Brexit Threatens To Ruin Ford’s Good Work In Europe

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Ford Motor

Ford Motor (NYSE: F) posted its first fully profitable fiscal year in Europe in 2015 after losing around $ 3.1 billion in the region during the 2012-2014 period. The profitability was the result of an elaborate restructuring of the U.S. auto maker’s continental operations, which included shutting down factories in Belgium and the U.K., laying off thousands of workers, introducing double digit new models and changing its brand image to align with its branding in the U.S. and China, as part of its Ford One Plan.

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Comparing Ford’s full year results over the last three years, one can see that Ford increased its market share by lowering transaction prices but cut costs even faster to ensure that its profitability increased. The U.S. auto maker has continued on the same path in 2016, but it has managed increase unit sales and average pricing based on its market share gains in the previous year.

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Ford is targeting an operating margin of 6%-8% consistently in Europe and cut more jobs earlier this year to ensure that its costs stay under control to ensure that it attains that level of profitability. The main thing that threatens Ford’s profitability in Europe in the second half of the year and in the coming years is the potential fallout from Brexit. The company is hedged in currency terms for the rest of the year so the fall of the Sterling won’t affect its bottom line but lower sales in the U.K. could cost the company $200 million in sales. However, the company isn’t hedged against the Sterling for 2017 and 2018, so the impact could increase to $400 million or $500 million in the coming years.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor

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