Automotive News Europe
May 23, 2017 11:42 CET -- UPDATED: May 23
LONDON -- Ford's sudden replacement of CEO Mark Fields with turnaround specialist Jim Hackett has put its European operations under scrutiny -- with industry watchers speculating whether the company will exit the region like its crosstown rival General Motors.
Europe is making a profit for Ford again after three years of losses between 2011 and 2015, but the margin is still very thin at just 2.3 percent for the first quarter.
Ford also faces the same market pressures GM faced:
• Increasing competition from premium brands targeting mainstream customers
• Rising development costs for small vehicles that are too sophisticated for most other global markets
• Toughening regulatory pressures on tailpipe emissions, especially for diesel cars, which account for half of Europe's market but don't sell in big numbers elsewhere.
"We need to speed-up decision making and address under-performing areas," Bill Ford, the automaker's executive chairman, told analysts and reporters on Monday when announcing Hackett's appointment.
Hackett, 62, turned office furniture manufacturer, Steelcase, into a global leader and has led the Ford unit developing self-driving cars and related projects for the past year.
GM's focus on improving shareholder value by selling its unprofitable European brands, Opel and Vauxhall, to France's PSA Group, as well as quitting tough markets such as Russia, India and South Africa led to criticism from investors that Fields was moving too slowly to restructure the automaker.
Tackling problem areas
"Those things are front and center on the agenda — very quickly," Hackett told the Detroit News in an interview on Monday, referring to Ford's presence in India and the future of small cars in the U.S. market where SUV sales are booming. "There’s a long list like that. We will address all those."
Ford has already shown it will quit markets that aren't working for the company, including last year Japan and Indonesia. It is scaling back its car production in Thailand to focus on pickups.
Ford said earlier this month it plans to cut 1,400 salaried jobs in North America and Asia through voluntary early retirement and other financial incentives to help boost its sagging stock price.
A Ford of Europe spokesman told Automotive News Europe on Tuesday: "We are not about to exit Europe."
The cuts will not apply to Ford in Europe where last year the automaker reduced its workforce by 1,000 to 52,000, mostly losing white-collar jobs. However, unions fear Ford is preparing to ax jobs in the UK following Brexit and have said they will fight potential job losses of 1,160 at the automaker's engine plant in Bridgend, Wales.
Europe as a whole has a 21 percent manufacturing overcapacity in 2016, according to a IHS Markit analysis cited by Ford in its 2016 financial report. Ford didn't mention what its capacity figure was for Europe, where it has 16 plants.
The UK is Ford's biggest European market, but Ford has said its 2017 European profits will be lower because of the pound has collapsed since Britons voted last June to leave the EU, making its cars more expensive. The company posted a record $1.2 billion European profit last year. In the first quarter pretax profit in Europe was $176 million, its eighth-consecutive quarterly profit.
Evercore ISI analyst Arndt Ellinghorst said Hackett will face the same challenges as outgoing CEO Fields did including a thin product cycle as the U.S. market has become more challenging, incremental contribution cost in recently launched products, and lower earnings in Europe following Brexit,
Ford will need to re-evaluate areas of the business where it continues to struggle to meet its cost of capital just as GM has done by exiting from regions and Fiat Chrysler Automobiles has done by abandoning some segments, Ellinghorst said.
"Ford should consider regional and product exposures as well as the future of Lincoln," he wrote in a note to investors.
Bernstein analyst Max Warburton believes Ford is unlikely to follow GM and quit Europe. "Ford of Europe is in better shape than GM Europe. European industry pricing is the best it has been in 20 years," he told Automotive News Europe.
"I also sense that the Ford family have an emotional attachment to Europe. And even if they did want out, the only buyer in town just bought GM Europe."
Ford has a strong manufacturing footprint in low-cost eastern Europe and Turkey, which GM didn’t have. Ford builds the EcoSport small SUV in Romania and vans in Turkey. Its vans were market leaders in Europe in 2016, according to Ford.
Ford also has worked to reduce capacity in the region over the last few years, closing its factory in Genk, Belgium, and two plants in the UK.
Apart from anything else, Ford doesn't have a standalone brand to sell to another player in Europe, like GM did with Opel and Vauxhall. A buyer could hardly continue to use the Ford name.
But the problem is unlikely to arise. Said Warburton: "My guess is Hackett will have lots to focus on before he needs to worry about Europe."
Ford of Europe having been struggling in Europe for a few decades, Ford need to do what use to well in the past for them, take the battle to RWD BMW & RWD Mercedes Benz with a with a couple fun to drive "fuel efficient' nice shaped RWD cars slotted in the middle & top of the range with higher profit margins that offer something different other than what every other mass producer is doing making huge losses made on small FWD cars, as the German luxury brands start to move down to start stealing Astra/Golf/Focus sales by pricing just a fraction above the mass producer.
Ford of Europe's most profitable years in Europe were the early 1970's, they use to send huge profits back to Detroit when the whole Ford of Europe range was RWD only same as the luxury premium priced German BMW & Mercedes use. Long gone are the 370,000 sales a year Cortina/Taunus sales that have been replaced with a bloated obese overweight FWD Mondeo that struggles to make 50,000 sales full of expensive tech thats pricing itself out the market as the RWD 3 Series sells 3 to 4 more times more cars.
RWD BMW & RWD Mercedes have both overtaken $25 billion loser mass producer Opel Group in sales last month, and they are moving in on Ford now Mercedes actually overtook Fords sales in Europe Europe, Germans are making billions in profits from the huge luxury car market with premium priced fun to drive "fuel efficient" RWD cars, its about time Ford of Europe woke up.
2016 European Sales April
No 5 Ford 86,791
No 6 Opel Group 81,087
No 7 BMW Group 80,795
No 8 Mercedes Group 79,446
2017 European Sales April
No 5 Mercedes Group 77,277 -2.7%
No 6 Ford 76,899 -11.4%
No 7 BMW Group 75,965 -6%
No 8 Opel Group 70,227-13.4%
Never have l seen both Ford and Opel sitting so low in the European sales charts struggling to make a dime and looking very weak making no profits on small FWD cars, never have l seen BMW & Mercedes Benz sitting so high in the European sales looking so strong making huge multi billion dollar profits on mainly "fuel efficient" 2.0L diesel RWD cars i.e. 2.0L 72 MPG RWD BMW 520D & 80 MPG RWD 3 Series 320D, if only Ford could be offered products like these, Europeans would buy them they are not anti Ford, if they were offered them they "would" buy them, Ford of Europe are there own worst enemy for not offering the right products that BMW & Mercedes offer who have now overtaken Ford in sales, as well as making billions in Europe whilst overtaking Ford for the first time ever in sales in Europe..
Thank God for the US pick-up trucks and SUV's that all thats generating the huge profits at the moment, l am glad Jim Hackett is now focusing in on Ford of Europe they could be in the last chance saloon like Opel what they do in the next decade is critical, if they become complacent just do the same thing and they will be a gonna like Opel, l just hope Ford of Europe wake up an start giving Europeans the right products they would warm to if only they were ever offered them that make a huge tidy profit again like the stunning RWD cars FOE sold in the 70's but l don't thing we will ever see them days ever again race slaughter BMW & Mercedes on the race track/rallying at the weekend sell thousands of base bare bone models on a Monday morning in the showroom. Its good to see Ford GT doing so well Le Mans winning GT Pro first time out the box, and see Ford of Europe a huge loss making rudderless ship start turn the corner with a new new flagship, and FOE returning to a small profit last year a small light of hope is still flickering in Europe, the small gadget overloaded FWD cars with no profits on the roof fleet dumped sold to Avis/Hertz at a billion dollar losses has been a total failure in Europe that has got to stop!