Good day, ladies and gentlemen. My name is Holly, and I’ll be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company First Quarter 2020 Earnings Conference Call. [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?

Thank you, Holly. Welcome everyone to Ford Motor Company's [first] quarter earnings call. Consistent with social distancing, speakers today are connected from different location, so in advance I appreciate your patience in putting any latency as we answer questions. I also personally hope that you and all of your loved ones are safe. Presenting today are Jim Hackett, our President and CEO; Jim Farley, our Chief Operating Officer; and Tim Stone, our Chief Financial Officer. Also joining us is Marion Harris, CEO of Ford Credit. Jim Hackett, will begin with a brief review of our results and how we are putting people first through this pandemic including our team members, customers and partners. Jim Farley, will cover the operational excellence required to execute solutions while ensuring Ford comes out of this even stronger. And Tim will talk about the prudent and proactive actions we are taking to enhance our cash position while preserving the financial flexibility to fund our redesign and growth initiatives including critical launches. Then we'll turn the call to Q&A and Jim will close with a few remarks. Our results discussed today include some non-GAAP references. These are reconciled to the most comparable U.S. 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 discussion includes forward-looking statements about our expectations. Actual results may differ from those stated and the most significant factors that could cause actual results to differ are included on slide 23 of our deck. In addition, unless otherwise noted, all comparisons are year-over-year, company EBIT, EPS and operating cash flow are on an adjusted basis and product mix is on a volume weighted basis. Now let me turn the call over to Jim Hackett.

Thanks Lynn, and hello everyone. And Lynn let me thank you for doing an incredible job in putting this virtual call together. In addition to Jim Farley, our Chief Operating Officer; and Tim Stone, our Chief Financial Officer, I'm proud to say that Rudy and Ozzie, my two big girls are joining me today in the call. Well, you know, the nature of times brings to mind the notion of paradox. And I like to think of the definition of a paradox as two truths that compete. Let me explain. The first truth is that safety is of the utmost concern in a pandemic; yours, your loved ones' and the people you work with. The communities you live in and amazingly all other humans you interact with, their safety guarantees your safety. The second truth, there is no future if we don't have an economic system that is always on. We didn't realize there was an off switch. We knew it might go into a recession more like a dimmer switch, but off. Well now as we bring these two truths together, they compete. Turning the economy back on challenges the question of whether it is safe enough. My goal today is to provide an update on where Ford stands and hopefully illustrate that Ford is doing a great job of managing this paradox and confirm that we have control of the business in a very difficult time. I am pleased to report to you that we have the foresight to move early, ahead of the shutdown. We kicked off our coronavirus response task force led by about 30 senior leaders from across the company. Independent of virus we call we had around the same time, reorganized our top team, enabled by a new Chief Operating officer position held by…

Thanks, Jim. Operational excellence especially in this crisis requires, obviously the dedication, but also collaboration, partnership and support from the entire enterprise, our suppliers, our dealers, employees, unions, our JV partners, and our execution. And its excellence demonstrated this early on in China as Jim said. I know we're going to come out of this a lot stronger. But we need to be agile, have a bias towards action and be very transparent with our employees, our customers and partners. Early on in China, we focused on business continuity. We mapped our suppliers for the liquidity in the supply chain. We created a unique logistics portal to track our supply chain. We secured air freight capacity to deliver critical safety equipment to our team in China importantly including our dealers. And we used the same air capacity to ensure of supply of critical parts to regions like North America outside of China. We then partnered closely with our dealers. We retract in-store traffic, inventory, the financial liquidity and health. And in the face of shuttering our dealerships, we turn together work together to drive demand and ensure quality service to our customers. We provided those customers with a more robust app to order vehicles online. In fact, in China today, over a third of our sales are now direct online. We increased doorstep delivery of sanitized vehicles with what we call zero touch. We currently expanded to schedule remote service and vehicle pickup for maintenance and make it easy for customers. And our joint venture partners were up and running as early as February 10. In fact, as Jim said, one of them JMC repurposed our two ton transit van to manufacture over 1500 Ford Transit ambulances in the first quarter. From the start, we focused on a return to…

Thanks, Jim. It is just over a year since I came to Ford. The primary reason I joined was my belief that company has abundant opportunities to improve customer experience, enhance effectiveness, grow and create superior value for stakeholders. Being a part of this team, as we've tackled the crisis, has further strengthened my confidence in our team and in Ford's future. That's why throughout our comments on this call, even amid what we're doing to protect people from the virus and help stop its spread, our actions have been consistent with the priorities we've discussed with you for several quarters. First, improving customer experience and operational execution. Second, progressing our global redesign, making tough choices to lay the foundation for improvement in future automotive growth, free cash flow, profitability, and returns on capital. Third, enhancing fitness, through structural costs and capital efficiency and alliances that can drive durable scale benefits. Fourth, prioritizing meaningful opportunities for profitable long term growth in mobility. And fifth, employing continued discipline to drive strong results from Ford Credit. In the first quarter, lower industry volumes across all regions contributed to a 21% decline in wholesale and a 15% decrease in revenue. These results largely drove an adjusted EBIT loss of $0.6 billion and a negative $2.2 billion in adjusted free cash flow. Our results were constrained by the adverse impacts of the virus. We estimate the unfavorable impact to adjusted EBIT was at least $2 billion. In our automotive business, lower volume accounted for $177 million loss in EBIT as $346 million positive EBIT from North America was more than offset by losses in other markets. To be helpful and informed by your input, slide 10 of our deck includes additional color on the drivers of the year-over-year change in EBIT, putting warranty, which…

Thank you. [Operator instructions] Our first question is going to come from the line of John Murphy, Bank of America.

Good evening, everybody. It is really great to hear from all of you. It is going to be tough to stick to one question, but I will. Typically, out of a very tough time like this, you get a very good recovery, these a lot of the lessons learned in the tough time result in sort of real efficiency and focus. I'm just curious, I mean, Jim, you were talking this and Tim, you're talking about this on the balance sheet side, just curious if you can really illustrate or explain any of those opportunities you're seeing here in the near turn, specifically and because of going through this rolling restart with China and in Europe and North America being you're seeing some of these opportunities ready? If you can give us more details around us so we can understand that because traditionally 1 to 3 years out your margins are significantly higher in some cases. In the past recession they were an all-time highs three years after that we hit the skids in '09? So just trying to understand what you're seeing right now what the opportunities are in China, Europe and ultimately in North America?

Thank you, John, Jim Hackett. I'm going to go for all the questioners our quarterback to call so that we don't have big lag here. And, John, just an observation that I agree with you. This is my third crisis in business. This one's a unique one. The other two were substantial. And I observe that there's cost that comes this added to income statement that comes from disruption. For example, we were shipping products, expediting product from China to get to the factories here, parts I should say, so that we didn't have any disruption. And as the virus spread like a water slick the stuff that we were air freighting was eventually going to get stopped in production. So, we had the cost of that and it is what Tim has talked about, that we've been working to offset those kinds of increased costs and there's a lot of examples of that. It is in the billions that we work to. Also confirming with you that in this time of focus, you start to think of things that matter to the company. I don't want you to think of them well, you should have stopped them anyways, these are things that there's no races going on. So, some of the investments that you would have because the virus has diminished participation and things, we don't have that cost so we have the savings there. And then having the focus that Jim Farley talked about, we find that we can actually improve our leverage. So, I want to confirm with you that, yes, we're thinking about this the same way. Now, you asked for some specifics and I'd like to turn it over to Jim, because I think China is a good example of where there was advantage as we came out of this. Jim.

Thanks, Jim, and hi John. So, in China, we learned a lot, not only to start up the operations safely, we started in mid-February, we're now up to 90% of our salary workforce and all of our plants are up and running. Actually, GMC never shut down. It is the best quarter ever. But they get after cost really quickly, we're able to offset all the COVID impact in the first quarter and we learned a lot. We learned that the mix coming out is very different than the mix going in. And so our mix of product is quite different. It is very favorable. We went online for our sales as said about a third of our sales are now online in North America, it is north of 25%. That's an efficiency and improvement in our fitness. We did lower costs, we expect that to sum that to flow, obviously, in North America, very focused on the recovery items on material costs and warranty costs. Those are the kind of costs that flow into subsequent years. In fact, we're more than committed ever in that 10% EBIT margin in North America. And as Jim said, we're forecasting a lower SAAR. So that must mean obviously our costs are going down. We do have some great launches coming up, which will be a tailwind in North America. The other things we learned in China that we're exporting is to ship patterns as you come back are very important, so are getting the launch teams in the facilities to work launches because we're just in year-end in China launching Kuga and localizing some of our larger SUVs. Those are very important for profitability, very same exercise we're doing in North American in certain fourth quarter. And the last one is supplier readiness. What we learned in China was got to make sure your supply basis ready. So, we've surveyed almost 1500 suppliers in Western Europe and the US to make sure they're ready to come up and have the same playbook in terms of prioritization of safety. So, yes, I mean, the bottom line is, it is a very difficult time, but Ford team is at its best, and we're going after crop costs that will flow. Thanks back to your Jim.

Operator, we'll take the next question. Thank you.

Our next question is going to come from the line of Rod Lache with Wolfe Research.

Thanks everybody. Good to hear from you. Just wanted to follow up on that question. So at this point, if we back out working capital looks like the business in the auto business is running at around a $1.3 billion burn in the quarter. And if you bring your CapEx down to the low 6s, maybe that could even converge on break even at something that looks like it corresponds with a $15 million SAAR. But you talked about coming out of it stronger. So, I was hoping maybe you could just tell us a little bit about some of the approaches that you're taking here. Are there any opportunities to accelerate restructuring, maybe in light of this crisis, and what do you think you might actually look like when we actually do recover to a $15 million SAAR?

Thank you, Rod. It is Jim Hackett. Let me start with saying to you that 26 years in a job like this, I never had a business plan that was called pandemic. And I mean that in all sincerity because we just never imagined the economy turning off. And the other two crises that I was in we had deep troughs of issues, but this was unique. Secondly, board has been really diligent at working on a number of fronts that I'm proud to tell you, as I look back at other companies, which I would admire in our industry, that some of you referenced. And I take the beginning point of when I guess they started and where they are now, I would say that are the effort to get all the new products in the portfolio are going to be extraordinarily beneficial to the company. You just got to remember we're going from one of the oldest product lines to the new. And in the course of this pandemic comes in and interrupts. And it is going to slide, the timing of that, but we've got a new F150. We've got a new small rugged off road SUV. We've got an all-new Bronco. We got the Mustang Mach-E. So, all the work before the pandemic is valued that we're going to enjoy. This is why we've believed - we thought last year was going to be the tunnel year and we had the problems in Chicago. We've totally fixed that. Explorer was doing really well. And now we were waiting for this new product. The second thing is we started on restructuring, particularly in Europe. Just want to comment again, I'm not being cynical, but that was 40 years of problems that we took on in a very…

Thanks, Jim. Hi, Rod. Very quickly. Just want to emphasize that the EU and South America restructuring are no regrets move. We reduced the headcount in Europe by 12,000 people teammates by the end of this year, we closed facilities. Bridgend still to come. We've cut costs, especially structural costs in South America. We have 40% less staff. We've gotten out of Fiesta and Focus. We got out of the heavy truck business and consolidated San Bernardo. So, those are no regrets move. But, the hangover COVID is obvious. And everything's on the table. Our team under owns the plan, it is they're still locked down and execute. In North America, we see a lot of opportunity and we want to make sure we have the capital to invest in North America. We do see a way to 10% EBIT in a lower industry even with the flow through of the cost actions we are taking plus as Jim said those great new products. And really for my team, they want to make sure that we have room for growth, especially in North America. And so that's why we're going to look at all the operations critically. Thanks. Over to you, Jim.

Yes, Rod. And just to confirm there's that one truth, right, don't waste a crisis. So, I want to confirm to you that the attitude in the spirit is if we can speed things up or we can now have what I would say more productive discussions with social plans or governments, of course, all that's on the table. And the kinds of things that we would be working on but nothing to announce today.

Thank you.

Our next question is going to come from the line of Emmanuel Rosner, Deutsche Bank.

Good evening, everybody.

Emmanuel, hi, confirming I can hear you. Thanks.

Okay, great. I was actually hoping to ask yet another follow up on the restructuring plan. So, I hear you loud and clear. No grace period to fix Ford. Don't waste the crisis. That's certainly not just the right attitude, obviously, very much needed, especially if the industry doesn't recover through previous levels anytime soon. At the same time, I'm a little bit struggling with, I guess the budget set for restructuring that you have for this year, which is - and it remains pretty minimal was actually tweaked down a little bit even versus the last update. And I view it somewhat as inconsistent. So why can't you do more? Why can't you spend more? You've raised recently another $8 billion. It feels like now would be the time to do faster action to accelerate the process. And it seems like it doesn't seem to be budgeted, how do I reconcile that?

Yes, well, I guess the, the confirmation I want to make is yes, your instincts are, that there can be more that can be done. We're talking about just - and draw a parallel to you in 14 days. We got a ventilator designed and built for the country. So, I know Ford can move really fast. And the pandemic, we sent everybody home on March 13th. So I don't know if you're asking in that time, you would have expected a plan that would, change the strategy of the company. And the way I think about the crisis is you got a priority first of stabilizing that you can operate and recover some of the costs that are just, flying out the door and that's where we did a really great job. In parallel, we've begun planning in discussions with the spirit of don't waste the crisis. And I just, confirm there's nothing to announce to you today, but would not be fair for you to walk away and say, Ford's not doing anything. I don't think that would be right. And I'd like to clear up what you just asked about the budget. So, I'm going to turn to Tim to make sure we're you're reading correctly, the way the cash flows are working, given that we had the roll off of the payables and what we have committed to restructuring, Tim?

Thanks, Jim. Thanks, Emmanuel. So as it relates to the restructuring, the charges in the cash for 2020 that we commented on $0.7 billion to $1.2 billion are associated with the redesign actions that have been announced. And the cumulative of that would be $4.4 billion to $4.9 billion in charges, on the way up to $11 billion, as we've talked about, and the cash would be $1.8 billion to $2.3 billion cumulative on the way up to $7 billion overtime. To the extent that we are thoroughly assessing and aggressively addressing our operations looking at, identify as always opportunities to improve our fitness and redesign the business to amplify long term potential. That's why we give the longer term view of up to $11 billion EBIT and up to $7 billion cash. But specific amounts we are guiding to or related to actions we've announced thus far.

Understood. Thank you.

Holly, back to you.

Thank you. Our last question for the day will come from the line of Joe Spak with RBC Capital Markets.

Thank you. Maybe just one quick one on Ford Credit. I understand you certainly took the write down of vehicles awaiting auction. I believe the way it works is you've got to also take the supplemental depreciation for the remaining term for the rest of the book. So, how should we think about that over the course the year? And are you still expecting Ford Credit to dividend anything back to the Motor Company this year?

Thank you. I'm going to hand that to Marion Harris, who's the President of Ford Credit, Marion.

Thanks, Jim. Hi, Joe. How are you? So, good observation. So, let me talk about what was in the quarter and what was not in the quarter and then talk about the forward quarter. So, in the quarter credit loss reserve changes for the retail loan book and for our commercial lending, as well as credit loss estimates on the lease book which actually flows through lease accounting, as well as a reduced valuation on those vehicles that were just off lease and awaiting sale at auction. You correctly pointed out that in the period was not included any changes and outlook on future auction values of the portfolio, those changes in auction values will flow through the future periods according to lease accounting, and we describe that’s in great detail in some of our educational disclosures that we have on the topic. We’re not going to disclose today. We’re giving guidance on what we think that will be in the future. It is still too uncertain as Tim said. We don’t know the depth that for how long the auction market will be disrupted, but we are very confident that the used vehicle market will return to normal. And then on dividends, the only thing I would say is their function of net income and balance sheet size and leverage and it'll be what it'll be. We're still continuing to target an eight to nine leverage. Back to you, Jim.

Thank you, Marion.

Thank you. I would now like to turn the conference back over to Jim Hackett for closing comments.

Yes, thank you. Thank you, callers. As I mentioned this represents the third meta-level crisis I've been involved with as a CEO. And yes, this one not only tragically has had a larger human toll, it also represents a first where for all intents and purposes, the economy was turned off. In the face of all these events, I've been able to pay witness to those who rise to be better and likely surprise you with their resourcefulness, selflessness and ultimately resilience. Companies too define themselves in the times of crisis. We hope that we've been able to talk to you why we think you are seeing Ford at its best as we protected our people and we did all we can to serve our fellow men and we believe we safeguarded the bright future of Ford Motor Company. We look forward to sharing more of our response and the ideas that you've asked about and impact as there will be lingering effects of the virus until it is totally contained. With that, we're all adjourned and thank you for joining us tonight.

This concludes the Ford Motor Company first quarter earnings conference call.