By on March 26, 2018

Ford Escape Titanium badge logo, Image: Ford Motor Company

Ford Motor Company has a lot invested in Europe. While the continent spent decades operating facilities under the lose leadership of Ford of Britain, Detroit acquired direct ownership in 1950. From there it extended its influence dramatically, buying up established European manufacturers near the close of the 20th century. But things haven’t always been good; economic hardships have been par for the course and things haven’t been easy in a long time.

Presently, Ford makes around $75,000 in profit for each of its employees in the United States. In Europe, that number is about $4,300 per worker. While we’re sure that makes domestic line workers feel entitled to a small pay increase, the point is that the profit margins across the pond are pretty slim for Ford.

However, unlike General Motors, the company doesn’t want to abandon the region. The automaker says it’s taking a renewed interesting in figuring how to keep profits up and is avoiding any speculation that it might duck out of Europe entirely. But let’s revisit its hardships over the last decade so we can establish a framework for why Ford is having a rough go of it. 

Obviously, the Great Recession was hard on everyone. By the time it reached Europe, Ford was already struggling in North America. The automaker recorded a net loss of $9.49 billion in the first quarter of 2009, but, as its global health increased, Ford’s European operations were still in trouble. From 2011 to 2014, Ford of Europe lost $3.1 billion on its own, leading many to presume the worst. But things turned around dramatically over the following two years, with the division seeing a pretax profit of $1.2 billion in 2016.

Since then, American sales have flattened and Chinese deliveries have been pushed down a steep hill. Meanwhile, European volume increased for 2017 but the brand only netted $234 million in profit. “Ford does not seem to have an economically viable business [in Europe] at present,” Max Warburton, analyst with Bernstein Research, reported at the start of this year. “Could 2018 see it also slim or exit Europe, given its years of losses in the region?”

Ford mentioned it was considering closing factories and raising prices in Europe after Britain’s vote to “Brexit” the European Union. Despite the devaluation of the British pound, Ford did better than expected that year and a full-blown crisis was averted. But with profits slimming again, 2018 could be a do-or-die kind of year.

According to Automotive News, the weakened British pound continues to be an issue for automaker. The United Kingdom is Ford’s third-largest market, but the nation’s currency hasn’t rebounded yet — although it has improved quite a bit since its low at the start of 2017. Ford estimated the currency devaluation stole around $600 million in profits last year. Increasing material costs are also playing a major role, and not just in Europe. With slim profit margins, elevated manufacturing costs, and a weak currency in the European nation that still loves it, Ford admits 2018 could be a rough year.

Assuming the the UK separates from the EU’s Customs Union, something the government has promised near the end of 2020, new tariffs could hamper Ford’s engine plants — which need to export motors from the UK to the European Union. If the manufacturer can’t mitigate rising costs elsewhere, that alone could be the final nail in the coffin.

Ford says it isn’t abandoning the region, however. Despite the mounting problems, the company claims it has taken a renewed interest in ensuring its sustainability on the continent. “We are committed, and we plan to stay,” Ford of Europe President Steve Armstrong told Automotive News Europe. He predicted European profits will increase in 2018, despite the hardships, and says Ford will cut costs where necessary to ensure it doesn’t go under.

The company also says it intends to go slightly upmarket with its Euro cars while injecting a few SUVs to account for changing consumer tastes. Why Ford wasn’t already pushing more crossovers in Europe is beyond us. To take full advantage of a trend, you typically need to be Johnny-on-the-spot.

Fortunately for Ford, the crossover fad hasn’t eased and could help the automaker until the next big consumer shift occurs. But it’s also worth noting the Ford Fiesta and Focus remain two of the United Kingdom’s best-selling autos, while the Focus-based Kuga SUV is also doing quite well in 2018. So there is hope yet for Ford of Europe to make it through this difficult period, regardless of what the critics say. Still, that doesn’t mean the company won’t pull out if it thinks it’s fighting a losing battle.

Ford isn’t stupid and knows globalization isn’t a guaranteed path to success. General Motors ditched the European continent for that very reason and might do the same in South Korea.

[Image: Ford Motor Co.]

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22 Comments on “Ford Continues Fighting for Europe...”


  • avatar
    Big Al from Oz

    Matt,
    You write, “Ford isn’t stupid and realizes globalisation isn’t a path to success”. But yet the worlds largest and more globalised manufacturers appear to think otherwise and are more successful.

    Why is it Ford earnings per worker in the US so high? Complete protection of large vehicles in the US? Does the lack of competition in the US create this?

    Ford and its paid mouthpieces all over the media the last week have been talking up Ford. Why? In China Ford experienced a 30% drop.

    The cost to Ford to move production within the EU, but out of the UK will affect the bottom line.

    US or more accurately the Big 3 seem to struggle more in the global market. But how can it be Fords or GMs fault?

    Why, the rest of the world has had multiple decades to produce a model that facilitates trade, with the US comfortable living within its own proportionally huge market, gradually ratcheting large vehicle protection with dissimilar regulatory controls in place as the US market shrunk proportionally.

    • 0 avatar
      DenverMike

      You missed a key-word there, BAFO. Let’s try it again. From the article:

      “…Ford isn’t stupid and knows globalization isn’t a GUARANTEED path to success…”

      Europe is obviously key to “globalization”, and no doubt comes with high risk.

      The technical “regulatory” differences US and Euro, aren’t as big a deal as you make them out to be. A reinforcement here, a turn signal there, and done.

      Cheap cars easily make the leap, coming from Europe especially.

      Never mind the tariffs that are 400% higher going into Europe. The real “trade barriers” are built-in *outside* the car.

      What is a normal engine for the US is taxed severely in Europe, and due to their extremely high fuel prices, European car buyers traditionally hope for diesel or tiny gasser.

      USA consumers (and regulators) accept European car engines, big or small, gas or (compliant) diesel.

      Clearly it’s not the same risk all global automakers face.

      And you still can’t name a meaningful large market that’s more “open” to import OEMs than the US, both regulatory and consumers.

      • 0 avatar
        Scandinavian

        Import taxes on CARS may be 2.5% in the US vs 10% in the EU but there is a 25% import tax on TRUCKS in the US which make up a large part of the US market. This gives Ford, GM and FCA a great competitive advantage over their foreign peers as they rake in profits from F150s, Silverados and RAMs.

        There is no tax on ‘normal US engines’ in Europe. ‘Europe’ doesn’t tax car ownership or use – European countries do, but on an national level and not in a similar way. All countries tax fuel to fund roads, combat pollution and avoid congestion (Europe has almost a half billion citizens living on about half the size of the US … and the old cities were not built for cars). Most countries tax CO2 emissions or poor fuel efficiency. Taxing engine size or weight – as a proxy for fuel consumption or pollution – is not the norm here.

        Note also that the US manufacturers have been hugely successful here for decades – all while the same trading conditions applied. Ford (and Opel/Vauxhall, formerly GM) still sell more cars than ANY Japanese or Korean brand and are only outsold by 2-3 European brands(!). The Focus, Fiesta, Corsa and Astra remain some of Europe’s most popular cars. For another perspective, the size of their European operations is bigger than or comparable to the entire global production of some manufacturers such as Subaru, Mitsubishi and Mazda.

        So why do they keep losing money? Pricing power and a poor production setup. With the exception of the Galaxy and S-MAX and Insignia, they have lost their most profitable market, large cars and SUVs, to Audi, BMW and Mercedes. Undermining your brand by importing chap 3rd world cars such as the Ford Ecosport or badge engineered Suzuki’s does not help your brand image – nor does average styling and technology, and competition from cheap brands such as Dacia has eroded the pricing power for all brands in the middle market. Selling lots of cars to rental companies and fleets does not help either – maybe closing a plant does. Their production footprint centers on Northern Europe where wages are higher – that’s a bad place to be if you can’t charge premium prices like the other manufacturers in Germany, UK and Sweden.

        Europe is just a tough market – even Honda isn’t successful here.

        • 0 avatar
          dima

          Scandinavian, fully agree with your points except Honda. At least in Central Europe (CH, DE, FR, etc) it not just Honda straggling, but all Japanese brands per say. In this area, there is a strong patriotic sentiment, and consumers are trying support local (European) companies with their wallets.

          • 0 avatar
            Scandinavian

            That is of course true Dima, but then many countries also have no car makers / national preferences and a lot of Europeans would probably consider Ford, and in particular Opel/Vauxhall, either German or British. Toyota sold 640k cars in the EU in 2017 – that doesn’t earn them a top 5 spot, but it’s still more than Citröen (560k) and almost as many as Skoda (675k). Also, the Yaris was number 11 in February and the Nissan Qashqai number 5. Being first with hybrid technology or a compact crossover pays off.

      • 0 avatar
        DenverMike

        It’s a tough battle for Ford in Europe, most of it revolving around high tariffs and high fuel prices found in Europe, neither of which Ford can do anything about.

        The US Chicken tax does nothing to aid Ford (nor GM/Ram), it only hurts when bringing over their Euro/global vans to the US.

        There isn’t any Chicken tax “benefit” for Ford/GM/Ram and their biggest competitors found anywhere in the world against their TRUCK profits are Nissan/Toyota and they’re already in the US, taking their best shot.

        Then we’re only talking 1/2 tons. HD pickups hold around 50% of Ford/GM/Ram obscene pickup profits.

        The Chicken tax can only protects Nissan/Toyota/Honda/etc, but even then, only marginally so.

        • 0 avatar
          Scandinavian

          DM – why is Ford, as one of Europe’s biggest car producers, at a particular disadvantage by EU import taxes? Why would you not say Mazda, Mitsubishi and the Chinese with no EU production and importing 100% of their cars are the most disadvantaged?

          Do you believe Mercedes is not disadvantaged by the 25% import tax in the US e.g. for the Sprinter? Why do you think Mazda, Mitsubishi and VW don’t sell their pick up trucks in the US (hint: they sell them in the EU – where import taxes are lower, and compliance legislation in tune with world markets).

          Another example: We’re hearing Ford and GM complain time and again and yet again how they can’t sell cars in Japan because of all these ‘unfair obstacles’ they encounter. The Germans just sold a quarter million cars there in 2017 – Mercedes 68,221 cars, BMW 52,527, VW 49,040, etc. Even Mini sold 25,427 cars. Ford? 551 cars. Maybe they should just try harder? I mean, clearly it can be done.

          • 0 avatar
            DenverMike

            Ford can’t move it’s US cars and trucks across borders nearly easy or cheaply as global manufacturers can enter and sell their cars in the US. You don’t think that’s a huge disadvantage?

            The Sprinter has a small disadvantage coming to the US, (same as Ford global vans) but this isn’t about Mercedes.

            Mazda, Mitsu, Isuzu, VW and others have sold pickups in the US by the millions with the Chicken tax fully in effect, so you tell me what’s changed.

            Japan is a relatively small market, but requiring right-hand-drive. The USA accepts RHD autos.

        • 0 avatar
          Ce he sin

          How do “high tariffs and high fuel prices” affect Ford Europe more than they do anybody else? Ford design and make most of their European range in Europe so tariffs aren’t really an issue and fuel prices are the same for all car makers.
          I recall a time when Ford Europe, and especially Ford UK, were making money hand over fist and tariffs were exactly the same as they are now while fuel was also much more expensive than in the US.
          In any case if tariffs were really an issue for the Americans they could negotiate a trade deal. Mexico managed it years ago.

          • 0 avatar
            DenverMike

            Ford is facing an uphill battle like no other in Europe, and still has to compete with most European market cars back in the US, with much more relaxed US tariffs, requirement imposed on imports to the USA.

            The US market (consumers/regulators) readily accepts fuel sipping imports, diesels, performance, luxury, you name it.

            Europe isn’t Ford’s natural habitat, and has to build cars specifically designed for Europe, built in Europe and definitely for its very high fuel prices, and much different from those it builds for the USA market.

          • 0 avatar
            Big Al from Oz

            DiM,
            All other global manufacturers are pretty much successful around the world.

            There are no “special” tariffs added to US product to make them uncompetitive against other foreign manufacturers globally.

            The US manufacturers need to restructure and change how they operate. They can function okay in the US with no competition with large vehicles because of the punitive 25% import tariff on the largest US money makers. But, when the playing field is level the US manufacturers are faltering now.

            I think it’s how the US manufacturers have setup their business model, they can only be competitive when they are given a handicap playing to a home crowd.

            I’ve been trying to explain this to you for nearly a decade now. It’s not about US pickups being sh!t, it’s about the US playing fair.

        • 0 avatar
          Ce he sin

          I’m a bit puzzled by your claim that “Europe isn’t Ford’s natural habitat”.

          Ford have been building cars in Europe since 1911 and particularly when they were still producing in the UK were regarded as a domestic manufacturer there. At one time Ford made so much money in Britain that it was referred to as “Treasure Island” back in Detroit. They’ve been in production in Cologne since 1925 and are regarded as domestic there too. Sounds like Ford found Europe a natural habitat for a long time. Indeed they found Germany so congenial that they made components for the V2 missile…

  • avatar
    Truckducken

    “Lose Leadership”. Sounds accurate.

  • avatar
    genuineleather

    Just like the US, the middle is getting squeezed in Europe. They want cheap cars (Dacia), high-value cars (Skoda), or luxury cars (anything German save Opel). They don’t want middle market Fords that are best-known for being generic company cars. Further, Ford has the misfortune of being a British “domestic”, a bad place to be considering the Brexiteers willingness to accept the collapse of their manufacturing industry as collateral damage in their Quixotic political pursuit. PSA has state support, Fiat and Renualt have richer sister brands, and VW has both: the only thing Ford has is its willingness to shovel F-150 profits onto the European profit bonfire.

  • avatar
    punkybrewstershubby aka Troy D.

    Remove the profitability of the F-series and what would their profit per employee in the US be then? Not anti-Ford at all, just curious.

  • avatar
    Jeff S

    Part of the problem is that Europeans want less expensive cars as the Dacia. When I go to Cancun I talk to the Europeans and many of them buy the Dancias and Renaults as second cars to have fuel efficient cheap cars many just don’t want to spend a lot for a second vehicle to run errands in. Not only Europe but the US is experiencing more expensive vehicles with the average new vehicle costing about 30k. There are only so many vehicles people will buy and many who cannot afford new buy used. There is a limit to how long loans can be extended, how much down payment people are willing to put down, and how long will cheaper leases last.

    There is also a limit to how many trucks people will buy. Eventually sales will go down because many who delayed purchase of new trucks during the Economic Bust have already bought ones. Sure people will still buy new trucks but not in record buying numbers. There are boom and bust cycles in vehicle sales and we have probably reached the top of the boom cycle. This is nothing new just part of the economic cycle.

  • avatar
    cimarron typeR

    “Eventually sales will go down because many who delayed purchase of new trucks during the Economic Bust have already bought ones”
    I disagree with this , living in a well-to-do area in the Heartland, my direct experience is that as long as gas is under 4.00/gallons trucks will continue to sell very well.Manufacturers pour hundreds of millions of dollars into R&D to make sure the next gen models drive better, look better and are more luxurious than their precursor. Certainly more money than Focus/Mondeo models Europeans would consume.
    Just in the last 6m 2 neighbors and 2 brothers’ in-laws have traded in their 2-3 year old F150s more the latest model. Some use them for towing, but 99% of the time it’s their daily driver with an empty bed.
    Anticipating gas price increases trucks are now more fuel efficient as well.

  • avatar
    Scandinavian

    DM – why is Ford, as one of Europe’s biggest car producers, at a particular disadvantage by EU import taxes? Why would you not say Mazda, Mitsubishi and the Chinese with no EU production and importing 100% of their cars are the most disadvantaged?

    Do you believe Mercedes is not disadvantaged by the 25% import tax in the US e.g. for the Sprinter? Why do you think Mazda, Mitsubishi and VW don’t sell their pick up trucks in the US (hint: they sell them in the EU – where import taxes are lower, and compliance legislation in tune with world markets).

    Another example: We’re hearing Ford and GM complain time and again and yet again how they can’t sell cars in Japan because of all these ‘unfair obstacles’ they encounter. The Germans just sold a quarter million cars there in 2017 – Mercedes 68,221 cars, BMW 52,527, VW 49,040, etc. Even Mini sold 25,427 cars. Ford? 551 cars. Maybe they should just try harder? I mean, clearly it can be done.

  • avatar
    Tstag

    Given the UK is one of Ford’s biggest markets then they were foolish to completely stop making cars there and shift nearly all production to Germany. They would be better positioned for Brexit if they had retained some manufacturing capability there. However there is a simple answer to that. If the UK and EU don’t do a deal on cars (unlikely) then they should simply buy up some capacity from the likes of JLR or Toyota who may want to borrow some capacity from Ford to make more cars in the EU.

    Ford are right not to leave Europe like GM has done. By walking away GM will in the long term strengthen PSA. PSA will then start to attack other GM core markets. Running away from major markets like Europe is not an answer.


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