(Bloomberg Opinion) -- Ford Motor Co. sold 1.5 million vehicles in Europe in 2018, about one-quarter of the group total. But from an investor perspective that effort was largely pointless: The company made a $400 million loss in the region, and not for the first time.
The 12,000 European job cuts announced by Ford on Thursday are an acknowledgement that such largess is no longer tolerable. In an era of plateauing demand for cars, technological shifts, and trade upheaval, trying to be all things to all people is a recipe for inefficiency. While Ford’s restructuring is painful for those affected, it is unavoidable and overdue.
When Ford was losing epic amounts of money in the U.S. in the lead up to the 2008 recession, its international operations stood apart because of their strong performance. These days the roles have been reversed. The company makes almost all of its profit selling trucks to Americans; selling cars to Europeans is a slog.
Ford’s great rival General Motors Co. went the whole hog and cleared out of Europe back in 2017 after years of losses there, with its Opel/Vauxhall operations offloaded to France’s Peugeot SA. Should Ford have done the same?
Perhaps. Carmakers in Europe face billions of euros of fines from 2021 onwards unless they cut their vehicle emissions sufficiently. This means they’ll have to add lots of expensive technology to vehicles that consumers might not be willing to pay for. Diesel cars remain in the doghouse on the continent and Brexit could yet cause Ford no end of trouble too – the U.K is its biggest European market.
Ford plans to tough it out in Europe, though, and you have to respect that. While it’s shedding six plants and 20 percent of its headcount, it’ll still employ more than 40,000 people there. Workers will be grateful for those well-paid auto-making jobs.
Of course, Ford isn’t a charity but it’s still possible to make money from cars in Europe, provided you have the right locations, products and management. Just ask Peugeot boss Carlos Tavares, who has taught GM a lesson by returning Opel to profit in two short years. Peugeot’s car business is generating an operating profit margin of more than 8 percent, remarkable by the standards of the mass-market business.
Peugeot has the advantage of scale. It has 17 percent of the European car market, whereas Ford has 6.5 percent (7.5 percent if you include commercial vehicles). Still, Ford thinks a 6 percent return on sales should be possible with time; it was making a $1.2 billion profit in the region as recently as 2016.
The company can capitalize on some notable strengths, particularly in its market-leading and profitable commercial vehicles business. A new partnership with Volkswagen AG should help, although we await more details on that. And, as I’ve noted before, imported Mustang sports cars are a lot more popular here than you might have realized. The company sold almost 10,000 of them last year. A Mustang-inspired electric utility vehicle is arriving soon.
Toward the end of last year, it looked as though Ford’s investors had all but given up on the company. The shares fell to levels last seen during the 2009 recession. But as the CEO Jim Hackett has finally gotten to work on its restructuring, and delivered some better-than-expected results, the stock has rebounded by one-third this year.
Shuttering plants is a grim task but there’s at least a few reasons to remain hopeful.
Though Ford did shut some plants in 2012.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
©2019 Bloomberg L.P.