Ford Plans to Reduce Jobs, Cut Low-Profit Auto Models in Europe – Wall Street Journal
The No. 2 U.S. auto maker on Wednesday plans to offer voluntary buyouts to most of its 10,000 salaried employees in Europe, the company said. Ford expects hundreds of takers, saving it $200 million annually.
Ford also plans to stop making some less-lucrative models and refocus on higher-profit cars and sport-utility vehicles to compete better in Europe, a market long burdened by overcapacity and price wars, the company said.
The Dearborn, Mich., auto maker, which gets about 19% of revenue from Europe, turned a $259 million pretax profit in the region last year after losing more than $3 billion between 2012 and 2014.
“The goal is very simple,” said Jim Farley, Ford’s European chief. “It is vibrant and sustainable profitability, that we make a return in good times and bad.”
Ford is targeting long-term operating margins in Europe of 6% to 8%, up from about 1% last year, as it builds on a massive restructuring plan started in 2012 that resulted in the company closing three factories and cutting 5,700 jobs. The plan has proved expensive, given Europe’s powerful unions and high severance costs for laying off workers. But it also has saved Ford money by boosting factory use above industry norms.
Mr. Farley declined to say which models Ford would eliminate. But sales of the company’s minivan-style B-Max and S-Max posted double-digit sales declines last year as Europeans flocked to higher-riding crossovers and SUVs.
The restructuring plan, in addition to attempting to stabilize Ford’s long-challenged European operations, also is a significant test for Mr. Farley, tapped by Chief Executive Mark Fields to run the region at the start of last year.
Former CEO Alan Mulally poached Mr. Farley from Toyota Motor Corp.
in 2007 to run Ford’s marketing operations. Mr. Farley rolled out the company’s “Drive One” advertising campaign that has endured for years after Ford repeatedly changed slogans and approaches.
Ford and other rivals have racked up billions of dollars in losses in Europe over the past few years amid a six-year sales slump that sent demand plummeting in the region to its lowest levels since the early 1990s. Ford’s chief rival, General Motors Co.
, gets about 13% of its revenue from Europe and has lost more than $7 billion in the region since 2010 but expects to regain profitability this year for the first time since 1998.
Ford’s European restructuring aims to mirror success overhauling its U.S. business, which contributed to record financial results last year. Ford previously spent years in the U.S. cutting jobs and closing factories before borrowing roughly $24 billion and paring businesses as part of a massive turnaround.
Ford’s cuts in Europe have been deeper than most other car makers, including GM, which closed a plant in Germany in 2014. With North America profits peaking, Ford is focused on reaping gains abroad.
“Ford looked to be on the front foot in dealing with capacity,” said Mark Fulthorpe, an auto analyst with IHS Automotive. GM, meanwhile, “tried to make smaller cuts,” he added.
North America, however, remains Ford’s cash cow, generating $9.3 billion in operating results in 2015.
European car sales have rebounded over the past two years, but Ford executives want to slim down costs enough to keep it solidly in the black for the next downturn.
The auto maker is banking on a barrage of new models to lift profits and is hoping to sell pricier versions of its models under the Vignale trim line. Ford has five new or redesigned SUVs slated for Europe in the next three years, including a new Edge crossover.
The company also is looking to improve factory usage through a more than 7% gain in efficiency. Ford has factories running at near-full capacity in Europe and has pledged in the past to grow sales there to 600,000 vehicles by 2020.
Mr. Farley, who in Michigan helped push Ford toward social media and to sell pricier versions of vehicles, such as those with Titanium trim lines, hopes previous success will translate overseas.
In Europe, Mr. Farley often pops into the cafeteria during lunch to take the pulse of employees. “I refuse to eat by myself,” he said. He plans to train Ford’s marketing focus on getting consumers into its cars, while dialing back on auto shows. Ford plans to skip the Paris Motor Show this year.
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