Ford Motor Q3 Earnings Call Transcript

123jump.com Staff
02 Dec, 2008
New York City

Ford third quarter net loss of $129 million or 6 centa share compared to a loss of $380 million or 19 cents in the prior year on one-time gain of $2.2 billion. Revenue in the quarter fell 22% to $32.2 billion. Ford North America reported a net loss of $2.2 billion, $1.6 billion increase.

Ford Motor Company ((F))
Q3 2008 Earnings Call Transcript
November 7, 2008 9:00 a.m. ET

Executives

Lillian Etzkorn - Director, Investor Relations
Alan Mulally - President and Chief Executive Officer
Lewis Booth - Chief Financial Officer
K. R. Kent - Ford Motor Credit Vice Chairman and Chief Financial Officer
Neil Schloss - Vice President and Treasurer
Peter Daniel – Senior Vice President and Controller

Analysts

John Murphy - Merrill Lynch
Christopher Ceraso - Credit Suisse
Himanshu Patel - JP Morgan
Rod Lache - Deutsche Bank Securities
Brian Johnson - Barclays Capital
Itay Michaeli - Citigroup
Douglas Carson - Banc of America
Patrick Archambault - Goldman Sachs
Bryce Hoffman – The Detroit News
Jeff Bennett - Dow Jones Newswires
Bill Koenig – Bloomberg News
Amy Wilson - Automotive News
Sarah Webster – The Detroit Free Press
Paul Eisenstein – The Detroit Bureau
David Bailey – Reuters
Joann Muller – Forbes Magazine

Presentation

Operator

Good day ladies and gentlemen and welcome to the Ford Motor Company third quarter earnings conference call. My name is Katina and I will be your coordinator for today. (Operator Instructions) At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. You may press “*1” on your touchtone telephone any time to participate. If at any time during this call you require assistance please key * followed by 0 and a coordinator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today’s call, Miss Lillian Etzkorn, Director of Investor Relations. Please proceed.

Lillian Etzkorn – Director of Investor Relations

Thank you, Katina and good morning ladies and gentlemen. Welcome to all of you who are joining us either by phone or webcast. On behalf of the entire Ford management team, I would like to thank you for spending time with us this morning.

With me this morning are Alan Mulally, President and CEO, and Lewis Booth, Chief Financial Officer. Also in the room are Peter Daniel, Senior Vice President and Controller, Neil Schloss, Vice President and Treasurer, Mark Hoffman, Director of Accounting; and K. R. Kent, Ford Credit, CFO.

Before we begin, I would like to review a couple of quick items. Copies of this morning’s earnings release and the slides that we will be using today have been posted on Ford’s Investor and Media web site for your reference. The financial results discussed herein are presented on a preliminary basis. Final data will be included in our Form 10-Q for the third quarter. Additionally the financial results presented here are on a GAAP basis, and in some cases on a non-GAAP basis. The non-GAAP financial measures discussed in this call are reconciled to their GAAP equivalent as part of the appendix to the slide deck. Finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance. Actual results could differ materially from those suggested by our comments here. Additional information about the factors that could affect future results, are summarized at the end of this presentation. These risk factors are also detailed in our SEC filings, including our annual, quarterly, and current reports to the SEC.

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

Alan Mulally – President and Chief Executive Officer

Thank you, Lily and Good morning. As you all know, the global auto industry is facing unprecedented challenges. The turbulence in the worldwide economy continues to undermine consumer confidence and impact our business, as do the tight credit markets. In the U.S., October marked the lowest industry sales rate in 25 years. Vehicle demand is down substantially in Europe and in Asia as well. While Ford has been dramatically affected by the difficult business environment, we remain absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period and emerge as a lean, globally-integrated company poised for long-term, profitable growth.

In these challenging times our plan is more important than ever, aggressively restructure the business, accelerate the development of vehicles people want and need, finance our plan and improve our balance sheet; and work together as one team, leveraging our global assets. While the third quarter was extremely difficult, we continue to show progress against our plan. Among the highlights for Ford in the third quarter was the launch of the new Ford F-150 in North America and the Ford Fiesta in Europe, which will be the first of Ford’s new global small cars. I will start off today by providing you with an overview of last quarter’s results and our recent accomplishments. Lewis Booth, our new Chief Financial Officer, will take us through the details and provide an outlook for the rest of 2008. I will then detail the significant actions we are announcing today to reduce our cost structure, preserve cash, and manage our business with absolute discipline.

While these actions are difficult, they are absolutely necessary to ensure we have the liquidity necessary to execute our plan to transform Ford into a profitably growing enterprise for all of our stakeholders. Turning to slide 3, I will review the key financial results for the third quarter. As shown at the top of the slide, vehicle wholesales last quarter were about 1.2 million units, down 313,000 from the same period in 2007. Ford’s third quarter revenue was $32.1 billion, down $9.0 billion from a year ago. The decline reflects lower volume, the sale of Jaguar Land Rover, unfavorable product mix, and lower net pricing, partly offset by favorable changes in the currency exchange rates. Ford’s third quarter pre-tax operating loss from continued operations, excluding special items, was $2.7 billion, over $2.9 billion worse than a year ago. This reduction included $2.5 billion in automotive and about $400.0 million at financial services.

Our third quarter net loss was $129.0 million, including over $2.2 billion of favorable pre-tax special items, more than explained by the retiree health care curtailment gain related to the VEBA agreement with the UAW. This will be discussed in more detail by Lewis. We ended the quarter with $18.9 billion of cash and we will discuss this further in detail.

Turning to slide 4, North American incurred an operating loss of $2.6 billion during the third quarter. This loss was about $1.6 billion worse than 2007, more than explained by lower volume and unfavorable production mix. We saw continued strong performance from Ford South America, with an operating profit of $480.0 million, up from $386.0 million a year ago. Ford Europe profitability is down versus a year ago, reflecting declining economic conditions. Volvo incurred a $458.0 million operating loss, compared with a loss of $167.0 million a year ago. This decline was more than explained by unfavorable volume and mix and exchange. Ford Asia-Pacific, Africa, and Mazda were each about even. Financial Services had $159.0 million operating profit.

Overall, we reduced our cost by $300.0 million despite commodity cost increases of more than $1.0 billion. North America remains on track to achieve or exceed our $5.0 billion cost reduction goal by the end of 2008 compared with 2005. As you can see on slide 5, we launched two new vehicles during the last quarter. The new 2009 Ford F-150 full-size pickup was launched in North America, the number-one-selling truck in America for 31 years running with best-in-class capability and unsurpassed fuel economy. In Europe we launched the new Ford Fiesta, the first of Ford’s new global small cars. Production began in Cologne, Germany, and the car is now going on sale in Europe. Fiesta also is beginning to now go on sale in Asia and will be introduced in North America in early 2010.

We debuted at the Paris Air Show the all-new Ford Ka, a stylish sub-compact car that goes on sale in Europe late this year and is featured in the new James Bond movie, Quantum of Solace, and launched the Ford Focus in China and Ford Escape in key Asia-Pacific and Africa markets.

Slide 6 details some of our key business accomplishments this quarter. We improved the vehicle quality again, marked four consecutive years of progress, Ford Lincoln Mercury vehicles collectively reduced things gone wrong by 7.7% compared to last year, pulling into a statistical tie with Honda and Toyota, and topped the list of Seven Major Auto makers in the U.S. Global Quality Research Systems Study. We achieved a leading number of top safety picks from the U.S. Insurance Institute of Highway Safety with the 2009 Ford Flex and the Lincoln MKS earning top honors. This builds on Ford’s achievement of the most U.S. government five-star safety ratings in the automobile industry. We reduced North America’s salary personnel cost by about 15% and reduced hourly personnel by about 3,000 since the end of the second quarter.

On October 8, Volvo announced restructuring plans to reduce salaried personnel by an additional 3,300 and agency personnel by an additional 700, bringing the total planned Volvo personnel actions to about 6,000 world-wide since June, equal to about 25% reduction. Ford Credit continues to execute its funding plan and increased its liquidity available for use to about $25.0 billion despite a very challenging credit market. Ford Credit continues to support Ford’s core business.

At this point I would like to turn it over to Lewis to go through the third quarter results in even more detail, Lewis?

Lewis Booth – Chief Financial Officer

Thanks Alan. Let’s move on to slide 8, which provides more information on our third quarter results. Start to your lower left, our net loss for the third quarter was $129.0 million. Our net loss included minority interests in profitable affiliates. This net loss also included $462.0 million of tax benefits, more than explained by an adjustment for accounting standard FAS 109 which relates to our deferred-tax asset evaluation allowance which may at least be partly reversed in the fourth quarter. Adjusting for these items leaves a third quarter pre-tax loss of $540.0 million. These results include favorable pre-tax special items of over $2.2 billion and we will cover these on the next two slides.

Excluding these special items, we recorded a third quarter pre-tax operating loss of over $2.7 billion. Most of the following slides will focus on these pre-tax operating results. Now on to slide 9, which covers special items in the third quarter, we recorded a charge of $197.0 million, largely related to hourly and salaried personnel reduction programs in the U.S. Largely offsetting these changes was a $320.0 million gain due to reduction in the number of personnel in our job security benefits reserve, primarily due to changes in the ACH plan. We also incurred $94.0 million of charges primarily related to personnel reduction programs in Europe, Australia, and Volvo. Finally, the $2.3 billion improvement near the bottom of the slide primarily represents the curtailment gain related to the VEBA agreement with the UAW. We will provide more information on the VEBA agreement on the next slide.

On slide 10, during the third quarter, related to our UAW retiree health care settlement agreement, we received court approval and successfully concluded our pre-clearance review of the accounting treatment with the SEC. As a result, we recognized a curtailment gain in excess of $2.0 billion. This was included as a special item on the prior slide. This, and other efficiencies, resulted in ongoing health care cost savings of about $2.0 billion, about the same as our earlier estimate. About half of these savings will be recognized this year, with all of the savings being recognized in 2009. The annual ongoing net cash flow benefit is about $1.0 billion, unchanged from our earlier estimate. The net cash savings include health care savings of $1.6 billion, offset by interest on the debt that will be used to settle the health care obligation. Between the third quarter effective date and year-end 2009 implementation date, all income and expense related to UAW retiree health care will be defined as a special item. This reflects Ford’s obligations to pay into the new VEBA are capped, as provided in the settlement agreement and that all related amounts will be eliminated on an ongoing basis after 2009.

Moving to slide 11, I would like to talk about the status of our ACH divestiture actions. ACH was formed in October 2005 with 17 plants, two of which were subsequently transferred to Ford. It had two missions: to ensure continuity of supply and the support of new product programs while improving quality and cost, and to sell or close its facilities by year end 2008. The status of divestitures at the end of this year will include five plants sold, two plants closed, and two additional plants to close by year-end. Looking forward, a fifth plant is scheduled to close in 2009 and a sixth scheduled in 2010. While we remain engaged in discussions with prospective buyers for three of the four remaining plants, we currently expect that we will continue to operate at least a portion of these plants. We have made good progress to date, while limiting the need to invest substantial incremental resources in these businesses. We are intent on transitioning these businesses to the supply base as soon as practical in an orderly and economical manner.

Turning now to slide 12, this shows our pre-tax operating results by sector. The third quarter pre-tax operating results were a loss of over $2.7 billion. These results included a loss of $2.9 billion for the automotive sector and a profit of $159.0 million for Financial Services. Let’s move to slide 13, which shows pre-tax operating results for each of our automotive operating segments and other automotive. We will focus here on other automotive and then cover the operations in detail on the next slides. In the third quarter other automotive was a loss of $411.0 million. The net interest expense was higher than our previous expectation, primarily due to lower returns on our cash portfolio. Given the continued turbulence in the financial markets and the impact that this has had on our portfolio returns, we are not going to provide guidance on net interest expense at this time.

Slide 14 shows the change in third quarter results compared with a year ago, a deterioration of $2.5 billion. Compared to 2007, volume and mix was $2.1 billion unfavorable, primarily due to lower volume and unfavorable mix in North America and Volvo, partly offset by improvements in Europe and South America. Net pricing was $200.0 million unfavorable, more than explained by declines in North America, partly offset by improvements in South America and Europe.

Costs were $300.0 million favorable and we will cover this on the next slide and exchange was about flat. Net interest and related fair market value adjustments, were $400.0 million unfavorable, primarily due to lower cash balances, lower interest income rates, and portfolio losses and finally, the non occurrence of Jaguar Land Rover profits in 2007 also adversely affected the year-over-year comparison by about $100.0 million.

Now to slide 15, which explains our year-over-year cost reductions, which were about $3.0 billion in the first nine months, including $300.0 million in the third quarter, net product costs were $300.0 million higher for the first nine months, more than explained by commodity cost increases and higher product content, partly offset by material cost reductions. In the third quarter net product costs were up $900.0 million, more than explained by higher commodity costs and unfavorable mark-to-market adjustments on commodity hedges, which reversed gains recorded earlier in the year. Warranty expense was about $200.0 million lower, mainly due to favorable first quarter adjustments to Ford of Europe warranty reserves reflecting improved quality. Manufacturing and engineering costs were about $700.0 million lower, more than explained by the continued benefit of our restructuring actions in North America.

Spending-related costs improved by $900.0 million, primarily reflecting a non-recurrence of accelerated depreciation and amortization for facilities that we recently closed and lower depreciation expense related to the North American asset impairment at the end of the second quarter. Pension and retiree health care expenses were $700.0 million lower, primarily reflecting health care efficiencies, and overhead costs were about $600.0 million lower than a year ago, primarily due to our restructuring actions and advertising and sales promotions were about $200.0 million lower than a year ago.

On the next section of slides we will cover each of the automotive operations starting with North America on slide 16. Third quarter wholesales were 462,000 units, down 187,000 units compared to the same period in 2007, primarily reflecting the decline the U.S. industry saw of 16.2 million units in the third quarter of 2007 to 13.1 million units, and a decline in U.S. market share from 13.4% to 12.4%. In addition, during the last quarter we reduced U.S. dealer stocks by over 80,000 units, compared to the reduction of less than 20,000 during the same period a year ago. Third quarter revenue was $10.8 billion, down $5.9 billion from a year ago, consistent with lower volumes, unfavorable model mix, and lower net pricing. For the third quarter Ford North America reported a pre-tax loss of about $2.6 billion, down about $1.6 billion from a year ago.

Slide 17 provides an explanation of the change in North American results compared with a year ago. Volume and mix was about $1.9 billion unfavorable, primarily reflecting the decline in U.S. industry volumes, unfavorable product mix, lower dealer stocks, and lower market share. Net pricing was unfavorable by $400.0 million, more than explained by higher retail incentives in the U.S. and Canada. Volume and mix and net pricing both were adversely affected by very low production of full-size pickup trucks during the third quarter of 2008, as we sold down dealer stocks of the 2008 models prior to the launch of the new 2009 model.

Cost changes were over $500.0 million favorable, primarily reflecting $1.2 billion of lower structural costs, including lower pension in OPEB and spending-related manufacturing and engineering and overhead costs. The structural cost reductions were partly offset by higher commodity costs, including unfavorable mark-to-market adjustments on commodity hedges because of the recent declines in commodity prices, which reversed gains recorded earlier in the year, and exchange is about $200.0 million favorable.

Slide 18 provides an explanation of the deterioration in North America for the third quarter results compared with the second quarter. Volume and mix was $1.3 billion unfavorable, primarily reflecting declines in dealer stocks. The U.S. industry saw a reduction from $14.6 million units to $13.4 million units and U.S. market share from 14.4% to 12.4%. Net pricing was $100.0 million unfavorable, more than explained by higher retail incentives. Cost changes were $100.0 million favorable, primarily reflecting $600.0 million of lower structural costs due to lower manufacturing engineering, spending-related on pension and OPEB costs. The structural cost improvements were partly offset by unfavorable mark-to-market adjustments on commodity hedges and higher commodity costs. Exchange was $100.0 million favorable and other was $100.0 million unfavorable.

Slide 19 shows U.S. market share for Ford and Lincoln Mercury. For the third quarter our market share was 12.4%, including 9.3% for retail and 3.1% for fleet. Retail market share declined by over 1% from last year, primarily explained by segmentation shifts away from full-size pickups and traditional SUVs. Fleet share increased by two tenths of a point from last year, primarily reflecting a slower decline in fleet sales relative to the overall decline in the total industry.

Slide 20 provides a summary of actual unprojected cost reductions in North America. In the third quarter operating-related cost reductions totaled $500.0 million, compared with a year ago. Net product costs were about $700.0 million unfavorable, with material cost reductions more than offset by high commodity costs and added product features. Structural cost reductions totaled $1.2 billion in the third quarter, compared with a year ago. The favorable change includes about $250.0 million for reduced depreciation from the fixed asset impairment in the second quarter. Hourly and salaried personnel in North America totaled 80,000 at the end of the third quarter, down 5,000 people from the end of the second quarter and we remain on track to achieve or exceed our $5.0 billion cost reduction target.

Now on to South America on slide 21, third quarter wholesales were 125,000 units, up 9,000 units from a year ago. Third quarter revenue was $2.7 billion, up $600.0 million from a year ago, primarily reflecting a stronger Brazilian currency, higher volumes, and favorable net pricing. For the third quarter Ford South America reported a pre-tax profit of $480.0 million, up $94.0 million from a year ago. This increase primarily reflected higher net pricing, favorable volume and mix, and favorable changes in currency exchange rates, partly offset by higher net product costs.

Slide 22 covers Ford of Europe. In the third quarter wholesales were 410,000 units, 12,000 units lower than 2007. Third quarter market share was 8.6% in the 19 markets that we track, equal to the prior year. Third quarter revenue was $9.7 billion, up $1.4 billion from a year ago, primarily due to favorable currency translation, mix and net pricing, partly offset by lower volumes. For the third quarter Ford Europe reported a pre-tax profit of $69.0 million, down $224.0 million from a year ago. We will cover this change on the next slide.

Slide 23 provides an explanation of the change in results compared to a year ago. Volume and mix was about flat compared to the same period in 2007, with favorable product mix offset by lower volume. Net pricing was $100.0 million favorable compared to a year ago and in total cost increased by $100.0 million. This increase was more than explained by unfavorable mark-to-market adjustments for commodity hedges. Exchange was a $100.0 million unfavorable, mainly due to the weakening of the British pound compared to the Euro. Historically, third quarter results are generally weaker than the average quarter due to the scheduled plant shutdowns. But industry weakness is a concern going forward.

Slide 24 covers Volvo. Third quarter wholesales were 66,000 units, down 36,000 from a year ago. This reduction is explained by lower industry volumes and market share, primarily in the U.S. and Europe, and lower dealer stocks. Market share in the U.S. was 8.4%, down two tenth of a point from last year, and this decrease reflects, in part, a decision to decrease emphasis on small vehicles that have become less profitable with changes in currency exchange rates and the market segmentation shift away from SUVs. Market share in Europe was 1.2%, down a tenth of a point from a year ago. Third quarter revenue was $2.9 billion, down $900.0 million from a year ago, primarily reflecting lower volumes partly offset by favorable currency translations. For the third quarter Volvo reported a pre-tax loss of $458.0 million, down $291.0 million from a year ago. This result was worse than our expectations three months ago. We will cover this decline on the next slide.

Slide 25 provides an explanation of the change in results compared to the year ago. Volume and mix was $300.0 million unfavorable, primarily explained by lower industry volume market share and unfavorable product mix in the U.S. and Europe. These declines were worse than we had expected. Net pricing was about flat from a year ago and in total costs were reduced by about $100.0 million with higher commodity costs more than offset by reductions in a number of areas. Exchange was about $100.0 million unfavorable. On October 8, 2008, Volvo announced restructuring plans to reduce salaried personnel by an additional 3,300 employees and agency personnel by an additional 700 employees. Including in the restructurings announced on June 25, the total personnel actions now planned to be initiated account for about 6,000 people worldwide, of which 1,200 are agency employees. This will be a total reduction of around 25%.

Now on to slide 26 which covers Asia-Pacific, Africa, and Mazda, overall third quarter profits was $3.0 million and we will discuss Asia-Pacific and Africa more on the next slide. Ford lost $1.0 million from its investment in Mazda and associated operations in the third quarter, down $15.0 million from a year ago.

Slide 27 covers Asia-Pacific and Africa. In the third quarter wholesales were 111,000 units, a decrease of 18,000 units compared with 2007, primarily reflecting stronger competitive activity in China and India and continued industry weakness in key markets. Third quarter revenues were $1.7 billion, down $100.0 million from a year ago, reflecting lower volumes partially offset by favorable currency translations. For the third quarter Asia-Pacific and Africa reported a pre-tax profit of $4.0 million, down $26.0 million from a year ago. The decline in results is primarily explained by unfavorable volume and mix partly offset by favorable net pricing.

Slide 28 shows automotive cash and cash flow. We ended the third quarter with $18.9 billion in gross cash. Our operating-related cash flow was $7.7 billion negative in the third quarter, reflecting an automotive pre-tax loss of $2.9 billion. Capital spending during the quarter about $500.0 million higher than depreciation and amortization. Changes in working capital and other timing difference are $3.6 billion negative and this is primarily explained by lower trade parables as a result of lower production. Payment of $700.0 million to Ford Credit reflects our change to upfront payments of subvention. Excluding the upfront subvention payments our operating cash flow was $7.0 billion negative. I would like to note, however, this outflow was significantly impacted by a number of unique factors during the quarter, including the decision to reduce truck production to allow for an orderly sell down of dealer inventories to make way for new models. Overall, Ford’s global third quarter production levels were about 100,000 units below retail sales and nearly 500,000 units below the second quarter results. This had a substantial effect on profit and the decline in production resulted in about a $3.0 billion reduction in payables during the quarter. Separation programs resulted in an outflow of $200.0 million for the quarter and we contributed $100.0 million to our non-U.S. pension plans. Ford Credit did not pay Ford a dividend during the third quarter. Including all of these impacts, the total decline in gross cash during the third quarter was $7.7 billion.

Slide 29 summarizes our net liquidity. Total liquidity, including available credit lines, was $29.6 billion and automotive debt was $26.1 billion. Upon implementation of the independent VEBA, we will contribute debt securities with a face value of $6.3 billion to their trust. We have less than $3.0 billion of debt maturities in the next three years.

Now let’s turn to slide 30 and Financial Services. For the third quarter the Financial Services sector reported a pre-tax profit of $159.0 million, down $397.0 million from a year ago. Other financial services reported a loss of $2.0 in the third quarter, down $12.0 million from a year ago. We will cover Ford Credit in more detail on the next slide.

Slide 31 explains the change in Ford Credit’s pre-tax profits for the third quarter compared with a year ago. For the third quarter pre-tax profits were $161.0 million, down $400.0 million from a year ago. The decrease in earnings primarily reflected the non-recurrence of net gains related to market valuation adjustments to derivatives, a higher provision of credit losses, and lower volumes. These factors were partly offset by higher financing margins. The increase in credit losses primarily reflected higher severities and higher repossessions in the U.S. retail and lease portfolio. Residual losses were about the same in the third quarter of 2008 compared with last year, while auction values have declined significantly from last year, the profit implications in the third quarter were mitigated by the $2.1 billion lease impairment charge in the second quarter. We expect auction values to continue to be volatile. We expect Ford Credit to incur a pre-tax loss in the second half of 2008, which is expected to be smaller than its first half pre-tax loss of $262.0 million, excluding the impairment charge. As shown on the memo on the lower left of the slide, Ford Credit’s September 30, 2008, managed assets were $130.0 billion, about $18.0 billion lower than the year ago. This decline is more than explained by lower North American receivables, the impact of divestitures and alternative business arrangements, changes in currency exchange rates, and the second quarter 2008 impairment charge from North American operating lease.

Slide 32 covers the liquidity and funding outlook for Ford Credit. The left box shows Ford Credit’s committed liquidity programs in cash and the utilization of its liquidity sources at the end of the third quarter. Ford Credit’s liquidity exceeded utilization by about $25.0 billion. Ford Credit’s funding strategy includes maintaining liquidity to meet short-term funding while having a substantial cash balance and committed funding capacity. Ford Credit plans to diversify its global asset-backed funding capabilities and renew global asset-backed funding capacity. This includes maintaining a diversity of liquidity providers. As it has done in the past, Ford Credit will continue to explore and execute alternative business and funding arrangements in those locations where we lack diverse funding capability, while also ensuring that Ford has continued support in these markets if needed. The most recent example of such an arrangement is that financial support for Mazda will come from a third party. Global government sponsored programs have been announced to help mitigate the present credit crisis. Ford Credit expects to benefit from these programs both directly and indirectly in the U.S. and in Europe. At the end of the third quarter Ford Credit’s managed leverage was 9.6 to 1 and Ford Credit’s equity was $11.7 billion.

Now on to slide 33, which shows where we are on our planning assumptions and operational metrics for 2008, total industry during the first nine months was equal to a SAR of 14.4 million units in the U.S. and 17.2 million units in Europe. Based on the continued deterioration and economic conditions in the U.S. market we expect that the industry will be lower than the outlook that we communicated previously. We are now projecting total industry, including medium-heavy trucks, to be about 13.7 million units for the full year. We are also seeing increasing weakening across Europe and a result we are now projecting that European full-year industry volumes will be about 16.7 million units. On the operational metrics, the quality of our vehicles has risen consistently for four straight years. Ford Lincoln and Mercury vehicles collectively reduced things gone wrong by 7.7% compared to last year and as noted earlier, our quality has received important third-party endorsements.

Automotive costs have improved by $3.0 billion for the first nine months and we now expect full-year cost reduction to be about $4.0 billion globally, including the impact of last quarter’s impairment. The U.S. market share for the first nine months was 14%, down seven tenth of a point from the same period a year ago, and absolute operating cash flow during the first nine months was $12.3 negative. This was higher than planned and we continue to expect the full year net outflow to be worse than originally projected. Capital expenditure during the first nine months was $4.7 billion and we expect full-year expenditures to be on track with our full-year plan. Overall, as communicated previously, 2008 operating and overall results will be lower than 2007 levels.

Slide 34 covers our production plans for the fourth quarter. In North America the fourth quarter production schedule is 430,000 units, down 211,000 units from 2007 and 40,000 units lower than our prior guidance. Most of this decline is in SUVs and vans. For Ford Europe we expect fourth quarter production of 400,000 units, down about 90,000 from a year ago from our prior guidance. In Volvo we expect fourth quarter production of 77,000 units, down 40,000 from a year ago and down 33,000 from our prior guidance. As you can see from the above chart, overall, compared with last year, our production reductions in the fourth quarter will be greater than those of the third quarter as we respond to the record deterioration in the external environment. As a result, our year-over-year profit decline this quarter may exceed that of the fourth quarter with the resulting impacts on our cash flows.

And now I would like to turn it back over to Alan to summarize our plan going forward.

Alan Mulally – Chief Executive Officer

Thank you, Lewis. Going forward, let’s turn to slide 36. We believe the downturn in industry volume will be now broader, deeper, and longer than previously expected. Industry volumes next year are expected to decline compared with 2008 levels. Some recovery is expected in 2010. Ford’s overall market share should be about the same as 2008 with our new products. We expect the U.S. market to continue to trend toward smaller, more fuel-efficient vehicles going forward. Our suppliers and dealers are under increasing pressure, the financial markets remain volatile but are projected to stabilize and gradually improve over the next year. Commodity prices are expected to remain below recent peaks but likely also will continue to remain volatile. The U.S. dollar has strengthened against most currencies and given the overall uncertainty in the economic environment, we do not plan to provide additional guidance at this time.

Slide 37 summarizes the key aspects of our plan. These have not changed. We are more focused that ever on implementing our transformation plan to respond to the significant challenges presented by the continuing global economic downturn. We are pleased that we went to the capital markets at the right time to obtain liquidity to finance our plan and that we sold non-core brands to raise further capital and allow further focus of our resources. I am especially pleased with how the team is working together to create One Ford and leverage our global resources.

Despite the present turbulence in the worldwide economies, I continue to believe that Ford is well positioned to take advantage of our scale and global product strengths. With a balanced portfolio of small, medium, and large cars, utilities, and trucks, and a sharp focus on the Ford Blue Oval brand across the globe, we can effectively operate through the current downturn. Going forward, this balance portfolio will allow the flexibility to adapt more easily the changes in our environment and begin to grow profitably as the global economy rebounds.

As shown on slide 38, despite the recent changes in the global market place, our plan to invest in new smaller, fuel-efficient vehicles in a more balanced global-product portfolio remains in place. In combination with the business improvements achieved recently we expect the ‘One Ford’ product development vision and process to enable us to deliver a range of highly acclaimed smaller vehicles in what we call the global segments, that is B, C, CD, and commercial van segments beginning in the middle of next year. By 2010 about 40% of our entries in North America in these segments will be shared with Ford of Europe. Platforms and top hats, with 100% of the lineup in these segments shared with Ford of Europe by 2013. This compares with nothing in common today. And every new product we introduce, not only those in the global segments but also those that will be regional offers only, will provide fuel economy that will be best, or among the best, against pressing competition.

Our new products will be assembled in plants featuring lean manufacturing techniques and in nearly all facilities flexible body shops will make them competitive with the best in the business and many of our power trains will be built in plants that can flex, among the I4, V6, V8, or diesel engines. Importantly, we expect to have our vehicle assembly capacity matched to demand. As we make these changes we intend to continue fixing the fundamentals of the business, including a significant reduction in structural costs next year. We also will continue ongoing consolidation of our dealer network.

As shown here on slide 39, to support new product investments and offset continued industry weakness, Ford has implemented a series of actions that are expected to improve automotive cash by a total of $14.0 billion to $17.0 billion through 2010. The actions include, reducing annual capital spending to between $5.0 billion and $5.5 billion, enabled to a large part by the efficiency in Ford’s global product development system, nearly all planned product programs remain on track and on time aside from a few select vehicles that will be deferred until industry volumes recover. In addition, we are reducing spending for large vehicles in declining segments, reducing North America’s salaried-personnel-related costs by an additional 10% by the end of January 2009, primarily through personnel reductions and attrition and additional actions impacting compensation are also being implemented. The reductions are in addition to personnel-related cost actions already taken in Ford North America and underway in Ford Europe, Ford Asia Pacific, and Africa and Volvo, further reduction of U.S. hourly employees by approximately 2,600 as a result of the most recent round of targeted buy outs, bringing Ford’s total U.S. hourly reduction through buy outs in 2008 to approximately 7,000, eliminating performance bonuses for global salaried employees for the 2008 performance year, eliminating mirror-pay increases for North America salaried employees in 2009, suspending matching funds for salaried employees in Ford’s savings and stock investment plan, reducing engineering manufacturing, information technology, and marketing costs through greater global efficiencies, in alignment with reduced volume assumptions, reducing inventories globally and achieving other working capital improvements.

While Ford Credit remains an important strategic asset integral to Ford, we are releasing some of Ford Credit’s capital to Ford Motor Company, consistent with Ford Credit’s smaller balance sheet and a focus on core-Ford brands; and continuing developing incremental sources of automotive funding, including divesting non-core operations and assets and implementing equity-for-debt swaps.

At this point I would like to add that we are working with a number of governments around the world to maximize the availability of funding to provide further protections against the uncertain economic environment that the entire automotive industry is facing. Incremental funding also would allow us to potentially accelerate selected actions in our plan.

Now on to slide 40, while business conditions to change quickly, our ‘One Ford’ plan is more right now than ever. As we have explained, we are more focused than ever on delivering our transformation plan and taking the swift and often difficult actions needed to respond to challenging and historic times with a global automotive industry. Businesses around the world are facing enormous challenges and Ford is no exception. However, Ford is focused on things we can control. The cash improvement actions we detailed earlier will maintain the strength of our balance sheet as we continue our product-led transformation. We have innovative new products that entered the market in the third quarter, including the Ford Fiesta and the Ford F-150. The new Ford Cougar is off to a great start in Europe and a new Ford Ka and Fiesta will enhance our lineups in Europe and in China. And importantly, we are launching our new vehicles with world-class quality.

Ford Credit remains an important strategic asset and is open for business as it funds dealers and offers loans to new car buyers. In spite of declining economic conditions, Ford Europe remained profitable in the third quarter. South America turned in another strong quarter and North America is on course to hit its cost reduction target as it focuses on transforming itself with more fuel-efficient, smaller cars, cross-over and utilities. In the next year our product offensive continues with a new Ford Mustang, a Lincoln MKZ, compression gas and new hybrid versions of both the Ford Fusion and the Mercury Milan, new Ford Focus with fuel-efficient eco-boost engines, as well as Lincoln MKS and Ford Flex with eco-boost engines.

In summary, these are challenging days, indeed, for the auto industry and I am more convinced than ever that Ford has the right plan. I continue to believe that Ford will be well positioned to take advantage of our scale and our product strengths worldwide.

Now we would be pleased to take your questions.

Lillian Etzkorn

Thank you, Alan. Ladies and gentlemen we are going to start the Q&A session now. We have about 45 minutes for the Q&A. We will begin with questions from the investment community and then take questions from the media, who are also on the call. In order to allow as many questions as possible within our time frame, I ask that you keep your questions brief so that we don’t have to move callers along after a couple of minutes. So, with that Katina may we have our first question?

Question-and-Answer Session

Operator

(Operator Instructions) Thank you. Ladies and gentlemen if you wish to ask a question please press “*1” on your touchtone telephone. If your question is answered or you wish to withdraw your question please press “*2”. Please press “*1” to begin and your first question comes from the line of John Murphy -representing Merrill Lynch. Please proceed.

John Murphy - Merrill Lynch

Good morning guys.

Alan Mulally

Good morning, John.

John Murphy - Merrill Lynch

I first wanted to ask about working capital. I think there are a lot of questions around this, but specifically on the $3.6 billion use in the quarter, that was much higher than we were expecting. It sounds like it was because of a payables issue. Wouldn’t that have been offset by your receivables being reduced so that there would have been a net impact that would have been smaller? And is this sort of an ongoing issue or is this really just a step-function down and we’re not going to see a big burn again from working capital in the fourth quarter, which is traditionally a little bit stronger? I was curious and just trying to understand what is going on there.

Lewis Booth

John this is Lewis. Let me answer the payables piece of the question. They did come down significantly because of a lot of production and we do expect some further reductions in the fourth quarter because of the lower production for Ford in the fourth quarter around the world. We would expect to see that begin to flatten out as we look forward to 2009 as production begins to settle, and perhaps grow it towards the backend of the year as we begin to see a very modest recovery.

Alan Mulally

John we are going to ask K.R. Kent to discuss the other one.

K. R. Kent

John, on the receivables, this is K.R. Kent of the Credit Company, generally the receivables are paid off by the credit company really short-term. I think it’s like two and a half days or so that we put them on to our books and then it would be wholesaled out to the dealers obviously and payables are a much longer term.

John Murphy - Merrill Lynch

Okay, so we should assume there would potentially be another hit in the fourth quarter and then we’re flat. That step function has changed going into next year.

Lewis Booth

There will be some in the fourth quarter, yes.

John Murphy - Merrill Lynch

Got it and okay second, one thing that we struggle with in looking at the company is trying to understand manned capacity, installed capacity, and capacity utilization and you didn’t touch on that in this quarter. And it’s clearly a big issue for the company going forward as far as right sizing. I just wanted to know, can you give us an update on where you stand on capacity actions and sort of highlight a little bit the delta between your sort of structural capacity and your manned capacity and how cost savings might develop as you cut capacity going forward.

Lewis Booth

Sure. John, we’re not going to give you specific numbers today. In the very, very near-term we’re obviously going to have some down production weeks, particularly in the U.S. in the fourth quarter as we continue to lower production to make sure we don’t build stocks. We did that in the third quarter. What we really try to do is make sure we keep production in balance with demand because we don’t want to build dealer stocks in this period. Longer term it is very much going to depend on what happens to the economic outlook in 2009 around the world.

Alan Mulally

And John, I might just add that we continue with our plan to make the best economic decisions in the near-term because clearly some of the plants, we’re not using to full utilization. But we have great contribution from the products that are there and we are absolutely going to tie the changes that we make to increase the utilization and the efficiency to when it makes sense economically with our product cycle plan with the product strategy going forward. And we feel we really have improved that over the long-term and so as we go forward we will share more of that with you with the cycle plan.

John Murphy - Merrill Lynch

No new capacity actions?

Lewis Booth

No, with the buyouts we achieved in the third quarter we’ve got minimal surplus people in North America.

John Murphy - Merrill Lynch

Okay and Alan lastly yesterday was the first day you guys were down in D.C. with sort of your cross-town rivals, talking about the current situation and the need potentially for some government support for the industry. I was just wondering what you think Ford might need, in general, in this potential help from the government, or is there the potential for Ford, given all the liquidity that you pulled in at the end of 2006, to get through this without any government support, contrary to maybe some other players in the industry?

Alan Mulally

I will be glad to give you my perspective and you are always welcome to join us. I am very encouraged with the dialogue, with not only the U.S. government, but the governments around the world, as everybody is dealing clearly with this economic slowdown and what it means to the economies worldwide. And with respect to the U.S. government, I think I would like to maybe focus on three key things John that we are working with. The first one is as you all know that during the 2007 Energy Independence and Security Act, that legislation last year, I was really proud of Ford, we stepped up to be part of that solution. And in addition to the conversation on fuel mileage and the commitments we made on that, we also had a very good conversation about the investment it takes to bring those fuel-efficient technologies to market and then they also included in the legislation low government loans to help us support the implementation of that fuel-efficient technology. So that piece of it now has gone to the Department of Energy and yesterday they released the draft of their criteria for applying for those loans and so we spent time talking about that and understanding that and then of course we will balance our product development and our enabling technology plan up against that and get our request in sooner rather than later. So I am very pleased with the development in that area.

On another piece, associated with the government’s work to free up the credit, on Ford Credit’s side we have registered to sell up to $16.0 billion of asset-backed commercial paper through the U.S. government’s commercial paper facility and through October 31 we have utilized about 25% of that. So that’s a key part of freeing up liquidity for everybody but specifically for Ford Motor Credit to be able to make the loans that the customers really do need and then maybe the last piece John that I would highlight that we spent time on yesterday was additional funding under the guise of more of a bridge loan. Look clearly none of us know what the future really is going to turn out, but clearly the economy could degrade much faster and put the industry at risk and so one of the things we talked about was having a bridge loan capability that we could access that, if it deteriorated substantially. Now, having said all that, as we pointed out in the call, our basic plan is to enhance our cash position, continue to invest in the new products that people really do want, and continue on our restructuring and we are not assuming that kind of help from the U.S. government because clearly we don’t know what that might be. But we are absolutely going to continue to dialogue with the U.S. government and others, that if things deteriorated substantially that we could do what it takes to keep this very important industry going for the United States and be part of the solution to turning the economy around.

Operator

Your next question comes from the line of Christopher Ceraso representing Credit Suisse. Please proceed.

Christopher Ceraso - Credit Suisse

Thanks good morning.

Alan Mulally

Good morning.

Christopher Ceraso - Credit Suisse

Just one follow up Alan and what is your position, or willingness, to the extent that you do participate in additional bridge loans, in granting equity or warrants in the company?

Alan Mulally

What we talked about yesterday is that we would want to specify the specific funding mechanism but we were certainly open to talk about the different possibilities. But we’re not that much further than that right now. We will absolutely update you as we go forward.

Christopher Ceraso - Credit Suisse

Okay, one more question, you did outline in the deck here today that equity-for-debt swaps would be part of your cash improvement plan. How much of that $6.0 billion to $8.0 billion do you think would come from that mechanism, the $2.0 billion or $3.0 billion. Can you explain that for us?

Lewis Booth

Chris, it’s about $1.0 billion within the $6.0 billion to $8.0 billion of which we have executed roughly half and the cash starts coming back to us in 2009 and 2010 as a full-credit debt pays off.

Christopher Ceraso - Credit Suisse

You mentioned here that you are starting to recognize the benefit from the VEBA plan. Did that already happen in Q3? Was that included on slide 15? And why are you calling this out as a special item then?

Peter Daniel

We are calling it out as a special item because there is a large one-time curtailment gain that is not reflecting the ongoing performance. So that’s the reason that we’re calling it out as a special.

Christopher Ceraso - Credit Suisse

Is it the gain that you’re going to call out? Maybe I misinterpreted it. It sounded like on an ongoing basis you were going to call out the cost savings associated with this plan as a special item.

Peter Daniel

Going forward until we fully implement it at the end of ‘09 we are going to call changes as special because effectively we’ve locked out the obligation. So there will be ups and downs and we’re going to call them all as special because we don’t have any ongoing obligation.

Christopher Ceraso - Credit Suisse

Okay and then on slide 15 you showed savings from pension OPEB for the third quarter was $400.0 million. Did that include some of the effective of VEBA yield?

Neil Schloss

Yes, a little bit.

Christopher Ceraso - Credit Suisse

It was not called out. Or did you call that out?

Peter Daniel

Up until August 29 where we had the agreement ratified by the courts, up until that point it was part of normal, past August 29 that we’ve treated everything as a special.

Christopher Ceraso - Credit Suisse

Okay last question, it looks like Visteon may run out of money at some point in the not too distant future. What is Ford’s position with regard to further financial assistance to help them restructure?

Lewis Booth

We can’t comment on that.

Operator

Your next question will come from the line of Himanshu Patel -representing JP Morgan. Please proceed.

Himanshu Patel - JP Morgan

Hi, could you comment on the earnings outlook for Latin America going forward?

Lewis Booth

We are going through a very strong period at the moment. We do expect that to come off. We are seeing some industry beginning to downturn. We are also seeing currency moving against the dollar reported earnings in Latin America. So we are expecting to see them come off what has been an extraordinary strong performance.

Himanshu Patel - JP Morgan

Okay and then on that same line of thinking on Europe, the profits were down this quarter but it didn’t look like your volumes came off that much in Q3. Fourth quarter obviously looks like industry volumes are slowing significantly. I mean is it reasonable to assume Ford Europe would still remain profitable next year, given the level of registration declines we are seeing in Europe?

Lewis Booth

Based on our present assumptions for next year, it is reasonable to assume that Ford Europe will remain profitable next year. We are seeing, actually the Western Europe volumes come off a little. The biggest deterioration has been in some of the developing and Eastern Europe markets, particularly Russia and Turkey, for example.

Himanshu Patel - JP Morgan

And Lewis, can you talk about in Europe what is the financing situation for consumers?

Lewis Booth

I mean it’s tight, I don’t think we have got a specific issue in Europe compared to here. I mean it’s very tight worldwide.

Himanshu Patel - JP Morgan

Has there been any marked deterioration there in the last couple of months?

Neil Schloss

Are you talking specifically like on consumers financing vehicles?

Himanshu Patel - JP Morgan

Yeah.

Neil Schloss

Ford Credit obviously is still open for business so we have been doing our piece. We have seen some banks pull back a bit but it hasn’t been like it has been in the U.S.

Himanshu Patel - JP Morgan

Okay and then lastly on Volvo, I just noticed in the appendix on the slide I forgot which slide it was where you have a headcount but it looked like Volvo’s headcount sequentially was flat between June and September and I think you were talking about taking 6,000 heads out. What is the cadence of that headcount reduction of Volvo going forward?

Peter Daniel

Within Sweden there is a very organized approach where you agree to the reductions that you are going to take and then you discuss specifically how you are going to achieve them and that happens over a six-month period, consultations between the company and the authorities and then the company and the unions. So about 2,000 of those people will be out by the end of the year and the remaining 4,000 will be out in the first quarter.

Lewis Booth

On the agency people, it will probably be a little bit faster.

Operator

Your next question comes from the line Rod Lache representing Deutsche Bank. Please proceed.

Rod Lache - Deutsche Bank Securities

Good morning everybody.

Lewis Booth

Hi Rod.

Rod Lache - Deutsche Bank Securities

The $8.0 billion to $9.0 billion of operating cash improvement you’ve got on slide 39, it looks like that’s cumulative. And it looks like you are taking your CapEx down by $1.0 billion to $2.0 billion versus where it had been running. I just want to make sure we understand that properly. Is the prospective cost reduction, the structural cost reduction that you are targeting, something like $6.0 billion to $8.0 billion cumulatively, like $3.0 billion to $4.0 billion a year?

Lewis Booth

Also included in that $8.0 billion to $9.0 billion is some improvements in working capital. So the actual structural is a little bit lower than you are implying. Specific to CapEx, it will be about $2.0 billion in the period, about $1.0 billion in each year. We have done that without significantly affecting the product program and one of the reasons that we’ve been working so hard on the structural costs is to make sure that we continue to invest heavily in our new product program so that as things begin to improve we have got a fully competitive lineup around the world of both new product and fuel-efficient product within it.

Alan Mulally

And we are really starting to see the benefit of the synergy of our global product development system, too, now, which is really helping us on that.

Rod Lache - Deutsche Bank Securities

Is this working capital a big number? You are already experiencing an impact right now. I would imagine that that is something that is not permanent necessarily.

Peter Daniel

It’s not a huge number Rod.

Rod Lache - Deutsche Bank Securities

Okay, so if it’s below the $3.0 billion to $4.0 billion how does that break down between U.S. and it sounds like some of the actions you’re taking are international. Can you tell us what your North American structural costs are at this point and whether you are managing your structural costs to a specific US SAR break-even point?

Lewis Booth

We have the structural cost reductions agreed by each business unit but we’re not going to share them with you.

Rod Lache - Deutsche Bank Securities

Okay, is there like a SAR break-even point that you are trying to manage the North American or the U.S. business down to?

Lewis Booth

Again, we’re not going to comment explicitly. I just said well let me come back. We are managing to ensure that we achieve the minimum cash balances that we judge necessary to keep the business running and we have developed this list, in the next two years, the tough period that we see ahead of us, we have developed these lists of actions to ensure we’re in the range of the minimum cash balances that we recognize, of course, based on our assumptions.

Alan Mulally

And just a little bit more color. Clearly what we have there on slide 33 is the 13.7 for the year-end as a SAR and our guidance is that we believe that 2009 is clearly going to not be better, which means probably a little bit lower. And we’re not recovering until 2010, so you can see we’re trying to be conservative here going forward.

Rod Lache - Deutsche Bank Securities

If the VEBA assets lose money between now and contributing to it, do you have to true that up? And can you update us on what the status is of pension performances here?

Lewis Booth

In terms of the VEBA assets, we don’t have to true them up. And in terms of the pension performance, we will update that when we file the 10-K.

Operator

Your next question comes from the line Brian Johnson representing Barclays Capital. Please proceed.

Brian Johnson - Barclays Capital

Hey good morning gentlemen, questions on the VEBA, are you pursuing and have you got an SEC agreement around the question settlement accounting FAS 106 paragraph 90, or negative plan amendment accounting 106, paragraph 55?

Lewis Booth

We got an agreement from the SEC to do settlement accounting.

Brian Johnson - Barclays Capital

Okay so, why wasn’t the one-time gain larger then, reflecting the full mark down of the OPEB?

Lewis Booth

There are several elements to it. The first one is a curtailment gain. Then you have an actuarial gain which goes through (inaudible) and that gets offset by any accumulated losses you might have. So it’s quite complicated accounting. There are various elements to it. The one-time you see now is essentially the curtailment gain.

Brian Johnson - Barclays Capital

Okay I’ll follow up off line and so we do speed it up. The second question I have, on the cash saves, is that cumulative, that is this cash will be saved by the end of 2009, or is this a run rate that you should be in by 4Q ‘09?

Lewis Booth

This is a non-VEBA question, right?

Brian Johnson - Barclays Capital

Yes. It is a non VEBA question on the cash flow. I wanted to follow up off line on that.

Lewis Booth

I think that’s the best way to handle it, it is complex. The cash saves we’re showing as cumulative through 2009 and through 2010.

Brian Johnson - Barclays Capital

Okay and any sense around the cadence by quarter or half?

Lewis Booth

Yes, but we’re not going to share it.

Brian Johnson - Barclays Capital

Okay and on Ford Credit, what is the ROA or net income level they need to achieve to be comfortable with resuming the dividend slow up? I know it’s not based on profits, it’s based on shrinkage, but how are you thinking about managing their liquidity versus the needs of Ford auto?

Peter Daniel

There are a couple of pieces that go with this. We’re going to make the cash payments to do the reduction in the receivable portfolio as it declines and there are a couple of pieces that are driving the decline, including Jaguar Land Rover moving away, Mazda moving away, and then the industry decline as well. And we will balance the return of capital with our successful execution of the funding plan as well to make sure we continue to support Ford in the financing of the products.

Operator

Your next question comes from the line of Itay Michaeli representing Citigroup. Please proceed.

Itay Michaeli – Citigroup

Hi thanks good morning. Just on the $14.0 billion to $17.0 billion, can you quantify what part of the Ford Credit piece is the capital contribution and what the timing on that might be?

Lewis Booth

It’s about $3.0 billion and it’s some in next year and some in the following year. And I think it’s about half-and-half.

Itay Michaeli – Citigroup

That’s helpful, thanks and then a question for Alan but this might be early, but as you think about potential bridge loans from the government, to what extent does the highly encumbered asset base from the revolver and term loan potentially pose a hurdle, or do you not see that as a real hurdle at this point?

Neil Schloss

I think from the perspective of the revolver and the term loan, which did pledge most of the assets and I think as far as we know at this point, we haven’t had discussions specifically on what the government would want as support, or as Alan said earlier what tails come with it.

Itay Michaeli – Citigroup

Yeah and then just finally I notice you didn’t break down the payment timing differences separately from working capital on the slides. Were those negative as well? If you could quantify that would be helpful and also should we expect that to also be an outflow in Q4 with production remaining sequentially flat?

Lewis Booth

There will be some impact in the fourth quarter and in terms of the difference it is warranty and marketing and it’s not a huge amount. The big piece out of that item was payables.

Itay Michaeli – Citigroup

Yeah thank you.

Lewis Booth

You are welcome.

Operator

Your next question comes from the line of Douglas Carson representing Banc of America. Please proceed.

Douglas Carson - Banc of America

Hey guys good morning.

Lewis Booth

Good morning.

Douglas Carson - Banc of America

I had a question regarding Ford credit, GMAC announced its intentions to try to gain bank-holding status, which I think surprised a lot of people. I know the ownership structure is very different at Ford Motor Credit, but do you see any strateg