Ford Motor Company's Management Presents at September 2013 Sales Conference Call (Transcript)

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Ford Motor Company (F) September 2013 Sales Conference Call October 1, 2013 10:30 AM ET

Executives

Erich Merkle - US Sales Analyst

Ken Czubay - VP, U.S. Marketing, Sales & Service

Jenny Lin - Senior US Economist

Analysts

Brian Johnson

Rod Lache - Deutsche Bank

Colin Langan - UBS

Alisa Priddle - Detroit Free Press

Mike Ramsey - Wall Street Journal

Craig Trudell - Bloomberg News

Brent Snavely - Detroit Free Press

Operator

Good day, ladies and gentlemen, and welcome to the Ford monthly sales call -- conference call. My name is Jackie and I'll be your operator for today. At this time, all participants are in listen-only-mode. Later we will conduct the question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today Mr. Erich Merkle, US Sales Analyst. Please proceed.

Erich Merkle

Thank you Jackie. And I'd like to take a minute at the top of the call here to tell you that I've got Ken Czubay here with me in the room along with Jenny Lin, our Senior US Economist. As many of you may know from some of the releases, this is going to be Ken's last call with us, and we really, really so much value and appreciate his support.

John Felice is also here with us today to kind of listen in on the call and he will be handling the call, he will be working with us going forward and that will start next month in November for October's call. So we're happy to have John with here with us as well.

So to get things started, for the month of September, we estimate that the month will finish off at approximately 1.14 million vehicles and this translates into what we would roughly consider a mid-15 million vehicle SAAR for the month including medium and heavy trucks. This would equate to an estimated 5% decline in industry sales compared to year-ago levels, September's performance can be attributed to both the timing and the strength of the Labor Day weekend which was counted in August sales this year. Last year's Labor Day weekend was reported in September. So the better gauge of industry performance will be to review the third quarter in its entirety. We estimate that third quarter SAAR this year averaged about 16 million vehicles including medium and heavy truck. This will likely be the industry's best quarterly SAAR since the fourth quarter of 2007 which was 16.3 million vehicles. Based on this morning's estimates, we believe the September's retail SAAR came in at the high end of the 12 million vehicle range and equated to approximately 82% of total sales for the month.

When we start digging and taking a look at some of the details by segment, the full size pick-up truck segment represented what we believe is approximately 12.3% of the industry in September, compared to 11.9% last year. This translates into what we believe will be a flat year-over-year sales for the segment given the approximately 5% to 6% decline in the industry overall.

Small cars ran at about 22% of the industry last month. This was slightly less than August and down about 1 percentage point compared to year ago level. Small utilities continued their breakout in to September making up just over 15% of the industry. Again, this is approximately two full points ahead of last year. We have talked about the appeal of small utilities for baby boomers, particularly as they move into their empty-nester status and we feel that this segment should continue its strong performance through the decade as younger boomers will continue moving into the status in the years to come. So with that I'd like to turn things over to Ken and he can give you some more details about what he's been seeing.

Ken Czubay

Good morning everyone and thank you Erich. Before I start, I'd like to thank you for joining me on the call over the last five and half years. It has been an incredible journey for our industry, for Ford and for our dealers. As Erich mentioned, we estimate the industry was down about 5% in September compared to last year due to the timing and strength of the Labor Day weekend. We are pleased to report that the Ford Motor Company posted a 6% increase significantly outpacing the industry with total sales of 185,146 vehicles sold in September.

We continue to see strength coming from the newly revised Ford Fiesta. Sales last month were up 29% with 5,043 sold. Calendar year-to-date, our largest Fiesta market Los Angeles, saw a retail sales increase of 41%, while Phoenix in West was up 58%. Fiesta sales in our Dallas region were up 45% as small car sales continue to grow in Texas.

With inventories improving, Fusion sales reported a 62% increase over September of last year with 19,972 sold. This represents Fusion's best ever September sales performance. Calendar year-to-date Fusion retail sales increased in San Francisco by 78% and a little further south, 83% in Los Angeles. Miami increased by 58% continuing our sweep in the coastal regions. The majority of our competitive conquest in these regions are coming directly from the Japanese competition. We will soon be shipping Fusion's from our flat rock assembly plant which will position us even better as we move into October and the traditionally strong end of year sales period.

F series trucks continue to roll with 60,456 sold in September, an increase of 10% versus year ago levels. We have now had five consecutive months of sales over the 60,000 F series vehicle mark. The last time we accomplished a sustained level above 60,000 for five consecutive months was made through September in 2006, seven years ago. The month also represented our 26th straight month of F series sales gains year over year.

Turning to Lincoln MKZ, our sales totaled 2,874 representing a 12% increase compared to last year. This represents our best ever September performance for MKZ even with the September Labor Day weekend counted in August.

We have been benchmarking MKZ sales performance since April of this year, the point of which MKZ had an appropriate supply on dealer lots. Since this time, MKZ sales have been up 22% over the same period a year ago. Sales of MKZ Hybrid, are also taking hold representing almost two thirds of all MKZs sold in California.

That's a look at Ford and Lincoln. Now we'll turn things over to Jenny for an update on the economic front. Jenny?

Jenny Lin

Thank you Ken. Since our last monthly sales call in early September, economic conditions continue to improve at a modest pace. Manufacturing sector expanded at a faster pace and the capital goods orders and shipments are rising.

Housing sector recovery healthy and broad-based across the country. Job and income gains are positive but sub-par, interest rates low but rising. Our net -- the US economy is projected to grow in the 2% range this year. Here are some of the details.

This morning the September purchasing manager's index continued to move up around last month at 56.2%. This is a very encouraging win. Orders, production and employment are still growing.

In august, non-decent [ph] capital goods orders excluding air crafts of 7.2% compared to a year ago marking the fifth consecutive month of the year on year gains. This is a constructive development since investment spending growth signals improving gross profit in the end market. The September University of Michigan Consumer Sentiment readings was down from prior months to 77.5, primarily due to unfavorable assessment to a government policy and job market outlook. Even though the headline reading has declined, six out of 10 consumers who were surveyed believed it was still a good time to buy a vehicle.

Housing related data demonstrated that the strength in housing sector remains in place. Home prices represented by the Case-Shiller Home Price Index rose by 12.4% in July as compared to a year ago with all 20 cities covered by the index posted year-on-year increases. The pace of existing home sales growth was strong in August up over 13% compared with a year ago and new home sales grew over 12% over a year ago as well despite tight supply condition.

Finally, all this housing SAARs and permits shown good gains with increases of 19% for SAARs and 11% for permits, again on a year over year basis. The most recent full year -- full week moving average of initial jobless claims are still below historic average indicting the job market is firming, although pace of job gains of 1.7% year over year ago is stable but modest. This sort of job growth is consistent with lackluster gains in after tax income which are running at less than 1% year over year growth during July -- January to July period. One positive development is that in August, after tax income increased by 1.6% over a year ago. Strongest year on year growth since the fourth quarter of last year. While consumers spending grew by 2% in August.

Low borrowing cost and rising consumer wealth should continue to support spending growth going forward unless the US economy is projected to grow in the 2% range this year. To recap, as Erich mentioned earlier, the September total industry sales were estimated in the mid 15 meeting unit range at [indiscernible] adjusted annual rate including medium and heavy duty trucks. Our full year call for the industry sales remain unchanged in the high end of the 15.5 to 16 unit range.

With that summary, let me turn it back to Erich.

Erich Merkle

Thank you Jenny. And to take care of some housekeeping items, we'll take a look here in terms of our fleet as a percent of our total sales. So if we take a look at the month of September, our fleet, total fleet as a percent of our total sales was 27%, commercial, was 11% of our total sales, government was 5% and rental was 11%. This compares to September of last year, when our fleet was 26% of total sales, commercial was 13% of total sales, government was 5%, and the [indiscernible] was 8%. When we take a look at year-to-date, year-to-date, our fleet as a percentage of total sales was 30%, commercial was 13% of total sales, 5% was for government and rental was 12%. When we look at -- compared at the September year-to-date last year, 31% was the percent of our total sales for fleet, 14% was for commercial, 5% was for government and 12% was for rental.

Taking a look at our gross stock inventory situation, when we take a look at the September of 2013, cars 188,000 gross vehicle stock, trucks 245,000, utilities 144,000 giving us a total of 577,000 vehicles for the month. This translates into a days supply of 75. August of 2013, the previous month, cars were at 171,000, trucks at 232,000, utilities at 132,000 giving us a total of 535,000 vehicles translating into a days supply of 65. For September of 2012 last year, cars were at 114,000, trucks were at 225,000, utilities were at 111,000 giving us a total of 450,000 vehicles translating into 62 days' supply.

So with that, Jackie if we could, let`s start up some of the questions, then we'll take the first lot and focus on the analyst community.

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