Ford Motor Company (F) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Ford Fourth Quarter Earnings Conference Call. My name is Chantelle, and I will be your facilitator for today’s call. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. George Sharp, Executive Director of Investor Relations. Please proceed, sir.

Thank you, Chantelle, and good morning. Welcome to everyone joining us today either by phone or by webcast. On behalf of the entire Ford management team, I’d like to thank you for taking the time to be with us this morning so that we can provide you with additional details of our fourth quarter and full year 2014 financial results. Presenting today are Mark Fields, our President and CEO; and Bob Shanks, our Chief Financial Officer. Also participating are Stuart Rowley, our Corporate Controller; Neil Schloss, Corporate Treasurer; Paul Andonian, Director of Accounting; and Mike Seneski, Ford Credit CFO. Now copies of this morning’s press release and the presentation slides are available on Ford’s Investor and Media websites. The financial results discussed today are preliminary and include references to non-GAAP financial measures. Any non-GAAP measure are reconciled to the U.S. GAAP equivalent in the appendix of the slide deck, and final data will be included in our Form 10-K. Finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance, of course, actual results could be different. The most significant factors that could affect actual results are summarized at the end of this presentation and of course, are detailed in our SEC filings. With that, I’d like to turn the presentation over to Mark.

Thanks, George, and good morning, everyone. Today we are going to review our fourth quarter and our full year 2014 financial results, and we’ll also update our view of the business environment for 2015 and also our guidance for the year ahead. So let’s get right into the first slide. Our results this quarter and for the full year reflect our continued focus on our One Ford plan, which remains unchanged. Our plan is served as well and we’ll continue to do so going forward. And we are now building on our success by accelerating the pace of progress throughout our business. We are starting to see the full benefits and strength of One Ford, and we intend to maximize these opportunities going forward. And here at Ford, we are passionate about product excellence and leading in innovation. And we are absolutely committed to building on our product strength today, we have even more new products and innovations that will deliver growth for our stakeholders and define our company going forward. So now let’s turn to slide two for a look at the fourth quarter and the full year. The fourth quarter was our 22nd consecutive profitable quarter. Automotive operating related cash flow was positive and liquidity remained strong. Fourth quarter wholesale volume and company revenue were lower than a year ago by 2% and 5%, respectively. Looking at the business units, North America and Asia-Pacific were profitable, and Ford Credit once again delivered strong results. For the full year, the company delivered its fifth consecutive year of pre-tax profit and positive automotive operating related cash flow, and the results were consistent with guidance. North America was profitable and we achieved a record profit in Asia-Pacific. Ford Credit profit was its highest since 2011 and while we reported losses in other business units, Europe and Middle East and Africa improved from a year ago. Volume was about equal to a year ago, while company revenue declined 2% and we achieved record market share in Asia-Pacific driven by record share in China. Our global pension plans were under funded by $9 billion at the end of 2014, which was unchanged from 2013 despite significantly lower discount rates. For 2015, our company outlook for pre-tax profit, automotive revenue and operating margin is unchanged from our September Investor Day guidance and we expect company pre-tax profit to range from $8.5 billion to $9.5 billion, with automotive revenue and automotive operating margin higher than 2014, which is largely driven by our new products and capacity. And today we are improving our outlook for automotive operating related cash flow from positive to higher than 2014. And before getting into the financial details, I’d like to take you through some of our other achievements in 2014, which if you’ll see on slide three. We watched 24 all-new or significantly refreshed products globally last year. This included the all-new F-150, which was awarded the Truck of Texas and named the North American International Auto Show Truck of the Year earlier this month, and deliveries and sales began in December. The launch is also included the all-new 50th anniversary Mustang, Escort, Ka, Transit and Lincoln MKC. Our best-selling midsize SUV the Ford Explorer debuted its new look at the LA Auto Show and will be available for customers in markets around the world later this year. We also revealed the all-new Ford Everest in Asia-Pacific. Ford remained the best-selling vehicle brand in the U.S. and the best-selling automaker in Canada for the fifth year in a row. And this was supported by continued strong sales of F Series, which despite the downtime on F-150 to support the new vehicle launch achieved U.S. truck sales leadership for the 38th straight year and U.S. vehicle sales leadership for 33rd year in a row. We also set U.S. sales records for Fusion and Escape. In Europe, we remained the number two vehicle brand, selling vehicle brand and continue to progress our transformation plan, achieving a year-over-year share gain for the Europe 20 market for first time since 2009. We also closed our Genk, Belgium plant improving our capacity utilization. Our growth in China continued with a record $1.1 million wholesales in 2014. In addition, our Changan Ford joint venture opened two new plants and we launched Lincoln in China, with the first nine Lincoln dealerships, which began sales of the Lincoln MKZ and MKC. Consistent with our plan to provide regular and growing dividends that are sustainable over an economic or business cycle, we increased our 2014 quarterly dividend by 25% and as you know, we announced an additional 20% increase earlier this month. We also completed our share repurchase program that reduced our diluted shares by about 3%. So now, I’d like to turn over to Bob, who’ll take us through the financial results. Bob?

Thanks, Mark, and good morning, everyone. Let’s start on the top of slide four, where you’ll see that fourth quarter wholesale volume was 1.6 million units that was down to 30,000 units from a year ago. And revenue was $35.9 billion, that was down $1.7 billion. Pre-tax profit was $1.1 billion, excluding special items. That was $197 million lower than a year ago. After-tax earnings per share at $0.26 were $0.06 lower. Net income attributable to Ford, including pre-tax special item charges, was $52 million. This was $3 billion lower than a year ago, including a non-repeat of a favorable $2.1 billion special tax item that we benefited from last year. Earnings were $0.01 a share and it was down $0.74. Pre-tax special item charges were $1.2 billion in the quarter reflecting primarily one-time loss resulting from a change in how we account for our Venezuela operations as well separation related actions in Europe and Asia Pacific to support our transformation plans and charges associated with the settlement of our 2016 convertible notes. You can find additional detail on the special items in appendix three. Automotive operating-related cash flow was $500 million, and automotive gross cash was $21.7 billion, exceeding debt by $7.9 billion. In the full year, our operating effective tax rate, which isn’t shown, was 35%. For 2015, we expect the rate which excludes the profits of our unconsolidated subsidiaries to be about equal to our 2014 rate assuming extension of U.S. research credit legislation in the fourth quarter. Full year vehicle wholesales were about equal to a year ago, while the company revenue decreased by 2%. Full year pre-tax operating profit, excluding special items, was $6.3 billion and, as Mark said, in line with guidance. The result was a decline of $2.3 billion from a year ago and net income was $3.2 billion, which was $4 billion lower than a year ago. As shown on slide 5, both of our sectors Automotive and Financial Services contributed to the company’s fourth quarter and full year pre-tax profits. Company fourth quarter and full year pre-tax profits were lower than a year ago more than explained by automotive. Compared with third quarter Automotive was favorable, while Financial Services more than explained the $60 million decline in profits. The key market factors in financial metrics for our automotive business in the fourth quarter are shown on slide 6. As you can see on the far left, wholesale volume and revenue declined 2% and 5% from a year ago respectively. The volume decline is more than explained by North America, while the revenue decline reflects all business units. About half of the revenue decline is attributable to unfavorable exchange. Global industry SAAR is estimated at 90.2 million units, that was up 2% from a year ago. Ford’s global market share is estimated at 6.9%, down two-tenths of a percentage point due to North America. Operating margin was 2.8%, down four-tenths of a percentage points from a year ago, while automotive pre-tax profit was $713 million and that was down $250 million. The decline in both metrics is more than explained by North America. As shown in the memo below the chart, full year volume was about equal to a year ago, while automotive revenue was down 3%, more than explained by lower volume from consolidated operations and unfavorable exchange, with the exchange effect accounting for nearly 60% of the decline. Operating margin at 3.9% was down 1.5 percentage points. Total automotive pre-tax profit at $4.5 billion was down $2.4 billion. The lower results were driven by the Americas. All other business units improved. We’ve included full year key metrics and year- over-year variance slides for the automotive sector and each of our business units in the appendix. As shown on slide 7, the $250 million decline in fourth quarter automotive pre-tax profit was driven by higher cost and unfavorable exchange. Higher net pricing in all regions, except Asia Pacific, was a partial offset. And as shown in the memo, pre-tax profit was about equal to third quarter. The absolute fourth quarter pre-tax results for each of our automotive operations as well as other automotive are shown on slide 8. As you can see North America and Asia Pacific were profitable, while the other business units reported losses. On slide 9, we show the factors that contributed to the $2.4 billion decline in total automotive full year pre-tax profit. The decline is more than explained by higher costs, including warranty, unfavorable exchange, and lower volume, including product launch effects and supply part shortages. Higher net pricing was a partial offset. The absolute full year prêt-tax results for each of our automotive operations as well as the other automotive are shown on slide 10. As you can see North America was profitable and Asia Pacific delivered a record result. Middle East and Africa was about breakeven, while Europe and South America incurred large losses as expected. Now we look at each of the regions within the automotive sector starting on slide 11 with North America. North America fourth quarter wholesale volume and revenue were down 5% to 6% from a year ago. While North America continued to benefit from robust industry sales, our strong product line-up continued discipline in matching production with demand and a lean cost structure, our fourth quarter results were affected adversely by the lower volume. This reflects lower market share and lower dealer stock increases than a year ago, offset partially by higher industry sales, including the US SAAR 17.2 million units, 1.2 million units higher than a year ago. Our U.S. market share deteriorated 1.1 percentage points to 14.3% and that was largely retail related. This primarily reflects a lower F-150 share, as we continue to balance share with transaction prices and stocks during the transition to all new F-150. Shares were also lower for several other products at the end of their product cycles, as we transition to the new products launched either in the fourth quarter of last year or earlier this year. As shown in appendix 8, our U.S. retail market share of the retail industry was 12.8%. This was down nine-tenth of a percentage point from a year ago, mainly reflecting the factors I already cited. The decline in North America’s revenue is explained by the lower volume. North America operating margin was 7.4%, down eight-tenths of a percentage point from last year, and pre-tax profit was $1.5 billion, down $252 million. As shown in the memo below the chart, all full year metrics declined from the year ago. The change in the financial metrics is more than explained by the lower volumes and higher warranty costs, including recalls. Operating margin was 8.4%, which was slightly better than our guidance. On slide 12, we show the factors contributing to North America’s lower fourth quarter pre-tax profit. The decline is more than explained by the impact of new product launches in the quarter on volume and cost. Higher net pricing including for new products and lower warranty costs were partial offsets. As shown in the memo, pre-tax profit was higher than third quarter, more than explained by lower warranty costs and favorable market factors. Higher structural cost, including the effect of new product launches, was a partial offset. Now let’s turn to slide 13 and review South America, where we’re continuing to execute our strategy of expanding our product line-up, including replacing legacy products with global One Ford offerings. We’re also continuing to manage the effects of slowing GDP growth, lower industry volumes in our larger markets, weaker currencies, high inflation, as well as policy uncertainty in some countries. In the fourth quarter wholesale volume and revenue decreased from a year ago by 2% and 9% respectively. The lower volume is more than explained by an 800,000 unit decline from last year’s SAAR of 6.1 million units, reflecting primarily the impact of import restrictions in Argentina, and the weaker economy in Brazil. South America market share at 9.4% was up nine-tenths of a percentage point, reflecting primarily the New Ka, which was awarded the most sought after car of the year award in Brazil from leading magazine, Autoesporte. Focus also contributed to the share improvement. The revenue decline is more than explained by weaker currencies and unfavorable volume and mix with higher net pricing as a partial offset. Operating margin was negative 7.6%. This was down 2.9 percentage points from a year ago and pretax loss was $187 million, a deterioration of $61 million. As shown in the memo below the chart, all full year metrics deteriorated from a year ago driven by unfavorable changes in external factors. The full year loss includes $426 million of adverse balance sheet exchange effects related primarily to the devaluation of the Venezuela bolivar in the first quarter. On slide 14, we show the factors contributing to the decline in South America's fourth quarter pre-tax results. Higher warranty cost including a field service action, more than explained the deterioration compared with both the prior year and third quarter. The adverse effects in the quarter of weaker currencies and high local inflation were nearly offset by higher net pricing. Also note that the share growth from new products offset the industry decline. Let’s now turn to Europe beginning on slide 15 where we continue to implement our transformation plan focused on product, brand and cost. Europe's wholesale volume improved 5% from a year ago, while revenue declined 2%. The higher volume is more than explained by 500,000 unit increase in Europe 20 SAAR to 15.1 million units and a lower dealer stock reduction compared with a year ago. The focus on product and brand saw continued progress in the quarter with launch of the new focus in all-new Mondeo. Our Europe 20 market share improved two-tenths of a percentage point to 7.6%, driven by a 2.8 point improvement in our commercial vehicle share to 11.7% reflecting the success of our full line of new transit vehicles and continued strong performance of the Ranger compact pickup. The decrease in Europe's revenue is more than explained by unfavorable exchange. Europe's operating margin was negative 6.5%, an improvement of 1.1 percentage points from a year ago and pre-tax loss was $443 million, an $86 million improvement. As shown in the memo below the chart, all full year metrics improved from a year ago. Slide 16 shows the factors that contributed to the improvement in Europe's fourth quarter pretax results. The improvement is more than explained by favorable market factors, offset partially by Russia. As shown in the memo below the chart, pretax results were about equal to third quarter despite the impact of Russia. Let’s now turn to slide 17 and review Middle East and Africa where we’re focused on building our distribution capability, expanding our One Ford product offering tailored to the needs of markets in the region and leveraging global low-cost sourcing hubs for vehicles in this fast growing part of the world. Middle East and Africa's wholesale volume and revenue declined 10% and 2%, respectively. The lower volume primarily reflects an unfavorable change in dealer stocks to align with near-term market demand. Operating margin was negative 8.2%, two percentage points better than a year ago and pre-tax loss was $82 million, $22 million better. Higher net pricing and favorable mix more than explained the improvement. As shown in the memo below the chart, full year wholesale volume and revenue declined compared with the year ago, while operating margin and profits improved. Let’s now review Asia Pacific on slide 18. We’re continuing our strategy in Asia Pacific to invest for growth through both new and expanded plants, new products and the introduction of Lincoln in China. As shown on the left, fourth quarter wholesale volume was up 2% compared with a year ago, while net revenue which excludes our China JVs, declined 9%. Our China wholesale volume, which isn't shown was up 5% in the quarter. The higher volume in the region is more than explained by higher industry volume. We estimate fourth quarter SAAR for the region at 40.7 million units that's up 600,000 units from a year ago. Lower market share was a partial offset. Our fourth quarter market share of 3.5% was down one-tenth of a percentage point from a year ago. Our market share in China also deteriorated one-tenth of a percentage to 4.3%. This was due to our wholesale industry that was well above trend. Asia-Pacific’s lower revenue reflects lower volume from consolidated operations and unfavorable exchange. Operating margin was 3.6%, down two-tenths of a percentage point from year ago and pre-tax profit was $95 million, down $14 million. As shown in the memo below the chart, all full year metrics improved from a year earlier and were records. In 2014, our China joint ventures contributed $1.3 billion to pre-tax profit, reflecting our equity share of earnings after tax. Additional detail can be found in the appendix. The balance of results for the region primarily reflected Australia where we’re implementing our transformation plan; India, where we're investing for future growth including the launch of two plants later this year and unfavorable industry and economic factors in ASEAN. On slide 19, we show the factors that contributed to Asia-Pacific’s lower fourth quarter pretax profit. The decline is more than explained by higher warranty cost related to a field service action. As shown in the memo, Asia Pacific pre-tax results improved in the third quarter more than explained by favorable volume and mix. Okay, let’s turn now on slide 20, the Ford credit, our strategic asset and an integral part of our global growth and value-creation strategy. Ford credit provides world-class dealer and customer financial services, supported by strong balance sheet, providing solid profits and distributions to Ford. The Ford credit improved pre-tax profit this quarter compared with year ago as more than explained by higher volume as favorable market valuation adjustments to derivatives included in other. The higher volume reflects increases in consumer finance receivables and operating leases globally as well as non-consumer finance receivables outside of North America. Partial offset of lower margin driven primarily by one-time reserve in Europe and the run-off of higher-yielding assets originated in prior years in North America. As shown in the memo, pretax profit was lower than third quarter, explained primarily by lower margin reflecting Europe reserve. Slide 21 provides an explanation of the change in Ford credit’s full-year pre-tax profit compared with 2013. The improvement is more than explained by higher volume, driven by increases in consumer and non-consumer finance receivables globally, as well as operating leases in North America. Partial offsets include unfavorable lease residual performance in North America resulting from lower relative auction values and lower financing margin. The lower financing margin primarily reflects the Europe reserve previously mentioned and lower portfolio pricing in North America. Next on slide 22 is our automotive gross cash and operating related cash flow. Automotive growth cash at the end of the quarter was $21.7 billion, a decrease of $1.1 billion from the end of the third quarter. This includes a one-time unfavorable $500 million cash affect associated with the accounting change for operations in Venezuela. Automotive operating related cash flow was positive $500 million more than explained by profits. During the quarter, debt repayments and pension contributions totaled $600 million while dividends paid were about $500 million. Full-year automotive operating related cash flow was $3.6 billion and gross cash declined $3.1 billion. Slide 23 shows that automotive debt at the end of the quarter was $13.8 billion, that was $1.1 billion lower than third quarter including actions taken on our 2016 convertible notes. We ended the quarter with net cash of $7.9 billion and automotive liquidity of $32.4 billion. Slide 24 provides an annual update on our global pension plans. Worldwide pension expense, excluding special items was $1 billion that was $600 million lower than 2013, driven primarily by higher discount rates at year-end ‘13 compared with 2012. In 2014, we made $1.5 billion in cash contributions to our worldwide funded pension plans, down $3.5 million, reflecting our improved funded status. In 2015, cash contributions through our funded plans are expected to be about $1.1 billion globally, most of which are mandatory. Worldwide, our pension plans were underfunded by $9 billion at year end that’s unchanged from year-end 2013, despite significantly lower discount rates, down 80 basis points in the U.S. and about 100 basis points in non-U.S. markets. These were offset by strong asset returns, contributions and favorable exchange. These results are clear evidence that our de-risking strategy is working. Of the $9 billion underfunded status, about $6.5 billion, or about 70% is associated with unfunded plans. Asset returns in 2014 for our U.S. plans were 16.4% and 15.7% for our non-U.S. plans, reflecting fixed income gains as interest rates fell, as well as strong growth asset returns. We’ve continued to increase the mix of fixed income assets with the objective of reducing funded status volatility. The fixed income mix in our U.S. plans at year-end 2014 was 77% and that's up from 70% at year-end 2013. The U.S. plans were 97% funded at year-end. Slide 25 summarizes our 2014 results for our planning assumptions and key metrics, compared with the plan we shared at the beginning of the year. We delivered solid results last year, meeting or exceeding all financial metrics established at the beginning of the year, with the exception of total company pre-tax profit. Despite a challenging environment, particularly in South America and Russia and an unprecedented number of product launches, we achieved the total company pre-tax profit of $6.3 billion, which as Mark said was consistent with our most recent guidance of about $6 billion. Importantly, we also continued to generate positive Automotive operating related cash flow. So, overall, 2014 was a successful step forward in implementing our One Ford plan to deliver profitable growth for all. So this concludes our review of the financial details of our fourth quarter earnings and now, I’d like to turn it back to Mark who is going to take us through our outlook for the business in 2015 looking at the environment, as well as our planning assumptions and key metrics.

Thanks Bob. Let’s take a look at the 2015 year, starting on slide 26, with our view of the business environment going forward. We project global economic growth to be in the 3% range, which is going to be led by U.S. and China. Global industry sales are expected to growth to between 88 million and 92 million units, after estimated sales of about 88 million units in 2014. U.S. economic growth is projected in the 3% range. Consumer sentiment is improving, along with lower fuel prices, which will boost consumer spending, providing support for growth. South America faces continued market volatility and policy uncertainty. A weak recovery is expected in Brazil, while Argentina and Venezuela will remain in recession. In Europe, growth in the euro area slowed after the first quarter of 2014, but it is projected at just above 1% in 2015. In the U.K., growth is projected to remain in the 2.5% to 3% range. In Russia, the combination of lower oil prices, geopolitical events, and ruble depreciation will lead to a sharp decline in GDP and higher inflation. In Asia Pacific, China's economic growth is projected in the 7% to 7.5% range. Consumer income growth will support an increase in vehicle sales but at a more moderate pace this year. And with some encouraging signs of improvement, growth in India is projected to rise above 6% in 2015, supported by a more favorable policy environment. So stepping back, despite challenges in some key markets, we do expect the global economy to grow in 2015 and be supportive of a projection for higher global industry volume this year. On slide 27, we summarize our 2015 outlook for our Automotive sector and Ford Credit. We expect North America to be strongly profitable a level higher than 2014, with an operating margin of 8% to 9%. This outlook includes higher market share and net pricing, reflecting the impact of launching seven all-new or significantly refreshed products, as well as the effect of the record 16 launches in 2014, many of which occurred late in the year. And keep in mind, the F-150 changeover and downtime at our Kansas City plant will impact the first quarter. In South America, pre-tax results are expected to be substantially improved from 2014 but still a loss. This outlook reflects the continuation of difficult macroeconomic conditions, with industry volume about equal to 2014. We expect higher market share in 2015, as a result of new product introductions including the all-new car. We also expect higher net pricing in part due to new products, but also to recover or at least in part, the unfavorable effects of weaker currencies and high local inflation. And finally, our South American results will not include the operating results of our Venezuela operations, including any impact of currency devaluations. Moving on to Europe, pre-tax results are expected to improve from 2014, but still be a loss. This outlook reflects higher market share, volume and net pricing in the Europe 20 markets despite intense competition across the region, as well as weak economic growth in the euro area. This is updated from our September Investor Day guidance of a loss of about $250 million, that's largely due to uncertainty around conditions in Russia, as well as higher pension expense in 2015, as a result of even lower discount rates. Middle East and Africa is expected to deliver a loss somewhat larger than 2014, as we invest for future growth. And in Asia Pacific, we expect wholesale volume, market share and pre-tax profit to be higher than 2014, as we continue to introduce new products and bring on line new capacity. Our Automotive net interest expense is expected to be equal to or higher than 2014. And finally, Ford Credit continues to implement its growth plan and expects pre-tax profit to be equal to or higher than 2014. This outlook reflects year-end managed receivables in a range of $123 billion to $128 billion and managed leverage to continue in the range of 8 to 9 to 1, and distributions of about $250 million. So moving on, let’s look at the expected calendarization of total company 2015 pre-tax results. So our slide 28 shows, directionally, the counterization of our profits in 2014 will not be consistent with our typical historical trend. In North America, the all-new F-150 changeover and downtime at the Kansas City plant will affect first quarter results. We also will incur costs and lost volume in the first half of the year related to our seven 2015 product launches, including the Edge and Explorer. And we expect to see the benefit of these launches in the second half of 2015. In Asia Pacific, we are leveraging Ford's global product portfolio to introduce 18 new vehicles in 2015. And this will result in lower first half results, as we continue to invest in four new plants that will bring new capacity on line for the second half of this year. So now let’s take a look at the total company planning assumptions and key metrics for 2015, which is shown on slide 29. So for 2015, we now expect U.S. industry volume to range from 17 million to 17.5 million units. Europe 20 markets to range from 14.8 million to 15.3 million units and China to range from 24.5 million to 26.5 million units. In terms of our financial metrics, we expect automotive revenue and operating margin to be higher than 2014, automotive and operating-related cash flow to be higher than 2014. And as noted earlier, this is an improvement from our September Investor Day guidance of positive. And this also includes capital spending of about $7.5 billion. Ford Credit pre-tax profit to be equal to or higher than 2014, and company pre-tax profit to range from $8.5 billion to $9.5 billion. So overall very strong growth and substantially improved financial performance are expected in 2015, driven by our investments in new products and capacity. So closing all this out on the next slide, our priorities remain consistent and that's to accelerate the pace of progress of our One Ford plan, deliver product excellence with passion, and drive innovation in every part of our business. And all of this underpinned with the continuing day-to-day focus on operational excellence. We are committed to our long-term objectives that we shared with you and we're making progress towards them, as we execute our strategic framework. And this framework is built on strong brands, serving all markets with the complete family of best-in-class vehicles, to lead and providing innovative mobility solutions through our Ford’s mobility initiatives and deliver operational excellence that is among the best in the business. And our success depends on a skilled and motivated team and the Ford team is among the best in the business and we intend to ensure that we have the right talent for rapidly changing world, and that we maintain the trust and the familiarity that allows us to rely on each other strengths to tackle any business issue. Looking ahead, the global automotive industry presents substantial growth opportunities as well as rapid change and we intend to take advantage of both. 2015 is going to be a breakthrough year for Ford, driven by our unprecedented 24 global product launches in 2014, and another 15 global launches planned this year. So this is our One Ford story and we’re confident in its continued success. So at this point, let's open it up for questions. George?

Thanks, Mark. Now we'll open the lines for about a 45-minute Q&A session. We'll begin as usual with questions from the investment community and then we'll take some questions from the media. Now again in order to allow for as many participants as possible within this limited timeframe please keep your questions brief and please avoid asking more than two. Chantelle, can we have the first question.

[Operator Instructions] Your first question comes from the line of Itay Michaeli of Citi. Please proceed.

Good morning, everyone.

Good morning, Itay.

Just a question on Europe. I was hoping we can dig it a little bit more to the details around some of the incremental headwinds. You mentioned the pension expense in 2015. There may be a big picture view on kind of what it takes now as you look at the market to return to profitability. Maybe an update on what you think the reasonable timetable there and what else you can do to take action to respond to conditions there.

Well, as you step back and you look at Europe, we've had some success in meaningfully improving the business in Europe when you look at the three elements of the transformation brand, product, and cost. On the product side, we've introduced over half of the 25 products that we said we were going to introduce. We increased our share as we mentioned earlier. Importantly, the investments we made in commercial vehicles are paying off. We've gone from the number seven commercial vehicle market share brand to number three last year. So we made progress on product. We made progress on brand. Our favorability is improving. Our channel mix is improving. And actually channel mix of retail and fleet is healthier than the rest of the industry, about three points above. We made progress on cost, as we completed the restructuring actions. And as you know, that will save us ongoing between $450 million and $500 million a year. As we look at the industry going forward, as Bob mentioned, we’re impacted by the lower discount rates, which impact our pension cost. Obviously, the situation in Russia is going to continue to impact us and will be a drag on our earnings for a period of time. As we look at the industry, we’re seeing -- we do think that some of the impacts of lower energy costs will help the consumer, which will be positive. On the same token, we also know that there are still a lot of challenges that Europe faces. And our approach going forward, we are going to continue to use our process, Itay, which is used that creating value roadmap process, continue to look at the business environment, understand any additional actions that we need to take to improve the business situation, and that's what we’re going to do. In terms of guidance on profitability, we’re going to be -- our objective is to be profitable as soon as possible using those elements, I just outlined.

That’s very helpful, Mark. And then just two quick follow-up housekeeping questions. Any guidance on the year-over-year P&L impact from the Venezuela accounting change, maybe what the 2014 losses were and what the benefit could be in 2015? And then maybe I missed this, but you have a 2015 CapEx outlook, that would be great. That’s all I have.

Okay. On the last one, Mark mentioned on the last -- next last slide I think that our guidance of $7.5 billion is just a touch-up from the $7.4 billion that we saw in 2014. On Venezuela, we’re not providing -- we don't generally provide specific profitability on either markets or product lines. We did lose money in Venezuela, but it's been very volatile. I mean, I think that’s the thing that’s been most difficult about the market in terms of financial effect. So going forward, as we explained in the 8-K, Itay, there'll be no effect on the company's results from what happens in Venezuela. Other than if we can obtain cash from the authorities in Venezuela and use that cash to either remit a dividend or use that cash to purchase components that we could then ship into Venezuela to support production, then the profit or the cash flow associated with that transaction will be reflected in our results, but otherwise nothing. So there will be no effect. If we get no further cash, we require components. Or if we can't obtain components to ship in, there will be no effect on our results from Venezuela.

Great. That's very helpful. Thanks, everyone.

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

Good morning, guys.

Hey, John.

Just a first question. If we think about the guidance for North America margins of 8% to 9% for the full year and then the cadence of earnings that you’ve kind of alluded to on slide 28, it would indicate that the margins in the second half of the year, maybe even in the second quarter in North America will be 10% or potentially higher. Should we think about that as a more normal operating environment or more normal level that you might be able to achieve in the future versus what we will see early in the year? Just trying to understand that.

Yes. What we said consistently for a number of years is North America should run between 8% to 10%. Of course, that’s going to vary. It depends on the quarter. It depends on where we are in product cadence launch cycles, what's happening in the external environment, what competition might be doing so, but it should range. And then in fact if you look at prior to '14, we’ve kind of averaged a bit over 9% from '10 through '13. We did better the last two of those years, but then we got into the big launch period. And we said we'd be in the 8% to 9% range this year. We thought low-end, we came in sort of mid. So Joe and the team did a great job in the fourth quarter, particularly on cost and so we did better than we thought. As we move into next year, 8% to 9% continues to be the guidance. We are affected by the launches in the first quarter not just F-Series, but some other very high margin products that Mark mentioned, the Explore and the Edge and we actually have still a very active Europe launches in North America, I think seven overall. So it will have an impact in the first half, primarily first quarter. So your thesis is right. We’ll see a lower margin than on average through the year in the first quarter. It will start to recover and be very attractive in the second, third and fourth and give us the type of margin that we’re describing for the full year. And we will see how things work out. We might have the opportunity to operate at the higher end of that range but I think it's a bit too early to say. I would rather let the year kind of go underway, see how all these launches go. And as you know, S-series went very, very well and then we’ll kind of update you as the year goes on.

Okay. Then just a second question on Asia-Pac. You don’t think the results in China are coming through pretty strong, the JV net income or equity income as $1.3 billion almost. Yet, it looks like the rest of the business is really under some pretty significant pressure. For the full year, you posted almost the $700 million loss. I know you’ve alluded to some actions there but is there anything else that you need to do as far as rationalization of restructuring in that business that would be more concrete and provide for better results going forward. And what would the charges look like for that or what would be the actions look like for that?

Well, when you step back, John, and you look at the results outside, obviously, part of it is due to just the business environment that we’re dealing with there and the currencies. But we focus on the things we can control and to your point, as you know in Australia, we’re restructuring the business. We’re closing our plant there in 2016, so we’re working our way through that. And also at the same time introducing -- we’ll have 30% more products in the market over the next couple of years to drive the topline as we’re working the cost side to hopefully improve the bottomline. In India, it's about the investments we’re making for growth. As you know, we’re opening our second major assembly facility there, which is not only going to support the domestic market but is going to be an export hub for us as well. So we’re working on that and we’re seeing the upfront investments around that, which is driving the situation. We’re starting to see as you’ve heard in my remarks earlier, a little bit more encouraging results. We expect from an economic standpoint, which should help domestically. And ASEAN working our way through not only the business environments there, but looking at each and every country to make sure that we have the appropriate product lineup that we take advantage of some of the opportunities and strength that we have in some of our particular products and use that to drive our business higher. But the team is very focused on that piece of the business, so in total Asia Pacific can contribute equally.

Great. Thank you very much.

Thanks, John.

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

Good morning, everybody.

Good morning, Rod.

A couple things, one, your content costs in North America was, like an $18 million headwind, which seems pretty modest considering the magnitude of the new product ramp that you're going through. I was hoping you can give us some sense of how we should be thinking about that for 2015. Looking at the Europe business, perhaps you can give us some brackets around the year-over-year impact, you’re anticipating from Russia? And then lastly, since you guys gave guidance, oil prices obviously dropped pretty dramatically, 40%, 50%. Europe adopted pretty aggressive QE. A lot of people view that it’s likely mitigating rate increases in the U.S. I guess kind of high level when you think about the changes that have occurred since the end of September. How do those influence your views on the outlook for North America to 2015 because I think you were expecting pretty flat earnings, net of the non-recurrence of charges last year?

Thanks, Rod. Bob, you should take the first two and I will take the last one.

You want to take the last one first. Okay. Yeah. Sure. In terms of looking at the changes that you mentioned, obviously, the drop in the oil prices will be good for consumers and we think that will help the economy. As you saw Rod, we are expecting some growth in the industry so far. We haven't -- we look -- we take a look back and see if there was any correlation between low fuel prices and growth of the industry and there’s not a lot of correlation there. So we’re very comfortable with our call for the industry, which is really driven by replacement demand because as you know, the industry is run under replacement demand for five years. So we think that provides a good foundation. In terms of the mix and what that means for segmentation, could be an opportunity but we really don't know yet, the impact of lower oil prices what that means for the industry here in the U.S. If we look at the fourth quarter, what we saw in the fourth quarter was very consistent segmentation changes that we see seasonally over the years. You see full-size pickups rise because manufacturers are getting more aggressive. You see premium rise or some of the luxury OEMs go for leadership and you see small cars actually go down. So we think, we'll see the first quarter will be key to gauge if there is changes in the segmentation because as you know, on the first quarter we usually see small vehicles and small cars actually go up as a percent of the industry. But stepping back at a high level, we think it's positive for the economy, positive for the consumer and that is the backdrop. Bob?

Okay. Rod, in terms of the first question around the content, you didn’t see much in the way of material cost in the quarter because the amount of new product that we actually wholesaled in the quarter wasn’t that material if you will. You’ll start to see that more fully in the first quarter when we report in April because what you had is you had a really good strong material cost reductions that the team delivered that you largely mitigated, the effect of what we did see in terms of product cost. So in ‘15, the North America is going to see a much, much stronger business. As we said earlier, we’re going to have lot of growth in terms of volume. We’re going to have higher share. We’re going to have much stronger net pricing and that’s on the back of the products that we launched last year, which will have full year effects this year, along with the ones that we will newly launch largely in the first quarter of this year. But with that what you will see, is you’ll see a substantial increase in product costs and you'll also see higher structural cost. And particularly, if you go back to the F-150 program, given the scope with that program, the degree of which we had to change and re-facilitize the facilities, that piece will obviously be with us for most of the year, given the timing of the launch of the Kansas City. So very, very strong improvement in the top line but you will see cost increases flowing through both the product level and structural level.

In terms of Europe, it’s interesting. When you look at Europe and you go back to the transformation plan that Stephen Odell and his team announced back in, it was October of 2012. In that, Russia was an important element because we had data decision to go with a local partner, which has been good. At the time, we were looking at an industry that could grow to 4 million units, I think it was by the end of the decade. It was at sometime between then and the end of the decade going to become the largest industry in Europe and of course that’s all changed. And it's just a difficult situation. We’re looking now at industry volume this year that’s probably sub 2 million units. You got very high interest rates. You’ve got the collapse of the ruble. You've also got -- in our case for example, in all the euro based manufacturers, very aggressive pricing to respond to the change of the ruble versus the euro. And then with our competitors, particularly, the Japanese and then the Koreans as well, would have not had the price as much because their currencies have already weakened relative to the euro and the dollar. So there’s a change in the competitive environment within Russia as well, which we’re trying to respond to. So we do expect to see a big headwind from Russia in 2015 and that is the major change in the guidance that we are providing versus what we said in September. And when you think about it, the question you are going to ask me actually, well, you wrote of your equity in the second quarter of your 50-50 JV. So you’d said at that time that won’t have any financial effects on you if they were too and continue to incur losses which is true, but we still provide components and make money on those components, we still provide after service parts, make money on those, we still engineer the products, that they will ultimately build and sell, so we are incurring that expense and for that we receive royalties, which of course, are going to be lower, all of that’s lower because of the volumes are lower. But in addition, frankly, because of the very difficult situation, the business is facing there, the partners are having to provide additional support for the business and of course, we are working very closely together to respond to what is a dramatically different to what we thought even six months ago.

And just to Bob’s point, we are acting very proactively on Russia. We are -- we have got production. We reduced overhead. But also we are working topline. As you know, we are introducing six new products between midyear last year and into 2015. And so, I guess, I’d term it there is never bad time to introduce good product in any market and that’s our approach.

Hey. Can you bracket the impact that you are expecting, it see like, you’ve changed a lot over there, but what is the magnitude?

Well, the only thing, I have to guide you through in the appendix, you can see the year-over-year effect of Russia on Europe and it was $350 million and all I’ll say is that the environment in 2015 is more difficult.

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

Thanks everybody. Can you remind us how much of the pickup truck market in North America last year or whatever period that you have -- that's recent relevant is tied to oil and gas end markets and maybe the Great Lone Star State specifically?

Well, Adam, this is Mark. We don't have a specific number. But, obviously, it's a piece of it. Obviously, the biggest piece of pickup truck is the housing market. But what we've seen is, there could be some, as we step back and we look at the energy prices and what that may mean, for example, for wellhead, drilling and all that kind of those types of things. It could have a slight negative impact in let say the Southwest. But keep in mind we could see positive impact in the rest of the country from lower fuel prices with more money in consumer’s pockets, plus the other thing that's encouraging, you look at the latest housing numbers in terms of starts and permits, et cetera. We could see an offset on that. So that's basically the way I would characterize it.

Okay. Thanks Mark. And this is a follow-up, what would your team rank as a more worrisome issue to you, the strong U.S. dollar or these cafe standards that are kind of completely out of touch in reality beyond 2017? And a follow on to that, maybe could Ford way in on where, on the issue of raising the gasoline tax, you guys have any dog in that hunt? Thanks.

Okay. Well, let me take a last one first, the gasoline tax, our position is, we will leave that to the policymakers to figure out whether they have support for that and what we are in support of is the things that we can control and what we can control is continue to have the team focused on delivering affordable and fuel-efficient vehicles to the market that people want and value. So that’s our approach. In terms of the two things you mentioned, the impact of the strong dollar. As Bob mentioned, we are not seeing a big bottomline affect on our financials in 2015, because it's a multifaceted thing. On the positive side, a strong U.S. dollar indicate strengthen our economy and obviously, that's good, given our position in the market here and it’s our largest and most profitable. Alternatively, a strong dollar has an effective, as Bob mentioned, on our competitive position, especially against competitors who import here into the U.S. and they could take it through pricing, reduce pricing or increase content. So as we think about that, for exchange, for exchange movements that are driven by the markets and not by governments will deal with the hand that were given and use our creating value that process to improve the situation. On the regulatory, it is a big issue as you know to meet those requirements. It's going to be very important for consumers to adopt the new technologies, the electrified vehicles, et cetera, and that's an important part of meeting the countries goals. And what we are seeing right now is, they are not adopting to the levels anywhere near that we expected. So, that's why we're very looking forward to the midterm review with the government and as you know to agree to the one national standard. We wanted to make sure we had a midterm review to look at the feasibility of the goals, cost to the consumer, impact on jobs, et cetera. So that's probably the one that -- is the one that we focused a lot on, because it requires a market response from that and adoption, and we are not seeing at this point.

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

My first question, can you just give a broad update of the F-150 launch, the Dearborn plant ramping, is it fully ramped at this point as Kansas City on schedule and do you have any color of the new F-150 is pricing, any color around on pricing in particular? Second question is on foreign exchange, how are you being impacted by FX, because you are expected to lose money in Europe and South America. So just some of the volatility there actually shrink the translation of losses, is that a net positive to you or is the intraregional FX impact more than offsetting that?

Okay. Thanks, Colin. I’ll take the first one. And I’m surprised it took that long to get an F-150 your question, but I am glad we did. We are exactly on plan, where we expected to be with the F-150 launch. We have added the third crew at our Dearborn truck plant. We are almost completely through the acceleration curve, little bit more time on that, but that's going smoothly. In Kansas City, we have installed the equipment into the body shop and the team is going through the debugging right now. So that is absolutely on plan. As you look at the market response. As we noted in December, we are seeing very strong demand for the F-150. It's our fastest turning vehicle on the lot and actually as we look at this month, we have a few more days to close you, if we track as we expected, we could have our best January since 2004 and we'll see material increase in terms of the percent of our 2015 F-150s as a percent of our total sales. The rich -- the mix has been rich, which is good and just anecdotally, we were in the NADA Convention this week and talking with dealers. And I had a number of dealers telling me that they haven't even driven the truck home yet, because literally as soon as they are showing up on the vehicle transport they are going out. So very, very encouraging initial response to the F-150 and we are bang on where we expected to be in terms of our launch. Bob?

Yeah. Colin, in terms to your question on exchanges, I am kind of looking at 2015. It doesn't broadly across the company. There's some ups and downs, but doesn't seem to have much of the material impact. I think you are technically right, where we have losses like in South America and Europe, just look at the translation effect, obviously, the loss in local currency will translate into fewer dollars. But there other flows, you have got pounds, you have got euros, you have got a number of different currencies that play there. But broadly for the whole company, it is not having much of an effect there. The other, I won’t talk again about the competitive factor, I think that’s the bigger concern that we have in terms of the impact on the businesses, the competitive factor that Mark touched on, but he handle that. So the only other thing, I would say is, I think, when we are having conversations around exchange and particular a strong dollar, we’d probably also should at least comment on commodities, because there is a correlation between the dollar and commodities, and well many currencies and commodities. And what we are seeing, in fact, as the dollar has strengthened, we are starting to see good news on the horizon from commodities, it’s pretty much across most commodities and we think that will actually be a help for the business in 2015.

Your next question comes from the line of Brian Johnson of Barclays. Please proceed.

Yes. Good morning.

Good morning, Brian.

Just given volatility of fuel prices, I want to ask a question, we haven’t really talked about for awhile, which is around the flexibility in your factories to go back and forth between CUV and Sedan, because it really seams the consumer is rotating away from Sedan towards CUV’s. A couple of -- three questions, one, can you recap just what factories you have right now that currently can go back and forth between the two? Two do see more scope for doing that, perhaps as you’ve rollover some platforms in the next few years, so you have the flexibility? And three, do you currently have with work rules, layoffs, reassignment, provisions the kind of flexibility in your union contracts, you would need to kind of get to the nirvana being able to flex to where the customer demand is?

Thanks Brian. Let me take the last one first, when you look at the flexibility, if you recall back in the 2011 contract, very importantly, we came to agreements with our UAW colleagues around improved flexibility. And that has worked wonderfully for us over the last number of years in terms of adding Saturday hours or increased shifts, et cetera. In terms of the flexibility between cars and CUV’s, I don't know the number off the top of my head in terms of the number of plants. But I would say it's fairly limited in terms of a plant that produces a car and a CUV and utility. But we do have opportunities, as we see the market move, again using that flexibility, the work rule flexibility that we have with the unions to either add additional weekend days or in some cases increase line rates. And to your second point about going forward, obviously, that's something that we continue to look at as we plan our product cycles and our manufacturing, optimizing our manufacturing footprint to take into account shifts and then can we get the flexibility that we want in our manufacturing plants. I mean, we do have that, for example in a plant, in Wayne, Michigan, where we produce a number of different vehicles and engines, but we’ll continue to look at that going forward.

Your next question comes from the line of Ryan Brinkman of JPMorgan. Please proceed.

Hi. Good morning. Thanks for taking my call. I know you discussed the impact of fuel prices on segment mix earlier and that’s important? But looking at from a different perspective, can help us in terms of sizing up maybe your annual logistics and freight expense? How to think about, how that could be impacted by say a 50% drop in fuel prices, whether we should be taking that into account in our models?

Yeah. That’s sort of a corollary to the commodities. The oil price decline is going to give us the opportunity to see reductions in logistics expenses and we are already seen it as an opportunity for this year. So you are spot on.

Okay. Great. And then, I guess, as a follow-up to that, I know you have pass-through agreements with suppliers to compensate them when commodity prices rise and to recoup those savings when they fall? Do have a way to capture the change in the supplier’s logistics expenses or are they sort of permitted to keep that?

That would probably be subject to negotiation with them. But we do issue as you said, when we talked about it before, we do have indexing across parts of our supply base related to commodities. So as they go up, there is adjustment, as they go down, there is adjustments. So, I think, the logistics impact just as it is for us as it more indirect impact. But, certainly, we are aware of that and we’d hope to capture that as that opportunity occurs at the level of the supplier.

Okay.

And also just to add to that, we manage a lot of the inbound logistics into our plant. So we’ll work that aspect as well in terms of what we can control.

Okay. That’s helpful. And then just last question for me on China, lot’s of talk of China slowdown recently, but actually it hasn't slowed, we continue to see all-time record highs there, 25 plus millions are in December, et cetera? How are you thinking about China industry in 2015? What’s the latest you are seeing on the ground and if sales did slow, does that necessarily impact your plans and you are also getting a lot of market share?

Great, Ryan. As we look at China, we are still -- we still see growth as you saw from our projections, we expect it to be between 24.5 million and 26.5 million units. And again a lot of that growth is coming from the Tier 3 through 6 cities, as consumers, their income rises and they are able to buy a vehicle. As we look at the industry, overall, you we had our record market share there last year of 4.5% and as I mentioned, record number of wholesales. We expect our business to grow again this year and the reason for that is, because we’re bringing on another plant. We just launched our Escort the end of last year. We have a number of products coming this year, which are products that actually increase our segment breathe. So it's not just about introducing a new product in the segment we are already in, it’s introducing products into segments we have not been in. So we think that that provides a good basis for us and we are coming off a position of strength, the brand is held in high regard, the focus was the best-selling nameplate again for the second or third year in a row and our buyers are tend to be younger and have higher income than the industry average and working with our partners, we have really built out our distribution network particularly in those 3 -- Tier 3 through 6 cities. So we expect growth not as much in the industry as we saw last year for the reasons I cited earlier, but we are very encouraged by the positive response we might get from our new products to help grow our business.

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

Hi. Good morning, everybody.

Good morning.

I wanted to drill down a little bit more on the earnings impact from some of the large investments you made last year. Also in those markets specifically you mentioned before you expect stronger volume share and pricing, but also a substantial increase in product costs and structural costs? So wanted to just ask on both these things? First of all, on the product cost versus pricing, do you expected to be net positive this year and then on the structural cost, I don’t know, if you’ll provide guidance specifically on that, but by how much you expect D&A to increase this year, obviously, you have been running at $4 billion plus when you are spending $7.5 on CapEx. So do you expect a substantial increase in D&A this year?

Yeah. Let me take that. So if I look at the company and I look at our structural costs, they will be up more than they were in 2014 versus ’13. The biggest factors of that will actually be engineering and manufacturing, and some of that not just because of what we've already done, but obviously, we are still investing for even more growth in the years ahead, particular if you go back to Investor Day and think about the type of growth that we are projecting up through 2020. So those are the two biggest factors. But we will see an increase in D&A, I am not going to provide a specific number, it’s not, by any means the largest of the elements that we will see next year, but it will be a good increase in terms of the size. And again that is related to investments that we will -- have already made or perhaps some made during the year. In terms of pricing, we will see strong positive pricing both for product-related actions and as we always do and that was evident in the fourth quarter too in terms of the pricing that we achieved around the world that where we can opportunistically take pricing on related to product, we will do that and I would expect that to be the case again in 2015. But, again, we have to be very sensitive to the competitive position in that place back into some of the earlier comments around what the Japanese competitors in particular may do, particularly in the super segment vehicles. But we’ll have very strong pricing and again obviously since we expect the results for the company and for North America to be better, we do expect for the combination of the volume, the revenue that we’ll see more of that in terms of the positive effect than we will to the combination of cost increases that we see.

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

Thanks. Most of my questions have been answered. Actually, just one for me, the increased free cash flow guidance from positive to higher, what are the main drivers behind that?

Well, when we gave the guidance of positive, I mean, we were just saying that we were -- there wasn’t going to be next. It’s going to be positive cash flow and that we were waiting because obviously as you know cash flow was a change of a change to some extent. So we want to see how we did in 2014. So now we have a good baseline. We can look and understand what we’re looking at for 2015. So clearly, we’re going to see it driven by the top line. So the profitability is going to be a lot stronger. We see about no change in terms of the CapEx. We’ve already talked about that, the 7.5 versus 7.4. And then I think the changes that we’ll see in working capital and timing differences are not that material in terms of preventing us from seeing the fuller flow-through of what's happening on the improved profitability. So I think that the profits are probably the single biggest driver that will flow through to the operating profitability.

Your next question comes from the line of Joseph Spak of RBC. Please proceed.

Thanks. Good morning. Wanted to ask another F-150 question but this one about maybe the initial fleet reception. I mean, you’ve talked about maintaining if not improving the cost of ownership. Obviously we saw the mpgs on the new versus the old and that feels a little bit lower So maybe less of a benefit there. And I’m sure you’ve seen the Edmunds’ report which showed that the labor to replace aluminum could be, maybe 4X steel and maybe 2X the time. So I was wondering are there offsets to that cost of ownership that we’re not considering. I mean, I know the residuals are little bit higher but wanted to see how that pitch to fleet is going? And then related, I guess, how are you supporting the repair shops both four dealers and the independents with getting up to speed on aluminum?

Great. Thanks Joseph for that question. And when you look at the F-150 in terms of the response from the fleets, obviously we’re just starting to ship. And as you mentioned, total cost of ownership is very important to them and their interest in the vehicle is very high. And we’re just starting to ship vehicles to them in that regard. And we think it's going to go well. All you have to do is, I know, it’s a different vehicle. But if you look at our transit for example, which we launched last year, if you look at even in the month of December, we had a higher share in the van and bus segment since 2006 with the new products. So as you know, what fleets do is they take a few units first. They get some experience with them. And once they have good experience with them, they really start ramping up the orders. And we expect to see that with F-150. In terms of cost of ownership and this gets back to what the purchasing managers are looking at, as we’ve said, the total cost of ownership for the new F-150 is going to be very competitive. We saw the Edmunds’ report and unfortunately the experience with that -- that with the dealer was incorrect. The amount of time to repair based on the standards that we've developed and also shared with the dealers, it would have been about half the time. So it wasn't quite correct. At the same time, as you know, we designed the F-150 so that when there are issues, body issues, et cetera that the way we designed it from a modular standpoint, it's actually very efficient to actually repair the vehicle. So overall, in terms of what we've done, we've trained over 750 dealers to be certified. Unfortunately this dealer that this Edmunds went to was not one of them that they've not gone through that yet. But we have certified over 750 and we worked with over 1000 independent body shops to get them ready for the F-150 but overall, with the overall competitive, a very competitive cost of ownership.

[Operator Instructions] Your next question comes from the line of Alisa Priddle of Detroit Free Press.

Good morning, gentlemen.

Hi, Alisa.

Good morning. So just couple things. First, I didn't catch what the percentage of the mix was of the new F-150s, when you were talking about sales in January? And secondly, Mark, I was hoping you would just talk a little bit about your continued efforts to make quality a priority, given that there was an additional $1.3 billion in warranty costs in 2014?

Very good, Alisa. As I mentioned in December, 5% of our total F series was the new F-150. In January, we still have a month yet to close but you'll see a number higher than that, as we close out January, as we stock up the units and as we get them to customers. So, you will see a higher number or a higher percentage. In terms of quality as you know, we've had a lot of focus on quality. We've had great progress around the world. We've seen some of our own internal surveys of initial quality to be very positive, particularly around the vehicles that we’ve launched because traditionally we've had some issues around launch. And I think the team is doing a very good job on making sure that the quality that we send on our new products is what customers expect and we are seeing that progress verified by third-party results, whether it's J.D. Power or even Consumer Report. So we are going to stay very focused on that.

Okay. Were there any lessons learned from what you saw in 2014 or, are recalls just too unpredictable?

Well, it’s difficult to predict recalls and some of those were obviously on some older models and we took a lot of lessons from 2012 and ’13. And the team has used that to help our launches actually in 2014. So, hopefully, we’ll see that reflected in our volume results in potentially recalls going forward but we will wait and see.

Okay. Thank you.

Your next question comes from the line of Mike Ramsey of Wall Street Journal. Please proceed.

Hey. Good morning, everybody. So, I know that you guys have new guidance to 2020. But I am curious. I know that the mid-term guidance for the mid-decade at one point was $8 million sales globally and were a couple million off of that. Did things not go as quickly in terms of ramping up your global sales as expected and if so, where was it not as fast as you anticipated?

Right. Thanks Mike. When we actually announced the mid-decade guidance back in 2011, we said it was euro assumptions. And at that point in time, Europe hadn't tanked and South America hadn’t imploded. So when you take all that into account, a lot of, if you look at what we projected in terms of the number of wholesales, we had an assumption around industry, around the world and regions and that's changed dramatically given some of the realities of the marketplace. That being said, as you look back on a number of things on the mid-decade guidance, we have actually achieved and we’ve factored those into our 2020 guidance going forward.

Okay. So, do you feel pretty good though that with -- I know South America is a head scratcher a little bit, but do you think that some of these markets where you’ve made big investments are going to pick back up again that we are going to -- with a stumbling you will see that previously anticipated growth?

Yes. We spend a lot of time on making sure that the capital that we allocate that we’re going to earn an appropriate return. And if you look at South America, we know that the business environment in the region remains volatile, which is going to add uncertainty to the near-term outlook. But in the longer term, it's an attractive and important place to do business. We want to continue to serve our customers there. As you know, the previous decade, we made very good returns on our investments in South America and we expect that going forward in the medium to long-term.

Your next question comes from the line of Dee-Ann Durbin of Associated Press. Please proceed.

Good morning.

Good morning.

Thanks for taking the call. Can you just talk briefly about China market share and where you expect that to go this year?

Thanks, Dee-Ann. As we mentioned, we have a number of new products launching in new segments. We have two new plants coming on line in China, one an assembly plant and one an engine plant. So we expect in China that to positively impact our sales. We’re not giving out a market share objective. Our objective usually is -- is usual around the world, as we are going to sell as many people want. And we've seen our share grow pretty dramatically there over the last two or three years. As we mentioned, we had a record last year at 4.5% in China. And we expect that to grow based on some of the new segments and we feel are compelling products for Chinese consumers.

Thank you.

Your next question comes from the line of Joe White of Thomson Reuters. Please proceed.

Hello. And this is Bernie Woodall imitating Joe White. Could you do me a favor and I know you’ve talked a little bit about Europe already. But just looking at yesterday, Sergio Marchionne on the Chrysler call said things are going to be improved in Europe over a low base? And then if you have made profit in Europe in the fourth quarter, General Motors is looking to make return to profit next year. The casual observer might look at this and say, oh, what’s Ford’s problem in Europe? Can you address that into vis-à-vis your competition there? Thanks.

Bernie, it’s Bob and I'm sure, Mark will add comments. Again, I think, if you pull apart the business, we've made great, great progress on the European transformation plan, if I put Russia to the side. And you can see that in the results on a year-over-year basis, when you go through the data. We’re seeing improvement in the topline. We gained in share. We actually held price on a year-over-year basis in a very, very competitive environment. And we saw a reduction in our cost, so everything is moving in the right directions. But as I said earlier, we've made a bet on Russia. We think that’s going to be an important market in the future. It’s going to grow. It’s a commodity-based economy. So it’s being hurt right now for what's going on in terms of oil prices as well as, of course the geopolitical issues. But we still have confidence that over time that could be an attractive market we’d like to participate in there. And I don’t know to what extent some of the competitors do or don't participate in the Russian market and what affect it would have on their results. But certainly that is probably the area that has the most impact versus what we had originally expected when we set out the transformation plan. And as Mark said earlier, we have lot of work underway to respond to very changed environment and to make sure that, as that market recovers then we can participate fully in that opportunity.

And I’d just add, we are going to continue to work our process and Bernie, as you know when you do comparisons, it is important that you look at the profiles of the various companies. And in our case, we are in Russia with our partners. Again, I don’t know if that’s the case for some of our other competitors. I have to look at accounting treatments and things that were, that may have been gone away because of a bankruptcy or others that impact the results. So it's really making sure you do the appropriate kind of benchmarking between the two operations. But we’re going to stay focused. It's an important market for us. We’ve made a lot of progress. We have more headwinds, a lot of it driven by Russia and we’ll deal with them positively.

Thank you. And if I could steal one more, you mentioned earlier, Bob, that by 2020 or few years ago, you were looking at $4 million in sales in Russia. Is there any venture of what’s your guidepost there for 20 -- by the end of the decade in Russia, are you making any guess?

Yeah. I think it’s probably too uncertain to make a call at this point. Clearly, if you look at outside third-party forecast, those numbers have come way down. But one thing you have to be careful of with any of these more volatile economies is that when you are at a high because we don’t project that out. When you are at low, you don’t want to say that that’s where we are going to be for the next five years rather because what goes up comes down, vice versa. But I think it's fairly probably is a less positive forecast at this point. But I think once we come out of it and our expectations are that Russia will be one of the larger industries in Europe over the mid long-term.

This concludes the question-and-answer session for today. I would now like to turn the conference back over to Mr. George Sharp for closing remarks. Please proceed, sir.

Okay. Thanks everyone. That wraps up today's presentation. We’re really glad you’re able to join.