Ford Looks To Cure Its European Malaise With Job Cuts, New Models

Ford Motors (NYSE:F) is readying to lay off hundreds of workers in its European plants as the automaker seeks to contain its losses from the region. The job cuts will be voluntary and primarily aimed at salaried employees. ^[1] And, although this might inflate the company’s operating expenses in the near term due to severance packages associated with the move, this is a step in the right direction.

Ford is not alone in the European mess. This is an industry-wide problem and the automakers are reeling with overcapacity issues. Ford is using less than 65% of its installed capacity while General Motors (NYSE:GM) is using around 66%. Generally, plants need to utilize more than 75% of their installed capacity to be profitable. European vehicle sales are down 6.8% in the first half of the year with reports suggesting that the market is likely to remain weak until 2020.

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The European operations posted a loss of $403 million for Ford in the second quarter, and the company expects losses for the full year to top $1 billion. So far, governments and labor unions have resisted any plant shutdowns and job cuts, so lowering the long-term operating expenses is pivotal for long-term sustainability in the region.

New Vehicles to Boost Sales

At the same time, Ford is gearing up to launch a total of 15 new or refreshed models in Europe over the next five years in order to reinvigorate its flagging sales in the region. The company plans to roll out newer versions of Mondeo, Fiesta and Kuga and the iconic Mustang. ^[2]

The company’s sales were down 10% in the first half of the year. Ford’s CEO Mr Alan Mulally was quoted as saying, “In 2017, our European showrooms will feature 15 truly global vehicles.” And thanks to its ‘One Ford’ strategy, which aims to standardize cars and designs for its vehicles around the world, the automaker won’t have to design cars specifically for Europe. Thus, a combination of lower operating expenses and improved vehicle sales should improve Ford’s European operations significantly.

We have a $12 price estimate for Ford, which is about 20% higher than the current market price.

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1. Ford to cut hundreds of jobs in Europe, September 26, 2012, money.cnn.com [↩]
2. Ford unveils 15 fresh models for European market, September 11, 2012, mercurynews.com [↩]