New accounting practices that rely on division-specific pretax profits reveal a hefty loss for Ford's European unit. The new figures run counter to the company's previous profit results. This revelation will undermine market confidence and further add to Ford's troubles. Ford has revealed that its European division and the Premier Auto Group made a combined loss of $US1.6 billion last year, with Ford of Europe losing $700 million alone. The Premier Auto Group controls worldwide sales of luxury European brands such as Volvo, Aston Martin and Jaguar. In addition, it has emerged that the European unit has been in the red for the last three years.
Previously, Ford had announced a $12 million profit for the European division and the Premier Auto Group for 2002. The reason for the discrepancy is likely to be related to new accounting practices, which have broken out the unit's results according to pre-tax profits. The new accounting method is designed to better reflect the performance of individual business units. These new practices take into account process profitability for the first time. This includes areas such as parts manufacturing, product development and interest expenses, where Ford has recently experienced difficulties.
The loss revelation comes as further embarrassment to the group, which had previously touted its European business as a model of profitable operations and streamlined production processes – a model the company hoped to emulate in its other markets.
With new accounting practices uncovering huge holes in Ford's claims of profitability and an apparent European loss of over $1 billion in the last two years, the company's claims of turnaround are now suspect.
Ford had used a long period of process restructuring in Europe as a model for its homeland market redevelopment. The company attempted to use the European unit to convince investors of the group's continuing viability. These new figures, designed to better reflect the performance of individual business units, undermine the confidence of the investment community and reaffirm Ford's continuing troubles.
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