What Ford did right in Europe as GM faltered – Detroit Free Press
General Motors sells European brands Opel and Vauxhall to France’s PSA Groupe in a $2.2 billion deal.
As General Motors prepared to sell its money-losing Opel/Vauxhall unit in Europe earlier this year, Ford celebrated a record $1.2-billion profit at Ford of Europe, which was also mired in losses not long ago.
GM built more than a million vehicles a year in Europe, but lost $20 billion there since 1999. Those losses and low margins selling the small but advanced vehicles European buyers demand convinced GM to give up on Europe, while Ford is in Europe for the long haul.
What did Ford do right?
For a start, Ford dealt with problems early and aggressively, while GM allowed them to fester. Ford closed unnecessary assembly plants and ran its European business the same way it operates in the U.S., IHS Automotive analyst Mark Fulthorpe said. Ford of Europe acted before its problems grew as intractable and toxic as those that led GM to sell Opel and Vauxhall to French automaker Peugeot SA this week.
“Ford said, ‘You’re building Ford cars in a Ford factory and we’ll tell you how to do it,” Fulthorpe said. Decades before the One Ford strategy that saw the automaker cut costs and boost profits by developing a single model line to build and sell around the world, Ford ran its global business more centrally than GM.
It wasn’t easy, but it worked, and Ford of Europe remains an integral, profitable part of the automaker’s global operations.
Ford of Europe lost $4.6 billion during and immediately after the Great Recession. While the financial crisis tipped Opel into the death spiral that led GM to sell it this week, Ford responded with difficult, frequently unpopular decisions that led to last year’s record profit and a $259 million pre-tax profit in 2015.
“We’ve constantly worked at trying to improve the Ford business in Europe over many years,” Ford of Europe Chief Operating Officer Steven Armstrong said. “The current strategy go back to late 2012 when we announced a comprehensive plan based around strengthening our product lineup, building our brand, and reducing our costs.”
Ford closed plants — never an easy decision, and particularly difficult in Europe.
“Ford was very focused on shedding overcapacity in the late ’90s and early ’00s,” Fulthorpe said. “It was a laser focus, and they acted very quickly. GM always looked about one plant heavy in Europe. They responded by dropping a shift here and there, but never decisively.
“Closing one plant early in the decade could have made a big difference. Ford was more disciplined in its capacity management.”
Ford showed a similar discipline in engineering and product development. Its global vehicle programs were more integrated than GM, even before Ford CEO Alan Mulally ordered a single global vehicle lineup under the One Ford strategy.
That reduced development and manufacturing costs and allowed Ford of Europe to take advantage of popular vehicles the automaker built in other parts of the world, like the Mustang, Edge, Escape and Eco Sport.
“A European Ford Focus was basically the same as the Ford Focus sold in the U.S. and China,” Auto Trader senior analyst Michelle Krebs said. “It gave Ford tremendous economies of scale and leveraged the brand.”
Ford also added sophisticated features rarely found in mainstream brands and boosted the brand’s image with trim packages that emphasize luxury and performance: Vignale, Titanium, ST and RS. Those pricey models accounted for a whopping 59% of Ford’s European car sales last year.
That strengthened the Ford brand, while GM divided its energy and marketing budget between British Vauxhall and German Opel.
“The Ford brand is well-known and well-respected. It simplifies the marketing message,” Krebs said. “GM has struggled on both sides of the ocean with too many brands.”
Ford is also Europe’s No. 1 brand for commercial vehicles — delivery vans, airport shuttles, Ranger pickups and more.
CVs, as they’re called, aren’t glamorous, but they are big, consistent business with loyal customers and predictable profits. GM has never paid much attention to CVs, particularly in Europe, where it pays other automakers — primarily Renault — to slap Opel badges on a few vehicles.
“Ford of Europe has an extremely strong commercial vehicle business with the Transit and Transit Connect,” vans it also sells in the U.S., Krebs said. “GM never had a strong commercial business.”
Ford of Europe expects to make money again this year, despite costs of at least $600 million associated with the U.K.’s decision to leave the European Union.
“The fundamentals of the business are strong we are confident about our future here in Europe,” Armstrong said.
They’re off to a good start: Ford sales and market share rose across the continent in January.
Contact Mark Phelan: 313-222-6731 or email@example.com. Follow him on Twitter @mark_phelan.