Ford Motor Company (F) Q4 2016 Earnings Report, Transcript and Summary

Good morning, my name is Crystal, and I'll be your conference operator today. At this time I would like to welcome everyone to the fourth quarter and full year 2016 Ford earnings conference call. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Ted Cannis, Executive Director, Investor Relations. Please go ahead, sir.

Great thanks very much Crystal, good morning, and welcome everybody to Ford Motor Company's fourth quarter and full year 2016 earnings review. Presenting today is Mark Fields, our President and CEO; Bob Shanks, our Chief Financial Officer; and also participating are John Lawler, Vice President & Controller; Neil Schloss, Vice President and Corporate Treasurer and CFO Ford Smart Mobility; and Paul Andonian, Director of Accounting; and also Marion Harris, Ford Credit CFO. Copies of the press release and presentations slides are on our Web site as usual. The preliminary results discussed today includes some non-GAAP references and these are reconciled to the most comparable U.S. GAAP measures in the appendix. It also includes some forward-looking statements about our expectations for future performance, actual results may vary and the significant factors are included in the presentation. Just as a reminder, Ford Credit will be holding a call to 11 AM to review its fourth quarter and full year results. With that, Mark?

Okay. Thanks, Ted, and Good morning, everybody. At our Investor Day in September and again at the Deutsche Bank Conference two weeks ago, we said we were confident that would achieve our second best full year company adjusted pretax profit and we have. 2016 was a very strong year and in addition to our second best full year company profit of $10.4 billion, we had a new record operating margin of 6.7% and our second strongest cash flow of $6.4 billion. The fourth quarter was also strong with company pretax profit of 2.1 billion. So in total we delivered our seventh year in a row of strong results with 2016 only exceeded by our record performance in 2015. And of course, we will dig into the details in a minute, but first I'd like to turn to how we're creating value in our business. So, turning on Slide 4, we're continuing to focus on the four drivers of shareholder value, growth, risk, returns, and rewards. So, looking at growth, we launched several key vehicles this year helping to strengthen our core business including the all new Super Duty which further solidified our long-time U.S. leadership in full size pickup trucks. We also took a step forward in the transformation of Lincoln with the launch of the Continental and strong sales growth globally including nearly tripling our sales in China. In terms of risk we had strong performance in North America and combined profit for our operations outside of North America. And thanks to our de-risking strategy our global funded pension plans held up well, and as a result our globally funded pension plans now are nearly fully funded and our improved risk profile was recognized with the ratings upgrade from each of the four major rating agencies. Now in terms of returns, a number of key metrics set records or near records, including a record profit in Europe of $1.2 billion and our second-best profit in Asia-Pacific. And our disciplined and focused approach to capital allocation continues to pay off as we continue generating a healthy return on invested capital that's well in excess of our cost to capital. And then finally in terms of rewards, shareholders benefited from our continued success and our strong cash generation as we distributed $3.5 billion including our first supplemental dividend that totaled $1 billion. Now Slide 5 shows some of the additional highlights in the full year and these include a couple of things. First, the Ford brand was the best-selling brand in the U.S. for the seventh year in a row, F-Series marked its 40th year as the top selling truck in the U.S. and 35 years of the best-selling vehicle. Our Transit is doing extremely well as the best-selling cargo van in the world and helping us to be the best-selling commercial vehicle brand in Europe for the second consecutive year. And when it comes to our emerging opportunities we have expanded Chariot to two cities, San Francisco and Austin, Texas and we have plans to expand to eight cities by the end of this year including one outside of the United States. We had the most U.S. patents of any automaker during 2016 and I think this is a very good indicator in terms of how we're amping up our innovation efforts inside the Company. And we made progress towards our intent to have a high volume fully autonomous level four vehicle in ride sharing or the ride handling services starting in 2021 with this month's introduction of our next generation fusion hybrid autonomous development vehicle. So, now let me turn it over to Bob and he'll take us through the details of our business performance.

Okay, thanks Mark. And let's start on Slide 7 with the key financial summary, and I'll just go down our fourth quarter and full year and cover some of the key metrics. So let's start in the first column with the top line wholesales and revenue. You can see that we were down just a bit, it was 4% in both wholesales and revenue and that was more than explained by a favorable stock adjustment in North America. Going down further, you can see our company adjusted pretax results in the quarter came in at $2.1 billion which was down $478 million and you can see above that that each of the segments that we report automotive, financial services and all other which is primarily our treasury operations, our net interest expense, you can see that they were all down. Going further down let's look at special items on the pretax basis, $3.2 billion, and that was driven primarily by the announcement that we made on January 20th, of losses associated with the re-measurement of our global pension and OPEB plans and that was driven by lower discount rates and just to remind you that’s non-cash. We also picked up a charge of $200 million associated with our decision to cancel our new plant in Mexico, that was primarily for our cost associated with returning the site to its natural state and also compensating the state government for the cost that it incurred in terms of putting infrastructure on the site. We also picked up a little bit of charges associated with the announcement that we made earlier in the year around our withdrawal from the Japanese and Indonesian markets. If you go down further you can see the net income or loss attributable to Ford in the quarter driven by the specials, was a negative 783, and then further down our adjusted earnings per share came in at $0.30 which was in line with First Call and Bloomberg. You can see the liquidity matrix, we'll go through those later, but all of them very, very strong. Let's go down the same call -- the same matrix that we were on the full year column. So we'll start with wholesale and revenue, pretty flat, just up a touch. Going down further to our company adjusted pretax results, marks $10.4 billion which was the second best that we've ever had. Special items on a pretax basis, the $3.2 billion in addition to that came in at $3.6 billion, that’s related to separations that we had earlier in the year both in North America and Europe. On a net income basis we came at $4.6 billion, that was down, that was driven by the special items and adjusted earnings per share with $1.76. Let's now go through the balance of the presentation, the first three Slides are going to be on the full year, those are the only Slides we're going to talk to, they're full year, we have in the appendix incremental Slides that show the bridge between last year and this year's profits for the business units. We are not going to go through them, but if you have question, when we get to the Q&A session, obviously, Mark and I would be happy to answer them. So looking on Slide 8, looking at absolutes. You can see to the far left the $10.4 billion, at the top automotive which was also the second-best result at $9.4 billion, within that you can see the very strong results in North America at $9 billion, South America a loss, Europe a record result of $1.2 billion, we ended up at negative $300 for Middle East and Africa and the second-best result that we've seen in Asia Pacific at $627. We had solid results in financial services driven by Ford Credit of $1.8 million. All other is primarily interest expense and share market value adjustments to our investment portfolio. Right, and the other thing I just wanted to mention to this Slide, is that if you were to take the operations outside of North America on a combined basis, we generated a profit of $421 million, that was nearly double of what we did last year and it was the best result on a combined basis for that part of our business in 5 years. Okay let's turn now to Slide 9, we're going to drill down now from total company to automotive, this is again full year. So, the first thing we see when we set back and look at this slide is how similar it was to last year. So it just shows how close we were to meeting is not achieving, another record. So it was a really strong result, right across the board. When you go across as you look at the market share, the market share came in 10th lower and that was driven by declines in North America and South America. The operating margin we touched on and the pretax results we've touched on and we'll go into detail in the next slide in terms of the change. Let's move to Slide 10.

But Bob, before you go on, let me just comment. It's really worth noting that our -- sorry, why don’t you go on, it's really in the next slide.

Yes, you want to talk about the next slide. So if I turn to Slide 10. And what Mark is talking about, if you look at the slide you can see we were down a 146 million. The thing that really drove this was higher warranty costs. There is a lot of ups and downs, but the reason we call up warranty costs, is because obviously they're not something that was expected. If you look at the callout box for contribution costs you can see a negative 880, that was driven by recalls and the largest one that we've had in many-many years really drove that, that was the door latch recall that we had in the third quarter, it was nearly $600 million. I've got a couple other things to highlight, if you look at the callout box for volume and mix, we had a very strong headwind during the year from stocks, that's adverse stock changes, so we had stock build last year, stock reductions this year and that was basically in North America, Europe and Asia-Pacific. But if you go just below that and this what Mark may have wanted to talk about, we had very, very strong performance on mix. Which has been a deliberate strategy of ours. It's both positive mix performance in terms of the types of products that we sell. It was also positive performance in terms of higher series derivatives that we sell, and that was across North America, Europe and Asia-Pacific. The last thing I would just want to mention is, if you go to the far right, you can see some good news there, that is the non-repeat of the ratification bonus that were paid a year ago to the UAW following the conclusion of our UAW contract.

And just picking up Bob's comments around mix, I think it's really worth pointing out that the mix performance that we achieved last year which is really impressive compared with the prior year and it really resulted in a year-over-year profit improvement for the automotive segment of just about $2.4 billion and that's been mainly in North America, in Europe, and Asia-Pacific. As Bob was starting to mention, this really reflects a very deliberate and successful strategy to strengthen our brands and enrich to mix of our vehicles, by essentially focusing on the higher margin segments where consumer interest is particularly strong and we've also achieved greater sales of higher series derivatives like Titanium, ST, RS, and Raptor within our individual vehicle lines and I can assure you that this will continue to be an area focused for us and an opportunity for us as we go forward.

Okay, thanks Mark. And now we're going to flip to our quarterly slide. So, from this point forward the color and texture that I'll provided will be primarily on the fourth quarter again. In the Q&A if you have questions on full year please go ahead and ask. So, this is looking at absolute for the quarter, so you can see the $2.1 billion pretax results to the far left that reflected a 2 billion automotive profit, within that a 2 billion profit coming from North America. Profits in Europe and in Asia-Pacific, declines into South America, Middle East and Africa, solid result in financial services and again in all other that's primarily net interest expense. Let's move to Slide 12, and here we'll look at the key metrics for the automotive segment in the quarter. So, stepping back and looking at it, you can see that wholesales and revenue were down, that was driven primarily by unfavorable stock adjustments, again in North America. If you look at -- we'll it's not on the slide, but if you look at the far right, in terms of the global SAR, it actually came in 2% higher than a year ago and that was driven by gains in Asia-Pacific, Europe and North America. Looking at market share we were down at 10th, as I mentioned earlier that is North America, but actually that was full year. So this is the quarter, North America and Europe, upgrading the margin to 5.7% and then the result on the pretax basis which was down. And if we go to the next slide, Slide 13, and we'll go through what drove that decline of $280 million. It was basically driven by unfavorable stock changes as well as higher costs, so if you look at the callout box on volume and mix, you can see the $1 billion adverse change related to stock changes that was 125,000 units, most of that was in North America, and again related to the stock builds we had a year ago. A lot of that around F-series, but also products that we're going to be launching in 2016 and this year we've had a stock depletion in the quarter, making sure that our production remains in line with our demand. As you look at the far right, you can see again the impact of the ratification bonus. Okay let's turn now to the business units and we'll start as always with North America in the fourth quarter. Looking at the far left, wholesales down 105,000; 98,000 of that was the unfavorable stock change that I referenced earlier. Revenue down 7%, that again was driven by that volume change. The SAAR in the region was 22.5 million units, that were up 400,000 that was actually driven Mexico 300,000 units. We did see an improvement in the U.S. That was up 100,000 to 1.4 million SAAR. Our market share was down 0.3 of a point, that was driven by unfavorable fleet performance and that was driven by our rental, as you remember, we had pulled ahead of our rental sales in the first part of the year. So this is, if you will, the payback in terms of share effect in the fourth quarter. It was partially offset by stronger performance on a regional basis and that was driven by F-series. Operating margin was a record for the quarter at 8.5% and then the $2 billion pretax result to the far right. If you go below the page, I will note the $9 billion profit in North America, very strong, it was just down a touch from the 9.3 last year and the operating margin very, very strong, once again at 9.7%. If we were to exclude the door latch recall, we would have come in at 10.3%. So to give you a sense of the underlying run rate at the business, very consistent with the performance of 2015. Alright, let's go to the next Slide. And this is the explanation of the change in North America's result on a year-over-year basis down $73 million, you can see that was driven primarily by stock changes and also by higher product cost. If you look at the callout box for contribution cost, you can see materials excluding commodities that as more then explained by higher product cost related to the products that we launched including Super Duty and earlier in the year the Fusion, the Escape, and also the Continental in the later part of the year. Into the far right of course is the ratification bonus. For 2017, in terms of guidance we're continuing to expect that North America's operating margin and its profit is going to be strong, but as we've said previously it will be lower than 2016 and this is mainly due to unfavorable volume and mix and also to the increased investments that we're making in the areas of emerging opportunities.

I'll make a comment around F-series. Obviously, we get a lot of questions on F-series. But as you all recall two years ago, we added strength and capability to the F-150, increasing the payload, the towing, the torque, while taking our weight with the addition of the high strength aluminum alloy body. And this past year we repeated that success with the first all new Super Duty that we've had in 18 years. Some people call these innovations a risk, but I think with the response that we see from customers, they are clear successes in the market place. We'll look at just a couple of approve points for that. Our F-series total sales last year were over 820,000 units and that’s the first-time sales have topped 800,000 units in a decade. And if you look at the fourth quarter, our sales were up 4% with retail up 9%. And for the full year we gained almost one full point of market share in the segment. If you all just look at the fourth quarter, our average transaction price was up over $1,300 versus last year and that's significantly outpacing the segment. And then finally we outsold our nearest truck competitor by 246,000 units and essentially increasing our lead by about 36% year-on-year. So we are really pleased with the market's perception to our F-series and we plan to build on that moment going forward.

Okay, let's turn south now on Slide 16 and we'll look at to South America, so the first thing you would note looking at the slide which is encouraging, is that, all the metric are up even though on a pretax result basis you can see, only a change of $2 million, but nonetheless it is the first time since the third quarter of 2013 that we're have seen metric turning in a positive direction, which is enforcing our view that the cyclical downturn that we've seen for the last several years is probably bottoming out, coming to an end, and our expectations for next year is that the loss well improve as we see the economic cycle start to turn. If you look at the quarter, the improvement in wholesales was basically around stocks, that also drove the improvement in revenue along with some pricing. And in terms of the SAAR, the SAAR was still down for the region, 200,000 units to 3.8 million units, and within that Brazil was down even more 400,000. But it was the slowest decline on a quarterly basis that we've seen throughout the year. We've seen that decline kind of improve on our quarter-to-quarter basis as we've gone throughout the year. So again, another sign of things starting to turn. Within that environment, the market share was better, that was due to strong sales of Ka and Ranger, and that was in Brazil and in all other markets other than in Argentina. And again, the full year came in at $1.1 billion decline that was down about a third from where we were a year earlier and again driven by the economic environment that we were operating in. And to underscore that if you go to the next slide, on Slide 17, this is the apparent that we've shared with you through much of the past number of quarters. You can see a lot of ups and downs for a change of only $2 million, but if you look at the second column there you can see that while we're continuing to price and price quite aggressively, it is not enough to offset the effect of the high local inflation and the adverse exchange in this case both Argentina and Brazil. And as I mentioned earlier, we do expect in 2017 our loss to improve for South America as the economic cycle begins to turn. All right, let's move to a very successful story on Slide 18, Europe. This is our seventh consecutive quarterly profit. You can see that the wholesales were actually flat in the quarter, revenue also essentially flat, that decline is more than explained by exchange. In terms of SAAR, it came in at 20.7 million units which was up 1.2 million units, so a strong industry results. Within that our share was down and touch 0.2 of a point and that was explained by lower passenger car sales that was basically Mondeo, Focus and C-Max, but also within that and Mark touched on it earlier, we had very strong performance for commercial vehicles, our share was over 14%, it was up 0.4 of a point and not only were we the number one brand in the year, we were the number one brand also in the fourth quarter. Operating margin at 2.3% and $166 million profit and if you go down and look at the full year, that was a record at $1.2 billion, it was also a record margin at 4.2%. Then let's look at the change on a year-over-year basis, again lots of ups and downs, up $35 million and it was driven primarily by continuous favorable cost performance. To the point that Mark made earlier around mix, if you look at the callout box on mix, that $39 million within that is about $100 million of good news on mix, both mix among product as well as series mix and options. Once, the last point I wanted to make on this slide is, as I've said throughout the year, the business has been benefitted from continued improvement in the results in Russia, that was also the case in the fourth quarter. So, for 2017 we do expect Europe to remain profitable, but it will probably be lower than in 2017 and that's driven by the effect of Brexit on the sterling along with higher costs that we expect associated with the launch of the Fiesta and the Eco Sport along with continued investment that we plan to make in the business moving forward.

And just overall in the business in Europe, as you know we made tough choices and strategic decisions including restructuring in Russia when others retreated and they're paying off as you heard from record profit and operating margin in the region, and as Bob mentioned it's been driven by an aggressive focus on cost, with nearly $400 million in cost improvement in 2016 alone, but we've also had an equally strong focus on our product strategy or the revenue side of it adding a lot of new vehicles and derivatives and segments with the highest growth and profit potential. So, an example of that is we saw a profit improvement of over 400 million in 2016 from a more favorable mix of progress, of products compared to 2015 driven by products like the Edge, but in addition to that more than half of our passenger car sales in 2016 were high series vehicles, the Titanium's, the Vignale's, the ST, the RS, and this helped push the series mix up more than $300 million compared with last year. So, bottom line is, we've taken the tough actions, we've invested in the product and the brand and we're seeing the results in the bottom line.

I didn't mention it, Mark, but as we do see the cycle change not only in South America, but in '17 Russia also is expected to improve and contribute to a better result at least in that part of Europe in 2017 compared to '16. Let's move to another market that's actually been very much affected by commodities, oil, geopolitical conditions, this is the Middle East and Africa. So basically, for the quarter, and you can see the metrics here on Slide 20, as well as for the full year which is shown below, it's essentially the same capture. It's all of what I just mentioned and when look at the SAAR in the quarter, it came in down 22%, is the worst decline on a quarterly basis throughout the year that we've seen and it really is driven by everything that I just mentioned. Within that environment we were able to generate higher share both in the quarter and in the full year and that was due to stronger sales of Rangers, Fiesta and Focus in Africa, but whether you're looking at the quarter or whether you're looking at the full year, basically you're seeing the impact of lower industry volume and you're also seeing the effect of adverse exchange primarily the South African rand, and remember we've got manufacturing operations in South Africa and that's why that's an important currency for us there. As we look at 2017 a very similar story to what I said about Russia, to what I said about Brazil, we are starting to see the commodity cycle change and so as a result we do expect to see Middle East and Africa improve compared with the results that we're showing here for the full year and that's based not only on favorable external conditions, but lower costs and higher net pricing. All right, let's move to Asia-Pacific on Slide 21. A strong story here both for the quarter and for the year. You can see the wholesale is up and revenue flat, remember revenue does not include the China JVs. In terms of the wholesale improvement that's driven both by stronger industry as well as share improvement. In terms of SAAR 44.4 million, SAAR for the quarter, that was up 5% from a year ago and that was driven by very strong performance in China. In terms of market share we were up 0.3 of a point, again that's China, that's very strong sales of Escort, and then the Taurus, the Edge and the Lincoln all contributing towards the favorable mix that Mark talked about for Asia Pacific. In terms of margin, strong, but down at 8.4%, pretax results strong, but also lower. Just look at the far right there as usual just a comment on the China JVs, they came in at $380 million, that’s our equity after tax. Our share of the profit there and the margin at what is 12.8%. So it was down, but still double digits, we're still getting a very good overall margin coming out of our JVs in China. If you go down to the very bottom, you can see the strong results, the second best at $627 million, that was down and whether you're looking at the quarter or you're looking at the full year was driven by lower pricing in China on an industry basis as well as adverse exchange and that was the renminbi. And if you go to the next Slide on Slide 22, you can see exactly what I just mentioned, you can see the impact in that pricing and the impact on exchange, cost about flat and some favorable volume and mix, including last year in the quarter we didn’t actually have favorable mix, on a year-over-year basis we have launched last year in the quarter Edge and Taurus and so the accounts are a little bit different than the other part of the year. In terms of '17, we do expect Asia-Pacific's profit to improve. We don’t expect that come from China, we think the China JV profits will be relatively flat, margin will still be double-digit, but probably down a bit, again because of continued negative pricing, although moderating from what we saw this year, an unfavorable exchange. What we're going to see is improved results across the rest of Asia Pacific, which we also saw in 2016, but at a pace that’s even greater.

And just to add a little bit of color on China, you look at sales in 2016, it was our best sales year ever in China. We sold about 1.27 million vehicles and that’s up 14% over 2015. And importantly, this was driven not only by Lincoln, which is as Bob pointed our earlier, but also our now five vehicle SUV line up, that really has been a key driver for our sales growth including Edge and Explorer, but also at the same time by our performance vehicles, we've introduced Mustang, Focus RS, Focus ST, and as Bob mentioned we had strong sales of the Taurus in China, after we launched it. So I think our efforts and we've talked to you about this in the past, to fill out our product line up over the past few years, has really started to pay off in terms of growth in what is the world's largest vehicle market.

And we have talked a lot about, focusing on the rest of Asia-Pacific, that improved results that we saw in '16 in the quarter, and then what we're expecting in 2017 is really encouraging as well, better balance of profitability across the region. All right, let's turn to Ford Credit rate now, we've got three Slides here as usual. So if you look at the far left it grew and you can see that in the first two sets of data. Our pretax results were down and I'll show you what was behind that, it was down both for the quarter and for the full year coming in still strong at $1.9 billion for the full year. And in terms of our U.S. retail and lease matrix, the portfolio performance continues to be robust, all of our origination servicing and collection practices continue to be consistent. So we are seeing delinquencies start to increase or if they've been increasing, then approaching historical levels but not there. And the same is true for loss receivables. Although there we are starting to get closer to the historical performance of the past. Let's go the next Slide and look at year-over-year. There are a few things to comment here, we're down a $158 million, if you first go the far right, we had a pension settlement that occurred between Ford Credit and Ford of Europe. There is actually positive offset to this to the dollar in the European results and this is basically just simply, we have a Ford plan. In the past, we've kind of split, if you will, the expense and all the results of that plan between Ford credit and Europe, we've done that in other regions as well. So what we have done is we've chosen to have Ford Credit settle its share of deficit at this point in time. It will continue to report ongoing service cost, but we're going to put all of the balance now of the risk and rewards on their portfolio to Automotive who will manage it going forward. And we've already done that in other parts of the business over the last number of years. And then if you look at the middle factor around lease residuals, you can see there the same thing that we've seen all quarters of this year, the impact at lower auction value on the business. And if you go to the next slide, Slide 25, at the upper left, let's focus on the 36 months line which is the one that’s below, you can see that we had pretty stable performance actually up from the fourth quarter and the first, second and third quarters, we had a 6% decline, about $1,060 in the fourth quarter, that was largely in September and October, knock on wood in November, December and so far, we've actually seeing a much more stable performance in auction values. Although we are projecting auction values to be down in 2017 and that’s contained in our guidance. But it was encouraging to see it start to stabilize at least over that period of time. And then on the upper right, I just want to highlight, you can see that the industry continued to perform or to lease at a pretty healthy rate if you will. We actually have had a strategy to take down our lease penetration as Ford Credit, this is in respond to higher incentive which is making leasing very expensive as well as lower auction values and recognition of all the units coming back to markets. So you can see that we're starting to separate a bit from the overall industry and in fact on a full year basis, which you don’t see here, we leased it 22% which is actually unchanged from 2015, the industry was at 30%, that was actually up 2 points from 2015. And if you look at the metrics at the bottom you can see, pretty consistent from where we've been in the past, whether it's a resale contract placement terms or FICO and higher risk in mix. For the full year, no change to our guidance, we expect Ford Credit results to be lower probably about $1.5 billion and again it's around our expectation for lower residual values. If we go to the next slide, this is cash flow. So in terms of our cash flow performance, very strong, you can see operating came in it 1.5 in the quarter, 6.4 for the full year, that was driven by Automotive segment pretax results. Just want to highlight, our capital spending came in a 6.9 billion in the year that compares with 7.1 last year, we're guiding to $7 billion in 2017. So pretty flat over that three-year period. If you go down further and look at changes in debt, you can see it's positive, that’s the $2.8 million debt issuance that we had early in December of last year. And then you can see pension contributions at $1.2 billion, it's consistent with what we had guided to. We are expecting in '17 pension contributions to be about $1 billion and we're also expecting about $1 billion in '18 and '19, that’s up from the 500 million to 700 million that we've previously guided, and that’s simply a reflection of the higher discount rates. And then dividend, share repurchases $3.5 billion which includes the $1 billion supplemental dividend that we announced and paid in the first quarter of 2016. Okay, let’s go to the annual update on pension, a few things to call out here. You can see that the underfunded status actually didn’t move much given the very sharp decline that we saw in discount rates which is just below there in the second section of data. The U.S. in fact, hardly moved it all which is really -- just shows the success of the de-risking strategy that we've had in place for the last six, seven years. We saw a bigger movement in the non-U.S. plants and if you look below there you can see that's because the discount rates were actually three times lower than what the declines were in the U.S. We have very strong asset performance, we've talked about pension plan contributions, we had positive pension plan expense in 2016, we expect to have positive expense in 2017. And then of course the re-measurement losses that were announced on the 20th. Now let's go to my last slide, on Slide 28. So here is the balance sheet summary, so in sum, cash liquidity balance is very strong, Ford Credit's balance sheet is very strong with good liquidity and we've talked about the pensions. The only thing I want to comment on incrementally here is around the cash balance, at $27.5 billion, obviously above our target of $20 billion. And just to share with you how we're thinking about that, 2.8 of that obviously is the debt that we took on in December. And to remind you we took on that debt because we believed it was opportunistic to do so, the market was very favorable, we know that interest rates are going to be going up, so it was a great time to go in and get that debt. Our balance sheet was so strong that we were able to take it on and still not affect our leverage metrics that we're working towards and again as we look ahead at what we want to do in terms of transforming the business, a core as well as the emerging opportunities where we want to grow that we wanted to take advantage of favorable market conditions and make sure that we have that cash available for those uses. We will be very, very prudent, disciplined in terms of how we use that, but we thought it was great to take advantage of the market and get that cash when it was available. The other thing that I guess I would mention to you is, while there is a lot of enthusiasm that we're all very optimistic about what may come out of the new administration in terms of growth policies, is also more uncertainty, there is more volatility potentially around that. And also, we're probably closer towards the end of the cycle whenever that might be than we're to the beginning. So, we're not uncomfortable with having a little bit of extra cash at this point in time. So, with that let me turn it back to Mark and he'll take us through the balance of the presentation.

Okay, thanks, Bob. So, Slide 29 shows our view of GDP growth rates and industry volumes, and all in all we expect growth in GDP globally in all of the major markets that are showing on the slide there. Similarly, we expect growth in the industry volume and in the volume for all major markets except the U.S. which is going to remain strong. If you move to Slide 30, that just shows that we delivered strong results in 2016 again in line with our expectations. And then looking ahead, 2017 is going to be a good year for Ford. We expect our key financial metrics for the company as I said in 2017 to be good, yet lower or about the same as 2016. At a company level this is driven mainly by investments that we're making in the areas of emerging opportunities and it's the same guidance that we reiterated at the Deutsche Bank conference two weeks ago. Now turning to our business units, on Slide 32, to give you a little flavor for kind of what's going on in the business units. We do expect profits in North America and Europe to be lower than last year, while we expect to see improvements in results in South America, Middle East and Africa and Asia-Pacific. And for reasons that were already mentioned by Bob, results in Ford Credit and all other will be lower in 2016. In addition, you can see in the slide the various kind of puts and takes for each region, so you get an understanding of kind of what's going on one level down in each region in terms of the factors driving the business. So, let me just wrap this all up before we go to the Q&A, we delivered a very strong 2016, in fact as we mentioned our second best adjusted full year pretax profit. We also delivered a full year operating margin in North America of 9.7%, which is at the high end of our 8% to 10% target range, which we've talked about in the past. We set a number of records for the year including a record adjusted pretax profit in Europe and record sales in China and we expect to deliver another good year this year, again in line with the expectations that we set initially at our Investor Day, last September. So we're making substantial progress on expanding our business and that’s really going from a strong, healthy Automotive company to one that will be even stronger and bigger as we expand to an auto and mobility company in the future. Which brings me to Slide 34, and importantly we now have a very clear vision and strategy for our business going forward. And our plan is simple, we want to achieve top quartile returns by expanding our scope from vehicles to mobility, through business model innovation. I can tell you we are more focused than ever before on fortifying our strengths, transforming the underperforming parts of our business and investing in the emerging opportunities that will provide either more profitable growth in the future for us. And as usual we'll look forward to sharing with you our progress as we go through the year. So, with that, why don't we open it up and start taking your questions.

[Operator Instructions] Our first question comes from the line of John Murphy with Bank of America.

Just a first question on one of the big swing factors in 2016 being the $1.2 billion stock adjustment. Obviously that is a real thing, it's not one time, but it does indicate maybe you earned a little bit more in 2015 than you would have otherwise and that you took that hit in 2016. So the trajectory of earnings between '15 in '16 actually should be a bit better than what you are show in here. And as we look forward to 2017, your stock position, your inventories are relatively lean, I think very disciplined and good, but it does seem like there is a potential for you to, particularly as we get through the second half of the year, to maybe build a little bit of the inventory if the industry comes through. I'm just curious how you are thinking about this and if that logic makes sense to you.

Well I think you're right in the first part, but that was driven by the launch of schedule and cadence that we had. So if you remember going back to '15 we were coming out of Dearborn and Kansas City for F-150s, so were really building stock. We also then had that pull ahead of rental into the early '16 periods. So again, we had to build stock for that. We then through this year, in the second half of the year we've taking the adjustments -- well, in fact, through the year, we've been taking the adjustments and so you're right, but it was driven by launch cadence and rental timing or cadence as opposed to anything else. When we move into 2017, John I think you’re right, when you look at every single region, the way we look at it, our stock levels are in very, very good shape and then North America particular where there had been a lot of concern expressed by number of people throughout the year, we kept telling you that it was driven by the cadence of launches last year, this year and what was going on with rental and that we would be in good shape by the end of year and we're actually in very good shape. So we have delivered on that, every other region looks fine. As we look ahead to next year or this year rather in 2017, I think we just kind of hold that level. I don’t see any big plus or minus on this particular factor in terms of impact on the company, it might be a little bit different by business unit but likely not, because I think everyone is in pretty good shape. I will highlight that we will have the launch of expedition navigator in the third quarter. So that will have an impact, it's not as high volume obviously, as some of the other launches we've had on those type -- on that type if platform in the past, but it is a very high margin vehicle. So it will have some effect, probably more in mix than anything else.

The only thing I'd add John, all these things are linked, right. As I mentioned any given year we're going to have launches and things of that nature. But when you look as Bob said, we're going to continue our strategy of matching productions and demand, but if you look at our incentives in the fourth quarter, the industry in the U.S. was up 16%, we were up 11% that really follows our strategy of being competitive but disciplined and that allowed us to have average transaction prices in the quarter that were up over 4% and better than the industry. So we're really trying to manage and maximize profitability. Listen, if there is opportunity and there is more business out there, we'll build more. If we're short in any given month, we'll take adjustments. We want to keep those stocks really in shape and be able to react appropriately.

Okay, that's helpful. And then just a second question. I know there's a lot of puts and takes and things that are going on that you're discussing with Trump as far as new policies here. But just specifically around the potential for expensing CapEx and R&D, obviously in 2017 and 2018, you guys are talking about $2 billion to $3 billion of incremental expenses for EVs and Smart Mobility. And if we see expensing of costs like that could that give you a higher deductibility, which means that you might increase your deferred tax asset and not pay taxes for a longer period? I'm just trying to understand, if we look at that $2 billion to $3 billion, how much would have gotten expensed otherwise previously and would there be more that could get expensed now that would give you a big benefit going forward?

Well, I think I would say on the -- I'll call it the blueprint tax proposal, so that’s the only thing that's really on the table at the moment. There is a lot of different factors there. So a lot of people focused on the broader adjustable tax, focusing on the expensing of CapEx, I mean there is all sorts ins and outs and ups and downs, it just a completely different tax code. We have been modeling that which is what I mentioned at the Deutsche Bank Conference, it looks attractive to us and favorable, but it also depends on the detail, and we don’t know that yet, John. I’ll say that we are booking taxes at a healthy rate, we came in at let's say 32% or 31.9% for the quarter, I think it was about 30% for the year, if I remember correctly. We're booking at a healthy rate, because of the tax code we have, but our cash taxes are quite low and they're expected to remain low over the next number of years. And the modeling we've done, again it depends on the what the details are, but it doesn’t suggest that that’s going to change to any degree whatsoever.

Okay, and then just one last quick housekeeping one on the accounting for leases. Obviously, you guys are accelerating depreciation where you need to on auction values that might be lower. Just curious, if we think about what we see in the P&L versus the timing of the cash impact to those when those vehicles come back for you and the industry. Is there a cash impact at the end of lease that we might see that's being reflected in the P&L right now on an accrual basis?

No, I don’t think it was anything materials I mentioned in that regard, no. Everyone here is shaking their heads, so, I think I'm right.

Your next question comes from the line of David Tamberrino with Goldman Sachs.

The first question is really for you, Mark. You've had a couple of breakfasts this week with President Trump. And really wanted to get a sense of your thoughts coming out of there on the policies, how we're shaping the potential changes in the tax code, we've got the house plan that's out there. You clearly mentioned the prospects of an import tariff. Most clients that I speak to are either in one camp or the other that there is 100% probability of a border tax adjustment, and if that doesn't happen, then we're just going to see import tariffs. So really curious as to -- since you've spent the most time with the new President this week, I believe -- what's your thinking coming out of both those meetings and what you've been hearing?

Well I think first off it's a very positive sign from my perspective, that literally his first two days in the office is -- he had first morning meetings with manufacturing companies, including automotive companies. And I think he's going to be very focused on driving policies that drive investment and job creation in American manufacturing and in automotive manufacturing. And so I think that's going to be a big priority. I think obviously as Bob was mentioning earlier, a tax reform is going to be a big priority and I know obviously whether it's a border tax or border adjustment, as Bob mentioned, this is a multi-faceted blueprint that's out there. And as Bob said, we got to look at the statutory tax rates, we got to look at the territorial tax system that they're talking about expensing -- media expensing of CapEx and then whatever currency impacts are there. Our approach, as a company, is just going to stay very close to it and also provide input. So, I think tax reform is going to be high on the list. We did talk about -- he asked very clearly, what are the things that are inhibitors in terms of growing jobs, and your business, we talked about regulations, and particularly we talked about the rule making -- the finalized rule making that was pushed through at the end of the year on the fuel economy, one national standard which really was a decision that we felt was premature and inconsistent with the promise data driven approach, and we think that's really important to get a balanced outcome, balance between making sure that we reconcile interest in reducing carbon into the atmosphere which we're all for, but also with jobs, and also affordability for customers. So, we may see some actions on that which could be positive for our business but my impression walking away is this is the President who's going to be focused on a number of important priorities and make sure that he makes progress on those. And we want to be helpful in the process in terms of whether its trade or tax or regulatory reform, be a trusted source for input.

Understood. That's very helpful. Maybe following up underneath of that, in the event that we don't see a border tax but we do see a potential import tariff and you start thinking about your supply chain, in particular, versus other of your competitors' supply chains. It looks like the cost of being able to produce a vehicle, specifically within the U.S. would have to go up with the amount of local content and then some of the imports come in. In that environment, do you see passing on price increases to consumers? Do you see pushing that through to the supply chain or you see that more impacting your margin? Just trying to get a feel for how you would manage the business for any potential change or rising cost environment as a result of a very targeted or potentially targeted import tariff?

Well as Bob, mentioned earlier you know, first of we have to see what the policies are going to be and as you mentioned we're doing a lot of different scenario planning, the blueprint -- every company is going to be like a snowflake, they are all going to be different, right, in terms of what their net imports or exports are, there supply chain. And we're going to just continue to advocate for comprehensive tax reform. And as Bob mentioned, the broader adjustment piece of this is very interring for us and the reason for that is, we are the largest producer of vehicles here in the U.S., we're a top exporter, obviously, we're doing the analysis on our supply chain because that’s going to play into it. And we’ll see how it comes out. It's going to be a -- I think a pretty -- getting to back to your question earlier, I think the President is going to look for an accelerated rate of getting some level of tax reform in this year and we want to be part of the process in terms of giving them the input on that.

Thank you. The one last one for me is just in North America, as I think about one of your competitors is going through a bit of a changeover throughout this year. Is there a potential possibility for you to see better market share gains as a result of that? Or is that an opportunity for you to be more price disciplined as some of the competition volume might be pulling back and they might not be as aggressive on their incentives?

Well I just see coming back to our strategy, we run this business to optimize profitability for our shareholders, so we're going to continue our strategy of keeping our inventories in line, we're going to be very disciplined on pricing and continue our approach on making sure that our transaction prices are healthy, we're not going to chase bad share that’s not what we do.

Your next question comes from the line of George Galliers with Evercore ISI.

My first question was just on raw materials. Clearly we've seen a move in the spot price for a lot of commodities versus the full-year average for 2016. What kind of assumptions do you have for raw material headwinds this year?

So that’s a really good question, George what we saw in 2016 is an advances and improvement, if you willing, from commodities of about $900 million. Our planning for 2017 and our guidance for 2017 basically assumes that almost all reverses.

Okay, great. And, then secondly, just with respect to China -- and this isn't necessarily Ford specific, we're also seeing it at some of your peers. Volumes are growing both when we look at Q4 and on a full year basis. But when we look at profitability, clearly we're not seeing similar progress. Do you think that -- what's got to change, I guess, for absolute earnings from Chinese JVs to step up going forward? Is it a more stable pricing environment? Is it continued work on the cost front from yourselves? Or is it just -- is there some other factor?

Well let's just talk about the JVs first, because I just want to remind everybody, the JVs are not the total China picture for us, because we've got imports of Lincoln, we've got imports to Ford, we also incur engineering here as Ford, for products that will be build years ahead, and the JVs we get compensated on that through royalties. So there is a little bit of a disconnect there particularly as we're in growth mode. But just on the JVs, if you look at the JVs this year, perform was good, we actually had good cost performance in the Joint Ventures. We have two things that are happening to the JVs. One is this continued negative trend that we have seen of negative pricing across the industry, and as I've said it did moderate in '16 versus '15 and our assumptions for '17 is that it further moderates although it will still be negative. And then the second impact is on exchange. Now the exchange hit clearly affected our imports, foreign imports, the Lincoln imports, but while we have very high local content in the Joint Venture, they still import and so that also had a negative impact. It's really those two things that affected the overall business in China but also specifically Joint Ventures going forward. One of the thing that has been helping us has been the mix and that’s been sort of a quiet of our recipe for success in North America, it has been in Europe and I think that’s probably further opportunity for us in China moving ahead into the future.

To put that in perspective, as you look at 2016, 40% of our sales in China came from more profitable segments, the large cars, SUVs, performance vehicles and premium and that was up about less than 1.5 points versus the year ago, so the teams is really focusing on that. And then to your point earlier on the industry, as you know we have guided the industry to be higher next year in China, but we do expect the end of the tax incentives or the reduction of tax incentives that happen at the end of last year, that’s going to be a drag on industry sales and volumes probably through the first quarter. We've reflected that in our assumptions and we anticipate that the impact from the pull ahead is going to ease from the second quarter going forward, and it's supports our outlook a little over 27 million units. But we are seeing in January, a payback and the industry is seeing a payback. So we have to get through Chinese New Year is early this year, so let's get through January and February and then I think we'll have a better idea of the run rate as we get into the end of the first quarter.

Your next question comes from line of Rod Lache, Deutsche Bank.

I wanted to just -- I had two things. One is, again, on border adjustments. We came up with an estimate that, just for the overall industry, not Ford specifically, this is something that could potentially increase the cost of a vehicle sold in the U.S. by $2,300. And at the same time it looked to us like the effect would be really small for Ford. And I'm wondering if you've done a similar competitive analysis. Should we be watching this as one of the more potentially significant changes to the competitive landscape? And post your meetings, if you have any thoughts on timing of implementation, whether there could be a phase in? In other words, is this something that we should be thinking about as maybe a factor or even in the intermediate term, like 2018, 2019?

Let me comment first Ron and then Mark can add comments that he might have. So we have been modelling it as I said the one thing -- so your assumption in terms of how we stand versus competition is how we see it. We are in a pretty good place in terms of import, export position as we look at vehicles as we look at our parts. So we see that as being something that's attractive. Then when you combine with somebody other aspects of the blueprint like the lower tax rate and some of the other aspects plus an assumption that we've made through discussions with the staff that are working on this that some of the things that are important to us like tax attributes will continue into the future. That's what gives us at least for now a positive point of view on that for just a proposal. When we look at our competition we can't see if you will the data around parts, we just can't find source for that anywhere, but we fairly can understand imports and exports of vehicles, and when we look at that again you're right relative to our peers that we're in very good shape and versus some of them extremely good shape. So, it could have an adverse impact in terms of them, if what we see now as a proposal passes through and for us it looks pretty attractive and actually not having too much impact at all over the next several years in terms of our cash taxes.

And to Bob's point on -- when you look at our profile, I mean you know the facts Ron, we're the number one manufacturer in the U.S. and also, Ford's not one of the top manufacturers in Mexico. So that adds to our profile. When you look at some of the nuances on how this will be laid out, whether there'll be phase-ins or things of that nature, I think that's work in front of the administration and Congress going forward. There'll be lots of discussion, there'll be a lot of sausage making around this to see ultimately what happens. My view is as I go back earlier, I think there're going to want to make a significant progress this year and get something passed through Congress this year and I think Paul Ryan last night laid out getting something done by August. Now whether they'll be able to do that, I don't know. But clearly that's their intent.

Great, thank you. And just secondly, obviously, the market's expectations, vis-à-vis U.S. growth and inflation and monetary policy have changed a lot here in the past couple months, but your guidance didn't really change since the Investor Day. I was hoping you might be able to just give us some color on how this could affect North America and also the Credit business, whether you see some implications for rates that could be more significant in terms of recent rates, for example. And then in Credit, how should we be thinking about the financing margin and broadly just as the market is transitioning from looser monetary to tighter monetary policy?

Now let me take a short at first and then again if there are some broader perspectives, Mark can share. So, I think what we're seen so far, is the market is excited and interested, intrigued and optimistic about what might happen. But we don't have any policies yet. So, I don't -- we don't know. So, we're hopeful, we're also optimistic, encouraged about what might be, but nothing really has changed yet other than maybe sentiment, I think that's -- it's fair to say sentiment has changed. So, until we see something more definitive, we're not changing our point of view in terms of what our operating assumptions are. And in fact, I think so far this month in January, I think the rate of sales that we've seen for the industry suggest that there's nothing that would tell us that anything is any different than what we've been assuming. And we've built in increasing interest rates, both for this year and going forward. So, we kind of already assumed what you've talked about, the question is, if we do get a very positive pro-growth strategies that are much more inflationary than what has been assumed? Then obviously, there is an impact there and it would affect many parts of business both pro and con, something that we would manage and deal with as we always do. But there's nothing specific to respond to yet Ron.

Right. Well, the market rates, Bob, like five-year swaps are up like 75 basis points since November. So the market is starting to reflect a different paradigm. And I would imagine that that's very meaningful, just broadly, on a number of different fronts. So that's more or less what I was asking about [Multiple Speakers].

But so far what we seeing as been consisting with what our planning assumptions have been. And we did build in increasing interest rates. I think we're going to market couple of times and everything is consistent with what we had expected in terms of -- actually we're seeing good spreads and I think the rates have been consistent with what we have planned. I understand your point, but it hasn't materialized yet into anything physical that would be different on our planning assumptions.

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

A couple questions. Housekeeping and then a more strategic one again related here to the White House. Housekeeping, anything you can comment around quarterly cadence particularly in North America, particularly getting through some of the destock?

While as I mentioned earlier I think the destock is behind us. On a company basis, it usually 60-40 in terms of profits, first half, second half I would expect something like that this year. I always hesitate to get into the specific quarters because I'm inevitably wrong, but last year was very unusual, the year before was very unusual, the flip side of that because of the launches. I would say I think the third quarter in North America will be the weakest and that’s going to bed driven by the impact of the launch of the expedition navigator. But other than that I would call a more normal year in terms of cadence.

Okay, when I said destock, I meant overstock, if you will, in 1Q of last year. On a strategic question, in addition to what the NHTSA and the EPA control directly around fuel economy and environmental regulations of the EPA, EPA has historically, at least in the eight years, granted California a waiver to pursue its own greenhouse gas policy. Was there any discussion at the White House around the theme of harmonization of fuel economy and environmental regulation? And sort of the debate, maybe too philosophical, around is this state's rights versus federalism in terms of getting to a harmonized system once again?

Well we didn’t get into discussion around states rights versus federalism in the meeting, but what we did talk about and I get back to earlier, where we said, we weren't advocating for elimination of the standards. I made the point that, one of the reasons we were very supportive of the One National Standard is because it was one national standard. You had CARB, the California Air Resources Board, together with NHTSA, together with EPA and we emphasized that was important going forward.

Well, what if CARB decides to continue to stick to its aggressive goals, perhaps even more aggressive? What do you think the new administration will do through the EPA waiver process?

I think you have to ask the administration that question.

Your next question comes from the line of Itay Michaeli with Citi.

Hi, just shifting maybe away from North America for a minute on South America, just given the flattish losses in the fourth quarter, could you just talk a little bit about what some of the drivers for improvement in 2017 might be? Perhaps the magnitude, roughly, if you can share? And then also a similar question around the non-China Asia Pacific improvement that you are expecting for 2017.

Well, as you go back to Slide 32, Itay, if you want to go back there. I think this slide shows what the ups and downs are, if you will, on a year-over-year basis. So in South America we do expect to see positive net pricing, we do expect to see favorable volume, even though it doesn’t look like the industries are moving much when you look at the industry slide that’s really due to rounding. We still see exchange as a bit of a headwind including and also cost including commodities, so it's really around favorable volume and mix and especially pricing. So that’s what we see happening. And it does require the external environment to sort of move forward in a positive direction. And if you go back to the slide, that has our assumptions on GDP, we've had a very modest projection of 0.5% GDP improvement, which is consistent I think with the Brazilian Banks we're talking to and a few other, so I think it's in the range of what most people are expecting. But I also would say, at least based on the data we've been looking at on a month-to-month basis, it could be more of a second half recoveries than a first half at least in terms of the strength of that, driving that full year result. Not going to get into quantification of magnitude on any of the business units, but I think it will be -- we're expecting it to be a reasonably good improve on a year-over-year basis. But we'll still be in a loss. Then you asked me on Asia Pacific, I think you are asking around the specific the non-China?

Current.

Yes, so I got to tell -- we're so excited about that because we've been talking about this for a long, long time. Australia was really having a tough time particularly prior to going into the restructuring and the manufacturing and then after we announced it. ASEAN on was struggling India, of course a big investments and growth node there. And we are still excited because we are now seeing big turnaround particularly in ASEAN in Australia, we see profits -- strong profits in those parts of the business in 2017, and that’s really what's driving the improvement. But even India will be a loss again in 2017, we see a less of loss. So overall that part of the business in Asia Pacific is really moving forward in a positive direction and something we have been working very, very hard at.

And importantly on Australia, we actually completed the closer, the manufacturing facility last year in October, November timeframe. So the team is really focused on not only building our business, but we made announcements late last year around building our engineering capability in Australia, so right direction from the momentum.

That's very, very helpful. Just a quick follow-up, back to North America on Slide 15. The positive other driver, I think of about $250 million, was that mostly parts and accessories? And, if so, what's the outlook for that business globally in 2017?

That’s was part of it, you are looking at what Slide 15, did you say?

Yes, Slide 15, the two [Multiple Speakers].

Yes, it was parts of service we also had lower legal cost, we have some favorable performance from some of the subsidiaries within North America and there were just other -- just a whole slew of smaller things that added up. But yes, it included good performance in parts and service, which offer the business in 2016 did very well across the globe.

Great, that’s very helpful. Thanks so much.

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

Some more questions to try to probe this border adjusted tax issue. I just wanted to confirm that your comment at the Detroit show that a border adjusted tax could be potentially a positive not just on a relative but an absolute basis. Does that analysis take into account not just the vehicles that you're importing and exporting but also the parts that you purchase from suppliers that might be imported? And then as part of your answer, it would be great, too, if you could remind us of your export strategy, because going back to that Europe turnaround call in October of 2012, I think it was, you mentioned then your plan to ramp exports from the U.S. And since then now you're exporting to China, too. So maybe your exports are greater than the market appreciates. Any color or data you could share would be helpful.

Let me take that first part and then Mark can respond on the second. So, to be specific, yes, in an absolute sense more outside of our business centric because we're actually modeling this out many-many years, because you have to do that with the first taxes. So it actually can be quite favorable it absolute sense, sort of I'll call it beyond our five-year business planning period. Through our business planning period it's probably more neutral, and that's both in terms of an absolute tax, but in particular to cash tax status that I mentioned earlier. The bigger opportunity in terms of the big change versus where we are today it's more sort of post 2021 in terms of the assessment that we've made.

In terms of Ryan your question on that export strategy from -- let's say here from North America, as you know what we've talked about in the past is utilizing our manufacturing operations globally, and be better exporters, if you will, and balancing and basically using our manufacturing assets around the world. And that's why in Europe for example coming out of the U.S. we added the Edge which is doing very well in the marketplace. We're getting the new KA+ out of India. And in terms of other exports out of the U.S. as I said we're a top exporter and part of it is when you look at China for example we're exporting Explorers, Lincoln, we talked about the road fair, actually we have a -- when you take into account imports of parts, we actually we have a -- from the U.S. we're actually -- we're in a net surplus in terms of our trade with China with the exports that we do out of here in the U.S. So, we're going to continue to utilize our manufacturing assets very efficiently around the globe and this is all around our strategy taking advantage of our scale and making sure we're taking advantage of the assets that we've in different parts of the world.

Okay, thanks. And then just my last question is really what was better than you thought in 4Q because you did $10.4 billion of full year pretax versus $10.2 billion that [indiscernible] at the time of 3Q. So versus our own expectations, it was North America Automotive. I know you don't guide granularly quarterly by region, but was it the Super Duty? Was it some of these profit improvement initiatives that you talked about on the 2Q call? Did those track better or whatnot? And is there any way to say that maybe the stronger profits in 4Q bode well as we enter 2017 relative to guidance or anything like that?

So, Ryan you're asking specifically about North America?

Or just what contributed to the implied -- the $200 million implied beat [ph] versus your implied guidance for 4Q, basically, on pretax?

Cost.

Costs. And do those costs continue -- was that one-time period benefit or is there now a stronger base of earnings that you carry into 2017?

Well it's interesting when we look at the year-over-year costs changed for the total company, I went back and looked a number of years, this is the lowest cost increase that we've had on a year-over-year basis, since I think going back to 2009 or something like that. So, actually we've seen -- we've got a lot of control on cost, North America was a big contributor to that, and that certainly helped us in our performance throughout the course of the year. As we move into 2017, we've talked about the investments that we're making and the emerging opportunities. If I put that to decide the commodity increase that I talked about, I think everything else actually should be a cost save in 2017. And we have to work hard to do that, but it does show the focus that we put on cost and continue and I get I would highlight what we showed at the Deutsche Bank conference, within all of that we got about $3 billion worth of efficiencies that we're generating right across the business, its helping us to continue the investments we're making for growth.

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

Just a quick one here. Alphabet and Waymo seem to have gone around to all the OEMs globally, and I suspect yourselves included, to try to look for a way to work with you on sharing data, creating HD maps and helping your efforts in the autonomous driving revolution. I was just curious if you could reiterate your stance on data sharing with suppliers like a Waymo or Mobileye that ostensibly want to help develop a common crowdsourced 3D map, for example, amongst other things. How do you view the opportunity to do that versus do-it-yourselves, because you obviously have huge scale globally on miles traveled to maybe do that yourself? How do you weigh that and, again of course, versus the value of the data and the sanctity of the data?

Thanks Adam, in the key as that last part of your statement. We have to look at what the value of the data is. Certainly there is different -- there is a broad spectrum here and very simply put, we continue to be open to work with partners where we can crowd source data that helps the system as opposed to just an individual manufacturer. So we're going to continue to go through that process and really understand the value of the data and when the value of the data -- it points very clearly to working with other, we'll do so. And it all comes down to, as you look at that value of the data, keep going back to what I mentioned a long time ago, we don’t want to be relegated to a contract manufacturer status and that’s always in top of our mind.

Okay. Because there seem to be different views there. Toyota, for example, seems to have this: We're big enough and we can do it ourselves and its early days and we don't want to make a decision on sharing too early and regret it later. Perhaps Chrysler might be on the opposite side of the spectrum of, we'll cross the line early and work early. I reckon maybe you're somewhere in between. But I'm just curious in terms of timing, do you think that this year would be too soon for you to make a decision? Or is it -- is there even one avenue to go and there may not -- there's no such thing as exclusivity, whether you do-it-yourselfer with a partner? I'm just curious [Multiple Speakers].

I can't answer your question in terms of the timing of it but, clearly you know what our objectives are, is to have a level four vehicle out in the market place in 2021. So clearly we have a lot of work to do in front of us, but also at the same time we've made a lot of progress and as we said we'll go through that process, what's the data we feel crowd sourced is fine, doesn't have a lot of value, but has a lot of valuing to the system versus what's the one that will have value to us as we looked at new business models to grow our business.

Our next question comes from the line of Colin Langan with UBS.

Just a follow-up on all the border tax questions -- border adjustment questions. One of the key elements there is the impact of all this cost and what it might do to actual industry volume. Any color on the price sensitivity that you would see if we see all these border tax pushing costs up, how much auto sales may fall?

No, I don’t think we have a handle on that, that was part of Rod's concern or question as well. There is another aspect too that we're going to have to look at, which is, what impact did this have on exchange rates. That’s something else that's been mentioned in the strength of the dollar. So the thing that's really kind of interesting but also very complex about this whole thing, so radically different that, it's go way beyond just what's the tax effect it could grow the economy, so that’s a positive. It could strengthen the dollar that’s got positives and negatives. The point that you mentioned around pricing and affordability that one also could be interesting because, again based on a relative position that individual companies can have, there is probably an industry effect that could be quite different by individual companies. So I just can't answer, we don’t know enough at this time Colin, to give you feel for that. But it's certainly something that we are aware of and we will be looking at as we get more specifics around the proposal itself as it works its way through congress.

And Trump has talked about a focus on jobs. I think you even mentioned -- I think he even tweeted about it and having a plant opened in the U.S. What would actually -- would you consider, particularly at this point in the cycle, actually putting a whole new physical brick and mortar plant in the U.S.? And what with the criteria be for you to go forward and do something like that, if that what is the objective here?

Well, getting to the first part of your question, obviously as you know we canceled the plan down in Mexico because the bottom line is we saw was happening with the segment, we did need the capacity anymore and it didn’t make any sense to add it, particularly now also where we are in a cycle. And going forward, the criteria for -- if we ever build any capacity anywhere, is the growth of our business. And we're comfortable with where we are right now. But we have made announcements, we are expanding our Flat Rock facility to build the new autonomous vehicle and the new battery electric vehicle SUV that’s coming down the pipe. And as you know, Colin, the things, we look at a lot different factors, both the capacity and where we put it. Everything from logistics to labor cost, the business environment, to tax treatment, et cetera. And we'll continue to look at those things going forward. But nothing on the plate right now in terms of brand new facility somewhere, but we are expanding some.

And one question I get a lot from investors is you are guiding earnings down, but a lot of your peers, particularly your tracked U.S. peers are guiding earnings up. I imagine a big chunk is the investment in EV and mobility. Do you think you have some catching up to do? Is that why there is a big outlier there? Or is there another reason that you're a bit more cautious than your tracked competitors. Any thoughts on that? I would love to get your perspective since investors continuously ask.

Well, I’ll give mine first. I mean first of all we have been running at a very strong rate for seven year. So some are catching up to the level of performance that we have been at. But when we look at going into 2017, again I can't talk to others and what's happening in their business, launches or anything else, but we're going to continue the operate in terms of the core Automotive business at a very, very strong level. It will change in terms of the construct of various factors and probably among the business units because things are different year-by-year. But we think overall the bottom line result for core Automotive will continue to run at a strong rate. Credit will come down for the reasons that we have talked about. The higher net interest expense, but really the difference is around the investments in the emerging opportunities. And we think that those are sort of like where we're planting the seed and we know that we're going to harvest the results. Probably more towards next decade. But this is going to transform the business. So it's something that we're really looking forward to doing and it's the right thing to do for the business. So, we'll have to see where we all end up when the year is out, but we believe that the call that we're making for the business is the right one for us and is still going to generate a strong result and as you know from what we've said around distributions, we're still going to provide shareholders with strong distributions in the year, $2.8 billion.

And what about the notion that you're catching up to your peers? Do you disagree with that particularly on EVs? Or do you think maybe you are having to catch up a little bit on a relative basis?

Well Colin, I absolutely disagree with that in terms of if you look at electrification, I mean we've sold over 0.5 million electrified vehicles since 2004 and when you look at the breadth of HEVs, PHEVs and also battery electric vehicle that we have, it's one of the broadest. And we've made a commitment now as you know to expand that even further, that $4.5 billion and the 13 products that we've talked about, a number of them. So, we strongly believe that we've lead in this area from a development of the market standpoint, we're working now as was mentioned earlier on infrastructure in various parts of the world for EVs, so we're going to continue to keep ploughing ahead on this. No, I don't believe that we are behind.

We'll now take questions from the media. We've a question from the line of Patti Waldmeir with Financial Times.

One question please for Mr. Fields, you were obviously one of the first to stress the positive side of a Trump Presidency for corporate America, but could you say to me about how it feels never to know when you're going to have to deal with, at the very least, a significant markets fallout from a Presidential tweet, could you -- what word would you use to describe your mood in this new normal? And a question for Mr. Shanks, you said that there was a $200 million charge related to the Mexico cancellation, but I've also seen a $500 million figure for -- of savings for consolidating small car production related to the cancelation of that factory and I'm not sure where that figure comes from, could you say something about that?

Let me do that first, and then Mark can respond on how he feels. [Multiple Speakers] So, yes, the $200 million is a charge that we're taking in the fourth quarter, because we've made a decision towards the latter part of the year. So we've booked that in the fourth quarter. In terms of the$500 million, that was the net save, if you will, in terms of capital spending. And we talked about that at the time that we announced the cancellation. So we will save $500 million in capital related to the cancellation of this factory.

Getting back to how do I feel? I feel good, and the reason I feel good Patti is because you talk about -- you're basically talking about the external environment, and how are you ready for things? And it's been the way that we've been running this business for years now. We're always looking at the external environment, literally every day, we're doing the right things for the business, we're being proactive, we act decisively. So whether it's a tweet from somebody or a market disruption in another or a natural disaster and in some part of the world, we're going to be ready because we are just watching that external environment everyday and it keeps us riveted on the business.

This concludes the fourth quarter and full year 2016 Ford earnings conference call. Thank you for your participation. You may now disconnect.