By on July 23, 2012

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.

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14 Comments on “European Contagion: Ford In Deeper Trouble Than GM...”

  • avatar

    I suspect that Ford’s not really in deeper trouble than GM, simply because I think we’ll see Ford take the kind of quick, effective action that is proving very difficult for GM to take with Opel. But maybe not. Wednesday’s F call is going to be very interesting.

  • avatar
    Sgt Beavis

    I would tend to agree. Mulally will either find something to up utilization (probably through importing) or thin out capacity.

    However, part of the problem with plant closings and layoffs, in Europe, is that they are fairly expensive due to labor rules that can require substantial payouts to employees.

  • avatar

    But the thing is, at least GM has China sales to help make up for the losses in Europe whereas Ford is still a small player in China.

  • avatar

    i bet silvy is dancing somewhere… big smile on his face too

  • avatar

    Most of the US car models are now at least based on the Euro spec, how difficult would it be to use excess capacity to build the Euro spec Focus/Fiesta/upcoming Fusion, and ship them over here for minimal changes?

    • 0 avatar

      Not likely. Cheap dollar = expensive imports. If there was an inexpensive way to bring Euro cars over here, I’m sure Ford would have done it years ago. I could have had my Escort XR3 like I wanted, back in the 1980’s…

      • 0 avatar

        Well, expensive on a per-unit basis, perhaps — but if you can’t close a European factory (yet), and exporting puts it at 85% capacity, then it might make some sense. I could see it happening for low-margin vehicles — much as it already is for the Transit Connect.

        Plus, have you checked the value of the Euro lately? It’s the yen that’s the real problem.

        In the long run, I’d expect to see more NA production for European markets.

      • 0 avatar

        Good point geozinger, I suppose the cheap dollar effectively kills any hope of exporting European built Opels to use their overcapacity in the same fashion.

      • 0 avatar

        @Dtremt: I’m guessing you meant to say something else?

        How would a low margin vehicle make MORE sense to assemble in a high cost area like the Euro zone? A high margin vehicle, would at least make some sense. You could price it high enough to make up for currency variations.

        Additionally, if it did make sense to do so, why do you predict more NA production for European markets? NA assembly only makes sense if our currency is cheaper than the competing currency…

      • 0 avatar

        Raising output through exports would help, unless you get some discounts from suppliers with more volume. Else, you are just losing more money by selling items at a loss.

  • avatar

    Hard to make heads or tails out of this post. 2 out of 3 analysts disagree as to the amount of exposure and capacity Ford seems to have, and there appears to be no consensus on what to do.

    While GM’s Opel unit struggles, GM does well in other markets, particularly China. However, as China cools down, other parts of the GM empire may have to take up the slack. From what I understand, I can’t imagine any other part of the world doing so, except North America. And that’s doubtful for a whole raft of reasons, ranging from QE III to the European debt crisis rearing it’s ugly head.

    Interesting times, indeed.

  • avatar

    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.

    • 0 avatar

      Agree 110% … that’s the way it is and the way it’s always been. It’s the American Way … good vs evil, freedom vs communism, our team vs their team, management vs union, guns vs no-guns, etc etc

  • avatar

    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.

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