Ladies and gentlemen, thank you for standing by and thank you for participating in the Ford Motor Company Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Mr. Ted Cannis, Executive Director, Investor Relations. Please go ahead, sir.

Thanks very much, Victoria and good morning, and welcome everybody. Welcome to Ford Motor Company's third quarter 2016 earnings review. Presenting today is Mark Fields, our President and CEO; Bob Shanks, our Chief Financial Officer; also participating are John Lawler, Vice President & Controller; Neil Schloss, Vice President and Corporate Treasurer and CFO Ford Smart Mobility; Paul Andonian, Director of Accounting; and Marion Harris, Ford Credit CFO. As usual, copies of the press release and presentations are available on our website. And also as usual, there are some non-GAAP references and those are reconciled in the appendix to the GAAP measures. Today's discussion includes some forward-looking statements about our expectations for future performance, actual results may vary. As a reminder, Ford Credit has a call later today at 11 A.M. to discuss third quarter results and later today, we'll be filing our 10-Q and based on some of your feedback, we've added some supplemental information to help with the analyses that some of you've requested and that's on pages 54 and 55 of the 10-Q. And with that, I'm going to pass it over to Mark. Mark?

Okay. Thanks, Ted. Good morning, everybody. In the third quarter, we delivered our better than expected company adjusted pre-tax profit of $1.4 billion, which was lower than a year ago, as were all the other key metrics. And the decline from last year was due to North America and this reflects the impact of the Super Duty launch, F-150 stock changes and increased warranty cost from the door latch recall that we announced back in September. Now, during the quarter, in addition to the all new Super Duty, we also launched the all new Lincoln Continental and I'll talk more about these as we go through the call. Looking at our global market share, it was down slightly and we had improved share in Asia Pacific and that was offset by results in North America, South America, and Middle East and Africa. Turning to Europe, we had our best third quarter profit there since 2007, and it also was our sixth consecutive profitable quarter there. Looking at Asia Pacific, we saw strong growth plus our best ever third quarter profit. Ford Credit remains strong with the best quarterly profits since 2011. And as we step back and we look at the first nine months of the year, our pre-tax profits and our cash flow were strong and about the same as we generated a year ago. Now, we expect the good news versus our guidance that we delivered in the quarter to be offset in the fourth quarter. But stepping back and looking at the full year, we continue to expect to deliver one of the best profit years ever for the company, and that's a full year company adjusted pre-tax profit of about $10.2 billion. Now, if you turn to slide 4, you can see we're having a continual…

Okay. Thanks, Mark, let's turn to the next slide, slide 8. This is our key financial summary and I want to start by just base-lining this with some of the key data. So we'll start with the third quarter, in the first column, I just want to highlight several metrics. So, first, company adjusted pre-tax results of a $1.4 billion. Net income of $1 billion. Go further down the page, adjusted earnings per share on a diluted basis of $0.26 and then the operating cash outflow of $2 billion. So, as Mark said, these were all down from a year ago, and this was consistent with our expectations. If you go further down the page, you can see in terms of our cash and net cash balances very, very strong, and cash above our target of $20 billion. Now, we're going to go through a number of these things in detail through the deck, but two things I want to highlight that we won't talk about again, if you go back up above sort of the middle of the page, you can see we had very few special items on a pre-tax basis this quarter, only $26 million, and that was related to separations, and our effective operating tax rate in the quarter was 25.9%. And if we move over to the first nine months, the year-to-date column, the third column. Just to highlight the strength of the results, $8.2 billion so far this year in terms of company adjusted pre-tax results, $5.4 billion of net income, $1.46 of adjusted earnings per share, and then very strong operating cash flow of $4.9 billion. And as you can see, in the comparison versus a year ago, all of those are pretty much in line with what we did a year ago,…

And just a couple of comments on the market in the U.S. here. Our view is the industry is at a relatively strong level, but the retail market is softening and the pricing environment is getting tougher. And as you've seen and as we've communicated previously, we have taken some production adjustments on a number of selected models to match production to demand and that's consistent with our strategy. We do expect some further actions in the fourth quarter and that will be primarily related to Fusion and Focus and Escape and one fewer crew next week building F-150 at Kansas City. And then our approach on incentives, Bob mentioned incentives in the industry, our approach is to be competitive and disciplined, and I think, as you've seen in certain segments in the last few months, when the competition has increased incentives, we prioritize margins over market share, and you can see that in our results.

Okay. Let's move on to South America. In South America, the key metrics shown on this slide, slide 14, you can see both for the third quarter and year-to-date, all the metrics were lower. This is driven by the external conditions in South America, which remain challenging. Although I will say that we are starting to see a number of the economic indicators that while they're still negative, they're starting to turn upwards. And so I think we feel comfortable that at least direction of the economies in South America seem to be moving in a positive direction and supportive of our view that we could see next year the first positive growth, although very, very modest compared to where it's been in the past, but that's a positive sign. If you look at the metrics, the top-line is lower, that's driven both by volume and the weaker currencies. Our market share was lower, that was due to Fiesta in Brazil. And in terms of SAAR, South America itself was down 400,000 units or 10% that was entirely driven by Brazil, which was down 400,000 units or 17%. Turning to the next page, looking at what's behind the $132 million decline. In South America, it's a very, very similar pattern to what we showed you in the first quarter and second quarters. While we're pricing as aggressively as we can, you can see that it's not enough to offset the effect of high inflation, as well as negative operating exchange effects. The volume and mix is a bit lighter than what we've seen in the past, but we're still going after cost improvements. And you can see that we generated nearly $100 million in the quarter that was both contribution cost and structural cost. In terms of guidance, we continue…

And just a little bit more flavor on Brexit impacting the UK because obviously we get a lot of questions on that. As Bob mentioned, so far, we haven't seen a major impact on the industry. We've seen retail down slightly, but that's offset by increasing fleet deliveries. And in fact, if you peel that back a little bit, we've seen a lot of strength in the commercial vehicle market and especially the van market, which obviously plays to our strength with transit, which once again was the number one commercial vehicle in the UK and also across Europe. What we are watching though is pricing. And as Bob mentioned, we, as well as our other competitors have taken pricing in the UK and that's obviously to compensate for the weakening of the sterling. And our view is that this is what will start to be negative for the market as we close this year and we get into 2017. So, we're getting ahead of that as Bob mentioned from our production actions. And in addition to that, we're working all elements of the business to mitigate the potential negative effects on the market.

Okay. Let's move on to Middle East and Africa. This is the only slide as usual that we have for this region. This is an unusually large loss for us. If you look at the first quarters and second quarters, we averaged a loss of about $50 million. And so let me explain what's going on here. So, if you go across the page, you can see wholesales and revenue are down, that's driven by industry changes and the impact of that on our volume, as well as the revenue. Our share was lower, although if you just look at the markets in which we participate, that's code for exclude Iran, which is the largest market in the region, our share was actually flat. What was happening is, the markets we participate in were declining and Iran was growing. So, it's a geographic mix effect. What's happening in terms of profitability is issues in the Middle East and specifically in Saudi Arabia. That country is transitioning its economy or trying to transition its economy from one that's a very oil-based to one that's more diverse pulling back on subsidies. It has an impact on our performance in the quarter. We are working very hard to address those issues. We think we'll be back on track in terms of a more normal result in the fourth quarter. Probably a loss still, but much, much less than what we're seeing here in the quarter. But year-to-date you can see that all the metrics are down, but we would not expect this level of loss to continue in the fourth quarter, nor do we see this as a run rate. For the full year, we expect to have a loss in the region compared with a small profit a year ago, but again…

And just as Bob mentioned back in the second quarter call, he mentioned that we expected our third quarter to show improvement and the reason for that is, we're going to really leverage our new product launches and also step up our go-to-market strategy. And as you can see from the results, we had market share improvement, importantly, we saw sequential market share improvements literally every month, and also then the increased profitability for the quarter. And as we look forward, obviously we're now in the fourth quarter, we want to build on that performance with our new model launches, we'll have a full quarter of the freshened Kuga, we have the Mondeo coming in the quarter and really take advantage of what we see being actually a strong industry in the quarter, with the purchase tax incentive coming to an end at this point.

Okay. Let's turn to Ford Credit on slide 21. Great results in Ford Credit in the quarter $567 million, that was up little bit from where we were a year ago. If you go below the third set of bars, you can see the year-to-date numbers just under $1.5 billion. Our guidance for the full year continues to be about $1.8 billion. Going back to the metrics, you can see the business continue to grow that was across all regions and all products. And if you look at some of the data we have to the right around the portfolio. Performance of the portfolio continued to be very, very good. The LTR continues to rise, but still below what we would consider to be a normal level, it's probably more around 50 basis points to 60 basis points. So if we go the next slide. Looking at what drove the change on a year-over-year basis, it was the higher volume and the favorable mix. You can see that credit losses continued to be down on a year-over-year basis, this was driven by higher charge-offs and our lease residuals also were down on year-over-year basis and that was driven by, as you can see in the call-out box, our outlook for lower auction values particularly in smaller vehicles and small utilities going forward and the impact that has on the vehicles still in our portfolio. Let's go over to the next slide. We'll get some more metrics around Ford Credit, just want to highlight the top two. So on the upper left, you can see auction values, our auction values continued. They were down $235 sequentially looking at the 36 months, which is the majority of our portfolio and on a year-over-year basis, down about $535. The decline that we've seen…

Thanks Bob. Okay, if you turn to slide 26, this sums up our industry and also our GDP planning assumptions. And all in all, we see some risk to global GDP growth, as you have things like policy uncertainty including what's going on with Brexit negotiation, that adds to existing weakness that we see in global trade flows, but also in just business investment spending in total, and this is offset partially by steady consumer sector in most of the major markets. So today we're updating our global GDP guidance to 2.9% and that really comes in at the low end at the prior range that we guided. For industry volumes, we are providing some upward adjustments, slight upward adjustments for China and Europe with a small downward adjustment for Brazil. Now, as you've seen, we have had a strong first nine months for the year, and we continue to expect 2016 full year company adjusted pre-tax profit, to be about $10.2 billion and again, an outcome that would be our second best since the year 2000. And just kind of bringing in it all together, if you go to slide 28, we are on track for one of our best profit years ever as I mentioned, but that's following a third quarter that was better than expected, but lower than a year ago, as we guided. We successfully launched the all-new Super Duty and also the Lincoln Continental in North America. And importantly, we're taking the actions to address the continuing challenges of what we see is a plateauing U.S. retail industry, higher incentives in the U.S., and of course uncertainty in Europe due to Brexit. Bob mentioned our cash and liquidity are strong, and we continue to deliver a robust regular dividend that we're committed to pay through the business cycle. And as we outlined at our Investor Day that we held last month, the entire Ford team, we remain committed to our strategy and also our roadmap to grow our business as we expand as an auto and a mobility company. And this includes fortifying and building on our strengths, and that's trucks and vans, the performance vehicles, SUVs, Ford Credit and of course our parts business. Transforming parts of our business that have traditionally underperformed and that includes luxury small vehicles and emerging markets. And we're growing emerging opportunities in the areas of electrification, autonomy and mobility, that will define and also differentiate the future of our business. So, with that, why don't we just open it up and take your questions.

Your first question comes from the line of Brian Johnson with Barclays.

Yes. Good morning.

Good morning.

A lot of investors have been struck by the difference in sort of optimism versus pessimism between yourselves and one of your neighbors. Just a couple of things. One, could you maybe highlight where you see kind of the market going in 2017? Do you think there is risk of further downside? And two, once we get past these dealer stock reductions, how you're looking at the market in terms of fighting for share versus letting it drift down to where it might naturally go?

Thanks, Brian. First off, I would call our approach realism, not optimism, not pessimism, it's realism. And we've – number of us have been through a number of cycles, and we're looking at the data and big part is interpreting that and what it means for our business. So, I think as we look at the market going forward, as you look at the balance of this year in the fourth quarter, we expect the SAARs will probably about the same as last year but with retail being down. And then as we get in – and with that a tough and more competitive pricing environment. And you can see that in the data that we're all looking at today. You're looking at incentive levels on an absolute basis go up. They're in the industry, they're going up as a percent of MSRP. As we get into 2017 as you know we've guided to an industry that will be slightly down. I think it was 17.7% for next year and then 17.5% for 2018. So at relatively strong levels, we don't see a recession on the horizon but we do see a marketplace that from a cycle standpoint, it's mature. And we're starting to see the evidence of that and I think we're being very proactive in looking at these pieces of data and taking I think very prudent actions and realistic actions for our company. And as you look at your comment of fighting for share versus pricing, et cetera. It's always a balance. We want to optimize our profitability and we want to optimize our market share and you've seen, look at the latest quarter, last quarter here in the U.S. in the full-size pickup segment. We saw a lot of variability in incentive spend and even in that environment, our retail share of the segment was even and it's up year-over-year. We spent the least incentives in the segment and have some of the highest transaction prices. And that's the approach that we're going to take going forward as we see the market go wherever it wants to go.

If I can, the only thing I would add is, we're also seeing a maturing credit cycle. You can see that with the used vehicle values. So I think that's another sign or signal in terms of – we are just at a different part of the cycle. Again not bad, but just a different part, yeah.

And just a quick follow-on question to that, Bob. You – I'm struck by the pullback in leasing at Ford Credit. Do you think that's having an impact in the showrooms or you are you using other promotional tactics to kind of keep the consumer there?

Well, I think – Brian, this is Mark. I think as Bob mentioned upfront, naturally we wanted a lower rate, because you just look at the mix of our products, right, we sell more trucks and vans, which you know tend to lease less, we have a less of a percentage of luxury sales. And as Bob mentioned, we previously guided, beginning of the year, about 20% was about right. In terms of looking at, is it impacting in the showroom? You could say it's having some level of impact. At the same time, we do have an opportunity to take those funds we would spend on that and port them over to maybe some retail incentives. So, yeah, in general it probably has some level of impact. It depends on the region, obviously depending upon the leasing concentration, but probably modest at this point.

Okay. Thank you.

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

Good morning, everybody. Just hoping we can follow up a little bit on kind of the big picture pricing view on North America. You're cutting production, it looks like by 12.5% in the fourth quarter. So, it looks like you're really positioning to have very tight inventory by year-end, but at the same time it looks like GM's production gets in the – almost the 100 days over the course of Q4 and Q1, and as you mentioned we're seeing some pretty aggressive incentives from Fiat Chrysler. So, I guess my question is, when you're positioning and talking about this strategy, and perhaps willing to accept lower market share but protect profitability, does that strategy kind of vary on a product by product basis? I know you're adding quite a bit of content here on some of these vehicles, particularly the pickup trucks. So does that limit your options, vis-à-vis pricing competitiveness?

No. I think overall Rod, our strategy is pretty consistent across the segments. As I mentioned upfront in Brian's question, it's always a balance of optimizing pricing and market share. And that's the approach we take pretty consistently across the patch on all of our segments.

Okay. And just a data point on Europe and China. Could you update us on what your updated view is on the Brexit impact now with the pound where it is currently? And on China, you mentioned that you're expecting a little bit of a decline; obviously the pricing and the RMB. Could you just remind us of how you are thinking about the magnitude of the pull forward that's occurring now and how that kind of plays out as you look out, maybe preliminarily, on 2017?

Yeah. Let me just – I'll start and Mark can supplement. So, in terms of Brexit effect, so what we saw in the second quarter just to remind you, we took a $60 million hit related to the balance sheet, because of the weakness of the sterling that occurred after the vote on the 23rd. We then said we'd see about $140 million of impact in the second half of the year and that was around actions we would take in anticipation of lower industry. So, we've already started to do that in the quarter. So, we start to make those stock adjustments. So, as I mentioned, Rod, in Europe, even though the industry hasn't yet actually declined, we started to take stocks down, so we had a stock reduction in the quarter versus the stock build a year ago. We announced a price increase, gross price increase of about 2.5% on September 1. A number of other OEMs have announced as well. So, I think that will be the beginning of what will be a chilling effect on the industry; we're just getting ahead of it with the adjustment. If it turns out not to happen as fast as we're expecting, then we've got the ability to react to that, so we'll be very flexible on that. In terms of looking at 2017, consistent with what we said at our Investor Day event, we think the effect is probably about $600 million. So, think of that as the adjustment in terms of industry being about double what we said for the second half, on a full year basis, and the balance is around sterling, and if anything there could be potentially some risk on the sterling, given how weak it became following the Tory Conference, and the comments from Prime Minister May. But we already are about 80% hedged in terms of our operating exposure at this point in time for next year. So, we still have a little bit of exposure, but you know we're comfortable right now with that $600 million. If you look at Asia-Pacific, in terms of what's happening with pricing, and the year-to-date, the industry is down about 6% as best we can tell. We're down about 1 point more than that, but we've seen that moderate; we talked about that in the second quarter. And we saw that continue to moderate in the third. In the third quarter, industry year-over-year was down about 4%. I think we were down about 5%, and sequentially I think it was down about 1 point, 1.3 points. So, we are seeing a decline of – the pace of the decline in pricing. We've built that into our outlook. You want to add anything to that?

No, it's good.

So, you believe that the price deterioration will moderate as you look out into 2017, just despite some expectations of maybe currently we're benefiting from pull forward demand?

Yeah, we think there'll be some moderation. Our assumption – we've mentioned this before, our assumption is that, the purchase tax incentive will not be extended. We'll have to wait and see. I think there's some conflicting signals now coming from the government. That's our assumption, but again, we're prepared to respond if that's not the case. I think I would also – it's interesting you mentioned that what we've seen is because the Chinese renminbi is now part of the IMF basket of currencies. It's actually weakened as the sterling has weakened, because they're trying to balance the renminbi versus that currency and the effect it's had on the basket. So, interestingly Brexit has actually had an effect on us in Asia-Pacific.

Okay. Great. Thank you.

Thanks, Rod.

Your next question comes from the line of John Murphy with Bank of America.

Good morning, guys.

Good morning, John.

I hate to follow up on this question again just on pricing. I mean, it does seem like pricing in the quarter was very strong for you guys. You are being very aggressive on adjusting your stocks to demand with these production cuts, but you are also – it looks like you've gotten pulled back dramatically on leasing as well. And it looks like you are playing the game of holding up pricing, both on the new vehicle side and on the residual side, and taking a hit on volume and playing sort of the long game. And I'm just curious; as you think about these pricing decisions, I think everybody is focused on inventory production and pricing actions by competitors in the very near term. But as you think about this, I mean, how does the residual value now in the next three to five years play into this decision process? And are we seeing something that is a little bit more balanced short term and long term thinking now?

Well, John, we always think of both as we make these decisions. We're just standing back and again looking at the macro factors. And Bob mentioned this, when residual values are extremely important to our customers and they're extremely important to us, and we're just looking at the physicals, right? We are looking at an industry, where it is in the cycle. It's mature, the retail industry is coming down, we're looking at the levels of leasing and the number of leasing vehicles that are coming back this year and projecting out over the next two years or three years. They're going to get to levels that we have never seen on an absolute basis in the industry before. So, that's telling us and informing us and saying, we need to get ahead of that. And that's our philosophy in terms of how we're looking at this, we're looking at the short-term data, we're looking at the leading indicators and that's informing our decisions, both in the short-term and the long-term.

Yeah, it's not an either or, we're just trying to balance and try to find the optimal mix, which is constantly shifting, because it's a dynamic competitive environment. But that's what we're doing and that's what we always do.

It's refreshing. Just a second question on Ford Motor Credit. You cited volume and mix as being a pretty significant positive in the quarter. I'm just curious what was driving that, given volumes were down on absolute terms on volumes. Are you seeing a higher penetration rate and are there other products that you are using that would drive mix positively there? Just trying to understand what's going on.

Well, one thing I'll mention and then I'll have Marion talk about, which is kind of interesting and I think I've seen some reports on this. We are seeing more Chinese consumers, finance their vehicles and we're participating in that as well. So, we did see more contracts in China as we saw a greater percentage of our customers that we finance, that were going up, and maybe Marion can provide some color and texture.

Thanks, Bob. So, John, Bob is right, we have seen growth in all of our products globally over the last year, remember this is the portfolio business. So, we had good growth during 2015, which then shows the year-over-year growth in 2016 over 2015. So, but Bob, sorry, we did have a record quarter in China and we continue to see volume growth there, but it's been around the world as well.

Okay, great. Then just lastly on pension contributions $1.2 billion versus your previous expectation of $1.5 billion. It sounds like some of that is spilling over into next year, but how should we think about pension contributions going forward, Bob? Is this the kind of thing where you are largely done or are we going to see sort of $500 million to $1 billion numbers going forward?

Well, what we've said is, recently we said $1.5 billion this year and then $500 million to $700 million, it depends on the year going forward. We don't have to make that $300 million this year, so we're not going to, but we will next year. So, it just moves to the next year. So, think about this year $1.5 billion to $1.2 billion next year, let's say instead of $700 million, it's $1 billion. That's kind of the dynamic that we see. And then going after next year probably in that $500 million to $700 million range, it will depend on the year.

Great. Thank you very much.

Okay.

Thanks, John.

Your next question comes from the line of Colin Langan with UBS.

Yeah. Great, thanks for taking my question. Given Q3 came in better than expected, what is the key reason that guidance for the full year didn't come up slightly? Is it the Q4 production cuts; was that not part of your thinking earlier in the year or? What are the key drivers?

Yeah. Let me take that one. It was – we thought it was a $1 billion, that was our forecast, it came in stronger. And when we kind of peeled back and looked at what was behind that. So, the first thing was we saw marketing accruals came in about $100 million light or favorable in the quarter, but when we look at the physical, it's just timing that will reverse in the fourth quarter, so that's not going to change anything. And then the rest, it was really around cost performance. We got about $300 million of cost performance across the regions and across the business. And when we pulled it back, it was $20 million here, $30 million there, $40 million, I mean there wasn't any one big thing and so, as we looked at it and discussed it with the regions I think the view was, it was just timing. So, fairly we've had a huge pressure and focus on cost reductions and hopefully that was also what drove it, but there's nothing compelling that would tell us that the full year is going to come out any differently, so our point of view now is it's just timing.

And It sounds like your view on the US market hasn't changed. Has the mix outlook changed at all with the F-150 production cuts? Does that imply that you think pickups may weaken or is that just response to the competition?

Well, I think when you look at the segment in the quarter, it's relatively strong, maybe not grown as strong as we expected but I think it's against the backdrop, Colin, of – listen we're still in a strong industry, pickups in general are still strong. If you look at just September, we had our strongest retail F-Series month of the year and when you look at the demand, obviously as I mentioned earlier, we saw a lot of variability in incentives spend from the competitors and that said when you look at the metrics on how we're performing in terms of incentive spends, transaction prices, et cetera, the response to the new Super Duty and transaction prices literally near the top of the industry. We feel pretty good about the full size pickup segment, but at the same time you have to think about it in terms of overall we're seeing in the industry in terms of some weakening in the retail end and we'll keep watching it and that's why we're being proactive around our stocks. We want to protect that brand, we want to protect that franchise and we want to protect the residual values for our customers.

Got it. Going back to Ford Credit, very strong quarter there. Any color on the sustainability of that number though? I think it was the highest since 2011. Is there something unique in the quarter or it seems like you've been cautious on that business, yet it was pretty good.

There was a – I think the only thing I would highlight was sort of one time in the quarter Colin, and if you go to slide 22 and look at the call-out box you can see we got $41 million of good news in terms of derivatives, which is just it happens in the quarter, may or may not continue on – it's tied to interest rates. So, that was unusual. When you look at the balance of the year, we're not going to have a strong quarter in the fourth quarter and the team will talk about that in the call at 11 o'clock, but that is largely around what's happening it's going to continue to happen on residual values. The only thing I would highlight that will be unusual in that quarter, that doesn't change the company results, it's just a payment that's going to go from one part of the business to the other, which is about $80 million payment that Ford Credit's going to make to Ford of Europe. And that's around funding the gap that we have and one of the plans in – pension plans in Europe that Ford Credit's going to satisfy, and then Ford Europe will actually kind of manage that going forward, and so that will be a shift of $80 million between the two. It will affect Europe's or rather Credit's results, but has no impact on the business, it will be good news in Europe. And I'll talk more about that and give you more flavor at the 11 o'clock call.

And Just one last question. China margins again were very, very strong, I think 15% net income margin. How do you think about that the next year in an environment that may be flat with pricing pressure? Are you going to be able to find cost offsets or should those margins moderate a bit?

Well, you know, as Bob mentioned as we look at the pricing environment in China, it's been negative for quite some time, that's our assumption going forward and what it means very simply Colin is making sure that we continue to bring out new and fresh product, that's what's driving the performance that you see in the recent quarter in terms of either it's our new MKZ, or Taurus, or Everest or the freshening of the Cougar that's driven there. And as we think about going forward, the continual focus on costs not only structural costs within china and Asia Pacific, but material costs particularly after we launched the products and as you know once we launched the products we have a lot of efforts on material cost.

Okay. Thank you very much.

Thanks Colin.

Your next question comes from the line of Emmanuel Rosner with CLSA.

Hi. Good morning everybody.

Good morning.

I wanted to get a little bit more color on the North American pricing performance in the quarter. As you pointed out, this is the first positive quarter for pricing and it clashes a little bit with comments around increasing incentives and pricing environment getting tougher. And so any color on what has been going right this quarter and how to think about it going forward?

Yeah. I think when you – if you go to slide 13, I think it is – which is the North American year-over-year details. As you can see in the call-out box, we did have an increase in incentives, it's just that we had more favorable impact on the pricing side. When you look at the details of it, it was – obviously we got some good news on Super Duty, although frankly the number of units we sold in the quarter was pretty modest because of the timing of the launch, but we have some good news there. But the rest of it was just the guys pricing – taking pricing opportunities where they saw them across the portfolio. I mean there was good news across quite a number of our products particularly as we went from 2016 model year or into the 2017 model year that they're starting to just be able to eke out if you will and collectively generated the type of result that we did, it wasn't really so much around any one thing or big launches or whatever, it was very widespread across the portfolio.

And so, looking forward?

So, looking forward, I wouldn't talk about next year, I think, we could see some continued positive pricing in the fourth quarter, I don't think it would be anywhere near this level, but it could be a little bit positive. But I don't think it will be as positive.

Okay, that's great. Then just on Europe; so you were mentioning some of the dynamics around Brexit and I think you said you are 80% currency hedged for next year. I know it's probably very early to look at beyond next year, but at the same time I guess 2018 is when you have been suggesting your earnings would sort of go back and increase again. What does the Brexit impact look like on the – once those hedges roll off?

Well, I don't know because I don't what the exchange rates will be, I mean we'll have to see. And in fact one of the things I just want to remind you and remind you all is, we not only hedge out for next year, but we already have some hedges in place, and 2018 obviously much less so than 2016 or 2017, but we've got somewhat 2018 already protected. I think, it's a big uncertainty – so let me just say one thing. So the team will have more time obviously to respond to what they've seen from the impact of Brexit. Maybe I'm working seriously ever since the June 23 to react to this cost mix, every single part of the business. So, there'll be more time to sort of reposition and reset the business in terms of this new environment. I think the big question mark for the industry is what happens when the negotiations are concluded, particularly around duty rates, and that's a complete TBD and that will be sometime apparently in 2019.

Let me also – I know you're asking a question about Brexit, but it's – let me give some perspective on Europe, because as Bob mentioned if you look year-to-date, we've made over $1 billion. And the growth rates – the industry across Europe was up about 4% in the quarter, so we're seeing that steady growth. Importantly as we said we're seeing a strong growth in the commercial vehicle market, now in the UK but across the continent which plays well for us given transit. We're seeing SUVs as the percentage of the industry, it's up another 2 points or 3 points across the industry. And as you know we've had a strategy to reposition the Ford brand in Europe in terms of moving it up a bit. And as you saw from the results and Bob mentioned, the mix improvements have not only come from the products, the product line mix like Mondeo and Mustang and Ranger, but it's also come by a very deliberate strategy on series mix. And to give you just a couple of data points where we have a very high series mix on our transit of Ranger over 50% of the mix on Ranger is the Wildtrak version, which is the high-end version. And on Edge, over 50% of the mix is on the sport version. So, nearly 50% of our Edge is been sold for €50,000 or more. So, we're going to continue that strategy across Europe and also in the UK.

Yeah, let me just add one other thing. Remember, Emmanuel in my comments I talked about Russia.

Yeah.

Russia is having a very nice positive year-over-year effect in Russia or in Europe. So, you can imagine throughout 2017, 2018, 2019 as that economy continues to improve as oil prices stabilize or even continue to improve further, that's going to have a nice effect on our business. We stayed, because we saw that opportunity, we're seeing it come home even this year, that is another factor, I think you don't want to forget our business in Europe.

That's great color. Thank you.

Thanks.

Your next question comes from the line of Adam Jonas with Morgan Stanley. Adam Michael Jonas - Morgan Stanley & Co. LLC: Hey, everybody. I got a couple of questions. First, on the topic of vehicle safety, I'm sure you guys have seen the FHA data from the first half of this year, unfortunately with traffic fatalities up by 10.5%, on a comp it was up the better part of 10% the prior year. And you're in an interesting position to be able to commercialize these relatively affordable technologies that really address that, and I'm sure it's in everybody's interest that you do that, and we know you're aware and it's in your interest and you want to do it. I guess the question for you is, how much on a per-unit basis, as you talk to Raj's team and your suppliers, how much would it take, putting aside the fully-autonomous robo stuff. To make a real dent in vehicle-to-vehicle or vehicle-to-pedestrian safety, like per car, are we talking to make accidents like a third less likely for your new vehicles? Is it hundreds of dollars a car, it is a $1,000 or is it several thousand? Just high-level, Mark, would really appreciate it given all your exposure to this technological discussion?

Well, high level, yeah, it's some degree of money; I can't give you a figure, whether it's $300, $3,000, et cetera. If you look at the way the safety features, the driver-assisted features that we have on our vehicles today, we literally offer them across – either standard or options across our vehicle lineup. And if you look at the pricing, we're very competitive along those lines. To your question around the fatalities, that's why we're so bullish on autonomous vehicles, and as you know the societal and safety benefits that can have from that, but let's face it, I haven't seen the data yet. But if you really want to improve vehicle safety, you take peoples' phones away from them, so they can't text while they're driving, because I have a feeling that a lot of the increase on that has to do with that. Now, we – our approach on that is through our SYNC system, allow people to do it, rather than touching their phones, keeping their eyes on the road and their hands on the wheel, and that's our approach. But, it's an interesting question, but one in which I can't give you an exact answer. Adam Michael Jonas - Morgan Stanley & Co. LLC: Okay. Well maybe just as a follow-up; before this stuff gets regulated and is standard equipment, you do have big players out there like Toyota talking about making AEB, for example, standard across their global lineup by as soon as 2018, 2019. If a big competitor like that does something, I mean is it safe to assume that Ford can't be far behind, just from a marketing and consumer advocacy and safety standpoint?

When you look – it's a good question. When you look at our brand, one of things we're known for is safety... Adam Michael Jonas - Morgan Stanley & Co. LLC: Yeah.

...and you can expect that we will continue to build and defend that. Adam Michael Jonas - Morgan Stanley & Co. LLC: Okay. Last question, then. As you make a big push towards electric vehicles, you've been very clear in your capital markets day and your communication on how you are putting potentially billions and billions in that effort of electrification. Does that open up an opportunity for you to bring in an entirely new consumer electronics supply base, players like the LG and Samsung and Panasonic, et cetera, that maybe traditionally were maybe only peripheral automotive suppliers and now could be something a lot more substantial? And for you to bring them in and kind of add a little competitive fire to your traditional Tier 1 mechanical suppliers to kind of – as a negotiating tactic and to play one off versus the other. Not that it's – just in – for the sake of improving the product and getting a lower purchase bill of materials. Is that an opportunity?

Well, yeah. We're always looking for new suppliers and when you speak of some of the technologies around electrification, we are using a number of new suppliers. The key thing, as you know, Adam, is coming into the auto industry, the duty cycles, the automotive safety grade of those parts and components is absolutely essential. And sometimes, we find when we bring some new suppliers in, they're kind of surprised at that. But our job is to educate them on that, and I think, you'll continue to see us do that, and look across the landscape for the best supplier that give us the best technology, world-class technology at the best cost. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thanks, Mark.

Thanks, Adam.

The next question comes from the line of Ryan Brinkman with JPMorgan.

Great. Thanks for taking my question. I'd like to really delve into the Super Duty a little bit more. Are you learning anything different than your expectations about the cost to produce or the line speed, et cetera, that would make you feel any different about its profit contribution in 2017 versus 2016? I think that the Super Duty is being fully redesigned for the first time in years, so it may be costly to produce. That was part of the thought process that that would offset some of the pricing mix benefits of the new version in 2017. So I'm asking because I remember that the F-150 launch, it went better than expected, right, with cost to produce being a little bit less and that was one of the drivers of upside in 2015. So just curious if maybe you are seeing anything similar as you get more experience producing the product.

Well, I think overall, Ryan, first off from a demand standpoint, we're seeing, as I mentioned earlier, a really good response to the product. In terms of the launch in the plant, as you know, the plant, we took the learnings from the launches that we had in Dearborn and Kansas City on the F-150. The launch came up very fast, it came up very well; the quality is good coming out of the plant. We – the suppliers are performing well, we do have an issue on one supplier that's trying to keep up with us on demand and we're working with them on that. But as our usual process, we'll launch, settle the plant down, and that's where the teams – once we get to the launch levels and the plant is stable, that's when we really start going to town on looking at are there ways of getting more efficient in terms of the productivity on the line, but also material costs. In terms of 2017, we're going to continue to follow that pattern in terms of impacts, as Bob has mentioned, when you look at the margins on the new Super Duty, they are lower than the previous one, and that's because it's the first time we've redone the product in 18 years. But we'll continue to follow the process and continue to work on the cost and the margins over time.

Okay, great. And then just the last question is on Middle East and Africa. The loss there was a lot bigger than we've seen historically. And I know, Bob, I heard you say to not take that as a run rate, but also maybe to expect some losses there going forward. So the question is really was there anything unusual weighing on the region in the quarter? And then if the losses are to continue for some time, do you maybe need to reevaluate your participation in some of the many markets in that region, sort of similar to what you did with Japan and Indonesia earlier?

Well. First thing I guess I would say, yeah, I think there was something unusual and that's what I was trying to highlight in my comments, which is around the performance of the business in Middle East and specifically in Saudi. And that was a combination of what's happening in the external environment, but also our own, if you will, business performance, which we're working hard to address. I think we'll get that back on track just like we did in China. When I look at the fourth quarter and quarter-to-quarter, I just think we're going to see on a quarterly basis, improvements across most parts of the business. It's just the thing you've just got to keep in mind, Ryan, I think this is a different conversation than in Japan or Indonesia – is the external environment is sort of similar to Russia and South America, is this is an environment that's been affected by the commodity cycle, it's been very affected by oil, particularly in the Middle East. It's been affected to some extent by geopolitical issues. So, I think it's a different conversation and discussion. I think we'll end up with much better results in the fourth quarter based on what we see today, and going forward I do think the team's got a really, really good growth plan that will get us to profitability and very, very good returns over the business planning period.

Great. Thanks for the color.

Thanks, Ryan.

Your next question comes from the line of David Tamberrino with Goldman Sachs. David Tamberrino - Goldman Sachs & Co.: Hi. Thanks for taking our questions. The first one just on Europe. As you think about the Brexit headwinds that you've outlined and then some of the positives from Russia, I'm just curious to hear your thoughts if the positives from Russia can actually outweigh some of the negative effects that you're expecting from the Brexit situation.

We always assumed that we'd see improvement in Russia; I just didn't want you guys to forget about it, because we're still there, and we're seeing that benefit. It's a tool in our toolkit that maybe some others don't have in terms of where the business will go in the future, but that was the case before Brexit. Brexit is a new thing and we're going to have to respond to that. The team is doing that by looking at every single part of the business. I do think we've got that added benefit of an improving Russia business to help us. But, clearly, the business excluding Russia, we have a lot of work to do to sort of rethink how we get to those 6% to 8% returns that we're targeting, but Jim Farley and his team are all over it.

And just remember, David, the guidance that we gave at Investor Day, that the 2017, we expect Europe to continue to be profitable but at a lower level than we see in 2017 -2016. And that's specifically taking into account the impact that we're presently projecting for Brexit. David Tamberrino - Goldman Sachs & Co.: Understood. And then just on the back of that, when we think about moving from growth in Western Europe to growth in Eastern Europe, what impacts does that have on your mix specifically?

I'm not sure I understand the question. David Tamberrino - Goldman Sachs & Co.: Well, when you think about the vehicles that you are selling, right, in terms of the UK you called out you've been doing well in the commercial vehicle market in the Transit vans. Smaller cars, SUVs; as you move from Western Europe into Eastern Europe, are we talking about larger vehicles that could potentially be helpful? Are you looking at smaller vehicles with less content? I'm just trying to think about the mix of vehicles as we move from Western Europe to Eastern European growth.

Well, one thing I would highlight and Mark touched on it, we are now providing the KA+, which is coming from India, replacing the vehicle that was actually built by Fiat for us in Poland. So, we've got the opportunity to – particularly given the reaction that we're starting to see to that product, I think, we've got the opportunity to get a lot more out of that part of the business, plus we've been working very, very hard on our small vehicle business in Russia across Ford entirely, but certainly – not Russia, in Europe. And I think the actions that will be coming to market in the future are going to give us an opportunity to see more contributions in smaller vehicles, that's certainly part of the equation that Jim and the team are working on. That will help as well. David Tamberrino - Goldman Sachs & Co.: Okay. Thank you. And then my second question, maybe it's more appropriate for your 11 o'clock call. But when we think about leasing characteristics, what levels of subvention are you at today? Where is that from a year ago and where do you expect that to go going forward?

Well, we don't provide that level of specificity. I would just say that the costs of subvention are rising and they're high because of what's happening with residual values. And so that's certainly something that we have to take into consideration because we can take those funds and we can deploy them in other ways that might be more effective in the marketplace and that's certainly one of the balancing actions that our marketing sales team considers as they're thinking about how to go to market. David Tamberrino - Goldman Sachs & Co.: Understood. Thank you for the time.

Thanks, David.

And your final question comes from the line of David Whiston with Morningstar.

Thanks. Good morning.

Good morning.

Bob, can I get a clarification on the pension here? Are we saying at a global basis by the end of next year you'll be fully funded? Is that correct?

Well, by the end of next year, we expect our global pension plans to be – it's not fully funded, it's largely funded and by that you might think about 95% funded. So, it really depends on what's going to happen with the interest rates and the asset returns, but the U.S. is already getting close to that. I think we're a little bit behind that level in the UK and Germany. But our funded plans by the time we get to the end of next year should be, if not fully funded than largely funded.

Okay. And just one follow-up on autonomous; if tech and the regulatory environment move faster than you guys expected, would you guys be willing to offer level 5 perhaps sooner than you were thinking or does it depend on the scenario testing that Raj talked about?

Well, it's really dictated by our technical development, not dictated by regulations. And as we said, we've been working at this for over 10 years and we feel confident in our plans and how we're approaching this. And level 4 is, we think is on track for 2021 and again, it's in defined areas that we can 3D-map in using LIDARs and sensors. Level 5 is a different kettle of fish in terms of the amount of technology on the hardware and the software algorithms to be able to handle all those climatic conditions. And so, well, that's our approach and we're confident in that approach.

Okay. Thank you.

Thank you.

There are currently no further questions. I'd like to turn the call back to the presenters for any closing remarks.

All right. Thank you very much. See you soon everybody.