But Long-term Strategy Said To Be On The Right Track
“2012 will be Ford’s lowest ebb with production around one million. Expect this to start growing next year towards 1.3 million by 2014”
Ford shocked investors with its prediction that losses in financially beleaguered Europe will hit $1 billion in 2012, but one investment bank reckons that this is understated to the tune of about $300 million.
In its second quarter financial report, Ford Europe almost doubled its previous prediction of its losses for 2012. The news led to speculation that Ford might want to shut a factory in Europe, but analysts have said temporary layoffs are more likely.
In a report, Deutsche Bank analyst Rod Lache said Ford’s capacity use rate will be only 66 per cent this year.
“If we look to the U.S. experience in 2006-2008 as a guide, the extreme discounting and other tactics that were aimed at supporting demand ultimately led to even sharper declines down the road. While we believe Ford is responding to the problems in Europe in a sensible manner by under-producing and de-stocking in order to defend pricing as much as possible, there have been no clear signs yet that its European losses are at the bottom,” Lache said.
Lache said he expects Ford Europe to lose about $1.3 billion on an EBIT (earnings before interest and tax) basis.
Ian Fletcher, analyst with IHS Automotive, said Ford Europe is in fact on the right long-term track, and doesn’t have much of an “excess capacity” problem.
“Things don’t look great for Ford in terms of capacity utilization, but it is going through a transitional stage,” said Fletcher.
Fletcher said Ford Europe is currently reorganizing its production. It will also benefit from some new models.
“Ford is in the process of raising its capacity utilization and putting similar sized vehicles in the same plants, and cutting down inefficient supply chains. All these new models will inject some new vigour into sales. Looking at the numbers, 2012 will be Ford’s lowest ebb in the region with production likely around one million. But we expect to see this start growing next year towards 1.3 million by 2014,” Fletcher said.
Fletcher said Ford’s increased production will be of higher profit margin vehicles. He didn’t think Ford would need to close plants, but might have to lay-off workers temporarily.
Neil Winton – August 1, 2012
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