Ted Cannis - Executive Director, Investor Relations Mark Fields - President and Chief Executive Officer Robert Shanks - Executive Vice President and Chief Financial Officer

Ryan Brinkman - JPMorgan Joe Spak - RBC Capital Markets Colin Langan - UBS John Murphy - Bank of America Merrill Lynch Emmanuel Rosner - CLSA Limited Rod Lache - Deutsche Bank Adam Jonas - Morgan Stanley Matt Stover - SIG Patrick Archambault - Goldman Sachs

Good day, ladies and gentlemen and welcome to the Ford Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] We will conduct a question-and-answer session towards the end of this conference. I would now like to turn the conference over to your host for today, Mr. Ted Cannis, Executive Director, Investor Relations. Please proceed, sir.

Thank you, Chantelle and good morning. Welcome to everyone joining us today. On behalf of the entire Ford Management team, I would like to thank you for taking the time to be with us, so that we can provide you with additional details of our third quarter 2015 financial results. Copies of this morning’s press release and the presentation slides are available on Ford Investor and Media websites. The financial results discussed today include references to non-GAAP financial measures, non-GAAP financial measures are reconciled to the U.S. GAAP equivalent in the appendix to the slides. Today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance, actual results could be different. The most significant factors that could affect actual results are summarized at the end of this presentation and are detailed in our SEC filings. And now presenting today are Mark Fields, our President and CEO; and Bob Shanks our Chief Financial Officer. Also participating are Stuart Rowley, Corporate Controller; Neil Schloss, Corporate Treasurer; Paul Andonian, Director of Accounting; and Marion Harris, Ford Credit CFO. Mark over to you.

Great thanks, Ted. And good morning everybody and thanks for joining us. The overall headline is we had an outstanding third quarter and we remain on track to deliver breakthrough year. Looking at the numbers, we are in $2.7 billion and pre-tax profit which was more than double a year ago. We were at $1.9 million in net income also more than doubled. Our automotive operating margin came in at 6.5%, which was up four points. Our automotive operating related cash flow was $2.8 billion and this resulted in a number of records for the quarter. We had a record third quarter pre-tax profit and a record third quarter automotive operating related cash flow. As we look at the business units, we had our best quarter ever in North America, we are best third quarter at Ford Credit since 2011. And we have not had a better third quarter in Europe since 2009 and South America improved despite the tougher external conditions that we’re seeing in the marketplace. Now along with those results we also delivered strong topline growth. Our wholesale volume was up 7%, our revenue was up 9% or 16% at constant exchange. And our global market share came in three-tenths of a point higher and that's the third quarter in a row of year-over-year global share growth. Now along with this growth we also achieved sustained pricing power and that's really on the back of the strength of our new products. And if you take a step back and look at the first nine months of the year it’s an equally strong headline. We earned $7 billion in pre-tax profit and $5.2 billion in automotive operating related cash flow and both are more than all of last year. Looking at our launches 14 of our 16 new vehicle launches have been completed successfully and that's on top of the record 24 global launches, which we had last year. Importantly, our quality remains strong and it’s also improving in every region around the world. Turning to F-150, our F-150 is performing extremely well in the marketplace and we also just revealed our all-new Super Duty, which will be coming in 2016. And looking at our third quarter F-Series sales in the U.S., well it was our best sales in nine years. And we also continue to build on our strong truck franchise around the world. If you look at Ranger, well that’s the best-selling pickup in Europe, Australia, New Zealand, Vietnam and the Philippines. And the Ford brand is the commercial vehicle leader in Europe and we recorded our best sales in 12 years there lead by the Transit family. Now, even as we’re delivering in these results with one foot in today, we also have one foot in tomorrow, delivering emerging opportunities through Ford’s Smart Mobility. And Smart Mobility is our plan to take Ford to the next level using innovation in connectivity, mobility [Audio Dip] and our year-to-date results our plan, our people and our process are delivering and importantly creating value for our stakeholders. And as we go into the fourth quarter and close the year and go into 2016 and beyond we’re going to stay absolutely focused on our three priorities, which are accelerating the pace of progress on our One Ford plan delivering product excellence with passion and driving innovation in every part of our business. So at this point I’ll let Bob take us through some slides.

Okay, Mark, thanks. And on behalf of the 195,000 men and women around the world of Ford, I'm very pleased to take you through the details of what they accomplished in the third quarter. Let's start on Slide 4, on the upper left and let's start with the topline. So we delivered a very, very strong performance on both wholesale volume and revenue as Mark mentioned, wholesale volume was up 7% and revenue was up 9%, 16% if you adjust for constant exchange. Going down looking at the operating results both the automotive sector and financial services contributed strongly to the third quarter record profit of $2.7 million. And we had earnings per share of $0.45, which was up $0.21. Now after two quarters of no special items, we have a special item this quarter it’s a positive item of a $166 million and that reflects an investment that we have in an aluminum casting supplier named Nemak. They had an IPO in the quarter, so we revalued that investment inline with the IPO that generated this non-cash improvement of $166 million. Now just for information going forward, we will mark-to-market this investment each quarter and will reflect the gains or losses in other automotive. Now that combined with the strong pre-tax results generated the after-tax result to net income of $1.9 million which was up 129% from a year ago and earnings per share $0.48. Going down to automotive cash flow $2.8 million very strong and again the third quarter record. We ended the period with $22.2 billion in cash, automotive debt of $12.8 and net cash of $9.4 billion. If you look at the year-to-date results just two things I want to highlight. Again on the pre-tax results $7 million that we have generated so far that is 10% higher than what we generated in all of last year on a pre-tax basis. If you go down the slide further and let’s go back to the operating related cash flow. Again compared with all of last year what we’ve done through the first nine months is already 44% higher so very, very strong performance through the first nine months of the year. Let me just close with a couple of comments on taxes, so let's talk about the quarter first. I have seen a lot of articles thus far that’s highlighting the tax rate difference so versus first call estimate, we nailed the operating results, we came in a little bit different on the tax rate, we originally had guided to 34%, we actually came in at 33%, the first call estimate was 32%, so that entirely explain the $0.01 difference from the first call estimate. For the full-year, we are revising our guidance for the tax rate; we have been at 26% which was about where we were last year. It looks like now we are going to come in at about 30%. All right let's go on and we will look at the automotive sector on a more detail on Slide 5. Let’s just go right through the bars going from left to right so the wholesales were up 103,000 units 7%, revenue was up $3 billion that’s 9% again 16% after we adjust for exchange the operating margin up more than 2.5 times and 6.5% and we tripled our pre-tax results at $2.2 billion. To go to the lower left, you can see the global industry SAAR was actually up 1 million units that was driven by North America and Europe and global market share was up three tens of a point to 7.6% again the third consecutive year-over-year improvement on a quarterly basis. And that was broad-based that was driven by North America, South America and Europe and again go back and look at the year-to-date results just below the bars and they are improved right across the board. Okay, let’s go on to Slide 6 and we will look at what drove the $1.5 billion improvement in our automotive sector results. The simple answer is very strong market factors, very strong volume and favorable mix and very strong net pricing and you can that that was far in excess of the investments that we continue to make in the business to support growth not only in this quarter, but in the quarters and years ahead. Okay, let’s go on to Slide 7, and here we will look at the absolutes by segment within the automotive sector. North America had that fantastic result that was mentioned $2.7 billion, that’s the best quarter that North America has ever had. And if you look at the other business units while accumulatively in a loss, this is the fourth quarter in a row that they have improved on a year-over-year basis and in this quarter improved by $240 million. Looking at other automotive that is primarily net interest expense and we continue to expect our full year results in that space this year to be $650 million. Okay, let’s go on to Slide 8, and we will start going through the business units and I will start with North America as usual. And if you go left to right here tremendous results right across the Board, wholesales up 16% and within that 106,000 units you had 45,000 units coming from F-150 so we are back with the F-150 full availability, we ended the quarter with kind of inventories that we would like to see and we are ready to move forward now into the fourth and continue the strong performance that was already referenced. If you look at revenue that was a very strongly at 19%, operating margin 11.3% this is even better than we did in the second quarter. And if you look at the pre-tax results again that’s best ever result of $2.7 billion. If you look at the SAAR’s both on a regional basis and in the U.S. we had strong improvement on a year-over-year basis and whichever way you look at it our share improved. The North American share improved, the U.S. market share improved and our U.S. retail of retail which isn’t shown also improved by 0.4 points so very strong performance and very strong industries resulting in extraordinarily strong financial results something we are very proud of and if you look at the year-to-date results again right across the board improved compared with the prior year. Okay let’s going to Slide 8 and we’ll looking it was behind the $1.3 billion improvement in North America again very similar to what we saw in the automotive sector is market factors, very strong volume and mix, a strong net pricing and again in excess of the investments that we've made to grow the business in this quarter and in forward years. The other item I would callout is in other we saw strong performance also coming from our parts and services business.

Just a couple comments on the F-150 because there is always lots of interest in F-150 and the bottom line is we are seeing very strong demand for the product .We‘re continuing to see a rich mix, we see fast turn rates much faster than the segment average. In the transaction prices are up $2800 year-over-year and higher than our two main competitors. And if you think about retail market share, our retail market share in the quarter it actually climbed above the pre-change over levels and we believe there is more upside in our total share as we begin shipping more F-150's to our fleet customers during the fourth quarter and into next year.

And because of that we’re expecting North America to have a very, very strong year with topline growth and also full-year process that will be higher than what we achieved last year and we are now revising our guidance on the margin to be at the upper end of our guidance at 8.5% to 9.5%, so really strong performance from North America driving the overall company. Let’s going and look at South America and actually some really great things happening year. Our team has done a wonderful job in a very tough environment of delivering a result it's actually a little bit better than what it was last year. If you look at the wholesale the wholesales are down 10% in industries that are down 20% for the region, 25% in Brazil, if you look at revenue, revenues down 32% almost all of that it is exchange related. Operating margin down of lower revenue, but you can see the pre-tax result actually come in and slightly better than what it was a year ago. If you look at our share in the lower left very strong performance both in the region and in Brazil that was driven once again by the very strong market reaction to the Ford call, If you look the year-to-date performance were down on the topline between better in terms of the financial results again based on what the team is done and is very tough environment. So hats off to the team in South America. Let’s going to Slide 11 and look at the small change year-over-year and you can see that it was really driven by net pricing most of that is to recover the effects of the inflation and also the depreciating currencies, but if you look on the volume and mix callout box you can see the big impact of the industry decline which is partially offset by the strong share performance the team is delivered. For the full-year we continue to expect to have pre-tax loss that will be reduced compared with 14, but we feel very good about what the team is done and clearly has positioned the business recover very quickly once the external environment starts to cooperate. Okay let’s go onto Europe on Slide 12. Again some good things to callout here very strong topline performance wholesales up 17%, the revenue was up modestly in dollars only 2%, but if you look at it again on exchange adjusted basis up 16%. The operating margin and the pre-tax results improved by nearly 60%. If you go down to the third quarter SAARs and shares, you can see very strong growth both in the regional - at the regional level, but also in Europe 20. We did improved share across the region we had a small decline in Europe 20 which was driven by the launch ramp up of the S-Max and the Galaxy, along with the aging of the Fiesta. On a year-to-date basis were seen improvement in wholesales revenue is off again that's more than explained by exchange and strong improvement in terms of the financial results. Okay let’s going to the next Slide and we look at what was behind the $257 million improvement in Europe's results and again very similar to auto sector very similar to North America in the back of great products and good go-to-market strategies you can see the improvement in volume and mix and net pricing more than offset by or partially offset by very modest increases in cost. If you'll at other that is largely explained by the consolidation of Russia. So overall again the teams doing a great job here having us moving forward in a positive direction that we feel that were very much on track to move towards a profitable position will be talking about that more early in 2016.

In just a couple comments are as you look at our transformation plan which we had in place for a while it's gaining momentum and were confident that were on track for return to profitability in the region. If you look at the industry overall it’s improving but it's still a bit of a two speed recovery with markets like U.K. and Germany doing better than some of the southern markets. But that being said, it's improving. The commercial vehicle segment industry itself is performing well and Ford's commercial vehicle performance is doing extremely well. We were the number one commercial vehicle brand in the region for the quarter and also for the full year. So really is an exceptional performance on our commercial vehicle side by our Transit. We are still seeing some muted pricing across the industry. But Ford's mix and rates are strong. And I think all this combine has allowed us to not only grow our share but also improve the financial performance that Bob just brought you through.

Okay, thanks. Let’s go on Slide 14, and we’ll look briefly at Middle East and Africa. We want to highlight here is not so much the financials, the absolute to relatively small. The results are near breakeven. But the team in Dubai is doing a good job, they’ve laid out an overall strategic framework for how we can participate and what's going to be a very important region in the next 5, 10, 10 years and starting to put the building blocks at actions in place in order for us to participate in that. In the quarter they did announce a partnership with a local company in Nigeria for us to start assembly of Ranger pickups, relatively soon. So again for the full year we expect to deliver about breakeven results. Let’s move on Asia Pacific on Slide 15, again looking at the key metrics here a little bit different than some of the other reasons, we’ve look at the wholesales were down by 12% 40,000 units, 35,000 of that was in China, and I will come back to that in just a minute. The revenue was flat in dollar terms but again adjusted for inflation it was up 12% and just remind you that does exclude the China joint ventures because they’re unconsolidated. The operating margin was down and the pre-tax results were generally inline with where they were last year. If you look at the Asia-Pacific SAAR that declined and it was more than explained by a reduction in the China industry SAAR. In terms of our share our Asia-Pacific share was down a tenth at 3.5% that was driven by Australia. And in China you can see that we held our share 4.7% that equaled the quarterly record that we set a year ago. If you look below the bars you see the year-to-date results basically downward across the board. Now let's look at I am sorry, I should also comment on the fact that if you go back within the bars on Slide 15. We do have the equity after-tax earnings and our China JVs, you can see they were down about 15%. Let’s go the next side and I'll give you some of the insights in terms of what's happening. So a pretty modest decline but within the numbers, let’s look at the volume in the next call off box, you can see the pretty sizable stock adjustment. We took stocks down in the quarter and that was something that we have talked about in the second quarter calls, we wanted to get our days supply inline with decline that we have seen in the overall industry. We progressed on that in the first half we needed to go further in the third quarter and the team did a good job of that may also did call the overall run rate of sales properly. So we did end the quarter, right where we wanted to be in terms of stocks. But it did affect profits on a year-over-year basis by about $130 million. The other thing you don't see on the slide is we had a supplier constraint that’s in our result that constrained our production and affected profits to the tune of about $60 million. So overall we think the team is responded well to the slowdown that we seen in China and we are expecting to have a very strong fourth quarter in fact, we think it's likely to be a record quarter on the back of new products and in some cases built in new capacity that’s come on stream this year. We also expect to see a seasonal increase in China that we always see in the fourth quarter as the industry prepares for Chinese New Year early in the following year. And then of course the government has taken a number of simulative actions recently including the purchase tax reduction, which will favorably benefit about 70% of our portfolio and we’ve already seen the benefits of that in our showroom, so we feel very strong and positive about the full year and looking forward to the fourth quarter.

And just a couple comments on the China industry, we are seeing stabilization and as Bob mentioned we do expect to lift from the stimulus package. And as he mentioned we are seeing showroom traffic improve, we are seeing closing ratios improve and unquestionably we see this as a really good opportunity, because 70% of our sales have the engines that are eligible for the stimulus. And just across Asia-Pacific as Bob mentioned we’re confident in a strong fourth quarter. And as he mentioned likely up it’s going to be a record and it’s because of the industry lift, the new products which happen to be good margin products, we are after optimal stocking level so we won't experience the destocking we have in the third quarter. The supplier constraint is behind us and than the seasonal factor so we feel really good about where we are heading in the fourth quarter and into next year.

Okay, very good. Let’s go on to Ford Credit on Slide 17. Ford Credit again I mentioned it earlier, but very, very strong performance. The best quarterly results since 2011 at $541 million and that was driven by growth. You can see the $115 million in volume and mix, most of that is volume and then we also benefited from favorable mix associated with leasing in North America. In terms of our guidance for the full year, we continue to expect Ford Credit profit to be about equal to higher than what it was last year. We have narrowed the range of our call for managed receivables to $124 billion to $127 billion still looking for $250 million of distributions from Ford Credit in the fourth quarter and we expect to temporarily see our managed leveraged little bit higher than the 8 to 9 to 1 target due to the translation effect of the strong U.S dollar. Okay, with that let’s leave the business units and we will go on to cash and cash flow on Slide 18. Again I have touched on much of this so let me highlight once again the strong operating cash flow of $2.8 million, you can see that was driven by the automotive pre-tax profits, but we also saw some good performance in working capital and also other timing differences. Going down further on a page, you can see we actually had no pension contributions in the quarter to our funded plans. I talked about this earlier in the year I said that they would be – the contributions would be largely biased towards the first part of the year. We still have a couple hundred million dollars ahead of us that will be done in the fourth quarter ending the year with about $1.1 billion of contributions. We had $600 million in dividends in the quarter, $1.9 billion of shareholder distributions to date and since 2012 when we restored the dividend that we've had shareholder distributions of $8.5 billion dollars. Liquidity ended at $33.2 billion in the quarter very, very strong. Okay, let’s turn to Slide 19 and look at our planning assumptions and key metrics. So at the top you can see industry volume and if you look at the third column there you can see as we usually do at this point in time, we’ve narrowed our call to around a single point estimates so in the U.S. we are looking at 17.7 million units that would be up 5% from last year and in line with the year-to-date results. In Europe 20 about 16 million units that would be up 10% and again pretty much in line with the year-to-date results, and in the case of China, we were at 23 million to 24 million in the last call, we’ve narrowed that now to 24 million based on the actions the government has taken which would be in line with where we were last year and a little bit higher than the year-to-date results. In terms of the financial results on the rest of the page everything remains on track and certainly I don’t want to not state the fact that we expect to see the company coming with the pre-tax profits within the range that we’ve had all year long of $8.5 million to $9.5 million. So overall very strong results for the quarter, for the year-to-date expecting a strong fourth quarter and the breakthrough year that we've been talking about since January.

And a couple of comments on the industry, the U.S. industry in particular before wrapping up. We would characterize the U.S. industry as healthy and borrowing any type of shock whether it would be economic or policy related. We do see industry sales staying well supported at the current levels through the next few years or in other words we expected to be stronger for longer. Transaction prices are strong across the industry and for us replacement demand is back to its historical level of about 70% of industry sales and when you combine that with the vehicle park age, the oldest it’s ever been in 11.5 years, we think that bodes well. The labor market is steadily improving or seeing better wage and income growth and then when you look at the Full-Size Pickup segment which is important to us here in our biggest and most profitable market. 50% of Full-Size Pickups on the road today are 10 years or older and actually 25% of them are actually 20 years or older. So as we stand back across our lineup we think we are very well positioned overall and also with the F-150 and the 2016 launch of the new Super Duty coming down the pike. So let me just sum it all up. We had an outstanding third quarter and as we mentioned it was a record third quarter profit and with that higher wholesales revenue and market share and also better margin, and we are formally on track to deliver the breakthrough full-year. And for 2015, if you look at the regions we continue to expect North America to be very strong both in profit, but also substantial topline growth with margins in the upper end of 8.5% to 9.5% range that we’ve guided to. As we look at Europe, we expect improvement in Europe, as we continue moving towards profitability and will have more to say about that in January. Our Middle East and Africa business unit will deliver breakeven results. South America will deliver better results than last year despite the much tougher environment we’re seeing. And Asia-Pacific is going to have a strong year and in particularly strong fourth quarter and likely a record fourth quarter with the new capacity and the products that are coming online in combination with the government incentives promoting smaller vehicles in China and of course continued strong and steady returns from Ford Credit. And as we look at 2016, we expect a strong year with the momentum that we built in 2015 and particularly in the second half of 2015 we expect that to carryover into 2016. A little bit longer-term we’re on track to deliver our strategic objectives, which are around being the top five in global sales having a better balance of profit and sales around the world, 8% plus operating margins being in the top quartile of total shareholder returns and being highly regarded by our stakeholders. So as you look at the third quarter we think there's more proof there that we have the right strategic framework, we have the right proven process and, of course, we have the right team and we’re consistently delivering. So with that why don’t we go to the phone lines for your questions?

[Operator Instructions] Your first question comes from the line of Ryan Brinkman of J.P. Morgan. Please proceed.

My question, maybe first on Europe, I'm curious what you think the trend is going to be there between diesel and gas given the events since your last call. Can you talk about your mix of diesel versus gas in the region? Then I think, too, you have a higher mix of light commercial vehicles, which are generally diesel and are going to remain diesel, so can you maybe break that out for us without the impact of LCVs? I'm trying to understand if there were a shift towards gas in the region, if you would benefit from that. And then just on a similar note, I think there's an opportunity now for your prices in Europe to converge with Volkswagen's more quickly than maybe was earlier hoped for. That's a key long-term positive, but should we also worry that maybe their prices have to come down near-term pressure in the industry? Thanks.

Okay thanks, Ryan. Let me take the first part of that question. First off as a company we’re well-positioned to respond to wherever the marketplace goes. If you look at some of the statistics our total sales in Europe are about 55% diesel. So it’s slightly less than the total industry, but when you break that out our cars are about 44%, which is below the industry. We do have the capability to actually go up to about 80% of gas engine. So we have that flexibility and on the LCV side probably about 97% of our LCVs are diesel, but we see that continuing strong. It's really too early line Ryan, too early to tell what changes in the marketplace we will see. We have not seen any changes in terms of customer ordering, we've actually seen a little bit of uptick and interest on diesel on our build-and-price, Internet marketing tool that we have out there. And in terms of the pricing, again we’re going to continue to come out with best-in-class products, we’re seeing the strong pricing particularly across our vehicle lineup. As you noted from where Bob took you through, our pricing was positive across Europe. In terms of what some of our competitors will do, we don't know, we are just going to stay focused on our plan and keep driving the business forward.

Okay, thanks. Then just for my last question maybe on Asia-Pacific. I think the guidance earlier in the year was that the profits would inflect from the first half to the back half as you launch new product and lever new facility investments. And since then you surprised with a really very strong 2Q and in the process were softer in 3Q; 4Q is going to be strong you say. I'm just curious what the biggest differences there have been, whether there was some sort of pull ahead maybe from 3Q to 2Q. And then just lastly, it looks like you actually increased here - am I right, you increased your market expectation for China? Now you're saying 24 million versus 23 million to 24 million? Mark mentioned the government tax incentives on 1.6 liter and below engines. Can you talk about, specific to those incentives, what percentage of your vehicles qualify for them, whether you've seen an uptick in your own sales since they've been announced? And then just lastly maybe high level, do you think that China has found a bottom here?

I think I can remember maybe a third of that, so what it all cover just ask again Ryan. So, in terms of the counterization, I think you'll still see a stronger second half and then first half. And it’s going to be driven by the fourth quarter, I think we probably would have expected third and fourth to be a little smoother than what it’s going to be turn out. But that’s because of the de-stocking action that we had to take in the third. We did that actually through the first and particularly in the second but the industry continued to slow a bit ahead of us keeping up with that. So we caught up in the third quarter. But now looking forward to a very strong fourth. We also were affected obviously in the third by the supplier constraint which isn’t something that we had expected and some of that will get back in the fourth quarter as well. So that's really what's behind the counterization but generally if you talk at second half versus first half it will be consistent with what we said from the very being and one of the factors behind the companies that are second half and first half.

And just your question around what percent of our vehicles are available for the incentives 70%. And when you look at the engines we have in the small EcoBoost engines that we do have. We think we an opportunity there, in terms of how we reached the bottom, while what we’ve seen is I mentioned in my remarks, we seen a stabilization. And I think the good news is we’ve seen a bit of a stabilization on the passenger car market. And when you look at all the actions that the government has taken and the PBOC has taken over last number of months. We think that bodes well, so we think we found a bit of a bottom in passenger vehicles, commercial vehicles still a little bit of weakness there, that we’re seeing persistent. And that will be a big determinant of where the economy is heading. But we’re still seeing some weakness there.

Okay, great. Very helpful, thanks. Congrats on the quarter.

Thank you.

Your next question comes from the line of Joe Spak of RBCC. Please proceed.

Good morning. Thanks for taking the question. I first wanted to get a little bit of a better sense of the puts and takes for the fourth-quarter North America margins. You're showing production up 12%, but – and calling that the higher end of the range, but that would still be a step down from what you've done year-to-date, which I think was sort of 9.9%. So maybe you could give us first some of the offsets there.

Yes, we have all the numbers you cited Joe are correct, 99, year-to-date the 111, second quarter 113, and the third I think we were 67 in the first, when we’re still launching and launch of the F-150. We do think we’ll come in at the upper end of that range, which would obviously suggest the fourth quarter that’s going to be lower than we saw in the second and third and that’s driven by normal seasonal factors. If you look at our business, year in and year out right across the board North America, other regions as well, we have cost increases on a sequential basis going from the third quarter into the fourth quarter. And we expect to see that happen again this year. We will still see positive on a year-over-year basis expect to see positive top line in terms of volume, in terms of still see good mix, we will still see positive pricing but we will see that seasonal cost increase. The other thing I'll mention that's different this year than some other years is the fact that there are aspects of the UAW agreement once we conclude one that we will book in the fourth quarter. So for example if we were to have signing bonuses, which you know it looks like GM agreed to and FCA those would be booked in the quarter that the agreement is confirmed or ratified. So that would take place also in the fourth quarter.

And that considered, I am sorry go ahead.

Joe just to put that in this perspective into the entire year, again in a year, in which we had a lot of launches and particular in the first half of the year launching the second plant for F-150, we are guiding to the upper half of 8.5% to 9%. So that gives you a little bit of perspective of the momentum as we get into 2016.

Yes, on that point I mean if you look at North America from 2010 to 2014 it’s averaged 9.1%. So I mean it looks like we have the chance of even doing better than that despite the launch is so effective as at the beginning of the year. Joe, you want to say something.

Yes, I was just going to ask any potential UAW agreement is considered in that guidance for the year?

Yes.

Okay. And South America, I know you talked about some positive stuff for Ford there, but obviously the commentary on the environment is a difficult one. I guess what I'm wondering is over the past four or five years you've done a pretty good job of pricing for some of the currency moves. And I guess what I'm wondering is if you're beginning to hit the limits of what you can do there, how have some of your recent pricing actions been received in that region?

Well, we would price more if the industry, but I mean that’s really what needs to happen, there needs to be more aggressive pricing overall by everyone in the market because the impact of the depreciating currencies in the local inflation we just can't keep up with it. And we have been quite active on the pricing front, but it's just not been something that everyone. I think you’ve got the number of players, particularly the larger players are trying to protect their market share positions and not responding to the forces that we are seeing. If you look at the rail for example over the last year it’s depreciate by 63%. If you look at inflation in Brazil it’s running about 10%, and in Argentina 15% to 27% depending upon whether it’s the official inflation rate or the one that people actually live with. So I mean that’s really what's happening is it's just the environment is really, really eating away at the overall cost positions that everybody has there and then the revenue that we are generating.

Joe that being said when you look at our plan of introducing new product and the fact that we are able to gain 1.4 points of market share. When the economy does turn we think will be well-positioned on product standpoint from a cost standpoint and keep in mind before 2013 we had nine years of good profitability out of the region so we are taking a long view, but we also understand in the short to medium term it’s going to be volatile and it’s going to be challenging.

Just to underscore that, if you go to Slide 11 and you look at the contribution costs and structural costs which are netting to basically about nothing there together. There is about $100 million of inflation effects in those numbers so the teams actually delivered cost reductions of about $100 million just in a quarter on a year-over-year basis. So we are swimming hard, it’s just occurrence quite strong against us.

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

Great, thanks for taking my question. On slide 9 you show net pricing and contribution costs. When I net them together it's fairly flat, slightly negative I guess. I'm a bit surprised given you talk about the F-150 had APPs up I think you said $2,800. You have the new Explorer, the Edge. Are you --? How should we think about net pricing going forward and sort of what is the drag in there that is preventing net pricing from being more positive?

Yes, I don’t think there is drag at all Colin and don’t say what I said I think for two quarter in a row. When you look at the business, you got to look at the whole business and if you look at the volume and mix let’s start there first. I just mentioned we were up over 100,000 units year-over-year in volume, 45,000 of that is F series so clearly a significant factor behind what you see on industry share stocks. And on mix and most of them 547 that you're looking at there is actually favorable mix and much of that is F series. So you have to look at the impact that the new product has on volume that it has on mix and that it got on net pricing and obviously it’s a factor and net pricing is not the only factor. And on the contribution cost that’s not all F series I mean you’ve got Explorer, you have got Edge, you’ve got a number of new products which also contributing to everything. So you really have to take all of that and you got to put it together and of course the result is a fantastic margin.

And There has been a lot of questions on the F-150. Can you clarify whether the new F-150 is more profitable than the outgoing model, given the higher aluminum cost, now that it's been in the market for a while?

I would say what I said for like about a year and a half, the F-150 margins are very, very profitable and we are very satisfied with the contributions we are making to the overall business and the other thing I would remind everyone is that this is a positive contributor to are achieving a regulatory compliance on fuel economy which gives us options on other parts of our portfolios were developing those products. So the effects of the F-150 are very, very positive and/in of itself but also in other ways across other aspect of your business.

I know you're not going to talk about 2016, but your earlier comments talked about margins being at the high end of the range by H1's launch cost. How should we think about that, those costs into 2016, because you do have the Heavy Duty coming? Is that going to be flat year over year or is this still net down when we think about launching the next year?

We'll talk about margins as well as other aspect of our guidance in the call in January. As Mark mentioned we're looking forward to a very strong 2016 for the company coming off of everything that we build this year. North America will have strong results there is - Super Duty launch next year, but that will be a more normal launch because we've got separate body shop, we are going to take all the actions that we need to take in regularly scheduled downtime as opposed to what we did in Dearborn in Kansas City. So it’s a very different type of the launch and clearly benefiting from everything that we learned on the first two. So this we will not be the effect to that you saw with the F-150 will be a normal launch.

Your next question comes from the line of John Murphy of Bank of America Merrill Lynch. Please proceed.

Just a first question, if we could maybe look on slide 9. One of the things that I think we were a little bit surprised at was the increase in structural costs and, to a lesser extent, contribution costs here. Can you just remind us how you are thinking about structural costs at this point and how you think about sort of your breakeven level relative to the US SAAR right now? Because it does seem like there's some costs that are creeping in here that we weren't really expecting.

Yes, did not creeping on your planned and if you think about what where thinking about the business we’ve been talking for quite sometime about profitably growing the business. And where we see opportunities to invest in the business to do so and get an appropriate return on our invested capital we will. So hear what you see is investments that we’re making and product, investments we’re making in advertising sales promotion you have an increase in DNA as we ramped up our spending as the business is grown and we see opportunities to do so profitably going forward so all of that is necessary and supportive of the types of margins that were delivering. If you think about the breakeven we are retargeting I think we talked about this back on our Investor Day we’re targeting to get to breakeven that's equivalent to two-thirds of our wholesale volume and that is exactly were North America. So everything is where it should be for North America and when we look ahead if we help opportunities to invest in the business and grow it in a possible way, but the appropriate returns we will do so.

Okay, that's helpful. Then the second question: as you look at how the year has progressed here, Bob, it does sound like things have shifted a little bit and obviously you're still going to have second-half profits that are higher than first-half profits. But what do you think is sort of the major puts or headwinds that you are running into that are changing that a little bit? It just does seem like there's a little bit less optimism relative second half versus first half relative to where there was maybe at the beginning of the year?

Well, John I am not sure why would say that we the year is playing out very much like we had expected we feel exactly - that where exactly were we thought we would be at the beginning of the year. We see the second half still being stronger as we had expected than the first half we delivered you know outstanding results in the second here we are in the third to fourth sequentially will be lower as it normally yes but on a year-over-year basis can be spectacular. We think that you’re playing out exactly as we had that it was going to play out.

But, Bob, you talked about sort of the seasonal pattern that was typical where the first half was stronger and the second half was weaker, and now it seems like you're pointing to seasonal factors in the fourth quarter putting pressure on North America, which is what you didn't say before. You actually said the second half would be -- was stronger and you wouldn't see the typical seasonal factors, so I think that's where things have changed a little bit relative to what we were expecting. It just seems like that's a change.

Okay I respect and this agree why don’t you go back and look at the graphic that we provide you'll see the second half was stronger than the first half you will see that the first quarter was the weakest quarter of the year and you'll see that the fourth quarter was trailing off a bit from the third quarter. That's exactly what's going happen.

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

Hi, good morning everybody.

Good morning.

Good morning, everybody. I wanted to ask you just a little more color on these, the comments that you made on the Super Duty launch being more of a regular launch versus the F-150. I guess as we're trying to -- from our seat trying to understand through the implications of a launch and obviously some downtime next year, but then also potentially offset by additional strength on the F-150. What does a regular launch mean compared to what we saw in the F-150?

Well, Emmanuel what you saw on launch the F-150 is obviously we took significant downtime to completely rebuild the body shops. And what we’ve been able to do with the spacing that we have in Kentucky or Kentucky truck operation, the body shop actually started being constructed in 2015 and it’s going to be completed by the end of this year. So we won't have the extended downtime that we had in Dearborn Truck or in Kansas City. So overall, what we'll see is the typical model year changeover what that happens during the shutdown period over the vacations. So we won't see, we will see that’s what we mean by a more normal launch, we handle it during the shutdown period during the vacations and they are more up and running.

Okay, that's helpful. Two quick questions on the North American volume in the quarter. On the production side, it looks like you produced maybe 5% fewer vehicles than you had guided just three months ago. I'm curious where that comes from. And then when I look at your earnings contribution from volume and mix in the quarter in North America, obviously very strong, $1.6 billion. Divided by the delta in wholesales looks like it's $16,000 contribution margin per vehicle or so when you said that only about half of the increase is the F-Series. So can you maybe explain the high contribution?

Yes, the contribution margin that you are seeing is because we have a number of very high margin products that we have been launching and Explorer, which is very high margin edge, which was really coming out in the quarter very strongly because we had launched I think in the prior quarter, that’s a very high margin product. And of course Mustang, Mustang is doing extremely well too. So you've got a lot of very high margin products that were driving that increase and generating type margins that you are seeing.

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

I wanted to also ask you about that. On slide 9, the North American bridge, typically you provide the material ex commodities, the commodity, and the warranty items for the contribution costs. I didn't see that this time for the segment. You had it for the overall company. I was hoping you could get that and, more specifically, I believe that there was a $500 million warranty charge last year. So is the – and I'm assuming that that's in the year-over-year comparison. So is the contribution cost actually more like $927 million ex that or is that $427 million really the contribution costs year over year? So is the and I'm assuming that said in the year-over-year comparison, so is the contribution cost actually more like 927 X that or is that 427 really the contribution cost year-over-year?

Yes, Rod, if you were to look at the company, Slide which is back on Slide 6, those the callout explanation are very much the North American callout explanations, you know if you just factor them down very slightly, that’s basically what you would see in the case of North America. So North America in terms of material excluding commodities would be the $1.1 billion, the commodity is about $325 million the structural related cost about $320 million. So you can see the North American results very, very much mapping to the total company and the case of warranty we saw good news of about $340 million year-over-year in North America. So that's exactly what you're talking about, we did have some reserve adjustments that we normally make in the third quarter that’s when we do our deep dives particularly on both coverages. I think and also field service actions that we also have the one time action last year, which obviously didn’t have this year. So it’s a good news and that’s really what's behind that 418 that you see on Slide 6.

Okay thanks, that's helpful. I was hoping you could just comment on going forward, one of your competitors recently suggested that they may be able to mitigate regulatory cost inflation through 2018. Just given that you already absorbed a lot with F-Series to help you guys achieve some of these targets longer-term, is that something that you think Ford can achieve?

Well, we are not talking about forward years today I mean we did have our Investor Day some time ago, we talked about the fact that particularly towards the end of the decade, if you look 2019 and 2020 I mean I think there's a lot of work the whole industry is got to do at that point in time in response to your compliance particularly around the machines and fuel economy, but I think we feel good about where we are up until 2019, but then there is a sort of a step level increase and we are all going to have to continue to work on particularly with more electrification that’s going to be required in that timeframe.

Okay, just one last one if I can sneak it in. You provide all the buckets for the Asia bridge, and I was wondering if you might be able to just give us a sense of how -- if we were just to think about China specifically, how would the bridge be bucketed? What would the structural costs be doing? What is pricing doing on a year-to-year basis as we look at Q3?

Yes, we are not going to breakout individual markets within a region, but I think it would be fair to say that in general because we do include on an equity after-tax basis the year-over-year variances from the China JVs within these data that you are seeing on Slide 16 and you could imagine that a lot of that is going to be driven by China just because of the size of that business within Asia Pacific. So I think you're probably looking at China, when you are looking at the slide here for the most part.

Your next question comes from the line of Adam Jonas of Morgan Stanley. Please proceed.

Hey Mark, hey Bob.

Hey.

So Toyota recently made a statement in the media in Tokyo that it expects sales of gasoline and diesel engine cars will be, they said, near zero by the year 2050. Now I know 35 years is a long time, but is that crazy? What do you think of that forecast?

Well, I can't speak to some of my competitors, in terms of our business plan that's a long business plan I mean we’d have to look out, but our plan as you know Adam very simply is provide the power of choice to consumer so we have terrific internal combustion engines, electrification and we all the different variants are working on hydrogen fuel cells et cetera. We have great diesel engines and our approach going forward is fuel economy is important to customers and so machines and things of that nature and we are going to continue to provide that choice and products that will appeal to our customers that are interested in those things and those are the things that they are interested in and we are going to continue to work at it.

Great, Mark. Maybe nearer term, and this is something I think I asked you about at the Detroit show almost a year ago, the topic of active safety and tying in life-saving and accident-prevention technologies, software and sensors and things, that also happen to make cars more fuel efficient. Any update on your progress of how Ford and some of your competitors have been able to convince the regulators that, look, these things should actually start getting some credit on the fuel economy side?

Well, from our standpoint we are actively engaged with the regulators and it’s an active ongoing discussion. We share the same objectives. We want to reduce the number of accidents. We want to reduce the number of fatalities. We want to loss congestion and we want to improve just overall safety for our customers. So we are in active discussions right now I think the things that you mentioned are things that we are talking to them about, because we feel they do require consideration and we'll see when we come out on those discussions.

Your next question comes from the line of Matt Stover of FIG. Please proceed.

Thank you very much. A question about Asia-Pacific. It's been some time here where one hand off or the other hand took China down, but it's doing pretty well. It's doing about $1.2 billion in profit, but the other APAC businesses are losing about $1.2 billion annualized. And I guess I kind of understand the story in China, but I'm wondering how we should think about those other losses outside of China that are dragging down the results within the region.

Well, let me first start with China you're only looking at the China joint ventures. We have three other areas of our business in China that would come to what we would call China as we’re looking at it internally. So you’ve got the built-up imports that we send them to China from on the Ford brand we've got the Lincoln products that were also exporting into China and as you might expect since we’re in the process of just launching that brand and launching the network and the products that is not this year contributing positively to profits. And then we've also got engineering costs that were incurring today inside Ford that we will only receive compensation for in future years once we start building the vehicles that were engineering. So that’s a cost if you will that we incur until that point in time. So you have to look at all of that in order to have a complete view of what our profitability is inside China. So looking at the JVs is going to give you not a complete understanding of what that story is. If you look at the rest of the region, the rest of the region for the last two quarters this quarter in the second quarter actually has improved on a year-over-year basis and was pretty flat in the first quarters. So the efforts that we have underway. In India, Australia and ASEAN are making great progress in terms of getting those businesses where they need to be. In the case of Australia we would expect that inflection point if you will to occur when we close our manufacturing facility there in October of next year and teams doing a very, very good job of repositioning the brand and the product lineup to prepare for that. In the case of India we just launched the brand-new Sanand facility and the new product that that we are building there, the Figo and that’s off to a good start, but there will be a while before as we have add product and add volume there to get the plant up and running to the level that we expected to be. And then in the case of ASEAN we actually made very good progress in ASEAN in terms of getting that region back to profitability and the sort of skirting around the level at the moment. So we feel really good about the progress you're making it more work to do and we expect about to contribute positively in the relatively near future. So those are the three areas and again all progressing very nicely and all contributing positively on a year-over-year basis. China is the reason why the region declined year-over-year both in the third quarter and the second quarter.

Your next question comes from the line of Patrick Archambault of Goldman Sachs. Please proceed.

Great, thanks for squeezing me in here. A couple of clarifications, just one I think it might've been Emmanuel's question, and forgive me if that was answered. But I think there was a question about the shipments being different in 3Q for North America relative to what was originally guided for. What was the reason for that? Was that some of the ramp stuff that we have -- some of the ramp challenges with frames that we've been reading about or is there something else that led to that difference?

Thanks its from a production standpoint what we ran into Patrick was a supplier related production disruption and we are now through that, but it did impact or production in North America and it did impact our production in China, but as I said were through that but is not related to F-150 as you see actually our production in F-150 came just about bang on what we expected. So it was some other vehicles some of our utilities that impacted a number of our clients.

Got it. Okay, that's helpful. Then just while we're on the same topic of North America, a lot of time is spent on slide 9, but the net pricing piece just taking that on its own. It is down -- the year-on-year increase is down from the second quarter, where I think it was around $700 million if I'm remembering correctly. Is this kind of for the fourth quarter the new run rate of pricing, or is this something that could pop up back towards that previous increase? Just the thing that comes to mind is there was at least one month in the quarter where incentives were pretty big on the F-150, and I feel like they moderated after that. So just wanted to try and put those things together.

So Patrick just to be clear you're talking about sequentially second quarter to third quarter in North America. Yes, if your question was the second quarter to third quarter change we had lower volume was down about 45,000 units and again that's because of some plant shutdowns that we have in the summer.

We will now take questions from the media community and your next question comes from the line of David Shepardson of Detroit News. Please proceed.

Thanks for having the call. Mark, I wonder if you would like to respond to Republican presidential candidate Donald Trump, who over the last six months has been heavily critical of Ford's announced plans to expand its investments in Mexico that the $2.5 billion and could you just sort of address generally whether you think it’s appropriate to be investing in Mexico in response to suggestions that Ford should be spending more resources here in the U.S.?

Thanks Dave. Well, listen as we’ve said we have not talked to Donald Trump and we have not made any changes to our manufacturing plants. And Dave as a company we deal with the facts and facts are stubborn things and Ford were proud of the facts and unfortunately we suspect the facts are getting lost in the politics. The reality and the facts are that we've invested more than $10 billion in the U.S. in our plants since 2011 and we've also added 25,000 U.S. employees. When you look at the way we spent our investments 80% of our North American investments are here in the U.S. and 97% of our engineering is done here in the U.S. We are multinational company and we invest in all the markets we do business in and you just saw the numbers here in the U.S., we’ve been in Mexico for 90 years. And this kerfuffle that we've seen yesterday around F-650 and our F-750 and what’s going on, we did resource them from Mexico to Ohio. We made that decision back in 2011 and that was long before any candidates announced their intention to run for U.S. President. As a matter of fact that was made before the last Presidential Election. So those are the facts we don't as we look at that we don't – facts don't cease to exist because they're ignored, but those are the facts at Ford and we are very proud of the fact of what we do in terms of driving, doing our part to drive the economic development in the U.S. and many other markets we do business around the world. End of Q&A

At this time I would like to turn the conference back over to Mr. Ted Cannis. Please proceed sir.

Mark, Bob, anything you want to say to wrap up? All right, thanks very much everybody, and information will be out on the websites.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.