Ford Motor Management Presents October 2013 Sales Conference (Transcript)

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Ford Motor Company (F) October 2013 Sales Conference Call November 1, 2013 10:00 AM ET


Erich Merkle – U.S. Sales Analyst

John Felice – VP, U.S. Sales, Marketing and Service

Emily Kolinski Morris – Senior Economist, The Americas


Adam Jonas – Morgan Stanley

Colin Langan – UBS

Patrick Archambault – Goldman Sachs

John Murphy – Bank of America

Craig Trudell – Bloomberg

Jeff Bennett – Wall Street Journal


Good day, ladies and gentlemen, and welcome to the Ford Monthly Sales Conference Call. My name is Kim and I will 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, U.S. Sales Analyst. Please proceed.

Erich Merkle

Thank you Kim and good morning everyone. Before we get started I’d like to just introduce a couple of new folks that we have with us on the call. First of all we have John Felice here. John has worked many, many different positions here at Ford over his 29 year career. A list that’s probably far too long for us to go through here today, but John is now our VP of U.S. Sales, Marketing and Service and we’re really pleased to have him here. I’d also like to introduce Emily Kolinski Morris, some of you may remember Emily, she was, her last call was about three years ago. She is now back working with Alan’s team in corporate economics and she is also here to join us on the call. So we’re all really excited to have them here and we welcome them.

So with that in mind let’s kick things off and we’ll talk about the month of October. So when we start taking a look at early morning reads of the data. We estimate that October finished at approximately 1.26 million vehicles for the industry, translating into a high 15 million vehicle SAAR for the month, this includes medium and heavy trucks. If this holds it would provide the industry with an approximate 12% increase over year ago levels.

At the retail level we estimate the SAAR came in at the low 13 million vehicle range and equates to approximately 83% of the industry for October. We saw some weakness in the first half of October leading up to the deficit season debate, but it appears October has provided a level of resistance with a solid close to the month.

Taking a look at some of the line item, some of the segment details, full size pick-ups represented approximately 12.5% of the industry for October, compared to September’s 11.8%. Compared to year ago October of 2012, the segment was about 12.8% of the industry, so just a little less than October of a year ago. This translates into what we believe will be a relatively flat year-over-year sales for the segment as we approach more difficult year-over-year comparisons. Throughout the month small cars ran at about 21% of the industry. This is slightly lower than September’s 22% and unchanged from 2012’s performance.

As we have been reporting for the last few months, the small utility momentum just continues. The segment comprised of just over 15% of the industry in October, consistent with September’s strong performance. And it’s really a 24 percentage point higher than this time last year. So we continue to see the strong secular trend story play out as empty-nester baby boomers continue to shift and beat smaller utility vehicles.

So with that overview I’d like to turn things over to John Felice, John?

John Felice

Well thank you Erich and good morning everyone. It’s great to be with you to share October results. Ford Motor Company, posted a 14% increase, with total sales of 191,985 vehicles in the month of October. A real stand out for us is our retail performance of 142,487 vehicles sold, which is up 15% relative to last year and represents our best October retail sales results going all the way back to 2004.

Given the governments shut down we’re really pleased with the month’s sales performance, for both the industry and particularly for, as Erich mentioned, we did some resiliency late month. What’s really encouraging is our newest vehicles that are accelerating our retail sales growth. We can continue to see focus and strength coming from our passenger cars, which are resonating with consumers based on our great styling and fuel economy.

A particular note is the refreshed Ford Fiesta, which posted its best ever October with sales of 4,337. Our strongest sales are coming from California, which represents a 16% increase or 16% of all Fiesta’s sold nationally and retail sales in the state are up a strong 11% on a year-over-year basis.

Also of note is a shrink of Ford Fusion now with improved availability and shipments coming out of flat rock. Last month Fusion sales surged with 21,740 vehicles sold, a 71% increase over last year, which is the first time Fusion sales had exceeded 20,000 unit mark in the month of October. Compared to the prior October record set in 2011, Fusion was up a strong 20% at a total at 29% retail.

Dealers on the coast have been very pleased with Fusion sales performance, we’re seeing some of our fastest retail sales growth for Fusion on the coasts including New York up 127%, San Francisco up 116% and Los Angeles up 77%. Seattle was also showing a lot of strength up 94% while Miami has been up 62%. Fusion broke an October retail sales and every one of our five market areas nationally.

October ‘13 Escape sales of 22,253 vehicles were up 12% this marks Escape’s best performance since October 2001. Well we’ve been doing great on the West Coast, one market area we’ve been watching closely with Escape is New York. The tri-state area representing the largest utility market in the country over 10% of all utility vehicles sold in America today.

Escape’s retail sales performance in New York market area is up 86% for October representing record retail sales for the month. It’s so encouraging that we are attracting new customers to our brand with Escape. Our largest competitor conquest in the New York is behind the CRV.

F series trucks continue to show strength in roll off the other lots with 63,803 trucks sold in October an increase of 13% versus year ago levels. This represents our sixth consecutive month above 60,000 sales and our 27th straight month of year-over-year gains. The last time F series sustained more than 63,000 sales for six consecutive months, was in April was the period, April to September 2006 which is seven years ago.

On the Lincoln, Lincoln sales were up 38% for October led by strong MKZ performance. MKZ sales saw an 80% increase with 2,909 vehicles sold. October represent MKZ’s best ever October retail sales months we’ve then benchmarking the sales performance of MKZ since April which is considered to play at which MKZ at adequate supply on dealer loss.

From the April through September period because we don’t have all the numbers in yet for October Lincoln MKZ sales are in the upper quartile of the mid-sized luxury segment. For this period MKZ sales ranked fourth behind only BMW 3 series, Mercedes-Benz C-Class and Lexus ES.

Importantly we’re seeing average transactions prices up more than $6300 on the new MKZ and we continue to attract new customers to the brand particularly with the MKZ hybrid. We’re encouraged by the October results on Lincoln but as mentioned on prior calls the reinvention of Lincoln brand is a journey though we measured in year’s not months.

You’ll be hearing more good news a bit more good news about Lincoln next month’s so stay tuned. We’re really pleased with our progress to date. And the new products we have for the future of Lincoln.

With that, that’s a quick look at Ford Lincoln. And I’d like to turn things over to Emily for an update on the economy front. Emily?

Emily Kolinski Morris

Great thank you so much John and Erich. So all though there has been some disruptions to the economic data releases until last monthly sales call in early October, the available data suggests that economic conditions continue to improve at a modest pace. Manufacturing sector growth continues at a steady pace through September, housing sector gains are showing some signs of moderation but with a broad based recovery still in place.

Job and income gains are stable but modest and interest rates are remaining low. And that we project the U.S. economy will grow in the 1.5% to 2% range this year. Here are some detail. The September purchasing managers index just out this morning was at 56.4 up two-tenths from September, so that’s still indicative of positive growth in the manufacturing sector.

The October University of Michigan Consumer Sentiment readings was down over 4 points from the prior month to 73.2 and that was primarily due to the unfavorable assessment of government policies. At the same time though an increased proportion of respondents stated a good time to buy a vehicle was up 5 points from the prior months reading.

Housing related data demonstrates the strength in the housing sector remains in place. The pace of existing home sales growth moderated in September but remained up over 10% compared with the year ago. Tight supply is keeping prices high and maybe contributing to the moderation of the sale, in fact home prices represented by the Case-Shiller Home Price Index were up 12.8% in August as compared to a year ago marking a sixth consecutive month of double-digit price increases and the largest gain since February of 2006. Price is relevant all 20 cities covered by the index.

September housing starts and permits for October will be released next month with the November report. The most recent four week moving average of jobless claims is at 356,000 in the week of October 26 as the government shut down and also, a backlog of claims in California continue to flow through the four week average.

Weekly claims were down 10,000 to 340,000 so the pace of job gains at about 1.7% over a year ago remains stable but modest and this sort of job growth is consistent with heavy gains and after tax incomes which are running at less than 1% year-over-year growth so far this year.

Nonetheless consumer spending remains positive with September retail sales excluding autos up 0.4% from the prior months, little bit stronger than the gain we saw in August. Low borrowing costs and rising consumer wealth should continue to support consumer spending growth going forward. And as I mentioned on that we think this sums up to a U.S. economy growing at about the 1.5% to 2% range this year.

On industry sales just to recap as Erich mentioned September industry sales estimated in the high 15 million unit range seasonally adjusted including medium and heavy duty trucks. And our full year cost for the industry this year remains unchanged at 15.9 million units.

So with that summary let me turn it back over to Erich.

Erich Merkle

Thank you Emily we’re going to take care of some housekeeping items here before we turn, turn it over to questions. So if you start taking a look at our, our fleet as a percentage of our total sales. For the month of October, our fleet as a percentage of our total sales was 26%. For commercial, that was 12%, for government it was 6% and for rental it was 8%. This compares to our fleet as a percent of our total sales last year October of 2012 of 26%. For commercial it was 14%, for government it was 5% and for rental it was 7%.

Taking a look at the calendar year-to-date data when we look at our fleet as a percentage of total sales January through October of 2013 it was 29%. 13% was for commercial, 5% was for government, 11% was for rental. When we looked calendar year-to-date January through October of 2012 our fleet percentage of total sales was 31%, for commercial it was 14%, for government it was 5% and for rental it was 12%.

Looking at our inventories for the month of October. October, 2013 our gross stock for cars 216,000 vehicles, trucks 262,000 vehicles, utilities 166,000 vehicles for a total of 644,000 vehicles that translates into a day supply of 91 days.

Looking at September of 2013 for cars it was 188,000 vehicles, trucks 245,000 vehicles, utilities 144,000 vehicles for a total of 577,000 vehicles translated into a day supply of 75 comparing to October of 2012 one year ago cars were at 136,000 vehicles, trucks were at 238,000 vehicles. Utilities were at 133,000 vehicles giving us the total of 507,000 vehicles translating into an 81 day supply. So with all that information Kim we’re going to start taking some questions. And first we’d like to open it up to the folks in the Analyst community please.

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