DEARBORN - Bob Shanks, Ford executive vice president and chief financial officer, will spend five hours today speaking with media, analysts and investors. Here is a snapshot of the Top 10 Questions Bob has been asked by journalists from around the world.
1. What is your overall impression of the quarter?
We had a solid second quarter and strong first half. The company earned $1.8 billion pre-tax operating profit, which is our 12th consecutive profitable quarter. Our $800 million in automotive operating cash flow represents our ninth consecutive quarter with positive automotive operating cash flow and we ended the quarter with strong liquidity for the automotive business of almost $34 billion.
2. Is there something that really stands out in your mind?
Our One Ford Plan is working, and the best example is North America, where our results were excellent. For the second consecutive quarter, our profit exceeded $2 billion and our margins were more than 10 percent. We are absolutely on track to deliver the One Ford plan and very excited about our newly launched Escape and soon to be launched all-new Fusion. Customers are responding positively to our new product and, at the same time, we are maintaining a very competitive cost structure in North America. That said, North America continues to carry the company on its shoulders, so we need to continue to work our Plan to ensure we generate strong contributions to our bottom line from other regions, too..
3. What is happening in Europe?
Europe is a very challenging environment. To put things into perspective, the auto industry in Europe has more than 18 million units of capacity. In the first half of this year, the industry was running at 14.3 million units, which is 600,000 fewer units this year than we had in the first six months of last year. You have to go back 18 years, to 1994, to find sales this low.
We lost just over $400 million in the second quarter and more than a half-billion dollars in the first half of the year. All of our key metrics – wholesale sales, revenue, pre-tax operating profit and margins – were down substantially from where they were in the second quarter of last year. Volume was unfavorable due to lower industry, share and associated stock changes. Net pricing was lower as the industry responded to excess capacity with higher incentives. High contribution costs also contributed to profit decline in Europe.
We fully understand the seriousness of the situation in Europe, and we view the challenges the industry faces as more structural than cyclical in nature. While we are affected significantly because of our strong presence in the region, we understand what it takes to be profitable and to generate an appropriate return on our investments.
What is important though is that we have faced very challenging situations in other parts of our business before and addressed them successfully though our One Ford Plan. We will do the same now in Europe.
4. Does Europe require restructuring?
We are reviewing all areas of our European business to address the near-term challenges while ensuring we are building a strong business for the future.
5. When will you tell us about your plans to revitalize Europe?
We are reviewing our plans now; we will communicate them to all of our stakeholders at the appropriate times
6. Will plants have to be closed in Europe?
We are reviewing all areas of the business to address near-term challenges and to build a strong foundation for a sustainable success in Europe. We have no specifics now of what our plans may be, other than to say that we will apply the ONE Ford Plan to our challenges in Europe, as we have done elsewhere in the past.
7. Asia Pacific Africa was a bit of a surprise in that the area is growing and we are not making money there. Why?
The short answer is that we are investing heavily for our future in Asia and we incurred a small loss in the second quarter due to our continued investments in future growth. We expect our results to improve in the second half of the year as the company benefits from added capacity in China and Thailand and the launch of the all-new Ranger and Focus.
8. It looks like Ford had a tough quarter in South America. What can you tell us about it?
For the 34th consecutive quarter, we posted a pre-tax operating profit in South America. Our second quarter was slightly better than breakeven, but pre-tax operating profits were down substantially for the quarter. Although we continue to expect South America to be profitable for the full year, we now expect the level to be substantially lower than 2011. This reflects increased competitive pressures, weakening currencies, and changes in government policies affecting areas such as trade and access to foreign currency.
We are continuing to work on actions to strengthen our competitiveness in this changing environment, looking at all areas of the business to improve our operating results. These actions include fully leveraging our One Ford Plan, including the introduction of an all-new line-up of global products over the next two years, starting with the launch of Ranger, EcoSport, and Fusion in the second half of the year.
9. What happened to market share in North America in the second quarter?
Our total market share in North America was 15.6 percent, down 1.7 points from the second quarter of 2011. This is due to the discontinuation of the Crown Victoria and Ranger, new entrants in the small-car segment and Japanese competitors rebuilding inventories after the tsunami impact in the second quarter of 2011. As you know, we have been very focused on adding capacity this year in several facilities to support growing industry volumes and new car launches. Specifically, we are adding 400,000 units of annual incremental capacity by the end of the year, most of it happening in the second and third quarters positioning us well going into 2013.
10. Can you update us on the Escape recall?
The feedback that we have received from customers and dealers is that they are pleased with Ford’s quick and decisive action on the issue. Sales have not been impacted.