability target in spite of economic conditions worse than we initially envisioned.

I want to emphasize that we are committed to returning to profitability in 2009. We see achievement of our 2008 cost reductionas a key element in that plan. We will continue to focus on cost reductions in 2009, and the full benefits of the UAW agreementshould be achieved in 2010.

We expect our US market share to be in the low end of the 14% to 15% range. We are still planning to be in the range of $12billion to $14 billion cash outflow for 2007 (inaudible) 2009 to fund operating losses and the restructuring of our business.

Now, on to slide 34, which summarizes the four key priorities of our plan. One thing I am sure you notice by now is our plan isunchanged. The results this quarter are encouraging; and although the quarter included some oneoff items, the underlyingbusiness is improving.

We remain cautiously optimistic despite the external difficulties. Our plan is working. Our initial quality continues to improve;it is now among the best in the business. The restructuring in North America is taking hold, and our product pipeline is full.

We're particularly encouraged by the outstanding performance in South America and Europe. In the past several years, we havesubstantially restructured these businesses, and the flow of new products that customers truly want and value has beenaccelerated. We believe this is an indication that our efforts to leverage Ford's global assets across the world will bear fruit.

As we look forward to the balance of the year and next, we have many great new products ready to come to the market. Theseinclude the new Ford Flex, the F-150, and the Lincoln MKS here in the US, and the new Ford Kuga and Fiesta in Europe, withthe Fiesta coming soon thereafter into China and the rest of our markets around the world.

The external environment certainly is challenging, and we have been adapting. We have been taking and will continue to takethe actions to stay on our plan. Now we would like to take your questions.


Thank you, Alan. Ladies and gentlemen, we are going to start the Q&A session now. We have about 50 minutes for the Q&A.We will begin with questions from the investment community and then take questions from the media who are also on thecall.






In order to allow us many questions as possible within our time frame, I ask that you keep your questions brief so that we don'thave to move callers along after a couple of minutes.

So with that, Fab, may we please have the first question?

Q U E S T I O N S A N D A N S W E R S

Operator

(OPERATOR INSTRUCTIONS) John Murphy with Merrill Lynch.

John Murphy - Merrill Lynch - Analyst

Good morning. I just wanted to focus on the cost side first. Just thinking about the cost savings in the first quarter and just tryingto parse that out a little bit better. First, was there any recognition of savings from the 4,200 workers that were bought out inthe first quarter?


No.


Okay, then was there any recognition of OPEB savings in the first quarter? What was that amount, if there was?


Well, not OPEB savings from the UAW agreement, no.


Okay, so that hasn't been recognized yet?


Right.


Then on the material cost reductions, those (inaudible) ramp up through the course of the year; but you're launching the F-150which typically would have a big increase in material cost. Should we think about that as sort of a net neutral as we go throughthe year, the F-150?







If you look at slide 17, those cost reductions are on that third line. See where it says material cost reductions? (multiple speakers)That kind of goes across, and that should just about get us -- that 3/10 running rate should get us right in there for what weshow for the balance of the year.

Now, the increase for the F-150, to the extent there is any, will be right in that $0.5 billion which is on that first line, on theproduct adds.


Got it, okay. So the two of those are netted together. Okay, that's great.

Then also on D&A in the quarter, it looked like D&A was down $264 million year-over-year. Is that something we should expectto continue? What was the big driver of that?


Well, as I mentioned, the big causal factor for that is last year we had accelerated the depreciation of the plants we were goingto close, so that when we did close them there was no write-off. That is just how the accounting rules work.

Now that those plants are closed, we won't have that much drag from the accelerated depreciation. I don't think we will seequite that much depreciation good news throughout the year.


So how should we think about that on a full year? Not $1 billion for the year? What would --


No.


-- we just ballpark that at? I'm sorry?


No, just think of about half that for the full year.


Okay, so almost $500 million year-over-year?


No, maybe a little more than half. A little more than $0.5 billion. How's that?







Okay. Then, Alan, just on the product side, and trying to focus on the revenue here, you're introducing the Fiesta in the US in acouple of years. The Transit Connect sounds like it is coming here.

Are there any other big opportunities you see from global product, particularly from Europe, where you have some pretty goodproduct, to drive revenue in North America, where you might be able to fill in some gaps or become more efficient on therevenue line?


You bet. Well, clearly, on the smaller and the medium-size cars and utilities, most of those are -- the vast majority of those aremoving to global platform.

So we will continue when it makes sense -- not the short cycle, where it doesn't make sense. But we pretty much have laid plansin place to get to all of those global platforms over the next few years. Then we will do the minimum amount of change on thetop halfs for the unique areas around the world, for the unique markets.

But we feel really good about the plans that Derrick and the rest of the team have put together to leverage these global assetsworldwide. It will be essentially all of the vehicles in the small to medium-size.


If we think about -- this is more of a hypothetical question on the product side. When we think about the Ford and Lincolnproduct lineup and the good, better, best strategy that has sort of always been the theory in the industry, would you feelconfident that Ford and Lincoln on its own, outside, not including Volvo, would give you enough product to work the consumerthrough that good, better, best strategy?


Absolutely. I would maybe suggest a refinement to that is that I think maybe in the past when we have had all of the otherbrands, that we had more of a strategy of being competitive. I think that going forward now, with the full productline underthe Ford brand, small, medium, large, cars, utilities, and trucks, you're going to see us move to being -- have an attitude of bestin class in each one of those segments.

When we leverage the Ford assets around the world so that we get the value of the volume and the quality that goes alongwith that, I think it's going to really, really help us provide a much better portfolio and a value proposition to our customers.

Operator

Rod Lache from Deutsche Bank.

Rod Lache - Deutsche Bank - Analyst

Good morning, everyone. I was hoping we could talk a little bit about the cost savings, which clearly accelerated. You had anegative $200 million on the cost in Auto in Q4; and it was a positive $1.2 billion in Q1. Specifically how much was the commodityhedging gain in Europe? You said it was $250 million in North America.






Can you also give us the historical adjustment to the warranty for the quarter? You had something in excess of the period costsin Europe, it looks like.


Yes, both of those, Rod, were about $100 million.


$100 million for commodity hedges in Europe, and $100 million --?


About $100 million on the commodity hedging in Europe, and about $100 million on the prior period warranty adjustments.


Okay. The commodity outlook does reflect some intensifying headwinds. There's been a lot of talk about steel recently, surchargesand that sort of thing.

Can you just give us an update on what your thoughts are relative to what steel is doing and how that is going to be managed?What kind of impact do you see going forward?


Well, certainly steel prices have been going up. You know, we can read all about that in the newspapers. But for the most part,we have contracts with the major mills in most regions of the world. So we tend to see the changes in steel prices in kind of astep function.


So you're not seeing anything like a surcharge in excess of what your contractual pricing is at this point?


No.


Okay. Then can you just lastly just talk about the strategy for getting 20% of the workforce to the lower wages? It does look likethe take rate on the initial round of buyouts was lower than maybe some had expected. What happens from here to get to thatkind of number?







I think our fundamental strategy is to size our production to the demand and the changing model mix. At this time, we do nothave any more plans for a companywide buyout. But clearly, plant by plant and vehicle by vehicle, we will size that productioncapacity to that demand.

So we will continue to be taking actions on all of our fixed costs following that strategy.


Can you do that outside of just the voluntary buyouts that you have been doing so far? What other options can you pursue?


We'll work all of the elements of the fixed cost, because the number one thing -- as we've talked about -- is to size the productionto the real demand.


Okay, thank you.

Operator

Brian Johnson from Lehman Brothers.

Brian Johnson - Lehman Brothers - Analyst

Good morning. A question for Alan around again page 17, but more around the business and operational strategy as opposedto the detailed numbers.

If you compare the $3 billion goal for '08 and $5 billion over that time period, where you are on it now in terms of where it isgoing to come from, versus what you might have been thinking say at this point last year, what are the major puts and takes?

I guess underneath that is kind of how have you compensated for the rising cost of commodities in some of these products?Was that in your thinking? Or have you gone and found other cost reductions to offset some of that?


You bet. An important question, and that is why we really want to keep grounding all of us on the data that we're showing onpage or chart 17.

Clearly, what's new for us going forward has been the material cost reductions, because that is tougher; and the commodityprices; but also, it means that we have now moved even faster on taking out more of the structural costs.

So I think overall, clearly, it's a more challenging environment than what we laid out in the plan. But again, our fundamentalapproach is to size the business to the real demand and get back to profitability. That step of removing the $5 billion out of thefundamental cost structure in '08 is clearly the most important first step this year.







So are you saying the material cost reductions are more than you would have looked at, thought was possible maybe a year,year and a half ago?


Are less, lower.


Lower? Okay.


Right. So that is why we have increased our efforts on the rest of our structural costs.


Given the lower take rate on attrition and the pace of (inaudible) ACH employees being divested, where are you getting theoffset to that in structural costs? (inaudible) that or increased that target?


Well, it also includes the employees also. We're not just going to do it with a companywide buyout. But plant by plant andvehicle by vehicle we will continue to reduce the employment accordingly and the rest of those structural costs. But we are justnot going to do it with an employeewide buyout anymore.


Okay, so that means -- would that mean additional capacity reductions or shift idlings?


Yes, and employment reductions.


Okay, thanks.

Operator

Himanshu Patel.






Himanshu Patel - JPMorgan - Analyst

I just want to go back to Rod's question on the attrition program, given the now weaker industry volumes. Just conceptually,does it make sense to not exercise the lower wage portion of your union contract now? Would you rather just not replace anyonein the system and just reduce overall headcount is kind of what I'm getting at. Is that how we should think about how Fordwould (multiple speakers) the attrition program?


Yes, that is step one. Clearly the highest priority is to size it to the current demand and also to be looking ahead at these increasingheadwinds.

I think that over time, then, as we stabilize and the economy comes back, then that's going to be a chance for us to really takeadvantage of the opportunities for employment and lower rates.


Right. Then Alan, you know, the contract is a four-year contract, obviously. Would you envision getting at least 20% of theworkforce down to the lower wage rate by the end of the contract? Or would you be fine that not happening, as long as overallheadcount was going down?


I think that would be something that we will give you further guidance going forward. I think it's a little too early to tell that.

The most important thing right now, as we've talked about, is get us sized to this real demand and get stabilized; and then it'sjust all going to be a plus after that.


Okay. Staying on North America, net pricing was negative $300 million. I think it was to the tune of positive $1 billion in eachof the last two quarters of 2007. I think the comparison year-over-year for Q1 was actually pretty easy as well.

Did something sharply deteriorate on the net pricing side? Or does this have something to do with fleet mix or any of that thatcould be influencing that number?


No, it's mainly due to the fact that the economy is softening, demand is weakening, and the incentive level really across theboard in the industry is increased. Plus we ran a slightly higher mix of leasing in the first quarter that has a little higher incentivelevel attached to it.


So would you expect net pricing, Don, to stay at this rate for the next few quarters, or was this abnormally weak?







I would say that we expect net pricing to be tough for the year. I don't want the give an estimate for the balance of the year;but we expect it to be tough while the economy continues to slow.

As it picks up, which we hope it will do sometime, we're not sure when, we expect those pressures to abate somewhat.


Okay, can I shift gears to Europe? You had I guess a $700 million profit there; and it sounds like there was $300 million of kindof onetime funding between warranty and mark-to-market gains on commodity hedges. Even if you back that out, you didnorth of a 4% pretax margin in Europe this quarter. That is clearly fairly high relative to anything you've done in the past decade.

Is this sort of a new starting point? Should we think about mid single digit margins in Europe for the foreseeable future?


While, I -- as we said back in January, we will be disappointed if Ford Europe doesn't do better this year than last year, and thefirst quarter is a strong indicator.

As Alan said, we are really pleased with how things are going in Ford Europe. We think it's an indication of what happens whenyou do aggressively restructure and do accelerate the flow of products.

Then the reason we're encouraged with it is, first, we are doing well and Europe; but it is a good sign for us as we bring theproducts across and leverage the assets. So we're really pleased with how things are going at Ford Europe, and a lot more newproducts coming this year as well.

Operator

Chris Ceraso from Credit Suisse.

Chris Ceraso - Credit Suisse - Analyst

Thanks. Good morning. A few short answer questions. First on the steel contracts, Don, are those annual? Will these open upat the end of the year?


They do vary and they vary by region. Generally, they are about a year, but they don't all start on January 1. They're kind of --there is a step function throughout the year, and the timing and the amounts vary depending on whether you're in NorthAmerica, or Europe, or Asia, or South America.


What about the North America ones?







I think for competitive reasons, we would really rather not comment on the specifics at any one steel company or region oranything.


Okay, fair enough. The $12 billion to $14 billion of full-year cash burn target, does that include the $4.5 billion that goes intothe VEBA that went in the first quarter?


No, and that was $12 billion to $14 billion over three years.


Right.


Right.


So that does not include the $4.5 billion.


No it does not, correct.


Okay. Alan, I know you have been talking, sort of hammering on this point for a long time, about simplification of componentsand streamlining and so forth.


Encouraging.


Encouraging. Has that started to show up in any of the numbers yet? Is any of that in these material cost numbers or the structuralcost numbers? Or is that still something that you're going to see down the road?







Just a little bit. Because you know, your real opportunity, as you know, is with the development of the new vehicles. So I'm reallyencouraged by the efforts. We've included the dealers with us as well as product development as well as our suppliers. And wejust see a tremendous opportunity to simplify these vehicles and package the vehicles with the options that customers reallywant, and take all that complexity and the hassle out of it.

You can just imagine what that's going to mean to the cost structure inside Ford as well as throughout our supplier base. It'sjust a big element of Jim and Derrick's plan, having it driven from the market and then drive it all the way through to the suppliers.

So it will start -- we will start seeing the benefit of that next year; and then more and more each year thereafter, especially witheach of the new model introductions, because you get a real chance to make a significant step improvement in that complexityreduction.


Don, can you put a number around how much the inventory build helped in the quarter? You mentioned that a couple of timesin terms of why Q1 was a little bit stronger.


No, I would rather not, because we don't really -- that's too close to telling you what our margins are by vehicle line. But it wasa 32,000 increase during the quarter and 34,000 on a year-over-year.


Okay. What about the change in incentive accounting? You mentioned this on the last call. Was that a factor in helping or hurtingthe results in Q1?


No, no, it was not.


Just the last one, what are you thinking now in terms of the timing of recognizing on the P&L the benefit from the healthcaredeal in '07? Is it still third-quarter '08?


We're not sure. As far as it looks now, we are on track to achieve what we need as far as court approval, and all the documentsand the proceedings are occurring as we thought. I guess we have no real update, no, other than that.

Operator

Peter Nesvold with Bear Stearns.






Peter Nesvold - Bear Stearns - Analyst

Morning. I guess if I just take a step back at this point, because I think a lot of the details have been covered here. I certainlyagree with your point that US auto sales here are getting weaker here, not stronger. It does seem that there a couple hundredmillion dollars of benefits from warranties in the quarter.

But, I guess I'm trying -- I'm struggling to understand, why don't you exit this year profitable in North America, if you've got the150 launch, if you've got the healthcare deal at your back, and if you have got more headcount reductions coming?


Well, the trajectory that we laid out in the plan has us getting back to profitability in '09, as we've talked about. These are -- theprogress in '07 and '08 are tremendous improvements in the fundamentals. As we talked about, we have the oneoffs in the firstquarter and also the slowing industry throughout the rest of this year.

So I think with the cost reductions we have in place we're going to be able to achieve the $5 billion. I think it is -- it is just goingto be -- it's a major improvement on our plan to make the improvement we're making in '08 on the way to profitability in '09.So I think it's about right at this point, Peter.


I actually mean, I think the trajectory is even stronger than what you are outlining here. It actually -- am I unreasonable toanticipate that you could actually exit this year by fourth quarter profitable in North America, and then certainly full year in2009?


Certainly our goal is to be profitable in 2009 for the full year. I think the best way to think about how -- the progress that we'remaking in North America -- is to think not about the absolute amounts, but to look at the improvement each quarter.

What's happening now is the business is improving fundamentally underneath. That is being masked in part by some of theseoneoffs, but importantly by the slowing economy. I mean, the industry volumes are sharply lower than they were a year ago.The mix is tough and working against us, and raw materials prices. Despite those tough external conditions, the business isgetting better.

I think the thing to focus on is the year-to-year improvement each quarter as the business gets better despite the challengingexternal environment.


Okay, thank you.

Operator

Douglas Karson with Banc of America.







Why don't we move on to another caller?

Operator

Jonathan Steinmetz with Morgan Stanley.

Jonathan Steinmetz - Morgan Stanley - Analyst

Thanks, good morning, everyone. Just a few follow-ups here. I know you like to do a walk sort of year-on-year, but if we canthink a little bit sequentially versus Q4, I'm still in North America trying to understand this a little better.

It looks like you went up by around $1.5 billion pretax. The volume seems to explain maybe $300 million, $400 million; and Iguess the commodity hedging maybe a few hundred million. But it seems like there's the better part of $1 billion that is hardto reconcile.

I am just wondering, Don maybe or Alan, if you could talk about what items may have affected that sequentially, since therewas pretty limited restructuring sequentially.


Yes, that's true. There was. But there's actually a lot going on there. As you say, the volume and the mix was not a big contributor.

But there was a lot on the cost reduction side, and that includes material cost. We had some warranty adjustments at the endof last year. Then when you compare those to the start of this year, there are some things that are seasonal in nature that tendto make the fourth quarter worse than the first quarter. Those would include things like we generally do a lot of advertisingtoward the end of the year, and just the fact that we draw down our inventories at the end of the year, and we don't do that somuch at the end of the first quarter.

All of those contribute. It's mainly on the cost side, and as you say the volume and mix was not an important contributor.


Okay.


Does that help?


Yes, it helps. Let me switch to Ford Credit. How do we take your comments, Don? Are you saying there will be no dividend thisyear, or just a reduced dividend, or it's wait and see?







I think it's wait and see. We had no dividend in the first quarter, and the way things look right now I would be surprised if wehave a dividend in the second quarter. But it's too early to say there will be no dividend for the full year. We're just doing thisto be cautious.


Okay. Lastly, maybe Alan on Volvo, you had about a $150 million loss. If a pro forma things for the OPEB deal as well as someof the cash burn here, you could be reasonably net debt -- have a reasonable net debt position as a Company. It's not somethingyou guys seem to relish, and it's not a big profit contributor, and it might fit better elsewhere.

Are you thinking about that as a source of liquidity? Or are you still looking to turn that around internally?


Our priority now is to improve the business dramatically.


Okay.

Operator

Mark Warnsman with Calyon.

Mark Warnsman - Calyon Securities - Analyst

Good morning. Regarding exchange, do you see the US dollar remaining week on a sustained basis, first?

Second, is it correct to assume that you will continue to look to match your cost and revenue basis by currency?

Then following on to that, to what extent do you see a weak US dollar impacting your sourcing pattern on both sides of theCanadian boarder, the Volvo footprint? And then ultimately how are you factoring exchange into the One Ford strategy?


Well, that's a lot to try and remember. But I would say that if you start off, we're projecting the dollar relative to the yen and theeuro and the pound to be generally in line with most external observers at least through the end of this year, or early next year.

Our plan is to -- where we -- where it makes sense, to produce where we sell. Now that doesn't apply to every single part of thebusiness. And I'm not going to comment about the US-Canada sourcing right now.


Okay, thank you. Regarding the American axle strike, have you seen changes in the market dynamic for full-size pickups andSUVs? Has it had an impact either positive or negative on your business?







I assume you mean the American Axle has affected some of our competitors' production; and have we seen an effect in themarket because of that?


Yes.


I would say no.


Okay, thank you very much.

Operator

Patrick Archambault with Goldman Sachs.

Patrick Archambault - Goldman Sachs - Analyst

Hi, good morning. I just wanted to see if you could provide a little bit more color on Financial Services on slide 28. I understandthat a lot of these headwinds are very dependent on the overall credit market.

But could you try and give us a sense of what here might be onetime in nature, and what might be sustained headwindsthroughout the balance of the year ?


Well, that's an interesting question and I think a tough one. You know, if you just take it one step at a time on the financingmargin, I think the rates, base rates are low in the US. That is by policy. We will have to wait and see how that goes. I think thatwill change as the economy changes.

The spreads, or the pricing of credit risk, that is a function of how things go in the credit markets.

The things that are happening to us that are affecting our results importantly, aside from that, are really in two areas. One ofthem is the auction prices for large pickups and large SUVs. Those are going down, and that is related to gasoline prices. Wehave a forecast on gasoline prices, as does everyone else; and we think we have a good forecast for where that is going to comeout, but we will have to wait and see.

That is affecting how we value our lease portfolio as well as our credit losses, because it makes each repossession more expensive.

The thing that is not recurring is last year's onetime restructuring costs which were largely in the first quarter; and we're nowbeginning to see the full benefit of the operating cost improvements that are related to that restructuring. Does that help?







Yes, it does. Thank you. Moving to slide 25 on the Automotive cash flow, in terms of the I guess changes in working capital,other timing differences. Does that include adjustments for non-cash things like the fair value adjustments for FX and thehedging?

If that is in that bucket, can you give us a sense of what's really just sort of simple working capital and what is kind of just addbackof non-cash cost saves?


Let me see if I can help you there. Those loan revaluations were about $300 million. The hedges were a similar amount. We hadcash taxes in there of $200 million. Then timing differences on marketing and warranty accruals were about $0.5 billion.

Working capital is actually favorable, and there is a whole host of other things that offset that.


Okay, that's helpful color. Then lastly, just to push the steel issue a little further, there are reports of one of your competitors innegotiations with Nippon Steel for some kind of a surcharge.

Is this something that, A, you are in talks with; and B, would consider? Or can you say that absolutely this is something that isnot going to happen until contracts reprice?


I think it's best if we don't comment on that for competitive reasons. What I will say is that a part of what Alan described earlierabout trying to commonize and make global our efforts in product development and purchasing is that we will be seeking tohave more common specifications of steel across the world, which will help our steel suppliers as well as help ourselves havesensible discussions with them.

So we have some work to do within our own operations to improve our ability to have lower steel costs.

Operator

Ladies and gentlemen, we will now take questions from the media. Bill Koenig with Bloomberg News.

Bill Koenig - Bloomberg News - Media

Good morning. When you talked a bit ago about plant by plant, possibility of plant by plant buyouts and other employeereductions, what are the prospects that there could be involuntary separations?


Well, that's clearly a possibility. But right now our plan is to not do that.






But it all comes down to -- you got to just stick really close to the market and what's happening and then size ourselves accordinglyso we can keep investing in these products for the future.


So a fairly low probability for right now? I mean, like you say, it's not part of the plan for right now. But would it be fair to say itis a low possibility for the immediate future?


I think I would just summarize it, Bill, by saying we have a contract and we're going to honor that contract.


Well also, I was also wondering about salaried employees as well. Or do you anticipate any actions on that front?


This is speculation and I would rather not do it at this time. Just the plan is that we will size ourselves accordingly, and clearlywe have been using attrition up to this point, which has been good for everybody.


Okay, all right. Thank you.

Operator

Bryce Hoffman with Detroit News.

Bryce Hoffman - The Detroit News - Media

Good morning, gentlemen. Congratulations on the quarter. I wanted to ask a couple of questions. One is kind of picking up onBill's question. Is there any possibility of idling additional facilities as a result of adjusting capacity?


I don't think so.


You will stick with the actions that have already been identified at this point?







Yes, I was thinking of your bigger question about a complete facility. I think clearly the next step would be that we would endup reducing the shift would be the next step.


I also wanted to ask, where did incentive spending end up for this quarter? Was it up, down, or flat?


It was up in the US and you can see that on one of the slides. Slide 14. If you look on slide 14, you see the increase in net pricingof $300 million. That mainly reflects higher incentives.


Great, thank you.

Operator

Tom Krisher with Associated Press.

Tom Krisher - Associated Press - Media

Hello, gentlemen. Did the 4,200 figure fall short of your goal for the buyouts? Will that be enough to clear out the ACH flowbacksand what you have left in [Gen]? What number do you need to get to, to get to the two-tier?


Tom, we do not give out a target for that. Again, our plan is that we will continue to size ourselves to the real demand.


It's been pretty widely reported that it was (multiple speakers).


I read a lot in the paper, too. Yes, we have not given out a target. As you know, we assess this every week and we will make theadjustments accordingly.


If I work at a truck manufacturing plant, that is where the production cuts seem to be occurring, so presumably that would bewhere the highest likelihood is of a shift reduction. Would that be correct?







Clearly, the larger vehicles, the trucks and the SUVs, with everything that is going on, the consumers are moving to the smallerand medium-sized vehicles. As we shared earlier, we are reducing the truck production.

So clearly, that is an area that will need our special attention to match that capacity to the demand.


Okay. One other thing. It does appear to be a disconnect, at least from where I sit, that you are predicting a lower US salesvolume for the remainder of the year, yet you're also staying on plan.

The plan included pretty much the same numbers for the cost cuts. How are you going to achieve this without further cuts? Ordo you have to make further cuts?


Our guidance has not changed on the market share. We said we would be in the lower part of that 14% to 15%, and witheverything we see right now we think that is still a good forecast.

We're continuing to take, as we talked about, we're continuing to take the actions on the structural costs as we deal with thehigher commodity costs and the material costs.

Operator

Jeff Bennett with Dow Jones Newswires.

Jeff Bennett - Dow Jones Newswires - Media

Thanks. Don, just a real quick question. For North America, where did the savings come from, specifically in the cost reductions?Was it in engineering costs, or what kind of played out in the North American market?


Well, it was about $400 million on the manufacturing side, and then about --


That is from what?


Pardon?


That is from what? Is that from like --?







A whole combination of better productivity, better capacity utilization, better efficiency, lower overtime, -- and most importantly,fewer people.

Also, the spending related, which is the lower depreciation which we talked about. And then it was improvements in advertising,pension and healthcare expense, and then generally, other overheads and staff costs throughout the Company.


Then, Alan, are you also saying that a companywide hiring freeze is basically on right now? Then with that as well, are youbeginning to feel the pressure to move on more incentives?


No, we don't have a companywide hiring freeze. We have different skills that we are always paying special attention to. But theoverall direction that we're going clearly is to size our production to the real demand.

As we reported today, we're taking the production down some more to match to the customers' demand.


Okay, then on the -- are you feeling the pressure to use more incentives?


Clearly in this environment, it's going to be an important part of the plan. But the most important thing we do is, again, to sizethe production to the real demand because that allows us to get the real value of the products and minimize the incentives.

We saw that all last year, that when we do that we protect the residual values, we help the customers, we decrease the incentivespending because we have that production match to real demand and people want the vehicles that we are making. So we'regoing to continue that as our plan going forward.


Okay, thank you.

Operator

Amy Wilson with Automotive News.

Amy Wilson - Automotive News - Media

Good morning. I wanted to clarify with -- you said you might target plant by plant in terms of further headcount reduction.Were you saying that you will still do buyouts, they will just be sort of customized for each facility?







Yes.

Amy Wilson - Automotive News - Media

ford motor company 1st quarter 2008 financial …...2008/04/24 · alan mulally - ford motor...

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