European Contagion: Ford In Deeper Trouble Than GM
While all eyes are on GM’s hemorrhaging Opel, Ford is said to be even more affected by the European contagion. Ford could have to close at least one plant in Europe, analysts say, with Southampton, England, and Genk, Belgium, in the cross-hairs.
“By our calculations, Ford’s capacity utilization in Europe is even lower than GM’s, making it lower than any automaker besides Fiat” Adam Jonas, an analyst at Morgan Stanley, told Bloomberg. “Ford must address its excess-capacity situation with decisiveness to stay ahead of the wave.”
His colleague Efraim Levy at S&P Capital IQ agrees:
“Europe has been a morass for a long time for the American automakers and it will continue to be a challenge. And Ford has a bigger exposure to Europe than GM.”
IHS Automotive thinks that Ford’s capacity-utilization in Europe is higher than GM’s: 66 percent to 62 percent. Which doesn’t help either, in the business, capacity utilization below 80 percent is bad news and usually means losses.
Ford said last month it will report second-quarter earnings that are “substantially lower” because of losses in Europe, Asia and South America. Losses in Europe alone could exceed $1.1 billion for the full year, Morgan Stanley expects. Still, Ford does better than GM in Europe. Says Bloomberg:
“While GM has lost $16.4 billion in Europe since 1999, Ford has fared better, earning $1.73 billion since 2007, even while losing money in two of the last three years. Ford of Europe has enjoyed stable leadership under CEO Stephen Odell, who took on the job in 2010 after running Volvo Cars. GM this week named a turnaround expert as deputy CEO of its Opel operations after Karl-Friedrich Stracke ran the unit for less than eight months.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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It's the usual trash talk about Ford by the market. Because of the way the ownership is structured Ford always comes under greater criticism than GM ever does. What we have here is the classic mexican standoff. Everyone is waiting for one or two of the others to blink and close factories to reduce capacity. The watch is ticking down and the decision will have to be made soon, probably by the end of the year or someone's going to be bankrupt. Right now everyone will ride the French vacation hard to reduce inventories.
Given that GM just had massive debts removed by bankruptcy, yet still has a huge pension problem in front of it, while Ford recently announced that it was going to begin using free cash flow and investment grade bonds to fund thier's (instead of 70% equities and praying) translates into Ford being in much better shape all around (operationally and financially) than GM (China sales are all good and well, make financials look good, but the cash isn't coming back across, balance sheet detail (especially regional, aka remove China) means alot more than one year's income statement). My guess is that if Ford closes a plant in Europe they are going to do it in a manner that will make it incredibly painful for GM, Fiat, PSA, etc. when they have to do the same (maybe even impossible for GM, as the French and Italian governments will step in, don't see Germany doing anything for Opel) Kind of like Ford re-doing agreement with UAW before GM and Chryco could/did, which set the bar, gave the UAW political cover and made bankruptcy the only option (really pissed off task force assigned to fixing industry). Ford had a chance to kill GM in the late 80's and throttled back in fear that the GM of old was lurking somewhere and would come back (no one understood how badly roger smith's restructuring had gone, the balance sheet was completely drained and damage was irreversable), then the Ford family set in motion a series of events that almost killed Ford. Don't see them doing either again.