Ford Motor Company's Management Hosts August 2013 U.S. Sales Conference Call (Transcript)

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Call Start: 10:00

Call End: 10:45

Ford Motor Company (F)

August 2013 U.S. Sales Conference Call

September 4, 2013, 10:00 AM ET


Erich Merkle - U.S. Sales Analyst

Kenneth Czubay - Vice President, U.S. Marketing, Sales and Service

Ellen Hughes-Cromwick - Chief Economist


John Murphy - Bank of America Merrill Lynch

Adam Jonas - Morgan Stanley

Rod Lache - Deutsche Bank

Dee-Ann Durbin - Associated Press

Ben Klayman - Reuters

Craig Trudell - Bloomberg News

Mike Ramsey - Wall Street Journal

Jaclyn Trop - The New York Times


Good day, ladies and gentlemen, and welcome to the Ford monthly sales conference call. (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. Good morning, everyone, and welcome to Ford's August 2013 sales call. We found that strong momentum carried through into August with a very robust industry that again had a particularly strong retail component. Based on our early review this morning, we believe vehicle sales including medium and heavy trucks totaled about 1.53 million vehicles last month.

This would translate into a total SAAR in the mid-16 million vehicle range and approximately a 17% increase for the industry. Retail for the industry and at Ford was very robust. We estimate, retail SAAR came in at approximately 14 million vehicle in August.

Let's take a look at a few of the segment details. Last month, we saw continued strength in full sized pickups and the full sized pickup truck segment on a year-over-year basis and a significant breakout in small utilities. Small cars ran at 22% of industry last month comparable to July, but slightly lower than 2012, almost 23%.

Small utilities really broke out in August, representing approximately 15.5% of the industry, a full 2 points higher than August of last year. This was a segment that represented just 8% of the industry in 2004. It continues to grow, led primarily by baby boomer customers, as they make the transition to empty-nester status and downsize their vehicle size requirements.

Full sized pickups represented approximately 12% of the industry, fairly consistent with July and almost a percentage point higher compared to August of 2012. We estimate sales of the full sized pickup segment increased approximately 17% to 20% over year ago levels. Ford retail sales surged 20% in August under tight inventory constraints of some of our hottest new vehicles.

Here to provide you with some more perspective around the details that we saw at Ford this month is Ken Czubay. I'll turn it over to Ken. Ken?

Kenneth Czubay

Thank you, Erich, and good morning, everyone. As Erich said, notwithstanding tight inventories on some of our most popular models and a temporary pullback in fleet sales for the industry, Ford Motor Company delivered a 12% year-over-year gain with 221,270 vehicles sold in August.

Ford's retail strength really shined in August, with retail sales of 174,937 vehicles, a 20% increase and our strongest retail sales month for any month dating back to August of 2006. 1,400 new workers at the Flat Rock assembly plant will go a long way toward relieving constraints on Fusion, as we move into the fourth quarter of this year.

We are confident, our sales and share will grow as availability improves with this terrific new product. This will be particularly evident in the west and south eastern regions of the country, where we have already made significant gains so far this year. Today, Ford's strong full line portfolio from small cars to full sized pickups can meet the many needs of our customers.

Ford's small car sales, this will include Fiesta, Focus and C-MAX Hybrids totaled 30,148 vehicles in August, representing a 30% gain over last year. A retail growth on the coasts continued with small car sales up 28% on the East Coast. Year-to-date, Ford's small car retail sales on the East Coast are up 19% compared with a 4% increase for the overall industry.

On the West Coast, Ford retail sales of small cars were up 60% in August. Year-to-date, Ford's small car retail sales in the West Coast are now up 46% relative to the overall industry, which is up 11%. Ford small cars have been growing at approximately 4x the rate of overall small car segment on the West Coast this year. Sales for the C-MAX Hybrid vehicles of 3,032 moved higher compared to July. C-MAX Hybrids represents 44% of our small car growth in August. The new Fiesta is being well-received, reporting a 61% increase in August with 6,744 Fiestas sold.

Fiesta's sales success continues in the largest small car market in the country Los Angeles. Fiesta retail sales in this region posted a 90% increase. Dealers are giving us great initial feedback and early sales of Fiesta ST. Our performance Fiesta packs a 197 horsepower mated with a six-speed manual gearbox. The new Fiesta ST stands alone in its segment offering the best combination of performance, fuel efficiency and price.

With inventories remaining tight, particularly in California and Florida, Fusion was still able to produce record sales for August, with 24,653 vehicles sold, a 14% increase over year ago levels. As I mentioned, we are really excited to have our Flat Rock plant now online to help us increase availability of Fusion. With days to turn still at about 13 days in L.A., San Francisco and Miami, Fusion retail sales in California were up 94% in August. Miami, that southern part of Florida saw a 61% increase.

F-Series continued with strong momentum into August, with 71,115 trucks sold, an increase of 22% versus year ago levels. This represents the second time this year, F-Series sales were above the 70,000 vehicle mark, as May also saw F-Series top 70,000. This also represents F-Series 25th straight month of sales gain. The last time F-Series had two months of sales over the 70,000 vehicle mark was in 2006. Let me help you with the math on something. At August pace, we are selling one F-Series pickup every 42 seconds 24 x 7.

Taking a look at Lincoln and MKZ last month, MKZ sales totaled 3,652 vehicles in August, representing a 10% increase for the month and our best every August sales performance for the Lincoln MKZ. This provides us with MKZ sales records in four of the last five months. It's a solid report card for our first all-new product and the reinvention of the Lincoln brand.

MKZ is experiencing good early momentum in California, with retail sales up 71% last month. A big driver of this has been Lincoln MKZ Hybrid, which comprises more than 60% of all MKZ sales in California. We will continue to leverage our hybrid advantage in California, which is a big part of our decision to increase production of the Lincoln MKZ Hybrids to 40% for the 2014 model year. So that's a look at Ford and Lincoln.

Now, let's turn things over to Ellen for an update on the economic front. Ellen?

Ellen Hughes-Cromwick

Thanks, Ken. Well, since our last monthly sales call in early August, economic indicators continue to improve. We're now two months into the fifth year of economic expansion. The economy has grown at an annual rate of 2.2%, since the expansion began in the second quarter of 2009.

The pace of advanced during the expansion has been uneven and slow by comparison to the prior expansions. The automotive sector of our economy has contributed greatly to overall growth. Auto output has contributed over 15% to overall GDP growth since the second quarter of 2009.

Some of the highlights of the recent indicators include, second quarter GDP that was revised up to 2.5% annual rate compared to the first quarter. The economy over the last four quarters ending in the second quarter rose by 1.6%. We've seen manufacturing orders and shipments expanding, housing sector recovery healthy and broad based and job and income gains positive, but sub-par. Interest rates remain low and our net the U.S. economy is projected to grow in the 2% range this year.

Here are some of the details. August Purchasing Managers' Index, one of the best leading indicators that we have, rose to a reading of 55.7, one of the best since June of 2011. Good gains in the components of the Purchasing Managers' Indexes include orders and export.

August, University of Michigan consumer sentiment reading was down slightly from the prior month to a reading of 82.1. Even though this is lower than last month, August reading is only a few points below the long-run historical average. Indeed, nearly two-thirds of those survey assess this is a good time to buy a vehicle.

In July, non-defense capital goods orders, excluding aircraft, advanced over 9% compared with a year ago, marking the fourth consecutive month of year-on-year gains. This is a constructive development since investment spending growth signaled improving growth prospects as companies assess their end-market, which are likely to gain in momentum.

Now, let me turn to the housing related data. First up, our latest reading of home prices, it rose by 12.1% in June as compared to a year ago, with all 20 cities covered by the index, posting year-on-year increases. This marks the fourth consecutive month of double-digit price increases.

The pace of existing home sales accelerated in July, now at over 17% compared to a year ago. New home sales in July grew by nearly 7%, down from double-digit gains in prior months, largely attributed to tight supply conditions in the market and less so by the rise in mortgage rate. And then finally, July housing starts and permits, both showed good gains with increases of nearly 21% for starts and 12.4% for permits, again on a year-over-year basis.

Let me turn to some of the job market statistics. The most recent four-week moving average of initial jobless claims is now at 331,250 in the week of August 24, indicating the job market could be firming. Consensus forecast for the job reading this Friday are currently in the 150,000 to 234,000 range, according to Bloomberg. Such an increase would mark stable year-over-year growth in jobs of about 1.7%.

Now, this sort of job growth is consistent with lackluster gains in after-tax incomes, which are running at less than 1% year-over-year growth during the January to July period. As an offset, low borrowing costs and rising consumer wealth should continue to support spending growth going forward.

So to recap, as Erich mentioned earlier, the August total industry sales are estimated in the mid-16 million unit range that includes medium and heavy-duty trucks at a seasonally adjusted annual rate. Our full year call for the industry sales is in the upper end of the 15.5 million to 16 million unit range.

Well, with that summary, let me turn it back to Erich. Erich?

Erich Merkle

Thank you, Ellen. And to go over some housekeeping items, we're going to talk a little bit about our production guidance and we're going to look at the fourth quarter, which is generally a time we begin to build our inventories a bit for the traditional spring-selling season and so that we can continue to meet this growing demand for full size pickups.

That said, when we take a look at our data, we are projecting for the fourth quarter to produce 785,000 vehicles. That is a 50,000 vehicle increase over fourth quarter of last year that is up 7%. When we break it down, cars for the fourth quarter 287,000; utilities 235,000; and trucks 263,000.

Moving along, if we take a look at our gross stock for the month of August, our gross stock, we had a total gross stock of 535,000 vehicles that breaks down into 171,000 cars, 232,000 trucks, 132,000 utilities and a day's supply 65. Compare that to July of 2013 last month or the previous month before August, our total was 511,000 total, utilities were 126,000, trucks were 227,000 and cars were 158,000. That in July gave us day's supply of 69. August of 2012, a year ago, we had a total stock of 414,000 that is 104,000 utilities, 200,000 trucks, 110,000 cars, which gave us a day's supply in August of last year at 57.

When we start taking a look at our fleet as a percentage of total sales, for the month of August, our fleet as a percentage of total sales was 21%. The breakdown on that commercial represented 10% of our total sales, government represented 5% of our total sales and daily rental represented 6% of our total sales. This compares to August, a year ago, when 26% of our total sales came from fleets, 14% of our total sales made were comprised that's commercial, 15% of our total sales were government and 7% were rental -- I'm sorry at 5% were government. One correction the government was 5% of total sales.

When we look calendar year-to-date, so when we have look for the year through August, 30% of our fleet was a percentage of total sales, when you look at commercial was 13%, government was 5% and rental was 12%, compare that to August of last year, calendar year-to-date, 32% of our fleet comprise a total -- of those 32% of our fleet was total sales, 14% was commercial, 5% was government and 13% was daily rental. So that will take care of all of the housekeeping items.

And with that Kim, we're going to turn it over to the analyst community first and we'll start taking some questions.

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