U.S. Markets open in 9 hrs 23 mins

Edited Transcript of F earnings conference call or presentation 24-Jul-19 9:30pm GMT

Q2 2019 Ford Motor Co Earnings Call

DEARBORN Sep 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Ford Motor Co earnings conference call or presentation Wednesday, July 24, 2019 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* David W. McClelland

Ford Motor Credit Company LLC - CEO, President & Director

* James Patrick Hackett

Ford Motor Company - President, CEO & Director

* Joseph R. Hinrichs

Ford Motor Company - President of Automotive

* Lynn Antipas Tyson

Ford Motor Company - Executive Director of IR

* Timothy R. Stone

Ford Motor Company - CFO

================================================================================

Conference Call Participants

================================================================================

* Adam Michael Jonas

Morgan Stanley, Research Division - MD

* Aileen Elizabeth Smith

BofA Merrill Lynch, Research Division - Analyst

* Colin Langan

UBS Investment Bank, Research Division - Director in the General Industrials Group and Analyst

* David J. Tamberrino

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Emmanuel Rosner

Deutsche Bank AG, Research Division - Director & Research Analyst

* Rod Avraham Lache

Wolfe Research, LLC - MD & Senior Analyst

* Ryan J. Brinkman

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Second Quarter 2019 Earnings Conference Call. (Operator Instructions)

At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations.

--------------------------------------------------------------------------------

Lynn Antipas Tyson, Ford Motor Company - Executive Director of IR [2]

--------------------------------------------------------------------------------

Thank you, Ian. Welcome, everyone, to Ford Motor Company's Second Quarter 2019 Earnings Call. Presenting today are Jim Hackett, our President and CEO; and Tim Stone, our Chief Financial Officer. Also joining us are Joe Hinrichs, President, Automotive; Jim Farley, President, New Businesses, Technology and Strategy; and David McClelland, CEO of Ford Credit.

Jim Hackett will begin with a brief review of the quarter and our progress against our strategic initiatives. Tim will follow with a more detailed look at our results, and then we'll turn to Q&A. Following Q&A, Jim Hackett will have a few closing remarks.

Our results discussed today include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measure in the appendix of our earnings deck, which can be found along with the rest of our earnings materials at shareholder.ford.com. Today's discussions include forward-looking statements about our expectations for future performance. Actual results may differ from those stated, and the most significant factors that could cause actual results to differ are included on Slide 68. In addition, unless otherwise noted, all comparisons are year-over-year.

Now let me turn the call over to Jim.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Lynn, and hello to everyone. As we meet today, we're a little past the midpoint of 2019, which we said would be a great year of execution for Ford. And I am pleased with the progress we're making toward creating a more dynamic, innovative and profitably growing business. As our second quarter results demonstrate, the global redesign of Ford is driving positive shifts in our business. We are improving our fitness or our ability to compete, and the trajectory of the company is improving in terms of growth, cash flow and profitability. We are making tremendous progress in Europe, which I will expand on in a moment. We are also seeing discreet signs of stability in our business in China even as the economy and vehicle market there are under recent and persistent stress. At the same time, we're actively working on the design and launch of new products that will help us grow in this market. Now additionally, the redesign and restructuring of our business in South America is on track as well.

We view all of this progress with humility. And the reason is that it's been my experience that the compounding positive effects of getting so many aspects of our business in shape does take more time. Yet, at the same time, these disparate aspects build on each other, which allows us to reach our full potential as an outstanding business.

I want to touch briefly on some other highlights from the quarter. In Automotive, we delivered a 19% increase in EBIT supported by a broad-based improvement in market factors led by North America, Europe and China. We achieved these results even with the natural drag on profitability in North America from ramping 3 very important product launches in the quarter, our all-new Explorer and Police Interceptor utility as well as our new-to-market Lincoln Aviator.

Now if you recall, in Q1, we said our first quarter results would be the strongest of the year, in part because of the magnitude and cadence of these future product launches as well as normal seasonality. Importantly, we delivered positive adjusted free cash flow in the quarter significantly better than last year, notwithstanding major launch headwinds. And on a year-to-date basis, we delivered $2.1 billion adjusted free cash flow, which is up 80%. In addition, our cash balance of $23 billion and total liquidity of $37 billion remained strong and well above our target levels. Our year-to-date results support our target to improve both free cash flow and profitability this year. Tim will go into more detail about our results and perspectives on the full year in just a moment.

And as we've discussed in the past, we're focused on 4 strategic areas for creating value. First is the winning portfolio where we are fortifying our strengths, improving mix and expanding our commitment to electric vehicles. Second is fitness. It's our ability to compete, including advancing alliances such as those with VW and Mahindra. Third is acceleration of our global redesign, which was to ensure each of our regions in generating sustainable profitable growth and cash flow. And fourth is smart vehicles for a smart world. We are scaling products and businesses that connect to the world around them in ways that benefits our customers.

Let me touch on a few highlights of each of these. We're now beginning to roll out our new portfolio powered by the dramatic shifts in capital allocations of trucks, SUVs and performance vehicles, including the hybrid and all-electric offerings. This chart you see covers 2019 and 2020. We're expanding our lineup where the volume and profit is, where the growth is and where the Ford brand excels. Of course, this includes pickups like the new F-150, Super Duty and new Ranger; commercial vans like the new 2-ton Transit; and SUVs such as the new Explorer, Escape, Territory and Puma; rugged off-road vehicles like the Raptor and upcoming Bronco; and our Mustang-inspired BEV that's going to be an SUV. In fact, in North America, we're driving down the age of our passenger vehicle showroom by almost 1/2 as we replace 75% of our products by 2020. Over time, the new models we're adding for customers will more than make up for any share and volume loss by the phaseout of sedans while simultaneously improving profitability and returns.

It's no small feat to deliver this many new products in such a short time frame. I'm fortunate that I have a seasoned automotive veteran in Joe Hinrichs at the helm of our Automotive division. When you witness the extent of the work that was done, much of it like clockwork, we will complete our assignment to successfully launch these products. For example, the transformation of our Chicago plant to launch the Explorer, the Police Interceptor and the new Lincoln Aviator was, in some ways, a bigger endeavor than the 2014 overhaul of our truck plants in Dearborn and Kansas City for our aluminum-bodied F-150. In fact, the Explorer launch is arguably our most complex one over the next 18 months, combining an all-new high-volume platform along with what is effectively a new factory and a new body shop.

We also launched our broadest-ever Explorer lineup with both hybrid and ST performance models, and we're introducing a plug-in hybrid version of that Aviator. Now to achieve all this, we installed hundreds of robots, new technologies and moved out the scrap metal equivalent of the weight of the Eiffel Tower. I'm pleased to say that the demand for these new products -- these 2 new products is strong. We are selling these vehicles as fast as we can build them. In fact, we're now expanding our capacity in Chicago. So when you have a moment, do me a favor and click on the link on this page to watch a short video summarizing what it took to get our plant in Chicago ready for these key launches. I think you'll be positively impressed.

Explorer, Police Interceptor and Aviator are just 3 examples of our dramatic shift in capital allocation to higher-return trucks, utilities and crossovers. At the same time, we are working to lower the capital intensity of our business. Of course, we remain highly committed to quality and customer satisfaction in everything we do. You can see that in the results from the most recent J.D. Power U.S. initial quality study. For the first time ever, both Ford and Lincoln ranked among the top 5 auto brands in the U.S.

I will expand a bit on our renaissance that is underway in Europe where we made significant progress in the quarter. In early January, our team in Europe unveiled a comprehensive road map to improve or exit less profitable vehicle lines, address underperforming parts of the business and improve profitability through efficiencies and a significant reduction in structural costs.

In the first half of this year, our team did a tremendous job achieving important milestones as they position the business in Europe for a 6% EBIT margin longer term. These milestones include: number one, a new operating model and organization, including 3 customer-focused business groups each with a dedicated management team and bottom line accountability. The first of the 3 groups is commercial vehicles where we have reallocated resources to capitalize on our position as the top commercial vehicle brand in Europe, including leadership in the pickup segment. Now over the next 5 years, we're targeting to double our profitability in commercial vehicles. The second group is passenger vehicles, which will focus on European-built cars and SUVs. The third group, well, this is imports, a niche portfolio of iconic passenger vehicles including the Mustang and Explorer.

Importantly, we have largely concluded consultations with our social partners. And in the U.K. and Germany, we have carried out separations. In Russia, we have completed the restructuring of our JV there, which includes exiting passenger vehicles and Ford taking a minority stake. And to improve manufacturing efficiencies, we have proposed or confirmed the closure or sale of 6 assembly and component manufacturing plants in Europe by the end of 2020.

In the midst of this restructuring, we've also announced growth initiatives, including producing new all-electric vehicles and electrified options for all-new passenger vehicle models. These new vehicles will support our compliance with the new European CO2 regulations, which we expect to achieve without having to buy credits or pay any kind of penalty, and our alliance with VW to support commercial vehicle and electric vehicle growth.

Now if I can get you to turn to Slide 8. Earlier, I mentioned the fourth strategic area that prepares Ford for this new era in our industry. I referred to this as smart vehicles for a smart world. This strategic area has benefited, as I expected, early from Jim Farley's mix of automotive and entrepreneurial history. He appropriately focused early on the conclusion of the negotiations with VW to broaden our collaboration. Now it's important to expand to you today why we're so enthusiastic about this news. At a time when industry consolidation is daily making news, we believe we found a more thoughtful approach to collaborating in key strategic areas without adding the complexity of cross-ownership. It started back in January where Ford and VW announced the deal to develop commercial vans and medium-sized pickups for global markets. This collaboration remains on course, and we're excited about the potential.

Two weeks ago, VW's CEO Herbert Diess and I said that our companies would expand this collaboration. Now this included VW joining us with an investment commitment to Argo AI. This is the one of the most capable autonomous vehicle platform developers, as you know, based in Pittsburgh. The transaction with VW establishes an estimated value for Argo of more than $7 billion. Collectively, we believe we're on a path to create one of the most important autonomous vehicle platforms in the industry.

Here's how our companies will work together going forward on autonomy. First, we will collaborate with Argo on a self-driving system, known as the SDS. That means that Ford and VW will be able to reduce our respective investments and development costs for the future AV businesses. We will be able to cocreate common AV standards both now and in the future, and we'll share valuable data with Argo to help build the best visioning and mapping models along with data utilization analysis for traffic and fleet management. Second, we'll share costs and expertise so that we can each design and engineer unique, safe and efficient self-driving vehicles. Third, Ford and VW, of course, will remain vigorous competitors and pursue independent go-to-market strategies using this common Argo SDS platform, with each of us designing and delivering unique experiences for our customers.

In addition to our collaboration on autonomy, we also announced we're extending our alliance to electric vehicles. Ford will become the first additional automaker to use VW's MEB electric vehicle architecture. We'll leverage this architecture for a high-volume, 0 emissions passenger vehicle in Europe, and this is designed at our Ford engineering center in Cologne, Germany. Ford of Europe will start building this vehicle in Ford facilities in 2023. We're also considering a second electric model based on this MEB architecture for our Ford lineup in Europe. This more expansive strategic relationship between Ford and VW is another important building block in the renaissance underway at Ford of Europe that I described earlier.

Well, with that good news, let me turn the call over to our CFO, Tim Stone. Tim?

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [4]

--------------------------------------------------------------------------------

Thanks, Jim. Hi, everyone. A few things to keep in mind as we discuss our results: first, both 2019 and 2020 are robust launch years for us as we bolster our winning portfolio for customers, reallocate capital to higher-return growth opportunities and execute changeovers of our most profitable and highest-volume vehicles; second, our global redesign and fitness initiatives are progressing well, improving the trajectory of future growth, cash flow, profitability and returns on capital; third, Ford Credit continues to deliver excellent results; and fourth, relative to auto, we continue to expect strong execution this year especially North America, Europe and China.

In the quarter, we generated $0.2 billion in adjusted free cash flow, which was a significant improvement from last year. This performance includes the impact of our launches in the quarter. On a year-to-date basis, adjusted free cash flow was up 80% to $2.1 billion supported by improvement in working capital in auto. The ability to generate sustainable growth in free cash flow over time is our most important financial measure, and we are on our way to achieving this.

Wholesales declined 9% driven by China, lower industry and launch-related volume impact in North America as we ramped Explorer and Police Interceptor. Interceptor, by the way, accounted for half of all police vehicle sales in the U.S. last year, and the new model is even more capable. Although wholesales were down, revenue was flat. And strong mix and pricing, supported by our franchise strengths, were offset by lower volumes and adverse exchange. Excluding the impact of exchange, revenue grew 3%.

Auto posted a second consecutive quarter of EBIT growth, something we have not achieved in over 3 years. EBIT grew 19%, up from 16% last quarter, and EBIT margin expanded by 60 basis points. These results were supported by strong mix in North America, reflecting our franchise strengths and strong pricing in every region. In North America, EBIT declined 3% driven by the changeover of Explorer, Interceptor and the introduction of Lincoln's all-new Aviator as well as higher warranty. Our strategic investments in mobility increased by 46% as we continue to build out our capabilities, including mobility services, connectivity and autonomy.

Ford Credit delivered another strong quarter, posting a 29% increase in earnings before taxes. Favorable loss metrics reflected healthy consumer credit conditions, and auction values for off-lease vehicles performed slightly better than expectations. We now believe auction values will be down by about 3% on average for the year.

Receivables were flat and remained below our previously announced cap of $155 billion. Corporate other expense of $286 million included a mark-to-market loss of $181 million for our investment in Pivotal. On an adjusted basis, both company EBIT and margin for the quarter were flat at $1.7 billion and 4.3%, and EPS was $0.28. Excluding the Pivotal loss, adjusted EBIT would have been $1.8 billion, EBIT margin would have been 4.7% and EPS would have been $0.32.

In the quarter, we recorded $1.2 billion of special charges with cash effects of $0.2 billion. As expected, the vast majority of the charges in the quarter were associated with the redesigns of Europe and South America. This year, we continue to expect to incur $3 billion to $3.5 billion of EBIT charges with negative cash effects of about $1.5 billion to $2 billion, reflecting a shift of about $0.5 billion to $1 billion in cash effects to 2020. Lastly, we ended the quarter above our cash and liquidity targets with $23 billion in cash and $37 billion in total liquidity.

Let me touch on a few areas of the business in more detail. In North America, as I mentioned, EBIT was down and margin contracted by 30 basis points to 7.1%. The region continued to deliver strong mix and net pricing supported by F-Series as well as our decision to exit traditional sedans. This favorability was more than offset with the launch-related declines in volume and higher warranty. For additional perspective, wholesales for Explorer and Interceptor were down by 72,000 units year-over-year, which led to 7% overall decline in wholesales in the quarter. As Jim mentioned, demand for Explorer is strong with production already oversubscribed.

Relative to wholesales, it's interesting to note that in the quarter, sales of Ranger completely offset the decline from discontinued sedans. Last quarter, we showed you the benefit of this intentional shift in our portfolio using our Michigan Assembly Plant as an example. Once this plant completes the transition from sedan to Ranger and Bronco, EBIT will improve by over $1 billion.

In the U.S., our SUVs posted strong momentum in the quarter, including a 50% increase in Expedition. And this month, based on healthy customer demand, we started to run additional capacity for Expedition in our Kentucky Truck plant. By the end of this year, on a volume-weighted basis, we will have the freshest SUV lineup in the industry led by our all-new Explorer and all-new Escape.

Also in the U.S., sales of total pickups accelerated in the quarter, marking our best overall pickup sales performance since 2004. F-Series continues to do well, maintaining market leadership with the lowest incentive spend of primary competitors and the highest transaction pricing. Ranger, which we launched at the end of 2018, more than doubled its volume sequentially while also steadily increasing segment share to 14.2%.

Europe delivered $53 million in EBIT in the quarter, an improvement of $126 million year-over-year supported by our redesign actions. Favorable market factors, aided by flat structural costs excluding pension, drove the improvement in profitability. This was the first quarterly year-over-year improvement in profitability for Europe in 2 years. Commercial vehicles were once again a strength in the quarter as Ford remained Europe's #1 commercial vehicle brand. And as noted in our product road map, we will be launching an updated 2-ton Transit in the second half of this year. In addition, Ford remained the market leader in the U.K. with Fiesta, Transit Custom and Focus as the top 3 selling models.

In China, consolidated revenue increased 48% year-over-year driven by higher Lincoln volumes. EBIT loss narrowed to $155 million, an improvement of $328 million year-over-year supported by improvements from consolidated operations in volume, mix and pricing, lower tariffs and structural costs as well as favorable exchange. The team has taken action to stabilize sales with second quarter retail sales up 13% sequentially and aggressive reductions in inventory to improve dealer health. In fact, our dealer inventory is at its lowest level in the past 18 months, and we managed the runout of Stage 5 effectively. In addition, China has implemented initiatives ranging from enhanced capabilities with in-depth Chinese market experience to strengthening cooperation with joint venture partners. Sales of our new Ford Territory SUV accelerated in the second quarter, making it the best-selling Ford SUV in China this year.

Now let me turn to our updated outlook for the year, which focuses on growth in cash flow and profitability. We continue to target an improvement in adjusted free cash flow year-over-year driven by Auto. And we are now introducing a range for full year adjusted EBIT of between $7 billion and $7.5 billion compared with $7 billion last year, representing up to 7% growth. These targets include continued strength in market factors and improved structural costs, excluding pension, led by North America, China and Europe as well as launch-related impacts and strength in Credit. As a reminder, we expect to conclude our negotiations with the UAW in the fourth quarter.

Assuming a full year adjusted effective tax rate of between 18% and 20%, which would be up from 10% last year, we are introducing an adjusted EPS range of $1.20 to $1.35 compared with $1.30 last year. The tax headwind is worth roughly $0.12 to $0.16 in EPS for the year.

Due to the cadence of product launches and normal seasonality, we expect our fourth quarter adjusted EBIT to be higher than the third. Among other things, these targets are based on the current economic environment, including commodities, foreign exchange and tariffs. Relative to colors on capital for the year, we continue to expect CapEx to be similar to last year at roughly $7.7 billion, funded pension contributions to be about $650 million and shareholder distributions to be about $2.6 billion.

A few final comments before we move to Q&A. 2019 and 2020 are robust product launch years for us as we bolster our winning portfolio for customers, reallocate capital to higher-return growth opportunities and execute changeovers of our most profitable and highest-volume vehicles. Our results this quarter and year-to-date demonstrate that trajectory of our business is meaningfully improving supported by our product portfolio, global redesign and fitness initiatives. We have many opportunities across our business to drive free cash flow, long-term growth in revenue and profitability, including EBIT margins of 8% or better. And we continue to be committed to maintaining a strong balance sheet and investment-grade credit ratings.

Now let's open the call for questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Emmanuel Rosner from Deutsche Bank.

--------------------------------------------------------------------------------

Emmanuel Rosner, Deutsche Bank AG, Research Division - Director & Research Analyst [2]

--------------------------------------------------------------------------------

So my first question is about the second half guidance implied by your full year guidance. At the midpoint, if I focus on the EBIT metric, it looks like your EBIT -- you're guiding for an EBIT that would be down about $1 billion between the first half and the second half. And I was hoping you could maybe bucket this for us into what's the main drivers are. It seems like you're flagging launches in particular, but obviously, the second quarter had quite a bit of that as well. So maybe just from a high-level point of view, second half lower by $1 billion versus first half, what drives that?

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [3]

--------------------------------------------------------------------------------

Emmanuel, thanks. It's Jim Hackett. And as I hand -- I'm going to hand this question to Tim, but I just want to tell the audience tonight that this is Tim's first call as our CFO, and he's really done a great job of tethering into the Ford culture, bringing new perspective, new questions. And he's become a great partner.

When we sat in front of you in January, I remember thinking about how we were going to help the Street see our year. And sitting in front of us, from my perspective as the CEO, was an open question about the tariffs. Joe can talk about the back and forth there. We were working on our corporate redesign. This is the white collar kind of effort, the management reporting layers. We had restructuring that you were just starting to learn about in Europe, and we were actively working on our own recovery of China. In fact, I just came back from there.

So from January to July, I just want to report to you, Emmanuel, as you look at those 5 issues, we've -- I'm really happy with the way the company's tackled each one of them and the progress we've made. And you kind of teed up a good question and the right one, I think, about the second half of the year, which are these product launches. So tonight, I want to make sure that you see that this is a capability that we have to prove we're really good at. I have a lot of confidence that we are. And you'll hear that we've tackled the toughest one first in Explorer and Aviator.

But Tim, maybe before Joe, if Joe wants to add color on the launches, you could just talk about the guidance and how we worked ourselves to that.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [4]

--------------------------------------------------------------------------------

You bet. So thanks for the question, Emmanuel. As you said, with the $4.1 billion in the books for the first half, the guidance range is $7 billion to $7.5 billion with growth of up to 7% or $0.5 billion, implies $2.9 billion to $3.5 billion -- $3.4 billion, excuse me, in the second half. And as we said on the call, this is due to this cadence of product launches. And you can see in the materials we distributed on Slide 5, the winning portfolio slide, we've got a number of launches ahead of us through the remainder of this year continuing to ramp up on Explorer and Aviator. We have Corsair, Escape/Kuga, the 2-ton Transit, for example, and then normal seasonality as well. So for example, in 2018, 56% of our profits came in, in the first half of the year. And as a reminder again, we had the UAW negotiations concluding this fourth quarter. So we believe the guidance is appropriate based on what we're seeing in the business and including the risks and opportunities and thought it was appropriate to provide a range for the year.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [5]

--------------------------------------------------------------------------------

Joe, do you want to add something about product launches? And then Emmanuel, you said had 2 questions, so we'll come right back.

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [6]

--------------------------------------------------------------------------------

Yes. So quickly I'll add that we have the Super Duty launch towards the end of the year, which is really important. And the seasonality is real. We have the European shutdowns, and we have the North American shutdowns in the summer months and then, of course, the holidays later in the year, so there is the annual seasonality. So it's launches, seasonality and UAW negotiations.

--------------------------------------------------------------------------------

Emmanuel Rosner, Deutsche Bank AG, Research Division - Director & Research Analyst [7]

--------------------------------------------------------------------------------

And that's very helpful. And then just sort of as a follow-up, would you be able to give us a sense again, second half versus first half, how you think about it for your main regions? I assume that the bulk of the decline is North America at least based on the launches that you highlighted. But is there any other region where you expect this to be the case? And in particular, in North America, anything else besides sort of like the launches that's a big bucket?

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [8]

--------------------------------------------------------------------------------

Yes. Thanks again. And some of the launches we talked about are happening in Europe, for example, 2-ton Transit and Escape/Kuga, many of these launches around the world. But I just want to comment before we get too far down the path here that beyond the guidance that we provided for the EBIT range and the EPS range and most importantly free cash flow, we aren't going to be giving any further details on the inputs that go into the final output. So for example, regional guidance or macro commentary or commodities exchange or tariffs and so forth. So I recognize that's a change, but we also changed by providing EPS guidance range and a range for EBIT. So I just thought I'd comment on that in response to the question. Joe, unless something else you wanted to add.

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [9]

--------------------------------------------------------------------------------

Well, obviously, the bigger launches are in North America and UAW negotiations [going on]. I'll leave it at that.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

And our next question is from the line of John Murphy from Bank of America Merrill Lynch.

--------------------------------------------------------------------------------

Aileen Elizabeth Smith, BofA Merrill Lynch, Research Division - Analyst [11]

--------------------------------------------------------------------------------

This is Aileen Smith on for John. First question on the structural cost headwind in North America. Can you detail what these costs were specifically in the quarter and how you think about controlling or offsetting some of these going forward particularly ahead of the UAW negotiations that you know and what could be labor cost inflation, among other factors?

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [12]

--------------------------------------------------------------------------------

You bet.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [13]

--------------------------------------------------------------------------------

Yes, one thing, Tim, can I sneak something in?

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [14]

--------------------------------------------------------------------------------

You bet.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [15]

--------------------------------------------------------------------------------

You know John Murphy and I have something in common. I just had a brand-new baby granddaughter, and I guess John just had a new baby girl. So John, we want to send out a hooray for that and hope mom and baby are doing well. So Aileen, let's go back to your question.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [16]

--------------------------------------------------------------------------------

No, that's great. Thanks for that. Congratulations. So on the structural costs, North America Auto overall -- sorry, it was good Auto overall, saw an EBIT increase of 19% year-over-year, that's up from 16%. It's the first time in over 3 years to have 2 consecutive quarters of year-over-year growth and profit, and that's driven by structural costs. The commentary that I want to leave you with is structural costs are down ex pension and OPEB overall. So as far as how that plays out for the rest of the year, again, that's factored into our -- as one of the many inputs into our guidance.

--------------------------------------------------------------------------------

Aileen Elizabeth Smith, BofA Merrill Lynch, Research Division - Analyst [17]

--------------------------------------------------------------------------------

Okay. That's helpful. And then second question on the year-over-year China walk. As you think about the outlook for the rest of the year and particularly into 2020, do you view positive contribution from volume, mix, pricing cost and everything else as being sustainable particularly in the face of a tough industry backdrop? Or are one of these factors or others going to be a big driver of profitability improvement?

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [18]

--------------------------------------------------------------------------------

Yes. So this is something that we want to kind of emphasize. We want to talk about the color on China. So Joe, maybe you can field that one.

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [19]

--------------------------------------------------------------------------------

Sure, thanks. So clearly, we're glad to see the progress we saw in the first half of the year financially especially on our consolidated results. As you think about China, in the last couple months, we had very aggressive sell-down of the Stage 5 emissions vehicles, especially in June. So I think you start -- I know you'll see some of the payback in the second half of the year, especially starting in July, for some of that. So we're watching what's happening in the industry there. Tim mentioned earlier that we're at the lowest level of our dealer inventories in 18 months, so we're feeling really good about where we are both with our Stage 5, Stage 6 transition and dealer inventory overall. And we're starting to see an improvement in dealer profitability. So we're pleased with that.

Our Focus and Territory products are building momentum. We still have a ways to go, but they're building momentum. And we have other products coming, as Tim referred to, especially Escape later in the year. Remember that year-over-year, we'll have -- we should -- at this present state, we have lower tariffs than we had in the second half of '18 because of the import duties going into China are 15%, which they were 40% in the second half of last year. So that's -- right now, that's positive year-over-year. I think we're all watching what's happening in the Chinese industry. I won't go too much into it because I think we got to see how things settle down after the last couple months of the Stage 5, Stage 6 transition, but we do expect some payback to that in the second half of the year.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [20]

--------------------------------------------------------------------------------

Thanks, Joe.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And our next question is from the line of David Tamberrino from Goldman Sachs.

--------------------------------------------------------------------------------

David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [22]

--------------------------------------------------------------------------------

Yes, I'm going to keep picking at this point on structural costs. It was a positive tailwind of about $300 million in the first quarter. Now you've got a negative in the second quarter. It was negative in North America and negative in Europe. Really want to unpack that and understand what the positive was ex pension and OPEB and if you expect that to be repeatable. Do you expect to see that grow sequentially as we progress through the year after you've taken restructuring actions? That will be my first question.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [23]

--------------------------------------------------------------------------------

Tim, go ahead.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [24]

--------------------------------------------------------------------------------

Yes. So again, as it relates to what's going to happen for the remainder of the year, that's factored into our guidance. I'll go back to the commentary on structural cost, ex pension and OPEB, we're flat -- or sorry, down in Auto overall. So what you are seeing there is us continuing to execute on our fitness initiatives and the redesign and starting to see the early benefits from that in the overall EBIT results and structural cost as well for the -- across the business.

--------------------------------------------------------------------------------

David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [25]

--------------------------------------------------------------------------------

But you can't share the magnitude that it was down ex pension, OPEB and there's no incremental color on Europe taking a step backwards from the benefits you saw in 1Q.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [26]

--------------------------------------------------------------------------------

Not at this point. I mean you can look at the fact that we continue to announce additional redesign actions in Europe, for example, of Bridgend, and then we continue to execute on our redesign initiatives. And as those play out, over time, you'll see the benefits flow through the P&L.

--------------------------------------------------------------------------------

David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [27]

--------------------------------------------------------------------------------

Okay. So then asking that restructuring question, I guess you've made some announcements more recently, you finished the consultation process with your partners within Europe. When do you anticipate the ability to provide some color as to the potential cost savings that you should be seeing as a result of those actions?

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [28]

--------------------------------------------------------------------------------

Yes. The cost savings that we're expecting from the redesign and restructuring actions are factored in the guidance for 2019. And as we go forward and give guidance for 2020, you'll see that reflected there. But we're moving as swiftly as practical to execute on all of the redesign initiatives that we have in front of us. As we've talked about, we have had $1.2 billion in the quarter, $1.7 billion year-to-date in charges. We still have a ways to go, but the 2019 outlook is for $3 billion to $3.5 billion and then similar from a cash standpoint. But yes, those redesign and restructuring initiatives are also factored into the European long-term target of 6%.

--------------------------------------------------------------------------------

David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [29]

--------------------------------------------------------------------------------

Okay. So nothing to share today on the recent actions on annualized cost savings.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [30]

--------------------------------------------------------------------------------

Not at this stage, no.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [31]

--------------------------------------------------------------------------------

But David, this is Jim. Just again, in my tour, I just was there and I came away where Europe's performing in terms of this restructuring really well. We've actually been speeding it up. So I want to make sure there's confidence that, that work is happening and proceeding well.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

And our next question is from the line of Rod Lache from Wolfe Research.

--------------------------------------------------------------------------------

Rod Avraham Lache, Wolfe Research, LLC - MD & Senior Analyst [33]

--------------------------------------------------------------------------------

I wanted to just ask again about this regional performance. It doesn't sound like you want to talk too much about this with any specificity, but it seems logical that Europe and Asia improvement should continue year-over-year. And what you're guiding to is a decline in North America related to launches. But can you help us frame this international improvement? There have been a number of announcements that you've made, and you continue to work through this restructuring. How much of the cost improvement that you're looking at in China and in Europe are we already seeing reflected as a run rate in the Q2 numbers? And maybe at a high level, could you talk a little bit about what you still have ahead of you?

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [34]

--------------------------------------------------------------------------------

You bet. This is Tim. Let me start with what we've been seeing, as you said. So in Europe, we saw an improvement of $126 million in the quarter. That's year-over-year, and that's the first year-over-year improvement we've seen in 2 years. That's a reflection of the redesign initiatives and the focus on the customer and commercial vehicles, passenger vehicles and imports from a portfolio standpoint. So a positive $53 million profit in Europe, and that's driven by the market factors and commercial vehicles and structural cost declines ex pension.

In China, again, a loss of negative $155 million, but the EBIT improved about $328 million year-over-year. And that's compared with Q1 momentum off a $22 million improvement. So going from $22 million to $328 million, and as Joe mentioned earlier, the dealer health is much improved, the best it's been in -- from an inventory perspective in 18 months. And the China results were driven by Lincoln volume, the structural cost improvements and the favorable exchange. So pleased with what we're seeing in Europe and China. And from a guidance perspective, looking forward, we expect $7 billion to $7.5 billion and the EPS to be driven by or led by North America, Europe and China structural costs and the market factors being the key drivers.

--------------------------------------------------------------------------------

Rod Avraham Lache, Wolfe Research, LLC - MD & Senior Analyst [35]

--------------------------------------------------------------------------------

Okay. But there is some additional savings presumably...

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [36]

--------------------------------------------------------------------------------

And Rod, this is Joe, I just want to add the -- sorry, Rod, can I just add -- jump in here. Just on the Europe piece specifically, there's been a significant number of announcements made this year and a lot of work by the team. A lot of that cost comes out over the proceeding quarters because we announced the 12,000 salaried, hourly and agency positions that are going to be gone by the end of '20, but a number of those are still to happen, so that savings isn't in yet. And a lot of the plant restructurings, including a shift reduction and other things that we have going on, doesn't happened yet. So I think you're going to see this play out over the next several quarters. Just a reminder though, as I said earlier, the third quarter in Europe typically is the lowest quarter because of the shutdowns that we have in our plants. So I just want to remind everybody, we're making very good progress on the structural costs in Europe, but we do have some seasonality to keep in mind.

--------------------------------------------------------------------------------

Rod Avraham Lache, Wolfe Research, LLC - MD & Senior Analyst [37]

--------------------------------------------------------------------------------

Great. That's helpful. And just switching gears, my second question is just if you could talk a little bit about how you're thinking about the market for full-size pickups? Just from a volume perspective, things look fine. From a share perspective, Ram is inching into the fleet market quite a bit. Any kind of high-level thoughts about what the prospects are for that market from your perspective?

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [38]

--------------------------------------------------------------------------------

Yes, sure. Well, we're very proud of the first half performance on our F-Series trucks, strong mix, as you noted, strong net pricing and really, for the first 6 months of the year, very pleased with the results. One thing we are seeing in the market is the market, while down a little bit in the first half of the year on retail overall, is up on commercial. And that's actually helping on the F-Series side where we're so strong. And you've just seen recent examples of how strong our truck products are in the marketplace. I mean just today, the J.D. Power APEAL results came out. In an unprecedented event, we won all 3 truck segments. Ranger, F-150 and Super Duty won their segments in APEAL. And that's against newer trucks in the case of F-150. So you can imagine how proud our team is of that. We had the lowest incentive spending and the highest ADP as you noticed.

But our truck brands on F-Series continues to hold up very well, and we're very pleased with the results. And the truck market itself, while incentives have been growing, we're watching it very carefully. We remain competitive, but we also watch very carefully and maintain our discipline as we have always done. But actually, you're seeing our business hold up pretty nicely on -- with all those considerations taken into account.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

And our next question is from the line of Adam Jonas from Morgan Stanley.

--------------------------------------------------------------------------------

Adam Michael Jonas, Morgan Stanley, Research Division - MD [40]

--------------------------------------------------------------------------------

First, my first question is John Murphy is a grandpa?

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [41]

--------------------------------------------------------------------------------

No, Jim Hackett is the grandpa. And I want to get credit for being a good one, Adam.

--------------------------------------------------------------------------------

Adam Michael Jonas, Morgan Stanley, Research Division - MD [42]

--------------------------------------------------------------------------------

Sorry. Okay, mazel tov. And congrats also to John. So first question is on European CO2. I think I heard you right, you said that you're going to make the CO2 emission standards without any -- buying any credits and paying any penalties. But my understanding is that those penalties start kicking in, in 2020 when you need to get to 95 grams, and you're not going to have a BEV on sale. So I just want to confirm, you think you're going to get to 95 grams without BEVs.

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [43]

--------------------------------------------------------------------------------

Yes, Adam, this is Joe. Thanks for the question. It's been getting a lot of attention. So you're right, the regulations in Europe are not new to us. We've been planning for this really since 2013. And we have built the cost of this into our -- the compliance into our business plans. We'll do it with electrification and improvements to our ICE powertrains, both important parts of the compliance plan. As we said, we don't anticipate incurring fines or purchasing credits, assuming consumer demand is there for the new products. I wouldn't assume that we won't have a BEV in the marketplace. We said electrification and improvement to ICE powertrains are part of that, but we feel very confident in our compliance plans, and we've been planning for this for quite some time.

--------------------------------------------------------------------------------

Adam Michael Jonas, Morgan Stanley, Research Division - MD [44]

--------------------------------------------------------------------------------

Okay. I mean it's just a big statement. I mean you're -- I think you're over -- you're around 120, you got to get to 95. And maybe you can import some of the non-MEB BEVs, but I imagine that would be pretty small volumes. So it just stands out as -- we could take it off-line, it stands out as a really big gap to cross in such short time. That's more an observation.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [45]

--------------------------------------------------------------------------------

Yes, I appreciate the challenge, but I want you to know we're planning to make it.

--------------------------------------------------------------------------------

Adam Michael Jonas, Morgan Stanley, Research Division - MD [46]

--------------------------------------------------------------------------------

Okay. The second question is maybe for -- I don't know if Dave McClelland or Joe, and you could take this on the Ford Credit side. If I asked -- obviously, money and supply of money and availability of credit is historically still pretty strong, maybe not as strong as it's ever been but still in the strong category. I'm wondering if you see anything -- if I push you, anything that you're seeing incrementally that might be a yellow light or a flickering green light in terms of credit quality at the margin or anything on the funding side or consumer behavior or delinquency side at all. Obviously, there's some natural seasoning and cyclicality. But I just wanted to know if there's anything that you thought was a little -- something that you're taking a little closer look at.

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [47]

--------------------------------------------------------------------------------

So David, it sounds like he's asking about PD ratings of our customers and then what the sources or source there is.

--------------------------------------------------------------------------------

David W. McClelland, Ford Motor Credit Company LLC - CEO, President & Director [48]

--------------------------------------------------------------------------------

Sure. So Adam, this is David. Tim mentioned in his introduction that the credit environment look pretty healthy. And if I think about your question and look at our portfolio and look at the originations, the strength, what we're seeing coming through the door is still really strong. Our average FICO is nearly 750. And we're not seeing any change in the higher-risk mix of business. We're sitting at 5%. That hasn't moved. In fact, generally, subprime placements are lower quarter-over-quarter. There's no increase in term. Our average term is 65 months, and the industry is 69. We're not seeing any growth maybe for months. So at origination, I don't see any flickering at all, it's solidly green.

And then if I look at the performance of the portfolio, the portfolio continues to perform well. In fact, quarter-over-quarter, our loss ratios have improved. 60-day delinquency is down. Repossession rate is down. And then even if I look at our leases, we've seen better-than-expected performance at auction. We now have constant mix. I think that the used vehicle price is going to be down 3%. So as Tim said, it's healthy. I think yes, to use your terminology, it's solidly green.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

And our next question is from the line of Colin Langan from UBS.

--------------------------------------------------------------------------------

Colin Langan, UBS Investment Bank, Research Division - Director in the General Industrials Group and Analyst [50]

--------------------------------------------------------------------------------

Just to start off, I mean if you look at the guidance for global redesign costs, you're trending well below the full year target outlook. Does that imply that there's still more major step coming through the year? And given the size of these targets, does that mean something is going to be coming over the next few months? Any color there on how much more actions we should be expecting.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [51]

--------------------------------------------------------------------------------

Yes. So it's Jim, Colin. So the way we're monitoring this is we took on the structure, the management structure, what we call the bureaucracy, so we had 4 key goals in that. I'll just report to everyone we exceeded every one of them. And this quarter was heavier in terms of impact of the cost of that than the first, there were more implications with people. And then in the restructuring, Tim, I'll let you talk about the flows there.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [52]

--------------------------------------------------------------------------------

Great. Thanks, Jim. So as I mentioned earlier, we had $1.2 billion in charges in the second quarter. And then from a year-to-date standpoint, it's $1.7 billion in charges. And we're saying $3 billion to $3.5 billion for the full year. So it certainly implies you have quite a ways to go yet for the rest of the year. Further detail on that, it wouldn't be appropriate this time, we haven't made the decision on the ideas that we have for further redesign. But that's against the total backdrop of $11 billion over the next several years, all of which will provide us with the opportunity over time to fundamentally continue to improve the underlying business and our cash generation, growth opportunities and so forth. And then from a cash standpoint, we have had $0.2 billion in cash this quarter, and so far, year-to-date, $0.4 billion. And we're expecting $1.5 billion to $2 billion for the year now. Last quarter, we thought it may be closer to $2.5 billion, so we've had some deferral of $0.5 billion to $1 billion into 2020. But as you said, ways to go yet and lots of opportunity ahead to continue to redesign the business for the future.

--------------------------------------------------------------------------------

Colin Langan, UBS Investment Bank, Research Division - Director in the General Industrials Group and Analyst [53]

--------------------------------------------------------------------------------

Got it. And in the quarter, commodity costs have really come down quite dramatically, and I know your contracts are lagged. But forward looking into the second half, I mean is that going to be a tailwind? And are you factoring in a tailwind to your guidance? Or any color there on the commodity.

--------------------------------------------------------------------------------

Timothy R. Stone, Ford Motor Company - CFO [54]

--------------------------------------------------------------------------------

Yes. Thanks, Colin. So on the commodity front, we were at $0.2 billion adverse through this first half. But beyond what we've seen thus far, there's really some macro trends or expectations that's factored into the guidance. So there's no further commentary at all for the back half of the year.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

And our next question is from the line of Ryan Brinkman from JPMorgan.

--------------------------------------------------------------------------------

Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [56]

--------------------------------------------------------------------------------

It's great to see on Slide 40, in the appendix, so many EBIT drivers of the consolidated operations in China being positive year-over-year in 2Q amidst a tough industry. With that said, given the relative size of the consolidated and the nonconsolidated operations in China, it would seem the biggest opportunity for improvement is probably in the JVs, which were roughly flat year-over-year in 2Q. Can you give us some indication of what is happening within that relatively placid $4 million change in EBIT or equity income? I imagine material volume declines maybe offset by cost. And then I think you've downplayed expectations for much improvement in the JV this year given the obvious industry headwinds and that the improvement will instead come from the consolidated ops. But going forward, how much of a driver do you think improving JV income could be? And when might we start to see some evidence of that?

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [57]

--------------------------------------------------------------------------------

I think that's an excellent question, and I want you to know it's something we talk about. Joe?

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [58]

--------------------------------------------------------------------------------

Yes. Sure. So thanks for the question. There is no question that in order for us to achieve the results we're looking for over time in China, our joint ventures, especially the Changan Ford joint ventures needs to improve its performance. I'd say that we have a lot of work to do. You referenced the consolidated operations improvements in the second quarter and first half of the year. Part of it is the volume losses that we've seen and -- due to sales but also managing the inventory down to the lowest level in 18 months. We feel good about that.

But going forward, we've just rebuilt the marketing and sales organization over the last several months with some very good hires and some very good restructuring. We're getting very strong participation with our joint partner partners, especially Changan, in the rework we're doing with our marketing and sales organization and the dealer relations. It's going to take some time to rebuild all of that, but I would say that we're on a path that we've seen -- over the last couple of months, we saw stability in our sales really for the first time in about 18 months or so. We have a lot of work to do. Part of it will be cost, of course. We have right-sized at least the manning part of our manufacturing. There's a lot more work to do given the lower volumes on the overall manufacturing footprint.

But the biggest opportunity for us is to rebuild the dealer profitability, the dealer engagement and the marketing and sales organization in the joint venture and we'll have to see how that -- how long that takes but we -- we're making some good progress, but we think it's going to take some more time. And so then, of course, the new products. Remember that we said that we're going to localize 5 more vehicles starting in '19. That will help the joint venture because a number of those products like Explorer, Lincoln, Corsair aren't built in the joint venture. So some of that localization will really help the joint venture. And of course, the new product launches we have over the next 18 months will help in the JV as well. That's clearly our #1 focus.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [59]

--------------------------------------------------------------------------------

I would just add it's not something we talk about a lot from this table, but there was a lot of turmoil and turbulence in the leadership in China for Ford. We had somebody that resigned for personal reasons. We replaced that. And then we had another change. And so I want to tell you with my tour that Joe and I, we really feel good about the management team that's in place there. And a lot of momentum starting to build with them. And because -- how long has Anning been there now?

--------------------------------------------------------------------------------

Joseph R. Hinrichs, Ford Motor Company - President of Automotive [60]

--------------------------------------------------------------------------------

Yes. Anning started in November, so not even close to a year and really starting to gain some momentum.

--------------------------------------------------------------------------------

James Patrick Hackett, Ford Motor Company - President, CEO & Director [61]

--------------------------------------------------------------------------------

Yes. So I just want to make sure that you guys hear that.

So operator, I think it's time for us to wrap up. If it's okay, I'll go ahead and close with a few thoughts. I just want to say that our second quarter results demonstrate that this global redesign of Ford is driving positive shifts in our business. And we emphasize today that news in Europe is better, and the redesign that we took with the bureaucratic structure of the company has -- we met all the goals there. So there's a lot of good news in this year of execution regarding that.

Thus, we are improving our fitness, and that was the goal, to make us more competitive. We are driving a winning portfolio. The logic, as you know, to move out of the sedans and into products like Ranger are paying off. And we see ourselves fortifying strengths and improving mix, and there's a really strong commitment, as Adam asked us to expand that electric vehicle portfolio quickly. And lastly, the trajectory of the company is improving, we believe, and strong in terms of growth, cash flow and profitability.

So let me thank you for your attention this evening, and I'll turn it back to the operator.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes the Ford Motor Company's second quarter earnings conference call. Thank you for your participation. You may now disconnect.