Ford Business Plan Review on May. 22. 2008 / 10:00AM

[Pages:20]FINAL TRANSCRIPT

F - Ford Business Plan Review

Event Date/Time: May. 22. 2008 / 10:00AM ET



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

CORPORATE PARTICIPANTS

Lillian Etzkorn Ford Motor Company - Director IR Alan Mulally Ford Motor Company - President, CEO Don Leclair Ford Motor Company - EVP, CFO

FINAL TRANSCRIPT

CONFERENCE CALL PARTICIPANTS

Rod Lache Deutsche Bank - Analyst

John Murphy Merrill Lynch - Analyst

Chris Ceraso Credit Suisse - Analyst

Brian Jacoby Goldman Sachs - Analyst

Bill Koenig Bloomberg News - Media

Jeff Bennett Dow Jones Newswires - Media

Dee-Ann Durbin The Associated Press - Media

David Kiley BusinessWeek - Media

Bill Vlasic The New York Times - Media

Bryce Hoffman The Detroit News - Media

Amy Wilson Automotive News - Media

Chris Isidore CNNMoney - Media

PRESENTATION

Operator

Good day, ladies and gentlemen, and welcome to the Ford Business Plan Review conference call. My name is Katina, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today's call, Ms. Lillian Etzkorn, Director of Investor Relations. Please proceed.



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

FINAL TRANSCRIPT

Lillian Etzkorn - Ford Motor Company - Director IR Thank you, Katina, and good morning, ladies and gentlemen. Welcome to all of you that are joining us either by phone or webcast.

On the entire Ford management team, I would like to thank you for spending time with us this morning. With me this morning are Alan Mulally, President and CEO, and Don Leclair, Chief Financial Officer.

Before we begin, I would like to review a couple of quick items. A copy of this morning's Business Plan Review and the slides that we will be using today have been posted on Ford's investor and media websites for your reference. Our presentation today includes projections of future performance measured on a GAAP basis and, in some cases, on a non-GAAP basis. Actually results could differ materially from those suggested by our comments here.

Additional information about the factors that could affect future results are summarized at the end of this presentation. These risk factors are also detailed in our SEC filings including our annual, quarterly, and current reports to the SEC.

With that, I would like to turn the presentation over to Alan Mulally, Ford's President and CEO.

Alan Mulally - Ford Motor Company - President, CEO Thanks, Lillian, and good morning to everyone. We will begin on slide 2 with a recap of what we shared during our first-quarter earnings call that we covered with you just about a month ago.

First-quarter results indicated that we are making solid progress in delivering our plan, with pretax profits for each automotive operation up versus a year ago, with the exception of Volvo. Our results in South America and Europe were particularly strong, and Asia-Pacific is also performing well. And North America made good progress on their transformational plan.

Our quality has continued to improve, with the latest competitive survey showing an 8% improvement in initial quality versus last year, putting us in a statistical debt heat with Honda and Toyota.

In addition, we reduced our costs by $1.7 billion in the first quarter, keeping us on track toward our $5 billion cost-reduction target for North America.

But we also explained that these results included several favorable one-off factors in North America that wouldn't reoccur this year, and therefore we expected our results to be somewhat lower in the subsequent quarters.

In addition, we expressed our concern about the external challenges facing us in North America, where the economic outlook and consumer confidence remained weak. These challenges included rising fuel prices and commodity costs; lower industry volume; coupled with an adverse market segmentation, as customers were shifting from large pickups and SUVs to smaller cars and crossovers; and we were seeing lower auction prices on large pickups and SUVs.

Turning to slide 3, where in recent weeks in particular we have found focus on increasing weakness of business conditions in North America as industry demand has continued to decline. Commodity prices have been rising, especially steel and crude oil, which now are at record highs.

The combination of record high fuel prices and continuing difficulties in the housing sector has further accelerated the shift away from large pickups and SUVs to small and medium-sized cars and crossovers. We saw a real change in the industry demand for pickup trucks and SUVs in the first two weeks of May. It seemed to us that we reached a tipping point where customers began shifting away from these vehicles at an accelerated rate.



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

FINAL TRANSCRIPT

Based on everything we can see on the outlook for fuel prices, we do not anticipate a rapid turnaround in business conditions. We have analyzed the data; and our best judgment is that a large part of the recent changes are structural as opposed to cyclical, and we're taking action now, rather than waiting.

Continuing our plan of balancing our production with the real demand, we're aggressively reducing our production of pickup trucks and large SUVs through the balance of this year, while at the same time maximizing our production of smaller cars and crossovers.

Over time, we will be making more permanent changes in capacity to meet demand and model mix, by adding more smaller fuel-efficient vehicles and accelerating the introduction of smaller cars and crossovers with a significant improvement in fuel efficiency.

We have assessed our ability to find other offsets internally, and we believe we have identified about as much as we can without damaging the long-term health of our business. As a result, our judgment is that it will be extremely unlikely we can achieve profitability in 2009 for either North America or for our automotive business in total.

We do expect to be about breakeven on a pretax corporate basis, excluding special items for 2009.

With that, I will pass over to Don, who will take you through our outlook in more detail. Then I will wrap up and we will take your questions. Thank you.

Don Leclair - Ford Motor Company - EVP, CFO Thanks, Alan. Let's go to slide 5, which shows where we are in our planning assumptions and operational metrics for this year.

At the first-quarter earnings call, we discussed what we believe was a reasonably conservative assumption that industry volumes would weaken somewhat from the first-quarter level of 15.6 million units and that vehicle segmentation would continue to shift away from areas where our share has been high.

Based on the most recent trends in economic environmental factors that Alan just discussed, however, we now project further industry weakening and an increased shift in vehicle segmentation. Our revised assumption for the US industry is in the range of 15 to 15.4 million units for the full year, and that includes medium and heavy trucks.

This reduction in our industry volume forecast primarily affects the second half and results in a revised outlook for production which we will cover later. Importantly, we believe this change will flow right through into 2009.

This, along with the segment shifts and higher cost of steel and other commodities, are the main reason for our change in outlook for 2009.

We remain on track to achieve our operational metrics, although we now expect our full-year US market share to be about 14%, as opposed to what we said before, which was the low end of the 14% to 15% range. This change primarily reflects segment shifts. We have improved our share in several of the growing segments including small cars and crossovers.

On slide 6, it shows our North American production plans for the balance of this year. We are revising our second-quarter production schedule to 690,000 units; and that is down 20,000 units from our prior guidance and down 15% from 2007. This change reflects a further reduction in trucks and SUVs.



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

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For the third quarter, we expect production to be in the range of 510,000 to 540,000; and that is down 15% to 20% from a year ago. This change reflects a 120,000 to 150,000 unit reduction in truck and SUV production, partly offset by increased production of small cars and crossovers.

In the fourth quarter, our present outlook is in the range of 590,000 to 630,000 units. This more moderate decline compared with year-ago levels largely reflects the production cuts that we took during the fourth quarter of last year. The decline is, again, more than explained by lower truck production.

As I mentioned, the lower production run rate coming out of the second half is an important contributor to the loss we now expect to occur in North America next year.

Slide 7 shows our 2008 outlook by sector. With the production cuts we just discussed, combined with the continued deteriorating economic conditions in the US, we now expect automotive full-year pretax results to be about equal to 2007 when you exclude Jaguar and Land Rover from last year.

Our operations outside of North America continue to perform well. In particular, we expect continued strong results in Europe and South America. We take confidence from our results in Europe and South America, because these operations have demonstrated the ability to be profitable in markets that are largely comprised of small and midsize vehicles. These operations cannot, however, offset the deterioration occurring in North America at this time.

The remainder of our 2008 outlook for operating results is unchanged.

Further, we are evaluating the implications of the revised profit outlook for our North American business, and we will need to impair our fixed assets in North America. We're still working through the analysis, and we will include the impairment in our second-quarter results. So at this time we're not providing guidance on special items.

Slide 8 provides our assessment of where we stand in achieving our key business metrics and financial goals. We now expect a pretax loss for our North American auto business and for our auto business in total for next year. Excluding special items, we now expect pretax results to be about breakeven next year on a corporate basis.

Despite higher than planned commodity costs, we remain on track for our 2008 cost-reduction target, which is a key element of our plan. We now expect further cost reductions and recognition of anticipated OPEB savings from our recent UAW agreement will be needed to offset the impact of higher commodity prices. We had hoped that the OPEB savings would allow us to exceed the $5 billion target.

We will continue to focus on cost reductions for the balance of this year and into 2009, and will develop plans to help mitigate the impact that commodity price increases have on our business going forward.

We now expect our market share, as I mentioned, to be about 14% for the year. And as I mentioned, the decline is more than accounted for by segment shifts.

Cash outflows associated with operating losses and employee separations are now projected at $14 billion to $16 billion for the 2007 to 2009 period, higher than our previous guidance.

Slide 9 summarizes our liquidity position as of March 31. Total automotive liquidity including available credit lines was $40.6 billion. Our present secured facility includes $11.5 billion of credit lines that do not mature until the end of 2011, and our term loan does not mature until the end of 2013. We will continue to evaluate our overall liquidity and potential alternatives to improve our balance sheet.



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

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In total, automotive debt was $27.1 billion. Upon implementation of the independent VEBA, debt will increase by about $5.3 billion.

At Ford Credit, we had $23.9 billion of available liquidity as of March 31.

Now I will turn it back to Alan.

Alan Mulally - Ford Motor Company - President, CEO Thank you, Don. Now on to slide 10, which summarizes our near-term action plan.

As Don mentioned earlier, we are reducing our production schedule for the balance of the year, largely to reflect reduced customer demand for large pickups and SUVs. At the same time, we will increase as much as we can our production of small and midsize cars and crossovers.

Over time we will be taking actions to bring our manufacturing capacity in line with customer demand. This will need more capacity to produce smaller, fuel-efficient vehicles and less capacity for our larger pickups and SUVs.

We will be reducing our costs throughout our operations to match the changing structure of our business. This will include personnel reductions.

And we will continue to accelerate our investment in smaller vehicles to bring them to the United States market faster, capitalizing on the world-class products that we have developed for the European and Asia-Pacific markets. We plan on sharing more details on the specifics of these plans with you by late July.

Now on slide 11. Our priorities remain unchanged. They are exactly the transformation we need to do to return the Ford Motor Company to sustained profitability.

Outside of North America, our business results continue to be strong. We're particularly encouraged by the strong performance in South America, Europe, and Asia-Pacific.

Now, within North America there are a lot of things going right. We have reduced our capacity, employment, and our structural costs sharply. We have a lot of great new products in the pipeline and, importantly, we are gaining share in many of the rapidly-growing market segments in the United States.

However, given the unprecedented economic challenges in our North American business, we have a lot more work to do. I can assure you that we are taking and will continue to take the appropriate decisive actions to return our North American automotive business to profitability. But it will take longer than we had previously thought.

As I mentioned earlier, we could have waited longer to assess whether the economic challenges are structural or more short-term in nature, but we decided that we need to act now.

We plan to provide more details on our specific response plans in July, no later than our second-quarter earnings announcement. Now, we would like to take your questions.



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

FINAL TRANSCRIPT

Lillian Etzkorn - Ford Motor Company - Director IR

Thank you, Alan. Ladies and gentlemen, we are going to start the Q&A session now. We have about 30 minutes for the Q&A. quarter ended. We will begin with questions from the investment community and then take questions from the media who are also on the call.

In order to allow as many questions as possible within our time frame, I ask that you keep your questions brief, so that we don't have to move callers along after a couple of minutes. With that, Katina, can we please have the first question?

QUESTIONS AND ANSWERS

Operator (OPERATOR INSTRUCTIONS) Rod Lache, Deutsche Bank.

Rod Lache - Deutsche Bank - Analyst Good morning, everyone. Can you just share some thoughts on what the magnitude of the mix shift is that you're anticipating for the industry? What sort of market share declines for pickups and traditional SUVs are you factoring into your plan at this point?

Alan Mulally - Ford Motor Company - President, CEO I think, Rod, we are probably all looking at the same data that you are. But especially the acceleration of the shares for the last four to six weeks, I think give a pretty good indication. For example, in the truck, the large pickup truck environment, we have seen a decline over this last few weeks from like 11% to around 9% of the total US market.

On the bigger SUVs, we're seeing shifts over the last few weeks of 5% down to 4%. But even probably more remarkable is from the first quarter down from 6.8%, so a pretty dramatic reduction.

But I think we are also really trying to understand what the real demand is going to be going forward. But as we pointed out, it seemed like this started to really move when we moved through around $3.50 gas. So we're trying to assess that now going forward, about where that might go.

But based on that is the reason we're moving decisively now, because we think this is going to be structural in nature.

Rod Lache - Deutsche Bank - Analyst Can you quantify sort of the mix and raw material cost headwind that you feel you need to overcome with additional cost savings?

Alan Mulally - Ford Motor Company - President, CEO Well, the majority of course is associated with the movement out of the higher-margin bigger vehicles to the cars. That is the majority of it. But clearly the commodities are a large piece, too.



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? 2008 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

May. 22. 2008 / 10:00AM, F - Ford Business Plan Review

FINAL TRANSCRIPT

Rod Lache - Deutsche Bank - Analyst

Right, but is there any kind of number or figure you can set out there? Is it a $2 billion hit? $3 billion? What is sort of the magnitude of the headwind that you are figuring you can or need to overcome with additional structural changes within the Company?

Alan Mulally - Ford Motor Company - President, CEO Let us give you our perspective and color on that in July. We are also going through our negotiations with the commodity suppliers too, as our contracts are rolling over.

I think we are going to -- when we add the sales, we get the sales inside, and we get the commodity and our restructuring, I think we will know a lot more to be able to give you a lot better perspective in July.

Rod Lache - Deutsche Bank - Analyst Okay, last one. I'm sure that by now you have had a chance to look at these proposed CAFE rules that came out last month. Do you have any thoughts on the cost and capital requirements for complying with those?

Do you think longer-term the Company, beyond 2009, has the potential to generate cash despite what appear to be increasing burdens?

Alan Mulally - Ford Motor Company - President, CEO On your latter question, you bet. The plans that we have laid out, especially with the transformation to have a full product line, the use of our global assets, get the volume up, our continuing improvement in the quality, and our productivity improvement, we think we can create a viable, growing Ford.

Your first question is really important. As you know, we have chosen to really partner with the regulators to come together on realistic improvement targets for fuel efficiency.

We think that the requirements were passed in the last Energy Bill with respect to CAFE are definitely a stretch for us. We think we can do it. We think we have the technology to do it. We have that base in the plan.

Now, the one piece of your question I think is really important is that we all move forward together with one set of requirements. Our bigger concern is the states go in different direction with different sets of requirements, which would just make it so confusing for everybody and would really change the business environment a lot.

But I think that everybody is aware of that. They are trying to move that way. So I think the plans we have in place now, we have built into the plan; and I think we are going to be able to satisfy those requirements.

Operator John Murphy, Merrill Lynch.



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