By on December 7, 2018

Ford Escape Titanium badge logo, Image: Ford Motor Company

Ford Europe announced it had shuffled its leadership on Friday as part of a larger restructuring plan, appointing executives in Germany and the United Kingdom to oversee “Sprint to 6 Reset and Redesign.” The strategy seeks to achieve a 6 percent EBIT (earnings before interest and taxes) margin, investing only in products and services that it believes best support long-term, sustainably and profitable business.

“Ford is implementing key leadership and organizational changes to improve the fitness and agility of its European operations as it undergoes a fundamental reset and redesign of its business,” the company said in an announcement that emphasized creating operational agility.

While the full scope of the plan has yet to be announced, layoffs and factory closings seem highly probable. Ford said announcements concerning the details of the restructuring are expected between now and the beginning of 2020. Europe is expected to be the primary focus during the initial months, however. Ford Europe lost nearly $250 million in the third quarter of 2018, significantly worse than it managed in 2017. The company now expects to see a net loss for the region this year. 

Head of quality, Gunnar Herrmann, will front the restructuring process in Germany, while Graham Hoare will perform similar work in the United Kingdom. Hoare was previously responsible for Ford’s testing and development operations. Meanwhile, Kevin Reynolds, executive director for strategy, has elected to retire after more than 40 years with the company.

“Gunnar and Graham bring vast expertise to their new roles leading our reset and redesign plan in their respective countries,” Steve Armstrong, group vice president and president, Europe, Middle East and Africa, said in a statement. “Working closely with the rest of the European leadership team, they will play a key role in creating a long-term sustainably profitable business for the benefit of our customers, employees, partners and communities.”

Some of those employees are likely in for some harder times in the interim, though. Morgan Stanley previously suggested that the bulk of Ford’s $11 billion global restructuring plan will focus on Europe, leaving the region to endure the bulk of 25,000 global job losses it believes Ford has planned. Analyst Adam Jonas valued the automaker’s European businesses at “negative $7 billion.” While Ford was fast to refute Jonas’ claims, saying it had not provided Morgan Stanley with any pertinent information, it also did not say those claims were overblown — just that they were speculative.

“We forecast Ford Europe to post an accumulated loss of $3.6 billion from 2019 through 2021 with increased losses each year. By 2021, our forecast of Ford Europe’s Adjusted EBIT margin is negative 4.5% which we estimate would make Ford the least profitable [automaker] in that market,” Morgan Stanley said in an October report.

In July, Ford CFO Bob Shanks noted that most of Ford’s European vehicle range was unprofitable. By his estimation, the worst offenders were comprised “principally of cars and multi-activity vehicles such as C-Max.”

The company’s larger vans, utility vehicles, and the Mustang, however, are performing comparatively well. Most seem to believe that Ford will cull those unprofitable models from its European lineup while attempting to get more SUVs and crossovers to market. Ford has indicated this will likely be a core aspect of its restructuring plan.

[Image: Ford Motor Co.]

 

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34 Comments on “Ford Launches Phase One of Its Restructuring Plan; Changes Target Money-losing European Arm...”


  • avatar
    NoID

    How did Ford get to this point in Europe? My impression has been that Ford was always one of the better-received North American brands on the continent.

    • 0 avatar
      sportyaccordy

      Well I’m trying to think of their product line there. A lot of economy cars and some small crossovers. Throw in prioritizing volume over profit and here we are.

      Will be interesting to see how the new Fiesta and Focus do there. If those don’t catch I could see Ford throwing in the towel with Europe. To be honest, the long term market prospects in Europe aren’t great anyway. Not much volume with the Nords and they are focused on EVs. Germany has their own auto industry thank you very much. UK is Brexit purgatory. PIGS are going down fast. Eastern Europe doesn’t have a ton of money. What are the bright spots?

      • 0 avatar
        schmitt trigger

        Or perhaps prioritizing profit vs developing either appealing or reliable vehicles.

        Don’t get me wrong, I am not a closet socialist. Companies must and should have profits. But to achieve long term viability, sometimes short term profit expectations should be throttled accordingly.

        • 0 avatar
          sportyaccordy

          Ford spent the ~40 or so years leading up to the 08 crash foisting crap onto the mainstream car market. It’s going to take them that long to rebuild their image. They can’t sell cars at a loss for another 4 decades.

      • 0 avatar
        Ce he sin

        Well, the Fiesta has been on sale since last year and seems to be selling well enough, but there’s no money to be made at this end of the market. The Focus is only just going on sale, but much the same comments apply. Their bigger models – Mondeo (Fusion), Galaxy and S-Max – are going steadily under. They’ve a bigger CUV called the Edge that they bring in from Canada but it’s much too expensive for the name and sells in its tens. The Kuga (Escape) sells well enough. Ford’s problem is that they’ve only ever sold well in a few markets, particularly the UK, and now that they no longer make vehicles there they’re no longer seen as a local producer. Their other problem is that they can’t sell enough more profitable vehicles because they’re being squeezed by the “premium” makers.

      • 0 avatar

        How about Russia? To be honest the biggest problem with Ford it is slow in updating models and botching launch of new models like Focus – a good car but so many problems. Did they even test it? Mondeo looks like is dead and it was a nice car. Sad.

    • 0 avatar
      TrailerTrash

      well, i hope they don’t handcuff the design department.
      it what was delivering quality designs in the last decade.
      ford took a while to bring them over, but when they did those better vehicles helped ford out.
      focus, escape or kuga.
      i think even the cmax was from that division.

      sometimes i think poor management from the main office may have caused the problem.
      nobody really knows what happened behind meeting doors, such as cost-cutting or misplaced funding directives.

  • avatar
    dukeisduke

    Ford is smart to pair up with VW in the US, because they can sell rebadged VW sedans, if gas prices skyrocket and the market for sedans picks back up. Without any cars to sell, GM will be caught flat-footed, if that happens. You can’t just tool up and start building cars overnight.

  • avatar
    ToddAtlasF1

    “The strategy seeks to achieve a 6 percent EBIT (earnings before interest and taxes) margin, investing only in products and services that it believes best support long-term, sustainably and profitable business.”

    “Fierce Creatures” should not be overlooked. It was a more than worthy successor to “A Fish Called Wanda.”

  • avatar
    Lou_BC

    Looking more and more like Sergio Marchionne was correct about the auto industry.

    • 0 avatar
      Lie2me

      I’m beginning to believe he was a lot smarter then people give him credit for. What’s the brightest spot on the American automotive horizon? Jeep

      • 0 avatar

        No, Tesla.

        • 0 avatar
          Asdf

          Tesla is not a bright spot on the American automotive horizon, it’s a global embarrassment. Even after 15 years in the business, it hasn’t even managed to fix something as basic as making a car that can be charged in the same time it takes to refill a fuel tank! That’s a sign of gross incompetence. Thankfully, Tesla will be rewarded for this incompetence with a well-deserved bankruptcy in the near future.

          • 0 avatar
            Luke42

            @Asdf:
            Get back to me.when you figure out a way to refill your gas car at home every night without handling a lot of messy volatile fluid.

          • 0 avatar
            Art Vandelay

            @luke…install a gas pump. Course you dont need to because they are all over.

    • 0 avatar
      FreedMike

      Was he smart, or did he play the only hand he could play?

      A bit of both, I think. I think going all-CUV/SUV/truck was basically the only viable option the company had. And man, were they lucky. Any combination of a) more expensive gas, b) more expensive financing, or c) an economic downturn (particularly b and c) might have have sent FCA down quicker than the Lusitania.

      • 0 avatar
        Lie2me

        Any smart person will tell you that luck and timing are big parts of their success. Yes, he had a lousy hand, but he sure knew how to play it

      • 0 avatar
        Kendahl

        Maybe, Marchionne was smart enough to recognize that it was the only hand he had. That’s better than remaining in denial about one’s existing business plan.

      • 0 avatar
        Scoutdude

        He wasn’t that smart. If he really knew what was going to happen in the future he never would have let the 200 see the light of day.

        His other ramblings were purely to make it look like there was going to be consolidation in the industry, ie someone merge with me, and get in on the ground floor.

        • 0 avatar
          Lie2me

          Without the 200 how could the world appreciate all the other fine FCA products?

          • 0 avatar
            iNeon

            Chrysler’s always been a style and technology leader. The Italians are a good fit aesthetically- 200 was a pretty little thing. Still modern years after her death.

            Dart could have been made as viable as possible, and pretty cheaply— but why?

            Jeep and Ram.

            The Jeeps are flawless representations of what a small company can do to sate the current market. Its going to turn out like Oldsmobile, but its soaring right now.

            Good on them for having a couple strong products and the sense to make a few more from the scraps of the unwanteds.

  • avatar
    Jeff S

    Here is an interesting link http://gmauthority.com/blog/2018/11/general-motors-restructuring-shows-late-sergio-marchionne-was-right/

    General Motors’ announcements of plant shutdowns, job losses, and massive model restructuring seem to confirm that the late Sergio Marchionne was right about the automotive industry.

    Rewind back to 2015, things were rosy, car sales were romping to record levels, autonomy was a vague utopia Twitter was dreaming about, and EVs were just starting to gain what’s perceived to be traction among the major automakers. Then there was Fiat Chrysler Automobiles and its enigmatic CEO, Sergio Marchionne.

    During a regularly scheduled earnings call with financial analysts in mid-2015, Marchionne launched into a 25-page powerpoint presentation titled “Confessions of a Capital Junkie.” During his diatribe, Sergio made the case that the global automotive industry needed to focus dearly on consolidation, he claimed the major corporations were all wasting money, resources, and manufacturing capacity on redundant operations and product development. His core argument was that the industry could potentially save billions of dollars if big players would just share resources with one another.

    Marchionne also pulled the plug on unprofitable vehicles such as the Dodge Dart and Chrysler 200 before the rest of the industry really knew what was happening when it came to the crossover craze. To that end, the expansion of the Jeep brand has been timed perfectly. And of course, FCA has a golden goose in the Ram 1500. Also arguably the best marketing efforts of all three American-based automakers, when it comes to stirring emotion.

    On Monday General Motors explained its actions were part of a “response to market-related volume declines in cars,” and resulted in the cancellation of vehicle programs, that included the Chevrolet Volt, Impala and Cruze, as well as the Cadillac CT6 and XTS, plus the Buick LaCrosse. There’s the upcoming idling of assembly plants in Oshawa, Lordstown, and Hamtramck. General Motors also justified its actions on the basis of needing to reduce operational costs in order to free up cash for tech-heavy future investments–by the sounds of it, these are the exact conditions Sergio predicted

    The entire basis of Marchionne’s 2015 presentation wasn’t just freeing up cash for future investments, but ensuring those investments were returning significant amounts to the automakers. “OEMs spend vast amounts of capital to develop proprietary components, many not really discernible to customers.” According to Forbes, return on capital investment for mainstream automakers was just ten percent, which is only a single percentage point above the cost of capital. Meaning no one is really walking away with a significant chunk of change.

    In order to boost margins into the stratosphere, Sergio suggested automakers needed to reduce the number of vehicle architectures, strive for even more common parts across product lines, along with tailor-made “one-off co-operations, JVs, and other equity tie-ups”. Marchionne argued that there needed to be even more sharing between rival automakers as “the potential savings are too large to ignore.”

    It was actually the basis of his overtures towards GM CEO Mary Barra regarding a potential merging of the two historic automakers, even though Barra wouldn’t even entertain a conversation with him. For his part, Marchionne was confused as to why General Motors wouldn’t even listen to his proposal considering he wasn’t pitching just a small boost to profit margins, but offering “cataclysmic changes in [finacial] performance.”

    • 0 avatar
      sportyaccordy

      Ford & VW talking about “synergies” is further validation of Sergio’s crazy talk

      If Sergio were truly prescient though the Dart and 200 would have been crossovers.

      • 0 avatar
        Scoutdude

        The Dart couldn’t have been a crossover. The deal they had with the gov’t was to bring a 40mpg car to the market in a given time frame and if they did that the gov’t would gift them the part of the company they hadn’t already given them. W/o the Dart FCA would not exist as it does today. The 200 never should have seen the light of day.

  • avatar
    deanst

    Sergio headed the weakest of the Detroit 3, and was thus desperate for a deal. Being the weakest, he felt the pain first in the declining car market – he was smart but no genius.

    Auto making is basically an employment program for most countries with huge subsidies to keep the game going. Look at the u.s. industry in the last decade – the Detroit 3 killed excess capacity, while the foreigners replaced this capacity – making the industry just as vulnerable to downturns as ever. The taxpayer pays when the domestic heroes go bankrupt, and pays again to subsidize the foreign players when they build new facilities.

    • 0 avatar
      Scoutdude

      Fact is the Dart was all about meeting the conditions to have the US gov’t gift Fiat the rest of the company. While they lost money on every sale the return was huge. The 200 proves that Sergio didn’t have a crystal ball about the future, otherwise they wouldn’t have brought it to market just to loose a ton of money on each and everyone sold.

  • avatar
    Jeff S

    Yes Sergio was heading the weakest of the auto companies but he was honest and called it like he saw it. In today’s World that quality is rare in a CEO. Few of his peers either knew what he knew or they would not admit it. I don’t disagree about the taxpayer paying for the domestic auto companies when things go bad and paying for foreign players to build new facilities, but is this not a practice in many other countries to attract jobs? Not saying this is a good thing but let’s be honest.

  • avatar
    Whatnext

    More pick-ups!!! Who cares if they don’t want ’em.

    • 0 avatar
      Art Vandelay

      But people want pick ups. They sell them all at a nice profit. Even when gas was twice what it currently is the best selling vehicle was the F series with the other trucks close behind.

      At the end of the day, I think Americans want big, powerful vehicles. We legislated via CAFE the large car out of existence. Enter the era of the pickup “Brougham”

  • avatar
    Derbagger

    I’m thinking one way of reducing cost is through economies of scale. Sell some of your European cars like the focus Fiesta and Mondeo in other markets. The US for instance.

  • avatar
    Steve203

    Reading other articles about a rumored VW-Ford tie up, I don’t think this is only about the US. I think it’s global.

    The Ford mothership in Dearborn has made it clear that it’s not interested in spending anything on any sort of passenger car, especially anything in the B or C segment. Outside of North America, if you want to be a mass market brand, you really need to be in the B and C segments, but without US market volume, the amortization charge/unit for those products in Europe or China rises, and crimps profits.

    VW’s Skoda division is desperately looking for more production capacity, where labor is cheap. Skoda is reported to be particularly interested in Romania or Turkey. Ford has plants in Romania and Turkey. The next gen Fabia, for instance, could be built in the Romanian Ford plant, along side a badge engineered Ford Fiesta version. Same thing in China, where Ford has been hammered lately. With all the products Ford doesn’t want to get it’s hands dirty with being contracted out to VW, Dearborn can concentrate on what it really wants to sell.


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