Mark Fields - Group Vice President of Premier Automotive Group, Executive Vice President and President of The Americas Operations Michael L. Seneski - Chief Financial Officer of Ford Motor Credit Company Lewis W. K. Booth - Chief Financial Officer, Executive Vice President of Premier Automotive Group, Executive Vice President, Director of Jaguar Brand, Non-Executive Director of Volvo Cars Division, Director of Land Volvo Brand and Director of Ford of Europe Alan R. Mulally - Chief Executive Officer, President, Executive Director, Member of Long-Term Incentive Compensation Award Committee and Member of Finance Committee K. R. Kent - Executive Director of Investor Relations

DeeAnn Durbin Adam Jonas - Morgan Stanley, Research Division Robert Schoenberger - Plain Dealer Alisa Priddle Keith Naughton - Bloomberg Colin Langan - UBS Investment Bank, Research Division Himanshu Patel - JP Morgan Chase & Co, Research Division Rod Lache - Deutsche Bank AG, Research Division Bernard Woodall Greg Gardner John Murphy - BofA Merrill Lynch, Research Division Brian Arthur Johnson - Barclays Capital, Research Division James Treece Christopher J. Ceraso - Crédit Suisse AG, Research Division Patrick Archambault - Goldman Sachs Group Inc., Research Division

Good day, ladies and gentlemen, and welcome to the Third Quarter Ford Motor Co. Earnings Conference Call. My name is Catina, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. K.R. Kent, Executive Director of Investor Relations. Please proceed.

Thank you, Catina, and good morning, ladies and gentlemen. Welcome to all of you who are joining us either -- joining us today either by phone or webcast. On behalf of the entire Ford management team, I'd like to thank you for spending time with us this morning. With me here today are Alan Mulally, President and CEO of Ford Motor Company; and Lewis Booth, Chief Financial Officer. Also in attendance are Bob Shanks, Vice President and Controller; Neil Schloss, Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO. Before we begin, I'd like to cover a few items. A copy of this morning's press release and the presentation slides that we will be using today have been posted on Ford Investor and Media website for your reference. The financial results discussed herein are presented on a preliminary basis and final data will be included in our Form 10-Q. 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 the call are reconciled to the U.S. GAAP equivalent as part of the appendix to the slide decks. 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 made here. The most significant factors that could affect future results are summarized at the end of the presentation. These risk factors and other key information are detailed in our SEC filings, including our annual, quarterly and current reports. With that, I'd like to now turn the presentation over to Ford's President and CEO, Mr. Alan Mulally

Thank you, K.R, and good morning to everyone. We are pleased to have the opportunity today to review our third quarter business performance and the progress we continue to make in delivering our plan. Overall, we had a solid third quarter in line with our plan despite a business environment that has become more challenging. Let's start by turning to Slide 3. Our third quarter business performance was marked by automotive growth, solid profitability and positive automotive operating-related cash flow, with volume and revenue were higher than a year ago. We earned a pretax operating profit of $1.9 billion, with our automotive and financial services sectors each profitable. Net income totaled $1.6 billion and automotive-related cash flow was a positive $400 million. We've continued to strengthen our balance sheet, reducing automotive debt by $1.3 billion in the quarter. Market share was higher in North America, Europe and Asia-Pacific and Africa compared with a year ago. Overall, we had a solid third quarter and the first 9 months. We also concluded an agreement with the UAW for a 4-year contract, which was recently ratified and improves our competitiveness in the U.S. We accomplished these results while continuing to invest for future growth, focused on developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value. Although this is increasing costs in the short term, it's in line with our plan. These actions also are driving higher volume and stronger transaction prices. In summary, we are well on track to deliver our guidance of improved total company pretax operating profit and automotive operating-related cash flow for the full year compared with 2010. Slide 4 summarizes our third quarter business results compared with the year ago. Vehicle wholesales were 1.3 million units, up 93,000 units or 7% from 2010. Revenue was…

Thanks, Alan. Let's start with Slide 8, which summarizes our financial results compared to the year ago. As Alan mentioned, pretax operating profit was $1.9 billion, and net income attributable to Ford was $1.6 billion. Special items and taxes were $98 million and $194 million unfavorable, respectively, both better than a year ago, and special item details are provided in Appendix 3. We expect the majority of our valuation allowance on net deferred tax assets to reverse in the fourth quarter, and this will lead to a more normalized operating tax rate. At that point, we will revise the operating EPS for the preceding quarters of 2011, as well as for the full year, to reflect an operating tax approaching 35%, which we would expect to be our ongoing operating tax rate. As we've said previously, the reversal of the valuation allowance will not affect our cash tax payments but should remain low for a number of years. On Slide 9 summarizes our pretax operating results by sector. The total company third quarter pretax operating profit of $1.9 billion includes $1.3 billion for the automotive sector and $605 million for the financial services sector. As shown in the memo, total company pretax operating profit decreased by $111 million compared to the year ago, although automotive profits improved by $45 million. Compared with second quarter 2011, total company pretax operating profit decreased by $934 million, more than explained by automotive results, reflecting seasonal plant shutdowns and higher commodity costs. Slide 10 highlights some key market factors -- fact sets and financial metrics for our total automotive business. Wholesales and revenues both improved compared with a year ago, and pretax operating profit at $1.3 billion increased by $45 million. Operating margin, as defined in the footnote on this slide, was 4.8%, down…

Thank you very much, Lewis. Slide 29 provides an overview of the business environment. Overall, we expect global growth to continue at a moderate pace for the remainder of the year. The situation in Europe presents the most significant challenge, as a deepening sovereign debt crisis and fiscal austerity measures slow growth in the region. Economic conditions in peripheral Europe are very weak and downside risk to growth across the rest of Europe are rising. In the U.S., a modest recovery is expected to continue. Emerging markets should drive -- deliver sustainable but still robust rates of growth. We are seeing some benefit from lower oil and commodity prices and a diminishing impact of the Japan events. We continue to monitor the economic environment, and as always, we'll match our production to the consumer demand. We are well positioned to respond decisively to changes in the external environment and, if required, to take the actions necessary to remain solidly profitable as we execute our ONE Ford plan. Slide 20 summarize the first 9 months results and our planning assumptions and key operational metrics for full year 2011. Our latest outlook on industry volumes is 13 million units for the U.S. and 15.2 million units for Europe. On our operational metrics, as discussed previously, quality remains mixed due to near-term issues in North America, which we are addressing. We're on track to achieve quality improvements in the international operations. We expect U.S. and Europe market shares to equal or improve from last year's results. We expect total company pretax operating profit to improve compared with $8.3 billion earned in 2010. Based on our latest assessment, we expect the increase in structural cost compared with 2010 to be about $1.6 billion. As a result of the recent hedging adjustments, we expect the…

Thank you, Alan. Ladies and gentlemen, we are now going to start the Q&A session. We have about 40 minutes for the question-and-answer period. 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 timeframe, please keep your questions brief. Catina, can we have the first question please?

[Operator Instructions] Your first question comes from the line of John Murphy representing Bank of America Merrill Lynch.

First question, a very simple question. As we look at Slide 4, the change in net debt to positive $10.7 billion to the net cash position of $8.1 billion, that $10.7 billion swing that we see year-over-year, is that generated completely by internal funds or was there any external financing that drove that number higher? I just want to -- it's a simple way to look at free cash flow, but I just want to make sure I have that straight.

It was all internal funds, including distributions from Ford Credit, but all in all...

And that's an LTM -- on an LTM basis, right, trailing 4 quarter?

Yes.

Okay. Then the second question, Lewis, on the net cash position. I think you had indicated in the past that $10 billion of net cash was where you wanted to get to before you pay the dividend. Is that still the case, or would you be comfortable paying a dividend with net cash less than $10 billion?

No, John. Actually, that's not how we described it. We said that by the mid-decade, we will be comfortable with about $10 billion of debt on our balance sheet. We previously said that we'd like to get to investment grade before we pay the dividend. The last -- as our businesses improve, as our credit ratings have improved, we now believe that it's not a -- it's not something we have to get to before we start paying a dividend. So we may decide to start a dividend before the rating agencies get us to investment grade. We don't have anything to announce today. But we're on record as saying we'd like to paying a dividend sooner rather than later and -- which has continued to improve our balance sheet until then.

And that $10 billion was a gross debt number not a net cash number?

It was a gross debt number, yes.

Okay. And then just on the CapEx, skinning it back from the range of $5.5 billion -- from $5 billion to $5.5 billion, down to $4.6 billion. Are there any product delays going on there? Is that just you getting constantly more efficient over time and -- as far as product and investment spend?

Honestly, yes, the latter, because clearly our ONE Ford plan is allowing us to develop more of the vehicles that people want using fewer basic platforms. So it really is continuing to increase our efficiency. But all of our product plans are in place.

Okay. And then lastly, just on Slide 14. Lewis, you went through the numbers for North America and talked about the pretax margin potentially being above last year's year-to-date. So that would be above 10% x the increase in -- or the hedging for commodity costs. Is that a number that you think North America can achieve on an annual basis north of 10% or in that 10% range going forward? I mean, you're running at that rate -- you're running above that rate already.

No. Our mid-decade outlook -- outline was 8% and 10% -- between 8% and 10%. So I think -- as you've heard us say, I think North America is really motoring along at the moment. It's a real engine of the business and allowing us to continue to invest in the growth around the world. So -- but I think 8% to 10% is a more realistic expectation.

Longer term.

The next question comes from the line of Brian Johnson representing Barclays Capital.

Just want to kind of dive in on this commodity hedging issue, both what it is and then how it's going to play out going forward. There's kind of 2 sets of questions. One, can you remind us, Lewis, about FAS 133? When it kicked in, I recall one of your competitors had some issues for years trying to get their accounting right for it, and what it means about kind of the lumpiness of commodity recovery? Then question number two is, as we go forward into fourth quarter and early next year, what's kind of the cadence of reversing these hedge -- these losses? When does that come back in? And is that part of what's leading fourth quarter to be sort of perhaps bit cautious around fourth quarter, or is it more around conditions in Europe and macro uncertainty and the Thailand floods?

Let me answer the simplest one first. In terms of the fourth quarter, we're not being particularly cautious because of commodity hedging or anything like that. Obviously, we have some reservations about the economic climate in Europe, and we've described the issues that we're seeing in Thailand. In terms of -- Brian, I don't know just when FAS 133 came in. I'm sure I got someone here -- oh, 2001. So -- I knew we'd have someone in the room that knew. Let me try and separate out -- we do hedging on both currencies and commodities. And on currencies, we can designate and because we're actually transacting in currencies. On commodities, we actually don't buy commodities direct. We buy them as they come in with our component supplies from our suppliers, so we can't designate our commodity hedging. So when you have a sudden price drop as we did in the last 2 weeks of September, and by sudden, I think copper went down 24% or 25%, aluminum went down 12% to 14%, so a very sudden drop. You have to mark-to-market those hedges for the unrealized loss on those hedges, and -- it's noncash. And as you go forward -- first of all, it depends on what happens to the commodity prices. If commodity prices was to stay the same level as of the end of the third quarter, we've written off the profit effect of the hedges, and we'll see the benefits of the lower commodity costs coming in through suppliers over the next 4 to 18 months, depending on the -- well, over the next 12 to 18 months. I hope that's clear. And please don't ask me about the details of FAS 133.

So the benefits come back over 12 months, not just in 1 or 2 quarters?

Well, 12 to 18 months, depending on the life of the hedge.

And if you were to mark those to market before the call, would this have improved at all?

Yes, a little bit. But I mean, there's been a bit up and down, I think. If I had done it last week, that have been up a bit. And this week, they've come down a little bit, but they’re still above the end of September. But we're not going to get into sort of trying to update them every week.

And was there any significant benefit as we kind of compare year-over-year, sequentially and prior quarters from these kind of hedges before base metal started turning down?

I think nothing material, sort of like maybe 20 or 30 in the third quarter of last year. Good news.

The next question comes from the line of Colin Langan representing UBS.

Could you provide any color what things we should look for in terms of when you would consider paying a dividend? Are there any sort of financial markers that would sort of trigger your decision to actually do a dividend? Because, obviously, from a cash flow perspective, things look pretty solid.

Colin, we're not going to give out sort of precise hard metrics because that hasn't served us well in the past. I think we just want to see a little bit of continued improvements in our business, and we, I think, now are pretty clear that we'd like to do it sooner rather than around later.

Okay. And then in terms of your structural cost guidance, it implies that in Q4, there's about a $500 million year-over-year headwind. So I do remember last year, there were actually quite a few launches in the fourth quarter. So is that more in emerging markets, or should we see that not be a big headwind in North America? Because I do remember, actually, quite a big impact last fourth quarter.

Yes, we're going to see -- I think we'll see some in North America, just because it's such a big part of our business, but we'll also see it some in Asia-Pacific and Africa. I think more than 9 in the other 2 regions.

And any color on how -- it seems like there's some caution in Europe. Will you be able to get that back to profitability in the fourth quarter? Will that business stay profitable for the full year?

We're comfortable that it's going to be profitable for the full year. I think you can understand us being a little cautious on Europe, because the economic outlook is a little cloudy at the moment. It's interesting that despite all the pressures on the consumer, we're not actually seeing the total industry demand dropping. What we are seeing is pressure on margins as people try to support their volume projections, and we're seeing both increased incentive activity. We're also seeing a bit of a shift from retail to fleet, which is also lower margin. So the pressure is on margins in Europe rather than absolute volume.

And Colin, as we noted also, the wholesales will be -- the production will be up in the fourth quarter, too, because this is their lowest month due to seasonal effects and lease of the new products, so that'll help us also.

Okay. And just one last one, just on the hedging, the commodity hedges. If commodity prices recover again in the fourth quarter, will then there'll be a complete markup so that could actually be a benefit of the commodities reversed or that somehow changed?

If commodities go up from the price levels at the end of the third quarter, we'll have a mark-to-market upward revision, yes.

And then commodities that we should focus on are copper and aluminum? Are they the main ones?

Well, precious metals, lead. I think you need -- we need to separate out the accounting treatment and of -- and the real benefit of having lower commodity prices. While they -- those lower commodity prices exist, that's a benefit to all of us.

The next question comes from the line of Adam Jonas representing Morgan Stanley.

What is Lincoln's advertising spend on a per-unit basis?

Well, I don't have that in front of me. And actually, I'm not sure it's something we share even if I did have it.

How about this, does the ad spend for Lincoln -- how does that compare to, say, Blue Oval as a percentage of ATP in -- directionally or magnitude-ally, not seeking as a percentage...

Directionally, I think we're spending more per unit on the Lincoln than we are on Ford. And we obviously have great economies and efficiencies at scale with Ford, and Lincoln, we're in the process of rebuilding the business.

Okay. One question on the slight reduction of the structural cost forecast for the year to $1.6 billion from the around $2 billion. Does that reflect an evasive maneuver by Ford shorter term, or was that just again the product of your efficiencies?

That's just a constant, relentless push on keeping our customers as tight as we can. It's a team effort.

Great. So nothing cut, again, in the spirit of the question on CapEx.

No, there's nothing sinister. And it's just, everyday, we squeeze a little bit hard on everyday people's pockets, [indiscernible].

That's great. One last question for Mike Seneski. How have credit losses been evolving versus your expectations? And could you comment on the most recent data that you would have seen in your business on the performance of the portfolio, in light of some of the deteriorating consumer confidence numbers?

Yes, Adam. It's Mike. Our credit losses continue to perform extraordinarily well. We're at historic lows and that's continued quarter-over-quarter, not just in North America but around the world.

Your next question comes from the line of Chris Ceraso representing Crédit Suisse. Christopher J. Ceraso - Crédit Suisse AG, Research Division: A couple items of here. First, it looked like the contribution in North America was a little bit weak. If I look at about 50,000 incremental wholesales from third quarter last year to third quarter this year, but only about a $200 million improvement from volume and mix, is there something going on there? Or is my math off? That seems a little bit weak to me.

I don't know -- just -- I haven't really looked at it like that because I thought North America, if you take -- if you wash out the hedging losses, their margins would have been up year-over-year. So I thought they had a pretty good result. There are -- there has been some adverse series mix. I think you know that we were struggling with some specific high-end components in the principal navigation units as a result of the tsunami that we're now out of. But I think during the third quarter, we were still struggling on some of our bigger vehicles in the high end. So we had constraints on the high series mix of some of the high-end products.

With solid performance.

But I think if you wash out the hedging losses, I think North America had a fantastic quarter. Christopher J. Ceraso - Crédit Suisse AG, Research Division: On the -- on Slide 11, you show $300 million favorable fair market value adjustment. What was that?

There's couple of things. Hold on, I'm just turning to Slide 11. There's a couple things going on in 11. It's fair market value and other. I think there was a bit of FCSD profit improvement, and there was also some compensation accrual true ups that were going on in the quarter. Christopher J. Ceraso - Crédit Suisse AG, Research Division: What was the first thing you said?

Sorry, our Parts and Service business profits continue to perform well. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay. And then just a last one housekeeping item. On the 660,000 production for Q4, can you give us a breakdown between cars and trucks?

No. We could probably get -- give a bit more detail offline, but I don't have it in front of me.

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

I'm not going to ask you about the timing of the dividend. You've said already that it's going to be sooner rather than later. Can you just give us a sense of how you are thinking about an appropriate level for dividend payments going forward? You're generating -- I think including dividends from Ford Credit, you've probably generated $8 billion of free cash flow so far this year, some pretty impressive numbers considering the level of the industry right now. But how should we be thinking about the way you'd approach that, just weighing the structural cost reductions and some of the risks that you see on the horizon in Europe and elsewhere?

I think you can expect us to, when we do start, to start relatively cautiously because we don't want to start and then be in a position that we don't want -- that we can't sustain the level we start at. So in our view is once we start, it's key to our shareholders that we can maintain a sustainable level of dividend. So I would -- I think that would indicate we may be a little bit cautious when we start.

Okay. But it -- would it be fair to say that it'd be more than a token dividend, that'd be some meaningful amount of cash distribution even at the start?

I think I don't want to get into semantics, well, because I think our definition of token and your definition of token may vary. So -- but I mean, once you start a dividend, it'll be for our shareholders, and I don't think we're thinking of token. But I'm not quite sure what you define as token, and I don't want to get into specifics obviously.

And, Rod, as you know, it has been and will continue to be a very high priority for us to have that be part of the plan. So clearly, that's what's guiding us.

And I was -- maybe switching gears a little bit, talking about the operating margin outlook. Year-to-date, you've had a, I believe, 6.5% operating margin. The third quarter was 4.8%. The full year guidance implies that your operating margin in auto would be about 3.2% maybe, just in that ballpark. Could you just talk to just the North American part of this? How we should be thinking about maybe the bridge of a couple items? You gave us the $280 million UAW impact, which is going to be there in the fourth quarter. Are there some other significant elements just structural cost changes and things like that, that we should be taking into consideration in the fourth quarter's commodities kind of a plus or a minus, excluding the hedging?

I think the primary things that's going to drive your view of the fourth quarter are the seasonal factors that we talked about a lot last year, as our inventories run down at the end of the year. The other thing is we're in the -- we will be starting the launch of the next-generation Escape. So the things that affected the margin a year ago, those seasonal factors are going to be similar factors to this year -- similar factors in this year. I think you can also think that -- I can't predict what may happen on mark-to-market on hedging, but I think we would expect to see commodities still elevated compared to a year ago.

Okay. But your production levels are higher in the fourth quarter, even than they were in the third quarter, so I guess there's some seasonal issues that affect the numbers.

Yes. And I'd say if you -- I think last year would be a good indication of sort -- of the sorts of seasonal factors that we had. And I can just -- I think it was Rod's question or maybe -- sorry, it was Chris's question. I can answer the mix of the 660,000 was 1/3 of cars and 2/3 trucks, almost exactly.

Okay. And then just lastly, how are you thinking about the outlooks for South America and Europe at this point? In South America, does the Brazil import tax make you feel any better about, potentially, the pricing outlook there? And in Europe, what are sort of the range of potential outcomes that you would consider as sort of reasonable? I know it's very difficult to put a specific target on these things.

I don't think I can give you a specific view of Europe. I think -- as we said, we'll -- Europe is going to continue to get the benefit of the way we're now running the business and sharing costs around the world, but we will continue to look at Europe. If the environment results in a what could be a very slow-growth period, we'll look at all elements of the business. And in South America, the -- I think you know that the import tax has been delayed for 90 days, so it's probably not going to have the effect on the fourth quarter that we previously expected. I think -- in South America, the key thing in Brazil is what's happening on the exchange rate. It's weakened substantially, which would have an impact on the fourth quarter if it stays weak. Obviously, as it weakens, the natural benefits of being a local well-established profitable manufacturer in the region will serve in our favor.

Your next question will come from the line of Patrick Archambault representing Goldman Sachs.

I -- actually I just wanted to follow up on the fourth quarter margin question. Indeed, it seems like you're pointing to margins that are a little bit lower, if my math is correct, than last year. And just so I understand it, I get that you have the $280 million UAW piece in there. But it does sound like the hedging true ups, all things equal, if we don't change from here, shouldn't be an issue going into the fourth quarter, and I understand there's the Escape launch. But last year, I remember when we were talking about the fourth quarter, it seemed like the product refresh burden was just a lot larger, right. You had all the new powertrains for the F-Series and so on. So what exactly is making it so that there isn't an improvement there, year-on-year, in margin?

I -- no, I'm just trying to track your data. Corporately, we're expecting margin to be slightly better year-over-year, slightly. North America, I'm not -- I don't have the data in front of me, I'm just scrambling to have a look at it. I mean, it's going to be directionally similar. I think the big change versus last year that you haven't mentioned is the continued impact of higher commodity prices.

Okay. So x hedging, that headwind trumps the diminished launches that you have.

Yes. I mean, there's a lot going on. As you called out, the -- we got the $280 million UAW ratification bonus. We'll have another true up of compensation factors, I suspect. We talked about launch. I haven't done an exact comparison launch year-over-year. You are right. We had a big launch here last year, but we're in the middle of some pretty substantial actions in terms of having plants down this year as well. So let me just think about this a little bit more, and we could probably talk a bit offline.

Okay, sure. Just one housekeeping one. On the bonuses, is all of the -- are all of the bonuses -- or let me rephrase it differently. Are any of the bonuses going to be called out as one-timers, like the signing bonuses, or are they all -- is that $280 million going to be a sort of normal course expense including all of that?

Let me be explicit on the ratification bonus. It is treated as a normal cost, and it is accounted for in the quarter that we pay it.

Okay, got you. And then one final one. Not to dwell on Europe, but I think you're at $163 million in profitability, so far, year-to-date. So you would have to sort of stick at, at flat or -- sorry, breakeven. You'd clearly have to not lose $163 million, which is still would be a market improvement from where you are for this quarter. How much of that is just seasonality? And then sort of what other things do you have going on that make you think you can stem some of those losses going from -- coming from Q3 to Q4?

Well, the most significant factor is the seasonality. As you know, Europe has relatively long shutdowns all within the third quarter. We don't have that shutdown activity in the fourth quarter. We do have a Christmas break but it's much, much shorter, so it's really all volume.

Your next question comes from the line of Himanshu Patel representing JPMorgan. Himanshu Patel - JP Morgan Chase & Co, Research Division: Just 2 questions. I wanted to clarify the -- on Slide 15, on the other line, the $300 million favorable year-over-year, or I think $200 million sequential favorable. Maybe this is what -- to Chris's question earlier, but what was that related to on the North American walk?

There are 2 principal elements of that. One is improvements in FCSD, our Parts and Service business profits, and the second bit is true ups on compensation accruals. Himanshu Patel - JP Morgan Chase & Co, Research Division: Okay. And then used prices have to started to soften up a little bit. But I'm just curious, 2 items, one, how are you guys feeling on residual value assumptions at FMC? And then, number two, what are your kind of prospective expectations on North American pricing, given what's happening in the used market?

Okay. On the first one, we're seeing what we would -- what we had projected as normal seasonal declines, obviously, from a very high point, but we think they're normal seasonal declines. We're still seeing Manheim up, I think, about 4% versus a year ago. In terms of pricing, because it's sort of normal seasonal declines, we're expecting to sort of an orderly pricing environment in fourth quarter and the -- what we see from our competitors would indicate that's likely to hold, disciplined actions. Obviously, we've got currency at a more fairly valued level now so there's pressure on everybody to make some profit.

Ladies and gentlemen at this time we would like to welcome questions from the media community. [Operator Instructions] Your next question comes from the line of DeeAnn Durbin representing the Associated Press.

Alan, I just wanted to hear your comment on consumer reports announcement yesterday.

Oh, sure. Clearly, it reflects that -- the situation that we identified nearly a year ago. So there's no new news there. It's just a cycle in which consumer reports releases their assessment. But I remember that our quality operating system identified some really good improvements from the consumer point of view on SYNC and My Ford and the way it operated, and also the way that -- suggestion for improvement on the way our new 6-speed fuel efficient transmissions were working. And so we take all of that input really seriously, and we have identified -- most of this is associated with software as you know. We've identified the fixes. We're incorporating that into the existing products and the new products going forward. So I think we'll be clearly moving back up in delivering on our brand promise on quality going forward.

The next question comes from the line of Robert Schoenberger representing The Plain Dealer.

Looking at the lease numbers, the fewer people turning in their cars at the end of the leases. Is that the proper to interpret that in the report, that fewer people are turning their cars at the end of the lease?

This is Mike Seneski. There's really a couple things going on. The number of terminations is declining because in 2008 and 2009 the entire industry started to lease at a lower rate. And obviously, those leases are going to come back 24, 36 months later, so we're going to have a lower number of terminations. Also the other thing that is going on is we are seeing, with the stronger used residual values, some people are holding onto their cars a little bit more than what we have seen in the past.

And can you quantify that in anyway? How many people are holding onto their leases longer?

Yes, the return rate in the quarter was about 48% for Ford and Lincoln vehicles.

And how is that compared to historically?

Historically, it's been about 70%. So in times of higher used car values, you're going to see a lower return rate and lower used car value is a higher return rate.

The next question comes from the line of Keith Naughton representing Bloomberg.

I wanted to ask about the U.S. retail market share goal of 14.1% for this year, which you said you're on track with. You're at 13.9% for the first 9 months of the year, which suggests you have to over-perform in the fourth quarter to get to the 14.1%. I'm wondering what specific models you're expecting to see a retail gains in the fourth quarter that will get you there.

We're just turning to your page. Year-to-date, it's 14%. Is that what you're looking at?

No, the U.S. retail market share year-to-date of 13.9% on Slide 30.

Slide 30. So we're looking at Slide 36, okay? Slide 30. On the year-to-date, the first 9 months?

Yes.

Yes, okay. And Keith, what's your question?

So your goal is to equal or improve the 14.1% that you had last year. And I'm just wondering what particular models in the fourth quarter you think will outperform that will get you up to that 14.1%?

Let's see. Okay, let's -- we got -- Mark's here. Let's let Mark give you that perspective on that.

Yes. Keith, we have 13.9% and that's correct, although we get, every week, an update from our registration system. And we're actually -- the update we got this morning has us as 14%. So net-net is versus last year, we're even, on a retail basis. And as we look at the fourth quarter, obviously, we have a much better availability of Focus, which is going to be a key driver for us. We have good availability of vehicles like Explorer, and we continue to expect our trucks to perform well.

[Operator Instructions] Your next question comes from the line of Greg Gardner representing Detroit Free Press.

If I remember correctly, you were somewhat profitable in the second quarter for Asia-Pacific and Africa. Is this kind of the trajectory that you had planned? I mean, obviously, you have to spend money to make money. I mean, is it in line with your expectations? And just what -- how significant is the impact of the slowdown in growth, especially in China?

Greg, we were, yes, somewhat profitable. I think we're breakeven at $1 million. I think the issue we're seeing in Asia-Pacific is it's a bit up and down as -- depending on our structural costs as we grow. And we're expecting to be profitable each year and the next few years as we transition into growth, but we do expect to see some variability by quarter. So in this quarter, for example, we had a bit of some mix shifts between less sold -- less vehicles sold in Australia, which are high-margin vehicles. You've got Falcon and Territory and more vehicles sold in China and India and Thailand. So it's a bit noise, not a signal.

Your next question comes from the line of Jim Treece representing Automotive News.

I'd like to look at Slide 23, on the production volumes. I understand this the first time you've given us forecast for fourth quarter by region. And I'd like to know how the numbers, particularly for Europe and the total, compare to what you're forecast had been, say, at the end of the second quarter?

Jim, we wouldn't go into that amount of detail. I think the key things to recognize about what we're doing is we're keeping our production match to demand. So every month, we look at our production program and our sales forecast and make sure that we adjust production accordingly. So these number change every month. But our total industry outlook for Europe hasn't changed markedly for most of this year. We started, I think, at the -- a range of 14.5 to 15.5 and we're now at 15, somewhere in 15.1 or 15.2 we're projecting. And our market share has always been equal to or improved, so that hasn't changed much.

Your next question comes from the line of Bernie Woodall representing Reuters.

I was wondering about -- regarding China. There's some moderating growth in 2011. Is this a 2011 phenomenon? Do you think this will -- moderate growth will continue in 2012 in China?

We -- Bernie, this is Alan. We are going to give you a complete update at the end of the year on the -- on anticipated growth rates worldwide. But clearly, this is I think a very positive development because as they -- energy inflation and economic growth of the rates of growth, clearly, a lot more sustainable going forward. And the neat thing is that we have a product to support, that customer demand that goes with that, so I think this is a good development.

Your final question comes from the line of Alisa Priddle representing Detroit News.

I just wanted to check, I think you said that your mix for the third quarter was 2/3 trucks, that I know that you've had a huge emphasis in gains on the car side. And I'm just wondering how you see the year ending up, just in terms of cars and trucks? And where you see your emphasis in your profits coming from between them?

Alisa, I apologize if I wasn't explicit enough. But the mix I gave was for fourth quarter production. The 660,000 that we show for North America was fourth quarter.

Oh, okay. But that will be 2/3 truck.

2/3 truck, correct.

Okay. And then again, just sort of a similar question then. The -- is that just demand driving that? Is that something that you want to see because those are often your more profitable vehicles?

No. First of all, let me just clarify for everybody that when I talk about trucks I mean both pickups and utilities. But no, it's demand driven, not our liking. We will produce what the customers want, and we're seeing truck segmentation improve a little bit, particularly pickup. The segmentation improved little bit.

Okay. I imagine it's a bit to your liking because they still are profitable vehicles.

That's true. But I think you just have to remember -- in the big shift in North America compared to 3 or 4 years ago is we now have a full range of fully competitive vehicles, cars, utilities and trucks and -- of all sizes. And -- whereas 3 or 4 years ago, we were very -- we could be held hostage by the segmentation shift. Now we have vehicles in all those segments, fully competitive. But yes, they -- it is a bit more profitable and we'll take it where we can get it.

Thank you. And that concludes today's presentation. We thank all of you for joining us today.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.