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Ford Europe Starts Restructuring; Profitability Looks Distant

Ford Europe Starts Restructuring; Profitability Looks Distant.

“Ford Europe is a unit without profit, but with too much risk”

Ford of Europe announced the first details of its plan for a return to profitability, saying more than 5,000 jobs will go in Germany and an unspecified number in Britain.

Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at Germany’s University of Duisburg-Essen said in a report published Sunday Ford has a long way to go if its European subsidiary is to match U.S. profitability.

Ford Europe said in the announcement Friday it would streamline its model lineup by improving current vehicles or leaving less profitable vehicle lines. An announcement in January said the long-term plan was to achieve an operating profit margin of 6% in Europe. Ford employs about 54,000 workers in Europe.

Some investors had reckoned Ford might yet follow General Motors and abandon its European business. GM sold its Opel Vauxhall business to PSA Group of France a couple of years ago.

Dudenhoeffer said in Europe over the last 5 years, Ford earned an average profit of 42 euros ($48) per car which is an EBIT (earnings before interest and tax) margin of 0.3%. Worldwide, Ford earned 1,002 euros ($1,135) per new vehicle, and in North America 2,357 euros ($2,669) per new vehicle.

“In 2018, 220 euros ($249) were lost per new car at Ford in Cologne,” Dudenhoeffer.

Ford builds a large proportion of its cars for Europe in Cologne.

Ford Europe has a Western European market share of 6.4%, about the same as high-profit margin manufacturers Mercedes and less than BMW and Minis’ combined share of close to 7%, according to the European Automobile Manufacturers Association. It is much smaller than Volkswagen and its multi-brand’s 23%, and the PSA Group of Peugeot, Citroen, DS, Opel and Vauxhall with 16.5%.

Cooperate to compete
Without some form of cooperation, Ford cannot compete on costs with its biggest competitors, experts say. An alliance with VW involving vans and electric cars has already been announced.

Late last year, Ford Europe reshuffled its leadership ahead of the expected shakeup. It said then it wants to concentrate on profit-making SUVs and vans and to cut loss-making vehicles.

Investment bank Morgan Stanley has suggested Ford Europe could require as much as a 20 to 30% reduction of capacity and headcount, combined with significant execution on product to be in position to achieve its 6% margin long term. It said a negative profit margin of 6% was likely first though.

CARS’s Dudenhoeffer said the European market is becoming less important globally for Ford, currently accounting for less than 19% of its global sales. This will slip to 15% by 2035.

“The profit share that Europe contributes to Ford is a disaster. In the last 5 years profits were just 1%. In terms of profit, as the market Europe for Ford is really unimportant,” Dudenhoeffer said.

He said Ford employees in North America generated average revenue of 800,000 euros ($906,000) annually over the last 5 years, and in Europe about 480,000 ($544,000).

Dudenhoeffer said cutting the workforce by 5,000 was not enough. It should be cut closer to 31,300 compared with the current 54,000.

“A sustainable structure requires a great deal of change. In its present form, Ford Europe is a unit without profit, but with too much risk,” Dudenhoeffer said.   


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