Ford Motor Co Earnings Call Insights: Incremental Margins and $2 Billion Loss
Brian Johnson – Barclays Capital: I want to ask a half financial, half kind of management strategy philosophy question, and it really is around the North American margins, which are great, but I think there’s always an expectation out there that as revenue grows, we should see – one might see incremental margins above current margins and hence margin expansion. So if I look at your guidance for 2013, you’re implying revenues are up with higher market share and a rising market. You’re implying profits are up but you’re implying margin’s flat. So I guess the question for Bob is how do you – just what is mechanically going on with incremental margins? And then really for Mark and Alan it’s how do you think about bringing incremental revenue to the bottom line versus reinvesting it in a brand and a product line and future technologies?
Alan Mulally – President and CEO: Sure, Brian. We’ll start with Bob.
Robert L. Shanks – EVP and CFO: I think first of all, let’s all acknowledge 10% is a great margin. And I think the consistency that the business has demonstrated through all four quarters of 2012 shows the strength of the business, which as we’ve indicated in the guidance, will continue into ’13. We are expecting growth both from an industry perspective and from higher share, so your premise is correct that you would expect the leverage to generate an even higher margin. The main thing that’s affecting North America and I’ll say relatively capping the margin at about 10% is when I touched on the third quarter we have about $0.75 billion of non-cash structural cost increase around three areas. Back in ’05 we amended our healthcare plans and generated substantial cost savings. We amortized that through 2012, that ran off last year and this year as a result, we pick up if you will or we lose the benefit of that amortization to the tune of about $275 million. Secondly, in 2008 we impaired our assets in Europe; that also was amortized in North America, amortized also through 2012 that ran off last year. So the effect of that going away is over $200 million. And then lastly pensions. We have increasing pensions of over $300 million related to record low discount rate of last year. I had also mentioned that we are continuing to invest in even more growth in future so as the year progresses you will start to see higher engineering expense. We also have the 400,000 units of additional capacity that we put on-stream last year, so that’s several I think it’s four different shifts that we added last year which brings cost as well of course is bringing the revenue that you talked about. So, the results of all of that is what is essentially is keeping that margin to 10%. And I just would remind you that all of those things I just went through with the exception of the shift affects are non-cash which is one of the reasons why while the profits are guided to be about flat. We do expect our operating related cash flow to be even stronger this year than it was last year.