It's Happening Again: Ford Europe Wants to Shift Attention/Money Away From Cars
In an earlier analysis of Ford’s lackluster share price, we noted that Europe and China posed a significant problem for the automaker’s bottom line. Europe, which was previously pretty good to the brand, has gradually lost its share of the market since 1994. While Ford still moves a lot of metal in the region, something’s definitely wrong.
On Wednesday, Ford announced that its European operations had endured a $73 million second-quarter loss. It’s anticipating a full-year loss in the region after earning $234 million last year. “We’re extremely dissatisfied with our performance in Europe,” said CEO Jim Hackett.
Something has to be done to avoid further setbacks. According to Jim Farley, Ford’s head of global markets, the clear remedy is concentrating on vans and crossovers because that’s where the money is. It’s a similar strategy to what’s being done in the United States, where Ford eventually aims to cull the lineup to a point where the Mustang is the only vehicle that qualifies as a traditional car. But is it the correct one, considering how we’ve arrived at this point?
Many claim Ford’s problem in Europe can be attributed to the market’s shift away from mid-level models. Consumers have trended toward bargain basement autos while premium models have also received a boost. While the Fiesta and Focus still sell incredibly well, pricier models like the Mondeo (Fusion) have seen their popularity plummet.
Unfortunately, the cheaper vehicles Ford sells in large numbers aren’t making it any money. Ford CFO Bob Shanks claims that the majority of Ford’s European vehicle range is unprofitable. “The low-performing part of our portfolio represents a majority of our volume, revenue and capital deployed in the region,” he said. The primary culprits were “cars and multi-activity vehicles [MPV/minivans] such as C-Max.”
According to Automotive News, the models that still generate positive cash flow in Europe include the Transit van, Kuga (Escape) crossover and Ranger pickup — as well as the imported Edge and Mustang.
Farley also noted that commercial vans earn 13 percent profit margins for the automaker in the EU, so it’s going to focus on those models and lucrative utility vehicles at the expense of passenger cars. “Clearly we have to redesign Europe, centering the operations on our profitable [light commercial vehicle] business,” he said.
With the Fusion likely leaving the U.S. market in 2020, the Mondeo is probably facing its own discontinuation, as well. Ford is also considering abandoning the C-Max, as well as the S-Max and Galaxy minivans.
R&D spending will be diverted away from cars and into commercial vans and SUVs, as Ford seeks ways to cut costs anywhere it can and get new products to market quicker in Europe. The company also hopes to form new partnerships with other automakers. “It’s important to recognize that partnerships, which are a part of our fitness toolkit, are already an integral part of our European operations and going forward we expect them to play an even greater role,” Shanks said.
However, we can’t discuss Ford’s money issues without mentioning “mobility.” Some have accused Ford of being too slow to get the right products on sale and too quick to chase a quick buck. A case could even be made that Ford’s current obsession with SUVs and crossovers will leave it vulnerable when the market inevitably shifts again. But the mobility unit is intended to protect against that by making Ford a leader in advanced technologies and supplementary businesses.
The idea of future-proofing a company comes with consequences, though. Ford claims its mobility arm lost $181 million in the second quarter of 2018. It is, however, in the midst of several extremely large investments to get the ball rolling and has little revenue to soften that blow. Hopefully, there’s an extremely lucrative business model behind the mobility push. Otherwise, Ford and a slew of other automakers will be kicking themselves in the coming years.
[Image: Ford Motor Co.]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Ford used to have a large chunk of the prestige car market in Europe, with cars like the Granada/ Scorpio. That's gone now, it's all BMW/Audi/Mercedes. The large Fords used to be considered equals to those brands, but no longer.
It's long been my opinion that the people who do the most to screw up a company are the money people. Bean counters and stockholders, who can't see past a penny to the future. The company I work for had a chance to buy the RIGHT KIND of EDM machines years ago when they were making enough money to BUY OUT THE ENTIRE STOCK OF DIES from another company. They bought the wrong kind, EVEN THOUGH THE PEOPLE WHO SOLD IT TO THEM TOLD THEM IT WAS THE WRONG KIND FOR OUR BUSINESS. The machine had to be sold at a loss. Our CNC's use metalworking coolant, but someone with the penny in his eye decided it would be cheaper to replace coolant several times a year than to buy an oil skimmer and use treatment chemicals, which ACTUALLY cost a fraction of the price of coolant and would allow the coolant to be used for a longer period of time..I could go on, but I'm very near retirement.