Q4 2019 Earnings Call

[music].

Good day, ladies and gentlemen, and welcome.

To todays Ford Motor Company fourth quarter 2019 earnings Conference call. My name is Holly and I'll be today's operator, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press Star then one on your telephone keypad.

To withdraw your question press the pound key after the question and answer session. There will be closing remarks at this time I would like to turn the call over to Lynn and People's Tyson Executive director of Investor Relations Lynn.

And ladies and gentlemen, standby I believe we have lost our one moment, but explore the speaker.

Thank you operator welcome everyone to Ford Motor Company is fourth quarter 2019 earnings call presenting today are Jim Hackett, our president and CEO and Tim Stone, our Chief Financial Officer also joining us or Joe Henricks President automotive.

Jim formerly president new businesses technology, and strategy and Marion Harris CEO afford credit.

Jim Hackett will begin with a brief review of our results.

Progress against our strategic initiatives and guidance for 2020.

Tim will follow with a more detailed look at our results and guidance after which we'll turn to QNX. Following the QNX Jim Hackett when my closing remarks, our comments today will include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measures in the appendix of earnings deck, which can be found along with the rest of our earnings materials at shareholder.

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Today's call will include forward looking statements about our business actual results may differ from those stated and the most significant factors for that are included on page 26 of our presentation unless otherwise noted all comparisons are year over year references to company EBIT, EPS and free cash flow around an adjusted basis and product mixes.

Im weighted.

As a reminder, starting at 2020, we changed your business units in our auto segment to align with how we now manage our business to help you navigate this in the appendix of earnings Jack is a diagram of the changes, including where results from certain joint ventures will be reported.

We've also included 2018 and 2019 results by quarter that coincide with the new reporting structure.

Some minor IR housekeeping going forward, we'll announce the date for our next earnings release in conjunction with results for the previous quarter. For example, we're announcing today that the day for our 2020 Q1 earnings will be April 28.

Please just regard our previously announced dates for July in October 2020, now I'll turn the call over to Jim.

Thanks, Lynn and thanks to all of you for joining us today.

Please turn to page three.

At the start of this new decade. We are also had a cross roads for our industry and for Ford Motor Company.

I believe as I've said before there is an incredibly bright future for Ford within what has become a very disruptive environment into realize this future we undertook a fundamental redesigning the company.

Pete and win in this new era of smart vehicles in a smart world.

No on this call a year ago I told you the 2019 would be a year of strategic action with potential for financial improvement.

No measured against the first part of that statement 2019 was a year, we took meaningful actions to improve our fitness and accelerate our transformation into a higher growth higher margin business by leveraging smart connected vehicles and breakthrough customer experience.

A powerful example of our companies move into the digital future, whereas the November reveal of our Mustang marquee.

An exciting zero missions vehicle, there will be fully connected and continually improved through over the or updates.

We're encouraged by the interest in early orders around the world.

Moving forward virtually all our new vehicles will be connected enabling Ford the vasily enhance customer experience and our ability to leverage data and analytics to constantly raise quality and reduce costs.

Additionally, this past year, we forged strategic agreements in partnerships around the world.

With VW, revealing and Mahindra.

This is to help position Ford for leadership, and autonomous and electric vehicles and create new business models for profitable growth in emerging and emerged markets.

We continued one of the most ambitious portfolio shifts in our history.

Focusing their capital on growing profitable segments, and playing to the strength of our brand.

We're right on strategy to add compelling new products across segments price points, well phasing out unprofitable and commoditize vehicles and shrinking segments and this will only accelerate moving forward, which benefits our share bottom line and most importantly customers.

We also made significant progress on our global redesign in 2019.

We took tough but important steps to strengthen our capabilities and create a more resilient Ford.

Those actions included.

Restructuring or operations in Europe, and South America.

Assembling a talented new leadership team in China with strong local market expertise.

And reducing the size of our salaried workforce around the world.

Flattening the organization in cutting down bureaucracy in the process.

In the secondary I talked about last year potential financial improvement.

We fell short of our expectations in Eurs in 2019.

What is particularly disappointing is that a primary reason for that shortfall.

Was our operational execution and this is an area. We are typically very effective.

Our execution was simply not nearly good enough.

Clearly we recognize this and of course were accountable for it and we've taken steps to address these shortfalls.

An example of this was the manufacturing launch of our all new explore.

The lost volumes in Chicago during ramp up more the year and there were some important lessons that we learn.

The good news is the explore is a fantastic vehicle and we've entered the year with strong customer demand for it.

Financial improvement was also held back by the emergence of warranty issues, primarily for vehicles design years ago.

So before I get into the numbers, let me make this very clear our leadership team is determined to returned a world class levels of operational execution.

We will do that without losing any momentum in creating a Ford motor company that will thrive and generate long term value in these fast changing times.

To this end, we've made changes to our executive incentive plans and we placed an even greater weight on free cash flow.

Which we think is the ultimate gauge of our success in driving growth and allocating capital towards best and highest uses.

Please turn to page four.

Our full year revenue declined 3% and company adjusted EBIT of 6.4 billion was down 9%.

This yielded the overall margin of 4.1% and.

And adjusted EPS for the year was $1.19 cents.

Importantly, we generated 2.8 billion it in total company adjusted free cash flow.

Balance sheet. It remains strong with 22 billion in cash and 35 billion in liquidity, both of which are well above our target levels.

Please turn to page five.

As I mentioned in 2019, we significantly strengthen our portfolio around the world.

New launches included that all new explore I mentioned escape and Super duty and the Puma in Europe.

In addition to the reveal of our Mustang Mckee.

On a volume basis this product Renaissance will gather even more momentum in 2020, especially in North America.

Ford F series was Americas truck leader for the 40 threerd consecutive year.

In the fourth quarter F 150 volumes close strongly with the segment share up year over year and sequentially.

The new Ranger and its first full year of production in the U.S. earned a 21% share of the mid size pickup segment in the fourth quarter and this contributed to our best year of total pickup sales since 2005.

So we're quite proud with the F series and Ranger as a one two punch Ford was not only the leader in U.S. full size pickups, but also the leader in total pick up sales in 2019.

In Europe, we started the rollout of 17, new hybrid and electric passenger and commercial vehicles, including the all new Puma S. UBI.

This brought our electric portfolio shows how serious we are about meeting the regions new carbon footprint requirements.

We launched our first ever fully electric vehicle in China with a version of territory and we announced we would introduce more than 30 markets specific forward in Lincoln vehicles 10 of these will be electrified over the next three years and as mentioned are all new Mustang Maki will reach customers late this year.

Now all of these products imports fords commitment to achieve the Paris climate accord glide path for lower Seo to emissions and at the same time, we maintain leadership around the globe with our franchise vehicles.

Mustang Americas, and the world's number one sports scoop.

F series, along with Ranger, which is the number two medium sized pick up outside the U.S. and number one in Europe.

Explore America's all time, best selling S., UBI and transit the top cargo band globally.

Well some automakers are clearly pursuing full blown mergers for scale in cost sharing forged strategy is based on strategic partnerships and alliances that will deliver benefits and key segments in markets, while improving our cost and capital efficiency.

For example, our agreement with VW is structured to allow us to reap scale gains from our collective leadership position.

In light commercial vehicles, and medium pickups, and electrification and the Thomas vehicles.

Our joint venture with Mahindra will combine low cost engineering and manufacturing optimize for India and export to other emerged in emerging markets.

With more efficient levels of investment.

With our equity position and revealing and well matched strengths of the two companies. We can quickly bring to market and all new Bev using rivenes flexible platform.

In fact last week, we announced we're working with rebellion on Lincoln's first all electric vehicle building on the introduction last year, the Lincoln aviator and Corsair Gran Torino plug in hybrids.

In terms of global redesigned Ford took decisive actions in both Europe, and South America to fortify and build on strengths.

While addressing underperforming parts of those regional businesses.

In Europe, we announced the closure of six manufacturing facilities, which will reduce our footprint to 18 facilities from 24.

We also refocused our European product portfolio, a top three pillars.

One strengthening our leadership in commercial vehicles.

To delivering a targeted portfolio a passenger vehicles and three importing iconic nameplates.

I mean, the process, we're reducing our workforce in Europe by 12000 positions.

With more than half of that completed in 2019.

In South America, we're moving to a lower cost asset light business model and last year, we exited production of heavy trucks, we closed our plant in San Bernardo and discontinued the Fiesta and focus models.

Over the past three years, we've reduced our total workforce in South America by more than 40%.

In China, we completed the build out of an experienced local leadership team and localize. The first the five products are Lincoln Corsair.

The heart affords vision is preparing the company the compete and win in this emerging era, we describe a smart vehicles for smart world.

I practical effect is we continue to invest in and expand our capabilities and mobility connected service and autonomous vehicles areas that will provide meaningful opportunities for growth.

For example, Ford commercial solutions significantly grew its data and telematics subscriptions in 2019 building out the portfolio of services.

We're leveraging those services in our large profitable and expanding commercial truck franchises, which includes a sizable fleet market.

In terms of autonomous vehicles, we continued our credible and holistic approach to building a successful scalable and profitable Avi business focusing on the customer experience the self driving system.

Fleet operations and designing our purpose built self driving vehicles.

For Davy LLC and Argo AI now have joint autonomous vehicle testing operations in Austin, Miami, Washington, DC Pittsburgh Detroit.

In the South Bay Metro area in Silicon Valley.

Of these six locations make up the largest urban navy testing footprint in the industry.

Providing us with unique an invaluable diversity of real world miles driven.

With that information, we're continuously optimizing Argos self driving system and positioning forward exceptionally well for commercialization and subsequent scaling up this technology.

Well before I turn the call over to Tim Let me briefly touch on 2020.

As I said at the start we begin this decade with optimism and the conviction that we're taking the right steps to redesign and restructure our business improve our fitness and prepare the company to compete and win in the future.

2020 will be the year, we reintroduced bronco to the world.

The year, we completely redesigned the F 150.

The year, we'll start seeing the Mustang Maki on roads around the world.

All these vehicles will be smarter and more connected and ever improving.

We're focused on solid execution of our product launches this year, especially where there will naturally be downtime during changeover like the F 150.

The cadence of these launches which are volume weighted towards the end of the year will drive headwinds for us in 2020.

But they will strengthen our earnings and cash flow potential heading into 2021.

Now let me briefly talk about what we're seeing in doing relative to the grown virus.

As you would expect our Ford team is for actively monitoring the situation on several fronts, including the safety of our employees and their families. This is paramount.

Business continuity, including our JV partners in China, as well as customers.

Supply chain management.

Logistics and of course, where we can we want to be part of the solution. So we are donating money and equipment, where we can be most effective.

That's my strong instinct is to want to tell you what the impact of this virus may be on our business and our guidance for this year.

However, it's simply too early.

China is only now starting to come back from an extended new year holiday.

Many companies, including forward are currently hoping to resume large parts of their industrial operations next week.

That is most experts are already saying and we agree that will take weeks to begin to understand the implications of the outbreak.

In the meantime, we will describe our expectations for the business, excluding the possible effects of the krona virus.

It is possible, though that we could absorb a modest impact from the virus within our guidance range.

For the year, we're driving for at least nominal growth in auto as we continue our ambitious portfolio transformation.

We expect this growth, though to be offset by lower E. B T from Ford credit.

And a modest investment increase in mobility.

Tim Stone, our CFO will provide more color.

In fact, now I will turn the call over to Tim.

Thanks, Jim.

Well 2019 results were not okay.

I'm confident we have abundant opportunities to improve our operational execution drive growth.

Strengthen our financial results, including cash flow in the process and the confidence of our stakeholders.

We will achieve a potential and optimize long term value through timely decisive actions to strengthen our business and execute on our long term vision.

These include applying sharp rigor to the allocation of capital higher return investments, including our franchise products.

As you heard me say in the past, we're focused on consistently improving customer experience and operational execution across our business.

We are achieving important progress on our global redesign, making tough choices to lay the foundation for improvement in future growth free cash flow profitability and returns on capital.

We are driving fitness for example, scaling or improving the operating leverage of our structural costs and capital efficiency and forming alliances and joint ventures that will enable us to drive durable scale benefits.

We're prioritizing meaningful opportunities for profitable long term growth and mobility.

And we will continue to employed disciplined execution to drive strong results from Ford credit.

Turning to our full year operating performance in 2019.

Full year adjusted free cash flow of 2.8 billion was flat year over year as continued improvement and working capital in our auto business lower capital spending and higher distributions from Ford credit were largely offset by the UAE w. contract related bonuses of about 600 million.

Free cash flows are most important financial measure and we're committed to generating sustainable growth overtime.

Our cash and liquidity or 22 billion and 35 billion, respectively above our target levels.

We remain committed to a strong balance sheet and investment grade credit ratings.

Revenue declined 3% for the year or 1%, excluding the impact of foreign exchange.

And adjusted company EBIT of 6.4 billion was down 9%.

Well full your auto EBIT declined the benefits of a redesign fitness initiatives and stronger product portfolio driven by our decision to reallocate capital to higher return products were evident in our underlying results.

Led by North America Auto delivered 2.4 billion and favorable market factors another strong year for us.

This is supported by improved mix and pricing across most regions.

Auto structural costs, excluding pension and OPEB were down for the year.

Primarily as result of improved fitness and global redesign actions.

The decline in structural cost was a sharp contrast to before we embarked on fitness when those costs are increasing an average of nearly 2 billion a year.

Within auto these favorable trends were more than offset by lower volumes, including the temporary effects of new product launches in the discontinuation of sedans in North America, and low margin products in other regions.

Higher net product costs as we continue to invest in the transformation of our product portfolio.

Unfavorable currency effects.

You had w. contract ratification costs.

And higher warranty expenses.

Regionally, we cut our loss in China by one half year over year.

And Europe was just shy of breakeven.

Together these regions accounted for 1.1 billion, an EBIT improvement.

Outside of auto we increased our investment in mobility by more than 75% or point 5 billion.

As we continue to expand our capabilities and prepare for the launch of our HIV business.

For credit had exceptional results, it's best to nine years, delivering 3 billion ABT.

During the fourth quarter 2019.

We generated point 5 billion, an adjusted free cash flow down year over year, primarily due to you w. contract related bonuses.

Wholesales, which were up 8% in the quarter contributed to a 5% decline in revenue.

These drops are driven by lower volumes in all regions, including the temporary effects of product launches and the discontinuation of sedans in North America.

Low margin products in other regions.

Auto EBIT of point 2 billion was down point 9 billion as higher net pricing and mix led by North America or more than offset by lower volumes you would have you contract related costs.

Our net product costs related to new products and adverse currency exchange.

Our strategic investments mobility increased more than 75% or point 1 billion largely driven by higher investments in autonomous vehicles.

Ford credit delivered another strong quarter 1.6 billion earnings before taxes down 5%.

The decline was driven by lower receivables, partially offset by favorable residual and credit loss performance.

Last metrics continued to reflect healthy and stable consumer credit and auction values for off lease vehicles were down 4% for the quarter and 2% for the year.

For 2020, we expect auction values to be down about 5%.

Company adjusted EBIT declined by 1 billion to point 5 billion.

Adjusted EBIT margin was down 227 basis points to 1.2%.

As improvement in China, and Europe was more than offset by the decline in North America.

Looking at our largest regions in more detail.

North America wholesale units were down 8% in the quarter.

This is driven by a tough comparison to the fourth quarter 2018, when we were at peak volumes with no major product launches.

As well as by the launches a super duty and escape and the plan discontinuation of sedans.

The 2% decline in revenue was less than the decline in wholesales has improved mix and higher net pricing, partially offset the decline in volume.

EBIT was down 64% and margin declined 480 basis points largely as a result of you w. contract related bonuses and lower volumes.

In Europe, where we're carrying out a dramatic redesign of our business wholesales declined 4% due to the plan discontinuation of low margin products.

Revenue in Europe was down 4% or 1%, excluding the impact of exchange.

The decline in revenue excluding exchange was less than the decline wholesales has improved product mix driven by our portfolio actions largely offset volume effects.

The decline and Europe's top line metrics is an outcome of our redesign and portfolio shift as we exit low margin businesses and refocus our portfolio on higher growth and higher return opportunities.

The benefit of this refocus is evident in a few areas for example profitability.

The fourth quarter, even in Europe improved from a loss of 199 million to profit of 21 million.

This is a third consecutive quarter of year over year profitability improvement in the region.

This progress include stronger product mix and lower structural costs.

A redesign of portfolio shift in Europe also make us better prepared to deliver on the regions new CEO to requirements.

Compliance with these new regulations has been built into our product cycle and business plans for several years and we expect to achieve the new CEO to requirements without incurring fines or purchasing credits.

In China, Wholesales, which include JV volumes were down 7%.

This is a third consecutive quarter of moderating declines volume.

Consolidated revenue in China was down 38%.

Mainly because of lower volumes and component sales to joint ventures in the country.

Our EBIT loss in China narrowed to 200 million an improvement of 300 million year over year, driven by a decline in structural costs and improve joint venture results.

This is the fourth consecutive quarter of year over year improvement in results in China.

For all 2019, we were able to cut our losses by one half as new products supported improved market factors, including mix and net pricing.

Lower tariffs and favorable exchange improved contribution margin and our focus on overhead drove a significant decline and structural costs.

We continue to emphasize dealer engagement profitability, along with inventory discipline, but keep in production aligned to demand.

We've also made progress shifting our portfolio from imports to locally manufactured.

In 2019, we launched Lincoln Corsair, and expect a localized for additional vehicles in the future.

In the fourth quarter, we recorded 2.7 billion in special item charges, the cash affects about 200 million.

Actions related to our global redesign accounted for point 4 billion in special item charges and all the negative cash effects.

The balance of special item charges included 2.2 billion for a previously announced remeasurement loss related to our global pension and OPEB plans.

In July 2018, we announced plans for a global redesign.

Which included a potential 11 billion of EBIT charges, and 7 billion of related cash effects to fund the rationalization of our cost structure portfolio and footprint.

Those changes were to ensure that Ford and each of our regional auto businesses drive sustainable profitable growth.

Since announcing that plan, we've incurred 3.7 billion of EBIT charges, and 1.1 billion of related cash effects.

With the majority of them in 2019.

Now I'll expanded our perspective on 2020.

At a macro level our guidance reflects our expectation for continued GDP growth globally and across our major markets.

We also anticipate healthy industry volumes on an absolute basis, but down modestly from 2019, including declines in the U.S. Europe and China.

This outlook does not factor in any assumptions for impacts from the Corona virus to our global business as it is still a very fluid situation and we're still assessing the magnitude and duration of potential impacts.

For Ford 2020 will be another heavy product launch year as we continue to shift investments to our franchise strengths.

For example, in 2020, 75% of North America's volume will be all new or refreshed versus 2017.

This is up from 40% in 2019, an increase of 35 points.

Another way to slice. This is about looking at the average age is our vehicles in our portfolio.

In the U.S. the average age will drop from 5.3 years in 2017 to 3.3 years in 2020.

On our way to 2.9 years by 2023.

After that we plan to keep a stable and competitive product plan with fresh products every year.

So looking at 2020 more closely our launches include our new iPhone 50.

A new to the lineup small offered utility vehicle and must stay Mckee.

We'll also launch our strongest lineup yet of electrified vehicles, including HGV and P. HGV versions of popular nameplates like Corsair Kuga Nfone 50.

At the same time, we'll wrap products introduced in 2019 like explore aviator kuga escape.

Puma transit to Taiwan and Super duty.

In addition, late in the year, we will start production of our highly anticipated all new bronco with availability for customers in early 2021.

As you consider a guidance you should be mindful of several tailwinds and headwinds.

For Tailwinds, we expect full year sales of all new explore and improved product mix and pricing from other new products.

Additional fitness and benefits from our global redesign.

And the non repeat of the you w. bonuses.

For headwinds, we expect the back end loaded nature of our launch cadence, especially if on 50.

The cost to see a two compliance.

Increased investments in mobility.

Lower ABT from Ford credit largely driven by our assumptions for residual values and the non repeat of mark to market gains on derivatives.

At a higher effective tax rate.

All of these considerations contribute to our 2020 guidance for 2.4 to 3.4 billion adjusted free cash flow.

For adjusted EBIT, we're targeting a range of 5.6 to 6.6 billion.

Which assumes at least nominal growth and auto offset by lower ABT from Ford credit and a modest investment increase in mobility.

With an effective tax rate the mid to high teens, our adjusted EPS range is 94 cents to dollar 20 per share.

The first quarter, we expect adjusted EBIT to be down more than $1.1 billion from the first quarter 2019, driven by the continuation of higher warranty costs, we experienced in the second half of 2019.

Lower volume.

Lower results from for credit and higher investment for mobility.

And we expect our effective tax rate in the quarter to beat the high end of our full year guidance range.

Relative to calls on capital for the year.

We expect capex to be 6.8 to 7.3 billion as much as 800 million lower than in 2019.

Elective benefits from our fitness initiatives.

Funded pension contributions of 0.6 to point 8 billion.

And regular quarterly dividends of 15 cents per share as always subject to board approval each quarter.

For global redesign, we expect to incur point $9 billion to $1.4 billion of EBIT special item charges.

With a negative cash effects of 0.8 to 1.3 billion.

Our guidance assumes no material change in the current economic environment.

Including commodities foreign exchange and tariffs.

As a reminder, our guidance does not factor in assumptions for impacts from the krona virus as it is still a fluid situation.

Our actual results could differ materially from our guidance due to risks uncertainties and other factors, including those detailed in our filings with SEC.

We have a strong bias for action.

To improve our operating performance to protect our investment grade rating and assure a strong balance sheet, specifically our commitment to have answering recession cash balance of 20 billion and liquidity at 30 billion.

To preserve our debt capacity.

And to sustain the fully funded and de risked status of our funded pension plans.

All of our capital allocation decisions are made with these priorities front of mind, including funding our traditional products and non products investment plans our growth plans for electrification mobility connected services and autonomy and a regular dividend.

Before move to Q and a there are few things I encourage you keep in mind as you think about forward today and for the long term.

First our customers are informing and driving everything we do.

That is why 2019 was at 2020 will be such robust product launch years for us.

We are bolstering our winning portfolio vehicles based on what our customers want and need.

Reallocating capital to those high return growth opportunities and carrying out changeovers are highest volume and most profitable vehicles.

Second we're determined to always get better to persistently improve our fitness and our operating execution.

We have abundant opportunities across our business to drive free cash flow along with long term growth in revenue and profitability.

Including adjusted EBIT margins of 8% or better.

We remain committed to maintaining a strong balance sheet and holding investment grade credit ratings.

And third as I look ahead, I'm optimistic we have many opportunities to improve our operational execution.

Drive growth strengthen a financial results, including cash flow in the process earn the confidence of our stakeholders.

Now, let's open the call for questions operator.

Ladies and gentlemen, if he would like to ask a question. Please press Star then one on your telephone keypad again at Star one for questions.

And our first question will come from the line of John Murphy Bank of America Merrill Lynch.

Good evening guys.

A first question.

We look at what you're working on right now this kind of two layers of rationalization sort of there's this near term operational execution turned around.

The needs to occur it enters the global redesign and as we look at this I mean, you staring down the barrel of great product launches were great products and you got to get those launches rate and products that have just launch so I mean in the near term. It just seems like you got the product the operational execution is it's just a real issue Im just curious.

Yeah, I mean, we shall see that you're kind of identifying it but what really turns that around and it's not the product. There just trying to understand what really gets this operational execution turned in the near term hopefully and then sort of as you look at the inflection point on a global redesign is that the kind of thing that's going to hit in late 2020 early 2000.

One because what you're indicating as far as the charges looks like you'll be halfway through so it just it seems like that inflection point is not going to come until 2021 and might still be a headwind in the near term. So in those two layers. If you can kind of talk about actions, you're taking near term any inflection point on a global redesign.

Thanks, John Jim Hackett here, I think Thats well said.

I characterize it in the company that we're always managing the now in the far in parallel Nate.

Hey.

There are synergistic they feed each other but there is.

Totally different kind of requirements right and so on the now.

The message in the company is we worked really hard to get the portfolio rationalized.

Communicated.

We just remind you we went to work really hard on the platform architectures underneath that that whole portfolio.

At the same time, we feathered in connectivity working on CCAR architectures that power the vehicles, we're talking about portion inside of them.

Expectation.

So there's a lot in that in that product turnaround and the market. It's too early for me to tell you the new portfolio.

Share improvements better than the old one, but the market's giving us really good signs there.

It does boil down to we can't Miss a beat now in the product launches today. For example, I spent a lot of time with Joe and others are working through the 40 50. So that's the that's the state a spirit and the company is we solve the mistakes we exit rate that deeply for you in the last call. So that you knew we went to kind of when.

The desert to get to the bottom of that zero.

Question that we have identified what's what was that risk there what bad decisions, we made what new.

Things we have to change.

Thats all kind of in the rear view mirror and now it's about executing on on the things that we've laid out this year.

So that's that's my perspective from a product.

And maybe you can address the global reasons, I'm, saying I want just want to sneak in on the global redesign. This is this has to happen in parallel I give our people lot of credit because their day jobs, managing what I just laid out running in parallel as they redesigned the company.

And there are some really bright spots in that for example, the Europe team has a lot of momentum right now.

And you Mike mentioned that in your summary, it's been more on there, yes of a redesign standpoint.

Jim said strong progress in 2019, and it's a highlight for the year. Your for example, carrying out strong execution of the redesign of its business announced closure six manufacturing facilities.

Limited, it's a little 12000 physicians and it looks a leadership and doubling down on a leadership at commercial vehicles.

And.

Fortunately connect nameplates as well as passenger vehicle South America.

Continue to move to lower cost asset light footprint could be ex exiting the structure heavy trucks and several nardo as you know and discontinued Fiesta and focus models and for the year. We saw charges. This year of 3.2 billion.

And the total thus far 3.7 billion if you factor in.

The.

The guidance forgive me on restructuring charges to be at 4.6 to 5.1 billion through the into 20.

And what cash standpoint, you're going to 21.9 to 2.4 billion and I think the benefits of the redesign as well as the fitness are starting to show through 2018 for example, structural cost or flat.

219 structural costs were down year over year.

So you're starting to see it reflected an underlying fundamentals of our results.

As you suggested there continue to build over time as for the actions are implemented.

Okay. That's helpful. And then just a second question just quickly on Europe, even with the C O T regs.

Fighting this year next year in going forward I'm. Just curious if you think with your current product portfolio and what you have in the works with the VW Alliance.

You'll be able to meet the requirements over there or would you have to do some kind of pooling or pay fines over the next one in two years in I mean do you think this is something you can solve in house of product solution are you going have to go house outhouse, new pooling or pay finds yes fair question. This has come up before John you know in previous quarters, but Joe you might come from John Good evening.

So we do expect you'd be able to achieve the news here to requirements in Europe without incurring find your purchasing Chris just want to make that clear. It's a product driven plan. We've known about these regulations for several years. They were first public back in 2012 2013, we've been playing the business. Accordingly. Since then you know about ended 2020.

We will have 14, new electrified offerings in the market in Europe and by the end of 24, we expect to have 17 electrified vehicles, including number of mild hybrid plug in hybrid some pull highbridge than a call, including all electric model. So this also includes improvements in our diesel offerings and other products that are internal combustion.

Engines as well I'm. So we feel really good about the plan, we need to execute the launches on time to make sure that we get the products that were planning to meet those but our plan is definitely price driven and and we do not expect to encourage you find out the pool with anybody else.

Our purchase credit thanks.

Great and then just one just like with quick question on Slide 14, Tim. This 500 million of negative cost I mean that has the $600 million of the UAE W costs in it so on a on a like for like basis cost actually improved in the quarter would that be a fair way to read that.

But if you said.

Slide 14, you have cost as a negative half billion, but I would imagine that's got the UAE w. contract.

600 million.

On Slide 14, North America Wwes included in other.

Got it okay, alright, great. Thank you very much.

Thank you again.

Our next question will come from the line of Rod Lache Wolfe research.

Great. Thanks for taking my question.

Was hoping you might be able to give us a little bit more color on your regional auto EBIT expectations for 2020.

It seems like you would have a few pretty significant tailwinds set up which don't really appear to be flowing into your 2020 EBIT guidance for auto, which you said was up nominally nominally.

I guess essentially I'm, hoping that you can talk a little bit about that direction.

That you're expecting for each of the key markets, So like North America.

Obviously nonrecurrent they explore launch issues and you are w. bonus, which are collectively pretty bag is that offset by.

The completely offset by the F series launch and other items and in Europe, I think Joe Hinrichs, you said that.

Most of the 12000 people that you had commented.

On on leaving we're still on the payroll through the end of last year and would have a bigger impact. This year are those just swamps by the steel to compliance costs.

So Ron it's good to hear from you it's Jim.

You know there's there's not.

A point Tonight, where we're going to go market by market. We just don't do that for obvious competitive reasons, but let's just repeat what is in what color is in the guidance given.

Great. So I'll take that Jim. Thanks, So just said at least nominal growth in auto.

Jim Jim just say over.

We are going to spread that around by region.

For credit being lower.

I have heard on the call, we expect auction values down 5%.

Sure we grew at 2% sorry in 2019.

Your driver there and then increasing investments mobility as we saw in 2019 half a billion dollar increase for example in mobility investments so.

That's the primary colors, providing on.

The.

Different segments as opposed to the regions. We also can go through the headwinds until employee, but they're not to be underestimated. The headwinds for example, the 2020 launches late in the year 50 for example, a fear to cost mobility and I just mentioned for credit as I just mentioned in the tax rate up.

Did that mid teens compared to 11% in 2019.

There was the primary headwinds Tailwinds, we certainly have.

Fully benefit sales for for example, as well as a mix and price on new products and then as I mentioned in the earlier question is then if it's a fitness and the global redesign and of course. The Nonrecurrence have you had w., it's about a point 6 billion impact.

Yeah. Thanks for that they did you just say that the mobility investments would be up half a billion in no 20, Tony.

Thanks for asking I was saying they were up in 2019 by half a billion and 2022 similar they'll be up when I give you the magnitude.

Yep like look I'm sure you I mean, there are reasons to not provide color on on the regional numbers, but you know from an external standpoint, you start adding up maybe a billion dollar tailwind from explore and 600 million from your way W and certainly more than 1 billion from this.

Head count in Europe, and Big plant closure in South America.

It's.

So those did not quantifying that is is makes it very challenging for us too.

It's a really assess what your what you're facing and what's in there.

Do you have an assumption and therefore in further increase in warranty costs. This year.

Yes.

The only add your comment you just made but I think we took a step forward this quarter in providing the segment level commentary.

Connected with the cash flow and EBIT guidance that we gave the addition of not providing regional commentary, we're not speaking to specific attributes from a cost standpoint, such as warranty and so forth.

Okay, and and maybe just lastly, you talked about that 7 billion of cash spending on restructuring the numbers been quite.

Low I think lower than you had originally anticipated and in 2019, and it's only up a bit in 2020, presumably some of the cost savings are kind of tied to the cash restructuring rather than the.

The headline GAAP charges could you just give us some color on what's going on there and changing the timing.

And whether we should be reading into that the trajectory of the turnaround plan based on that.

Yes, I think its slide 20.

Illustrates $11 billion charges, and 7 billion an hour progressing against that.

3.7 billion, thus far and as I mentioned factored into guidance for 20 24.6 to 5.1.

Potential actions.

We're still considering there for cash standpoint.

1.1 billion, thus far and with the guidance. We gave you the 1.9 to 2.4 as far as a calendarization to that.

So several years to continue to execute on the global redesign and don't have a new announcements made today like one of things you're seeing in the cash savings cash side, sorry. The savings. The team has there been especially a thoughtful about how we execute on the restructuring action in Europe and South America for example.

And taking every opportunity to save cash the process.

Just to clarify Tim I are you, suggesting that the number or the cash number may be lower than the 7 billion or that it would just be more spread out.

For the next question.

Well just addressing the question is what made a low it might have been expecting through 2020 number still 11 billion and 7 billion.

Okay all right. Thank you.

Thank you run their overperforming, which is a good thing that's that's kind of in the reviews I've been really impressive, particularly in Europe as we said.

Oh, Okay next question will come from the line of Adam Jonas Morgan Stanley.

Thanks, Good evening everyone.

So first echo rods comments.

About transparency.

'cause it really it really would be helpful.

We understand that you you won't be spin you can't know with 100% certainty these items.

But we are certainly used to management teams given their best gas, particularly at a time when when there's so much pressure.

And when the stakes are so high so I'll just say good on rod for for for zone in on that.

First question for me is Tesla.

Stocks worse, it's kind of historic Degas test was not worth over five times the market cap afford.

Jim or Tim or Joe you know can you guys understand can you are you sympathetic to why that is that state of the world does it make sense to you what's the message the market's sending Ford Motor company.

Adam it's good to hear from you and comment on transparency did not bad bounce off the atmosphere I do understand that you know in this transformation afford.

The from to kind of a.

Calculus isn't always apparent for example, consider we've got a portfolio. That's in the midst of some things are sunsetting and all these new things are coming out and you you want to know what what can we project in terms of your earnings performance in its my instincts that back when we first started talking together this is going to.

Make a much better Ford and in fact, I mean, now I am now more certain of that what I didnt count on and we're going to address of course is that we can't Rumble execution.

Because you know we.

The value of explore launch back in our year. You know is a different kind of story in about four so that's just to confirm you know that we're doing our best to try and Pete teach you about where we are on the transformation.

But I am by its my confidence that you're going to be happy with that now.

The thing about Tesla.

As you know Ceos don't ever talk from this table about competitors, but I have been really candidate in the company.

Since I came about what is the business model, that's there and and what frankly about it is attractive you know and.

And what you can see in affords commitment I'm really proud of the team here as we arrived in June 17.

Propulsion.

Strategy was kind of nil and we've got that squared away, we have 17, new hybrid and electric models across entire line.

So picture that Ford's in a position, where it's got to portfolio products for its customers, including.

A bigger extensive offering than the other.

But the key component of this is the need to have these vehicles connected and over the air communications and the kind of configuration that one can bring to the customers we already know.

That the kind of volume we're gonna have in car years usage by 2025 will be over 100 million car years of usage of data. So just split that between 10 and that's what that's what the market see right in the in the future of the car industry that Theres this kind of opportunity.

Oh for expansion in gross but I haven't forecasted that into nights discussion. It's not you know, it's because we got approved.

That we can get this dining get it get it to produce a kind of results that you're seeing there, but I'm I think were much further along in that journey than we were just two years ago, when you and I for start talking about it.

I know that.

This mark Maki as generated more attention and kind of interest.

Then in recent memory, you know of any kind of product the kind of searching that's going on about Bronco would in Asia.

And so I know that interesting Ford is really high given the execution and the kind of improvements that I just mentioned so let me let you react to that thank you. Thank you know, it's fine that Jim and I think it's I appreciate the thoughts and I can't wait to get my Maki I and my kids really can't wait to see them Aki and the garage.

One follow up for me Jim regarding Volkswagen.

Is there any limit to the level of collaboration that you can conceive between you and VW I'm just wondering if there's anything that's theoretically off limits between the two houses.

During our really historic kinda.

Tectonic time for the industry, where it seems like global major Oems are forming super groups.

Just wondering if there's anything off limits here.

Thanks.

Well. Thank you for ordering a marquee I got to tease you I just ordered mine last week I wouldn't want the world to know I waited.

I wanted to get in the middle of it didn't want to be first in line.

[laughter] really well and they said that I'm right behind Adam Jonas I, just wonder out well I'm, probably high on the listen you, but I reckon, you'll still get it before me, but then also.

The deal.

We live so okay. Thank you.

VW so.

I'm I'm proud of in the repetition of the good things that happened last year, how well that came together in the kind of an early phasing of what you're now witnessing and the commentary that we made in the in the opening was that you don't have to combine human resource departments.

To get the kind of value in the automotive industry that we think we can we can get in re arrangements like that so I want you to see the optimism that that a in here the optimism in my voice that we're open to lots of ideas, there and I want to also stressed that Mahindra. Similarly.

Is proving to us that in emerging in emerging markets. It really is expanding.

The power for it so.

Right now the plate is full though with the things that we've committed to each other but those two companies and Ford, we really got a lot going on and I want to see the the conclusion of that before I start, adding a lot more to the fleet.

Thanks, Jeff.

Thank you ma'am.

Our next question will come from the line of Dan Levi with Credit Suisse.

Hi, good evening and thanks for us for taking my questions on your first question you. Your dividend is a 2.4 billion dollar commitment annually obviously.

We've seen some profit compression in you do you still have to fund your your restructuring. So it just means that the dividend right now is being funded by the balance sheet.

Just talk to the rationale of of maintaining the Devon death. This level and what are the threshold of business conditions for you to maintain it.

Well you know, we like to return value to shareholders I know, that's a really haven't answered, but it is true and the dividends been legend.

In dairy value creator at Ford.

We are really responsible about.

You know the way like you say that we think about the use of the balance sheet to fund that a year ago on this call I made it clear that.

My objective in the way I was thinking about all the things coming in front of us as I wanted to continue to pay the dividend.

I wanted to be able to fund the restructuring and make all the investments in the future you know that those the balance all those interests was behind the.

That does this plan that is rolled out and and so I want to continue that because we said we could do it and right now we can Tim I mean, if you want to add anything.

Well said and that's one of the reasons why we look at our target cash and liquidity positions. We established the targets of 20 billion 30 billion, which were 22 in 35 now heading into a downturn. So it could be in a position to invest in our long term investment long customer experience and fund the dividends for shareholders.

So I guess the view is that the liquidity you have plus the stream of cash let you do have you still feel comfortable enough with this level to maintain the dividend that's a fair assessment.

Yes, it's right. That's what we gave the guidance for the 15 said for sure dividend.

So if this year per quarter got it great. Thank you and then it's just as a follow up I think a year ago, you disclose that your global truck than EBIT margin was 14% in 2018, I think actually it's maybe a little higher when in Chicago strip out the corporate costs. So as we think about the deterioration in 2019 and what.

The likely deterioration in 20.

Help me understand if we look back at the profit pools.

Did you say that the truck margin has has remained intact and that it's really deterioration other parts of the business or has that truck margin deteriorated as well.

I'm going to ask Joe too.

Answer that because this is a primarily north American question as well.

Thanks, Jim Thanks, Dan I mean first off we're very pleased with where we are with our F series and Ranger here in North America, and the Ranger performance in places like Europe in other places around the world.

Without getting into specifics of the margins in 2019 were I also will say that are our pricing transaction prices incentive levels relative to competition and our overall sales volume were all I'm very good in 2019 gear in the U.S. and so we feel very.

Pleased with our progress going into a year and we have a new F. 150, we had a new super duty at end of last year.

So we're not worried at all about where our competitive position is on our F series trucks. In fact, we're really excited about the new trucks that we haven't coming this year and if you know that the cycle times, where things are what we get the benefit of a new trucks after seeing what said Jim and ran at done.

And actually how long very strongly to our.

Our volume in our pricing do you look at the pricing.

Specifically.

We continue to have the highest transaction prices in the segment with the oldest truck on F. On F series F 150, specifically.

And adding raises the portfolio just added to the business and in fact.

With the largest pick up volume in U.S. last year of all manufacturers combined so for all manufacturers that we compete with.

So we feel really good about where we are on on F series as Jim mentioned, we feel really good about where we are right at this point in time on the launch that's coming up in the second half of the year on F 150.

So we're not F 150, an F series is the is of course, there crown jewels of our company and we feel really good about where they are competitively and where they are for profit standpoint.

Great. Thank you.

[noise] and our I know our last question, what kind of but no I know Joseph Spak RBC capital markets.

Thank you.

First question is maybe just a clarification, Tim you mentioned mobility investment.

Up modestly is that apples to apples because aren't you deconsolidating Argo in 2020, so shouldn't that help with your share philosophy Maher.

Yes, again in 2019 mobility investment is up half a billion and explaining our range of either guidance for 2020.

Along with at least nominal growth auto and or credit being lower I would say mobility investments the up again year over year not quantifying the amount.

We will be facility.

Argo when that transaction closes as a reminder, that's the self driving system only this yes, oh, the go to market and other aspects of that as well as vehicle.

Customer value proposition is separate level of investment.

Taking a very prudent approach, okay, but just to clarify then the.

You should we'd expect to see the mobility loss higher in 20, even with the deconsolidation correct.

Okay.

And then just maybe a follow on to.

Adam's question earlier.

And I guess in the spirit of disrupting yourself from within which Jim I think is something you mentioned to me wants. It now that you have some units coming through in in 20 and 21.

Is there any thought to actually just taking and separating out all the electric assets. The maki the maybe in revealed derivatives and break that out as like a 40 east similar to what you've done in mobility, either to sort of help show us that transition.

Hi, Joe at some interesting thought I, you know I'm actually on the other way emotionally which is.

I don't think the company can keep itself like it straggling in an old world into new World.

Forever it kind of confuses the organization.

And so in some of the.

Alan.

I have on my to do this haven't friend in the business who.

He said the carriers around the you know a card with what are the toughest conversations and issues that he's it's got to address and no. One really wants to deal with from my perspective, the transformation has to accelerate and so I don't want to do anything that makes the organization feel like.

No we can park it on the side and if it does well and grows off that gets attention.

But if it doesn't we didn't really integrate and so I have stronger instincts. The other way, but I understand your question also in terms of can we do something to prove that our stance transformation in our strategy is actually accelerate and like I get that I'd like to take that away. It's something that we that we ought to do strange.

Joe you, how the compounding of our new ideas are actually taking off that's that's a confidence I warn you have tonight is that that I am seeing just not material enough you know to move the needle.

And that's that's what I want you to get confidence that it is it will move the needle and it will have impact.

Okay, and maybe if I could just squeeze one more on the 7 billion cash restructuring.

You only spend a little bit it looks like on spend a little over 2 billion through 2020.

I understand that sort of comes when you could sort of make announcements, but should we think that that remaining you know just under 5 billion will be done by 21 or is that also pushed out versus prior thinking.

Yeah. When it is further yet the timeframe of that as you said 1.9 to 2.4 billion that's through the into 20 of the seven and beyond that we haven't given specific timelines or or calendarization.

Over the next several years.

Peter one is we have more information.

Thank you [noise].

And that's all the time, we have for questions I'd now like to turn the call over to Jim.

Thank you and Tonight, you know our slides started with a picture of the Mackie and I was inspired by the picture as I waited for you to ask question.

This this product that's on that slide lives in great respect.

For the Ford legacy.

But as it respects, it's not in reference it's not in such forever and so they can't change but this this vehicle was an iconic example, what we've been working on the company has to change it's changing its portfolio, it's restructuring markets like Europe, and South America Europe hadn't been touched for years.

It's taking on the bureaucracy, we cut it by a third 700 million likely in run rate savings.

We mandated connectivity, which was a multibillion dollar commitment before we had.

The kind of software to to run on this.

We've built agile team that's how this vehicle was created.

Court and then there is an obvious question as you look at that and I look at that is can we execute and of course weekend.

We will promise that we weren't your trust in that area.

And I don't want you to think that we have to struggle on the weight of the future we aren't going to cancel the future because of the focus on earnings we think these.

The improvement in earnings that we all want and the requirement that we have to get to our future can live in a synergistic way and build the kind of excitement and Ford Motor Company that you heard Adam and I talked about Tonight. So thank you for your your time on the call.

This concludes the Ford Motor Company fourth quarter earnings Conference call. Thank you for your participation you may now disconnect.

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