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FIRST ON CNBC: CNBC TRANSCRIPT: CNBC'S PHIL LEBEAU SPEAKS WITH ALAN MULALLY, FORD MOTOR COMPANY CEO, TODAY ON CNBC'S "POWER LUNCH"

HERERA: SOME GOOD NEWS TODAY FOR FORD. U.S. ENERGY SECRETARY STEVEN SHOE IN DEAR BORN, MICHIGAN ANNOUNCING A $5.9 BILLION LOAN TO THE AUTOMAKER TO HELP THEM RETOOL FACTORIES TO MAKE FUEL-EFFICIENT CARS. PHIL LeBEAU JOINS US NOW WITH FORD'S CEO ALAN MULALLY ON A FIRST CNBC INTERVIEW.PHIL, OVER TO YOU.

LEBEAU: HI, SUE. IT'S A BIG DAY FOR FORD.IT HAS BEEN TARGETING GETTING SOME TYPE OF LOAN FROM THE DEPARTMENT OF ENERGY FROM THIS $25 BILLION THAT'S BEEN SET ASIDE FOR MORE THAN A YEAR. NOW IT'S GETTING $5.9 BILLION. JOINING ME LIVE FROM DEARBORN, MICHIGAN IS AL MULALLY, CEO OF FORD MOTOR COMPANY. THANKS FOR JOINING US TODAY.

MULALLY: I'M GLAD TO BE HERE, PHIL, GOOD TO SEE YOU.

LEBEAU: TELL ME ABOUT THE LOAN, THE 5. 9 BILLION.HOW MUCH WILL GO INTO THE RETOOLING OF FACTORIES AND TOWARD DEVELOPING FUEL-EFFICIENT VEHICLES OR ELECTRIC VEHICLES. WHAT'S THE BREAKDOWN THERE?

MULALLY: OH, SURE. PHIL, THE -- THE ESSENCE OF THIS INVESTMENT WILL BE THE ENABLING TECHNOLOGIES AND THE VEHICLES IN THEMSELVES.WE HAVEN'T BROKEN IT OUT, YOU KNOW, BY EACH. BUT CLEARLY, TO YOUR QUESTION, THIS IS A VERY IMPORTANT DEVELOPMENT TODAY, AND THEY HAVE, YOU KNOW, SECRETARY CHU, THIS IS PART OF THE 2007 ENERGY INDEPENDENCE AND SECURITY ACT TO INVEST IN ENABLING TECHNOLOGIES AND THE VEHICLES, TO AGGRESSIVELY IMPROVE OUR FUEL EFFICIENCY.AND SO TO HAVE FORD RECOGNIZED FOR ITS ENABLING TECHNOLOGY AND BUSINESS PLAN GOING FORWARD WAS VERY, VERY POSITIVE DEVELOPMENT FOR ALL OF US.

LEBEAU: I GUESS I WANT TO BE CLEAR HERE, ALAN.YOU'RE GOING TO BE PUTTING SOME OF THIS MONEY TO USE, RETOOLING FIVE PLANTS IN FIVE STATES IN THE MIDWEST. WILL THOSE PLANTS BE DEVELOPING ELECTRIC VEHICLES, HYBRID VEHICLES, OR A MIX?

MULALLY: IT WILL BE A MIX OF THEM, PHIL. AND THE PLANTS THAT YOU TALKED ABOUT ARE JUST A FEW OF THE PLANTS. SOME OF OUR PRODUCT DEVELOPMENT-- CLEARLY, WE HAVEN'T REVEALED YET, BECAUSE IT'S FURTHER IN THE FUTURE. BUT ESSENTIALLY, THIS ENABLING TECHNOLOGY WILL GO ACROSS THE ENTIRE FORD PRODUCT LINE, SMALL,MEDIUM AND LARGE CARS, UTILITIES AND TRUCKS TO MEET OUR COMMITMENT THAT EVERY VEHICLE, NO MATTER WHAT ITS SIZE, EVERY YEAR, WILL CONTINUOUSLY IMPROVE THE FUEL EFFICIENCY, QUALITY, AND THE SAFETY.

LEBEAU: ALAN, I KNOW YOU'RE OPTIMISTIC ABOUT THE FUTURE, BUT LET'S TALK ABOUT SOMETHING MORE IMMEDIATE IN TERMS OF THE DEMANDFOR AUTOS RIGHT NOW. THERE HAVE BEEN SOME CONFLICTING REPORTS OUT THERE ABOUT WHETHER OR NOT WE'RE ACTUALLY AT THE BOTTOM AND WE'RE SEEING SALES INCREASE. WHEN YOU LOOK AT JUNE SALES, IS IT POSSIBLE WE COULD SEE AUTO SALES IN THE U.S. HIT THE 10 MILLION MARK?

MULALLY: WELL, WE DON'T KNOW FOR SURE FOR THE REASONS THAT YOU SAID, PHIL. BECAUSE, YOU KNOW, IT IS KIND OF A MIXED SET OF DATA, BECAUSE SOME OF OUR COMPETITORS HAVE HAD HAD TOO MANY CARS IN THE MARKETSAND TAKEN THEIR PRODUCTION DOWN. AND SOME OF THEM HAVE SOME PRETTY HEFTY INCENTIVES TO TRY TO GET THEIR INVENTORIES DOWN. BUT IN FORD'S CASE, YOU KNOW, WE TOOK THE INVENTORIES DOWN TO MATCH THE CAPACITY TO THE REAL DEMAND, THE DEALERS HAVE APPRECIATED THAT. RESIDUAL VALUES ARE COMING BACK VERY STRONG FOR THE FORD VEHICLES. AND WE'VE ACTUALLY ANNOUNCED OVER THE LAST COUPLE WEEKS, PHIL, THAT WE'RE GOING TO INCREASE THE PRODUCTION OF THE FORD VEHICLES OVER THE NEXT FEW WEEKS. SO WE'RE CAUTIOUSLY OPTIMISTIC THAT WE ARE KIND OF NEAR THAT BOTTOM POINT, AND WE'RE JUST READY TO START TO GROW AGAIN.

CARUSO-CABRERA: MR. MULALLY, IT'S MICHELLE CARUSO-CABRERA HERE AT CNBC HEADQUARTERS. THIS MONEY YOU'RE RECEIVING FROM THE GOVERNMENT, IF YOU WEREN'T RECEIVING IT, WOULD YOU STILL BE RETOOLING AND TRYING TO MAKE SMALL CARS? WOULD IT STILL BE PROFITABLE? IS THERE ENOUGH CONSUMER DEMAND,OR MUST YOU HAVE A GOVERNMENT SUBSIDY IN ORDER TO GO FORWARD WITH THIS PLAN?

MULALLY: NO, I UNDERSTAND. AND WE WOULD NOT HAVE CHANGED OUR PLAN ONE BIT. THIS IS ONE PIECE OF FINANCING THAT'S VERY SUPPORTIVE. IT'S ADVANTAGEOUS TO US, BECAUSE WE'RE PART OF A NATIONAL PROGRAM TO IMPROVE VERY AGGRESSIVELY FUEL EFFICIENCY. BUT WE ARE ABSOLUTELY COMMITTED AT FORD TO HAVE A FULL PRODUCT LINE, SMALL, MEDIUM AND LARGE VEHICLES, CARS, UTILITIES AND TRUCKS, SO THE CONSUMER CAN HAVE THE VEHICLES THAT THEY WANT, AND KNOWING THAT EVERY FORD VEHICLE AND EVERY ONE OF THOSE SEGMENTS IS GOING TO BE BEST IN CLASS IN FUEL EFFICIENCY. SO WE'RE GOING TO BE THERE FOR THE CONSUMER IN WHAT THEY WANT IN VALUE.

LIESMAN: MR. MULALLY, STEVE LIESMAN.I WANT IF YOU YOU CAN SETTLEA DEBATE ON AN ISSUE I'VE HEARD A LOT ABOUT SAFETY.IF I DRIVE A LIGHTER CAR, A SMALLER CAR, AM I LESS SAFE THAN IF I DRIVE A LARGER CAR?

MULALLY: WELL, TECHNICALLY, EVERY VEHICLE THAT WE MAKE IS SAFE. BECAUSE WE MEET THE HIGHEST STANDARDS, NO MATTER WHAT THE SIZE VEHICLE IS. BUT CLEARLY, YOU KNOW, THE SIZE OF THE VEHICLES HAVE A LOT TO DO WITH MASS AND PHYSICS AND MOMENTUM. BUT EVERY VEHICLE IS EQUIPPED WITH THE FEATURES TO ENSURE THE PASSENGER'S SAFETY.

HERERA: MR. MULALLY, SUE HERERA. ARE YOU CONVINCED THOUGH THAT THE CONSUMER WANTS THE SMALL VEHICLE IT SEEMS EVERY TIME WE SEE GAS PRICES GO DOWN, THE DEBATE, ONCE AGAIN, IS WHETHER THE CONSUMER WILL REVERT TO THE OLD WAYS OF BUYING THOSE LARGER VEHICLES.

MULALLY: WELL, ABSOLUTELY. IN FORD'S CASE, OVER THE YEARS, RECENTLY, WE HAVE FOCUSED ON THE UTILITY VEHICLES, THE SUV, THE TRUCKS .WE HAVE BEEN CLEARLY -- THE INDUSTRY LEADER IN THE UNITED STATES AND AROUND THE WORLD.BUT EVERYWHERE AROUND THE WORLD, WE'RE ALSO THE LEADER IN SMALL AND MEDIUM-SIZE VEHICLES, AND WE COMPETE WITH THE BEST COMPANIES IN THE WORLD. SO THE ONLY THING WE'RE DOING IS, REFOCUSSING THE FORD IN THE UNITED STATES TO MAKE SURE THAT THE CONSUMERS HAVE A GREAT CHOICE WITH OUR JAPANESE COMPETITORS FOR SMALL AND MEDIUM-SIZE VEHICLES. AND THERE IS A GREAT MARKET FOR SMALL AND MEDIUM-SIZE VEHICLES IN THE UNITED STATES. AND THE NEAT THING ABOUT FORD NOW IS YOU'RE GOING TO BE ABLE TO HAVE GREAT CHOICES FROM THE FORD MOTOR COMPANY IN ALL OF THE SIZE VEHICLES GOING FORWARD.

LEBEAU: ALAN, THIS IS PHIL AGAIN. I THINK WHAT EVERYBODY IS GETTING AT HERE, AND WE'RE ALL KIND OF BEATING AROUND IT, NOT DISCUSSING IT IS, I THINK THERE IS A LOT OF SKEPTICISM AMONGST AMERICANS THAT THERE IS A LOT OF DEMAND FOR SMALL CARS.NOW, NOBODY IS SAYING WE DON'T WANT FUEL-EFFICIENT CARS OR SUVs. I GUESS THE QUESTION IS, REALLY,WHEN YOU LOOK AT THE FUTURE, FUEL EFFICIENCY IS GOING TO HAVE TO COME FROM THE ENGINE, WHETHER IT'S IN THE -- IN A CROSSOVER OR AN SUV.IT'S NOT JUST GOING TO COME FROM THE SMALL CARS.

MULALLY: WELL, I THINK THAT IT MAY BE JUST A POINT OF CLARIFICATION. THERE IS A TREMENDOUS MARKET FOR SMALLER VEHICLES IN THE UNITED STATES. IT'S JUST THAT THE PEOPLE THAT HAVE BEEN LEADING THAT IN THE PAST HAVE BEEN THE TOYOTAS AND THE HONDAS IN THE PAST. NOW, CLEARLY, WHAT'S DIFFERENT ABOUT FORD IS THAT WITH OUR TRANSFORMATION AGREEMENT, WITH THE UAW, WITH OUR PRODUCT LINE, WITH LEVERAGE IN OUR GLOBAL ESSENCE WORLDWIDE, WE'RE ABLE NOW, AND WE HAVE A COMMITMENT THAT WE'RE MAKING, THAT WE ARE GOING TO BE IN EVERY VEHICLE SIZE. SMALL, MEDIUM AND LARGE.SO THAT'S WHAT'S NEW HERE WITH FORD. THERE IS A GREAT MARKET FOR SMALLER VEHICLES IN THE UNITED STATES, THERE HAS BEEN.AND THERE CONTINUE TO WILL BE, I THINK.

LEBEAU: ALAN MULALLY FORD MOTOR COMPANY CEO FIRST ON CNBC THANKS FOR JOINING US ON "POWER LUNCH."





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