Ford planning to cut 18% of production capacity, 13% of workforce in Europe; anticipating more than $1.5B loss in Europe in 2012
|New car registrations in the EU, 1990-2011. Source: ACEA. Click to enlarge.|
Addressing manufacturing overcapacity stemming from the more than 20% drop in total industry vehicle demand across Western Europe since 2007, Ford this week has outlined a series of cost efficiency actions including the planned closure of three European facilities: its Genk Plant (Belgium); a vehicle assembly plant in Southampton (UK), which builds the current Transit; and stamping and tooling operations in Dagenham (UK). The plans would reduce installed vehicle assembly capacity 18% or 355,000 units and would yield gross annual savings of $450 million to $500 million.
The actions—along with a previously announced initiative to reduce approximately 500 salaried and agency positions across Europe, with the Ford salaried reductions achieved voluntarily—affect 6,200 positions or about 13% of Ford’s European workforce.
That includes 4,300 positions in Genk and 1,400 positions in the UK. Ford’s goal is to achieve employee reductions in the UK through voluntary means, enhanced employee separation programs and redeployment to other Ford locations. Actions in Genk are dependent on the outcome of the ongoing employee consultation process.
New vehicle sales in Europe have reached a nearly 20-year low this year and are expected to remain flat or fall further next year. The plan, which would significantly improve plant utilization in Europe, includes the following elements:
Ford has initiated an information and consultation process with representatives of employees at its Genk facility regarding the company’s intention to close the plant and cease vehicle production by the end of 2014. If confirmed, production of the next-generation Mondeo, S-MAX and Galaxy could move to Ford’s assembly plant in Valencia, Spain.
Pending further study, production of the C-MAX and Grand C-MAX compact multi-purpose vehicles would move from Valencia to Saarlouis, Germany, in 2014 under the proposed plan.
Ford plans to close the two facilities in the UK in 2013. Manufacture of Transit will be consolidated in Ford’s principal commercial vehicle manufacturing facility operated by Ford Otosan in Kocaeli, Turkey, in 2013.
UK operations will remain a Ford center of excellence for powertrain development and production. This includes plans to add a new next-generation, low-CO2, 2.0-liter diesel engine in Dagenham that will power future Ford vehicles from 2016. The engine will be developed at Ford’s Technical Centre in Dunton, Essex, one of the largest automotive R&D centers in the UK. Additional investment also is expected at Ford’s Bridgend Engine Plant in South Wales to support ongoing high volumes of gasoline engine manufacture.
The challenges facing the European car industry have become more structural than cyclical in nature and require decisive action. The actions we are proposing come after extensive review and consideration, and we fully recognize and accept Ford’s social responsibilities in this necessary transformation of our business. Going forward, we will as always continue to review all areas of the business and take appropriate actions to strengthen our business.—Stephen Odell, chairman and CEO, Ford of Europe
Ford Europe posted net revenue in 2011 of $34 billion, representing 26% of Ford Automotive revenue. Its European loss for 2012 is expected to exceed $1.5 billion. Ford is projecting profitability in Europe by mid-decade and targeting a long-term operating margin of 6-8%.
Product acceleration. Ford last month detailed an aggressive product acceleration in Europe. Specific product announcements include:
Plans to introduce 15 global vehicles in Europe within five years as Europe increasingly benefits from the One Ford global product portfolio.
New Fiesta, on sale later this year, redesigned inside and out with new technology offerings, and sub-100 grams per kilometer with both diesel and petrol powertrains; also, new Fiesta ST performance version coming next year.
New Mondeo, an all-new version of Ford’s large European car. The new Mondeo, available with the award-winning 1.0-litre EcoBoost and all-wheel drive, will now be launched in late 2014, if the plans for Genk are confirmed.
Expansion in the growing European SUV segment, starting with the all-new Kuga later this year; followed by the EcoSport small SUV within 18 months; and later, Edge, a larger utility vehicle that is popular in other regions.
A complete redesign and expansion of its commercial vehicle range over the next two years, including new Transit, Transit Custom, Transit Connect and Transit Courier —plus a family of new Tourneo people carriers.
The arrival of the Ford Mustang in Europe.
An acceleration of the rollout of new technologies including EcoBoost engines, SYNC in-car connectivity, inflatable rear seat belts, MyKey and other driver assist technologies such as Active Park Assist.
The European market holds potential for profitable growth if we accelerate product development and move decisively to address our costs and overcapacity.—Stephen Odell
Other actions. In recent months, Ford has taken other actions across its operations in Europe in response to the downturn in Europe. These include reducing line speed, short-time working days and lay-off days. The company also has reduced temporary employment in several plants.
Ford also is making a strategic shift to reduce vehicle inventory at its European dealerships. While Ford has maintained relatively lean stocks, recent improvements in vehicle logistics and IT systems have sped order-to-delivery, enabling this change. The new business practice will have a long-term positive effect on profits for both Ford and dealers, while customers will benefit from fresher vehicle inventories, quicker delivery and improved resale values.
Additionally, the company is taking marketing efficiency actions, including the announcement last week that it will stop participating in the FIA World Rally Championship as a factory team after the 2012 season.