Ford relies on its N. America playbook for Europe
 | Mulally: One Ford plan can fix Ford of Europe. |
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DETROIT -- Ford Motor Co. executives seemed remarkably calm last week as they admitted that European losses will widen to more than $1 billion this year, roughly double the amount they had earlier expected.
The revised forecast came as Ford said its second-quarter net profit tumbled 57 percent, largely due to the losses in Europe.
CEO Alan Mulally and his team believe the One Ford plan that rescued the company's North American fortunes can work the same magic in Europe, which accounts for a quarter of Ford's global sales.
"If I were you guys," Mulally told analysts and reporters, "I would go back and look at what we did in North America."
Ford executives also know they can't afford to give up on Europe. The region is more vital for Ford's global plans than ever, because of what Europe contributes to Ford's vehicle development.
Under One Ford, all vehicles worldwide are being engineered to meet a few common themes, using shared platforms and parts. Ford wants its vehicles to be fuel efficient, fun to drive, technologically advanced, made to high quality standards and safe.
EcoBoost engines
Europe has been Ford's center of development for the small gasoline and diesel engines that are critical to making Ford vehicles fuel efficient. All 1.6- and 2.0-liter EcoBoost engines used in North American vehicles ship from European plants, for example.
In addition, several platforms and vehicles sold in North America originated in Europe, including the platforms for the Ford Fiesta and Focus.
The vehicle tuning critical to fun-to-drive driving dynamics also migrated from Europe to North America.
But if Ford of Europe is critical to Ford's North American and global plans, that increases the urgency facing the company as Europe struggles.
Ford CFO Bob Shanks described the situation in Europe as "very, very serious," and said it could remain challenging for some time. Ford is reviewing "all areas of our business to address the near-term challenges," he said.
Ford recognizes that it has excess assembly capacity in Europe. One solution would be to close a factory, something Ford did in the United States and Canada. Ford hasn't closed a European plant since 2002.
"Ford management appears to be losing patience with Europe," Morgan Stanley analyst Adam Jonas wrote in a research note issued before the second-quarter results were released. "And they should. After all, it's on track to lose more money than GM this quarter. Unfortunately, capacity exit in Europe requires years to execute."
Shanks declined to say what long-term steps the company might take to address the capacity issue. But it has taken short-term actions such as shortening workdays, reducing line speeds and laying off temporary workers. Ford expects to cut production by 31,000 units in Europe in the third quarter from year-earlier levels. In contrast, it says it will boost North American output by 34,000 units. And with capacity it has added in China and Thailand, it plans to boost production in the Asia Pacific Africa region by 65,000.
Not panicking
Still, the confidence in the One Ford plan means the company isn't panicking. The pressure is on Ford of Europe CEO Stephen Odell. But he was named to that post two years ago. The management stability at Ford of Europe contrasts sharply with the musical chairs at General Motors' European operations. Since deciding not to sell Opel in November 2009, GM has replaced its European president three times.
| Ford's 2nd-quarter slide | ||
| April thru June 2011 | April thru June 2012 | |
| Revenue | $35.5 billion | $33.3 billion |
| N.A. pretax | $1.91 billion | $2.01 billion |
| Europe pretax | $176 million | –$404 million |
| Net profit | $2.40 billion | $1.04 billion |
You can reach Bradford Wernle at bwernle@crain.com.
