We thought the hand wringing about whether Ford would leave Europe was over with last January. That’s when Ford CEO Jim Hackett presented his global restructuring plan. Ford of Europe was part of that plan. But now things are different. And worse. It is appearing more and more likely that Ford will leave Europe just like GM.
In 2017 GM did what many thought would have happened much sooner. It cut its losses and bailed on Europe. Together Opel and Vauxhall lost over $20 billion over a 17 year period. GM just couldn’t make a profit from the two brands.
American car companies were fundamentally unable to crack a profit in Europe
Selling Vauxhall and Opel to the PSA Group, it quickly became profitable. It was an amazing turnaround pulled off by PSA’s CEO Carlos Tavares. And it showed how American car companies were fundamentally unable to crack the profit code in Europe.
So now there is Ford. In over half of the last 20 years it was not able to show a profit in Europe. Hackett’s restructuring meant 12,000 jobs would be cut as well as closing some factories. Car lines would be dropped or reimagined. It looked like Ford of Europe might be in the clear.
But with the closure of factories worldwide in March over the coronavirus pandemic hit Ford hard. And the absolute evaporation of new car sales both here as well as Europe is a one-two punch. This quarter it is expected Ford will lose close to $6 billion. It needs to take really hard looks at its products, business, and role in foreign lands. Which means it is looking at Europe and asking if it needs to be a player there?
“We will likely see more collaboration, agreements, alliances, or even mergers”
So, will Ford leave Europe just like GM? “It’s too early to conclude,” says Felipe Muñoz, a global analyst, told Autocar. “However, the current outbreak is going to have consequences on the way the industry operates. We will likely see more collaboration, agreements, alliances, or even mergers.”
With Ford’s decision to create the new Puma it is showing its commitment to Europe. And its commercial vehicle business is huge in Europe. While it has trouble making a profit on cars, that’s not the case with commercial vehicles. So if Ford left Europe it would be walking away from these two money makers. GM never had that much to lose.
“Ford is also exposed to Brexit and Ford is extremely dependent on Nafta markets”
“Ford isn’t facing the tough times that GM had to face in the US some years ago,” says Muñoz. “GM filed for Chapter 11 bankruptcy during the 2008 financial crisis, but Ford never did. However, there are some similarities: their ranges of products are very similar, Ford is also exposed to Brexit and Ford is extremely dependent on Nafta markets [US, Canada, and Mexico], leaving fewer resources to its divisions in Asia and Europe.”
Ford’s last UK-based manufacturing plant now only produces diesel engines. While still in demand in Europe their appeal is slowly vanishing. Many analysts doubt it will continue manufacturing some other product once diesel is over with. And electrification means either Ford must convert a plant like the one in the UK to create electric power plants or import them from the US. Neither is an attractive choice.
In the end, the struggle to develop new products and keep a toehold in the European market may be more trouble than whatever profit it can squeeze. It needs to reduce costs now to shore up capital to ride out the COVID-19 losses. It is more immediate than trying to eke out a small profit in a foreign land.