Comparing Ford and GM’s European Operation

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Unlike fellow Detroit based competitor General Motors, Ford Motor Company (NYSE: F) is confident about the upside in its Europe operations. Recently, GM announced the sale of its European car brand Opel to Peugeot. The company’s reasons for selling Opel can basically be summed up as follows:

  1. The European operation is too costly, and unprofitable to boot. Moreover, given low transaction prices, high car penetration rates and the mature state of the market, an uptick in profit per unit is unlikely. This limits the future expectations of growth.
  2. There wasn’t much synergy between GM’s European vehicle portfolio and that in North America and China.
  3. The potential fallout of Brexit and the uncertainty in major European economies threatens the success of GM’s turnaround plan from 2012. It has already been four years, but after a couple quarters of profitability, GM again started registering losses and doesn’t expect this trend to reverse going forward.

Given the similarities between GM and Ford, how many of these arguments also apply for Ford? And why is Ford so much more confident about its European operation? If you compare the two companies’ financial performance over the last three years, there isn’t a huge difference.

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Ford has made around $27 billion more in revenue and $3.4 billion more in operating profits than GM over the last three years in Europe, and sold around 900,000 more vehicles. It commands transaction prices around 12% higher than GM and has registered an operating profit for the last two years. But these differences are not huge, and the transaction prices for the company have been much lower than those in 2014 in the previous two years, as a result of the decline in the value of the Euro compared to the U.S. dollar.

However, according to Ford, its product lineup in Europe has synergy with its lineups elsewhere thanks to its One Ford global policy. The company cites the success of the Mustang as proof of this point. Moreover, the automaker has also taken some steps to keep transaction prices high in the region, such as the addition of the Vignale and ST trim levels to the Ford Titanium. Still, it is hard to see how Ford can achieve stable and high profits going forward from the region, especially given that one of the biggest auto markets in Europe, the U.K., is likely to be weak going forward.

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