Bernstein Research Says Ford Probably Most Profitable
Ford Finds It Easier To Cut Costs Because Of Its Low Political Profile
Ford Europe’s big investment in making cars with style and driver appeal is paying off, and the company is probably now the most profitable mass manufacturer in Europe, and is squeezing margins at market leader Volkswagen, said Bernstein Research analyst Max Warburton in a report.
Leading Ford Europe’s charge is the new Fiesta, now Europe’s biggest selling car.
Unfortunately for Ford, this good news about profits coincides with a sudden dive in European sales as markets weaken and government subsidised scrapping incentive schemes expire. Ford Europe’s new car sales fell 17.2 per cent in its main 19 European markets in April. Total industry sales fell 5.3 per cent to 1.29 million in the month.
But Ford expects its market share – 7.8 per cent in April down 1.1 percentage points on the same month of 2009, to recover during the rest of the year. For the first three months of 2010 though, Ford’s market share was about 11 per cent.
Warburton said Ford’s nifty new cars and its highly efficient factories are causing its rivals problems where it hurts most; the bottom line.
“Ford’s product hits and market share gains (before April) are becoming an increasing headache for the Europeans. Combined with aggressive cost and capacity actions, Ford’s sales success means it is arguably the most profitable mass-market manufacturer in Europe, with 2009 second half pre-tax profit margins of 3.1 per cent,” Warburton said.
In the first quarter of 2010, Ford Europe produced operating profits of $107 million, compared with a loss of $585 million in the same period of 2009.
Ford Pressurising French, VW
“Ford’s revival has put pressure on the French in their domestic market and the U.K. and has slowed VW’s gains in the U.K., Germany and Italy. Ford’s dogged survival means European margins for the French and VW will likely remain weak,” he said.
Warburton estimates VW margins in the second half of 2009 were 1.3 per cent, while Renault, Peugeot-Citroen, GM Europe and Toyota Europe all lost money.
Warburton said Ford performed poorly through the 1990s because it, and GM Europe’s Opel-Vauxhall, failed to spot the move to diesel power, and suffered from poor product, poor quality and inconsistent management decisions. That’s all changed, at least at Ford.
The Fiesta knocked the VW Golf of its perch as the biggest selling car in Europe in the first quarter.
“Fiesta is also outselling its closest sector rival, the Renault Clio, by 30 per cent. Fiesta has been a major hit in its segment, with its styling receiving accolades and its dynamics probably the best in class,” said Warburton.
It’s not just small cars. Ford’s S-Max and Galaxy minivans have overtaken the Renault Espace as sector leader. Even the Mondeo in the large sedan category has been doing well.
According to Warburton, Ford Europe has found it easier than rivals like VW to cut its costs because it doesn’t come under the same political pressure as domestic companies when it tries to shut unprofitable factories.
“Ford is serving up attractive hit products. Ford has the best capacity use of any mass-market automaker. With strong product and better costs, Ford is now arguably Europe’s most profitable mass-market producer,” Warburton said.
Neil Winton – May 31, 2010