Ford’s plan to cut jobs and close plants, once hailed as proactive, may not be enough to halt losses in Europe – where moves to rein in margin-crushing discounts have sparked a further sales plunge, a news agency report said.
According to Reuters, the carmaker initially earned investors’ praise, and unions’ wrath, for three plant closures and 6,200 layoffs designed to reduce excess production capacity, while rivals put off the tough decisions.
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But less than five months later, Ford’s slumping sales show it still has some way to go and may struggle to win back business from competitors as it rebuilds profitability.
Ford’s European slide since December, the worst three-month sales performance by a mass automaker, reflects efforts to end a discount campaign in which it hiked incentives to shift a glut of cars, according to industry insiders and unpublished data.
The company has said it is pulling back from “unprofitable channels” including sales to car rental firms, even at the risk of losing market share.
“Share is interesting, but share doesn’t pay the bills,” Ford’s Europe chief Stephen Odell told reporters at the Geneva auto show earlier this month. “You have to have a business that’s profitable.”
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By GlobalDataThe region’s overcapacity locks carmakers into paying high fixed costs to build fewer vehicles. Car sales fell to a 17-year low in 2012 and are expected to drop further this year.
An 18% capacity cut was intended to restore European profitability by mid-decade but ut Ford registrations tumbled 23.4% in the first two months of the year, more than twice the market decline, data from the European Automobile Manufacturers’ Association showed. Market share fell 1.2 points to 6.6%.
“The assumptions they made when they published their plan are no longer valid,” Philippe Houchois, a London-based analyst with UBS, told Reuters.
“You can only restructure when you’ve got a view of where the market is going.”
Production in Genk, marked for closure next year, has only just resumed after industrial unrest following the restructuring announcement. Ford said recently it would pay US$750m (EUR582m) in severance to workers at the Belgium plant.
The disruption accounts for part of the dent in Ford’s sales, which also suffered from distribution bottlenecks affecting the replacement of its Fiesta and Kuga models, Reuters noted.
Ford increased its 2013 European loss forecast in January to $2bn from $1.5bn and predicted global pre-tax profit in line with last year’s $8bn.
By some measures, however, Ford’s European discounts significantly outpaced competitors’ last year, Reuters said.
Its average retail incentives jumped more than 30% to top EUR2,750 ($3,500) per vehicle in the region’s top five markets, according to data from an independent market research firm seen by the news agency.
The Ford figure was over EUR500 above the mass market average which rose by a more modest 11% in Germany, Britain, France, Italy and Spain.
Company spokesman Mark Truby told the news agency he could not confirm the 2012 figures and insisted Ford’s turnaround was on track.
“Our incentive levels are below industry average among Europe’s volume automakers,” Truby said.
“We’re fundamentally transforming our business in Europe by significantly increasing new product, improving our brand image and addressing costs.”
Ford has yet to resolve the dilemma between pricing and market share, which may deepen as German premium brands compete more aggressively against its mid-market cars, some observers have said.
“It’s going to be difficult,” Tom De Vleesschauwer of consulting firm IHS Automotive, told Reuters. “It seems impossible in the current climate to have both.”
