May 17, 2021

Ford resists stumbling in Europe | Economy

Ford resists stumbling in Europe | Economy

The recent announcement of the latest Ford restructuring in Europe, with plans for cuts in production and personnel, has unleashed a wave of speculation about whether the Michigan group should continue on the Old Continent or put on foot, as did its US rival General Motors after selling Opel to the French group PSA (Peugeot, Citroën, DS, Opel, Vauxhall) last year. The concern is more than justified: the last adjustment is the third of the brand since 2012 and one more in a long list of hard setbacks – and some spikes of euphoria – of Ford in the European market since the mid-nineties. 15 years ago, professor emeritus of Coventry University and expert in the automotive industry Tom Donnelly wrote an analysis on the specific problems of the company in Europe and concluded that he had excess capacity, difficulties to get ahead of the new segments of the market and inability to control costs, among other black spots.

To make matters worse, the Ford 2000 plan that was then designed to reverse the situation in Europe (and that centralized all the development of the new models and strategies at the headquarters of Dearborn) sharpened the crisis as the group put its hopes in Asia and America Latina Ford was not even, at the time, sufficiently aware of the importance of diesel engines in Europe. This fuel, today condemned by the authorities and its users punished by the depreciation of their vehicles, until recently encouraged by governments. Added to this, buy Aston Martin, Jaguar, Land Rover and Volvo to take slice of the luxury segment, and ends up managing them badly and misappropriating them. Finally, the Brexit arrived, a hard blow for a company with so much weight in the British market.

Despite the problems, the company has decided, for the moment, to endure in a difficult market like the European, very competitive and with few margins. This decision is justified, according to experts like Mike Martinez, of Automotive News, because the brand is a leader in light commercial vehicles (Transit and Transit Connect) in the region, and because it has achieved a surprising place in the sports car segment with the import of the Mustang. In addition, the Fiesta and Focus have their public and the Kuga and EcoSport SUVs have gained ground. Now Ford will get rid of its minivans, a segment in descent in all brands; It will cut the production of engines and reduce the administrative part to try to improve profit margins.

After the previous restructurings, the group had two very profitable years in Europe, but it collapsed again at the end of 2017. So much did it sink that in the middle of last year the agency Moody's lowered the company's solvency prospects until reaching the junk bond rating, and in October 2018 Morgan Stanley bank predicted Ford Europe at least two years of crossing the desert. Both analyzes were well on track: the manufacturer's profit in 2018 fell by 30% on a global scale, to 5,194 million dollars.

When GM left Europe last year it accumulated almost two decades of red numbers, and although Ford is not at that point, the general opinion is that, if it does not hit with the latest changes, little room for maneuver will have for a new restructuring in the future . Apart from the umpteenth adjustment, the agreement with Volkswagen (VW) for the manufacture of light commercial vehicles and trucks that began to take shape about six months ago has become another pillar of the rescue plan. "Ford has very serious structural problems in Europe, it has to invest a lot more to develop new vehicles while its European competitors have common platforms that allow them to reduce costs for this difficult market. The agreement with VW can give it some air, but if it is limited to commercial vehicles, Ford's only exit in the medium term will be to sell its passenger vehicle business, "says Professor Ferdinand Dudenhöffer, of the Center for Research Automobile (CAR), dependent on the University of Duisburg-Essen.

A new opportunity

The official announcement of the pact with the German group took place at the Detroit Motor Show last week and the first joint vehicles will be on sale by 2023. Both groups know that the market is pressing, but they seem more inclined not to hurry and make a solid pact. After all, Ford and VW have already gone through some divorce. Between 1987 and 1995 both brands formed a partnership (Autolatina) to jointly build vehicles in Argentina and Brazil. It was a way to deal with the crises in the region, but once the good times came back, VW decided to remain free. They also participated half-heartedly in Autoeuropa, a mixed firm to build minivans (the Galaxy, Sharan and Alhambra models) in Portugal. Here it was Ford who planted his partner in 1999.

The hope of the optimists about the future of Ford with VW European happens because this time the alliance will last and mitigate the costly development of electric and autonomous vehicles. The American manufacturer is delayed in the electrification of vehicles while his German rival, harassed by the scandal of the dieselgate, has accelerated the development of these vehicles. Both have also invested in startup (Aurora and Argo AI) to advance in the autonomous car. For VW, the association is a potential key to the difficult US market, especially in the wake of the protectionist boom of President Donald Trump's government, through Ford's factories and distribution and sales network.


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