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Ford's Shanks on EPS and Launch of New Super Duty Truck (Audio) · Bloomberg Intelligence

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  Speaker 1: a Bloomberg business flash. You're listening to taking stock with
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  Speaker 1: pin Box and Kathleen Hayes on Bloomberg Radio. Shares a
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  Speaker 1: Ford Motor Ford Motor Company down about nine and a
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  Speaker 1: half percent right now after reporting profit that declined nine
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  Speaker 1: percent in the second quarter, also perhaps tempering its full
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  Speaker 1: year outlook. And find out more from Bob Shanks. He's
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  Speaker 1: the chief financial officer of a Ford Motor Company and
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  Speaker 1: he joins us now from Dearborn, Michigan. Bob Shanks, thanks
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  Speaker 1: very much for being with us well as always, it's
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  Speaker 1: a pleasure to be with you, all right, So go
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  Speaker 1: through the results for us and tell us some of
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  Speaker 1: the issues that Ford is grappling with. Yeah, we actually
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  Speaker 1: had a strong quarter. We generated a profit of three
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  Speaker 1: billion dollars, as you mentioned, that was down nine percent um.
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  Speaker 1: We generated a record cash flow four point two billion
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  Speaker 1: dollars and a really healthy margin of seven point seven percent,
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  Speaker 1: and our top line grew about two point two billion
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  Speaker 1: dollars to nearly forty billion dollars. So it was a
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  Speaker 1: strong quarter for us. As you pointed out, it wasn't
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  Speaker 1: quite what the market expected, but when you take it
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  Speaker 1: with the record first quarter that we had for the
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  Speaker 1: first half, we had the best results we've ever had
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  Speaker 1: for North America and for the company. Itself. So you know,
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  Speaker 1: it's a very very strong start to the year. But
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  Speaker 1: to your point, we did highlights and issues, well you know, Bob,
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  Speaker 1: and that's the issues. That's why your stock fell so much.
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  Speaker 1: And congratulations on the great year we've been, you know,
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  Speaker 1: having this quarter the conversation for a while now and
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  Speaker 1: clearly you're in a great spot. But as you said today,
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  Speaker 1: we're committed to meeting our guidance. But it is at risk.
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  Speaker 1: Keith Notton in his terrific story. You talked to Keith
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  Speaker 1: a lot and one of our you know, our Southall
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  Speaker 1: Michigan or Detroit reporters who specializes in auto's h quote
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  Speaker 1: someone saying the U S auto markets probably leveling out.
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  Speaker 1: The risk is when does all that come crashing down?
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  Speaker 1: How are you going to deal with this? How can
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  Speaker 1: you cut costs in the second half to achieve your
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  Speaker 1: goal of matching or beating last year's pre tax profit
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  Speaker 1: of tempoint billion. Well we laid that out in the
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  Speaker 1: call today that we had with with cell Side and
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  Speaker 1: with investors, and we actually delivered about a billion six
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  Speaker 1: of cost performance versus what we had planned in the
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  Speaker 1: first half. And as we look at the second half,
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  Speaker 1: you know we were going to have to come up with,
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  Speaker 1: you know, an incremental cost reductions versus what we had planned,
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  Speaker 1: but we're also looking at revenue opportunities. So as we
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  Speaker 1: laid out, we're committed to the guidance. We are going
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  Speaker 1: to have to work hard to get there, but we've
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  Speaker 1: got actions in place and plans to do that. But
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  Speaker 1: we thought it was appropriate and we're always pretty transparent
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  Speaker 1: to share with investors of the issues that we see
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  Speaker 1: that we're we're we're addressing and grappling with, not only
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  Speaker 1: in the US, but in another couple of markets around
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  Speaker 1: the world. Bob, I want to talk trucks for just
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  Speaker 1: a second, and the comparisons with last year's launch of
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  Speaker 1: the new F one fifty, so that makes the comps
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  Speaker 1: much more challenging. Focus on that and then take us
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  Speaker 1: to the new heavy duty truck that you're working on. Yeah,
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  Speaker 1: that's a good question. Well, one of the issues we
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  Speaker 1: highlighted is that the overall industry is seen over a
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  Speaker 1: period of time and very gradually but sort of inexorably.
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  Speaker 1: We've seen increases in incentives of ourselves come along with
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  Speaker 1: the industry um but again very gradual. When you look
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  Speaker 1: at what happened in the quarter. We did have negative
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  Speaker 1: net pricing that was driven by higher incentives. A portion
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  Speaker 1: of that is exactly what you're talking about, which is
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  Speaker 1: the fact that a year ago we were just coming
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  Speaker 1: out of the launch of the second facility for the
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  Speaker 1: F one fift, so we had extremely low levels of incentives.
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  Speaker 1: This year, F one f is doing fantastically. We're growing share.
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  Speaker 1: The average transaction prices are higher, but in terms of incentives,
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  Speaker 1: incentives are called them normal. They're still very very good
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  Speaker 1: versus our domestic competition, but they're the normal, whereas last
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  Speaker 1: year they were pretty extraordinary because of where we were
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  Speaker 1: in the launch. When you look at the third quarter,
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  Speaker 1: we have a complete ground up new super Duty that
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  Speaker 1: we're going to belaunching in in Louisville, and that vehicle
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  Speaker 1: hasn't been given such a change in nineteen years, and
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  Speaker 1: we're gonna be putting them on a new frame. It's
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  Speaker 1: going to pick up a similar aluminum body as we
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  Speaker 1: have on the F one fifty. New technologies features, our
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  Speaker 1: drink upgrades and so forth. So it's a very very
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  Speaker 1: major launch. A lot of costs UH and investment associated
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  Speaker 1: with doing that. But when we come out of it.
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  Speaker 1: We're gonna have we already have the best vehicle in
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  Speaker 1: that segment. We're gonna have a vehicle that's going to
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  Speaker 1: be very strong for the next decade or more. Well,
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  Speaker 1: that's good, that's good. But how you're gonna cut capital
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  Speaker 1: spending then, because it seems to be part of that
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  Speaker 1: is going to be capital spending. You noted on the
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  Speaker 1: call today that's been reduced to seven billion this year
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  Speaker 1: from seven point seven billion. How did you remove seven
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  Speaker 1: hundred million? How can you remove even more if you've
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  Speaker 1: got to ramp up your your your pickup truck output
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  Speaker 1: and innovation. Well, that's included the super duties included in
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  Speaker 1: the seven billion forecast for the year. What we highlighted
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  Speaker 1: in the call today is what we've actually seen with
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  Speaker 1: the launches that have concluded over the last half year
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  Speaker 1: or even year and we're kind of wrapping up the
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  Speaker 1: books on that and closing out the purchase orders with vendors,
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  Speaker 1: is that we've been delivering programs more efficiently, both in
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  Speaker 1: terms of investment and expense than what we had expected.
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  Speaker 1: So we were able to book some good news to that.
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  Speaker 1: And then in addition, we've had a real focus on
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  Speaker 1: reducing our nonproduct investment, and we were quite successful on
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  Speaker 1: that and a half, and so those two things gave
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  Speaker 1: us the ability to take the call for the year
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  Speaker 1: down to seven billion dollars. Bob Shanks Ford Credit, that's
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  Speaker 1: the financing arm. What happened and does it tell you
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  Speaker 1: anything about the future? Well, what happened, and it's something
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  Speaker 1: that that we think is is probably more broadly an
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  Speaker 1: industry phenomenon. But what happened is and we talked about
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  Speaker 1: this actually in the first quarter, is that there's been
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  Speaker 1: more leasing and increasing leasing over the last several years
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  Speaker 1: in the United States. There are more of those vehicles
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  Speaker 1: now coming awf lease and coming back into the auctions.
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  Speaker 1: And what we've seen is that that with that increase
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  Speaker 1: in volume and also with lower gas prices, that the
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  Speaker 1: residual values on smaller vehicles are lower than what we
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  Speaker 1: had expected. So what we've had to do on the
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  Speaker 1: books a Ford credits, we've had to accelerate or increase,
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  Speaker 1: if you will, the depreciation of units that are still
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  Speaker 1: on the books being lease but haven't come back yet.
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  Speaker 1: But we had to take the lease in value for
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  Speaker 1: those vehicles down increase of depreciation to get that lower endpoint,
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  Speaker 1: and that came through in higher residual losses. Bob Shanks,
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  Speaker 1: thank you so very much for joining us. He's the
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  Speaker 1: CFO of Ford Motor Company, reporting their earnings today. This
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