Barb Samardzich

Barb Samardzich

In the light of continued losses in Europe, Ford Europe COO Barb Samardzich has updated just-auto on the company's assessment of the business environment and its strategy to get back to sustainable profitability.

Ford's European unit booked a third quarter pre-tax loss up US$257m year on year to US$439m. For the full year, Ford continues to expect Europe to incur a loss of about US$1.2bn, an improvement compared with 2013.

Barb Samardzich notes that while market conditions are good in the UK, that's not the case in most of Europe. She acknowledges that the recovery in continental Europe is proceeding more slowly than Ford had expected and that the region is stuck in a "stagnant to slow recovery".

Samardzich said that the third quarter loss in Europe was "in line with where we planned to be, but still disappointing and also disappointing because we have had to change our projection for profitability and move that out of 2015."

Samardzich pinpoints two big causes of the losses for Ford in Europe: Russia and the performance of the overall European economy.

Russia's light vehicle market has fallen 13% in the first nine months of the year and plunged 20% year-on-year in September, although there are hopes that a scrappage scheme could stabilise demand. However, the market is way down on previous highs and currently looks a long way from previous predictions in the industry that it will eventually become Europe's largest car market.

Ford Europe's COO acknowledges the current difficulties in Russia. "There are a lot of challenges for us in Russia as that economy has slowed down way more than we thought it would."

Samardzich told just-auto that Ford has moved to take out excess capacity at its Russia manufacturing JV with Sollers. "We have already taken substantial actions because there definitely was excess capacity. We have taken shifts off our St Petersburg plant where we produce the Focus and Mondeo, as well as not adding shifts in our new plants that are getting up and running at Chelney and in Elubuga [both in Tatarstan, Russia]. Those are two locations where we are producing Transits, Kugas - and we are about to launch the EcoSport in Russia. So we have backed off on the number of shifts and hiring in response to the market drop."

On Europe overall, the sluggish rate of economic growth in the eurozone is also producing an unfortunate financial side-effect that is hitting Ford's bottom line.

"The overall European economy - with the exception of the UK - has stayed very flat with interest rates consequently staying very low. Those low interest rates translate into larger pension responsibilities for us, so that's a big headwind that we have to account for the rest of this year and into 2015."

Samardzich said that getting Ford's European operations back to sustained profitability hinges on three elements that Ford can control: product, brand and cost.

On product she reiterated the commitment made in 2012 for 25 all-new or significantly refreshed products within the next five years. "We were at fifteen, but we got what we call 'ok to buy' on the new Focus a week ago, so that is now starting to roll-out to our dealers and customers and that puts the count at sixteen." In terms of new product coming up, she highlighted the Mustang and the Edge coming to Europe (also both in RHD for the UK) as well as the new Mondeo, which will follow the revamped Focus in the marketplace.

"And we have S-Max coming as well as the Vignale line, which we are very excited about" she said. "Vignale is a new opportunity, not just in terms of the product, but in the relationship with the customer and the whole dealership experience."

On the brand side, Samardzich maintains that Ford has been backing off from lower margin demos and daily rental fleet business and improving presence in higher margin retail and fleet areas. She highlights progress for Ford in the area of commercial vehicles. "The real success has been in CVs," she claims. "The data is just exceeding our expectations and it is thrilling to see. We spent the last two years revamping our CV line and we finished that at the beginning of this year. In the month of September our CV share in Europe was number one and I don't know if that has ever happened for us before. Typically we have been at number six or seven. So we are very happy about that performance."

On cost, Samardzich highlighted actions already taken by Ford in Europe to remove capacity at Genk and Southampton. "We will have reduced capacity by about 18% when we have completed that by early next year."

And she maintains that the wind-down at Genk is proceeding according to plan. "We have been working so well with our union colleagues and appreciate the efforts they have been making. Everything is going as smooth as you can expect in what is a very difficult time."

However, Samardzich maintains that the European market drop has not been met with an appropriate industry-wide reduction to capacity. "We have not seen capacity rationalisation in Europe in the way we did see in the US through the severe recession of 2008/09.

"In Europe it is just much more difficult to rationalise capacity. We [Ford] have done some very difficult and painful things [on capacity] in the UK and Belgium, but the industry has seen maybe a 4m drop in the market since the last peak and we have certainly not seen a similar drop in overall capacity. So, when you have that kind of excess capacity, the business gets put under a lot of pressure with variable marketing and things to utilise that capacity."