Good day, ladies and gentlemen. And welcome to today's Ford Motor Company Fourth Quarter 2019 Earnings Conference Call. My name is Holly, and I'll be today's operator. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Lynn? And ladies and gentlemen standby, I believe we have lost our audio, one moment for the - for the speaker.

Thank you, operator. Welcome everyone to Ford Motor Company's fourth quarter 2019 earnings call. Presenting today are Jim Hackett, our President and CEO; and Tim Stone, our Chief Financial Officer. Also joining us are Joe Hinrichs, President, Automotive; Jim Farley, President, New Businesses, Technology & Strategy; and Marion Harris, CEO of Ford Credit. Jim Hackett will begin with a brief review of our results, progress against our strategic initiatives and guidance for 2020. Tim will follow with a more detailed look at our results and guidance, after which, we'll turn to Q&A. Following the Q&A, Jim Hackett will make closing remarks. Our comments today will include some non-GAAP references. These are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck, which can be found along with the rest of our earnings materials at shareholder.ford.com. Today's call will include forward-looking statements about our business. Actual results may differ from those stated and the most significant factors for - that are included on page 26 of our presentation. Unless otherwise noted, all comparisons are year-over-year. References to company EBIT, EPS, and free cash flow are on an adjusted basis, and product mix is volume weighted. As a reminder, starting in 2020, we changed our business units in our Auto segment to align with how we now manage our business. To help you navigate this in the appendix of our earnings deck is a diagram of the changes, including where results from certain joint ventures will be reported. We've also included 2018 and 2019 results by quarter that coincide with the new reporting structure. The minor IR housekeeping. Going forward, we will announce the date for our next earnings release in conjunction with results for the previous quarter. For example, we are announcing today that the date for our 2020 Q1 earnings will be April 28. Please disregard our previously announced dates for July and October 2020. Now I will turn the call over to Jim.

Thanks, Lynn. And thanks to all of you for joining us today. Please turn to page 3. At the start of this new decade, we are also at a crossroads for our industry and for Ford Motor Company. I believe, as I've said before, there is an incredibly bright future for Ford within what has become a very disruptive environment. And to realize this future, we undertook a fundamental redesign of the company to compete and win in this new era of smart vehicles in a smart world. On this call a year ago, I told you that 2019 would be a year of strategic action with potential for financial improvement. Now measured against the first part of that statement, 2019 was a year we took meaningful actions to improve our fitness and accelerate our transformation into a higher growth, higher margin business by leveraging smart connected vehicles and breakthrough customer experience. A powerful example of our company's move into the digital future was the November reveal of our Mustang Mach-E, an exciting zero emissions vehicle that will be fully connected and continually improved through over the year updates. We're encouraged by the interest and early orders around the world. Moving forward, virtually all our new vehicles will be connected, enabling Ford to vastly enhance customer experience and our ability to leverage data and analytics to constantly raise quality and reduce costs. Additionally, this past year, we forged strategic agreements and partnerships around the world, with VW, Rivian and Mahindra. This is to help position Ford for leadership in autonomous and electric vehicles and create new business models for profitable growth in emerging and emerged markets. We continued one of the most ambitious portfolio shifts in our history. Focusing our capital on growing profitable segments and playing to the strength…

Thanks, Jim. While our 2019 results were not okay, I'm confident we have abundant opportunities to improve our operational execution, drive growth, strengthen our financial results, including cash flow and in the process, earn the confidence of our stakeholders. We will achieve our potential and optimize long-term value through timely decisive actions to strengthen our business and execute on our long-term vision. These include applying sharp rigor to the allocation of capital to higher return investments, including our franchise products. As you heard me say in the past, we're focused on consistently improving customer experience and operational execution across our business. We're achieving important progress on our global redesign making tough choices to lay the foundation for improvement in future growth, free cash flow, profitability and returns on capital. We're driving fitness, for example scaling or improving the operating leverage of our structural costs and capital efficiency and forming alliances and joint ventures that will enable us to drive durable scale benefits. We're prioritizing meaningful opportunities for profitable, long-term growth in mobility and we will continue to employ disciplined execution to drive strong results from Ford Credit. Turning to our full year operating performance in 2019. Full year adjusted free cash flow of $2.8 billion was flat year-over-year as continued improvement in working capital in our Auto business, lower capital spending and higher distributions from Ford Credit were largely offset by the UAW contract related bonuses of about $600 million. Free cash flow is our most important financial measure and we're committed to generating sustainable growth over time. Our cash and liquidity are $22 billion and $35 billion respectively, above our target levels. We remain committed to a strong balance sheet and investment grade credit ratings. Revenue declined 3% for the year, or 1% excluding the impact of foreign exchange.…

[Operator Instructions] And our first question will come from the line of John Murphy, Bank of America Merrill Lynch.

Good evening guys. A first question. As we look at what you're working on right now, there is kind of two layers of rationalization, sort of, there is this near-term operational execution turnarounds that needs to occur and then there's the global redesign. And as we look at this, I mean you're staring down the barrel of great product launches or great products and you got to get those launches right, and products that have just launched. So, I mean in the near term, it just seems like you've got the product, the operational execution is just a real issue. I'm just curious, I mean we can all see that you're kind of identifying it but what really turns that around. And it's not - the products there, just trying to understand what really gets this operational execution turned in the near term hopefully. And then sort of as you look at the inflection point on the global redesign, is that the kind of thing that's going to hit in late 2020 or early 2021 because what you're indicating as far as the charges, looks like you'll be halfway through. So it's just, it seems like that inflection point is not going to come until 2021. It might still be a headwind in the near term. So in those two layers if you can kind of talk about the actions, you're taking near term and the inflection point on the global redesign.

Thanks, John. Jim Hackett here. I think that's well said. I characterize it in the company that we're always managing the now and the far in parallel and they are synergistic, they feed each other. But they have totally different kind of requirements, right? So in the now, the message in the company is we work really hard to get the portfolio rationalized, communicated, we - just to remind you, we went to work really hard on the platform architectures underneath that whole portfolio. At the same time, we feathered in our connectivity. We're working on car architectures that power the vehicles. We're talking about proportion inside of them with electrification. So there is a lot in that - in that product turnaround. And the market, it's too early for me to tell you the new portfolio share improvements better than the old one. But the market is giving us really good signs there. It does boil down to, we can't miss a beat now in the product launches. Today, for example, I spent a lot of time with Joe and others are working through the F-150. So that's, that's the state and spirit in the company as we saw the mistakes, we X-rayed that deeply for you in the last call, so that you knew, we went to kind of went to the desert to get to the bottom of that. I have zero question that we have identified what's - what was at risk there, what bad decisions we made? What new things we have to change? That's all kind of in the rear view mirror and now it's about executing on the things that we've laid out this year. So that's my perspective from the product. Tim, maybe you can address the global redesign. The thing I just want to sneak in on the global redesign. This is - this has to happen in parallel. I give our people a lot of credit, because their day jobs of managing what I just laid out runs in parallel as they redesign the company and there is some really bright spots in that. For example, the Europe team has a lot of momentum right now, and you might mention that Tim in your summary of what's been going on there.

Yes, so from a redesign standpoint, we made, as Jim said, strong progress in 2019. And it's a highlight for the year. Europe, for example is carrying out strong execution of the redesign of its business, announced closure of six manufacturing facilities, eliminated a total of 12,000 positions, and focused on leadership and doubling down on that leadership in commercial vehicles and importing iconic nameplates as well as passenger vehicles. South America continued to move to lower cost asset-light footprint, including exiting the production of heavy trucks in San Bernardo as you know and discontinued Fiesta and Focus models. And for the year, we saw charges this year of $3.2 billion and total thus far of $3.7 billion. If you factor in the guidance, we're giving on restructuring charges to be at $4.6 billion to $5.1 billion through the end of '20 and from a cash standpoint through the end of '21, $1.9 billion to $2.4 billion. And I think the benefits of the redesign as well as the fitness are starting to show through. If you look at 2018, for example, structural costs were flat. 2019, structural costs were down year-over-year. So you're starting to see it reflected in the underlying fundamentals of our results. And as you suggested they continue to build over time as further actions are implemented.

Okay, that's helpful. And then just a second question, just quickly on Europe and with the CO2 regs tightening this year, next year and going forward. I'm just curious, if you think with your current product portfolio and what you have in the works with the VW alliance that you'll be able to meet the requirements over there, or will you have to do some kind of pooling or pay fines over the next one to two years? And I mean do you think this is something you can solve in-house with product solution or you going to have to go out-house and you're pooling or pay fines?

Yes, fair question. This has come up before, John, in previous quarters. But Joe, you might confirm.

Yes, John, good evening. So we do expect to be able to achieve the new CO2 requirements without incurring fines or purchasing credits. I just want to make that clear. It's a product-driven plan. We've known about these regulations for several years. They were first public back in 2012, 2013. We've been playing the business accordingly. Since then, by the end of 2020, we will have 14 new electrified offerings in the market in Europe. And by the end of '24, we expect to have 17 electrified vehicles including number of mild hybrids, plug-in hybrids, some full hybrids and then a call - including our electric models. So this also includes improvements in our diesel offerings and other products that are internal combustion engines as well. So we feel really good about the plan, we need to execute the launches on time to make sure that we get the products that we're planning to meet those, but our plan is definitely product-driven and we do not expect to incur any fines, have to pool with anybody else or purchase credits. Thanks.

Great. And then just one just quick question on slide 14, Tim. This $500 million of negative cost, I mean that has the $600 million of the UAW cost and it's - so on a like-for-like basis, costs actually improved in the quarter. Would that be a fair way to read that?

Slide 15, you said?

Slide 14 you have cost was a negative $0.5 billion. But I would imagine that's got the UAW contract of $600 million.

So, yes. On slide 14 in North America, UAW is included in other.

Got it. Okay, all right, great, thank you very much.

Thank you, John.

Our next question will come from the line of Rod Lache Wolfe Research.

Great, thanks for taking my question. I was hoping you might be able to give us a little bit more color on your regional auto EBIT expectations for 2020. It seems like you would have a few pretty significant tailwinds set up, which don't really appear to be flowing into your 2020 EBIT guidance for Auto, which you said was up normally - nominally. I guess, essentially, I'm hoping that you can talk a little bit about the direction that you are expecting for each of the key markets. So, like North America obviously, non-recur of the Explorer launch issues and UAW bonus, which are collectively pretty big, is that offset by the - completely offset by the F-Series launch and other items? And in Europe, I think Joe Hinrichs, you said that most of the 12,000 people that you had commented on leaving were still on the payroll through the end of last year and would have a bigger impact this year. Are those just swamped by the CO2 compliance costs?

So Rod, it's good to hear from you, it's Jim. You know there is not a point tonight where we're going to go market by market. We just don't do that for obvious competitive reasons, but let's just repeat what is in, what color is in the guidance we've given.

Great. I'll take that, Jim, thanks. So as we said, at least nominal growth in Auto. Jim just said, we are not going to spread that around by region. With Ford Credit being lower, you may have heard in the call, we expect the auction values to be down 5% year-over-year - compared with 2%, sorry in 2019, big driver there, and then increasing investments mobility. As we saw in 2019, $0.5 billion increase for example in mobility investment. So that's the primary color we are providing on the different segments as opposed to the regions. We also - I can go through the headwinds and tailwinds for you, but they're not to be underestimated that the headwinds, for example, of 2020 launches late in the year F-150 for example, CO2 costs, mobility as I just mentioned, Ford Credit as I just mentioned and then tax rate up to mid to high teens compared to 11% in 2019. Those are the primary headwinds. Tailwinds, we certainly have a full year benefit of the sale of the Explorer, for example, as well as mix and price of new products, and then as I mentioned in the earlier question, the benefits of fitness and the global redesign and of course the non-recurrence of UAW, it's about a $0.6 billion impact.

Yes, thanks for that. Did you just say that the mobility investments would be up $0.5 billion in 2020?

No, I was - thanks for asking. I was saying they were up in 2019 by $0.5 billion, and 2020 they will be up, we are not giving the magnitude.

Yes. Look, I'm sure you - I mean there are reasons to not provide color on the regional numbers. But from an external standpoint, you start adding up maybe a $1 billion tailwind from explorer and $600 million from UAW and certainly more than $1 billion from this head count in Europe and big plant closure in South America, it's - those - not quantifying that is, it makes it very challenging for us to really assess what you're, what you're facing and what's in there. Do you have an assumption in there for a further increase in warranty costs this year?

Yes, it will potentially only add to your comment you just made, but I think we took a step forward this quarter in providing a segment level commentary connected with the cash flow and EBIT guidance that we gave, in addition to not providing regional commentary. We're not speaking to specific attributes from a cost standpoint, such as warranty and so forth.

Okay. And maybe just lastly, you talked about that $7 billion of cash spending on restructuring, the number has been quite low. I think lower than you had originally anticipated in 2019, and it's only up a bit in 2020. Presumably some of the cost savings are kind of tied to the cash restructuring rather than the headline GAAP charges. Could you just give us some color on what's going on there and changing the timing? And whether we should be reading into the trajectory of the turnaround plan based on that?

Yes. I think slide 20 illustrates the $11 billion in charges and $7 billion and how we're progressing against that $3.7 billion thus far, as I mentioned we factored in the guidance for 2020 would be $4.6 billion to $5.1 billion, potential actions that we are still considering there. The [ph] cash standpoint, $1.1 billion thus far and with the guidance we gave $1.9 billion to $2.4 billion. As far as the calendarization of that, we still have several years to continue to execute. I mean on the global redesign, we don't have a new announcement to make today. But I think one of the things we are seeing in the cash savings, cash side, sorry the saving, the team has been especially thoughtful about how we execute on the restructuring actions in Europe and in South America, for example, and taking every opportunity to save cash in the process.

Just to clarify; Tim, are you suggesting that the number or the cash number may be lower than the $7 billion, or that it would just be more spread out?

I was addressing the next question about - apologies. I was addressing the question as to why we made them lower that you might have been expecting through 2020. The number is still $11 billion and $7 billion over…

Okay, all right, thank you.

Thank you, Rod. They are over-performing, which is a good thing. That's kind of in the reviews, I've been really impressive, particularly in Europe, as we said.

All right. Our next question will come from the line of Adam Jonas, Morgan Stanley.

Thanks. Good evening, everyone. I'll first echo Rod's comments and about transparency because they really, it really would be helpful. And we understand that you won't be, you can't know with 100% certainty these items and, but we are certainly used to management teams, given their best guess, particularly at a time when there is so much pressure, and when the stakes are so high. So just to say, good on Rod for zoning in on that. First question for me is Tesla, stocks worth. It's kind of historic day as Tesla is now worth over 5 times the market cap of Ford. Jim or Tim or Joe, can you guys understand, can you, are you sympathetic to why that is that state of the world, does it make sense to you. What's the message the market is sending Ford Motor Company?

Adam, it's good to hear from you. And the first comment on transparency did not bounce off the atmosphere. I do understand that in this transformation of Ford, the from-to kind of calculus isn't always apparent. For example, consider we've got a portfolio that is in the midst of some things are sunsetting and all these new things are coming out and you, you want to know what can we project in terms of your earnings performance. And it's my instincts that back when we first started talking together that this is going to make a much better Ford and in fact, I mean now, I am now more certain of that. What I didn't count on and we're going to address of course is that we can't fumble execution because we, the value of Explorer launch back in our year is a different kind of story about Ford. So, that's just to confirm that we are doing our best to try and teach you about where we are in the transformation. But it's my confidence that you're going to be happy with that. Now the thing about Tesla is CEOs don't ever talk from this table about competitors. But I have been really candid in the company since I came about what is the business model that's there and what frankly about is attractive? And what you can see in Ford's commitment. I'm really proud of the team here as we arrived in June '17, the propulsion strategy was kind of nil and we got that squared away. We have 17 new hybrid and all-electric models across the entire lineup. So picture that Ford's in a position where it's got a portfolio of products for its customers, including a bigger extensive offering than the other guy. But the key…

Thank you. No, that's fine, Jim and I think it's - I appreciate the thoughts and I can't wait to get my Mach-E and my kids really can't wait to see the Mach-E in the garage. One follow-up for me, Jim regarding Volkswagen. Is there any limit to the level of collaboration that you can conceive between you and VW? I'm just I'm wondering if there's anything that's theoretically off limits between the two houses during a really historic kind of tectonic time for the industry where it seems like global major OEMs are forming super groups. I'm just wondering, if there is anything off limits here. Thanks.

Yes. Well, thank you for ordering the Mach-E. I got to tease you, I just ordered mine last week. I want the world to know I waited. I want to get in the middle of it. I didn't want to be first in line and went really well and they said that I'm right behind Adam Jonas...

I'm probably high on the list than you, but I reckon you will still get it before me. But…

No, no, that's not the deal, I want to live it. But thank you. VW, so yes I'm proud of in the repetition of the good things that happened last year, how well that came together in kind of an early phasing of what you are now witnessing and the commentary that we made in the opening was that, you don't have to combine Human Resource departments to get the kind of value in the automotive industry that we think we can, we can get arrangements like that. So, I want you to see the optimism that and hear the optimism in my voice that we're open to lots of ideas there. And I want to also stress that Mahindra similarly is proving to us that in emerging in emerged markets, it really is expanding the power of Ford. So right now the plate is full though with the things that we've committed to each other. Those two companies and Ford, we really got a lot going on, and I want to see the conclusion of that before I start adding a lot more to the plate.

Thanks, Jim.

Our next question will come from the line of Dan Levy with Credit Suisse.

Hi, good evening, and thanks for taking the questions. First question, your dividend is a $2.4 billion commitment annually. Obviously, we've seen some profit compression and you do still have to fund your restructuring. So it just means that the dividend right now is being funded by the balance sheet. Could you just talk to the rationale of maintaining the dividend at this level? And what are the threshold and business conditions for you to maintain it?

Well, we would like to return value to shareholders. I know that's a really bad answer, but it's true and the dividend has been legendary value creator at Ford. We are really responsible about the way like you say that you think about the use of the balance sheet to fund that. A year ago on this call, I made it clear that my objective and the way I was thinking about all the things coming in front of us is I want to continue to pay the dividend, I wanted to be able to fund the restructuring and make all the investments in the future. You know that those - the balance, all of those interest was behind the business plan that has rolled out. And so I want to continue that because we said we could do it. And right now we can. And Tim, I don't know if you want to add anything.

No, that's well said. And that's one of the reasons why we look at our targeted cash and liquidity positions, we established those targets of $20 billion and $30 billion, which were $22 billion and $35 billion now, heading into a downturn. So it could be in a position to invest in our long-term investment, the customer experience and fund the dividend for shareholders.

So I guess that the view is that the liquidity, you have plus the stream of cash flow that you do have you still feel comfortable enough with this level to maintain the dividend. That's a fair assessment?

That's right. That's why we gave the guidance for the $0.15 per share dividend, throughout this year per quarter.

Got it. Great, thank you. And then just as a follow-up, I think, a year ago you disclosed that your global truck, van EBIT margin was 14% in 2018. I think actually it's maybe a little higher when you strip out the corporate costs. So as we think about the deterioration in 2019. And what was the likely deterioration in '20, help us maybe understand if we look back at the profit pools, would you say that the truck margin has remained intact and that it's really deterioration in other parts of the business or has that truck margin deteriorated as well?

I am going to ask Joe to answer that, because this is a primarily North American kind of question as well. So Joe.

Thanks, Jim. Thanks, Dan. I mean, first off, we're very pleased with where we are with our F-Series and Ranger here in North America and the range of performance in places like Europe and other places around the world. Without getting into specifics of the margins in 2019, we're - I also will say that our pricing, transaction prices, incentive levels relative to the competition, and our overall sales volume were all very good in 2019 here in the US and so we feel very pleased with our progress going into a year when we have a new F-150. We had a new Super Duty at the end of last year. So we're not worried at all about where our competitive position is on our F-Series trucks. In fact, we're really excited about the new trucks that we have coming this year. And if you know that the cycle times of where things are, we get the benefit of a new truck after seeing what GM and Ram have done and actually held on very strongly to our volume and our pricing. If you look at the pricing specifically, we continue to have the highest transaction prices in the segment with the oldest truck on F-series, F-150 specifically and adding Ranger to the portfolio just added to the business, and in fact gave us the largest pickup volume in the US last year of all manufacturers combined, so - or all manufacturers that we compete with. So we feel really good about where we are on the F-Series. As Jim mentioned, we feel really good about where we are right at this point in time and the launch was coming up in the second half of the year on F-150. So we're not - F-150 and F-Series is of course the crown jewels of our company and we feel really good about where they are competitively and where they are from a profit standpoint.

Great, thank you.

And our final - our last question will come from the line of Joseph Spak, RBC Capital Markets.

Thank you. The first question is, maybe just a clarification, Tim, you mentioned mobility investment up modestly, is that apples-to-apples, because aren't you de-consolidating Argo in 2020? So shouldn't that help with your share of the loss being lower?

Yes. So again in 2019, mobility investment was up $0.5 billion and explaining our range of EBIT guidance for 2020, along with - at least normal growth in Auto and Credit being lower, now we are saying mobility investments to be up again year-over-year, we are not quantifying the amount. We will be de-consolidating Argo when that transaction closes. As a reminder, that's the self-driving system only, the SDS. The go-to market and other aspects of that as far as vehicle customer value proposition is separate level of investment. We're taking a very prudent approach to it.

Okay. But just to clarify then, the - should we expect to see the mobility loss higher in '20 even with the de-consolidation.

Correct.

Okay. And then, just maybe a follow-on to Adam's question earlier. And I guess, in the spirit of disrupting yourself from within Jim. I think it's something you mentioned to me once, now that you have some units coming through in '20 and '21, is there any thought to actually just taking and separating out all the electric assets, the Mach-E, the MEB and Rivian derivatives and break that out as like a Ford E similar to what you've done in mobility to sort of help show us that transition?

Joe, it's an interesting thought. I'm actually going the other way emotionally, which is I don't think the company can keep itself like of straddling in an old world and a new world forever, it kind of confuses the organization. And so in some of the challenges that I have on mind to do this, I have a friend in the business who said, he carries around a card with what are the toughest conversations and issues that he has got to address and no one really wants to deal with. From my perspective, the transformation has to accelerate and so I don't want to do anything that makes the organization feel like we can park it on the side. And if it does well and grows up it gets attention, but if it doesn't, we didn't really integrate it and so I have stronger instincts the other way. But I understand your question also in terms of, can we do something to prove that our transformation, and our strategy is actually accelerating. And I get that; I would like to take that away is something that we, that we ought to do is try and show you how the compounding of our new ideas are actually taking off. That's the confidence I want you have tonight is that, that I am seeing them, it's just not material enough to move the needle. And that's what I want you to get the confidence, that is - it will move the needle and it will have impact.

Okay. And maybe if I could just squeeze one more in. The $7 billion cash restructuring, you've only spent a little bit, it looks like you've spent a little bit over $2 billion through 2020. I understand that sort of comes when you could sort of make announcements, but should we think that that remaining just under $5 billion will be done by '21 or is that also pushed out versus prior thinking?

Yes. As far as the time frame on that as you said, $1.9 million to $2.4 billion through the end of '20, of the $7 billion and beyond that, we haven't given specific timelines or calendarization over the next several years. We'll update everyone as we have more information.

Okay, thank you.

And that's all the time we have for questions. I'd now like to turn the call over to Jim Hackett.

Thank you. And tonight, you know our slide started with a picture of the Mach-E. And I was inspired by the picture as I waited for you to ask questions. This product that's on that slide lives in great respect for the Ford legacy, but as it respects, it's not in reverence. It's not in such reverence so that it can change. But this vehicle is an iconic example of what we've been working on, the company has to change. It's changing its portfolio, it's restructuring markets like Europe and South America. Europe hadn't been touched for years. It's taking on the bureaucracy. We cut it by a third, $700 million likely in run rate savings. We mandated connectivity, which was a multi-billion dollar commitment before we had the kind of software to run on this. We build agile team, that's how this vehicle was created. And then there is an obvious question as you look at that and I look at that is can we execute and of course, we can. We will promise that we will earn your trust in that area. And I don't want you to think that we have to struggle on the way to the future, we are not going to cancel the future because of the focus on earnings. We think these - the improvement in earnings that we all want and the requirement that we have to get to our future can live in a synergistic way and build the kind of excitement in Ford Motor Company that you heard Adam and I talking about tonight. So, thank you for your time on the call.

This concludes the Ford Motor Company fourth quarter earnings conference call. Thank you for your participation. You may now disconnect.