There is an element of lobbying you might think in Ford announcing draconian action other than in the results season.
It is most unusual to release details of major restructuring other than within the European quarterly reporting framework. The third quarter announcements mostly arrive next week.
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Could it be that Ford is saying: “OK, boys, we have taken out capacity. Now it’s time for the rest of you to get tough on capacity reduction”’?
Ford is entitled to take a leadership role. Firstly its CEO, Alan Mulally, bears battle scars from shaking up the American part of his empire. Secondly, Ford is the UK market leader. Vauxhall, the UK’s second-largest automaker, has pinned cost-reduction ambitions on component partnership with PSA.
Will these moves fix Ford Europe profitability? Will it at least break even at the trough of the market? The reply was subdued. “We expect profit mid-decade,”…meaning 2015. Ford of Europe pretax loss this year will be GBP1.5bn. Much of that will be redundancy, and as a result of determined destocking at uneconomic prices. The target is to richen the mix of cars made and to target an operating margin of around 7%.
The severance programme is going to cost an average GBP150,000 per person. Annual cost saving from all initiatives is assumed to be EUR500,000,000.
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By GlobalDataMulally made it clear that he was not just a cost-cutter and that there had been plentiful investment to improve performance in the new car market. “Our product development has been unprecedented. We will have the freshest cars in Europe. There will be 15 new vehicles over five years.”
The introductions include new Fiesta, Mondeo, Kuga and Edge with the Mustang being introduced to Europe for the first time.
And there are “four pillars” in the product initiative: better quality, better safety, smarter clever bits and more acknowledgements of environment requirements.
He is also promising to chop out the forcing of markets by feeding new cars through rental fleets and dealer demonstrator stocks. To that end, production will be reined in. The plan is an 18% reduction – 355,000 cars.
“We must improve the perception of the brand by destocking and building cars to customer specification.”
Large car production – Mondeo, S-MAX and Galaxy – is moving to Spain. The C-MAX will be made in Germany. The UK will lose Transit production at Southampton and stamping and tooling in Dagenham. The Bridgend plant in Wales will be a winner with additional work, though. Joint venture programmes in low-cost Turkey and Russia will “grow substantially”.
So what happens if Ford goes through all this and the competitors just continue along the road to ruin and undercut the cautious Ford?
“It would be more difficult. But it is necessary for all of them. They will do it.”
