Ford, GM could face combined quarterly losses of $1 billion in Europe
DETROIT (Bloomberg) -- Ford Motor Co. and General Motors Co., struggling to reverse growing operating losses in Europe that could amount to a combined $1 billion, will each report plunging profits this week as they take different paths to fixing their operations in the region.
Ford, which will post third-quarter results tomorrow, is closing three factories in Europe and cutting 6,200 jobs, or 13 percent of its work force. GM, which announces third-quarter results Oct. 31, said last week it would develop small and mid-sized cars, vans and utility vehicles with PSA/Peugeot-Citroen, in which it took a 7 percent stake in February in an alliance aimed at cutting losses by sharing costs.
Neither move enabled GM or Ford to avoid operating losses of more than $500 million each in Europe in the third quarter, estimated Adam Jonas, an auto analyst at Morgan Stanley.
Ford's action, though, is more definitive than GM's agreement with PSA, which may not be finalized by a self-imposed deadline of Oct. 31.
"Ford has already announced their plan and they're getting it done," said Matthew Stover, an auto analyst with Guggenheim Securities in Boston. "Ford controls its own destiny in Europe, while GM has cast its lot with PSA and that is getting more complicated by the week."
Auto sales in Europe may fall to their lowest level in 19 years, the industry organization ACEA has said, as the sovereign-debt crisis continues to sap consumer confidence.
Despite the setbacks in Europe, investors aren't betting against the stocks. Options protecting against losses on Ford shares slipped to the lowest price since March 2009 last week and reached a record low for GM, according to data compiled by Bloomberg. North America sales and profits continue to be strong and the bad news in the European markets has been well known for some time.
Ford said auto sales in Europe may fall further next year before a slight recovery in 2014. Ford's third-quarter profit excluding some items may have fallen 35 percent to 30 cents a share, according to the average of 19 estimates compiled by Bloomberg, from 46 cents a year earlier.
GM's profit excluding some items may have sunk 42 percent to 60 cents a share from $1.03 a year ago, according to the average of 17 estimates.
Ford said Oct. 25 that its pretax profit and earnings per share in the third quarter will top the second quarter's $1.8 billion and 30 cents a share.
GM has lost $16.8 billion in Europe since 1999, while Ford has fared better, earning $1.73 billion since 2007. Ford said it will lose more than $3 billion in Europe this year and next as it restructures and will return to profitability by mid-decade.
"Ford of Europe is a going concern and their attitude seems to be, 'Let's get this done while there's a crisis, get out of the headlines and let others catch up,"' Jonas said. "GM is almost too weak to salvage. We think their Plan A is to partner."
GM CEO Dan Akerson said "there is progress" in implementing an alliance with PSA. If the companies fail to reach agreement by the Oct. 31 deadline in their memorandum of understanding, "it also allows for postponement," he said on Oct. 21.
The French government on Oct. 24 committed $9 billion in state credit guarantees to PSA's finance unit to help prop up Europe's second-largest automaker. In return, the government said it wants an "employment solution" for each of PSA's workers, which may conflict with the company's plans to close a plant in Aulnay, near Paris, and eliminate 8,000 jobs.
GM, also beset with excess factory capacity that is plaguing European automakers, has said it plans to shutter its Opel plant in Bochum, Germany, the first car factory closure in that country since World War II. The Detroit-based automaker doesn't plan to close the plant until 2016.
Ford is moving faster. It said next year it will close a Transit van plant in Southampton, England, and a stamping plant in Dagenham, on the outskirts of London. In 2014, Ford plans to close a factory in Genk, Belgium, that builds the Mondeo mid-sized car, the S-Max wagon and the Galaxy minivan.
"Ford is winking across the table at their big competitors, saying, 'Come on guys, where are you?"' Jonas said. "They all have pressure on them."
GM and Ford are each cutting production in Europe and reducing dealers' inventory of cars and trucks. That will reduce revenue at each company.
GM's third-quarter revenue may have slipped to $35.9 billion, the average of eight analysts' estimates, from $36.7 billion a year earlier. GM's earnings before interest and taxes may have dropped 39 percent to $1.35 billion, the average of six analysts' estimates.
Ford's third-quarter revenue may have fallen to $31.2 billion, the average of 11 analysts' estimates, from $33 billion last year. Pretax profit may have slid 4.6 percent to $1.76 billion, the average of seven analysts' estimates.
The woes in Europe are more than offset by profitable North American operations at GM and Ford. In the first half of the year, GM earned $3.66 billion in North America before interest and taxes, up from $3.5 billion in 2011's first half.
GM's U.S. car and truck sales are up 3.4 percent so far this year to 1.97 million vehicles, according to researcher Autodata Corp.
Ford earned $4.14 billion in North America in the first half and had an operating profit margin of 10.8 percent in an industry where a 5 percent margin is considered respectable. Ford's U.S. car and light truck sales rose 5.3 percent through September to 1.69 million, according to Autodata.Contact Automotive News