John Lawler
Chief Financial Officer at Ford Motor
Thank you, Jim. So, first, I want to reiterate that everything we do and every decision we are making, including capital allocation, is squarely focused on delivering our Ford+ plan. And you'll see that as I share key takeaways from the quarter, our full year outlook and describe how we are positioned for even stronger performance heading into 2022. And as Jim said, we delivered better-than-expected results given the semiconductor constraints.
Year-over-year, our automotive business improved across several key financial metrics as we overlapped the industry-wide COVID-related manufacturing shutdown we saw in the second quarter of last year. Now, for a more accurate picture of our true trajectory in this present environment, we're focusing more on sequential comparisons and we think those are more appropriate.
While wholesales were down 28% sequentially, our teams optimized for revenue and profit with disciplined incentive spending and mixed management. We allocated chips to customer orders, new launches and our more profitable vehicles. In addition, the strength of our sales order bank gives us confidence in our ability to drive a more balanced performance of wholesales, revenue and profit in the second half of this year, including sequential improvement in wholesales and share.
So let's turn to our results. On a consolidated basis, wholesales and revenue were up 18% and 38% year-over-year respectively and we delivered adjusted EBIT of $1.1 billion with adjusted margin of 4%. Outside of North America, our underlying trajectory continues to improve despite the impact of the semiconductors. And that's driven by more focused product portfolios, geographic footprint, as well as lower costs.
And Ford Credit continued to deliver strong performance with record quarterly EBT of $1.6 billion. And that's demonstrating why it's a strategic asset and critical to enabling Ford+. Now, a prime example is through the launch of a new service like Ford Pro FinSimple, which provides bundled financing for commercial vehicles, services and EV charging. And so it's another example of Ford Credit being a strategic weapon for us.
Now, turning to the regions. North America posted a 40% sequential decline in wholesales due to the semiconductor shortage. Now, as we managed the chip constraints, we focused our efforts on customers ordering vehicles for future delivery. We exited the second quarter with our US customer-sold order bank up more than 7 times compared to a year ago. And with new models to come, we are clearly poised for a rebound in North America when the semiconductor supply stabilizes and aligns with demand. On a year-over-year basis, EBIT was up $1.1 billion.
Outside of North America, the turnaround of our operations remains on track. In aggregate, EBIT improved $800 million year-over-year but declined sequentially, mainly driven by Europe where the semiconductor shortage caused wholesale units to drop sequentially by nearly 35%. The transformation in Europe continues as the region capitalizes on strengths in commercial vehicles with Ford Pro and a more focused passenger portfolio, including key imports. Europe has stepped up investments in electrification including $1 billion for a new EV manufacturing center in Cologne, the launch of our E-Transit next spring and a new all-electric light commercial vehicle from Romania.
In South America, our restructuring is on track. Our lean, de-risked and asset-light business model is focused on our strengths with Ranger, Transit and key imported vehicles. The region introduced Bronco Sport and Mustang Mach 1 in selected markets and is preparing now for the launch of the new Transit Van in the second half of this year.
In China, we continue to see improvement in key areas of focus, including Lincoln, commercial vehicles, electric vehicles and with our portfolio of near-premium Ford vehicles. Lincoln attained its higher ever quarterly sales, was profitable and also captured the number one spot in J.D. Power's Luxury Sales Satisfaction Ranking, unseating Audi which had held the position for 11 years. In addition, 97% of Lincoln's volume is now produced locally and commercial vehicles now account for 52% of our overall sales mix in China. And finally, we are readying for the launch of the localized Mustang Mach-E later this year.
Our International Markets Group, we delivered another solid quarter, leveraging its portfolio strengths with Ranger pickups and Everest SUVs. And we're continuing to assess our business in India and will have more to say on this later this year.
Company-wide, second quarter adjusted free cash flow was negative $5.1 billion. As expected, semiconductor-related volume losses had a greater impact on free cash flow than EBIT because of adverse working capital and timing differences related to customer allowances for marketing incentives. Ford Credit did provide a partial offset with distributions of $4 billion in the quarter. Now we expect working capital and these timing differences to normalize over time as the semiconductor supply is restored.
Cash and liquidity remain very strong, ending the quarter at $25.1 billion and $41 billion respectively. The strength of our balance sheet provides significant financial flexibility to navigate periods of stress, while also continuing to invest in growth in our Ford+ plan.
Now let's turn to the outlook. Based on the underlying strength of our business and present assessment of the semiconductor supplies through the second half, along with other factors, we have increased our outlook for full year adjusted EBIT to between $9 billion to $10 billion. Now this assumes about a 30% sequential increase in volume in our second half versus our first half, which is supported by the anticipated improvement in the supply of semiconductors.
Our guidance implies we expect second half adjusted EBIT to be lower than the first half of the year and so we provided a bridge to help with this. And we've included that on Page 19 of our earnings presentation. So let me provide a little bit of color around this.
Relative to tailwinds, we expect about $3 billion to $4 billion in favorable market factors, net of an increase in volume-related production costs for the higher volumes. Headwinds, right? We see headwinds coming through, and we see pressure on contribution margin. We expect commodities to be up almost $2 billion, half over half. Warranty costs are expected to be higher in the second half, up about $500 million, but we still expect full year warranty expense to be down year-over-year.
Relative to structural costs, about $1.5 billion in investments in modernization, consistent with what we laid out in May, including customer experiences, conductivity, IT, new product launches. Looking at Ford Credit, based on current market dynamics, we expect Ford Credit to declined by about $1 billion as option values begin to normalize and we also have a non-repeat of reserve releases that we had in the first half.
And lastly, we also have the non-recurrence of the $900 million non-cash gain on Rivian we booked in the first quarter. And it's important to note that this gain also impacts our run rate heading into 2022.
We are also increasing our full year adjusted free cash flow target to $4 billion to $5 billion, supported by expected favorable working capital in the second half as production increases from an anticipated improvement in chip availability.
Now, as our operating results improve, so does our cash conversion, which we continue to target in the range of 50% to 60%. And the strength in cash conversion and our balance sheet provides us ample financial flexibility to invest in growth, including in EVs, Ford Pro, our connected services and mobility.
Now, looking towards 2022, we are confident in the underlying trajectory of our business and excited to see the momentum continue as we leverage one of the strongest product lineups in our history and continue to implement our Ford+ plan. We're on a new path at Ford. We've got a plan, the resources and the resolve to build a better business.
So now I'll hand it over to the operator to open it up for questions.
