Ford Motor Company

Thanks, everybody, for joining us today. I'm John Murphy from Bank of America. We are very happy to host a few members of Ford's management team today. John Lawler, CFO, Kumar Gohatra, President of Americas and the International Markets Group, and Lynn Antipas Tyson, Executive Director of Investor Relations. Ford, from our vantage point, is a company that is in transition in a very positive way a lot of momentum towards the future around evs while leveraging the core of the business and we do think kind of like the companies spoken about recently there's tremendous opportunity in the core business around ice and huge opportunity in the momentum that they're building around evs so i think it's a really exciting time to be listening to uh the management team of ford and their vision for the future. However, you know, in the near term, we all need to focus on earnings. So, we are going to do a decent amount of review on the earnings today and the near-term outlook, and then get into the long-term potential. So, John, Kumar, and Lynn, we really thank you for joining us today, and I really appreciate the time. So, maybe to kick off the John, maybe to kick off, there's a lot of controversy around the stock post-earnings. You know, I would argue that the pressure on the stock is a huge opportunity for people to want to invest in the short and long term and forward. But obviously, there's a lot of questions. So to start off, can we just review the walk for the year-over-year walk for the $11.5 to $12.5 billion EBIT guidance for 2022 and kind of juxtapose that with the commentary around first quarter where volumes will be down year over year. And I think, you know, one of the big questions and concerns we're hearing from folks is, you know, Ford is traditionally a 60%, you know, first half earner, 40% second half earner. So if the first half is going to be, I mean, the first quarter, I should say, is going to be that light, you know, how do you actually hit these numbers for 2022, which are pretty good numbers, $11.5 to $12.5 billion?

Yeah, thanks, John. Right, 11.5% to 12.5% adjusted EBIT up 15% to 25% year over year. Now, one of the main drivers of that is a continued strength in our top line. So we have volumes up 10% to 15%. So you're seeing the leverage there, volumes being up 10% to 15% and EBIT being up 15% to 25%. Now, the top line is going to continue to be strong, one driven by those higher volumes. But we're also seeing on a year-over-year basis continued favorable mix and then some positive pricing, net of production costs. So what we have there on the year-over-year, about $5.5 to $6.5 billion of that top line improvement. So when you look at that and you start to unpack that, you might say, well, pricing was up quite a bit in 2021. Why do you feel pricing can be up again in 2022? Well, I think it comes to the strength of a product portfolio. As you know better than anybody in this industry, those with the strongest product lineup gain share and have pricing power. And I would say that we have the in years probably in the 30 years since i've been with the company so that's going to be a nice tailwind for us the other thing is when you look at the pricing that was taken in 2021 it was a combination of top line pricing and lower incentives now that top line pricing pricing was taking more taken more in the second half than the first half so we get the benefit of a full year of that pricing on a year-over-year basis so that's going to be a positive so in essence we could not raise our price is we could go in this year, prices not being raised at $1 or incentives being lowered by $1, and we'd still have year-over-year pricing based on what we took last year. So there are some positives there on the top side. Now, we do know that we're going to continue to see the headwinds on commodities. So that's a headwind, and we said that's about $1.5 billion to $2 billion. Ford Credit is going to have another strong year, but it's going to be down year over year, and we said by about $1.5 billion. So those are the two largest headwinds. Now, we're going to continue to invest in our modernization, in connectivity, in our IT systems, in our customer systems, but that increase of about $1.5 billion of investment is largely offset by efficiencies. So that's pretty much the walk. We've got the top line improving. We've got some commodity headwinds. We have a lower forward credit. We're going to invest in our modernization, but we're broadly looking at offsetting those investments, and that's the walk from 2021 to 2022 that allows us to drive our EBIT up that 15% to 25%. And I will note that at the higher end of that guidance, we would hit an 8% EBIT margin for the company and the 10% adjusted EBIT margin for North America. So that would be a year earlier than what we had talked about at Capital Markets Day last May.

And, John, when you think about the first quarter comments of volume being down year over year, do you – I mean, do you think that that is the – you know, that's a comment around volume, right, not necessarily EBIT, right? So, I mean, you know, we could see, you know, better EBIT performance than that, you know, down volume may indicate for the reasons you mentioned on pricing, or maybe not. We'll see. But, I mean, how do you fit that into sort of the traditional earnings pattern, and do you think that it could be somewhat different – in 2022 than it typically is.

Yeah, absolutely. It will be different than the typical cadence of 60-40 about that we've seen in the past. So fourth quarter, we had disruptions. And those disruptions were not only driven by the rate and flow of chips, which has been an ongoing issue, but we also had shutdowns at key suppliers due to the COVID crisis, due to Omicron. And that interrupted the rate and flow. That hit us in the fourth quarter. That's continuing in the first quarter. Now, the good news there is that those suppliers that were impacted, that were shut down, they're up and running now. They just came up in the last week or so. at full force, and so it's going to take a while for that pipeline to refill, but that's behind us. The other thing that I would say is as we go through the year, we should see, and we do see as we look at it, improvement in the rate and flow on chips in the second half relative to the first half of what we've seen in the past. Part of that is the fact that when the chip crisis started, many of the fabs went out and added capacity. That capacity is starting to come online in the second and the third quarter, and so we should see that rate and flow improving the second half from a volume standpoint. So you're going to see the second half stronger than the first half. We have confidence in the volume being up 10% to 15%. We don't expect to see the same number of disruptions due to the COVID crisis as we go through the year. And then we see the chip crisis easing a bit as those volumes come online from the fabs. So that's why we see we're confident in the 10% to 15%. That's why we see a stronger second half than first half. As we said on the call, first quarter is going to be down the most. On a sequential basis, it's going to be our lowest quarter for the year. And what you're going to see coming out of that, I think, is strength building throughout the year.

Okay. And the biggest – I mean, the biggest positive in the 2021 results was pricing. You just alluded to how you're going to focus on product. Right. You're sort of a, I wouldn't call it a skeptic sort of a wise guy thing to say to you would be like, well, you know, you just put up a huge pricing year 9.7Billion last year. And you're talking about increasing your volumes, but the reality is, you know, the results last year were very, very, very strong. So, the, you know, this increase in production. Listen, I don't disagree with it, but you could say, hey, listen, why don't you do – stamp out almost the same exact thing you did last year, not increase volume that much, keep inventory incredibly tight, and take advantage of that strength in pricing which drops to the bottom line. I mean, how do you balance – how are you balancing this, and how do you think about driving price going forward? I mean, is it – I mean, product matters, right? So it's not purely product, but I mean, that's the leading edge of it. But how much of this is keeping inventory tight and where do you think that inventory goes to maintain strong pricing?

Yeah, I'll start and then Kumar may want to comment as well. and running North America International Markets Group. We're going to be very, very thoughtful about this, John. One of the things we've been consistently saying is that we will not go back to the old model of high inventories and a push through the system. But what we're seeing this year is the demand for our vehicles is very strong. There's still an imbalance this year between supply and demand. especially with the new product lineup we have, we're virtually sold out on all of our new products. We have an incredibly strong order bank. So we see demand being long to supply throughout the year. And with that, then we can be very disciplined about our incentives. And as I said earlier, the top line pricing from 2021 will flow through on a full year basis into 2022. So that's why we have confidence line improvement, that in volumes we'll be stronger because we can produce more and the demand's there, so we'll be able to fulfill that demand. And that gives us that tailwind to the top line that I was talking about. So we're confident in those numbers. We're confident in the strength of the lineup, and we're confident that that product and this year we can manage this in a very thoughtful way and that we'll deliver that top line improvement.

Yeah, John, I would add just a little bit of color in terms of product. You said that that's the leading edge of it. We, this is one of our strongest portfolios in decades. We've got the F-150, new F-150 we launched last year. It's been fantastic. Bronco is doing awesome. Maverick is sold out. Maquis is sold out. So all of these products, huge demand like John said, we expect that demand to continue and we continue to break constraints as quickly as possible to meet that demand. And if you look at our incentives, how disciplined we'll be, you know, I was just looking at this morning, we have practically no incentive, like very, you know, small incentive because of certain elements of leasing can get in there. But for the most part, F-250, Bronco, no variable market, Maverick, no variable market, Maquis, no to minimum. So that just shows how the strength of the portfolio that can command that kind of pricing. That strength only increases, gets better this year because we'll have full year of production. We'll have full year of production for Bronco we didn't have last year. We'll have full year of production for Maverick. We just this morning started shipping the transits, which we've got over 10,000 orders for, and we started production of F-150 Lightning. So you add all that up on top of an already really strong portfolio, that's gonna help us continue this momentum. The other thing I would mention is, one of the silver linings you mentioned in terms of inventory, uh of the pandemic has been the adoption of you know both by us and the dealers and the customers um digital tools like remote experiences online reservations we are selling a lot of our vehicles now to retail customers orders customers are willing to wait they order exactly what they want so in december for example over a third of our sales were customer retail orders. That's very, very effective in multiple ways. Obviously the customer gets what they want, but the huge advantage is lower inventory. So the, you know, and incentives and in marketing costs. So we won't need as many vehicles sitting around on lots. And that's just a tremendous advantage for us in terms of getting more efficient.

And can we just, one follow-up to that, One of the beautiful things that occurred is because you were short of inventory, some of your customers were essentially pushed into the used vehicle market, right, which has driven up used vehicle pricing and resits. Some of those are entry-level, you know, customers. So going forward, is there an opportunity to keep your mix relatively rich and higher priced and fulfill that entry-level buyer with a three-year-old vehicle? Because, I mean, I just think about, you know, somebody buying a, you know, seventy seventy five thousand dollar f-150 the brazil might not be fifty percent right now but you know if you think about historically fifty percent are they better off buying a thirty to thirty five thousand dollar three-year-old f-150 and then buying a stripped down version of of the new one will they actually get a better product i mean f-150 is an example you can do this with you know any of any other products and then that consumer is getting a better product a better experience you're not doing the stripped-down version, which is lower margin, and you're also supporting the resits at the same time. I mean, how do you – I mean, an F1 is not great for an entry-level, you know, vehicle. But, I mean, how do you think about that going forward?

Yeah, what a great question, John. A really, really important part of the business for our customers, for viewers, and for us. So, last year, February of 2021, we launched FortBlueAdvantage.com. It's a very seamless, intuitive way for our customers to research and buy used vehicles that are certified pre-owned. that had just launching that marketplace. So basically it's a marketplace, we manage it, dealers can put their used inventory on it, but that inventory must be certified to our standards. That increased our used vehicle sales by 26%. More importantly, it actually gave us the opportunity to provide all the leads to our dealers. And the number of leases we were providing for our dealers for used vehicles increased eight times, which is really fantastic. So, and that's just, that's less than 10 months. That's about a year old. And we expect to grow it. And one of the really innovative things we're doing this month is that we're going to provide a 14-day thousand mile money back guarantee. That's going to be the most comprehensive money back guarantee for used vehicles in the industry. It serves our customers. It makes the buying processing less for our customers. And it really helps out the dealers. And it's a really slick site. One of the things we learned was when people are looking for certain types of vehicles, because when used car buyers come into the marketplace, they actually have a pretty good idea of the kind of vehicle they want, kind of features that are must have, the kind of features they don't really, they can live without. And there weren't many places on the web where you could go and be that specific. And Ford Blued Manage does that. You can go in and say, I want a four by four or four by two, or you can even go much finer on features and it serves you up exactly, you know, the kind of vehicle you're looking for, in the location you're looking for it, in the price range you're looking for it. So I'm really excited about that, and it is going to serve our customers who need that kind of an affordable price to come into the market.

Okay. I mean, in a circular reference to new vehicle pricing or the support there is pretty powerful, I would think, over time. Is there any way that you've quantified that on what that means, or does that still mean early in the data collection and understanding what that's going to mean?

John, for used car pricing or new car pricing?

For new car pricing. I mean, just driving this more organized professional used car experience and this great product into, you know, consumers. I mean, does that create a pricing, you know, foundation ultimately for your new vehicle pricing? I would imagine it has some positive impact. It's just hard to maybe gauge it in the early days.

Yeah, absolutely. The data is too new, but I fully expect it to provide that foundation. So you combine those things of that foundational pricing plus a great product portfolio, plus higher demand than supply, plus the new launches that are coming up. So I expect all of those, you know, to continue this strong pricing environment. I think we've already said that we expect it to be about 5.5 billion to 6.5 billion year over year in terms of volume mix and pricing. And it's all those combination of all those factors that gets us there.

Got it. Okay. The next question, Farley made some very, very interesting comments in response to the first question I had asked on the call. And basically, he went on to say that ICE and EVs are distinctly different businesses with different products and different supply chains and different customers and potentially with different distribution. So I'm just wondering if you guys can expand on that to some extent. and what that means. I mean, I would think, I mean, I generally agree with that, but I'd also think that there's a fair amount of know-how and design engineering and sourcing and logistics and manufacturing that are pretty applicable. But I mean, where was he going with that and how distinctly different are they from an operations standpoint Kumar and then Lawler or John on the financial side? I mean, it's a really interesting view and refreshing to hear.

John, you want me to go first from maybe a PD perspective, operational perspective? Yeah, why don't you start there and then I'll jump in, Kumar. So from a product development perspective, it just requires a different engineering talent. The obvious one is a propulsion system where we need a lot more cell chemistry experts than we do internal combustion engine calibration kinds of experts. So we have been, and we continue to recruit new talent from outside the company that can accelerate new capabilities, both in software and in services, battery technology, everything that is. And I think at the highest level, the example of that is Doug Field, who joined us a few months ago. Secondly, what we're finding with the Mustang Mach-E is that a lot more work for both improving the product as well as making it a better business case can be done after job one because the vehicle is connected, over the air updates can have a huge advantage for the customer. We can keep renewing the vehicle. It also helps us take cost out. And we've been able to come up with very substantial opportunities for Mach-E since we've launched it. The other thing is quality. Obviously we do everything possible to ship the highest quality vehicle, but there are times when there's an interstate in the vehicle. we can, both with F-150 Lightning and the F-150 ICE vehicle that we just launched, it is so connected that we can solve a lot of the quality issues with over-the-air updates. Now, that may not seem like much, but that can have a very substantial impact on on mortgage, especially recalls. Can you imagine physically bringing in lots of vehicles to our dealerships to fix recalls? But if that particular error can be fixed through over the year, that is a tremendous cost saving and simply, you know, it's much more convenient for the customer and much more important, you know, financially for us. So given all those factors, To pull all this thing off, we need a very different kind of skill set to design those vehicles, a lot more in software, a lot more in battery, and a lot more in over-the-air kind of skills. So operationally, it is a very different business than internal combustions.

The only thing I would add to that, Kumar, is when you think about the go-to-market and the customer, we're finding that the customers that we're attracting with our BEVs are 70% of them roughly are new to Ford. So the customers are different. What they expect from a go-to-market and an experience is different, which we're catering to those differences that they want. And then on supply chain. As we're looking at the development process, we're also thinking through, because at the beginning of the BEV ramp, you're thinking about vertical integration differently on the BEVs than you are on the ICE. And that's a different skill set as well, along with the engineering that Kumar talked about. So it's all of those elements. And the last thing I would say is that the approach to the business is beds the way we're approaching it than the way we've approached it with the ice. And that's around complexity. We're about scale, a very, very low complexity approach, high scale, fast moving, the ability to adjust quickly. And I think that's going to allow us to build a more profitable bed business as we go. And then as we learn that, the lower complexity configurations, we can bring those learnings back into ICE, and that can help us simplify and improve the margins and improve the ICE business as well. So it's a different approach across many facets, and that's what Jim was talking about. And we've been consistent since we launched Ford+. when Jim took over as CEO that we were thinking about the two businesses differently. So I think you're just starting to see more of that come to life, and there's more examples that we can communicate as we're launching these vehicles today.

And with the relative success of the Mach-E and the F-150 Lightning, I mean, you're really – I think you're seeing a huge upside surprise on on on the demand front to the Maverick as well, but some of the hybrid side, but when you think about 600,000 units capacity by 2023, or the end of 2023 run rate, is that is that is that enough? And then this 40% you're talking about by 2030 is that even that too low? I mean, how do you. I mean, it just seems like the response from your consumers is very, very, very strong and much higher than we would have anticipated and I think you were anticipating. I mean, how can you flex this if you need to? I guess is a better way to answer that question.

Yeah, so I think the first thing we would say is that 600,000 units of EV capacity by 23 is just a waypoint along the way. It's not where we plan on ending up. As you know, we've announced our Blue Oval City in Tennessee and the two battery plants that come along with that. That comes in line in 2025, right, Kumar? Yes. That comes out in 2025. That will give us a million units of battery capacity. So 2023, think of it as a way forward to our near-term hurdle. And we're going to continue right now breaking constraints. Kumar and his team, they are working with the battery suppliers that we have. We're working on our plants. You know, at the Rouge plant, we're knocking down walls. We're expanding the battery electric capacity there. One of the things we're doing right now is we're stockpiling batteries and securing extra batteries so that we can meet that demand as we bring up the manufacturing capacity that we have. So when you look at it this year, the big move will be on Mach-E. We'll get close to somewhere around, I think, 100,000 units. And then we'll go from there. And as we work on the Lightning, we launch it this year. We'll expand the capacity there. By 2023 on the Lightning, we'll be at about 150,000 units. And then, you know, I think that's a first mover advantage for us. We're going to learn a lot about those customers. And the important thing there is we take that first mover advantage and we get to that 600,000 units. All the learnings that we're gaining from that first mover advantage today with our customers in the marketplace, with manufacturing, with working with the supply chain, with how we engineered the vehicles and the efficiencies we're finding post-job one. All those learnings are going into our second generation of vehicles that start to come online with Blue Will City in 25. So there's a lot of opportunity here. There's a lot of improvement here. And it's exciting to see the team really engage and go after this in a very focused and energized way.

And, John, I would just add, I know there's a lot of focus on North America, but obviously in Europe with the changes that we're making to Cologne, some of the sourcing agreements we have with VW, and then also China. So there will be more news unfolding around battery supply.

That's very helpful. I mean, things are moving so quickly here, though, in a very good way. I mean, I would view it in a good way. Where do you think the tipping point is and what does it mean? I mean, and it's a little bit of an open-ended question, but, you know, as you look at this, do you think you get to a point down the line where 30%, 40% is, you know, of your sales or EV, and then everybody who's looking at ICE all of a sudden says, listen, I really don't want an ICE vehicle anymore. I want an EV because that's the new tech and the direction I want it. go in because that's you know theoretically the better product at that point um you know how do you handle that um do you believe in that or is there always going to be use cases for the different the different the different power trains um they'll allow for some you know ice mix that you know makes sense um you know over time and what does it mean for residual you know values and how you how do you handle potential pressure on residual values for the consumer

John, maybe I start with the use case, and John or you can talk about the business side of it. For passenger vehicles, I think the tipping point will come sooner than later. But there will be use cases where we will need a diesel kind of powertrain. A great example is our F-250 heavy duties. As you know, we have a very strong presence in our fleet business that serves our customers, everything from construction industry to lawn maintenance kind of industry. The need for those use cases to have an internal combustion, either a large gas engine or a diesel engine, will be there for, I believe for quite some time. Same goes for our transit customers. Again, different use cases. We just started shipping the E-Transit today. There's a segment that can use that and it meets all of their needs, but there are other segments within that group that will continue to need that. So I think it'll transition at a different pace for our Ford Pro business versus our Ford retail business. John, to exactly predict the precise slope of what that change will be is difficult to say at the moment. That's why we're trying to preserve optionality on those certain vehicle lines because we would like to serve, obviously, both sides of that segment. John Lawler and John.

You've covered it, Kumar. It's going to be a transition over time. What I really like about our position is we have the strength in these iconic ice brands, you know, ice vehicles, and the strength we have in our commercial business. And then we add on top of it the opportunity for BEVs. And I think we've got for the best of both worlds in that we have a strong ICE business with really strong brands and leading in segments. We're leveraging that as we build our BEV business. We've got a first mover advantage. Demand for our initial BEVs has been very strong. And over time, I believe that as we work this, on improving ice margins over time. I don't see that much of the narrative is that, well, your ice business is just going to collapse and it's going to be a drag on the business. I think we can manage it where we can improve our ice margins over time as we manage that transition and leveraging the strength of the brands we have and the nameplates we have and building our strong bed business. So... That's how I see it, and that's how we're working to have this unfold over time, John.

Okay. And that kind of leads to the next question. You indicated on the fourth quarter call that the 8% margin and total in 10% North America is something you very well might hit this year, and there may be some upside to EV margins and ICE margins. over time and just kind of alluded to it again. That would kind of lead me to believe that there would be upside to your corporate targets of that eight to 10% over time. So I'm just curious, you know, not to put exact numbers on it right now. I mean, how do you see that progressing? I mean, is it very simply, you know, the product and the process or are there adjacencies or other products that come along with the vehicle being connectivity subscriptions and services that would drive that higher. Are those kind of incremental stacked on top of what you said? I mean, how do you think about this progression margins higher from here. I mean, you know, you could sit here and say, hey, listen, an ICE vehicle business that's very good could do 10%, you know, even or operating margins. And then you could look at Tesla and say, listen, these guys are, you know, not that great operators, to be perfectly honest. And in the EV business, they're putting up, you know, high teens, you know, operating margins. And you're better operators. Why couldn't, you know, as you transition to EV, at least for a long while, put up high teens, you know, operating margins on the EV side and then drag up the ICE margins, you know, over time through various means? And just how do you think about that statement? Like, I mean, what does that mean and how do you get to higher and how much is higher if you can dimension it?

Yeah, it's going to be hard for me to mention it right now, John, with a number. So I'm not going to put a number out there at this point, but I can talk. power in the levers that we believe we have to pull. And it's a combination of both of the key things you talked about. One, there is one of the most exciting things for me about this business right now. And, you know, if you would have asked me five years ago that we would have this opportunity to expand our business and the way we do now with connectivity and the services and experiences to get higher margins, that we sell, it would have been hard for me to get my head around that five to ten years ago. But I see the power in that now, and we're just getting started. So I think a big part of driving margins over time will be the connected vehicles, the services and experiences, the cars continuously getting better over time. And you'll see that with the BEPS, of course, but you're also going to see that on our ICE vehicles. We have a million vehicles in the field today that are OTA capable, and we're continuing to improve what we call our network architecture on the vehicle so that there's more capability that we can provide over time. So you're going to see top-line growth there, and you're going to see growth there in the services and experiences that have a higher margin, typical SAS-type business. Now let's step back into the other areas of the business where I think there's opportunities. One of the things we're learning as we're looking at the bed business and thinking about that as a mass scaling, low complexity business, there's a lot of goodness in there throughout the whole industrial system, the whole development process, what kind of cost structure you have through distribution, et cetera, et cetera. And we're starting to see that. What we're taking those learnings and we're starting to apply that to to do that. One of the things we looked at this year is Kumar said, well, if a lower complexity is being received better by the consumer and it's easier from going online and ordering your vehicle and it's a better experience, Can we reduce the order complexity on our ICE vehicles? So he and his team went off and looked at that. And starting this year, on our 22 model year vehicles, our dealers now have, and our customers as well when they're online, they have a 70% reduction on orderable configurations in our ICE business across most of our vehicles. that's substantial and you can take that now that 70 reduction in complexity and you start to bring that back through the whole system you can see the power of that you're engineering less parts you're engineering less configurations you're testing less vehicles etc etc etc so there's a tremendous amount of efficiency that will eventually work through our development process and our cost structure um the other thing we've talked about already is lower stock um And Kumar talked about having a third of our orders from customers online. We learn what turns faster. We learn what customers want. It goes back to reducing complexity and orderable configurations. And then, of course, not having that stock in the field is an efficiency that we're going to start to see more of and continue through what we've experienced so far and the goodness of that. And I think that the other thing you'll see as we move forward with the ICE business is we'll be able to think about our investments differently, especially with the connected vehicles, and we'll be able to offer our consumers a newer experience with their vehicle without necessarily changing the sheet metal or having a complete freshening where we would have invested. So we'll be able to take our ICE business and really management as those vehicles as a larger percentage of the industry as they start to decline, invest less, keep the products fresher through our digital freshenings and through digital experiences, and then generate more cash flow and higher margins as we move forward. Not saying we're going to stop investing in our ice business, but we can invest. And then the other area that we're thinking through with our ICE business that has potential opportunity is the penetration of our service business. If we have a lower complexity product lineup, if we have a simpler product lineup, how can we leverage that to generate more service parts flow of capturing post-warranty business. So improving our loyalty, especially with our ongoing customer relationship with those customers where we're interacting with them through our connected services, can we increase our post-warranty loyalty rate and therefore keep them in our ecosystem longer and grow our top-line revenue through a total process of a lifetime revenue. So that's what we're doing on the ICE business. And then, of course, we've talked about what we're going to do on the bed businesses, the scaling. We're going to look at what we can do around, as Kumar said, leveraging the connectivity of the vehicle to lower not only warranty costs, but also savings in our assembly process, and then, of course, distribution. So I think there's a lot of different levers that we can pull. We're working through that. There's a lot of learning that's coming out of the BEV that we can apply to the ICE. And we have this top line growth opportunity through connectivity. So I think those are the three things that we're gonna lean into that will give us confidence over time. We believe that we can continuously improve the margins in this business.

Okay, just one follow-up there on connectivity, because I think it gets often lost in the shuffle with EVs and autonomous. And in some ways, it's a simpler technology once it's in the vehicle, the connectivity. I mean, there's complications in security and stuff like that, but the connectivity to the consumer, right, the simple connectivity through the asset itself, as opposed to trying to connect to the consumer in other fashions. So you can get to the consumer instead of chasing them down in other ways you can communicate to them you know via the asset which is like what happens with an iphone um so if you think about that if you think about that connect simple connectivity right there's a lot of complexity around it so i don't mean to you know use that pejorative but like i mean it's simple you know can you get to the second third and fourth owner of the vehicle to increase services, right? There's, you know, we all know that there's this giant, you know, you participate in this tip of the iceberg, and there's this giant iceberg underneath the boat in the water of so much money that's made after the point of sale and beyond the first three to five years that you participate in. I mean, are there efforts to keep that simple connectivity going with that asset to reach directly to those consumers and then just you know, participate in that huge iceberg. I mean, which is, it's going to take time, right, for that connectivity to bleed into the fleet. But the economics of that could be double or triple in very simple terms without creating all new product You're just on service and use card transactions versus what you participate in now. I mean, how, I mean, I don't know, I'm giving you what I think the opportunity is, but how do you think about it? How do you think about that? It's huge and it's not some willy-nilly fancy, I'm gonna come up with new subscriptions and new stuff and I'm gonna make all this more money on it. It's like, no, it exists, you just gotta go after it. I get it.

Yeah, that's true. Kumar, do you wanna grab this one?

Yeah, let me share a couple of examples, John. I will use one for ICE vehicles that we can use connectivity to grow business, and I'll use one for our Ford Pro business, for example. So we have now installed in several of our vehicles oil-like sensors. So oil for internal combustion engines, oil changes are very big. Well, they're necessary for the engine and they're substantial business for us and our dealers. Now, if you have a Ford Passat and the vehicle is equipped with oil-like sensor, it automatically informs the customer that they should schedule a oil change appointment within next two weeks or three weeks. And we can set that up on how the best customers want to hear about it. Pretty soon you can imagine we can then connect that to a reservation system where we make it totally simple, extremely seamless, where not only it tells you that you have an oil change coming up, it can also suggest kind of like open table for restaurants. It can suggest there's an open spot at a service bay at your favorite dealer at 3 p.m. or 4 p.m. So you can keep moving that experience forward. to see how you can make it really, really sticky. So first couple of steps done, like the sensor is there, it's talking to the FormPass app, it's letting the customer know, and we're building on the other building blocks. And I think there's tremendous opportunity there. That's just one example. Low tire leaks are a big issue for tire wear and other issues for our customers. That sensor is coming. We can tell the customer there's a slow leak in your left front tire, and that's something you should take care of. On the PRU side, it doesn't have to be an electric vehicle like the E-Transit that we just launched today. But even in ICE side or connected vehicles, we're offering great telematic services for our customers. You know, if you are a small business owner who has a fleet of 10 vehicles or if you're a large business owner with a fleet of hundreds, it makes your job of managing that fleet really, really much easier, I would say, and much more efficient for their business. You can monitor driver behavior. You can have information on geofencing of the vehicles. One of the things we found out in visiting all these fleets was how much resource they've put in in just managing the keys to each vehicle. If you've got 20 drivers who's got which key, generally there's a guy with a little board with those. Well, we can change that with phone as a key and provide digital keys to that customer. In terms of a battery electric vehicle, we're providing charging solutions where if your driver is going to take your vehicle home, And we can provide a charge box that not only provides the most efficient charging rates for that vehicle, but it can actually tell that driver how much electricity was used for the vehicle versus how much in the house so that the driver can then has the ability to expense the charging part. So it's all about making all those, using the connectivity to making all those experiences seamless and making their businesses more efficient. And like you said, we see just tremendous opportunity, both on the ICE side and the BEV side to use connectivity.

Okay. And then just a last question. I know we just got a few minutes left here. I would be remiss if we didn't ask and we got a couple questions on the balance sheet. I mean, the balance sheet's in fantastic shape at the moment. You know, I mean, you made your comments about the Rivian stake, so we'll leave that alone. But on the dividend, I mean, how do you guys think about the dividend over time and the potential to you know, slowly grow it or leave it as is for now? You know, you think you've opened the door enough with the dividend or, I mean, you know, how does the dividend decision progress from here? You know, how do you make, how do you make a decision on how that changes or stays the same?

Yeah. So, We are very pleased with where we're at from a balance sheet standpoint, John, right? Over $36 billion of cash and $52 billion of liquidity. We have our Rivian stake that's in there as a cash marketable security. And so we have the resources we need to continue investing in the business. And that's really strong as we are on our endeavor to grow our bed business and work on our ice business and invest in both going forward. We did bring the dividend back at 10 cents a share. And we think about that as a total shareholder return. We look at total shareholder returns. And we have a large retail holding within our stock. And so that dividend is important to those retail customers. those retail shareholders. So we're going to continue to look at the cash generation of the business. We're going to continue to look at the strength of the balance sheet. We reduced our debt significantly last year. You saw that. We lowered the effective rate of interest for our debt by 200 basis points. So as the balance sheets, you know, strengthened, as we generate cash in the business as we continue to grow the business. We'll think about those elements as we think about the dividend in the light of the total shareholder return that we can provide our shareholders, which is important. And we see it as not only stock appreciation, but also dividends. And we'll think about that very thoughtfully based on the performance of the business, John, as we move forward. Nothing else to add or nothing to announce relative to that today, but it's something that we continuously look at in the light of total shareholder returns.

Well, with that, we're getting close to the top of the hour. So, John, Kumar, and Lynn, we really appreciate the time, as always. Thank you so much for the follow-up today. We look forward to seeing you in person and hopefully doing some of these events in person sometime soon. We miss you guys. Thanks so much.

Thanks a lot, John.