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Ford's Management Hosts January 2014 U.S. Sales Conference (Transcript)

Ford Motor Co. (F) January 2014 U.S. Sales Conference Transcript February 3, 2014 10:00 AM ET


Erich Merkle - U.S. Sales Analyst

John Felice - Vice President, U.S. Marketing, Sales and Service

Emily Kolinski Morris - Senior Economist


Adam Jonas - Morgan Stanley

Itay Michaeli - Citigroup

John Felice Murphy - Bank of America Merrill Lynch

Colin Langan - UBS

Alisa Priddle - Detroit Free Press

Dee-Ann Durbin - AP

Brad Wernle - Automotive News

Mike Ramsey - Wall Street Journal

Rod Lache - Deutsche Bank


Good day, ladies and gentlemen. And welcome to the Ford Monthly Sales Conference Call. My name is Derrick, and I’ll be Operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions)

I would now like to turn the conference over to Mr. Erich Merkle, U.S. Sales Analyst. Please proceed.

Erich Merkle

Thank you, Derrick, and good morning, everyone. Welcome to Ford’s January 2014 sales call. Looking at our initial read of the data this morning, the month looks to be wrapping up at above the high 15 million total vehicle SAAR rates, including medium and heavy trucks.

This would translate into an absolute sales number of around just over -- a little over million total vehicles, placing the industry down approximately 2% relative to year ago levels.

At retail, we are seeing a SAAR that is coming in right around 13 million, maybe a little lighter than 13 million, which would represent approximately 80% of the industry for the month.

January sales cadence was weak at the beginning of the month coming off the holidays. It recovered very well through the middle of the month, but then again softened at the end. Weather was a factor in January as much of the country recorded extreme cold and inclement weather conditions.

So if we take a look at some of the details and what we saw at the various segment level. In January, we saw some decline in the full-size pickup trucks segment relative to last year. The segment represented approximately 11.5% of the industry in January, related to 12.5% last year.

We feel there are a couple factors that impacted the segment in January. First of, incentives spend in the segment is down about $700 relative to last year with transaction prices up approximately $3,000.

Secondly, January's cold snap had an impact on the Great Lakes in the central regions of the country. These are areas that lean heavier towards full-size pickup truck sales. Midsize cars represented about 15% of the industry in January, which was off again, which was again off, compared to year ago readings up about 16%.

Those who purchased vehicles in January must have been inspired to purchase small utilities. The segment represented just over 17% of the industry in January, which is the highest level we have ever seen.

This compares to about 14% of the industry in January of last year, so some really strong growth continues in the small utility segment. That gives you a real quick look of the overall industry and some of the segments.

Now, I am going to turnover to John Felice, and he is going to talk us little bit about what he saw at some of the regional levels and with some of the vehicles. John?

John Felice

Well, thank you, Erich, and good morning, everyone. During the month of January, Ford Motor Company sales totaled 154,644 vehicle representing the 7% decline over year ago levels.

A portion of loss was a result of a weak fleet month as the plants were hampered by some of the tough weather we have, the winter weather. Fleet sales totaled 40,923 vehicles which was a decline of 14% year-over-year. These orders will be filled in February as we recover.

At retail, we also saw sales hampered by the bad weather as Ford Motor Company retail sales totaled 113,721 vehicles, which was off by a more modest 5%.

Looking at retail sales performance by various region of the country, we were up in the west, which again wasn’t affected as much by the weather. Regions of real weakness for us in January were places where, obviously weather was worse, including Great Lakes and the East which were both down about 10%.

When you look at individual vehicle, Escape had its second best January sales month and while total Escape sales were up 2%, in total sales at retail were up 2%. This provided Escape with its best January sales results ever at retail for the month of January.

Fusion sales were up 8% this past month, however, we estimate that the retail market share increase as the overall segment was off by a larger percentage. Based on the preliminary data for January, Fusion delivered its best ever retail share of the Midsize Sedans segment.

Fusion performed really well in the West where it was up 11% at retail that was not enough to offset the declines in regions that suffered from the incline of weather, including the Great Lakes and the eastern parts of the country, which were down 20% and 18%, respectively.

When we look at California, the largest passenger car market in the country, one of the few places that had good car buying weather, Fusion retail sales were up 17%. This would be our best ever January retail sales for Fusion in California and it’s a big part why our Fusion retail sales of the Midsize Sedans segment were at an all-time high.

As Erich commented earlier, we estimate the full-size pickup truck segment was down for the first month of this year, largely as a result of year-over-year pull-back and overall incentive spend and again, the poor weather in the central part of the country which are key to pickup truck sales.

By region, our performance was very strong in the west and southeast which saw increases of 5% and 3%, respectively. This wasn’t enough to offset the loss in some of the industry's biggest full-size pickup truck areas like Great Lakes and Central.

All in, F-Series posted a slight decline of less than a percent in January were just 305 fewer sold than January a year ago. This performances comes with F-Series at the lowest incentive spend among the three largest pickup truck producers in January.

Turning to Lincoln, continuing this momentum from last year, Lincoln sales for the month totaled 5,973 vehicles, which is a 43% increase in Lincoln’s best January sales performance in four years.

Lincoln MKZ sales in January turned in a very good performance coming off the holiday sales month of December, MKZ sales totaled 2,122 vehicles. Lincoln MKX was up 36% in January with 2,479 vehicles sold.

We fully realized that we still have the long way to go as this luxury brand journey re-innovation will be measured in years not months, but we are pleased with Lincoln’s performance in January and look forward to the all new Lincoln MKC small premium utility vehicle, which is set to go on sale this coming summer.

Just a quick look with a little more granularity on sales results by region. And with that, I’d like to turn things to Emily for an update on the economic conditions. Emily?

Emily Kolinski Morris

Okay. Thank you so much John and good morning everyone. Well, we want to try to avoid giving a weather report this month but unfortunately, we have seen some significant weather-related impacts on the economic data here around the turn of the year.

We’re going to try to abstract from that a little bit. We want to note that as we look into 2014, we do see a continued improving trend in the incoming indicators and some indications that growth this year could be better than the first estimate of 1.9% growth rate for the full year 2013.

But with that backdrop, let’s look at some of the recent monthly data. This morning we received the Purchasing Managers' Index for January and that was down 5.2 points from the prior month’s reading of 57. New orders and production readings were down but the reports didn’t note a number of comments from their participants that adverse weather had a negative impact on their business in January and also reflecting optimism about improving sales and business activity in the early part of 2014.

The University of Michigan consumer confidence reading for January declined just over a point to 81.2. That decline was attributed to a less favorable assessment of conditions by household with income below $75,000 although more household at all income levels did see some improvement in their personnel finances as compared with the same time last year.

Positive assessments in vehicle buying conditions noted low interest rate, as well as favorable pricing with 68% of those surveys indicating that it’s a good time to buy vehicle. Housing-related data has certainly been affected by the extreme weather conditions as well leading to months-on-months decline in some of the key reading but continuing to reflect an improvement in the year-on-year trend.

The pace of new home sales slowed in December as compared to a very strong November results but was still at 4.5% year-over-year. With inventories remaining tight at just five-month supply and we expect that will provide some support for construction in the year ahead.

Despite the poor weather, December housing starts were treated only slightly to just under million units of SAAR and remain near the mid-2008 peak. Against the backdrop of improving demand and tight housing supply, pricing has continued to improve.

The most recent reading on the Case-Shiller Home Price Index which date to November showed a 13.8% advance compared to a year ago, marking the ninth consecutive month of double-digit price increases, with average prices now about 20% off of the 2006 peak. In addition to the tight supply of homes for sale, the release also noted that prices typically dip in November but nonetheless this was the best November result since 2005.

Finally, in terms of job and income growth, these reports are also very weather sensitive, we’ll get a new reading on January payroll this week which we’ll have to dissect when the data become available. But we know that December’s reading was certainly affected by the weather with the significant decline in construction employment during the month.

The unemployment rate did continue to decline, sitting at 6.7% currently. It was a combination of job gain and declining labor force participation driving that reduction. In fact, since mid 2009, we’ve now seen over 6.5 million jobs created. Although labor force participation rate was also down over that period from 65.5% to 62.8% currently and the most recent four-week moving average of initial jobless claims came in at 333,000 in the past four week period but that is down from 357,000 that we cited at the time of our last sales call.

Consistent with the story on consumer confidence, these conditions are generating only modest improvements in income growth. Personnel income was flat in December on a month-over-month basis, although spending did improve four tenths of a percent month-over-month in the same period.

So to recap as Erich mentioned earlier, we see this January total industry sales in the high 15 million unit range. This season we adjusted annual rate including medium and heavy trucks, losing out some of the recent volatility which is certainly good thing to do in this current environment and looking at the data on a six-months moving average basis. This monthly pace would continue the modest increase in the trajectory we’ve seen after having flattened out in the latter part of 2013.

And so our 2014 industry sales projection remain in the range, which was disclosed on December 18th last year with U.S. sales expected in the range of 16 million to 17 million units. So with that Erich, I’ll turn it back over to you and we can do questions.

Erich Merkle

Thank you, Emily. I have a few housekeeping items to go through before we turn it over for questions. As we take a look at January as fleet as a percent of total, January 2014, 26% of our total sales were fleet. That is 14% for commercial, 5% for government and 7% for daily rental. This compares to January 2013 when 28% of our sales were fleet, 14% were commercial, 4% were government and 10% were daily rental.

Turning over to gross stock inventory situation, we have January 2014, cars 234,000 vehicles, trucks 248,000 vehicles, utility 177,000 vehicles, giving us a total for the month of 659,000 vehicles. This translates into days supply of 111 days. December 2013 the previous month, cars 224,000, trucks 247,000, utilities 168,000 giving us a total of 639,000 vehicles translating into days supply of 73. January of 2013, cars, we had 176,000 cars in gross stock; trucks 239,000; utilities 152,000 giving us a total of 567,000. This translated into a days supply of 89.

Now when we start one other note or one other comment that we want to make here before turning the call over, is that going forward our production guidance will be reporting our production guidance in conjunction with our earnings. And this is going to be a bit of a change as this will make it consistent with our global reporting process. So for next month, we won’t be issuing production guidance with the sales call just to note.

With that, Derrick, let’s turn it over to the folks in the analyst community and we will start taking some questions.

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