Ford Continues Fighting for Europe
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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- ToolGuy Meanwhile in Germany...
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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.
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.