Attendees walk in the Ford Motor Co. display area at the Auto Shanghai vehicle show in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

Ford’s Global Cost Purge Hits Europe With Thousands of Job Cuts

(Bloomberg) -- Ford Motor Co. will cut thousands of jobs, weed out slow-selling models and potentially close factories in Europe, as the carmaker’s global cost-cutting drive targets a region that has dragged on earnings for years.

The automaker, which employs some 54,000 workers across the region mainly in Germany, the U.K. and Spain, will also review its joint venture in Russia, part of a host of measures that Steven Armstrong, Ford’s head of Europe, called a “step-change in the performance of the business.” He didn’t specify the number of possible job cuts and said that plant closures are an option to streamline operations.

“There’ll be significant impact across the region,” Armstrong said. “This isn’t a one or two year issue. We have had periods of profitability but not on the level it should be.”

Ford shares traded down 0.5 percent to $8.68 as of 11 a.m. Thursday in New York trading. The stock plunged 39 percent last year.

Chief Executive Officer Jim Hackett last year kicked off a company-wide $11 billion restructuring, as both Europe and Asia swung to losses and costs to invest in electric and self-driving vehicles begin to mount. As with many other carmakers, Ford warned it wouldn’t meet its targets for 2018, and Hackett abandoned a goal to reach an 8 percent profit margin by 2020.

As the global car market shows first signs of a slowdown after years of growth, Ford has overhauled its global operations, exiting the sedan business in America to focus on bigger vehicles and shifting its Chinese business to more local production. Europe has been particularly tough for the company because of the key market in the U.K., where the chaos surrounding Brexit has thrown up an additional challenge for the company.

Ford’s Global Cost Purge Hits Europe With Thousands of Job Cuts

The overhaul marks another sign of pressure on traditional automakers as they grapple with fundamental technology changes, tougher environmental regulations and trade tensions. Tata Motors Ltd.’s Jaguar Land Rover, formerly part of Ford, plans to cut 4,500 jobs in response to a sales slowdown.

Ford was among U.S. carmakers that fell short of expectations when the industry presented sales for last year, adding to concern that a slowdown may occur in 2019. China, which has fueled the industry’s growth, disclosed on Wednesday that auto sales fell for the first time in more than two decades.

Armstrong said on a call that the future of the European operations lies in crossover vehicles and SUVs, and that sedans and compact vans are in decline. He cautioned that whatever action the company takes might have to be significantly more dramatic should a no-deal Brexit occur at the end of March.

Ford’s debt has been trading like it’s speculative grade, and Moody’s Investors Service cut the carmaker’s credit rating to one step above junk in August. Analysts have speculated Ford’s generous dividend may be at risk.

Ford’s Global Cost Purge Hits Europe With Thousands of Job Cuts

Volkswagen AG, which is in talks with Ford about a deeper alliance, said Thursday its namesake brand will redouble its focus on returns amid another year of “enormous challenges,” foreshadowing more belt-tightening. Audi, VW’s biggest profit center, likewise noted more struggles ahead, reporting a 3.5 percent drop in sales last year.

Ford’s Global Cost Purge Hits Europe With Thousands of Job Cuts

Ford will seek to reduce European staff through voluntary measures as far as possible, the Dearborn, Michigan-based manufacturer said in a statement. The review also includes “rescaling the footprint of the business” with Ford reviewing the efficiency of its plants, Armstrong said.

Ford has already said it will cease production at a transmission plant in Bordeaux, France, and has started labor talks at the Saarlouis factory in Germany to end production of the C-MAX compact van. A review of the Ford Sollers joint venture in Russia is expected to conclude in the second quarter, it said.

Click here: Ford to Cut 1,140 Jobs at German Plant in European Profit Push

Ford’s European business, which relies on models like the recently revamped Fiesta and Focus hatchbacks, reported a $245 million loss during the third quarter, widening from $192 million a year earlier. Similar to America, Ford will swing to a lineup of crossovers and SUVs, and drop several derivatives to streamline its offering, Armstrong said.

Over the long term, Ford is targeting earnings before interest and taxes of 6 percent of sales in Europe. This year, performance will already be “significantly better” than 2018, Armstrong said.

Ford, whose business in Europe includes a “solidly profitable” commercial-vehicle unit, said it will establish three separate groups for passenger cars, its vans business and imports like the iconic Mustang.

“We are continuing to invest in the business, especially in electrified cars,” said Armstrong. “We will still have a comprehensive lineup of cars in future with primarily SUVs and crossovers.”

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