Top Margin Menu

Will Ford Europe Quit Like GM?

Will Ford Europe Quit Like GM?

“Slash and burn in Europe? That would be a huge mistake. There is a profitable long-term future for Ford in Europe”

Ford Europe was slow to realise consumers’ infatuation with SUVs and losses mounted, but experts are divided about whether the company should follow General Motors and pull out of the region.

Peter Schmidt, editor of respected European newsletter Automotive Industry Data (AID), sees Ford Europe as basically a solid business with the jewel in the crown, a highly profitable commercial van business.

Professor Ferdinand Dudenhoeffer from the Center for Automotive Research (CAR) at the University of Duisberg-Essen in Germany says Ford Europe lacks the scale to compete with mainstream European car and SUV manufacturers, and may need to sell this part of the operation.

The possibility of collaboration with Volkswagen on small commercial vehicles is timely, as Ford’s van business and VW’s electric expertise would allow the companies to take advantage of the expected boom in battery-powered city delivery vehicles.

The little Ford Fiesta city car is a big success story, while the company has just spent lots of money launching the new Ford Focus, which competes with the market leading small family car, the VW Golf.

But Ford Europe’s finances are in trouble.   

Ford Europe lost $245 million in the 3rd quarter, compared with a loss of $192 million in the same quarter last year. Ford has said it expects a 2018 loss, after a profit of $234 million in 2017.

Ford Motor said in July it would spend $11 billion on a three to five year global restructuring program. Europe is expected to see the bulk of the action with big job losses. Last week Ford Europe said it reshuffled its leadership ahead of an expected shakeup in the loss-making organization.

Ford Europe has said it wants to concentrate on profit-making SUVs and vans and to cut loss-making vehicles. Ford has been discussing collaboration plans with Volkswagen, which so far have centered on vans. This might be extended to cover electric and autonomous vehicles.

Negative $7 billion
In a report, investment bank Morgan Stanley said it valued Ford Europe at a negative $7 billion, up from a previous estimate of minus $5 billion. Earlier, Morgan Stanley pointed to big forthcoming losses at Ford Europe.

“We forecast Ford Europe to post an accumulated loss of $3.6 billion from 2019 through 2021 with increased losses each year. By 2021, our forecast of Ford Europe’s Adjusted EBIT margin is negative 4.5% which we estimate would make Ford the least profitable (manufacturer) in that market,” Morgan Stanley said.

This gloom laden future led to calls that Ford should follow the lead of General Motors, and seek to pull out of Europe completely. GM sold its European Opel and Vauxhall business to PSA Group of France for a knockdown price in 2017 after losing close to $20 billion this century.

Things are nowhere near as bad for Ford Europe, and AID’s Schmidt said despite some missteps, Ford should hang on to its European offshoot.

Schmidt said Ford was slow to see that its highly successful Mondeo sedan was being edged out of sales by new SUVs, but the Fiesta has been a long-term success and even though it is a cheap car operating in a sector where margins are slim, it still makes small profits. The Fiesta is also important in Ford’s uphill struggle to meet 2021 European Union (EU) fuel efficiency rules.

The cooperation talks with VW, also believed to be about autonomous cars and electric ones, are well timed.

“A deal (on vans) with VW, that’s God’s gift to Ford, which is very strong in light commercial vehicles,” Schmidt said.

In 2017, Ford sold just over 410,000 vans in Western Europe, and much bigger VW about 400,000. VW and all its brands has an overall market share in Europe of close to 25% compared with Ford’s 6.4%.

Schmidt said combining VW’s expertise in electrification with Ford Europe’s van making expertise is very promising as Europe prices diesels out of the market, and cities ban the remaining ones from city centres.

Hard going
CAR’s Dudenhoeffer said Ford Europe finds it hard going making money in Europe because its sedans and SUVs lack the scale of competitors like PSA-Opel-Vauxhall, VW and its Skoda and SEAT mass market subsidiaries and the Renault-Nissan alliance.

“Ford Europe must urgently find a partner in passenger cars. If not, Dearborn will become very angry and nervous. Morgan Stanley is absolutely right. And I would forecast further losses after 2021, if they don’t find scale in passenger cars,” Dudenhoeffer said.

“You can’t solve the problem in passenger cars with just cost cutting. You need scale and this is only possible by selling the cars division or finding cooperation partners,” he said.

As talks about cooperating with Ford continue, VW has said it might be interested in using parts of the company’s U.S. manufacturing as it seeks to raise market share there.

As for the European operation, AID’s Schmidt, urges not to pull the plug and leave like GM.

“Slash and burn in Europe? That would be a huge mistake. There is a profitable long-term future for Ford in Europe. If they do a GM, they would be committing a massive mistake. They should stay in Europe, grit their teeth as they make short-losses, and enhance and strengthen the relationship with Volkswagen,” Schmidt said.


 

Print Friendly, PDF & Email

No comments yet.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  • Newsletter

    Sign up for the mailing list - industry analysis and honest car reviews

  • Site Designed and Administered By Paul Cox Photographic