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Ford Sees Light at End of European Tunnel

Maker remains committed to be back in black by 2015.

by on Jul.12, 2013

Ford's European chief Stephen Odell believes the maker is finally back on track and headed for a 2015 break-even.

Europe’s car market has been akin to a black hole for the past for the past six years, leaving manufacturers desperate to find a way out of the morass.  Ford Motor Co. has been one of the hardest-hit, last year running $1.7 billion into the red on the Continent.

Nevertheless, the maker insists it is finally seeing some positive signs in Europe. “It’s beginning to show signs of stability,” said Stephen Odell , executive vice president and president of Europe, Middle East and Africa, during a Thursday evening a briefing at Ford’s suburban Detroit headquarters. Those signs indicate the market for new vehicles in the Euro zone has finally stopped shrinking, though Odell stressed that does not mean a swift turnaround.

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“The European market should start growing next year,” Odell said, adding the growth will be slow and modest over the next several years. “I don’t see a V-shaped recovery. The GDP growth will be slow,” he said. “But most of the indices are pointing towards recovery,” he said.

Odell acknowledged Ford’s outlook is different than the one offered by Nissan/Renault chairman Carlos Ghosn, who recently said he was not sure the European market had actually bottomed out. “The unemployment rate of 12.2% is very bad. It’s unprecedented,” the Ford exec acknowledged.

Vehicle sales in Europe are currently running at a rate of about 13.5 million units, which is substantially less than the 18 million unit sales rate in place as the industry closed out 2007. The steep decline has left mass market producers such as Ford struggling, Odell said.

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In addition, the competition is very fierce with extensive discounting and German luxury makers have been crowding into parts of the market — such as the C/D, or midsized, segment — that have traditionally been where Ford did well.

Ford’s European operations lost $462 million in the first quarter, which were offset by profits of $2.4 billion in North America. But the maker is looking to turn things around within the next several years, Odell declaring, “We still expect to be profitable in Europe by the end of 2015.”

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The British-born Ford veteran declined to offer any guidance on second quarter financial results, which are due out on July 24. But he noted the company has now reached agreements with unions in the United Kingdom and Belgium approving plant closings in Southampton and Dagenham, England and Genk, Belgium. All three plants, which represent about 18% of Ford’s capacity in the Euro zone, are expected to be shuttered next year, he said.

“We have no more capacity announcements to make,” Odell said, signaling Ford will not be closing additional plants. “We feel we’ve taken the appropriate action,” he said.

As part of the restructuring, Ford will launch the next version of the Mondeo in Valencia, Spain by the end of next year, the same plant where it is also increasing production to meet demand for the new Kuga.

“We have the right plan and we’re executing it,” insisted Odell, who noted the company’s European operations have been able to refresh and expand Ford’s European product line by utilizing vehicles developed in other parts of the world – a central tenet of CEO Alan Mulally’s One Ford strategy.

In addition, Ford has reduced its inventories across Europe, concentrating on retail sales, and is now getting higher prices for vehicles such as the Kuga, Odell said. “The freshness of our product helps,” he said, noting Ford has launched eight new vehicles in recent months.

Odell said the strategy is working for Ford. While year-over-year industry sales declined 6.5% in June, Ford’s sales increased by 6.4% – to 106,500 vehicles – in its 19 traditional European markets. As a result, Ford posted increases in total market share, passenger car retail share and commercial vehicle share.

Ford’s market share was 8.2 per cent for June, up from 7.2 per cent in June 2012; this marks Ford’s third consecutive month of market share increases for the 19 markets

“June was a very solid month for Ford in Europe, not just from a pure sales results perspective, but also the marked improvement in retail market share,” Odell said.

Meanwhile, Ford and its joint venture partners are in the midst of opening three new plants in Russia where the government just boosted incentives for consumers in segments where Ford is relatively strong.

In addition, demand for sport-utility vehicles such as the Ford Explorer is also robust in Russia. “These are segments where he have a lot of experience,” noted Odell, who added that overall vehicles sales in Russia are staging a recovery.

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One Response to “Ford Sees Light at End of European Tunnel”

  1. Jorge M. says:

    I suspect GM, Ford and Chrysler’s Euro sales doldrums are similar to that of VW’s in the U.S. even in good economic times. There are very real cultural differences and consumer perceptions that are barriers to “foreign car makers”. It doesn’t necessarily matter that the cars may be produced in the country they are sold in, what matters is people’s beliefs about the cars, much of which is the result of how the products are marketed and supported or not.

    The Japanese are the best at hitting people’s hot button with bland cars that are cheap compared to the competition. Cheap will win everytime over style, quality and engineering. This has been proven over and over for decades. I’m old enough to remember the rust buckets that Honda, Toyota and Nissan sold for years when they came to America with their products. People still bought the rust buckets because customer service was so good, unlike from the Big Three. People still buy Honda and Toyota en mass even though we finally see NHTSA and Consumer’s Report finally acknowledging the numerous product defects and safety issues that were never acknowledged in the past on these brands.