Q3 2024 Ford Motor Co Earnings Call
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Speaker Change: At this time I would like to turn the call over to Lynn Antipas, Tyson Executive director of Investor Relations.
Speaker Change: Thank you Willa welcome.
Speaker Change: Welcome to Ford Motor Company's third quarter 2024 earnings call with me today are Jim Farley, President and CEO and John Lawlor, Vice Chair and CFO also joining us today is Kathy O'callahan CEO of Ford credit. Today's discussions include some non-GAAP references. These are reconciled to the most comparable U S GAAP measures.
Speaker Change: The conference is now in presentation mode. Your line is muted.
Speaker Change: In the appendix of our earnings deck, you can find the deck along with the rest of our earnings materials. Another important content at shareholder does Ford Dot Com. Our discussion also includes forward looking statements about our expectations actual results may differ from those stated the most significant factors that could cause actual results to differ are included on page two.
Layla: Good day, everyone. My name is Layla, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company 3rd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Speaker Change: Unless otherwise noted all comparisons are year over year company, EBIT EPS and free cash flow are on an adjusted basis.
Speaker Change: Lastly, I'd like to call out a key near term IR engagement.
Speaker Change: On November 20th John Lawlor, Vice Chair, and CFO, and Sherry House, VP finance will participate in a fireside chat with Dan Levy at the Barclays Global Automotive and mobility Tech Conference in New York now I will turn the call over to Jim.
Layla: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. If you have joined by phone, please dial star 5 on your keypad to raise your hand.
Jim Farley: Thanks, Lynn Hi, everyone and thank you for joining us today.
Speaker Change: At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations.
Jim Farley: Wanted to start by thanking our global team for their commitment to <unk> plus.
Jim Farley: And adding and creating value for all of our shareholders.
Speaker Change: Thank you, Ayla.
Speaker Change: Welcome to Ford Motor Company's third quarter 2024 earnings call. With me today are Jim Farley, President and CEO, and John Lawler, Vice Chair and CFO. Also joining us today is Cathy O'Callaghan, CEO of Ford Credit. Today's discussions include some non-GAAP references.
Jim Farley: I'd like to touch on an overview of our strategy and why we believe we're so well positioned versus our competitors in key areas and John will take you through the Q3 results and full year outlook.
Jim Farley: Several years ago.
Jim Farley: We restructured our overseas operations and our global footprint is a key strength for Ford.
Speaker Change: These are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck You can find the deck along with the rest of our earnings materials and other important content at shareholders.ford.com
Jim Farley: We restructure in Europe, South America, India and China.
Jim Farley: Collectively in 2018, those regions, we're losing $2 2 billion and.
Speaker Change: Our discussion also includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on page 20.
Jim Farley: And burned $3 $4 billion in cash.
Jim Farley: Now all of those regions are collectively profitable.
Jim Farley: We're going to continue to stay laser focused on cost and getting leaner company, but our team won't be distracted by major international restructuring facing other Oems, especially in China and.
Speaker Change: Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and pre-cash flow are on an adjusted basis.
Speaker Change: Lastly, I'd like to call out a key near-term IR engagement.
Jim Farley: And speaking of China, We've got an asset life for a couple of years as we've told you we have strong JV partners and we have a growing export business in fact, China and US exports are now contributing over $600 million to the company's EBIT this year.
Speaker Change: On November 20th, John Lawler, Vice Chair and CFO, and Sherry House, VP Finance, will participate in a fireside chat with Dan Levy at the Barclays Global Automotive and Mobility Tech Conference in New York. Now I'll turn the call over to Jim.
Another area of strength is our EV strategy, which I wouldn't trade for any of our competitors.
Jim Farley: Thanks, Lynn. Hi, everyone, and thank you for joining us today.
Jim Farley: I wanted to start by thanking our global team for their commitment to Ford Plus.
Jim Farley: We moved early.
We've learned a lot on gen. One from our customers the global market dynamics and what it requires to be fit to compete.
Jim Farley: and to adding and creating value for all of our shareholders.
Jim Farley: I'd like to touch on an overview of our strategy and why we believe we're so well positioned versus the competitors in key areas. And John will take you through the Q3 results and full year outlook.
Jim Farley: No doubt, there's a global price war and is fueled by overcapacity.
Jim Farley: A flood of new EV nameplates and massive compliance pressure.
Jim Farley: several years ago.
And our homework in the U S. No OEM is immune.
Jim Farley: We restructure our overseas operations and our global footprint is a key strength for Ford.
Jim Farley: Since Q1 of last year <unk> volumes have grown 35% while revenues in total are flat at $14 billion.
Jim Farley: We restructure in Europe, South America, India, and China.
Jim Farley: Collectively in 2018 those regions were losing 2.2 billion dollars and burned 3.4 billion dollars in cash. Now all of those regions are collectively profitable.
Jim Farley: That means the progress on volume has been fully offset by prices.
Jim Farley: We're expecting roughly 150, new EV nameplates to hit North America.
Jim Farley: We're going to continue to stay laser focused on cost and getting leaner as a company, but our team won't be distracted by major international restructuring facing other OEMs.
By the end of 2026.
Jim Farley: And some of our competitors are already resulting re.
Jim Farley: <unk> to very aggressive lease tactics, even on the brand new products, which creates huge residual risk and overhang and brand damage.
Jim Farley: especially in China.
Jim Farley: And speaking of China, we've gone asset light for a couple years, as we've told you. We have strong JV partners and we have a growing export business. In fact, China and its exports are now contributing over $600 million to the company's EBIT this year.
Jim Farley: What were doing about these market dynamics, while we're focused on cost we've already reduced $1 billion and our EV costs. This year.
Jim Farley: We remade our battery footprint, we trimmed our capacity of 30 by 35% in line with where we think the market will be in a few years.
Jim Farley: Another area of strength is our EV strategy, which I wouldn't trade for any of our competitors.
Jim Farley: We moved early.
Jim Farley: We accelerated the mix of our batteries emphasizing LLP will be the first one a manufacturer in the U S and.
Jim Farley: We've learned a lot on Gen 1 from our customers, the global market dynamics, and what it requires to be fit to compete.
Jim Farley: And that value will leverage the IRA production tax credit.
Jim Farley: no doubt there's a global price war and it's fueled by overcapacity.
Jim Farley: We're shifting new launches.
Jim Farley: a flood of new EB nameplates and massive compliance pressure.
Jim Farley: Focused on getting the products, we do have on our EV portfolio profitable within the first 12 months.
Jim Farley: In our homework in the U.S., no OEM is immune.
Jim Farley: And we are deep into the design and engineering of our next generation vehicles Boy are we excited about these coming out in the next few years and.
Jim Farley: Since Q1 of last year, EV volumes have grown 35%, while revenues in total are flat at $14 billion.
Jim Farley: 40 years in the industry I've seen a lot of game changer products, but the midsized electric pickup designed by our California team has got to be one of the most exciting.
Jim Farley: That means the progress in volume has been fully offset by prices.
Jim Farley: We're expecting roughly 150 new EV nameplates to hit North America by the end of 2026.
Jim Farley: It's incredible package and consumer technology for a segment, we know well.
Jim Farley: And some of our competitors are already resorting to very aggressive lease tactics, even on their brand new products, which creates huge residual risk and overhang and brand damage.
Jim Farley: It matches the cost structure of any Chinese auto manufacturer building in Mexico in the future.
Jim Farley: How do we know that because 60% of the bomb has already been quoted.
Jim Farley: Another advantage for US obviously is Ford pro it's unique because we're combining product strength with software and repair services all linked together.
Jim Farley: Don't be confused by other press releases.
Jim Farley: On the ground game in the commercial market.
Jim Farley: We remade our battery footprint. We trimmed our capacity by 35% in line with where we think the market will be in a few years. We accelerated the mix of our batteries, emphasizing LFP will be the first one to manufacture in the U.S.
Jim Farley: Does what our customers see is that we have reached a leading product portfolio.
Jim Farley: An incredible software portfolio as well as gaining strength in our repair services all of that driving sticky reoccurring high margin revenues.
Jim Farley: and that battery will leverage the IRA production tax credit.
Jim Farley: It turns out in pro our dealer network is one of our key advantages in the U S. We have the largest commercial vehicle network and that's essential to drive those attach rates to services.
Jim Farley: We're shifting new launches.
Jim Farley: focused on getting the products we do have in our EV portfolio profitable within the first 12 months.
Jim Farley: And we're deep into the design and engineering of our next generation vehicles. Boy, are we excited about these coming out in the next few years.
Jim Farley: And our software is also a competitive advantage.
Jim Farley: Our paid subscriptions.
Jim Farley: Delivered a growth of 50% in revenue 30%.
Jim Farley: You know in 40 years in the industry, I've seen a lot of game-changer products But the mid-sized electric pickup designed by our California team has got to be one of the most exciting It's incredible package and consumer technology for a segment. We know well
Jim Farley: Just this quarter and our gross margins are over 50%.
Jim Farley: There is incredible upside afford for our software to grow our installed base attach rates and are approved.
Jim Farley: Another strength is our diverse.
Jim Farley: It matches the cost structure of any Chinese auto manufacturer building in Mexico in the future. How do we know that? Because 60% of the bomb has already been quoted.
Jim Farley: Our train lineup.
For example in the U S. The hybrid pickup sales at Ford and more than doubled in the past two years, we now have nearly 80% market share of hybrid pickups.
Jim Farley: Another advantage for us obviously is Ford Pro. It's unique because we're combining product strength with software and repair services all linked together. Don't be confused by other press releases.
Jim Farley: A lot of our companies shunned hybrids and now they're scrambling, but it's going to take them years to catch up.
Jim Farley: Interestingly in our home market for it is the number one ice brand the number two EV brand and the number three hybrid brand.
Jim Farley: on the ground game in the commercial market.
Jim Farley: because what our customers see is that we have reached a leading product portfolio, an incredible software portfolio, as well as gaining strength in our repair services. All of that driving sticky, reoccurring, high margin revenues.
Jim Farley: Taking a step back.
Jim Farley: Nearly our strategic advantages are not falling to the bottom line the way they should.
Jim Farley: Costs, especially warranty and sell back our earnings power, but as we bend that curve there is significant financial upside for investors.
Jim Farley: It turns out, in Probe, our dealer network is one of our key advantages.
Jim Farley: By design, 70% of the bonuses for our managers is tied to cost and quality and more than half of our long term incentives as leaders is tied to <unk>.
Jim Farley: In the U.S., we have the largest commercial vehicle network.
Jim Farley: and that's essential to drive those attached rates to services.
Jim Farley: And our software is also a competitive advantage.
Jim Farley: Let me double click on the EV business, we applied lessons really early that we learned on Mustang marquee across our lineup in the last 24 months, we've reduced the Mustang Mach east cost by $5000 per unit.
Jim Farley: are paid subscriptions.
Jim Farley: delivered a growth of 50% in revenue, 30%
Jim Farley: just this quarter, and our gross margins are over 50%. There's incredible upside and forward for our software to grow our install base, attach rate, and our approve.
Jim Farley: As you know marquee is second to model Y in this segment for sales and transaction prices despite being in the market now for several years.
Jim Farley: Another strength is our diverse powertrain lineup.
And we continue to breakdown the friction or barriers to adoption for mainstream IC customers were the first to join Tesla Supercharger network.
Jim Farley: For example, in the U.S., the hybrid pickup sales at Ford have more than doubled in the past two years. We now have a nearly 80% market share of hybrid pickups.
Jim Farley: And we will be shipping about 100000 adapters by the end of this year.
Jim Farley: We were the first to offer complementary home charging and installation we call. It the forward power promise.
Jim Farley: A lot of our companies shunned hybrids and now they're scrambling, but it's going to take them years to catch up.
Jim Farley: And we've seen a huge uptick in interest on our website from the power promise.
Jim Farley: Interestingly, in our home market, Ford is the number one ICE brand, the number two EV brand. You are now in a sub-conference. Line unmuted.
Jim Farley: But our dealers are also becoming a competitive advantage for mainstream customers take for example, Tim <unk> and his team at San <unk> forward in Arizona.
Speaker Change: Hi there, apologies for the interruption. Could I get your first and last name please?
Jim Farley: In the quarter one of the months they sold 137 electric vehicles.
Jim Farley: And Arizona is not a zev states.
Speaker Change: Hi, are you able to hear me?
Jim Farley: These are incremental sales with solid gross profits for the dealers.
Speaker Change: You are now in the main conference. Line muted.
Jim Farley: And we are building on that Knowhow for the last couple of years in scaling it being number two across our whole U S dealer network.
Speaker Change: Let me double click on the EV business.
Jim Farley: All of our 3000 dealers are prime to sell Evs now we have 7000 trained <unk> specialists and 14 14000 dealership hours have been spent on Evs now.
Speaker Change: We applied lessons really early that we learned on Mustang Mach-E across our lineup. In the last 24 months we've reduced the Mustang Mach-E's cost by $5,000 per unit.
Jim Farley: Our dealer network is already installed 800 fast chargers across the U S and Canada and many more are on the way.
Speaker Change: As you know, Mach-E is second to Model Y in this segment for sales and transaction prices, despite being in the market now for several years.
Jim Farley: Next year, we expect to improve the trajectory of model Es business through cost.
Speaker Change: barriers to adoption for mainstream ICE customers. We're the first to join Tesla's supercharger network and we'll be shipping about a hundred thousand adapters by the end of this year.
Jim Farley: Scaling.
Jim Farley: And we're not trading wooden nickels inside the company for emissions credits.
Jim Farley: That won't change the economics of our EV vehicles, and the company as a whole.
Speaker Change: We are the first to offer complimentary home charging and installation. We call it the Ford Power Promise.
Jim Farley: Turning to pro where the first OEM to segment, our customers between retail and commercial.
Speaker Change: and we've seen a huge uptick in interest on our website from the Power Promise.
Jim Farley: And it starts by having a great product lineup and leaning into the future.
Jim Farley: About 9% of transit sales are now electric vehicles.
Speaker Change: But our dealers are also becoming a competitive advantage for mainstream customers. Take for example Tim Hovick and his team at Santan Ford in Arizona.
Jim Farley: In the quarter, that's up one five percentage points from a year ago.
Jim Farley: Our Super duty has more variance than any other OEM.
Speaker Change: In the quarter, one of the months, they sold 137 electric vehicles.
Jim Farley: And we are bundling vehicles and services to provide unique value for our customers.
Speaker Change: and Arizona is not a ZEV state. These are incremental sales with solid gross profits for the dealers.
Jim Farley: What I mean by that is about 13.
Jim Farley: 13% of our EBIT.
Speaker Change: and we're building on that know-how for the last couple years in scaling and being number two across our whole US dealer network.
<unk> now comes from repair services or software, we think that will grow to about 20%.
Jim Farley: By 2026.
Speaker Change: All of our 3,000 dealers are primed to sell EVs now. We have 7,000 trained EV specialists and 14,000 dealership hours have been spent on EVs now.
Jim Farley: We have the largest service network in North America.
We're on track this year to add over 4000 commercial service bays and 2500 Pro mobile service units.
Speaker Change: Our dealer network has already installed 800 fast chargers across the U.S. and Canada and many more are on the way.
Jim Farley: That by the way is up 50% year over year, our mobile repair orders are up 60% year over year and now almost one out of 10 pro repair orders is done by our mobile service truck.
Speaker Change: Next year we expect to improve the trajectory of Model E's business through cost.
Speaker Change: scaling, and we're not trading wooden nickels inside the company for emissions credits.
Jim Farley: Globally for pro intelligence subscriptions rose, 30% in the quarter. We now have about 630000 subscriptions as I said, that's a revenue growth of 50%.
Speaker Change: That won't change the economics of our EV vehicles and the company as a whole.
Speaker Change: Turning to Pro, we're the first OEM to segment our customers between retail and commercial.
Jim Farley: We're adding more and more product functionality and features the third party software companies can offer because it's tied to the product, including remote vehicle lock and unlock limits to our top speed and acceleration.
Speaker Change: and it starts by having a great product lineup and leaning into the future.
Speaker Change: About 9% of transit sales are now electric vehicles.
Speaker Change: in the quarter. That's up 1.5 percentage points from a year ago.
Speaker Change: Yes, we are seeing more pricing pressure on pro in the second half, but that was consistent with our original guidance for the year.
Speaker Change: Our Super Duty has more variants than any other OEM.
Speaker Change: Demand is also in line with our expectations, we're seeing pent up demand for Super duty cabin chassis.
Speaker Change: and we're bundling vehicles and services to provide unique value for our customers.
Speaker Change: What I mean by that is about 13% of our eBit 4 Pro now comes from repair services or software. We think that will grow to about 20% by 2026.
And transit wagons.
And then for Blue.
Speaker Change: Let me double click for a second on that business.
First we have an incredibly fresh lineup across the globe.
Speaker Change: And we're going to add to that we have four key U S launches on Dec, the Maverick and Bronco will be launching in the fourth quarter with new derivatives and a fresh product and we have an all new expedition and navigator launching early next year.
Speaker Change: We have the largest service network in North America.
Speaker Change: We're on track this year to add over 4,000 commercial service bays and 2,500 pro-mobile service units.
Speaker Change: That, by the way, is up 50% year-over-year. Our mobile repair orders are up 60% year-over-year, and now almost one out of 10 pro-repair orders is done by a mobile service truck.
Speaker Change: In Q3 in the U S. Our share was up 40 basis points to 12, 6%.
Our ATP in September were in line with the industry.
Speaker Change: And the Ford brand continues to transact higher than the average non premium brand.
Speaker Change: Globally, Ford Pro Intelligent subscriptions rose 30% in the quarter. We now have about 630,000 subscriptions. As I said, that's a revenue growth of 50%.
Now, let me unpack that inventory.
Speaker Change: We ended the quarter with 91 days of gross stock and 68 days of dealer stock, that's a little higher than our target range of 50 to 60 days, but the mix is really good now we're intentionally holding extra inventory through the year and to protect sales during the Q1 launch activities that I mentioned and adjusting for that.
Speaker Change: We're adding more and more product functionality and features that third-party software companies can't offer because it's tied to the product, including remote vehicle lock and unlock, limits to our top speed, and acceleration.
Speaker Change: We're right in the target range for us as we start 2025 from inventory standpoint.
Speaker Change: Yes, we are seeing more pricing pressure on pro in the second half, but that was consistent with our original guidance for the year.
Speaker Change: Demand is also in line with our expectations. We're seeing pent-up demand for Super Duty cabin chassis and transit wagons.
Speaker Change: The biggest opportunity the company clearly is cost and warranty work.
Speaker Change: We're attacking both of these.
Speaker Change: And we will realize the upside.
Speaker Change: The biggest opportunity is warranty.
Speaker Change: and then Ford Blue.
Speaker Change: And here's some evidence of things on the input metrics side that are really improving.
Speaker Change: Let me double click for a second on that business.
Speaker Change: First, we have an incredibly fresh lineup across the globe, and we're going to add to that. We have four key U.S. launches on deck. The Maverick and Bronco will be launching in the fourth quarter with new derivatives and a freshened product. We have an all-new Expedition Navigator launching early next year.
Speaker Change: Our <unk> mis or three months in service quality is getting a lot better 31% increase in the last three years.
Speaker Change: This year the high volume vehicle lines like FY 15 escape.
Speaker Change: We had huge launches and and really had no virtually no warranty spike J D. Power's typically sees a 92% increase in defects during the launch.
Speaker Change: In Q3 in the U.S., our share was up 40 basis points.
Speaker Change: to 12.6 percent.
Speaker Change: Our launch production losses have also been cut in half from the last year and these are very large scale launches like Epsilon 15 explore.
Speaker Change: Our ATPs in September were in line with the industry.
Speaker Change: and the Ford brand continues to transact higher than the average non-premium brand.
Speaker Change: Another key improvement that we're seeing is our ability to OTA and improve our vehicles in the field.
Speaker Change: Now let me unpack the inventory.
Speaker Change: We ended the quarter with 91 days of gross stock and 68 days of dealer stock. That's a little higher than our target range of 50 to 60 days, but the mix is really good.
Speaker Change: We've updated 4 million vehicles that for this year and $20 million total since we started doing otas.
Speaker Change: We can now update 30 different vehicle modules well beyond the sink in infotainment modules.
Speaker Change: Now, we're intentionally holding extra inventory through the year end to protect sales during the Q1 launch activities that I mentioned. And adjusting for that, we're right in the target range for us as we start 2025 from inventory standpoint.
Speaker Change: The otas on average save our customers five to six waiting days waiting for repairs and of course, it lowers our cost of warranty.
Speaker Change: All improved warranty will take time.
Speaker Change: The biggest opportunity of the company clearly is cost and warranty. We're attacking both of these and we will realize the upside.
Speaker Change: To reduce our warranty expense may be up to 18 months, but we're moving the needle on all the inputs.
Speaker Change: Step back I believe we're in a very strong competitive position, we have a lean and profitable international business with no distractions.
Speaker Change: The biggest opportunity is guarantee.
Speaker Change: and here's some evidence of things on the input metric side that are really improving. Our three MIS, or three months in service, quality is getting a lot better. 31% increase in the last three years.
Speaker Change: We refresh and appealing lineup, which will get even fresher.
Speaker Change: We have a strong and diversified powertrain strategy that gives customers choice. It gives us the flexibility and reach.
Speaker Change: This year, the high-volume vehicle lines like F-150 and Escape
We're already on our second generation of electric vehicles there'll be launching in the next couple of years.
Speaker Change: had huge launches and really had no, virtually no, warranty spike. J.D. Powers typically sees a 92% increase in defects during a launch.
Speaker Change: We'll reduce the losses short term on our Gen. One products and set us up to be a global competitor in the long term.
Speaker Change: our launch production losses have also been cut in half from the last year and these are very large-scale launches like F-115 X-4.
Speaker Change: We have a vibrant growing.
Speaker Change: Software and repair business for pro and pro is clearly a strategic advantage for the company.
Speaker Change: Another key improvement we're seeing is our ability to OTA and improve our vehicles in the field.
We're going to keep doing the hard yards to capture the tremendous upside in cost and warranty defects present to us and we're going to bring it home for our valued investors John.
Speaker Change: We've updated 4 million vehicles at Ford this year, and 20 million total since we started doing OTAs.
Speaker Change: We can now update 30 different vehicle modules.
John Lawlor: Thanks, Jim.
Speaker Change: well beyond the sink and infotainment modules. The OTAs on average save our customers five to six days waiting for repairs and of course it lowers our cost of warranty.
John Lawlor: In the third quarter Wholesales were flat, while revenue grew by 5% to over $46 billion, that's our 10th consecutive quarter of year over year revenue growth.
John Lawlor: This is supported by our compelling product lineup offering freedom of choice to both our retail and commercial customers the quarter benefited from strong truck sales, including hybrids as well as the launch of the all new Ford Explorer and Lincoln Aviator, we delivered $2 6 billion and adjusted EBIT with a margin of five five.
Speaker Change: All improvements to warranty will take time.
Speaker Change: to reduce our warranty expense, maybe up to 18 months, but we're moving the needle on all the inputs. Taking a step back, I believe we're in a very strong competitive position. We have a lean and profitable international business with no distractions.
John Lawlor: <unk> up 50 basis points from a year ago.
Speaker Change: We have a fresh and appealing lineup, which will get even fresher.
John Lawlor: Profit improvement was driven by higher volume and favorable mix, partially offset by expected EV pricing pressures and adverse exchange overall costs were lower in the quarter.
Speaker Change: We have a strong and diversified powertrain strategy that gives customers choice and gives us the flexibility and reach.
Speaker Change: We're already on our second generation of electric vehicles. They'll be launching in the next couple years.
John Lawlor: I have great confidence in today's business and the changes that are underway several years ago, we proactively restructured our global product lineup and taro with tailored it to focus on customer segments, We know best and leader, which has driven consistent topline growth.
Speaker Change: will reduce the losses short-term on our Gen 1 products and set us up to be a global competitor in the long term. We have a vibrant, growing
Speaker Change: software and repair business for Pro, and Pro is clearly a strategic advantage for the company.
John Lawlor: We're also slowly, but surely improving our industrial system and shedding behaviors that have held us back in the past and our free cash flow is stronger and more consistent than just a few years ago all.
Speaker Change: We're going to keep doing the hard yards to capture the tremendous upside in cost and warranty defects present to us, and we're going to bring it home for our valued investors. John.
John Lawlor: All evidence that our four plus plan is working.
John Lawlor: Adjusted free cash flow was $3 2 billion in the quarter and $5 9 billion year to date with cash conversion of 74% well above our targeted range of 50% to 60%.
John Lawler: Thanks, Jim. In the third quarter, wholesales were flat while revenue grew by 5%, to over $46 billion. That's our 10th consecutive quarter of year-over-year revenue growth.
John Lawlor: Our balance sheet remains strong with almost $28 billion in cash and 46 billion in liquidity. We continue to believe that it is prudent to have extra cash on hand. During this unprecedented time in this industry that provides us flexibility to invest in accretive growth execute strategic strategic build.
John Lawler: This is supported by our compelling product lineup offering freedom of choice to both our retail and commercial customers.
John Lawler: The quarter benefited from strong truck sales including hybrid as well as the launch of the all-new Ford Explorer and Lincoln Aviator
John Lawler: We delivered $2.6 billion in adjusted EBIT with a margin of 5.5%, up 50 basis points from a year ago.
John Lawlor: Partner by opportunities and maintain financial flexibility during the next economic cycle.
John Lawler: The profit improvement was driven by higher volume and favorable mix, partially offset by expected EV pricing pressures and adverse exchange. Overall, costs were lower in the quarter.
John Lawlor: Also pleased to announce that we declared our fourth quarter regular dividend of <unk> 15 per share payable on December <unk> to shareholders of record on November seven we target to return, 40%, 50% of adjusted free cash flow to shareholders.
John Lawler: I have great confidence in today's business and the changes that are underway. Several years ago, we proactively restructured our global product lineup and tailored it to focus on customer segments we know best and lead in, which has driven consistent top-line growth.
John Lawlor: Annually and including today's announcement have paid out over $10 billion to shareholders since the beginning of 2022.
John Lawlor: Now, let me turn to our segments Ford Pro delivered close to $16 billion of revenue in the quarter up 13%.
John Lawler: We're also slowly but surely improving our industrial system and shedding behaviors that have held us back in the past. And our free cash flow is stronger and more consistent than just a few years ago.
John Lawlor: Another quarter of growth wholesales were up 9% aided by the launch of the all new <unk> transit customer in Europe, and robust demand for <unk> Super duty and two ton transit vans EBIT of $1 8 billion was up year over year with a healthy margin of 11, 6%.
John Lawler: All evidence that our Forward Plus plan is working.
John Lawler: Adjusted pre-cash flow was $3.2 billion in the quarter and $5.9 billion year-to-date with cash conversion of 74%, well above our targeted range of 50 to 60%.
John Lawlor: <unk> pro continues to be our prototype for sticky high margin non cyclical revenue paid subscriptions attach rate and monthly <unk> were up.
John Lawler: Our balance sheet remains strong, with almost $28 billion in cash and $46 billion in liquidity. We continue to believe that it is prudent to have extra cash on hand during this unprecedented time in this industry.
John Lawlor: In the quarter <unk> results continue to demonstrate the consistency and resiliency of this higher margin growth business underscored by their year to date EBIT margin performance of 14, 6% in line with our long term target.
John Lawler: to provide this flexibility to invest in accretive growth, execute strategic build partner buy opportunities, and maintain financial flexibility during the next economic cycle.
John Lawlor: Ford model E generated a loss of $1 2 billion, we delivered $500 million of year over year cost improvement, which was offset by industry pricing pressures global wholesales were down 11%, reflecting our focus on yield management and balancing dealer inventory in North America offset partially by the launch of the all new explorer.
John Lawler: I'm also pleased to announce that we declared our fourth quarter regular dividend of 15 cents per share payable on December 2nd to shareholders of record on November 7th. We target to return 40-50% of adjusted pre-cash flow to shareholders.
John Lawlor: EV in Europe.
John Lawlor: Our team is focused on delivering further cost reductions optimizing the gen. One market equation and driving capital efficiencies, helping to improve our profit look outlook as we head into 2025.
John Lawler: annually, and including today's announcement, have paid out over $10 billion to shareholders since the beginning of 2022.
John Lawler: Now let me turn to our second.
John Lawler: Ford Pro delivered close to $16 billion of revenue in the quarter, up 13%. Another quarter of growth. Wholesales were up 9%, aided by the launch of the all-new 1-tonne Transit Custom in Europe, and robust demand for Super Duty and 2-tonne Transit vans.
John Lawlor: <unk> revenue was up 3% in the quarter, while wholesales were down 2% driven by discontinued low margin ice passenger vehicles. Although overall volume was down North America volume was up 8% driven by key nameplates like F 150, and Ranger EBIT of $1 6 billion and margin of six 2%.
John Lawler: EBIT of $1.8 billion was up year over year with a healthy margin of 11.6%.
John Lawlor: Were both down year over year due to adverse exchange and higher manufacturing costs, offset partially by lower warranty expense and higher net pricing.
John Lawler: Board Pro continues to be our prototype for sticky, high-margin, non-cyclical revenue. Paid subscriptions, a cash rate, and monthly ARPU were up.
John Lawlor: Hybrid sales up 30% in the quarter continued to shine and our global hybrid mix is still on pace to approach, 9% by year end up over two points year over year with more products on the way.
John Lawler: in the quarter. Pro's results continue to demonstrate the consistency and resiliency of this higher margin growth business, underscored by their year-to-date EBIT margin performance of 14.6% in line with our long-term target.
John Lawlor: Ford credit generated EBIT of $544 million up $186 million year over year, driven by an improvement in financing margin higher receivables auction values declined 1% and lease return rates continue to normalize from historic lows. We continue to originate high quality book with U S. REIT.
Speaker Change: Ford Model E generated the loss of $1.2 billion. We delivered $100 million of year-over-year cost improvement which was offset by industry pricing pressures.
Speaker Change: Global Wholesale for down 11% reflecting our focus on yield management and balancing dealer inventory in North America offset partially by the launch of the all-new Explorer EV in Europe.
John Lawlor: At least FICO score again exceeding 750 for the quarter.
John Lawlor: Our exposure to EV broadridge residual risk is low with evs, representing less than 10% of our lease portfolio in the U S.
Speaker Change: Our team is focused on delivering further cost reductions, optimizing the Gen 1 market equation, and driving capital efficiencies, helping to improve our profit outlook as we head into 2025.
John Lawlor: So, let's turn to our outlook when we began the year, we expected full year company adjusted EBIT of $10 billion to $12 billion.
Speaker Change: Ford Blue revenue was up 3% in the quarter, while wholesales were down 2% driven by discontinued low-margin ICE passenger vehicles.
John Lawlor: Since then our product portfolio has exceeded our expectations delivering favorable market factors, including mix through the first nine months of the year and we expect this trend to continue in the fourth quarter. This speaks to the strength of our key nameplates and the resilience of our commercial business at Ford probe.
Speaker Change: Although overall volume was down, North America volume was up 8% driven by key nameplates like F-150 and Ranger.
Speaker Change: EBIT of $1.6 billion and margin of 6.2% were both down year over year due to adverse exchange and higher manufacturing costs offset partially by lower warranty expense and higher net pricing.
John Lawlor: We are also on track to deliver $2 billion of cost efficiencies within our industrial platform offsetting expected higher labor and product refresh cost for the year.
Speaker Change: Hybrid sales up 30% in the quarter continue to shine and our global hybrid mix is still on pace to approach 9% by year end, up over two points year over year with more products on the way.
John Lawlor: However, two gating factors.
John Lawlor: Keep us from a record adjusted EBIT this year higher than expected warranty costs and the impact of inflation at our JV, Florida, Autozone in Turkey, which increases the material cost of transit vans sold in Europe.
Speaker Change: Ford Credit generated EBT up $544 million, up $186 million year-over-year, driven by an improvement in financing margin to higher receivables.
John Lawlor: Inflationary pressures in Turkey is outside of our control increased warranty costs are within our control.
Speaker Change: auction values declined 1% and lease return rates continue to normalize from historic lows.
John Lawlor: We now expect full year company adjusted EBIT of about $10 billion, which includes lower than planned volume in the second half.
Speaker Change: We continue to originate a high-quality book with U.S. retail and lease FICO score again exceeding 750 for the quarter. Our exposure to EV residual risk is low, with EVs representing less than 10% of our lease portfolio in the U.S.
John Lawlor: For <unk> and for Blue due to supplier disruptions in general, we see supply and demand for vehicles in balance we continue to expect adjusted free cash flow of seven five to eight 5 billion with capex between 8% to $8 5 billion our outlook for 'twenty four assumes a flat to slightly higher <unk> in both the U S and Europe our plan.
Speaker Change: So, let's turn to our outlook. When we began the year, we expected full-year company-adjusted EBIT of $10 to $12 billion.
John Lawlor: Our assumptions for the U S is 16% to $16 5 million units.
Speaker Change: Since then, our product portfolio has exceeded our expectations, delivering favorable market factors, including mix, through the first nine months of the year, and we expect this trend to continue in the fourth quarter. This speaks to the strength of our key nameplates and the resilience of our commercial business at Ford Pro.
John Lawlor: Full year of customer demand for all of those super duty contributing to better market factors for Ford Pro lower industry pricing of roughly 2% driven by higher incentive spending as we exit the year for Ford. We expect this to be partly offset by top line growth from the launch of our new products.
John Lawlor: Our segment outlook anticipates continued strength in <unk> Pro we now expect EBIT of about 9 billion with an improved market equation, including continued pricing strength on core products.
Speaker Change: We are also on track to deliver $2 billion of cost efficiencies within our industrial platform offsetting expected higher labor and product refresh costs for the year.
Speaker Change: However, two gating factors keep us from a record-adjusted EBIT this year, higher than expected warranty costs and the impact of inflation at our JV Ford AutoZone in Turkey, which increases the material costs of transit vans sold in Europe.
John Lawlor: And expected loss of about $5 billion for model E, which is the positive end of our guidance range driven by over $1 billion in cost improvements that were partially offset by continued pricing pressure and investments in our new vehicle platforms and for.
John Lawlor: For Blue, we now expect EBIT of $5 billion, reflecting a balanced market equation and higher product manufacturing and warranty costs, partially offset by cost efficiencies and lastly, Ford Credit's EBT will be about $1 6 billion a double the.
Speaker Change: While inflationary pressures in Turkey is outside of our control, increased warranty costs are within our control.
Speaker Change: We now expect four-year company-adjusted EBIT of about $10 billion, which includes lower-than-planned volume in the second half.
John Lawlor: Double digit growth year over year.
Speaker Change: for Ford Pro and Ford Blue due to supplier disruptions. In general, we see supply and demand for vehicles in balance. We continue to expect adjusted free cash flow of $7.5 to $8.5 billion with capex between $8 to $8.5 billion.
John Lawlor: Our performance this quarter demonstrates the positive progress on our four plus plan capital discipline, the right product portfolio and consistent cash generation to reward our shareholders. We are relentlessly working to make our business better and we remain focused on improving both quality and cost.
Speaker Change: Outlook for 24 assumes a flat to slightly higher S.A.R. in both the U.S. and Europe. Our planning assumptions for the U.S. is 16 to 16.5 million units.
John Lawlor: Wraps up our prepared remarks, we will use the balance of the time to crest to.
Speaker Change: A full year of customer demand for our all-new Super Duty, contributing to better market factors for Ford Pro. Lower industry pricing of roughly 2%, driven by higher incentive spending as we exit the year. For Ford, we expect this to be partly offset by top-line growth from the launch of our new products.
To address your questions.
Speaker Change: We will now move to our question and answer session. If you have joined via the webinar. Please use the raise hand icon, which can be found at the bottom of your webinar application. If you've joined by phone. Please dial star five on your key pads to raise your hand, when you recall dawn. Please on mute your line and ask your question.
Speaker Change: Our segment outlook anticipates continued strength in Ford Pro. We now expect EBITDA of about $9 billion with an improved market equation, including continued pricing strength on core products.
Speaker Change: We will now pause a moment to assemble the queue.
Speaker Change: Our first question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Speaker Change: An expected loss of about $5 billion for Model E, which is the positive end of our guidance range, driven by over $1 billion in cost improvements that were partially offset by continued pricing pressure and investments in our new vehicle platforms.
Mark Delaney: Yes. Good afternoon, thanks, very much for taking the question Pro EBIT was strong.
It did fall to 11, 6% in the quarter, although still at 14, 6% year to date, maybe you can talk a bit more around what led to the moderation in pro EBIT during the third quarter and what gives you confidence in that mid teens EBIT margin in the pro segment over the intermediate to longer term.
Speaker Change: And for Ford Blue, we now expect EBIT of $5 billion, reflecting a balanced market equation and higher product, manufacturing, and warranty costs, partially offset by cost efficiencies. And lastly, Ford credits EBT will be about $1.6 billion, a double-digit growth year-over-year.
Speaker Change: Yes, so when you look at it what we're seeing this year like we saw last year is seasonality in the second.
Speaker Change: Our performance this quarter demonstrates the positive progress on our 4 plus plan. Capital discipline, the right product portfolio, and consistent cash generation to reward our shareholders.
Speaker Change: Now there's transparency around the commercial business that we didn't have in the past and.
Speaker Change: First quarter, we see the peak in the rental business that falls off in second quarter. In fact, this this quarter third quarter, we had basically zero rental business.
Speaker Change: We are relentlessly working to make our business better, and we remain focused on improving both quality and cost.
Speaker Change: That wraps up our prepared remarks. We'll use the balance of the time to address your question.
Speaker Change: The other thing we see in the second half as we see the shutdowns.
Speaker Change: But we see at our plants and as you know we run these at full capacity. So we lose those units and we can't make them up.
Speaker Change: We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. If you have joined by phone, please dial star 5 on your keypad to raise your hand. When you are called on, please unmute your line and ask your question. We will now pause a moment to assemble the queue.
Speaker Change: And that's the seasonality you are seeing and they see that show up in the EBIT in the second half.
Speaker Change: Confidence we have in Florida Pro ongoing is we're continuing to see as Jim said strong demand for our Super duty and transit, especially the chassis and the wagons.
Speaker Change: Our pricing has held up pretty strong so far this year, we are seeing some top line pressure pricing pressure with a 25 model year vehicles as we expected.
Speaker Change: Our first question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Mark Delaney: Yes, good afternoon. Thanks very much for taking the question. Pro EBIT was strong, but did fall to 11.6% in the quarter, although still at 14.6% year-to-date. Maybe you can talk a bit more around what led to the moderation in pro EBIT during the third quarter, and what gives you confidence in that mid-teens EBIT margin in the pro segment over the intermediate to longer term?
Speaker Change: But we're still continuing to move forward.
Speaker Change: It's not.
Speaker Change: Something that we're concerned about at this point based on what we're seeing so far with the 25 model years. So again the business continues to be strong and I would tell you that we're really starting to gain traction on our overall.
Speaker Change: Yeah, so when you look at it, what we're seeing this year like we saw last year is seasonality in the sector.
Speaker Change: Process of how we're going to market and we're selling the solution right. We're selling the vehicle along with the services that come along with that.
Speaker Change: You know, now there's transparency around the commercial business that we didn't have in the past. And, you know, first quarter we see the peak in the rental business. That falls off in second quarter. In fact, this quarter, third quarter, we had basically zero rental business.
Speaker Change: It's about improving our customers' business and giving them productivity, which helps them improve their profit. So all of that is coming together and it's leading to.
Speaker Change: Continued strength in Florida.
Speaker Change: The other thing we see in the second half is we see the shutdowns that we see at our plants. And as you know, we run these at full capacity, so we lose those units and we can't make them up.
Speaker Change: Thanks for that and I just had one.
Speaker Change: Either for you or for Jim around modeling.
Speaker Change: You said during your prepared remarks, you expect improved EBIT trajectory in modeling next year, maybe you can help us better understand how impactful. Some other recent cost and capacity actions. The company has taken might be within the modeling segment in <unk>.
Speaker Change: And that's the seasonality you're seeing, and then you see that show up in the eBit in the second half. Confidence we have in Ford Pro ongoing is we're continuing to see, as Jim said, strong demand for our Super Duty and Transit, especially the chassis and the wagons.
Within your outlook for an improved EBIT trajectory within the modeling how much of a risk might be rising sidoti requirements within Europe, and just the broader pricing environment for EVEP as you as you think about that improved trajectory. Thank you.
Speaker Change: Our pricing has held up pretty strong so far this year. We are seeing some top line pricing pressure with the 25 model year vehicles as we expected.
Speaker Change: Thanks for your question.
Speaker Change: but we're still continuing to move forward and it's not something that we're concerned about at this point based on what we're seeing so far with the 25 model years.
Speaker Change: Good news is we're starting to scale a business in Europe and those vehicles are contribution margin positive and they're becoming a bigger mix of our business. We are definitely getting traction from our cost down efforts on our first cycle of products and we're really focused on Mustang Mach E.
Speaker Change: So again, the business continues to be strong, and I would tell you that we're really starting to gain traction on our overall
Speaker Change: We've made a lot of progress and we have a lot more to make so I think this is this is one of the benefits of having the segmentation broken out.
Speaker Change: process.
Speaker Change: of how we're going to market.
Speaker Change: and we're selling the solution, right? We're selling the vehicle along with the services that come along with that, that's about improving our customers' business and giving them productivity, which helps them improve their profits. So all of that's coming together and it's leading to a continued strength in Ford Pro.
And no doubt about it.
Speaker Change: I think we tried to highlight in our prepared comments the growing risk for everyone on pricing and no OEM is immune to that.
Speaker Change: And as I said, we're seeing some of our competitors have enormous lease mixes like 70 plus percent.
Speaker Change: Thanks for that John. I just had one either for you or for Jim around Model E. I think you said during your prepared remarks you expect improved EBIT trajectory in Model E next year. Maybe you can help us better understand how impactful some of the recent cost and capacity actions the company has taken might be within the Model E segment.
Speaker Change: So that will play out, especially in Europe as you said.
Speaker Change: There's a lot of pressure in Europe, our products are brand new in Europe. So that's a good thing that'll that'll help us next year anything else John No I, just think that we're going to continue to focus on cost improvements and the.
Speaker Change: within your outlook for an improved EV trajectory within the Model E, how much of a risk might the rising CO2 requirements within Europe and just the broader pricing environment for EVs be as you think about that improved trajectory? Thank you.
Speaker Change: Current generation in the future generations.
Speaker Change: It would have been in the marketplace as long as we have that's really helps frame up the mandate, we have for the California team around cost to be competitive.
But it's all going to hinge on this as you said, Jim that topline pricing pressure.
Speaker Change: Thanks for your question.
Speaker Change: Yes.
Speaker Change: The good news is we're starting to scale EV business in Europe and those vehicles are contribution margin positive And they're becoming a bigger mix of our business We are definitely getting traction from our cost down efforts on our first cycle of products And we're really focused on Mustang Mach-E
Speaker Change: To be specific on the cost you know, we really expect next year and the following years a lot of progress in the production tax credits for our first Gen products. That's really one of the key levers for us as we've been able to.
Speaker Change: Pretty quiet lease.
Speaker Change: we've made a lot of progress we have a lot more to make so I think this is this is one of the benefits of having the segmentation broken out and no doubt about it
Speaker Change: Restructure our sourcing of our batteries, where they come from who makes them to really maximize the PTC and that that will drive a lot of cost down for our existing products and you'll see that come to fruition starting in mid next year and all the way through 2027.
Speaker Change: I think we tried to highlight in our prepared comments the, you know, the growing risk for everyone on pricing and no OEM is immune to that.
Speaker Change: Our next question comes from John Murphy with Bank of America. Please <unk> your line and ask your question.
Speaker Change: And as I said, we're seeing some of our competitors have enormous lease mixes, like, you know, 70-plus percent.
John Murphy: Good evening everybody.
Speaker Change: So that will play out, especially in Europe, as you said. There's a lot of pressure in Europe. Our products are brand new in Europe, so that's a good thing and that'll help us next year. Anything else, John? No, I just think that we're gonna continue to focus on cost improvements and in the current generation and the future generation, and that's...
John Murphy: Just a first question.
On warranty for maybe for both of you.
John Murphy: And Jim you kind of cited some some pretty good.
John Murphy: Positive data.
John Murphy: J D power some other other sources, but I'm just curious if you're willing to at this point kind of ring me some of the positive alarm Bell that we're now kind of all clear on some of the warranty issues, we've seen in the past, particularly last quarter.
Jim Farley: You know, being in the marketplace as long as we have, that's really helped frame up the mandate we have for the California team around cost to be competitive. And it's all going to hinge on, as you said, Jim, that top-line pricing pressure.
John Murphy: Yes.
John Murphy: I mean, what is a certainty that we're through the worst of this.
John Murphy: Yes, John I wish I could answer that with.
Jim Farley: Yes, and to be specific on the cost, you know, we really expect next year and the following years a lot of progress in the production tax credit for our first-gen products. That's really one of the key levers for us is we've been able to
John Murphy: With certainty.
Speaker Change: We are seeing the leading indicators the physicals, we're seeing improvement there, especially around <unk>.
Speaker Change: Three months in service 24, multiyear is over 30% better than what we saw in 'twenty one 'twenty two.
Jim Farley: pretty quietly restructure our sourcing of our batteries, where they come from, who makes them, to really maximize the PPC and that that will drive a lot of costs down for our existing products, and you'll see that
Speaker Change: As Jim mentioned, our launch spikes.
Speaker Change: Basically unexplored cocoa, we didn't see well. So those are good indicators that things are going to get better.
Speaker Change: And overall quality standpoint, now it's going to take time for that to flow through from a warranty standpoint, what I can't tell you is I don't and can't read we're doing the best we can on this I know it is not satisfactory for you guys is the FSA is on the older models.
Speaker Change: Our next question comes from John Murphy with Banks of America. Please unmute your line and ask your question.
Speaker Change: What could potentially hit us.
Speaker Change: And we're <unk>.
John Murphy: Good evening everybody. Just a first question on warranty for maybe for both of you and Jimmy kind of cited some some pretty good you know positive data around J.D. Power and some other other sources but I'm just curious if you're willing to at this point kind of ring the sort of the positive alarm bell that we're now kind of all clear.
Speaker Change: Looking at all the data we can or.
Speaker Change: Looking at everything to try to get out in front of any of those and we're working to increase on our current models.
Speaker Change: Everything we can do to fix things through Otas get the repairs out there as fast as possible cutoff any issues that are in the plants. So I think we're doing all the right things from a physical standpoint.
John Murphy: on some of the warranty issues we've seen in the past, particularly last quarter, or what is the certainty that we're through the worst of this?
Speaker Change: Can't tell you when that curve is going to bend for sure and how thats going to start flowing through from a cost standpoint and.
Speaker Change: Yeah, John, I wish I could answer that.
Speaker Change: We're doing everything we can to figure that out and get there and understand that.
John: with certainty. We are seeing...
The transparency and clarity around that.
John Lawler: The leading indicators, the physicals, we're seeing improvement there, especially around our three months in service. 24 mile a year is, you know, over 30% better than what we saw in 21 and 22. As Jim mentioned, our launch spikes
Speaker Change: And then just a second question around pricing medium blue It was still on a net basis, even positive in the third quarter a lot of concern around might have whats going on with your inventory, although it sounds like you've answered that question, but also inventory its atlantis and what might happen in the broader market. So as you look at it.
John Lawler: Basically on Explorer and Cougar, we didn't see one. So those are good indicators that things are going to get better from an overall quality standpoint.
When you think about pricing and you've got great product coming out now and into next year that should be a bit of an offset it seems like you'll have the inventory worked out.
John Lawler: Now, it's going to take time for that to flow through from a warranty standpoint.
Speaker Change: Think about pricing going forward.
John Lawler: What I can't tell you is I don't...
In the industry I mean, it keeps surprising.
John Lawler: and can't read. We're doing the best we can on this. I know it's not satisfactory for you guys, is the FSAs and the older models. What could potentially hit us?
Speaker Change: And being relatively resilient and actually even positive for you guys. So how do you think about that going forward.
Speaker Change: Yes. So this year, you know topline both pricing and volume were a tailwind for us relative to what we had thought the industry is down 2%, we are seeing increasing pressures as we go through the.
John Lawler: and you know we're out looking at all the data we can or you know looking at everything to try to get out in front of any of those and we're working to increase on our current models
Speaker Change: Ended the quarter into Q4 from a topline standpoint.
John Lawler: everything we can do to fix things through OTAs, get the repairs out there as fast as possible, cut off any issues that are in the plants.
Speaker Change: Your guess is as good as mine, John as whats going to happen and how deep some of our competitors are going to go that have an issue with inventories our inventories were higher but we also gained share in the quarter and our sales pace increased so we think we're we've got a plan to manage.
John Lawler: So, I think we're doing all the right things from a physical standpoint, I just can't tell you when that curve is going to bend for sure and how that's going to start flowing through from a cost standpoint.
John Lawler: You know, we're doing everything we can to figure that out and get there and understand the transparency and clarity around that.
Speaker Change: Our inventories we've got a plan to get back to within the run rate of what we expect we do have some launches in Q1. So we will carry some higher inventory of those for those vehicles through the end of the year, but next year, we plan to get back to that 50 to 60 days run rate for sure.
Speaker Change: And then just a second question around pricing, meaning in blue, it was still, you know, on a net basis, even positive in the third quarter. There's a lot of concern around what's going on with your inventory, although it sounds like you've answered that question.
Speaker Change: As we move into 2025, there is a lot of water that needs to flow under the bridge still between now and the end of the year.
Speaker Change: but also inventory to Atlantis and what might happen in the broader market. So, I mean, as you look at this and you think about pricing, you've got great product coming out, you know, now and into next year that should be a bit of an offset. It seems like you'll have the inventory worked out. I mean, how do you think about pricing going forward, you know, in the industry? I mean, it keeps surprising and being relatively resilient and actually even positive for you guys. So, I mean, how do you think about that going forward?
Speaker Change: One of the things we're looking at is the consumers in Europe. It seems that theyre pulling back a bit and spending less so we've got to watch that and you know I think many of you guys have written about the fact that are we heading into cyclical pricing headwinds.
And is that going to show up in 2025 as you said, we've all been pleasantly surprised is how pulp.
Speaker Change: It's held up so far but I want to see how we run through this quarter. How the year end is coming along how sales are at the end of the year before I can give you any call on what we think is going to happen with pricing next year.
Speaker Change: Yeah, so this year, you know, top line, both pricing and volume were a tailwind for us relative to what we had thought. The industry is down 2%. We are seeing increasing pressures as we come through the end of the quarter into Q4 from a top line standpoint.
Speaker Change: Only thing I would add on the pricing is really the mix. We continue to see customers move into small utility affordable side of Evs continue to be really fuel the unit growth.
Speaker Change: You know, your guess is as good as mine, John, is what's going to happen and how deep some of our competitors are going to go.
Speaker Change: that have an issue with inventories. Yeah, our inventories were higher, but we also gained share in the quarter in our sales pace.
Speaker Change: And we're even seeing some change in series mix.
Speaker Change: So those are all uncertainties that we have to handicap for next year, but I'd just encourage all of us to not just look at the top line or the discounting, but also look at the mix and the segmentation. The good news is the truck segments in the pro segments are holding up really well.
Speaker Change: We've got a plan to manage our inventories. We've got a plan to get back within the run rate of what we expect. We do have some launches in Q1, so we will carry some higher inventory of those for those vehicles through the end of the year, but next year we plan to get back to that 50 to 60 days run rate. For sure.
Speaker Change: Okay.
Speaker Change: Our next question comes from Adam Jonas with Morgan Stanley. Please ask your <unk>.
Speaker Change: As we move into 2025, there's a lot of water that needs to flow into the bridge still between now and the end of the year. One of the things we're looking at is the consumers in Europe. It seems that they're pulling back a bit and spending less, so we've got to watch that.
Speaker Change: <unk>.
Adam Jonas: Hi, good evening, everybody. So the Chinese have really been growing rapidly in Europe and rest of the world as you've seen I know you don't.
Speaker Change: And, you know, I think many of you guys have written about the fact that are we heading into cyclical pricing headwinds?
Adam Jonas: Breakout our resolve geographically, but any color on any impact you might be seeing in Europe.
Speaker Change: and is that going to show up in 2025? As you said, we've all been pleasantly surprised with how it's held up so far, but I want to see how we run through.
Adam Jonas: Competitively or even in rest of world regions that you wanted to highlight and specifically I was kind of surprised you mentioned that China.
Adam Jonas: China was contributing 600 million to your to your results. This year I'm curious how much of that was from the domestic market versus reverse exporting from China.
Speaker Change: this quarter, how the year-end is coming along, how sales are at the end of the year, before I can give you any call on what we think is going to happen with pricing next year.
Speaker Change: Yeah, I'll start with that and then I think Jim will cover the rest of your question. So we are profitable in China in and of itself in China, Jim mentioned $600 million of total profits and that includes our exports primarily too.
Speaker Change: And the only thing I would add on the pricing is really the mix.
Speaker Change: We continue to see customers move into small utility, affordable side of EVs continue to be really fuel of the unit growth.
Speaker Change: and we're even seeing some change in series mix.
Speaker Change: The rest of Asia, and South America. So.
Speaker Change: So those are all uncertainties that we have to handicap for next year. But I just encourage all of us to not just look at the top line or the discounting, but also look at the mix and the segmentation. The good news is the truck segments and the pro segments are holding up really well.
Speaker Change: Going asset light.
Speaker Change: US to stay profitable within China, and then the export strategy primarily from R. J.
Speaker Change: JV are.
Speaker Change: Jay AMC and exporting those vehicles to the rest of Asia as well as South America is driving significant profit and affordable.
Speaker Change: Our next question comes from Adam Jonas with Morgan Street.
And Adam.
Speaker Change: Stanley. Please unmute your line and ask your question.
Speaker Change: For our revenue globally, you know Rangers to come such a key product for us.
Adam Jonas: Good evening everybody. So the Chinese have really been growing rapidly in Europe and the rest of the world as you've seen. I know you don't
We are in so many markets and the reason why we're profitable overseas and so many of those markets because ranger when I came the company range. It was 13th now we're number two add to Toyota high Lux in many markets like Australia, we all sell them. So.
Adam Jonas: breakout result geographically but you know any color on any impact you might be seeing in Europe
Adam Jonas: competitively or even in rest of world regions that you wanted to highlight and specifically I was
Speaker Change: That's where the pressure is going to show up for Ford's revenue.
Adam Jonas: Kind of surprised you mentioned that the that China was contributing 600 million to your To your results this year. I'm curious how much of that was from the domestic market versus reverse exporting from China
Speaker Change: Yes.
Speaker Change: Right Wall is now localizing in Thailand.
Speaker Change: There are 60% of the pickup market in China. They are really sharp company with great products and great value proposition. So we have a great strategy for that.
Speaker Change: Yeah, Adam, I'll start with that, and then I think Jim will cover the rest of your question. So we are profitable in China, in and of itself in China. Jim mentioned $600 million of total profits, and that includes our exports, primarily to
Speaker Change: But that's where we see it in Europe.
Speaker Change: As you said in Europe.
Speaker Change: Passenger.
Speaker Change: How does your car market has been impacted but we really don't compete there we really compete in the commercial probe business in Europe, we don't see the Chinese being major movers maxus, a little bit in the U K, but they haven't really focused on the commercial pro business. The good thing there is that we have a multi energy strategy for all of our trends.
Speaker Change: the rest of Asia, and South America. So...
Speaker Change: going asset light has allowed us to stay profitable within China and then the export strategy primarily from our
Speaker Change: Thats, where we can offer customers wherever they want including electric transits as I've said, almost 10% of our products. So we're well positioned.
Speaker Change: JV or JMC and exporting those vehicles to the rest of Asia as well as South America is driving significant profit in Ford blue
Speaker Change: I think in both locations for Ranger and transit.
Speaker Change: and Adam
Speaker Change: For our revenue globally, you know Rangers become such a key product for us
Thanks, Jim.
John Lawlor: A follow up John you cut about $1 billion out of our full year outlook.
Speaker Change: We're in so many markets and the reason why we're profitable overseas in so many of those markets is because Ranger. When I came to the company Ranger was 13th now we're number two to Toyota Hilux and in many markets like Australia we outsell them. So that's where the pressure is going to show up for Ford's revenue.
John Murphy: You provide the detail by your SEC reporting segments, but was wondering if you could breakdown what compromise that billion dollars shortfall by factor if I gave you.
Speaker Change: Your costs versus your expectations, you mentioned warranty costs are down, but not as much as you thought youre not satisfied.
Speaker Change: FX and a supplier disruption you mentioned you Miss some units I wanted to know if you could quantify that or any other factors.
Speaker Change: Great Wall is now localizing in Thailand. They're 60% of the pickup market in China. They're a really sharp company with great products and great value propositions. So, we have a great strategy for that, but that's where we'll see it. In Europe,
Speaker Change: Causal factor thanks, yes.
Speaker Change: I think Adam when you look at it you've got to look at it on the full year versus where we're guiding down now relative to what we had in Q2 right. When we got in Q2, we had the headwinds hit us quite hard from a warranty standpoint, and we are seeing inflationary cost in Turkey. So if you just step back on the full year.
Speaker Change: As you said, in Europe...
Speaker Change: The passenger car market has been impacted, but we really don't compete there. We really compete in the commercial pro business in Europe. We don't see the Chinese being major movers. Maxis a little bit in the UK, but they haven't really focused on the commercial pro business.
Adam Jonas: What's gating us from hitting the record profits.
Adam Jonas: Is the fact that we have those headwinds that are offsetting the positives we had from a topline we just talked about the.
Speaker Change: The good thing there is that we have a multi-energy strategy for all of our transits Where we can offer customers whatever they want including electric transits as I said almost 10% of our products So we're well positioned. I think in both locations for ranger and transit
Adam Jonas: Volumes and mix and pricing stronger than we expected now coming out of the second quarter. What we've seen since then which is a gating us now to the lower end of our range is that.
Adam Jonas: We're seeing and particularly in blue were missing some volume and we're seeing some mixed headwinds due to some constraints we have with suppliers.
Speaker Change: Thanks, Jim. Just as a follow-up, John, you cut about a billion dollars out of the full year outlook.
Speaker Change: You provide the detail by your reporting segments, but was wondering if you could break down what compromised that billion shortfall by factor if I gave you your costs versus your expectations. You mentioned warranty costs are down, but not as much as you thought. You're not satisfied.
Adam Jonas: And it's hitting our most profitable highest mix highest profitable mixed vehicles.
Some of that is we lost some production due to the hurricane but we also have some issues with a certain supplier on their productivity that we're trying to work through we believe will be through that by the end of the quarter, but that is hitting forward blue and thats whats pulling forward blew down now.
Speaker Change: FX, and the supplier disruption. You mentioned you missed some units. I wanted to know if you could quantify that or any other factors by causal factor. Thanks.
Adam Jonas: Standpoint versus what we got into Q2.
Speaker Change: Does that explain it.
Speaker Change: That cover it.
Speaker Change: Yeah, I think Adam, when you look at it, you've got to look at it on the full year versus where we're guiding down now relative to what we had in Q2, right? And when we got in Q2, we had the headwinds hit us quite hard from a warranty standpoint, and we are seeing inflationary costs in Turkey. So if you just step back on the full year,
Our next question comes from Daniel Rasco from Alliance Bernstein.
Speaker Change: Yeah.
Hey, good evening, everybody. Thanks for taking my question maybe Jim.
Speaker Change: To step back and think about Ford plus and with target.
Speaker Change: what's gating us from hitting the record profits.
Speaker Change: Uh huh.
I'm not going to hold you to 10% and 26.
Speaker Change: is the fact that we have those headwinds.
Speaker Change: Could you just remind us of the stepping stones here.
Speaker Change: that are offsetting the positives we had from a top line we just talked about, so volumes and mix and pricing stronger than we expected.
Speaker Change: For performance kind of in the medium term.
And also give us a moment of your view on how kind of somewhat lower transition into EV might impact kind of what we've talked about them.
Speaker Change: Now, coming out of the second quarter
Speaker Change: What we've seen since then, which is gating us now to the lower end of our range, is that we're seeing, and particularly in blue, we're missing some volume and we're seeing some mixed headwinds due to some constraints we have with suppliers.
Speaker Change: Thank you.
Speaker Change: Certainly our focus continues to be cost and our biggest cost focus is warranty coverages and fsa's.
Speaker Change: That that is our that's always been our work at Ford.
Speaker Change: and it's hitting our most profitable, highest profitable mixed vehicle.
Speaker Change: I'd say we.
Speaker Change: We approached it looking at the most systematic changes that we need to make in the industrial system and I'm proud of the progress, but we're not satisfied at all and we have a lot of opportunity and going into maybe what looks like in our home market a little bit of a tougher pricing environment, that's upside for us.
Speaker Change: Some of that is we lost some production due to the hurricane.
Speaker Change: But we also have some issues with a certain supplier on their productivity that we're trying to work through. We believe we'll be through that by the end of the quarter, but that is hitting Ford Blue and that's what's pulling Ford Blue down now from a standpoint versus what we got it at Q2. Does that explain? Does that cover it?
US as a company and the management team is all focused on that and were awarded.
Speaker Change: For doing that work.
Speaker Change: I would say the EV journey has been really interesting because as.
Speaker Change: Our next question comes from Daniel Roska from Alliance Bernstein.
Speaker Change: As much as a slowdown I'm really proud of the team reacting really quickly to at many of our competitors still have a lot of models coming out.
Daniel Roska: Hey, good evening, everybody. Thanks for taking my question. Maybe, Jim, if you take a step back and think about Ford Plus and the targets we've discussed in the past, I'm not going to hold you to 10% in 26, but, you know, could you still remind us of the stepping stones here, you know, for performance kind of in the medium term, and also give us a little bit of your view on how kind of the somewhat slower transition into EV might impact kind of what we've talked about in the past?
Speaker Change: And we made we made the adjustment really early and those second generation products will be coming out in addition to that we really learned.
Speaker Change: The industrial fitness, we have to have in the way the vehicles designed.
Speaker Change: The design costs the design for manufacture ability.
Speaker Change: And that's all in our second generation products.
Speaker Change: And I think Thats, a four five year advantage for Ford the.
Daniel Roska: Thank you.
Speaker Change: Well, certainly our focus continues to be cost and our biggest cost focus is warranty, coverages and FSAs. That is our, that's always been our work at Ford.
Speaker Change: The other opportunity that kind of emerged maybe that we didn't expect was the popularity of of hybrids, especially on trucks.
Speaker Change: Most of our competitors don't offer hybrid on an F 150, or a maverick and this has been a fantastic revenue opportunity for us, we frankly can't keep up with the demand.
Speaker Change: I'd say we
Speaker Change: We
Speaker Change: approached it.
Speaker Change: looking at the most systematic changes that we need to make in the industrial system. And I'm proud of the progress, but we're not satisfied at all. And we have a lot of opportunity.
Speaker Change: And are the reason why we focused our hybrids on truck is because we can innovate for the customer pro power onboard using hybrid and other advantages than just more efficient propulsion.
Speaker Change: and going into maybe what looks like in our home market a little bit of a tougher pricing environment, that's upside for us as a company and the management team is all focused on that and we're rewarded for doing that work.
Speaker Change: <unk>.
And I think that has encouraged us to put hybrid across a whole lineup.
Speaker Change: And be more curious about other partial electric solutions, which we'll talk to you about.
Speaker Change: I would say the EV journey has been really interesting because
Speaker Change: As much as it slowed down, I'm really proud of the team reacting really quickly to it.
Speaker Change: I would say the.
Speaker Change: The Skunkworks team has over delivered at least in the design of the platform now we have to make it to high scale production.
Speaker Change: Many of our competitors still haven't.
Speaker Change: A lot of models coming out.
Speaker Change: and we made the...
Speaker Change: We made the adjustment really early, and those second-generation products will be coming out. In addition to that, we really learned...
Speaker Change: And I am so excited to show everyone. Their work because it really shows how company like Ford can compete with a company like BYD.
Speaker Change: The industrial fitness we have to have in the way the vehicle is designed
Speaker Change: And I would say pro has been.
Speaker Change: The design costs, the design for manufacturability, and that's all in our second generation products. And I think that's a four or five year advantage for Ford. The other opportunity that kind of emerged, maybe that we didn't expect, was the popularity of hybrids, especially on trucks.
Speaker Change: Really interesting journey for us because I think it kind of is.
Speaker Change: Shows the future of the auto industry with attached services with more focus on after sales and repair and.
Speaker Change: And software that's.
Kind of tied to the vehicle itself not just generic productivity software, but software that actually tied to the vehicle and to do that we need advanced electric architectures, but there's been some challenges.
Speaker Change: Most of our competitors don't offer hybrid on an F-150 or a Maverick.
Speaker Change: and this has been a fantastic revenue opportunity for us. We frankly can't keep up with the demand.
Speaker Change: Challenges beyond cost and quality, obviously and the slow uptake of Evs electric architectures are hard to execute the software journey and the technology for the company is big Knowhow.
Speaker Change: and the reason why we focused our hybrids on truck is because we can innovate for the customer at pro power on board using hybrid and other advantages than just more efficient propulsion.
Speaker Change: We're already at 20 million Otas, that's going to be a more and more important capability for the company.
Speaker Change: And I think that has encouraged us to put hybrid across a whole lineup and be more curious about other partial electric solutions, which we'll talk to you about.
Speaker Change: There have been surprises, but I think we're as I said, we're really well positioned in the short and midterm.
Speaker Change: Okay.
Speaker Change: I would say the
Speaker Change: Thanks for that and maybe John can follow up a little bit.
Speaker Change: The Skunk Works team has over-delivered, at least in the design of the platform. Now we have to make it to high-scale production.
Speaker Change: Summarized.
Speaker Change: Headwinds in the short term.
Speaker Change: So that ramp up kind of certainly isn't happening maybe quite as fast.
Speaker Change: and I am so excited to show everyone their work because it really shows how a company like Ford can compete with a company like BYD. And I would say Pro has been,
Speaker Change: The ability.
On the cash side, but could I could I push you a bit of what.
Speaker Change: Thank you.
Speaker Change: Consider kind of the strategy on shareholder distributions because we've seen a couple of your competitors kind of be a little bit more aggressive on immediate distributions dividends or buybacks, but just as a.
Speaker Change: really interesting journey for us because I think it kind of
Speaker Change: shows the future of the auto industry with attached services, with more focus on after sales and repair, and software that's
Speaker Change: What's the balance you are striking and what would maybe move you, let's say to increase the dividend again for example, or should take other distribution of action.
Speaker Change: kind of tied to the vehicle itself, not just generic productivity software, but software that actually is tied to the vehicle. And to do that, we need advanced electric architectures. But there's been some, you know, challenges beyond cost and quality, obviously, and the slow uptake of EVs.
What could some of those factors be.
Speaker Change: So the capital allocation towards shareholders.
Speaker Change: Right so.
Speaker Change: We talk about this every quarter as you would expect.
Speaker Change: And our.
Speaker Change: We're consistent in that we're going to pay out 40% to 50% of our free cash flow.
Speaker Change: Electric architectures are hard to execute. The software journey and the technology for the company is, you know, big know-how.
Speaker Change:
Speaker Change: And we do think it's prudent at this point in time to hang on to the incremental cash we have $28 billion 8 billion higher than our stated cash minimum that we need is $20 billion.
Speaker Change: we're already at 20 million OTAs. That's going to be a more and more important capability for the company. So there have been surprises, but I think we're, as I said, we're really well positioned in the short and midterm.
Speaker Change: And I think at this point in time or we're at in the industry.
Where we're at in the overall economic cycle the uncertainty around the globe.
Speaker Change: Thanks for that. And maybe, John, to follow up a little bit, if you kind of summarize, there's been, you know, headwinds in the short term, EVs have been a little delayed, so that ramp-up kind of certainly isn't happening maybe quite as fast as you might expect.
Right now, it's the right thing to hang on to cash in.
I'm, not saying, there's going to be something that happens in the global economy, and we're not saying there's going to be some disruption.
Speaker Change: But were that to happen we would be very pleased having this cash in hand.
Speaker Change: stability
Speaker Change: on the cash side, but could I push you a bit and ask what would make you reconsider kind of the strategy on shareholder distributions? Because we've seen a couple of your competitors kind of be a little bit more aggressive on immediate distributions, be it dividends or buybacks, right, but just as a...
Speaker Change: So we look at it every quarter, we understand that if we don't have a use for the cash or if the.
Speaker Change: Environment doesn't change and we see that.
Speaker Change: The risks that might be facing us diminished significantly then we have to make sure that we handle that cash appropriately and either invest it for an accretive growth or pay it back to the shareholders and we will look at that every quarter and we will adjust appropriately.
Speaker Change: You know, what's the balance you're striking and what would maybe move you, say, to increase the dividend again, for example, or to take other distribution actions? What could some of those factors be to tilt the capital allocation towards shareholders?
Speaker Change: Our next question comes from Joseph Spak with UBS. Please ask your question.
Speaker Change: So, you know, we talk about this every quarter, as you would expect, and we're consistent in that we're going to pay out 40 to 50 percent of our free cash flow.
Speaker Change: Okay.
Joseph Spak: Thanks, Jim actually if we could just pick up right. There I want to talk about a little bit about the 4% to 50% payout because.
Joseph Spak: Are you in.
Jim's confidence.
Speaker Change: and we do think it's prudent at this point in time to hang on to the incremental cash. We have $28 billion and $8 billion higher than our stated cash minimum that we need is $20 billion.
Joseph Spak: Confidence on the business, but I also hear on this call that warranty is something you still don't quite have a handle on.
Joseph Spak: And there's some uncertainty there in the U S market.
It's hard to say how becomes stronger you talked about potentially a pricing.
Speaker Change: And I think at this point in time, where we're at in the industry, where we're at in the overall economic cycle, the uncertainty around the globe, right now, it's the right thing to hang on to cash. And, you know,
Joseph Spak: Cycling downwards again, not expecting it maybe necessary, but it's possible.
Joseph Spak: If the industry stalls out obviously, then there's working capital headwinds, we saw how fast casual deteriorates at a competitor.
Speaker Change: I'm not saying there's going to be something that happens in the global economy. I'm not saying there's going to be some disruption
Joseph Spak: You mentioned higher inflation Theres still some investment in nitrogen so and I know you want to keep cash.
Speaker Change: But were that to happen, we would be very pleased having this cash in hand. So we look at it every quarter. We understand that if we don't have a use for the cash or if the
Speaker Change: On hand for Optionality. So when I hear you talk about 40 or 50%. It sounds to me like that's a retrospective view, but I'm actually wondering how much of a prospective view are you considering in that and like why is 40%, 50% even the right number.
Speaker Change: environment doesn't change and we see that, you know, the risks that might be facing us diminish significantly, then we have to make sure that we handle that cash appropriately and either invest it for an increase in growth or pay it back to the shareholders. And we will look at that every quarter and we will adjust appropriately.
Joseph Spak: Yes.
Speaker Change: Of course, we look at both.
Speaker Change: Prospective.
Speaker Change: <unk> as well.
Speaker Change: Hum.
Speaker Change: What we're going to pay off for the year. So we set the strategy around that payout ratio, 40% to 50%.
Speaker Change: And we thought we think thats a good.
Speaker Change: Our next question comes from Joseph Spack with UBS. Please unmute and ask your question.
Speaker Change: Point to be at right now.
Speaker Change: And we do look prospectively as to where we see the environment changing what's in front of us or the outlook could potentially be the risks the potential headwinds potential tailwind etcetera. So we do do that it's just that at this point in time, we don't have anything to announce.
Joseph Spack: Thanks, Jim. Actually, if we could just pick up right there. I want to talk a little bit about the 40 to 50% payout because, you know, I hear you and
Joseph Spack: Jim's confidence on the business but you know I also hear on this call that warranty is something you still don't quite have a handle on and there's some uncertainty there the US market
Speaker Change: But we're always evaluating.
We're always looking at it we have the conversation every quarter as you would expect and once we feel that it's the right time, then we will make it prospective change a change based on the prospective outlook.
Joseph Spack: It's hard to see how it becomes stronger. You talked about potentially a pricing cycling downwards, again, not expecting it, maybe, or necessary, but it's possible. And if the industry stalls out, obviously, then there's working capital headwinds. We saw how fast free cash flow deteriorates at a competitor.
Speaker Change: I would only add.
Speaker Change: To John's comments that we're really excited about the pro services.
Speaker Change: And we don't have anything to announce but we're always going to want to have some optionality not just for running the business, but for strategic Optionality to build our services business I mean Wednesday car company had a chance to get the profitability of our pro business to 20 or 30.
Joseph Spack: You mentioned higher inflation, there's still some investment needs to be made so and I know you want to keep cash
Joseph Spack: on hand for optionality. So when I hear you talk about 40 to 50 percent it sounds to me like that's a retrospective view but I'm actually wondering how much of a prospective view are you considering in that and like why is 40 to 50 percent even the right number?
Speaker Change: Percent of its revenue being services.
Speaker Change: That is such a special moment for our company.
Speaker Change: Yeah, and we, of course, we look at both.
Speaker Change: And frankly for the industry, but that just doesn't come from.
Speaker Change: perspective and as well.
Speaker Change: You know, what we're going to pay out for the year. So we set the strategy around that payout ratio, 40 to 50 percent. And we thought we think that's a good point to be at right now.
Speaker Change: Organic growth all the time, sometimes it takes investments in new kinds of services are not going to go into that but I just want you to understand that we.
Speaker Change: We're also thinking very carefully.
Speaker Change: And we do look prospectively as to where we see the environment changing, what's in front of us, where the outlook could potentially be, the risks, the potential headwinds, potential tailwinds, etc.
Speaker Change: We have all of our strategy choices like going asset light in China like restructuring our businesses.
Speaker Change: Like the way we handled the Arabian investment, we're thinking very carefully about our pro business and how to nurture those services beyond what we have today.
Speaker Change: So we do do that. It's just that at this point in time, we don't have anything to announce.
Speaker Change: but we're always evaluating and we're always looking at it. We have the conversation every quarter as you would expect and once we feel that it's the right time then we will make a prospective change, a change based on a prospective outlook.
Speaker Change: Maybe just as a second question I want to go back to Mark's question on.
Speaker Change: European compliance I know last in the last 10-Q, you called out $3 8 billion for regulatory compliance and I read. It. This morning et cetera for North America, and Europe for current and future model years, but in Europe. It.
Speaker Change: I would only add
Speaker Change: to John's comment that we're really excited about the pro services.
Speaker Change: and we don't have anything to announce, but we're always going to want to have some optionality, not just for running the business, but for strategic optionality to build our services business. I mean, when's a car company had a chance to get the profitability of a pro-business
Speaker Change: It's really more of a right.
Speaker Change: There is no credit system my understanding right to bilateral negotiation maybe for pulling agreement. So is that what's being considered in that number and between a potential pooling agreement and your new Bev portfolio with explorer Capri et cetera, do you expect to be compliant next year.
Speaker Change: to 20 or 30 percent of its revenue being services.
Speaker Change: that that is such a special moment for our company and, frankly, for the industry. But that just doesn't come from, you know, organic growth all the time. Sometimes it takes investments in new kinds of services.
Yes, yes.
Speaker Change: And the other thing to think about in Europe or in North Americas, We tend to talk about Seo to compliance is like one thing is actually heavy duty or light duty as well as passenger car and they are very different and in Europe, that's really important to consider.
Speaker Change: is here today.
Speaker Change: So not only are we committed obviously to be compliant, but we also have to think about our heavy duty compliance in both markets and that's why we that's one of the reasons why we're so excited about we have a whole new line of electric and combustion.
Speaker Change: like the way we handle the Red Bean investment. We're thinking very carefully about our pro business and how to nurture those services beyond what we have today.
Speaker Change: Combustion small bands, we just launched our main van the one ton transit that's available in diesel gas and fully electric.
Speaker Change: Maybe just as a second question, I want to go back to Mark's question on.
Speaker Change: European compliance.
Speaker Change: So we we obviously, giving ourselves the best chance from an office standpoint, as well, but when it comes to Seo Seo to compliance I hope, we start to Doubleclick and not only look at Zev states in the U S. But also look at heavy duty complaint.
Speaker Change: He called out $3.8 billion for regulatory compliance and I re-read it this morning, it said for North America and Europe.
Speaker Change: for current and future model years.
Speaker Change: In Europe, it's really more of a, right, like, there's no credit system as my understanding, right? It's a bilateral negotiation, maybe for a pooling agreement, so...
It's really it's quite different actually.
Speaker Change: Is that what's being considered in that number and between a potential pooling agreement and your new Bev portfolio with the Explorer, the Capri, etc. Do you expect to be compliant next year?
Speaker Change: Our next question comes from Emmanuel.
Speaker Change: Rosner from Wolfe Research. Please limit your line and ask your question.
Emmanuel Rosner: Thank you so much my first question is on the cost reduction program.
Speaker Change: Yes, yes.
Speaker Change: <unk>.
Speaker Change: This year's outlook still includes $2 billion in cost reductions from material freight and manufacturing you said you're on track for those.
Emmanuel Rosner: How much is it year to date, how much do we still need to.
Speaker Change: And in Europe, that's really important to consider. So not only are we committed, obviously, to be compliant, but we also have to think about our heavy-duty compliance in both markets. And that's one of the reasons why we're so excited about, we have a whole new line of electric and combustion small vans.
Emmanuel Rosner: Cheese in the fourth quarter and then if we look forward I know, there's a lot of uncertainty into next year and used to discuss them in detail both in terms of volume and pricing and mix et cetera. In terms of things you can control what is sort of like the size of the cost opportunity and as we move into 2025.
Speaker Change: Yes, so on the.
Speaker Change: Efficiencies that we've brought through this year, so far most of it.
Speaker Change: We just launched our main band, the One Ton Transit, that's available in diesel, gas, and fully electric.
Speaker Change: Through the first three quarters.
Speaker Change: So we do have some savings to come through in Q4, but most of it was through the first three quarters. So that you would expect that right Emmanuel because there was a large part of that was on the design changes that we made with the launch of the model year.
Speaker Change: So, we're obviously giving ourselves the best chance from an offer standpoint as well. But when it comes to CO2 compliance, I hope we start to double-click and not only look at ZEV states in the U.S., but also look at heavy-duty compliance.
Speaker Change: So most of that come through.
Speaker Change: because it's really, it's quite different actually.
Speaker Change: And a go forward basis.
Speaker Change: So.
As you know as well as anybody and you had identified this morning in your note we.
Speaker Change: Our next question comes from Emmanuel Rosner from Wolf Research. Please unmute your line and ask your question.
Speaker Change: We have a tremendous opportunity given our cost competitiveness relative to competition.
Emmanuel Rosner: Thank you so much. My first question is on the cost reduction program.
Speaker Change: Question is the rate and flow in how we've done that curve and pull that cost out. It is our number one off our opportunity to unlock the potential of our <unk> plus strategy, we understand that.
Speaker Change: And we're not going to give any numbers on 25 at this standpoint right now right. We're in our planning cycle. There is a lot of water to as I said earlier to flow under the bridge before the end of the year.
Speaker Change: We give that guidance that we'll give you an update in Q4 earnings for 25, and what we're going after and call on cost from that perspective.
Speaker Change: But there is a term.
Speaker Change: This as well as all of you know this that our costs are positioned from a cost competitive standpoint, we have a lot of opportunity there and we understand that and we're aggressively going after it.
Speaker Change: For the industrial team, what we're really focused on as we finish up this year next year is another cycle of our material cost reduction we had a really we've made a lot of progress here.
Speaker Change: We also added a lot of new product cost as well that all is opportunity for us on material costs. So this will be kind of a second rotation of that as we enter next year and of course, a double click or special attention.
Speaker Change: Our EV Gen one costs.
Speaker Change: On warranty, we're really looking at our software warranty costs and the cost of repairing modules as well as powertrain, that's really where the team is focused on warranty.
Speaker Change: Obviously, we made good progress on manufacturing, but we have a lot more work to do in North America and that includes freight and duty and then we're looking very carefully at our should cost and supply chain with our suppliers working carefully with them to make sure that we have competitive negotiations.
Speaker Change: And any inflation related requests that were dispositions those two to be fair to both the supplier and Ford and we have dedicated teams on all of those areas. We benchmark our competitors from a process and talent standpoint, and Thats where were spending our time as a team.
Speaker Change: Our next question comes from Dan Levy from Barclays.
Speaker Change: Your line is open Danville phase one yet.
Hi, sorry about that thank you.
One wanted to follow up on the prior line of questions and just ask something a little different on costs.
Dan Levy: You mentioned or you discussed at your capital markets Day, I think it was.
Speaker Change: Awesome.
Speaker Change: <unk> 18 months ago, now that you have the $7 billion cost gap against.
Speaker Change: Hence your competitors, mostly on the material cost you mentioned that youre getting the $2 billion of cost this year, but you had other cost come into the system.
Speaker Change: Where do you think you stand now on on narrowing that cost gap are you just as confident today that you can narrow that gap.
GAAP.
Speaker Change: When you originally presented that target.
Speaker Change: Yes, so Dan I.
Speaker Change: I think we're in a different position today versus where we were 18 months ago about really understanding.
Speaker Change: The root cause issue of that and what it's going to take to make the changes to <unk>.
Speaker Change: That cost out of the system.
Speaker Change: <unk>.
Speaker Change: And that's been a very fundamental change for us as a leadership team.
Honestly.
Speaker Change: Our cost gap versus competition versus then has not closed that's not to say that we haven't taken cost out we have we've taken cost out, but we're not doing at a pace faster than our competition.
Speaker Change: So we go through every quarter and we update the analysis with pull apart the financial statements when we get the queues.
Speaker Change: The end of the year with the K, we'll look at the progress we've made versus the progress that our competitors have made and it largely sits we've made more progress on material costs, but we've gone backwards on warranty cost.
Speaker Change: We've made some progress on our structural costs NSP SG&A relative to competition, but.
Other areas have offset that we've had more inflationary costs because of our joint venture in Turkey, with what they've seen with.
Speaker Change: In that business so.
Speaker Change: Still a very strong business is still the lowest cost business. We've just seen this increase this year that we.
Speaker Change: We're planning for.
Speaker Change: So we need to move faster bottom line.
Speaker Change: And warranty needs to be a big part of that we need to continue to make the progress on material costs, our manufacturing costs overall structural costs as well as driving dominant warranty costs. So.
Speaker Change: <unk> is a humbling position to me is that you know.
Speaker Change: As you said 18 months later, we haven't closed the gap despite make taking cost out our competitors are doing same thing, they're taking cost out we need to accelerate our pace to out run what our competitors are doing.
Speaker Change: Yeah.
Speaker Change: Thank you that's helpful color.
Speaker Change: Maybe as a follow up wanted to ask about a comment.
Jim that you mentioned earlier that on the.
Speaker Change: Skunkworks EV.
Speaker Change: You have confidence in the cost because you've already quoted 60% of the bombs and maybe you could give us a flavor of sort of what piece is you've seen clear achievements on and you're quoting or sourcing.
Speaker Change: That are driving these material cost outs versus anywhere the rest of the industry is and that's enabling you to achieve what you think is structurally lower cost.
Speaker Change: Annuities.
Yes.
Speaker Change: So.
Speaker Change: Obviously, having a competitive L. A P battery is really really important competitiveness keyword.
Speaker Change: The team took a totally different approach to developing the vehicle.
Speaker Change: And I don't want to get into too much detail, but.
Speaker Change: I'm really proud that.
Speaker Change: We basically verified the design of each part.
Speaker Change: Like a year or two earlier than we normally do.
Speaker Change: And we verified it from the supplier standpoint, and ours by looking at a variety of different suppliers, even challenger suppliers and that has been an eye opening experience for us to see what really should cost is on a lot of these advanced components, especially.
Speaker Change: Because we think companies like BYD have an incredible advantage on affordability of batteries. So we have to make that up or our opportunity is on the EV component site Inverters gearboxes motors et cetera.
Speaker Change: And I think it's a combination of very new approaches to the mid <unk>. The actual design of the component as well as leveraging new suppliers as well as working way upfront on the part design itself to get the cost out using the technology roadmap of the supplier.
Speaker Change: And that's where we're seeing a lot of the progress basically.
Speaker Change: Basically the answer to your question is we radically simplified the vehicle.
If you look at the number of parts in the vehicle. It is just a completely order of magnitude change and.
Speaker Change: When you simplify.
Speaker Change: The components to that level.
Speaker Change: And you really move the design and supplier.
Speaker Change: Design phases earlier.
Speaker Change: You can integrate a simpler design with a better should cost.
Speaker Change: That's the high hard one on the Skunk works team look we've done a lot of manufacturing we have a whole new kitting strategy for the vehicle, we have a unit casting strategy that massively simplifies the stamping of the vehicle I think you know a lot of other companies will do that.
Speaker Change: But what I'm really seeing is an ethos is simplicity.
Speaker Change: And a higher engagement with a broader supply chain earlier in the process than the typical four development cycle.
Speaker Change: Yes.
Speaker Change: This concludes the Ford Motor Company third quarter 2024 earnings Conference call. Thank you for your participation you may now disconnect.